china agri-industries holdings limited a1a...

S38 (1A)18th Sch PtI

IMPORTANT: If you are in any doubt about any of the contents of this prospectus, you should seekindependent professional advice.

A1A 1CHINA AGRI-INDUSTRIES HOLDINGS LIMITED

LR8.02A1A 5

(Incorporated in Hong Kong under the Hong Kong Companies Ordinance with limited liability)

LISTING BY WAY OF INTRODUCTIONAND

GLOBAL OFFERINGNumber of Offer Shares in the Global Offering : 860,911,545 shares (subject to the Over-allotment Option)Number of International Offer Shares : 611,754,000 new shares and 163,065,545 Sale Shares (subject

to adjustment and the Over-allotment Option)A1A 15(2)(a)Number of Hong Kong Offer Shares : 86,092,000 new shares (subject to adjustment)

A1A 15(2)(c)

3rd Sch(9)Maximum Offer Price : HK$3.72 per Hong Kong Offer Share (plus brokerage of 1%,

SFC transaction levy of 0.004% and Hong Kong StockExchange trading fee of 0.005%, payable in full on applicationand subject to refund)

A1A 15(2)(c)Nominal value : HK$0.10 per share

Stock code : 606

Sole Global Coordinator and Sole Sponsor

Goldman Sachs (Asia) L.L.C.

Joint Bookrunners and Joint Lead Managers

LR11.20The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for thecontents of this prospectus, make no representation as to its accuracy or completeness and expressly disclaim any liabilitywhatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this prospectus.

S38DA copy of this prospectus, having attached thereto the documents specified in the section headed ‘‘Documents Delivered to theRegistrar of Companies and Available for Inspection’’ in Appendix VIII, has been registered by the Registrar of Companies inHong Kong as required by section 38D of the Hong Kong Companies Ordinance, Chapter 32 of the Laws of Hong Kong. TheSecurities and Futures Commission of Hong Kong and the Registrar of Companies in Hong Kong take no responsibility as to thecontents of this prospectus or any of the other documents referred to above.

I.E Note 8I.E Note 9I.E Note 10

We expect the Offer Price to be fixed by agreement between the Joint Bookrunners (on behalf of the Underwriters) and us onthe Price Determination Date, which we expect to be on or around Thursday, March 15, 2007 and, in any event, not later thanMonday, March 19, 2007. The Offer Price will be not more than HK$3.72 and we currently expect it to be not less than HK$3.10.If, for whatever reason, we and the Joint Bookrunners are not able to agree on the Offer Price on or before Monday,March 19, 2007, the Global Offering (including the Hong Kong Public Offering) will not proceed and will lapse.

I.E Note 12

The Joint Bookrunners (on behalf of the Underwriters, and subject to our consent) may reduce the number of OfferShares being offered under the Global Offering and/or the indicative offer price range below that stated in thisprospectus at any time on or prior to the morning of the last day for the lodging of applications under the Hong KongPublic Offering. In such a case, notices of the reduction in the number of Offer Shares and/or the indicative offer pricerange will be published in the South China Morning Post (in English) and the Hong Kong Economic Journal (inChinese) not later than the morning of the day which is the last day for lodging applications under the Hong KongPublic Offering. Further details are set out in the section headed ‘‘Structure of the Global Offering’’.

S37March 8, 2007

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EXPECTED TIMETABLE

A1A 15(2)(f)

3rd Sch (8)Application lists open ***********************************11:45 a.m. on Tuesday, March 13, 2007A1A 15(2)(f)Latest time to lodge white and yellow Application Forms ** 12:00 noon on Tuesday, March 13, 2007

Latest time to give electronic application instructionsto HKSCC ****************************************** 12:00 noon on Tuesday, March 13, 2007

A1A 15(2)(f)Application lists close ********************************** 12:00 noon on Tuesday, March 13, 2007Expected Price Determination Date*********************************** Thursday, March 15, 2007

I.E Note 9Announcement of:( the Offer Price;

PN 18 (4.4)( an indication of the level of interest in theInternational Offering;

I.E Note 13( the results of applications under the Hong KongPublic Offering; and

( the basis of allocation of the Hong Kong OfferShares

A1A 15(2)(k)

A1A 15(2)(g)

to be published in the South China Morning Post(in English) and the Hong Kong Economic Journal(in Chinese) on or before**************************************** Tuesday, March 20, 2007

Despatch of share certificates in respect of wholly orpartially successful applications on or before************************** Tuesday, March 20, 2007

Despatch of refund cheques (if applicable) on or before****************** Tuesday, March 20, 2007

A1A 22

Dealings in Offer Shares on the Hong Kong StockExchange to commence on **************************************Wednesday, March 21, 2007

Despatch of share certificates to Qualifying COFCOInternational Shareholders other than those whovalidly elected to transfer their entitlements to sharesto COFCO (HK) under the Distribution for cash on *****************Wednesday, March 21, 2007

Cheques to be despatched by COFCO (HK) toQualifying COFCO International Shareholders whovalidly elected to transfer their entitlements to sharesto COFCO (HK) under the Distribution for cash on orbefore ************************************************************ Monday, March 26, 2007

Notes:(1) All times refer to Hong Kong local time except where otherwise stated.(2) If there is a ‘‘black’’ rainstorm warning or a tropical cyclone warning signal number 8 or above in force in Hong Kong at any

time between 9:00 a.m. and 12:00 noon on Tuesday, March 13, 2007, the application lists will not open on that day. See thesection headed ‘‘How to Apply for Hong Kong Offer Shares — 6. When May Applications Be Made — (d) Effect of BadWeather Conditions on the Opening of the Application Lists’’.

(3) Share certificates will only become valid certificates of title provided that the Hong Kong Public Offering hasbecome unconditional in all respects and neither of the Underwriting Agreements has been terminated inaccordance with its terms, which is scheduled to be at 8:00 a.m. on Wednesday, March 21, 2007.

You should read carefully the sections headed ‘‘Underwriting’’, ‘‘How to Apply for Hong Kong OfferShares’’ and ‘‘Structure of the Global Offering’’, for details relating to the structure of the Global Offering,the application for Hong Kong Offer Shares and the expected timetable, including, among other things,conditions, effect of bad weather and the despatch of refund cheques and share certificates.

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CONTENTS

IMPORTANT NOTICE TO INVESTORS

This prospectus is issued by China Agri-Industries Holdings Limited solely inconnection with the Hong Kong Public Offering and the Hong Kong Offer Shares and doesnot constitute an offer to sell or a solicitation of an offer to buy any security other than theHong Kong Offer Shares offered by this prospectus pursuant to the Hong Kong PublicOffering. This prospectus may not be used for the purpose of, and does not constitute, anoffer or invitation in any other jurisdiction or in any other circumstances. No action hasbeen taken to permit a public offering of the Offer Shares in any jurisdiction other thanHong Kong and no action has been taken to permit the distribution of this prospectus inany jurisdiction other than Hong Kong. The distribution of this prospectus and the offeringand sale of the Offer Shares in other jurisdictions are subject to restrictions and may not bemade except as permitted under the applicable securities laws of such jurisdictionspursuant to registration with or authorization by the relevant securities regulatoryauthorities or an exemption therefrom.

You should rely only on the information contained in this prospectus and the ApplicationForms to make your investment decision. We have not authorized anyone to provide you withinformation that is different from what is contained in this prospectus. Any information orrepresentation not made in this prospectus must not be relied on by you as having beenauthorized by us, COFCO (HK), the Global Coordinator, the Sponsor, the Joint Bookrunners, theUnderwriters, any of their respective directors, or any other person or party involved in the GlobalOffering. Please note that the totals set forth in the tables in this prospectus may differ from thesum of individual items in such tables due to rounding.

Page

Expected Timetable****************************************************************** i

Summary *************************************************************************** 1

Definitions ************************************************************************** 11

Glossary **************************************************************************** 18

Risk Factors ************************************************************************ 19

Forward Looking Statements********************************************************* 38

Information about this Prospectus and the Global Offering **************************** 39

Directors and Parties Involved in the Global Offering ********************************** 42

Corporate Information *************************************************************** 45

Industry Overview ******************************************************************* 47

Regulatory Overview **************************************************************** 66

Our History and Reorganization ****************************************************** 72

Business**************************************************************************** 77

Relationship with COFCO and COFCO International *********************************** 128

Connected Transactions ************************************************************* 140

Directors and Senior Management**************************************************** 157

Substantial Shareholders ************************************************************ 165

Share Capital************************************************************************ 166

Financial Information **************************************************************** 168

Future Plans and Use of Proceeds *************************************************** 228

Underwriting ************************************************************************ 229

Structure of the Global Offering ****************************************************** 234

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CONTENTS

Page

How to Apply for Hong Kong Offer Shares******************************************** 241

Further Terms and Conditions of the Hong Kong Public Offering ********************** 249

AppendicesI — Accountants’ Report of Our Company ***************************************** I-1

IIA — Accountants’ Report of Techbo Group***************************************** IIA-1

IIB — Accountants’ Report of Heilongjiang Alcohol ********************************** IIB-1

III — Unaudited Pro Forma Financial Information ************************************ III-1

IV — Profit Estimate *************************************************************** IV-1

V — Property Valuation************************************************************ V-1

VI — Summary of our Articles of Association *************************************** VI-1

VII — Statutory and General Information********************************************* VII-1

VIII — Documents Delivered to the Registrar of Companies and Available forInspection ******************************************************************* VIII-1

iii

SUMMARY

This summary aims to give you an overview of the information contained in thisprospectus. As this is a summary, it does not contain all the information that may beimportant to you. You should read this prospectus in its entirety before you decidewhether to invest in our shares.

There are risks associated with any investment. Some of the particular risks ininvesting in our shares are set out in the section headed ‘‘Risk Factors’’. You shouldread this section carefully before you decide whether to invest in our shares.

A1A 28 (1)(a)3rd Sch (1)

OVERVIEW

We are a leading producer and supplier of processed agricultural products in China. Through ourfive business divisions, we offer a diverse range of products to our customers in and outside China andwe enjoy market leading positions in the majority of our businesses. Our principal product and servicecategories are:

( Biofuel and biochemical — production and sale of mainly corn-based products, comprisingthe biofuel product of fuel ethanol; biochemical products such as starch, sweeteners (mainlymaltodextrin, fructose syrup and malt syrup), amino acid, lactic acid and polylactic acid; andother co-products such as consumable ethanol, anhydrous ethanol, dried distiller’s grain withsolubles (or DDGS), animal feed and crude corn oil;

( Oilseed processing — production and sale of edible oils and fats, and oilseed meals;

( Rice trading and processing — international trading of rice products and processing ofpaddy into parboiled rice, white rice and other rice products;

( Brewing materials — production and sale of malt used for beer brewage, and the importationand distribution of malting barley in the PRC; and

( Wheat processing — processing wheat and sale of wheat flour and flour products.

We are one of China’s largest oilseed processors and wheat processors (both in terms of annualoutput) according to statistics issued by the China National Association of Grain Sector and the StateGrain Administration. According to China Customs, we are also China’s largest exporter of rice,accounting for approximately 74.6% of China’s rice exports in 2005.

We sell the majority of our products in the domestic market through our sales and distributionnetworks across China. We also export our rice products to Japan, South Korea, Southeast Asia, theMiddle East and Africa. In 2005, approximately 90% of our revenues were derived from sales in China.

We have enjoyed stable growth in recent years. Our revenue grew to HK$16,300.4 million in 2005,from HK$12,529.2 million and HK$16,050.1 million, respectively, in 2003 and 2004, representing acompound annual growth rate of 14.1% in the three-year period ended December 31, 2005. The tablebelow shows our revenue and profit attributable to the equity holders of our Company for the three yearsended December 31, 2005 and the nine months ended September 30, 2005 and 2006:

Nine months endedYear ended December 31 September 30

2003 2004 2005 2005 2006

HK$ millions HK$ millions HK$ millions HK$ millions HK$ millions(unaudited)

Revenue ******************** 12,529.2 16,050.1 16,300.4 12,080.7 13,837.2Profit attributable to the equity

holders of the Company **** 247.3 130.7 254.9 224.5 506.6

All of our key operations, production facilities and operating assets are located in China.

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SUMMARY

OUR STRENGTHS

Our success to date and potential for future growth may be attributed to our strengths, whichinclude the following:

( Leading market position and well-recognized reputation in the industries we operate in

( Broad and diversified portfolio of products enabling us to capture different potential growthtrends in food and energy consumption in China

( Highly experienced management team

( Strategically positioned nationwide production, sales and distribution network

( Large-scale and efficient operations

( Strong ability to obtain a stable supply of raw materials at competitive costs through well-integrated supply chains

OUR STRATEGIES

We intend to implement the following principal strategies to grow our businesses and create valuefor our shareholders:

( Continue to respond quickly to and satisfy our customers’ needs and preferences to captureopportunities arising from the changing food consumption patterns in China

( Become the leading supplier of fuel ethanol in China to meet the growing demand for moreenvironmentally friendly fuel

( Continue to rationalize and integrate our operations, purchases, sales and distributionfunctions to reap cost efficiencies and achieve greater cost competitiveness

( Strengthen our product development capabilities through investment in research anddevelopment

( Attract and retain the best personnel through a strong corporate culture, investment in trainingand competitive incentive schemes

THE REORGANIZATION

As part of the Reorganization, COFCO International transferred to China Agri substantially all of itsoilseed processing business (other than the consumer-pack edible oil business), wheat processing andrice trading business as well as certain shareholders’ loans owed to it. China Agri also acquired fromCOFCO (HK) its biofuel and biochemical, oilseed processing, rice processing, brewing materials andwheat processing businesses, as well as outstanding shareholders’ loans. In consideration of ChinaAgri’s acquisition from COFCO International and COFCO International’s payment to COFCO (HK) forChina Agri’s acquisition from COFCO (HK), China Agri issued and allotted, in aggregate,2,691,383,356 shares to COFCO International credited as fully paid.

Our Company was established by COFCO International as the holding company for the Agri-industrial Business. On January 10, 2007, our Company and COFCO International entered into theShare Swap Agreement pursuant to which our Company acquired all the shares of China Agri then inissue from COFCO International and our Company issued and allotted 2,791,383,346 shares toCOFCO International credited as fully paid. Following completion of the Share Swap Agreement, whichtook place on January 10, 2007, China Agri became a wholly owned subsidiary of our Company. OnFebruary 8, 2007, COFCO International conditionally declared a special dividend by way of distributionin specie of the entire issued share capital of our Company to Qualifying COFCO InternationalShareholders.

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SUMMARY

THE REDISTRIBUTION

Qualifying COFCO International Shareholders have been given an option to transfer theirentitlements to the shares they will receive under the Distribution to COFCO (HK) for cash. COFCO(HK) intends to fund cash payments to electing Qualifying COFCO International Shareholders from theproceeds of sale of the relevant shares in the Global Offering. Any shares offered for sale by COFCO(HK) will be sold to investors under the International Offering.

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SUMMARY

SUMMARY HISTORICAL FINANCIAL INFORMATION

The following table presents our summary combined income statement data for the years endedDecember 31, 2003, 2004 and 2005 and the nine months ended September 30, 2006. The summarycombined income statement data are derived from, and should be read in conjunction with, our auditedfinancial information included in the Accountants’ Report set forth in Appendix I to this prospectus. Theinformation for the nine months ended September 30, 2005 is derived from and should be read inconjunction with our unaudited financial information included in the Accountants’ Report set forth inAppendix I to this prospectus. Our financial information has been prepared in accordance with HKFRS.

Combined Income Statements


2003 2004 2005 2005 2006


REVENUE************** 12,529.2 16,050.1 16,300.4 12,080.7 13,837.2

Cost of sales************ (11,793.2) (15,307.3) (15,310.8) (11,339.8) (12,726.1)

Gross profit ************* 736.0 742.8 989.6 740.9 1,111.1

Other income and gains** 97.4 83.4 174.4 135.7 360.4

Selling and distributioncosts***************** (309.1) (350.7) (534.8) (385.3) (472.9)

Administrative expenses** (164.6) (177.1) (214.0) (160.7) (246.3)

Other expenses ********* (5.0) (5.2) (3.9) (0.3) (3.8)

Finance costs *********** (70.0) (104.3) (139.2) (97.9) (159.6)

Share of profits andlosses of associates *** 102.0 17.5 82.2 42.4 125.0

PROFIT BEFORE TAX *** 386.7 206.4 354.3 274.8 713.9

Tax ******************** (46.2) (47.5) (70.9) (61.8) (111.6)

PROFIT FOR THE YEAR/PERIOD************** 340.5 158.9 283.4 213.0 602.3

ATTRIBUTABLE TO:

Equity holders of theCompany *********** 247.3 130.7 254.9 224.5 506.6

Minority interests ****** 93.2 28.2 28.5 (11.5) 95.7

340.5 158.9 283.4 213.0 602.3

DIVIDENDS************* 9.7 96.5 144.0 116.0 4.6

EARNINGS PER SHAREATTRIBUTABLE TOEQUITY HOLDERS OFTHE COMPANY *******

Basic

— For profit for theyear/period ********* 8.9 HK cents 4.7 HK cents 9.1 HK cents 8.0 HK cents 18.2 HK cents

In strict compliance with Rule 4.04(1) of the Hong Kong Listing Rules and paragraphs 27 and 31 ofthe Third Schedule to the Hong Kong Companies Ordinance (‘‘Relevant Requirements’’), we are

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SUMMARY

required to include our financial results for the year ended December 31, 2006 in the Accountants’Report set forth in Appendix I in this prospectus. The Company has applied to the Securities andFutures Commission and the Hong Kong Stock Exchange for waivers from strict compliance with theRelevant Requirements on the ground that strict compliance with the Relevant Requirements would beunduly burdensome for the Company in that there would not have been sufficient time for the Companyto produce and its accountants, Ernst & Young, to audit the financial statements for the year endedDecember 31, 2006 prior to the Global Offering. A certificate of exemption from strict compliance withthe relevant requirements under paragraphs 27 and 31 of the Third Schedule to the Hong KongCompanies Ordinance has been granted by the Securities and Futures Commission to the Companyunder section 38A of the Hong Kong Companies Ordinance. The Hong Kong Stock Exchange has alsogranted its waiver to the Company from strict compliance with Rule 4.04(1) of the Hong Kong ListingRules on condition that the Listing Date will be on or before March 31, 2007.

Our Directors consider that all information reasonably necessary for potential investors to make aninformed assessment of the activities or the financial position of the Group has been included in thisprospectus.

Our Directors confirm that they have performed sufficient due diligence on the Group to ascertainand confirm that, up to the date of this prospectus, there has been no material adverse change in thefinancial position or prospects of our Group since September 30, 2006 and there is no event sinceSeptember 30, 2006 which would materially affect the information shown in the Accountants’ Reportsset out in Appendix I, IIA and IIB.

SUMMARY HISTORICAL OPERATING DATA

The following table sets forth the annual production capacity of the production facilities in which wehold a direct or indirect majority interest for the periods indicated.

Nine monthsended

Year ended December 31 September 30(thousand metric tons per year)Capacity 2003 2004 2005 2006

Fuel ethanol production capacity ********************** — — — 180Corn processing capacity **************************** — — — 750Oilseed crushing capacity **************************** 3,060 4,620 4,860 4,860Crude edible oil refining capacity********************** 930 1,050 1,170 1,170Parboiled rice processing capacity ******************** — 180 180 180Malt processing capacity ***************************** 300 300 300 360Wheat processing capacity *************************** 1,190 1,190 1,241 1,361

The following table sets forth the sales volume of our major products by category for the periodsindicated.

Nine monthsended

Year ended December 31 September 30(thousand metric tons per year)Sales volume of products 2003 2004 2005 2006

Fuel ethanol(1) ************************************** — — — 99Consumable ethanol(1) ******************************* — — — 76Edible oil ******************************************* 901 1,025 1,127 976Oilseed meals ************************************** 2,007 2,252 2,597 1,948Malt *********************************************** 136 245 251 230Rice *********************************************** 777 519 500 426Flour*********************************************** 573 643 686 526

Note:

(1) We acquired our biofuel and biochemical business in January 2006.

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SUMMARY

PROFIT ESTIMATE FOR THE YEAR ENDED DECEMBER 31, 2006

A1A 34(1)(b)Estimated combined profit attributable to equity holders of theCompany(1)************************************************** not less than HK$622 million

Estimated earnings per share on a pro forma fully diluted basis(2) *** HK$0.178

Notes:

(1) The bases on which the above profit estimate has been prepared are set out in Appendix IV.

(2) The calculation of the estimated earnings per share on a pro forma fully diluted basis is based on the estimated profitattributable to equity holders of the Company for the year ended December 31, 2006, assuming that we had been listedsince January 1, 2007 and a total of 3,489,229,356 shares had been issued and outstanding during the entire year. Thiscalculation assumes that the Over-allotment Option will not be exercised and the shares issued pursuant to the GlobalOffering were issued on January 1, 2007.

OFFER STATISTICS(1)

LR8.09(1)

A1A 21

Based on Based onOffer Price of HK$3.10 Offer Price of HK$3.72

Market capitalization of our shares(2)***************** HK$10,816.6 million HK$12,979.9 millionPrice/earnings multiple (pro forma fully diluted(3))****** 17.4 times 20.9 timesUnaudited pro forma adjusted net tangible asset value

per share(4) ************************************* HK$2.07 HK$2.19

Notes:

(1) All statistics in this table are on the assumption that the Over-allotment Option is not exercised.

(2) The calculation of market capitalization is based on 3,489,229,356 shares that we expect to be in issue immediately uponcompletion of the Global Offering, assuming that the Over-allotment Option will not be exercised.

(3) The calculation of the prospective price/earnings multiple on a pro forma fully diluted basis is based on the estimatedearnings per share for the year ended December 31, 2006 on a pro forma fully diluted basis at the respective offer prices ofHK$3.10 and HK$3.72.

A1A 21(4) The unaudited pro forma adjusted net tangible asset value per share is calculated after making the adjustments referred toin the section headed ‘‘A. Unaudited Pro Forma Adjusted Net Tangible Assets’’ in Appendix III of this prospectus and basedon 3,489,229,356 shares that we expect to be in issue immediately upon completion of the Global Offering.

USE OF PROCEEDS

A1A 17We estimate that we will receive net proceeds from the Global Offering of approximately

HK$2,246.6 million (assuming an Offer Price of HK$3.41, being the midpoint of the indicative offer pricerange), after deducting the underwriting commissions (excluding any incentive fee that we may decide topay to the Global Coordinator) and estimated expenses payable by us in the Global Offering andassuming the Over-allotment Option is not exercised. We intend to use these net proceeds for thefollowing purposes:

( up to HK$1,909.6 million to implement our business strategies as described in the sectionheaded ‘‘Business — Our Strategies — Become the leading supplier of fuel ethanol in China tomeet the growing demand for more environmentally friendly fuel’’. We plan to use this portionof the net proceeds for capital expenditures required for proposed investments in greenfieldprojects or selective acquisitions of biofuel and biochemical projects, as follows:

— up to HK$898.6 million for planned fuel ethanol projects in Hebei Province (up toHK$292.1 million), Liaoning Province (up to HK$269.6 million), Guangxi ZhuangAutonomous Region (up to HK$157.3 million), Hubei Province (up to HK$112.2 million)and Heilongjiang Province (up to HK$67.4 million);

— up to HK$1,011.0 million for biochemical projects currently under development andconstruction in Gongzhuling, Jilin Province (up to HK$449.3 million) and other planned

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SUMMARY

projects in the eastern China region (up to HK$112.4 million) and Yushu, Jilin Province (upto HK$449.3 million); and

( up to HK$337.0 million for oilseed processing business (up to HK$134.8 million), rice tradingand processing business (up to HK$134.8 million), and brewing materials business (up toHK$67.4 million).

Up to approximately 5% to 10% of the above proceeds are expected to be used for land acquisition,50% to 70% for equipment purchases, and 20% to 40% for construction of each project.

The above allocations of the proceeds from the Global Offering will be adjusted on a pro rata basisin the event that the Offer Price is fixed at a higher or lower point in the indicative offer price range. If theOver-allotment Option is exercised in full, we estimate that the additional net proceeds to our Companyfrom the offering of these additional shares will be approximately HK$348.0 million, after deducting theunderwriting commissions (excluding any incentive fee that we may decide to pay to the GlobalCoordinator) and estimated offering expenses, assuming an Offer Price of HK$3.41, being the midpointof the indicative offer price range. Any additional proceeds received from any exercise of the Over-allotment Option will also be allocated to the above uses on a pro rata basis.

Pending the use of the net proceeds from the Global Offering for the purposes described above,and to the extent permitted under applicable laws and regulations, we intend to invest the proceeds inshort-term demand deposits and/or money market instruments.

The shares that are subject to the Redistribution are all being offered for sale by COFCO (HK)under the Offer for Sale and the net proceeds from the sale of such Sale Shares will be used to fundcash payments to Qualifying COFCO International Shareholders who elected to transfer theirentitlements to shares to COFCO (HK) under the Redistribution.

DIVIDEND POLICY

After completion of the Global Offering, our shareholders will be entitled to receive dividendsdeclared by us. The declaration of, payment of and amount of dividends will be subject to the discretionof our Directors in accordance with our Articles of Association and will be dependent upon our futureoperations and earnings, financial condition, capital requirements and surplus, payments bysubsidiaries of cash dividends to us and other factors that our Directors deem relevant. In addition, thecontrolling shareholder (as defined in the Hong Kong Listing Rules), subject to the Articles ofAssociation, may influence our dividend policy.

There is no guarantee that dividends will be paid in the future. After completion of the GlobalOffering, our Directors’ priority will be to retain earnings in order to facilitate capital growth andexpansion of the Group.

RISK FACTORS

There are certain risks involved in our operations. These risks can be categorized into (i) risksrelating to our business; (ii) risks relating to the industries we operate in; (iii) risks relating to conductingbusiness in China; and (iv) risks relating to the Global Offering and our shares. A detailed discussion ofthe risk factors are set forth in the section headed ‘‘Risk Factors’’ in this prospectus. The following is alist of the risk factors:

Risks relating to our business

( Our business depends on a stable and adequate supply of raw materials which are subject toa degree of price volatility and other risks.

( Our business and operations require significant and continuous capital investment. Failure toraise sufficient capital in a timely manner may adversely affect our business and results ofoperations.

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SUMMARY

( Our major expansion projects may not be completed as planned, may exceed our originalbudgets and may not achieve the intended economic results or commercial viability.

( Our biofuel and biochemical business operations involve significant operating risks.

( Delivery delays or poor handling by distributors and transport operators may affect our salesand profitability and damage our reputation.

( Heilongjiang Alcohol’s volatile gross profit and gross margin, net current liabilities andreliance on government grants may adversely affect our results of operations and financialcondition.

( Our rice export business may be affected by changes to the PRC Government’s allocation ofrice export quotas to COFCO or to the arrangements between COFCO and us with respect toour rice export business.

( Our results of operations are subject to, and could be negatively affected by, seasonality.

( We had net current liabilities during our historical accounting periods.

( The growth in demand for our products may not match the growth in our capacity.

( Declining average selling prices for our products and fluctuating margins may adversely affectour results of operations.

( We rely on the performance of our major customers and our sales and distribution network forthe success of our sales.

( Rising selling and distribution costs may reduce our profitability and adversely affect ourresults of operations.

( We purchase our raw materials from a limited number of suppliers.

( Changes to, or termination of, our arrangements with our joint venture partners could have anadverse impact on our business operations.

( Our business and reputation may be affected by product liability claims, litigation, complaintsor adverse publicity in relation to our products.

( We engage in hedging transactions which may involve risks that can harm our business.

( We may be unable to manage our future rapid growth.

( We cannot guarantee that we will be successful when launching new products or developingnew export markets.

( We require various licenses and permits to operate our business, and loss of or failure torenew any or all of these licenses and permits could materially adversely affect our business.

( Our ability to export our products may be restricted if we cannot reach the relevant technicalor environmental standards established by other countries and regions.

( Due to our Reorganization, the audited historical financial statements and other historicalfinancial data included elsewhere in this prospectus are not indicative of our future financialcondition and results of operations.

( We have a limited operating history as a separate entity.

( If we are unable to retain our key management personnel, our growth and future success maybe impaired and our financial condition could suffer.

( We have not obtained title certificates to some of the properties we occupy.

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SUMMARY

( Changes in relations between China and countries where our major foreign trade partners arelocated may affect our export business.

Risks relating to the industries we operate in

( We face increasing competition from both domestic and foreign companies, which may affectour market share and profit margin.

( Our fuel ethanol business is strictly regulated by the PRC Government.

( The government subsidies and tax exemptions for our fuel ethanol business may not alwaysbe adequate to allow us to offset our costs.

( There is no assurance that we will continue to receive the preferential tax treatment andgovernment subsidies we currently enjoy.

( Demand for fuel ethanol in some provinces in China may not grow as we expect.

( Certain paddy and wheat prices in some provinces in China are subject to government pricecontrols.

( The outbreak of any severe communicable diseases in China or in any other parts of theworld, including animal diseases, if uncontrolled, could adversely affect our operations.

( Changes in the existing laws and regulations or adoption of additional or stricter laws andregulations on environmental protection in the PRC may cause us to incur significant capitalexpenditure and we cannot guarantee that we will be able to comply with any such laws andregulations.

( Changes in the existing PRC food hygiene laws may cause us to incur additional compliancecosts.

( Certain raw materials we use are genetically modified, and the potentially harmful effects ofconsuming genetically modified food are uncertain. Any negative development regardinggenetically modified food or the effect of genetically modified foods on human health mayadversely affect our business and financial condition.

Risks relating to conducting business in China

( Changes in political and economic policies of the PRC Government could have a materialadverse effect on our business operations and results of operations.

( We rely on dividend payments from our subsidiaries and associated companies located in thePRC for funding our dividend payments, servicing our indebtedness and meeting our workingcapital and other capital needs.

( Changes in foreign exchange regulations and fluctuations in the value of the RMB mayadversely affect our business, results of operations and ability to remit dividends.

( Depreciation of or fluctuations in the value of the RMB relative to the Hong Kong dollar couldadversely affect our reported financial condition.

( The PRC legal system is not fully developed and has inherent uncertainties that could limitthe legal protections available to our shareholders.

( You may experience difficulties in effecting service of legal process and enforcing judgmentsagainst us and our management who reside in China.

( If economic and political conditions in the Asia-Pacific region become unfavorable to ourbusiness, our results of operations, financial condition and future prospects may be materiallyadversely affected.

9

SUMMARY

Risks relating to the Global Offering and our shares

( There has been no prior public market for our shares.

( Our share price may be volatile which could result in substantial losses for investorspurchasing Offer Shares in the Global Offering.

( Future sale or major divestment of shares by any major shareholder could adversely affectour share price.

( Our interests may conflict with those of our controlling shareholder, who may take actions thatare not in, or may conflict with, our or our public shareholders’ best interests.

( We may not be able to pay any dividends on our shares.

( Facts and statistics in this prospectus relating to the PRC economy and the industries inwhich we operate may not be fully reliable.

( Forward-looking statements contained in the prospectus are subject to risks anduncertainties.

( Since the Offer Price of our shares is higher than the net tangible asset value per share, youwill incur immediate dilution.

10

DEFINITIONS

In this prospectus, the following expressions shall have the meanings set out below unlessthe context otherwise requires. Certain other terms are explained in the section headed‘‘Glossary’’.

‘‘Archer Daniels Midland’’ Archer Daniels Midland Asia-Pacific Limited, a companyincorporated in Hong Kong with limited liability on December 14,1993 and ultimately held by Archer Daniels Midland Company, and asubstantial shareholder of certain subsidiaries of our oilseedprocessing division and which, where the context requires, includesits holding company and its other subsidiaries and associates

‘‘Agri-industrial Business’’ business comprising biofuel and biochemical, oilseed processing,rice trading and processing, brewing materials, and wheatprocessing businesses or any combination thereof

‘‘Application Form(s)’’ WHITE application form(s) and YELLOW application form(s), orwhere the context so requires, any of them

‘‘Articles of Association’’ the articles of association of the Company adopted on January 12,2007, as further amended on February 28, 2007

‘‘Board’’ the board of Directors of our Company

‘‘Business Day’’ a day that is not a Saturday, Sunday or public holiday in Hong Kong

‘‘CCASS’’ the Central Clearing and Settlement System established andoperated by HKSCC

‘‘CCASS Broker Participant’’ a person admitted to participate in CCASS as a broker participant

‘‘CCASS CustodianParticipant’’

a person admitted to participate in CCASS as a custodianparticipant

‘‘CCASS Investor Participant’’ a person admitted to participate in CCASS as an investor participantwho may be an individual or joint individuals or a corporation

‘‘CCASS Participant’’ a CCASS Broker Participant or a CCASS Custodian Participant or aCCASS Investor Participant

‘‘China’’ or ‘‘PRC’’ the People’s Republic of China, but for the purpose of thisprospectus and for geographical reference only and except wherethe context requires, references in this prospectus to ‘‘China’’ andthe ‘‘PRC’’ do not apply to Taiwan, Macau and Hong Kong

‘‘China Agri’’ China Agri-Industries Limited, a company incorporated in Bermudawith limited liability on August 23, 2006, which is a wholly ownedsubsidiary of our Company

‘‘COFCO’’ China National Cereals, Oils & Foodstuffs Corporation( ), a wholly state-owned companyincorporated in the PRC in September 1952 currently under thepurview of the State-owned Assets Supervision and AdministrationCommission of the State Council of the PRC, the ultimate controllingshareholder of our Company and COFCO International

11

DEFINITIONS

‘‘COFCO Beijing’’ COFCO International (Beijing) Co., Ltd. ( ), acompany incorporated in the PRC on May 31, 2001 with limitedliability and a wholly owned subsidiary of the Company.

‘‘COFCO Foods’’ COFCO Foods Sales and Distribution Co., Ltd.( ), a wholly foreign-owned enterpriseincorporated in the PRC on September 19, 2000 and formerly knownas Shanghai Fortune Food Co., Ltd. ( ), andan indirect wholly owned subsidiary of COFCO International

‘‘COFCO Group’’ COFCO and its subsidiaries other than COFCO International Groupand our Group

A1A 27A‘‘COFCO (HK)’’ COFCO (Hong Kong) Limited ( ), acompany incorporated in Hong Kong with limited liability onAugust 14, 1981 and a direct wholly owned subsidiary of COFCOand our controlling shareholder

‘‘COFCO International’’ COFCO International Limited, a company incorporated in Bermudawith limited liability on May 14, 1990, the shares of which are listedon the Hong Kong Stock Exchange, and which is a subsidiary ofCOFCO (HK) and which was the holder of the entire issued sharecapital of our Company prior to the Spin-Off

‘‘COFCO InternationalGroup’’

COFCO International and its subsidiaries

‘‘COFCO InternationalShares’’

ordinary share(s) of nominal value of HK$0.10 each in the sharecapital of COFCO International

‘‘Company’’ or ‘‘ourCompany’’

China Agri-Industries Holdings Limited ( ), acompany incorporated on November 18, 2006 with limited liabilityunder the laws of Hong Kong

‘‘Director(s)’’ the director(s) of our Company

‘‘Distribution’’ the distribution of a conditional special dividend by COFCOInternational to be satisfied by way of distribution in specie of anaggregate of 2,791,383,356 shares to Qualifying COFCOInternational Shareholders whose names appeared on the registerof members at 4:00 p.m. on the Distribution Record Date, subject tothe satisfaction of certain conditions as described in the sectionheaded ‘‘Structure of the Global Offering’’

‘‘Distribution Record Date’’ February 16, 2007, being the record date for ascertainingentitlement to the Distribution

‘‘Food and BeverageBusiness’’

business dealing with products comprising wines, beverages,confectionery and consumer-pack edible oil or any combinationthereof

‘‘General Mandate’’ the general unconditional mandate granted to the Board pursuant toa resolution passed by our sole shareholder on January 12, 2007

‘‘Global Coordinator’’ or‘‘Sponsor’’


12

DEFINITIONS

‘‘Global Offering’’ the Hong Kong Public Offering and the International Offering

‘‘Group’’ our Company and its subsidiaries and associated companies at therelevant time or, where the context so requires, in respect of theperiod before our Company became the holding company of itspresent subsidiaries and associated companies, the presentsubsidiaries and associated companies of our Company or thebusinesses operated by its present subsidiaries and associatedcompanies or (as the case may be) its predecessor

‘‘Hakubaku’’ Hakubaku Co., Ltd., a company incorporated in Japan with limitedliability on July 15, 1941, held by Nagasawa Shigetoshi, and a holderof a 20% equity interest in Puyang COFCO Flour Industry Co., Ltd.( ), one of our wheat processing subsidiaries

‘‘Heilongjiang Alcohol’’ China Resources (Heilongjiang) Alcohol Co., Ltd.( ), a limited liability company incorporated inthe PRC on February 18, 1998, and an indirect wholly ownedsubsidiary of our Company

‘‘Heilongjiang AlcoholGroup’’

Heilongjiang Alcohol and its subsidiary, Heilongjiang Winery

‘‘Heilongjiang Winery’’ China Resources Winery (Heilongjiang) Co., Ltd.( ), a limited liability company incorporated inthe PRC on May 17, 2002, and an indirect 65% subsidiary of ourCompany, with the remaining 35% equity interest held by COFCOGrain & Oil Imp. & Exp. Co. ( )

‘‘HKFRS’’ Hong Kong Financial Reporting Standards

‘‘HKSCC’’ Hong Kong Securities Clearing Company Limited

‘‘HKSCC Nominees’’ HKSCC Nominees Limited

‘‘Hong Kong’’ or ‘‘HK’’ the Hong Kong Special Administrative Region of the PRC

‘‘Hong Kong CompaniesOrdinance’’

the Companies Ordinance (Chapter 32 of the Laws of Hong Kong)

‘‘Hong Kong dollar(s)’’ or‘‘HK$’’

Hong Kong dollars, the lawful currency of Hong Kong

‘‘Hong Kong Listing Rules’’ the Rules Governing the Listing of Securities on the Hong KongStock Exchange

‘‘Hong Kong Offer Shares’’ the 86,092,000 shares (subject to adjustment) being offered by usfor subscription pursuant to the Hong Kong Public Offering

‘‘Hong Kong Public Offering’’ the offer of the Hong Kong Offer Shares for subscription by the publicin Hong Kong (subject to adjustment) at the Offer Price (plusbrokerage fee of 1%, SFC transaction levy of 0.004% and HongKong Stock Exchange trading fee of 0.005%)

‘‘Hong Kong Securities andFutures Ordinance’’

the Securities and Futures Ordinance (Chapter 571 of the Laws ofHong Kong)

‘‘Hong Kong StockExchange’’

The Stock Exchange of Hong Kong Limited

13

DEFINITIONS

‘‘Hong Kong Underwriters’’ the several underwriters of the Hong Kong Public Offering listed inthe section headed ‘‘Underwriting — Hong Kong Underwriters’’ inthis prospectus

‘‘Hong Kong UnderwritingAgreement’’

the underwriting agreement dated March 7, 2007 relating to theHong Kong Public Offering entered into among us, COFCO (HK), theHong Kong Underwriters, the Joint Bookrunners and the GlobalCoordinator

‘‘International Offer Shares’’ 611,754,000 new shares and 163,065,545 Sale Shares (subject toadjustment as described in the section headed ‘‘Structure of theGlobal Offering’’ in this prospectus) being offered by us and COFCO(HK) for subscription or purchase pursuant to the InternationalOffering together, where relevant, with any additional shares to beissued pursuant to the exercise of the Over-allotment Option

‘‘International Offering’’ the conditional placing of the International Offer Shares (includingthe Offer for Sale) for cash at the Offer Price to institutional,professional and other investors

‘‘International PurchaseAgreement’’

the international purchase agreement relating to the InternationalOffering and to be entered into among us, COFCO (HK), theInternational Purchasers, the Joint Bookrunners and the GlobalCoordinator on or around March 15, 2007

‘‘International Purchasers’’ the several purchasers of the International Offering, led by theGlobal Coordinator and expected to enter into the InternationalPurchase Agreement to underwrite the International Offering

‘‘Jilin Fuel’’ Jilin Fuel Ethanol Co., Ltd. ( ), a limitedliability company incorporated in the PRC on September 19, 2001,and an indirect 20% associated company, with a 25% equity interestheld by Jilin Grain Group Co., Ltd. ( ) and theremaining 55% equity interest held by China National PetroleumCorporation ( )

‘‘Latest Practicable Date’’ February 26, 2007, being the latest practicable date prior to theprinting of this prospectus for the purpose of ascertaining certaininformation contained in this prospectus

‘‘Listing Date’’ the date, expected to be on March 21, 2007, on which dealings in theshares of our Company first commence on the Hong Kong StockExchange

‘‘Macau’’ the Macau Special Administrative Region of the PRC

‘‘Master Sale and PurchaseAgreement’’

the master sale and purchase agreement dated October 8,2006 entered into by COFCO, COFCO (HK), COFCO Internationaland China Agri, pursuant to which China Agri and COFCOInternational agreed to acquire certain Agri-industrial Business andFood and Beverage Business respectively, together with certainshareholders loans, from COFCO (HK); and to dispose of certainnon-core businesses to COFCO (HK), details of which are set out inthe section headed ‘‘Our History and Reorganization —Reorganization’’

14

DEFINITIONS

‘‘Memorandum ofAssociation’’

the memorandum of association of our Company

‘‘Northsea’’ Northsea Oils & Grains Industries (Tianjin) Co., Ltd.( ), a company incorporated in the PRCwith limited liability on April 8, 1992 in which our Company holds anattributable interest of approximately 50.4% in aggregate

‘‘Offer for Sale’’ the offer for sale of the Sale Shares for cash by COFCO (HK) at theOffer Price as part of the International Offering on and subject to theterms and conditions contained in this prospectus, details of whichare described in the section headed ‘‘Structure of the GlobalOffering’’

‘‘Offer Price’’ the final Hong Kong dollar price per share (exclusive of brokeragefee of 1%, SFC transaction levy of 0.004% and Hong Kong StockExchange trading fee of 0.005%) to be determined as furtherdescribed in the section headed ‘‘Structure of the Global Offering —Pricing and Allocation’’

‘‘Offer Shares’’ the Hong Kong Offer Shares and the International Offer Sharestogether, where relevant, with any additional shares issued andallotted pursuant to the exercise of the Over-allotment Option

A1A 15(3)(c)

‘‘Over-allotment Option’’ the option expected to be granted by us to the Global Coordinator(on behalf of the International Purchasers) exercisable under theInternational Purchase Agreement pursuant to which we may berequired by the Global Coordinator to issue and allot up to anaggregate of 104,677,000 additional shares, representing inaggregate approximately 15% of the new shares initially availableunder the Global Offering, at the Offer Price

‘‘Overseas Shareholders’’ registered holders of COFCO International Shares whose addresseson COFCO International’s register of members were outsideHong Kong at 4:00 p.m. on the Distribution Record Date in relation towhom the applicable laws, rules or regulations require additionalregistrations or compliance with other procedures before theDistribution may be effected in relation to such registeredshareholders of COFCO International which COFCO Internationaldetermines to be unduly burdensome or onerous on COFCOInternational, or in relation to whom COFCO Internationaldetermines, in its sole discretion, that there are other difficulties ineffecting the Distribution

‘‘PBOC’’ The People’s Bank of China, the central bank of the PRC

‘‘PRC Government’’ People’s Government of the PRC

‘‘Price Determination Date’’ the date, expected to be on or around Thursday, March 15, 2007 butnot later than Monday, March 19, 2007, on which the Offer Price isfixed for the purposes of the Global Offering

‘‘Qualified InstitutionalBuyers’’

qualified institutional buyers within the meaning of Rule 144A

15

DEFINITIONS

‘‘Qualifying COFCOInternationalShareholder(s)’’

registered holder(s) of COFCO International Shares, whose namesappeared on COFCO International’s register of members at4:00 p.m. on the Distribution Record Date, other than OverseasShareholders

‘‘Redistribution’’ the election made by Qualifying COFCO International Shareholdersto receive a cash alternative under the Distribution

‘‘Regulation S’’ Regulation S under the US Securities Act

‘‘Renminbi’’ or ‘‘RMB’’ the lawful currency of the PRC

‘‘Reorganization’’ the corporate reorganization of COFCO Group, our Group andCOFCO International Group, details of which are set out in thesections headed ‘‘Our History and Reorganization’’ andAppendix VII — ‘‘Statutory and General Information — CorporateReorganization’’

‘‘Repurchase Mandate’’ the repurchase mandate granted to our Board pursuant to aresolution passed by our sole shareholder on January 12, 2007

‘‘Rule 144A’’ Rule 144A under the US Securities Act

‘‘Sale and PurchaseAgreement’’

the sale and purchase agreement dated October 8, 2006 enteredinto between COFCO International and China Agri pursuant to whichCOFCO International transferred its Agri-industrial Business to ourGroup, details of which are set out in the section headed ‘‘OurHistory and Reorganization — Reorganization’’

‘‘Sale Shares’’ 163,065,545 shares, being such number of shares which are subjectto the Redistribution (being the number of shares which QualifyingCOFCO International Shareholders (other than COFCO (HK) and itsassociates) have elected to transfer to COFCO (HK) immediatelyafter the Distribution) that COFCO (HK) decides to offer for saleunder the Offer for Sale

‘‘share(s)’’ ordinary shares of HK$0.10 each in our Company

‘‘Share Option Scheme’’ the share option scheme conditionally approved by our Companypursuant to a resolution passed by our sole shareholder onJanuary 12, 2007 and approved by COFCO International pursuant toa resolution passed by its shareholders on January 29, 2007

‘‘Share Swap Agreement’’ the agreement dated January 10, 2007 entered into betweenCOFCO International and us, details of which are set out in thesection headed ‘‘Our History and Reorganization — Reorganization’’

‘‘Spin-off’’ the spin-off of our Group from COFCO International by way ofdistribution in specie of 2,791,383,356 shares of our Company

‘‘Stock BorrowingAgreement’’

a securities lending agreement entered into on March 7, 2007between the Global Coordinator (or its affiliates or agents) and WideSmart Holdings Limited pursuant to which Wide Smart Holdings

16

DEFINITIONS

Limited agreed to lend certain shares to the Global Coordinator (orits affiliates or agents) on the terms set out therein

‘‘Techbo Group’’ Techbo Limited and its subsidiaries

‘‘Toyota Tsusho’’ Toyota Tsusho Corporation, a company incorporated in Japan withlimited liability on July 1, 1948, the three largest shareholders ofwhich are Toyota Motor Corporation, Toyota Industries Corporationand Japan Trustee Service Bank Ltd., and the holder of a 49% equityinterest in COFCO TTC (Beijing) Foods Co., Ltd.( ), one of our wheat processingsubsidiaries

‘‘Underwriters’’ the Hong Kong Underwriters and the International Purchasers

‘‘Underwriting Agreements’’ the Hong Kong Underwriting Agreement and the InternationalPurchase Agreement

‘‘United States’’ or ‘‘US’’ the United States of America, its territories, its possessions and allareas subject to its jurisdiction

‘‘US$’’ or ‘‘US dollars’’ United States dollars, the lawful currency of the United States

‘‘US Securities Act’’ the US Securities Act of 1933, as amended, and the rules andregulations promulgated thereunder

‘‘we’’, ‘‘us’’, ‘‘our’’ or ‘‘ourCompany’’

our Company or our Group (as the context may require)

‘‘Wilmar’’ Wilmar Holdings Pte Ltd, a company incorporated in Singapore withlimited liability on April 8, 1991 and ultimately held by WilmarInternational Holdings Limited, and a substantial shareholder ofcertain of our oilseed processing subsidiaries, and which, where thecontext requires, includes its holding company and its subsidiaries

In this prospectus, the English names of the PRC Government authorities or PRC entities aretranslations of their Chinese names and included herein for identification purposes only. In the event ofany inconsistency, the Chinese names shall prevail.

For the purposes of this prospectus, translation of RMB into HK$ has been calculated by usingexchange rates as shown below.

December 31 September 30 December 31

2003 2004 2005 2005 2006 2006-2008

HK$1.00: RMBAverage rate for the year/period********** 1.060 1.060 1.053 1.057 1.032 1.000Closing rate at end of year/period ******** 1.060 1.060 1.041 1.043 1.014 1.000

In this prospectus, the terms ‘‘associate’’, ‘‘connected person’’, ‘‘connected transaction’’,‘‘controlling shareholder’’, ‘‘subsidiary’’ and ‘‘substantial shareholder’’ shall have the meanings given tosuch terms in the Hong Kong Listing Rules.

17

GLOSSARY

This glossary contains certain definitions and other terms used in this prospectus inconnection with our Company and our business. As such, these terms and definitions maynot correspond to standard industry definitions or usage of these terms.

‘‘aged paddy’’ paddy that has been stored for a period of time so that it is nolonger suitable for human consumption

‘‘cellulose’’ a complex carbohydrate that forms the main constituent of thecell wall in most plants

‘‘denaturant’’ substance added to anhydrous ethanol to make it unfit forhuman consumption, without destroying its usefulness in otherapplications, normally gasoline

‘‘germination’’ growing into a plant

‘‘kilning’’ the process of drying grain in a special oven

‘‘lactic acid’’ a colorless or yellowish, syrupy, water-soluble liquid producedduring muscle contraction, abundant in sour milk but preparedusually by fermentation of cornstarch, molasses, potatoes, etc.,or is synthesized and is used in dyeing and textile printing, as aflavoring agent in food and in medicine

‘‘lecithin’’ a fatty substance that moisturizes emulsifies and preservesfood that can be found in egg yolks, soybeans, corn and otherplant and animal plasma membranes

‘‘liquefaction’’ making into liquid

‘‘oilseed meal’’ a coarse, unsifted powder ground from oilseed

‘‘oilseed’’ any of several seeds that yield oil

‘‘paddy’’ rice in the husk

‘‘percolation’’ draining or seeping through a porous material or filter

‘‘palm oil’’ a form of edible oil, produced from the fruit of the oil palm tree

‘‘polylactic acid’’ an organic, biodegradable polyester derived from lactic acid,that is used in medical and plastics

‘‘pressure swing absorption’’ a technology used to separate some components of a gasunder pressure according to these components’ molecularcharacteristics

‘‘saccharification’’ conversion of starch into sugar

‘‘sweetener(s)’’ food additive which attempts to duplicate the effect of sugar intaste, but often with less calories

18

RISK FACTORS

In addition to other information in this prospectus, you should carefully consider thefollowing risk factors before making an investment in the Offer Shares. Our business,financial condition or results of operations could be materially and adversely affected byany of these risks. The trading price of the Offer Shares could decline due to any of theserisks, and you may lose all or part of your investment. You should also refer to the otherinformation contained in this prospectus, including the financial statements and relatednotes.

A1A 34(1)(b)RISKS RELATING TO OUR BUSINESS

Our business depends on a stable and adequate supply of raw materials which are subject toa degree of price volatility and other risks.

We use a large volume and a wide variety of raw materials in our business. For example, corn,malting barley, soybeans, paddy and wheat are the primary raw materials in our production process. Forthe year ended December 31, 2005 and the nine months ended September 30, 2006, raw materialsrepresented approximately 94.7% and 93.2%, respectively, of the cost of sales of our Agri-industrialBusiness. We source our raw materials from a number of suppliers located both within and outsideChina.

The occurrence of natural disasters (such as droughts, sandstorms, snowstorms, earthquakes andfloods), pest infestations, energy shortages or disruptions in transportation infrastructure may interruptthe supply of raw materials, and our suppliers may not be able to continue to supply an adequateamount and quality of raw materials to meet our present and future production demands and our qualityrequirements. Any interruptions to or decline in the supply or quality of our raw materials couldmaterially disrupt our production and adversely affect our business.

Furthermore, the raw materials we use in our production process are subject to a degree of pricevolatility caused by external conditions, such as climate and environmental conditions, price fluctuationsin commodity markets, currency fluctuations and changes in government policies.

As we currently import all of our soybeans and almost all our malting barley, we are exposed tofluctuations in the exchange rates between the Renminbi and the foreign currencies we use to pay forour imported raw materials. Should the Renminbi depreciate against these foreign currencies, the costsof our raw materials may increase.

Corn and wheat which we source domestically are subject to market price fluctuations. Shouldthere be price fluctuations in the commodity markets and should we be unable to source corn and wheatfrom other suppliers at reasonable prices, the costs of our raw materials may increase.

The PRC Government has from time to time set minimum purchase prices for major agriculturalproducts in major production sites such as paddy and wheat. In the event that the PRC Governmentraises the minimum purchase prices for these agricultural products, the cost of our raw materials willincrease. If we are unable to pass any increase in the cost of such raw materials to our customers, ourprofitability and results of operations may be adversely affected.

In addition, the selling price of our fuel ethanol is currently set at 91.11% of the PRC guidancewholesale price for No. 90 gasoline, which is periodically announced by the National Development andReform Commission, while the price of its raw material, corn, is generally determined by market supplyand demand. On January 12, 2007, the guidance wholesale price for No. 90 gasoline was reduced fromRMB5,200 per metric ton (including VAT) to RMB4,980 per metric ton (including VAT). We cannotguarantee that this guidance price will not be reduced further or that the price of corn will stay the sameand not increase. If we are unable to increase the prices of our products to offset increased raw materialcosts, we may suffer a reduction in our profit margins and a decline in our profitability.

19

RISK FACTORS

Our business and operations require significant and continuous capital investment. Failure toraise sufficient capital in a timely manner may adversely affect our business and results ofoperations.

Our business and operations are capital intensive, and we regularly incur capital expenditure toexpand our operations, maintain our production equipment and auxiliary facilities, increase ouroperating efficiency and comply with laws and regulations. For the year ended December 31, 2006 andthe years ending December 31, 2007 and 2008, we estimate that we incurred or will incur aroundHK$1,735.8 million, HK$3,296.7 million and HK$2,844.5 million, respectively, in capital expenditure. Wehave planned to finance such expenditure out of the net proceeds available to us from the GlobalOffering, our cash and cash equivalents on hand, available banking facilities, capital market financialproducts and cash to be generated from future operations.

If we require additional funds and cannot obtain them when required, we may not be able to fullyfund the necessary capital expenditure needed to upgrade or purchase additional facilities andequipment, or to implement our business strategies at all. Even if we are able to secure sufficientfunding, we may not be able to obtain the funds under relatively commercially favorable terms, whichwould increase our financing costs.

Furthermore, our increased capital expenditure may result in a higher gearing ratio. If we areunable to satisfy our working capital needs or to repay our outstanding and future debt obligations asthey become due, we may be subject to creditors’ actions or be forced to adopt an alternative strategythat may include such actions as reducing production or delaying capital expenditure, selling assets,refinancing our indebtedness or seeking equity capital.

Any of the above could impede the implementation of our business strategies or prevent us fromentering into transactions that would otherwise benefit our business on commercially reasonable termsor at all and could adversely affect our financial condition and results of operations.

Our major expansion projects may not be completed as planned, may exceed our originalbudgets and may not achieve the intended economic results or commercial viability.

Currently, we have six greenfield projects under construction, and as at September 30, 2006, wehad invested approximately RMB628.1 million in these projects. However, we cannot guarantee thatthese projects, or any other expansion projects still in the planning stage, will be completed on time orwithin our original budgets. We also cannot guarantee that we will be able to obtain all the requiredgovernment approvals for these projects on time. If there is any delay in the progress of these projects,they may exceed our original budgets. In addition, these expansion projects may not achieve theintended economic results or commercial viability, which in turn, may adversely affect our business,financial condition and results of operations.

Our biofuel and biochemical business operations involve significant operating risks.

Our biofuel and biochemical business involves the handling, storage and use of hazardousmaterials, such as alcohol, fuel ethanol and gasoline. Improper handling of these hazardous materialscan cause serious pollution, fires or explosions. Any accidents resulting from improper handling of thesehazardous materials may cause serious health and safety issues, or significant damage to ourproduction facilities and production interruptions. Any of these events could adversely affect ourbusiness operations and financial condition and could also harm our reputation and result in litigation,government fines or penalties. Under any of these events, our existing insurance coverage may notadequately cover the losses we may incur.

20

RISK FACTORS

Delivery delays or poor handling by distributors and transport operators may affect our salesand profitability and damage our reputation.

We generally rely on transport operators and wholesale distributors for the delivery of our products.Delivery disruptions, for various reasons beyond our control, including weather conditions, politicalturmoil, social unrest, strikes and inadequate capacity of the transport operators, could lead to delayedor lost deliveries. In the past, we have occasionally experienced shortages of railway transportationcapacity and resulting delivery delays, especially during peak transportation seasons. Any deliverydelays may lead to loss of revenue, an increase in delivery costs, an increase in compensationpayments to customers and could also damage our reputation.

Heilongjiang Alcohol’s volatile gross profit and gross margin, net current liabilities andreliance on government grants may adversely affect our results of operations and financialcondition.

We started our biofuel and biochemical businesses with the acquisition of Heilongjiang Alcohol inJanuary 2006. Heilongjiang Alcohol’s gross profit for the three years ended December 31, 2003, 2004and 2005 and the nine months ended September 30, 2006 was RMB211.7 million, RMB196.5 million,RMB177.5 million and RMB180.7 million, respectively. Heilongjiang Alcohol’s gross profit margins forthe three years ended December 31, 2003, 2004 and 2005 and the nine months ended September 30,2006 were 20.7%, 12.3%, 13.0% and 16.9%, respectively. For the nine months ended September 30,2006, Heilongjiang Alcohol’s gross profit contributed 14.1% of our total gross profit during the period.

We cannot guarantee that the gross profit and gross margin of Heilongjiang Alcohol will notfluctuate from period to period. Should the gross profit and gross margin of Heilongjiang Alcoholdecline, our profitability would be adversely affected.

As at September 30, 2006, Heilongjiang Alcohol had net current assets of RMB10.2 million, but asat December 31, 2003, 2004 and 2005, Heilongjiang Alcohol incurred net current liabilities ofRMB489.2 million, RMB229.7 million and RMB72.3 million, respectively. We cannot guarantee thatHeilongjiang Alcohol will not incur net current liabilities in the future or that it will always be able to raisethe necessary funding to meet its capital commitments. Should Heilongjiang Alcohol incur further netcurrent liabilities or be unable to raise sufficient funding for its capital needs, our normal businessoperations, our expansion plans and our financial position may be adversely affected.

Further, Heilongjiang Alcohol has relied on government grants of tax exemptions and subsidies forfuel ethanol producers. We cannot guarantee that such grants will continue. If such grants are removed,the profitability of Heilongjiang Alcohol would be adversely affected, which in turn may adversely impactour overall results of operations and profitability.

Our rice export business may be affected by changes to the PRC Government’s allocation ofrice export quotas to COFCO or to the arrangements between COFCO and us with respect toour rice export business.

COFCO is one of the two companies licensed by the PRC Government to export rice from Chinaand is required to comply with the rice export quotas granted to it by the PRC government each year.Currently, we conduct our rice export business under a two-year rice import and export agencyagreement with COFCO effective from December 29, 2006. Pursuant to this agency agreement, oursubsidiary, COFCO Beijing, has appointed COFCO as its non-exclusive agent for the export of riceproducts within the export quotas granted by the PRC Government to COFCO. If the rice export quotapolicy of the PRC Government changes in the future, or COFCO, for any reason, is not in a position toconduct the rice export business in the future, or we are unable to renew our agreement with COFCO,we may have to reduce or stop our rice export business, unless we are able to enter into a similaragreement with other such rice export license holders there maybe in the future.

21

RISK FACTORS

Our results of operations are subject to, and could be negatively affected by, seasonality.

There is a degree of seasonality in sales volumes for our brewing materials division. Our maltoperations experience higher sales volumes in the second and third quarters due to increased beerproduction and consumption during those periods.

The sales of our oilseed processing and wheat processing divisions may be subject to seasonalityas some of our distributors prefer to maintain a lower level of stock in late spring and summer and startto build up inventories from August or September due to the relatively higher storage costs in late springand summer. This pattern results in relatively higher sales and revenue in the period from August toFebruary for our oilseed processing and wheat processing divisions.

Our purchases of certain agricultural raw materials are also seasonal in nature. For example, wesource our corn and wheat in China, where the harvest seasons for these crops run from the thirdquarter of each year to the first quarter of the following year. This results in a relatively higher inventorylevel during the harvest season than that for the rest of the year.

As a result, our operating results and cash flows may vary substantially between fiscal quarterswithin each of our business divisions. In addition, price and margin variations and increased availabilityof agricultural raw materials at harvest times often cause fluctuations in our inventories and short-termborrowings.

We had net current liabilities during our historical accounting periods.

As at December 31, 2003, 2004 and 2005 and before the completion of the Reorganization and theSpin-off, we had net current liabilities of HK$472.5 million, HK$695.3 million and HK$992.3 million,respectively. As at September 30, 2006, we had net current liabilities of HK$715.5 million. As atSeptember 30, 2006, our current assets amounted to HK$6,189.4 million, comprising inventories ofHK$2,881.4 million, trade and bills receivables of HK$602.2 million, prepayments, deposits and otherreceivables of HK$1,178.1 million, bank balances and cash of HK$1,032.3 million and other items ofHK$495.4 million. As at September 30, 2006, our current liabilities amounted to HK$6,904.9 million,comprising trade and bills payable of HK$650.4 million, other payables and accruals ofHK$842.3 million, short-term loans of HK$4,065.0 million and other items of HK$1,347.2 million. If wecontinue to have net current liabilities in the future, our working capital for the purposes of ouroperations may be constrained.

The growth in demand for our products may not match the growth in our capacity.

Demand for most of our products has been increasing in recent years. A reversal of or slowdown inthis trend may result in a lower rate of return on our investment than we have anticipated. In order toobtain a greater market share, most of our business divisions have plans to construct new productionfacilities or to increase their existing production capacity. If growth in demand fails to match the futuregrowth in our capacity, our capacity utilization rate and the selling prices of our products may beadversely affected. As a result, we may experience a lower rate of return on our investment than weinitially anticipated.

Declining average selling prices for our products and fluctuating margins may adverselyaffect our results of operations.

From September 30, 2005 to September 30, 2006, the average selling price of our oilseed mealsfell by approximately 9.3% and the average selling price of our flour fell by approximately 1.6%. Thegross profit margins for our oilseed processing division and wheat processing division wereapproximately 4.0% and 7.3%, respectively, for the year ended December 31, 2003, approximately2.0% and 6.3%, respectively, for the year ended December 31, 2004, approximately 2.9% and 6.3%respectively for the year ended December 31, 2005 and approximately 4.4% and 5.4%, respectively, forthe nine months ended September 30, 2006.

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RISK FACTORS

We cannot guarantee that we will not continue to experience declining average selling prices for ourproducts in the future or that average selling prices will stay the same. We also cannot guarantee thatour gross profit margins will stay the same. Our results of operations are dependent on the prices wereceive for our products and our gross profit margins. Extended or substantial price declines and/orfluctuating gross profit margins may adversely affect our results of operations.

We rely on the performance of our major customers and our sales and distribution networkfor the success of our sales.

All of our malt, a majority of our ethanol products and approximately half of our flour and noodlesare sold directly to our major customers. We have not entered into any long-term contracts with ourmajor customers. Any significant changes to our major customers’ operating conditions, their preferencefor our products and settlement terms for sales may have a material impact on our business, financialcondition and results of operation.

Our oilseed processing division and rice trading and processing division derive most of theirrevenue from distributors and sub-distributors, who in turn sell our products to their customers. Thesales of our products could decline if the sales performance of our distributors deteriorates.Furthermore, most of these distributors are not exclusive to us and therefore may sell products thatcompete with our products. There is a risk that our distributors may give higher priority to products of, orform alliances with, our competitors. If our distributors do not continue to distribute our products, orprovide our products with similar levels of promotional support as that provided for our competitors’products, our sales performance may not improve as we expect or could even decline and our financialresults could be adversely affected.

Rising selling and distribution costs may reduce our profitability and adversely affect ourresults of operations.

Our selling and distribution costs for each of the three years ended December 31, 2003, 2004 and2005 and the nine months ended September 30, 2006 were HK$309.1 million, HK$350.7 million,HK$534.8 million and HK$472.9 million, respectively.

Selling and distribution costs have a direct impact on our profitability. Should selling and distributioncosts continue to rise, and should we be unable to offset such increases by raising the prices or salesvolumes of our products, our profit margins and results of operations could be adversely affected.

We purchase our raw materials from a limited number of suppliers.

For the three years ended December 31, 2005 and the nine months ended September 30, 2006,our purchases from our largest five suppliers accounted for approximately 47.9%, 44.1%, 52.9% and54.3%, respectively, of our total purchases of raw materials and our purchases from our largestsupplier, Grand Ocean International Trading Limited ( ), accounted forapproximately 44.8%, 40.6%, 48.8% and 47.4% for the same periods. Grand Ocean InternationalTrading Limited ( ) is a subsidiary of COFCO and therefore a connected person ofus under the Hong Kong Listing Rules. If any of our major suppliers fails to deliver raw materials, ourproduction activities may be adversely affected. There is no assurance that we would be able to findalternate suppliers that can provide raw materials of similar quality and price in a sufficient quantity andin a timely manner. If we cannot find alternate suppliers, we may face a delay in our productionschedules and our product deliveries, which may cause us to lose some customers or require us topurchase replacement raw materials from alternate sources at a higher price. Any of these occurrencesmay have a detrimental effect on our results of operations.

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RISK FACTORS

Changes to, or termination of, our arrangements with our joint venture partners could havean adverse impact on our business operations.

We conduct part of our oilseed processing business through our joint venture arrangements withArcher Daniels Midland and Wilmar and part of our wheat processing business through our joint venturearrangements with Hakubaku and Toyota Tsusho. Our joint venture arrangements with Hakubaku andToyota Tsusho include the sharing of technical expertise and operational know-how which helps us todevelop our businesses more efficiently and quickly. Change to, or termination of, such arrangementsmay impede our technical innovation or research and development of new product lines. We cannotguarantee that our joint venture arrangements will continue smoothly or that they will be renewed orextended at the end of their respective terms.

At present, Hakubaku and Toyota Tsusho do not operate in the wheat processing market in Chinaand thus they do not compete with us. Archer Daniels Midland and Wilmar are our competitors in theoilseed processing market, which is a mature and competitive market in the PRC. As there are no non-competition provisions in our joint venture agreements, we cannot guarantee that our joint venturepartners will not compete with us or that they have, or will continue to have, interests that are consistentwith ours or that they will not terminate their cooperation with us.

Our business and reputation may be affected by product liability claims, litigation, complaintsor adverse publicity in relation to our products.

Our products involve an inherent risk of injury which may result from tampering by unauthorizedthird parties, or product contamination or degeneration, including the presence of foreign contaminants,chemicals, substances or other agents or residues during the various stages of the procurement andproduction and transportation process. We cannot guarantee that our products will not cause anyhealth-related illnesses or injury in the future, or that we will not be subject to claims or lawsuits relatingto such matters.

We may be required by the PRC Government authorities to recall our products if they materially failto meet relevant quality or safety standards. We cannot guarantee that product liability claims will not beasserted against us as a result. A product liability judgment against us or a product recall could have amaterial adverse effect on our business, financial condition or results of operations.

We engage in hedging transactions which may involve risks that can harm our business.

The unrealized fair value of the losses from derivative instrument transactions of our business wereHK$0.4 million in 2004 and HK$11.3 million for the nine months ended September 30, 2006. We did notrecord any other losses from derivative instrument transactions during the past three years endedDecember 31, 2005 and the nine months ended September 30, 2006. We have a centralized riskmanagement function that sets our hedging policy, manages our hedging transactions and monitors ourrisk exposures associated with our hedging positions. We cannot guarantee that our hedgingtransactions will protect us fully against fluctuations in commodity prices, or that our risk managementsystems can prevent losses arising from hedging transactions.

We may be unable to manage our future rapid growth.

We have grown steadily over the last few years. Our revenue increased by approximately 30.1%from HK$12,529.2 million for the year ended December 31, 2003 to HK$16,300.4 million for the yearended December 31, 2005. We intend to significantly expand the volume and variety of products weoffer, as well as the geographic scope of our sales and production facilities, either by acquiring otherexisting businesses or investing in greenfield projects. Our business growth could place a significantstrain on our managerial, operational and financial resources. Our ability to manage our future growthwill depend on our ability to continue to implement and improve operational, financial and managementinformation systems on a timely basis and to expand, train, motivate and manage our workforce. Wecannot guarantee that our personnel, systems, procedures and controls will be adequate to support our

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RISK FACTORS

future growth. Failure to effectively manage our expansion may lead to increased costs and less optimalinvestment decisions, and potentially cause us to miss business opportunities.

We cannot guarantee that we will be successful when launching new products or developingnew export markets.

Our primary business experience is in the PRC and in existing product lines. We have established anew biochemical business under our biofuel and biochemical division to expand our product range toinclude starch, sweeteners, amino acid, lactic acid and polylactic acid. These are relatively newproducts for us and we cannot guarantee that such products will generate the revenue we expect.

We may also decide to export to new overseas markets. These would be relatively new markets forus and we cannot guarantee that our development of such markets will be successful. In addition, ourexpansion of export markets may cause us to incur higher costs in administration, distribution andmarketing, and we cannot guarantee that such expenditure will generate the return we expect.

We require various licenses and permits to operate our business, and loss of or failure torenew any or all of these licenses and permits could materially adversely affect our business.

In accordance with PRC laws and regulations, we are required to maintain various licenses andpermits to operate our business, including, without limitation, hygiene permits and production permits.We are required to comply with applicable hygiene and food safety standards in relation to ourproduction processes and the relevant regulatory authorities carry out regular inspections to ascertainour compliance with applicable regulations. Failure to pass these inspections, or loss of or failure torenew our licenses and permits, could require us to temporarily or permanently suspend some or all ofour production activities which could disrupt our operations and make us unable to meet our contractualobligations. This may adversely affect our business, financial condition and results of operations.

Our ability to export our products may be restricted if we cannot reach the relevant technicalor environmental standards established by other countries and regions.

We export a large portion of our products, including primarily rice, oils and fats, and malt, to Japan,South Korea, Southeast Asia, the Middle East and Africa. Some of these countries may impose varioustechnical and environmental requirements on our exports. We cannot guarantee that these countriesand regions will not impose additional conditions, or that we will continue to meet all the relevantstandards in the future. If we fail to reach all the relevant technical and environmental standards adoptedby these countries and regions in future, our business could be adversely affected.

Due to our Reorganization, the audited historical financial statements and other historicalfinancial data included elsewhere in this prospectus are not indicative of our future financialcondition and results of operations.

We completed our Reorganization on December 31, 2006. See ‘‘Our History and Reorganization’’.As a result, after the Reorganization, our financial statements will no longer include the consumer-packedible oil business and the non-rice foodstuffs trading business, which were treated as stand-alonesegments during the three years ended December 31, 2005 and the nine months ended September 30,2006. Our businesses following the Reorganization consist of our biofuel and biochemical, oilseedprocessing (excluding the consumer-pack edible oil business), rice trading and processing, brewingmaterials and wheat processing businesses. In addition, we acquired certain shareholders’ loans fromCOFCO (HK) and COFCO International as part of the Reorganization. Therefore, ourcombined/consolidated financial statements as at and for each of the three years ended December 31,2003, 2004 and 2005 and as at and for the nine months ended September 30, 2006, and other historicalfinancial data included elsewhere in this prospectus are not and should not be construed to be indicativeof the past performance and financial condition and cash flow of our current business, or of our financialcondition and results of operations going forward.

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RISK FACTORS

We have a limited operating history as a separate entity.

We were incorporated as a limited liability company on November 18, 2006 and were acquired by,and became a wholly owned subsidiary of, COFCO International on December 28, 2006. See thesection headed ‘‘Our History and Reorganization’’. Prior to the Reorganization, we did not exist as aseparate group and our assets were owned, and our businesses were conducted, by COFCO Groupand COFCO International Group.

Accordingly, we have a limited operating history as a separate group. In particular, the historicalfinancial information included in this prospectus may not necessarily reflect our results of operations,financial position and cash flows in the future or what our results of operations, financial condition andcash flows would have been had we been a separate, stand-alone group during the periods presented.The historical financial information included in this prospectus does not reflect the changes that haveoccurred or will occur in our capital structure, funding and operations as a result of the Reorganizationand the Global Offering.

If we are unable to retain our key management personnel, our growth and future success may beimpaired and our financial condition could suffer.

Our success depends to a significant degree upon the continuity of our senior managementpersonnel as described in the section headed ‘‘Directors and Senior Management’’, most of whom havea deep understanding of our industry and operations and would be difficult to replace. The departure ofany of our key management personnel could be disruptive to our business development and have amaterial adverse effect on our business and our financial condition. We cannot guarantee that theservices of such personnel will continue to be available to us or that we will be able to replace any suchpersonnel with managers who have similar knowledge or experience.

We have not obtained title certificates to some of the properties we occupy.

We have not yet obtained title certificates that allow us to freely transfer, mortgage or dispose ofsome of our properties under PRC laws and regulations. As at the Latest Practicable Date, we had notobtained building ownership certificates for 61 buildings and land use rights certificates for two pieces ofland. As at September 30, 2006, these 61 buildings had a total net book value of approximatelyHK$35.8 million and these two pieces of land had a total net book value of approximatelyHK$6.1 million. These buildings and land have an aggregate area of 147,908.37 square meters, and asat September 30, 2006, account for approximately 1.4% of the estimated value of the properties we ownand/or occupy and 0.9% of our total net asset value. The depreciated replacement costs of the buildingswithout building ownership certificates are approximately RMB60 million. We currently use theseproperties for production and general commercial purposes. According to the legal opinion issued byour PRC legal counsel, Commerce & Finance Law Offices, no penalties will be imposed on us foroccupying such properties. However, as a result of these title problems, we may need to relocate ourproduction and business operations, which may cause interruptions to our business. As a result, ourfinancial condition may be adversely affected. See Appendix V — ‘‘Property Valuation’’ for furtherdetails.

Changes in relations between China and countries where our major foreign trade partners arelocated may affect our export business.

We sell the majority of our products in China, but we also export our rice, oils and fats, and malt to asignificant number of countries around the world. Any deterioration of China’s political or economicrelations with countries where our trading partners are located could adversely affect trading conditionsbetween China and these countries, thereby adversely affecting their import of our products.

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RISKS RELATING TO THE INDUSTRIES WE OPERATE IN

We face increasing competition from both domestic and foreign companies, which may affectour market share and profit margin.

The agricultural product processing industry in the PRC is competitive. As at December 31, 2005,there were approximately 15,000 agricultural product processing enterprises operating in the PRC,including domestic, foreign, and foreign-invested enterprises. Our competitors, especially foreigncompetitors, may have greater access to financial resources, more experience in resource allocation,better ability in product innovation and longer operating histories. Some of our international competitorsmay also have better management and may utilize more advanced technology than we do. Some of ourcompetitors in any particular market may also benefit from raw material sources or production facilitiesthat are closer to such markets, which provide them with competitive advantages in terms of cost andproximity to customers. In addition, the PRC Government may in the future permit additional producersto enter the market, which would in turn increase the level of competition to which our fuel ethanolbusiness is subject.

Our current or potential competitors may provide products comparable or superior to those weprovide or adapt more quickly than we do to evolving industry trends or changing market requirements.It is also possible that there will be significant consolidation in the commodity products industry amongour competitors, alliances may develop among competitors and these alliances may rapidly acquiresignificant market share, and some of our customers may commence production of products similar tothose we currently sell to them.

In particular, competition in the PRC oilseed products market has intensified in the past severalyears. We face competition from numerous oilseed processors. Our key oilseed competitors aredomestic and international oilseed processors of a similar size and scale to us. In addition, a number offoreign companies have established oilseed processing facilities in China, including most of theinternational leading processors such as Wilmar, Archer Daniels Midland, Cargill Inc. and Bunge. Otherforeign manufacturers may also do so in the future. Similarly, we operate in a very competitiveinternational market for oilseed products.

Increased competition may result in revenue declines and cost increases. We cannot guaranteethat we will be able to compete effectively against current and future competitors.

We also cannot guarantee that our competitors will not actively engage in activities, whether legalor illegal, designed to undermine our brand names and product quality or influence consumerconfidence in our products.

Our fuel ethanol business is strictly regulated by the PRC Government.

Currently, investment in fuel ethanol production facilities in the PRC is subject to approval from theNational Development and Reform Commission. According to a notice published by the NationalDevelopment and Reform Commission together with eight other government departments including theState Administration of Taxation and the Ministry of Finance on February 10, 2004, the productionvolumes, pricing mechanisms, subsidies and preferential tax policies for ethanol producers and theirsales regions are subject to the approval of the PRC Government.

The two fuel ethanol projects in Heilongjiang Province and Jilin Province in which we haveownership interests of 100% and 20%, respectively, have been approved by the National Developmentand Reform Commission. In addition, in August 2006 we won a bid organized by the NationalDevelopment and Reform Commission to construct a new fuel ethanol project with a capacity of200,000 metric tons per year in Guangxi Zhuang Autonomous Region. We plan to launch several othernew fuel ethanol projects in other provinces in the next few years. While our overall five-year fuel ethanolinvestment plan has been endorsed by the National Development and Reform Commission and theMinistry of Finance, each individual new project will still be subject to approval by the NationalDevelopment and Reform Commission and other relevant authorities, and the subsidies and preferential

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RISK FACTORS

tax treatment that it may receive will be subject to approval by the Ministry of Finance. If these projectsdo not eventually obtain the required approvals, we may not be able to achieve our business expansionobjectives.

The regulations governing fuel ethanol business in the PRC may change from time to time. Wecannot guarantee that these changes will be in our favor. For example, if the PRC Government nolonger regulates the fuel ethanol industry, we could face significantly increased competition and ourprofitability could decline.

The government subsidies and tax exemptions for our fuel ethanol business may not alwaysbe adequate to allow us to offset our costs.

Fuel ethanol prices are currently regulated by the National Development and Reform Commission,and fuel ethanol producers currently enjoy preferential tax treatment and certain financial subsidiesgranted by the Ministry of Finance in order to compensate for losses that may arise as a result of thecap on the selling price of fuel ethanol set by the National Development and Reform Commission. Thegovernment has the authority to decide fuel ethanol prices, the relevant subsidies and the tax exemptionthat ethanol producers may receive. However, the cost of our raw materials, mainly corn at present, aredriven by market supply and demand.

We started our fuel ethanol business in January 2006 by acquiring Heilongjiang Alcohol. Thegovernment subsidies recognized by Heilongjiang Alcohol for the three years ended December 31,2005 and the nine months ended September 30, 2006 were RMB4.8 million, RMB74.8 million,RMB222.9 million and RMB149.8 million, respectively. Heilongjiang Alcohol also enjoys certainpreferential tax treatment such as value added tax refunds. For the three years ended December 31,2005 and the nine months ended September 30, 2006, the value-added tax refunds enjoyed byHeilongjiang Alcohol were RMB0.7 million, RMB3.2 million, RMB13.0 million and RMB21.0 million,respectively.

We cannot guarantee that the government subsidies or tax exemptions will always be adequate toallow us to offset our related costs and expenses and to enable us to earn a profit. Without suchgovernment subsidies, the current selling price of fuel ethanol set by the National Development andReform Commission at present would lead to a lower profit margin. Furthermore, as fuel ethanolproduction increases and the geographic areas where fuel ethanol will be consumed expand, we cannotguarantee that the government will be able to provide each fuel ethanol producer with adequatesubsidies to offset its costs.

There is no assurance that we will continue to receive the preferential tax treatment andgovernment subsidies we currently enjoy.

The rate of tax chargeable on income generated by companies in China varies depending on theavailability of preferential tax treatment or subsidies based on their industries or locations.

For example, 23 of our subsidiaries incorporated in the PRC with foreign investment which havecommenced operations are required to pay enterprise income tax according to the PRC Income TaxLaw for Foreign-Invested Enterprises and Foreign Enterprises (‘‘FIE Income Tax Law’’), which sets astate tax rate on enterprise income at a rate of 30%, plus a local income tax at a rate of 3%. However,seven of these subsidiaries, including Dalian COFCO Malt Co., Ltd. ( ),Zhengzhou Haijia Food Co., Ltd. ( ), Shenyang Dongda Grains Oils & FoodstuffsIndustries Co., Ltd. ( ), Shenyang Xiangxue Flour Limited LiabilityCompany ( ), COFCO Industry (Qinhuangdao) Pangthai Co., Ltd.( ), Yellowsea Oils & Grains Industries (Shandong) Co., Ltd.( ) and Eastbay Oils & Fats Industries (Guangzhou) Co., Ltd.( ), which are manufacturing enterprises established in coastal economicopen zones or in the old urban district of cities where economic and technological development zonesare located, are charged enterprise income tax at a reduced state tax rate of 24%, while Xiamen Haijia

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RISK FACTORS

Flour Mills Co., Ltd. ( ) and East Ocean Oils & Grains Industries (Zhangjiagang)Co., Ltd. ( ) are manufacturing enterprises established in specialeconomic zones or free trade zones, and are allowed to pay enterprise income tax at a reduced statetax rate of 15%.

Furthermore, pursuant to the FIE Income Tax Law, all our PRC subsidiaries with foreign investment(except COFCO Beijing and Shanghai COFCO Brewing Materials Co., Ltd.( ) are, from the year in which they begin to make profit, entitled to a fullexemption from enterprise income tax in the first and second years and a 50% reduction from the thirdto the fifth year. In addition, seven of our PRC subsidiaries have obtained exemptions from local incometax by local taxation authorities for periods of three years to ten years.

According to the Pilot Plan for Expanding the Use of Vehicle Fuel Ethanol( ) promulgated by the National Development and Reform Commissionand other ministries, Heilongjiang Alcohol enjoys a full refund of the value added tax arising from thesale of vehicle fuel ethanol. According to the Notice of the Ministry of Finance on the Subsidy Policy forthe Loss of Fuel Ethanol Producers ( ) dated December 7,2005, Heilongjiang Alcohol also receives a subsidy of RMB1,373 per metric ton for the fuel ethanol itsells during the years 2006 to 2008.

The PRC enterprise income tax laws and regulations for enterprises with foreign investment maybe revised and some of the government subsidies may not be regular receipts. Any loss or substantialreduction of the tax benefits or government subsidies would reduce our after-tax profit.

Demand for fuel ethanol in some provinces in China may not grow as we expect.

Demand for fuel ethanol in China may not increase as we expect. The future growth of the biofuelindustry in China depends on a number of factors, such as the number of areas where the sale of fuelethanol is permitted by the National Development and Reform Commission, the price of and demand forpetroleum-based fuels, the emergence of other alternative fuels or forms of renewable energy andimprovements to processing technologies for biofuel. Should any unforeseen factors emerge toundermine the development of the biofuel industry in the PRC, our business, financial condition andresults of operations could be adversely affected.

Certain paddy and wheat prices in some provinces in China are subject to government pricecontrols.

Certain domestic paddy and wheat prices have been subject to price government controls. Forexample, according to the two notices published in May and July 2006 by the National Development andReform Commission, the Ministry of Finance, the Ministry of Agriculture, the State Grain Administration,the China Agricultural Development Bank and the China Grain Reserves Corporation, a minimumpurchase price in 2006 for long grain early crop produced in Anhui, Jiangxi, Hubei, and Hunan provinceswas set at RMB1.40 per kilogram and the minimum purchase prices for different varieties of wheat fromHebei, Jiangsu, Anhui, Shandong, Henan and Hubei provinces varied between RMB1.38 per kilogramto RMB1.44 per kilogram within a certain period of time in 2006. Should the demand for rice and wheatproducts fall without a corresponding decrease in the minimum purchase price, our profit margins maydecline.

There is no assurance that the minimum prices set for certain varieties of paddy and wheat incertain areas of China will always be adjusted in our favor. As we may not be able to transfer theincrease in raw materials costs to our customers, our profit margins for our rice trading and processingbusiness may be negatively affected.

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RISK FACTORS

The outbreak of any severe communicable diseases in China or in any other parts of the world,including animal diseases, if uncontrolled, could adversely affect our operations.

The outbreak of any severe communicable diseases in China or in any other parts of the world, ifuncontrolled, could adversely affect the overall business sentiment and environment in China, which inturn may have an adverse impact on domestic consumption and, possibly, the overall GDP growth inChina. As our revenue currently derives mainly from our operations in China, any contraction orslowdown in the growth of domestic consumption and possible slow down in the GDP growth in Chinawill adversely affect our financial condition, results of operations and future growth. In addition, if any ofour employees is infected or affected by any outbreak of any severe communicable diseases, ourproduction at the relevant production facilities could be disrupted and we may be required to close ourproduction facilities to prevent the spread of the diseases. The spread of any severe communicablediseases in China or in any other parts of the world may also affect the operations of our customers andsuppliers, which could in turn adversely affect our business, financial condition and results ofoperations.

Furthermore, as we derive a substantial amount of our revenue from sales of oilseed meals, whichare the major raw materials of animal feeds, a serious outbreak in China of animal diseases, such asfoot-and-mouth disease or avian flu affecting animals, may result in the mass slaughtering of animals,changes in consumer behaviour and loss of consumer confidence in the consumption of meat, poultryand seafood altogether, which may in turn decrease the demand of the livestock and aquatic livestockbreeding industries for animal feeds. We cannot guarantee that the sale of our oilseed meals in generalwill not be affected by the outbreak of diseases which only affect particular types of animals.

Changes in the existing laws and regulations or adoption of additional or stricter laws andregulations on environmental protection in the PRC may cause us to incur significant capitalexpenditure and we cannot guarantee that we will be able to comply with any such laws andregulations.

We carry on our business in an industry that is subject to the PRC environmental protection lawsand regulations. These laws and regulations require enterprises engaged in manufacturing andconstruction that may produce environmental wastes to adopt effective measures to control andproperly dispose of waste gases, waste water, industrial waste, dust and other environmental wastematerials, and require producers discharging waste substances to pay fees for discharges abovepermitted levels. Failure to comply with such laws or regulations may result in the local environmentalprotection authorities imposing fines on us. The PRC Government (including its provincial level) alsohas the discretion to suspend or close any facility failing to comply with such laws or regulations. Wealso cannot guarantee that the PRC Government will not change the existing laws or regulations orimpose additional or stricter laws or regulations, compliance with which may cause us to incursignificant capital expenditure that we may be unable to pass on to our customers through higher pricesfor our products.

Changes in the existing PRC food hygiene laws may cause us to incur additional compliancecosts.

Manufacturers in the PRC food industry are subject to compliance with the PRC food hygiene lawsand regulations. These food hygiene laws require all enterprises engaged in the production of foodproducts to obtain hygiene licenses. They also set out hygiene standards with respect to food and foodadditives, packaging and containers, information to be disclosed on packaging as well as hygienerequirements for food production and sites, facilities and equipment used for the transportation and saleof food. Failure to comply with the PRC food hygiene laws may result in fines, suspension of operations,loss of any hygiene licenses and, in more extreme cases, criminal proceedings against a manufacturerand its management. In the event that the PRC Government increases the stringency of such laws, ourproduction and distribution costs may increase, and we may be unable to pass these additional costs onto our customers.

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Certain raw materials we use are genetically modified, and the potentially harmful effects ofconsuming genetically modified food are uncertain. Any negative development regardinggenetically modified food or the effect of genetically modified foods on human health mayadversely affect our business and financial condition.

Some of the soybeans we use, including soybeans imported from the United States andSouth America, in our production of soybean oil are genetically modified. As the potential harmfuleffects of consuming genetically modified food are still controversial, we cannot guarantee that theseproducts are safe for consumption, or that consumers will continue to buy such products. Consumerscould refuse to buy our products for reasons that may have nothing to do with the actual safety of theproducts. In addition, we cannot estimate the potential product liabilities we could be responsible forselling genetically modified foods, as there are few precedent cases in this area. We also cannotguarantee that these genetically modified raw materials will not be prohibited in the PRC in the future.Any negative development regarding genetically modified food or the effect of genetically modified foodon human health may adversely affect our business and financial condition.

RISKS RELATING TO CONDUCTING BUSINESS IN CHINA

Substantially all of our business assets are located in China and we derive substantially all of ourrevenue from China. Accordingly, our results of operations, financial position and prospects are subjectto the economic, political and legal developments in China.

Changes in political and economic policies of the PRC Government could have a materialadverse effect on our business operations and results of operations.

The economy of China differs from the economies of most developed countries in many respects,including its:

( structure;

( level of government involvement;

( level of development;

( growth rate;

( control of capital investment;

( control of foreign exchange; and

( allocation of resources.

Since 1978, the PRC Government has promulgated various reforms of its economic system andgovernment structure. These reforms have resulted in significant economic growth and social progressfor China in the last two decades. Many of the reforms are unprecedented or experimental and areexpected to be modified from time to time. We cannot predict whether changes in China’s political,economic and social conditions, laws, regulations and policies will have any material adverse effect onour current or future business, results of operations or financial condition.

Our ability to continue to expand our business is dependent on a number of factors, includinggeneral economic and capital market conditions in China and credit availability from banks and otherlenders in China. Recently, the PRC Government has implemented various measures to control the rateof economic growth and tighten its monetary policies, including increasing interest rates on bank loansand deposits and tightening the money supply to control growth in lending. Stricter lending policies may,among other things, affect our ability to obtain financing which may in turn adversely affect our growthand profitability over time. In addition, the economic and market conditions in China that existed over thepast three years may not continue and therefore we may not be able to sustain the growth rate we havehistorically achieved. In particular, we may experience reduced demand for our products, such as ourbiofuel products, if the measures cause a slowdown in economic growth or the growth in demand for bio

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fuel products does not evolve as we have predicted. Such reduced demand could adversely affect thegrowth of our biofuel and biochemical business.

A1A 31In addition, conversion and remittance of foreign exchange are subject to the PRC foreignexchange regulations. The RMB still cannot be freely converted into any other foreign. Pursuant toChina’s current foreign exchange control system, it cannot be guaranteed that under a certain exchangerate, there shall be sufficient foreign currencies to meet the foreign exchange requirements of anenterprise. Under China’s current foreign exchange control system, foreign exchange transactionsunder the current account conducted by us, including the payment of dividends, do not require advanceapproval from the State Administration of Foreign Exchange, but we are required to present relevantdocumentary evidence of such transactions and we are required to conduct such transactions atdesignated foreign exchange banks in China that have the right to conduct foreign exchange business.Foreign exchange transactions under the capital account, however, must be approved in advance by theState Administration of Foreign Exchange or its local branches. Any insufficiency of foreign currenciesmay restrict our ability to obtain sufficient foreign currencies for dividend payment to shareholders orsatisfy any other foreign exchange requirements. If we fail to obtain the approval from the StateAdministration of Foreign Exchange to convert RMB into any foreign currencies for any of the abovepurposes, our capital expenditure plans, and even our business results and financial condition, may bematerially adversely affected.

We rely on dividend payments from our subsidiaries and associated companies located in thePRC for funding our dividend payments, servicing our indebtedness and meeting our workingcapital and other capital needs.

A1A 31

We operate our Agri-industrial Business through our subsidiaries and associated companies inChina. Therefore, the availability of funds to us to pay dividends to our shareholders, to service ourindebtedness and to meet our working capital and other capital needs depends upon dividends receivedfrom these subsidiaries and associated companies. If our subsidiaries and associated companies incurdebt or losses, such indebtedness or losses may impair their ability to pay dividends or otherdistributions to us. As a result, our ability to pay dividends, service our indebtedness and meet ourworking capital and other capital needs will be restricted. PRC laws require that dividends be paid onlyout of the profit attributable to the equity holders of a company calculated according to PRC accountingprinciples, which differ in many aspects from generally accepted accounting principles in otherjurisdictions, including HKFRS. PRC laws also require companies incorporated in the PRC to set asidepart of their profit attributable to their equity holders as statutory reserves. These statutory reserves arenot available for distribution as cash dividends. In addition, restrictive covenants in bank credit facilities,joint venture agreements or other agreements that we or our subsidiaries and associated companiesmay enter into in the future may also restrict the ability of our subsidiaries and associated companies tomake dividend payments to us and our ability to receive distributions. Therefore, these restrictions onthe availability and usage of our major source of funding may impact our ability to pay dividends to ourshareholders, to service our indebtedness and to meet our working capital and other capital needs.

Changes in foreign exchange regulations and fluctuations in the value of the RMB may adverselyaffect our business, results of operations and ability to remit dividends.

A1A 31We receive a significant proportion of our revenue in RMB which is not freely convertible into othercurrencies. Under the existing foreign exchange regulations in China, we may undertake currentaccount foreign exchange transactions by complying with certain procedural requirements and suchtransactions are not subject to any approval by the State Administration of Foreign Exchange. The PRCGovernment may, however, at its discretion, restrict access in the future to foreign currencies for currentaccount transactions under certain circumstances. Any such change to the foreign exchangeregulations may adversely affect our ability to pay dividends or satisfy other foreign exchangerequirements.

32

RISK FACTORS

The value of the RMB against other foreign currencies is subject to changes in the PRCGovernment’s policies and to international economic and political developments. Effective from July 21,2005, the RMB was no longer pegged solely to the US dollar. Instead, a managed floating exchangesystem has been introduced by the PRC Government which allows the RMB to fluctuate within aregulated band based on market supply and demand and by reference to a basket of currencies. On thesame day, the RMB was revalued against the US dollar to approximately RMB8.11 to the US dollar,representing an upward revaluation of 2.1% of the RMB against the US dollar, as compared to theexchange rate of the previous day. On September 23, 2005, the PRC Government widened the dailytrading band for RMB against non-US dollar currencies from 1.5% to 3% to improve the flexibility of thenew foreign exchange system. The exchange rate may become volatile, the RMB may be revaluedfurther against the US dollar or other currencies or the RMB may be permitted to enter into a full orlimited free float, which may result in an appreciation or depreciation in the value of the RMB against theUS dollar or other currencies. Fluctuations in exchange rates may adversely affect the value, translatedor converted into US dollars or Hong Kong dollars (which is pegged to the US dollar), of our net assets,earnings or any declared dividends. Approximately 9.5% and 60.9% of our revenue and cost of sales ofour Agri-industrial Business, respectively, were denominated in foreign currencies in 2005. Anydepreciation in the RMB against these currencies may lead to increases in costs or declines inrevenues, which could materially affect our operating results.

Depreciation of or fluctuations in the value of the RMB relative to the Hong Kong dollar couldadversely affect our reported financial condition.

Substantially all of our business assets are located in China and substantially all of our revenue isderived from China in RMB. If the RMB fluctuates against the Hong Kong dollar, which we use as ourreporting currency in our financial statements, these fluctuations may result in exchange losses or gainsand increases or reductions in our debt after translation into Hong Kong dollars. We recorded a netexchange gain of HK$34.7 million (RMB35.8 million) for the nine months ended September 30, 2006,compared to a net exchange gain of HK$59.8 million (RMB63.2 million) for the nine months endedSeptember 30, 2005.

We cannot guarantee that currency fluctuations would not have a material adverse effect on ourreported financial condition in the future.

The PRC legal system is not fully developed and has inherent uncertainties that could limit thelegal protections available to our shareholders.

Our business and operations in China are governed by the PRC legal system. The PRC legalsystem is based on written statutes. Prior court decisions may be cited for reference but have limitedprecedential value. Since the late 1970s, the PRC Government has promulgated laws and regulationsdealing with such economic matters as foreign investment, corporate organization and governance,commerce, taxation and trade. However, as many of these laws and regulations are relatively new andcontinue to evolve, interpretation and enforcement of these laws and regulations involve significantuncertainties and different degrees of inconsistencies. Some of the laws and regulations are still at adeveloping stage and are therefore subject to policy changes. Furthermore, due to the limited volume ofpublished cases and the non-binding nature of prior court decisions, the outcome of a dispute resolutionmay not be as consistent or predictable as in other more developed jurisdictions, which may limit legalprotections available to us. In addition, any litigation in China may be protracted and result in substantialcosts and diversion of resources and management attention.

As an investor holding our shares, you hold an indirect interest in our operations in China throughour Company. Our operations in China are subject to PRC laws and regulations governing companiesincorporated in the PRC. These laws and regulations contain provisions that are required to be includedin the articles of association of companies incorporated in the PRC and are intended to regulate theinternal affairs of these companies. The PRC Company Law and these regulations, in general, and theprovisions for the protection of shareholders’ rights and access to information, in particular, are less

33

RISK FACTORS

developed than those applicable to companies incorporated in Hong Kong, the United States and otherdeveloped countries or regions. Therefore, you do not enjoy those shareholder protections that areavailable in the more developed jurisdictions.

You may experience difficulties in effecting service of legal process and enforcing judgmentsagainst us and our management who reside in China.

A significant portion of our assets and our subsidiaries are located in the PRC. In addition, most ofour Directors and officers reside in the PRC, and the assets of our Directors and officers may also belocated in the PRC. As a result, it may not be possible to effect service of process outside the PRC uponmost of our Directors and officers, including with respect to matters arising under applicable securitieslaws. A judgment of a court of another jurisdiction may be reciprocally recognized or enforced in thePRC if that jurisdiction has a treaty with the PRC or if judgments of the PRC courts have beenrecognized before in that jurisdiction, subject to the satisfaction of any other requirements. Our PRCcounsel, Commerce & Finance Law Offices, have advised us that the PRC does not have treatiesproviding for the reciprocal acknowledgement and enforcement of judgments of courts with Japan, theUnited Kingdom, the United States and most other western countries. In addition, Hong Kong has noarrangement for the reciprocal enforcement of judgments with the United States. As a result, recognitionand enforcement in the PRC or Hong Kong of judgments of a court in these other jurisdictions in relationto any matter not subject to a binding arbitration award are uncertain.

In addition, our shareholders will not be able to bring any action on the basis of violations of theHong Kong Listing Rules and must rely on the Hong Kong Stock Exchange to enforce its rules.Furthermore, the Hong Kong Code on Takeovers and Mergers and Share Repurchases does not havethe force of law and provides only standards of commercial conduct considered acceptable for takeoverand merger transactions and share repurchases in Hong Kong.

If economic and political conditions in the Asia-Pacific region become unfavorable to ourbusiness, our results of operations, financial condition and future prospects may be materiallyadversely affected.

We conduct substantially all of our business and generate most of our revenue in China, theeconomy of which has been increasingly integrated with that of the Asia-Pacific region. As a result,economic conditions in the Asia-Pacific region have a significant effect on our results of operations,financial condition and future prospects.

Changes in political or economic conditions in the Asia-Pacific region are difficult to predict and mayadversely affect our operations, cause this region to become less attractive to business or impactpolitical or economic conditions in the PRC, which may reduce our revenue or profit. For example, theeconomic recession that many Asia-Pacific countries and regions experienced in 1998 and early 1999were characterized by currency fluctuations, liquidity shortages and an overall economic decline in theAsia-Pacific region. It is possible that occurrences of unfavorable economic conditions in the Asia-Pacific region in the future could reduce our revenue or profit and cause us to lower our capitalexpenditures, which may negatively impact our business over time.

In addition, some of the regions and countries in the Asia-Pacific region may experience or continueto experience political instability. The continuation, re-emergence or escalation of such politicalinstability may have a material adverse effect on economic or social conditions in those regions andcountries, and may result in outbreaks of civil unrest, terrorist attacks or threats, or acts of war in theaffected areas, any of which could have a material adverse effect on general economic conditions,consumer confidence and spending and market liquidity in the Asia-Pacific region.

We therefore cannot guarantee that our results of operations, financial condition and futureprospects will not be materially adversely affected by unfavorable economic or political conditions in theAsia-Pacific region.

34

RISK FACTORS

RISKS RELATING TO THE GLOBAL OFFERING AND OUR SHARES

There has been no prior public market for our shares.

Before the Global Offering, there was no public market for our shares. While we have applied tohave our shares listed on the Hong Kong Stock Exchange, we cannot guarantee that an active, liquidpublic trading market for our shares will develop. The Offer Price of our Offer Shares will be determinedby agreement between the Joint Bookrunners, on behalf of the Underwriters, and us and may differsignificantly from the market price for the shares following the Global Offering. You may not be able toresell your shares at a price that is attractive to you or at all.

Our share price may be volatile which could result in substantial losses for investorspurchasing Offer Shares in the Global Offering.

The price and trading volume of our shares may be volatile. The market price of our shares mayfluctuate significantly and rapidly as a result of the following factors, amongst others, some of which arebeyond our control:

( variations of our results of operations (including variations arising from foreign exchange ratefluctuations);

( changes in securities analysts’ estimates of our financial performance;

( announcement by us of significant acquisitions, greenfield developments, strategic alliances orjoint ventures;

( addition or departure of key personnel;

( fluctuations in stock market price and volume;

( involvement in litigation; and

( general economic and stock market conditions.

Stock markets and the shares of Chinese companies have experienced increasing price andvolume fluctuations in recent years, some of which have been unrelated or disproportionate to theoperating performance of such companies. These broad market and industry fluctuations may adverselyaffect the market price of our shares.

Future sale or major divestment of shares by any major shareholder could adversely affect ourshare price.

The sale of a significant number of our shares in the public market after the Global Offering, or thepossibility of such sales, could adversely affect the market price of our shares. Except as otherwisedescribed in ‘‘Underwriting — Underwriting Arrangements and Expenses — Hong Kong PublicOffering — Undertakings’’, there are generally no restrictions imposed on our substantial shareholdersto sell or otherwise dispose of their shareholdings. Any major disposal of shares by any of our majorshareholders may cause the market price of our shares to fall which could negatively impact our abilityto raise equity capital in the future.

Our interests may conflict with those of our controlling shareholder, who may take actionsthat are not in, or may conflict with, our or our public shareholders’ best interests.

Upon completion of the Global Offering, COFCO (HK) will own, in aggregate, approximately 59.4%of our enlarged issued share capital, assuming the Over-allotment Option is not exercised. As such,COFCO (HK) has and will continue to have the ability to exercise a controlling influence over ourbusiness, including matters relating to our management and policies and certain matters requiring theapproval of our shareholders, including election of directors, approval of significant corporatetransactions and the timing and distribution of dividends. Our controlling shareholder will also have veto

35

RISK FACTORS

power with respect to any shareholder action or approval requiring a majority vote (save for matterswhich are subject to independent shareholders’ approval under the Hong Kong Listing Rules and whenour controlling shareholder is not considered independent, in which case our controlling shareholderwould not vote). They may take actions with which you may not agree or which are not in our or ourpublic shareholders’ best interests. This concentration of ownership may have the effect of delaying,deferring or preventing a change in control, discouraging bids for our shares at a premium over themarket price or adversely affecting the market price of our shares.

Further, a number of our Directors and senior management concurrently hold positions withinCOFCO Group. We have in place a corporate governance structure whereby matters considered by ourBoard which involve transactions between our Company and any of COFCO and/or its associates willbe considered and voted on solely by our independent non-executive Directors and decided by majorityvote. Based on the current composition of our Board, Messrs. Ning, Yu, Lu, Chi and Ma will not becounted in the quorum and will abstain from voting on such matters. In addition, they will absentthemselves from Board meetings when such matters are discussed unless expressly requested toattend by a majority of our independent non-executive Directors. This corporate governance system willalso apply to any other existing and future Director who holds concurrent positions within COFCOGroup. We cannot assure you that COFCO will not in the future appoint other members of our Board orsenior management to positions within COFCO Group or that our future Directors will not holdconcurrent positions within COFCO Group. If this occurs, our Company will take appropriate measuresto ensure our continued compliance with the Hong Kong Listing Rules with respect to their corporategovernance requirements, but, nonetheless, the effectiveness of our corporate governance systemcould be adversely affected. To the best knowledge of the Directors and as at the Latest PracticableDate, the Directors confirm that there is no new appointment or planned new appointment of anyexisting Directors or senior management members of the Company as a director or member of seniormanagement of COFCO Group.

We may not be able to pay any dividends on our shares.

Our Company in general meeting may declare dividends in any currency to be paid to the membersbut no dividend shall be declared in excess of the amount recommended by the Board. Our Company ingeneral meeting may also make a distribution to its members out of contributed surplus. No dividendshall be paid or distribution made out of contributed surplus if to do so would render our Companyunable to pay its liabilities as they become due or the realizable value of its assets would therebybecome less than the aggregate of its liabilities and its issued share capital and share premium account.

There is no assurance that we will declare dividends of similar amounts, at similar rates or at all inthe future. Future dividends, if any, will be at the discretion of the Board and will depend upon our futureresults of operations, capital requirements, general financial condition, legal and contractual restrictionsand other factors the Board may deem relevant.

Facts and statistics in this prospectus relating to the PRC economy and the industries inwhich we operate may not be fully reliable.

Facts and statistics in this prospectus relating to China, the PRC economy, and the industries weoperate in are derived from various official publications, including those published by the NationalBureau of Statistics, State Grain Administration, China Energy Statistics Yearbook, National Grain & OilInformation Center, Ministry of Agriculture, China Brewing Industry Association, Ministry of Finance,China Food Industry Yearbook, China National Association of Grain Sector, China Customs, andZhengzhou Commodity Exchange (‘‘Official Sources’’). However, we cannot guarantee the quality orreliability of materials from the Official Sources. The facts and statistics reproduced and extracted fromsuch Official Sources have not been independently verified by us, the Global Coordinator, theUnderwriters, or any of their or our affiliates or advisers. We therefore make no representation as to theaccuracy of such facts and statistics from the Official Sources, which may not be consistent with otherinformation compiled within or outside China. Due to possibly flawed or ineffective collection methods or

36

RISK FACTORS

discrepancies between published information and market practice and other problems, the informationderived from the Official Sources contained in this prospectus relating to the PRC economy and theindustries in which we operate may be inaccurate, or may not be comparable to statistics produced forother economies, and thus should not be unduly relied upon. Furthermore, we cannot guarantee thatthe underlying facts and statistics are stated or compiled on the same basis or with the same degree ofaccuracy, as may be the case in other countries. In all cases, you should give consideration as to howmuch weight or importance you should attach to or place on such information derived from or containedin the Official Sources.

Forward-looking statements contained in the prospectus are subject to risks and uncertainties.

This prospectus contains certain statements that are forward-looking and uses forward-lookingterminology such as ‘‘anticipate’’, ‘‘believe’’, ‘‘expect’’, ‘‘may’’, ‘‘ought to’’, ‘‘should’’ or ‘‘will’’. Purchasersof our shares are cautioned that reliance on any forward-looking statement involves risks anduncertainties and that any or all of those assumptions could prove to be inaccurate. As a result, theforward-looking statements based on those assumptions could also be incorrect. The risks anduncertainties in this regard include those identified in the risk factors discussed above. In light of theseand other risks and uncertainties, the inclusion of forward-looking statements in this prospectus shouldnot be regarded as representations by us that our plans and objectives will be achieved.

Since the Offer Price of our shares is higher than the net tangible asset value per share, youwill incur immediate dilution.

On the assumption that the Over-allotment Option is not exercised and without taking into accountany changes in our net tangible assets after September 30, 2006 other than to give effect to the sale ofour shares pursuant to the Global Offering and the transfer of shareholders loans of HK$2,103.2 millionto us as further elaborated in the section headed ‘‘Financial Information — Indebtedness’’, assuming anOffer Price of HK$3.41 (being the mid point of the indicative offer price range of HK$3.10 and HK$3.72),and after deduction of estimated underwriting fees and expenses (excluding any incentive fee that wemay decide to pay to the Global Coordinator), our pro forma adjusted net tangible assets of the Groupattributable to the equity holders of our Company as at September 30, 2006 would have beenHK$7,429.0 million, or a pro forma adjusted net tangible asset value of HK$2.13 per share. Therefore,purchasers of our shares in the Global Offering will experience an immediate dilution of HK$1.28 pershare, representing the difference between the Offer Price and the pro forma adjusted net tangibleassets per share. If the Global Coordinator exercises the Over-allotment Option or if we issue additionalshares in the future, purchasers of our shares may experience further dilution.

37

FORWARD LOOKING STATEMENTS

This prospectus contains forward-looking statements that are, by their nature, subject to significantrisks and uncertainties. These forward-looking statements include, without limitation, statementsrelating to:

( our business and operating strategies and our various measures to implement such strategies;

( our dividend distribution plans;

( our capital commitment plans;

( our operations and business prospects, including development plans for our existing and newbusiness;

( the future competitive environment for the industries in which we operate;

( the regulatory environment as well as the general industry outlook for the industries in whichwe operate;

( future developments in the industries in which we operate; and

( general economic trends in China.

The words ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’, ‘‘estimate’’, ‘‘expect’’, ‘‘going forward’’, ‘‘intend’’, ‘‘may’’,‘‘plan’’, ‘‘seek’’, ‘‘will’’, ‘‘would’’ and similar expressions, as they relate to us, are intended to identify anumber of these forward-looking statements. Such statements reflect the current views of ourmanagement with respect to future events and are subject to certain risks, uncertainties andassumptions, including the risk factors described in this prospectus. One or more of these risks oruncertainties may materialize, or underlying assumptions may prove to be incorrect. Accordingly, youshould not place undue reliance on such forward-looking information.

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INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING

A1A 2DIRECTORS’ RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS

LR 11.12

LR 11.07

LR 19.08(1)

3rd Sch (3)

This prospectus includes particulars given in compliance with the Hong Kong CompaniesOrdinance, the Securities and Futures (Stock Market Listing) Rules and the Hong Kong Listing Rules forthe purpose of giving information with regard to us. Our Directors collectively and individually accept fullresponsibility for the accuracy of the information contained in this prospectus and confirm, having madeall reasonable enquiries, that to the best of their knowledge and belief there are no other facts theomission of which would make any statement in this prospectus misleading.

UNDERWRITING

The prospectus is published solely in connection with the Hong Kong Public Offering. The listing ofour shares on the Hong Kong Stock Exchange is sponsored by Goldman Sachs (Asia) L.L.C., ourSponsor and Global Coordinator. The Hong Kong Public Offering is underwritten by the Hong KongUnderwriters listed in the section headed ‘‘Underwriting’’, on a conditional basis. One of the conditionsis that the Offer Price must be agreed among us and the Joint Bookrunners (on behalf of theUnderwriters). If, for any reason, the Offer Price is not agreed between us and the Joint Bookrunners(on behalf of the Underwriters), the Global Offering will not proceed and will lapse. For applicantsapplying under the Hong Kong Public Offering, this prospectus and the Application Forms contain theterms and conditions of the Hong Kong Public Offering. The International Offering is expected to beunderwritten by the International Purchasers.

For further information about the Underwriters and the underwriting arrangements, see the sectionheaded ‘‘Underwriting’’.

PROFESSIONAL TAX ADVICE RECOMMENDED

You should consult your professional advisors if you are in any doubt as to the taxation implicationsof subscription for, purchasing, holding or disposing of, and dealing in, our shares (or exercising rightsattached to them) under the laws of the place of your operations, domicile, residence, citizenship orincorporation. We emphasize that none of us, COFCO (HK), the Global Coordinator, the JointBookrunners, the Underwriters or any of our or their respective directors, officers or any other person orparty involved in the Global Offering accepts responsibility for your tax effects or liability resulting fromyour subscription for, purchase, holding or disposing of, or dealing in, our shares or your exercise of anyrights attached to them.

RESTRICTIONS ON THE USE OF THIS PROSPECTUS

No action has been taken to permit a public offering of the Offer Shares, other than in Hong Kong,or the distribution of this prospectus in any jurisdiction other than Hong Kong. Accordingly, thisprospectus may not be used for the purpose of, and does not constitute, an offer or invitation in anyjurisdiction in any circumstances in which such an offer or invitation is not authorized or to any person towhom it is unlawful to make such an offer or invitation. The distribution of this prospectus and theoffering and sales of the Offer Shares in other jurisdictions are subject to restrictions and may not bemade except as permitted under the applicable securities laws of such jurisdictions pursuant toregistration with or authorization by the relevant securities regulatory authorities or an exemptiontherefrom. In particular, the Offer Shares have not been offered and sold, and will not be offered or sold,directly or indirectly, in the PRC.

APPLICATION FOR LISTING OF THE SHARES ON THE HONG KONG STOCK EXCHANGE

A1A 11We have applied to the Listing Committee of the Hong Kong Stock Exchange for the granting oflisting of, and permission to deal in, the shares in issue, the Offer Shares (including any shares whichmay be issued pursuant to the exercise of the Over-allotment Option) and any shares which may beissued pursuant to the exercise of any options that may be granted under our Share Option Scheme.

39


A1A 22Dealings in our shares on the Hong Kong Stock Exchange are expected to commence onWednesday, March 21, 2007. Save as disclosed in this prospectus, no part of our share capital or loancapital is listed on or dealt in on any other stock exchange and no such listing or permission to list isbeing or proposed to be sought in the near future.

OVER-ALLOTMENT AND STABILIZATION

A1A 15(3)(b)

I.E Notes 3,4

Stabilization is a practice used by underwriters in some markets to facilitate the distribution ofsecurities. To stabilize, the underwriters may bid for, or purchase, the newly issued securities in thesecondary market, during a specified period of time, to retard, and if possible, prevent any decline in themarket price of the securities below the offer price. In Hong Kong and certain other jurisdictions, theprice at which stabilization is effected is not permitted to exceed the offer price.

I.E Note 3

A1A 15(3)(a)

In connection with the Global Offering, Goldman Sachs (Asia) L.L.C., as stabilizing manager, or anyperson acting for it, on behalf of the Underwriters, may over-allocate or effect any other transactions witha view to stabilizing or maintaining the market price of our Offer Shares at a level higher than that whichmight otherwise prevail in the open market for a limited period after the commencement of trading in theshares of our Company on the Hong Kong Stock Exchange. Such market purchases of Offer Shares willbe effected in compliance with all applicable laws and regulatory requirements. However, there is noobligation on the stabilizing manager or any person acting for it to conduct any such stabilizing activity,which if commenced, will be done at the absolute discretion of the stabilizing manager and may bediscontinued at any time. Any such stabilizing activity is required to be brought to an end within 30 daysof the last day for the lodging of applications under the Hong Kong Public Offering.

A1A 15(3)(e)

A1A 15(3)(c)

I.E Note 3

Stabilizing action permitted in Hong Kong pursuant to the Securities and Futures (Price Stabilizing)Rules includes (i) over-allocation for the purpose of preventing or minimizing any reduction in the marketprice, (ii) selling or agreeing to sell shares so as to establish a short position in them for the purpose ofpreventing or minimizing any reduction in the market price, (iii) subscribing, or agreeing to subscribe, forshares pursuant to the Over-allotment Option in order to close out any position established under (i) or(ii) above, (iv) purchasing, or agreeing to purchase, shares for the sole purpose of preventing orminimizing any reduction in the market price, (v) selling shares to liquidate a long position held as aresult of those purchases and (vi) offering or attempting to do anything described in (ii), (iii), (iv) or (v).The number of shares that may be over-allocated will not exceed the number of shares that may be soldunder the Over-allotment Option, namely 104,677,000 shares, which is approximately 15% of the newshares of our Company initially available under the Global Offering.

As a result of effecting transactions to stabilize or maintain the market price of our shares, thestabilizing manager, or any person acting for it, may maintain a long position in our shares. The size ofthe long position and the period for which the stabilizing manager, or any person acting for it, willmaintain the long position is at the discretion of the stabilizing manager and is uncertain. Investorsshould be warned that, in the event that the stabilizing manager liquidates this long position by makingsales in the open market, this may lead to a decline in the market price of our shares.

A1A 15(3)(d)

I.E Note 3

Stabilizing action by the stabilizing manager, or any person acting for it, is not permitted to supportthe price of the shares for longer than the stabilizing period, which begins on the day on which trading ofour shares commences on the Hong Kong Stock Exchange and ends on the thirtieth day after the lastday for the lodging of applications under the Hong Kong Public Offering. The stabilizing period isexpected to end on April 12, 2007. As a result, demand for our shares, and their market price, may fallafter the end of the stabilizing period.

I.E Note 3Any stabilizing action taken by the stabilizing manager, or any person acting for it, may notnecessarily result in the market price of the shares staying at or above the offer price either during orafter the stabilizing period. Stabilizing bids for or market purchases of the shares by the stabilizingmanager, or any person acting for it, may be made at or below the Offer Price and can therefore bemade at or below the price paid for the Offer Shares by applicants for, or investors in, the Offer Shares.

40


A1A 15(3)(c)

PN 18(4.3)

I.E Note 3

In connection with the Global Offering, the Global Coordinator may over-allocate up to and notmore than an aggregate of 104,677,000 additional shares and cover such over-allocations by exercisingthe Over-allotment Option or by making purchases in the secondary market at prices that do not exceedthe Offer Price or through stock borrowing arrangements or a combination of these means. In particular,for the purpose of covering such over-allocations, the Global Coordinator may borrow up to104,677,000 shares from Wide Smart Holdings Limited, equivalent to the maximum number of shares tobe issued on a full exercise of the Over-allotment Option, under the Stock Borrowing Agreement.

The Global Coordinator (on behalf of the Company and Wide Smart Holdings Limited) has obtainedfrom the Hong Kong Stock Exchange a waiver from strict compliance with Rule 10.07(1)(a) of the HongKong Listing Rules which restricts the disposal of shares by the controlling shareholder following a newlisting, in order to allow Wide Smart Holdings Limited to enter into and perform its obligations under theStock Borrowing Agreement, on the following conditions:

( the stock borrowing arrangements will only be effected by the Global Coordinator (or itsaffiliate) for settlement of over-allocations in connection with the International Offering;

( the maximum number of shares to be borrowed by the Global Coordinator (or its affiliate) fromWide Smart Holdings Limited will be limited to the maximum number of shares which may besold to the Global Coordinator by Wide Smart Holdings Limited by the exercise of the Over-allotment Option;

( the number of shares borrowed will be returned to Wide Smart Holdings Limited not later thanthe fifth business day following the earlier of (i) the last day on which shares may be sold byWide Smart Holdings Limited pursuant to the Over-allotment Option, and (ii) the day on whichthe Over-allotment Option is exercised in full and the relevant over-allotment shares have beensold;

( the arrangement will be effected in compliance with all applicable laws and regulatoryrequirements; and

( no payments will be made to Wide Smart Holdings Limited in relation to the arrangement.

HONG KONG STAMP DUTY

All Sale Shares sold by COFCO (HK) in the Offer for Sale will be subject to Hong Kong stamp duty,which will be paid by the Qualifying COFCO International Shareholders who elected to transfer theirentitlements to the shares they will receive under the Distribution to COFCO (HK) for cash pursuant tothe Redistribution. Accordingly, no Hong Kong stamp duty is payable by investors in the InternationalPlacing (including the Offer for Sale).

Dealings in our shares will be subject to Hong Kong stamp duty.

PROCEDURE FOR APPLICATION FOR HONG KONG OFFER SHARES

The application procedure for the Hong Kong Offer Shares is set out in the section headed ‘‘How toapply for Hong Kong Offer Shares’’ and on the relevant Application Forms.

STRUCTURE OF THE GLOBAL OFFERING

Details of the structure of the Global Offering, including its conditions, are set out in the sectionheaded ‘‘Structure of the Global Offering’’.

ROUNDING

Any discrepancies in any table between totals and sums of amounts listed therein are due torounding.

41

DIRECTORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING

3rd Sch (6)A1A 41(1)DIRECTORS

Name Address Nationality

Chairman and Non-executiveDirector

NING Gaoning Flat 2, Block C, 18/F Winfield Building, ChineseNo. 1-5, Ventris Road, Happy Valley,Hong Kong

Executive Directors

YU Xubo 20G, Kin On Mansion, Tai Koo Shing Road, ChineseTai Koo Shing, Hong Kong

LU Jun Room 301, Building 1, Yard 1, Donghouheyan, ChineseChongwen District, Beijing, PRC

YUE Guojun No. 6 Huaqiaocun, Jianguomenwai Avenue, ChineseDongcheng District, Beijing, PRC

Other Non-executive Directors

CHI Jingtao Room 2A, Building 10, Guanchengnanyuan, ChineseHaidian District, Beijing, PRC

MA Wangjun Room 1601, Unit 6, Building 1, Yard 1, ChineseDonghouheyan, Chongwen District,Beijing, PRC

Independent Non-executiveDirectors

LAM Wai Hon, Ambrose Apt. 16E-1, Villa Monte Rosa, British41A Stubbs Road, Hong Kong

SHI Yuanchun No. 17, Building 4, Jisheng Villa, ChineseHuilongguan Town, Changping District,Beijing, PRC

Victor YANG House No. 8, Cape Court, 6-16 Cape Drive, CanadianChung Hom Kok, Hong Kong

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A1A 3

A1A 15(2)(h)

OTHER PARTIES INVOLVED IN THE GLOBAL OFFERING

Sole Global Coordinator and Goldman Sachs (Asia) L.L.C.Sponsor 68th Floor, Cheung Kong Center

2 Queen’s Road CentralHong Kong

Joint Bookrunners and Joint Lead Goldman Sachs (Asia) L.L.C.Managers 68th Floor, Cheung Kong Center

2 Queen’s Road CentralHong Kong

BOCI Asia Limited26th FloorBank of China Tower1 Garden RoadHong Kong

Legal Advisors to our Company As to Hong Kong and United States LawHerbert Smith23/F Gloucester Tower15 Queen’s Road CentralHong Kong

As to PRC LawCommerce & Finance Law Offices6F NCI Tower, A12Jianguomenwai AvenueChaoyang DistrictBeijing 100022, PRC

Legal Advisors to the As to Hong Kong and United States LawUnderwriters Freshfields Bruckhaus Deringer

11th floorTwo Exchange Square8 Connaught PlaceCentralHong Kong

As to PRC LawKing & Wood PRC Lawyers40th Floor, Office Tower ABeijing Fortune Plaza7 Dong San Huan Zhong LuChaoyang DistrictBeijing 100020, PRC

A1A 4

3rd Sch (18)

3rd Sch (43)

Auditors and Reporting Ernst & YoungAccountants Certified Public Accountants

18/F, Two International Finance Centre8 Finance StreetCentralHong Kong

43


Property Valuer Savills Valuation and Professional Services Limited23/F, Two Exchange SquareCentralHong Kong

A1A15(2)(f)Receiving Bankers Bank of China (Hong Kong) Limited6th Floor, Bank of China Tower1 Garden RoadCentralHong Kong

Standard Chartered Bank (Hong Kong) Limited15th Floor, Standard Chartered Tower,188 Kwun Tong RoadKwun Tong,Hong Kong

Industrial and Commercial Bank of China (Asia) Limited33rd Floor, ICBC Tower3 Garden RoadCentralHong Kong

44

CORPORATE INFORMATION

A1A 43Registered Office 33rd FloorTop Glory Tower262 Gloucester RoadCauseway BayHong Kong

A1A 42Company Secretary LAM Yee Yan, Daisy, Solicitor, Hong Kong

A1A 42Qualified Accountant LI Wai Kwan, CFA, CMA, ACCA, CGA, CPA

A1A 3Authorized Representatives YU Xubo20G, Kin On MansionTai Koo Shing RoadTai Koo ShingHong Kong

LI Wai Kwan17A, Evelyn Towers38 Cloud View RoadHong Kong

Remuneration Committee CHI Jingtao (Chairman)

LAM Wai Hon, Ambrose

Victor YANG

Nomination Committee NING Gaoning (Chairman)

LAM Wai Hon, Ambrose

Victor YANG

Audit Committee LAM Wai Hon, Ambrose (Chairman)

Victor YANG

MA Wangjun

A1A 3, A1A 43Share Registrar and Transfer Office Progressive Registration Limited26/F Tesbury Centre28 Queen’s Road EastWan ChaiHong Kong

A1A 3, A1A 43Principal Bankers Industrial and Commercial Bank of China Limited55 Fuxingmennei StreetXicheng DistrictBeijing 100032China

45

CORPORATE INFORMATION

China Construction Bank Corporation25 Jinrong StreetXicheng DistrictBeijing 100032China

Bank of China Limited1 Fuxingmennei StreetXicheng DistrictBeijing 100818China

Industrial and Commercial Bank of China (Asia)Limited

33/F, ICBC Tower,3 Garden Road,Central, Hong Kong

Rabobank International (Hong Kong Branch)43/F, Two Exchange Square,8 Connaught Place,Central, Hong Kong

Bank of China (Hong Kong) Limited9th Floor, Bank of China Tower1 Garden RoadCentral, Hong Kong

Compliance Adviser BCOM Securities Company Limited3rd Floor, Far East Consortium Building121 Des Voeux Road CentralHong Kong

46

INDUSTRY OVERVIEW

OVERVIEW OF THE PRC ECONOMY

The PRC economy has grown rapidly over the past two decades. According to the National Bureauof Statistics of China, from 2001 to 2005, the PRC achieved a real compound gross domestic products(‘‘GDP’’) annual growth rate of 9.8%, making China one of the fastest growing economies in the world.According to the World Bank, China is now the fourth largest economy in the world with GDP ofUS$2,229 billion as at December 2005.

This growth has partially been driven by China being the world’s largest domestic consumermarket. China now has a population of approximately 1.3 billion, according to the National Bureau ofStatistics of China, and there has been an accompanying increase in consumer purchasing power.

The GDP per capita of the PRC increased from approximately RMB5,816 in 1996 to approximatelyRMB13,944 in 2005, representing a compound annual growth rate of approximately 10.2%. During thesame period, the average urban household disposable income per capita increased from approximatelyRMB4,839 to approximately RMB10,493, representing a compound annual growth rate of approximately9.0%. Although the household disposable income per capita is still lower than that of many majoreconomies, it indicates the large potential for growth of the PRC economy before it reaches the level ofthose economies. The following diagram shows the GDP per capita, and the average urban householddisposable income per capita in the PRC from 2001 to 2005.

GDP and Average Urban Household Disposable Income per capita

0

4000

8000

12000

16000

20052004200320022001

(RM

B p

er c

apita

)

10,493

13,944

9,422

12,299

6,8608,592

7,7039,368

8,472

10,510

Average Urban Household Disposable Income per capita

GDP per capita

Source: National Bureau of Statistics of China

According to the National Bureau of Statistics of China, an urban household in the PRC spentapproximately RMB2,914 per capita on food in 2005, amounting to approximately 36.7% of total livingexpenditure on average, more than on any other single item, while the PRC industry of processing offood from agricultural products achieved 28% compound revenue growth rate for the period from 2001to 2005 with total revenues reaching RMB1,036.6 billion in 2005. As GDP and personal disposableincome continue to grow, we expect that consumers will seek greater choice and that they willincreasingly demand nutritional, convenient and hygienic quality food, while focusing less on merequantity.

47

INDUSTRY OVERVIEW

The Processing Food from Agricultural Products Industry in China — Total Revenue

0100200300400500600700800900

1,0001,100

2001 2002 2003 2004 2005

781

382452

585

(RM

B b

illio

ns)

1,037


The rapid growth of the PRC economy has driven up, and in turn is also fueled by, the nationalconsumption of energy. China is currently a net importer of crude oil, importing 127 million metric tonsin 2005, representing 42.3% of the national crude oil consumption of the year. China consumed about49 million metric tons of gasoline in 2005, according to the National Bureau of Statistics of China,representing a 3% growth from the previous year.

China National Gasoline Consumption

0

10

20

30

40

50

60

36.0 37.540.7

47.0 48.5

20052004200320022001

(mill

ion

tons

)

Source: National Bureau Statistics of China

THE PRC FUEL ETHANOL INDUSTRY

Fuel ethanol is primarily used as a gasoline blending additive. It is produced through thefermentation of starch and sugar-based agricultural raw materials and then denatured by addinggasoline so that it is not fit for human consumption.

Raw Materials for Producing Fuel Ethanol in China

Fuel ethanol can be produced from agricultural raw materials with high starch and sugar content,such as sugar cane, corn, tapioca, sweet potato, sweet sorghum, wheat and cellulosic material.

Generally, it takes three metric tons of corn to produce one metric ton of fuel ethanol and 0.9 metrictons of the co-product DDGS in a typical dry milling process. Major corn producing provinces in Chinainclude the three northeastern China provinces of Heilongjiang, Jilin and Liaoning, Shandong Province,Hebei Province, Inner Mongolia Autonomous Region and Henan Province. Corn production in the threenortheastern China provinces accounts for over 30% of the total corn production in China. However,

48

INDUSTRY OVERVIEW

because the corn consumption locally is lower than supply and the major industrial markets are faraway, the average corn price in the region is generally lower than that in other regions of China. Thedistribution of corn production by geographical areas in 2005 is as follows:

China Corn Production Geographic Distribution (2005)

2005 total production: 139 million metric tons

Liaoning

8%

Shandong

13%

Hebei

9%Inner Mongolia

8%

Rest of China

32%

Heilongjiang

8%

Jilin

13%

Henan

9%


China imports a very small amount (a few thousand metric tons) of corn each year, but exports afew million metric tons a year, mainly to South Korea, Japan and the Middle East.

The National Grain & Oil Information Center estimates that China produced 142 million metric tonsof corn and that total corn consumption reached 141.5 million metric tons in 2006. The National Grain &Oil Information Center also estimates that industrial use would increase from approximately 26.3 millionmetric tons in 2005 to approximately 30 million metric tons, and animal feed use would increase fromapproximately 89 million metric tons in 2005 to approximately 92 million metric tons.

Historical Corn Production, Consumption and Export

Compound annual2001 2002 2003 2004 2005 growth rate(million metric tons)

Total production ******************** 114.1 121.3 115.8 130.3 139.4 5.1%Total consumption ****************** 111.2 114.0 116.9 118.8 136.7 5.3%Total exports *********************** 6.0 11.7 16.4 2.3 8.6 —

Source: National Bureau of Statistics of China, National Grain & Oil Information Center

Dried sweet potato and tapioca can also be used as raw materials to produce fuel ethanol. Theyhave a higher conversion ratio to fuel ethanol compared with corn but with no commercial co-products.The residue can only be used as fuel with much lower efficiency than coal. Major tapioca producingprovinces in China include Guangxi Zhuang Autonomous Region and Guangdong Province whichaccounted for 92% of national total tapioca producing in 2005, and major sweet potato productionprovinces and municipalities include Sichuan, the City of Chongqing, Shandong, Guizhou, Henan andYunnan, which accounted for 44.7% of national sweet potato production in 2005. The historical domesticproduction of sweet potato and tapioca are as follows:

2001 2002 2003 2004 2005(million metric tons)

Sweet potato ********************************************* 28.5 29.3 28.1 28.5 28.0Tapioca (dried) ******************************************** 5.1 5.0 5.0 5.3 5.5

Source: Ministry of Agriculture of the PRC

49

INDUSTRY OVERVIEW

According to the Ministry of Agriculture, in 2005, 35% of tapioca produced in China was used toproduce starch, 40% used to produce alcohol and 25% used as feed, while 19% of sweet potatoproduced in China was used to manufacture sweet potato noodles, 70% consumed directly as food,10% used as animal feed and only 1% used to make starch. In 2005, China imported around 3.3 millionmetric tons of dried tapioca, based on China Customs figures, mainly used to produce alcohol.

Production of Fuel Ethanol

The two key methods of producing fuel ethanol from corn are referred to as ‘‘dry milling’’ and‘‘wet milling’’.

Dry milling: In this process, the corn is first ground into ‘‘meal’’, and processed withoutseparating the various component parts of the grain. The meal is slurried with water to form a mash.Enzymes are added to the mash to convert the starch to dextrose, a simple sugar. Ammonia is addedfor pH control and as a nutrient for the yeast. The mash is processed in a high-temperature cooker toreduce bacteria levels ahead of fermentation. The mash is cooled and transferred to fermenters whereyeast is added and the conversion of sugar to ethanol and carbon dioxide begins. The fermentationprocess generally takes about 40 to 50 hours. During this process, the mash is agitated and kept cool tofacilitate yeast activity. After fermentation, the resulting ‘‘beer’’ is transferred to distillation columnswhere the ethanol is separated from the remaining stillage. The ethanol is concentrated usingconventional distillation and is dehydrated in a molecular sieve system. The anhydrous ethanol is thenblended with about 2 to 5% denaturant such as natural gasoline. It is then ready for shipment togasoline terminals or retailers. The stillage is fed through a decanter that separates the coarse grainfrom the solubles. The solubles are then concentrated to about 30% solids by evaporation, resulting incondensed distiller’s solubles (CDS) or syrup. The coarse grain and the syrup are then dried together toproduce dried distillers grains with solubles (DDGS), a high-quality and nutritious livestock feed. Thecarbon dioxide released during fermentation is captured and sold for use in carbonating soft drinks andbeverages and manufacturing of dry ice.

In China, as corn oil is a commercial co-product of corn, some producers separate the corn germ toproduce corn oil before the rest of the meal is further processed. The co-product DDGS derived fromthis revised procedure contains less protein as compared with that from the standard dry milling processdescribed as above.

Wet milling: In this process, the corn is steeped in water and diluted with sulfurous acid for 24 to48 hours. This steeping process facilitates the separation of the grain into its many component parts.After steeping, the corn slurry is processed through a series of grinders to separate the corn germ. Thecorn oil from the germ is either extracted on site or sold to crushers who extract the corn oil. Theremaining fiber, gluten and starch components are further segregated using centrifugal, screen andhydroclonic separators. The steeping liquor is concentrated in an evaporator. This concentratedproduct, heavy steep water, is co-dried with the fiber component and is then sold as corn gluten feed tothe livestock industry. Heavy steep water is also sold by itself as a feed ingredient. The glutencomponent (protein) is filtered and dried to produce the corn gluten meal co-product. This product ishighly sought-after as a feed ingredient in poultry broiler operations. The starch and any remainingwater from the mash can then be processed in one of three ways. They may be fermented into ethanol,dried and sold as dried or modified corn starch, or processed into corn syrup. The fermentation processfor ethanol is very similar to the dry mill process described above.

Although the two processes feature numerous technical differences, the main trade-off of wetmilling is a higher capital cost in return for flexibility to switch between producing food-related productsand fuel ethanol, while dry milling is limited to producing only fuel ethanol at a lower capital cost. Dry-milling ethanol production facilities constitute the majority of new ethanol production facilities beingconstructed in the past five years in the world because of the increased efficiencies and lower capitalcosts of dry-milling technology.

50

INDUSTRY OVERVIEW

Milling procedures for raw materials such as sweet potato and tapioca are similar to the dry millingmethod of processing corn, but yield no commercial co-products.

Consumption of Fuel Ethanol

Fuel ethanol is used mainly as a fuel oxygenate which, when blended with gasoline, allows enginesto combust fuel more completely to reduce emissions from motor vehicles and to generate less carbondioxide. Fuel ethanol can also be used by gasoline suppliers as an octane enhancer both for producingregular grade gasoline from lower octane blending additives and for upgrading regular gasoline topremium grade gasoline.

The usage of fuel ethanol in China is regulated by the National Development and ReformCommission. China first started to blend fuel ethanol with gasoline in September 2000, when theNational Development and Reform Commission launched a fuel ethanol pilot scheme in the threenortheastern China provinces of Heilongjiang, Jilin and Liaoning, the major corn production sites. InFebruary 2004, the pilot scheme was expanded further to another six provinces including Henan, Anhui,Hebei, Shandong, Jiangsu, and Hubei. Starting from February 2004, the National Development andReform Commission has approved the pilot scheme in the above nine provinces to blend fuel ethanolwith gasoline at a 1:9 ratio, a ratio that does not require any modification to vehicles engines.

As at the end of 2005, the above provinces were able to provide 10.2 million metric tons of theblended gasoline, equivalent to around 20% of the total national gasoline consumption for the year,according to the National Development and Reform Commission.

According to the National Development and Reform Commission, the total consumption of fuelethanol in the PRC is expected to increase to five million metric tons by the end of 2010, and to10 million metric tons by the end of 2020.

51

INDUSTRY OVERVIEW

Supply of Fuel Ethanol

The supply of fuel ethanol in China is also regulated by the National Development and ReformCommission. Four projects have been approved by the National Development and Reform Commissionto produce fuel ethanol since 2002. The operators of these projects are Heilongjiang Alcohol, Jilin Fuel,Anhui BBCA Biochemical Co. Ltd. and Henan Tianguan Fuel Ethanol Co. Ltd.

Capacity as at Ownership Structure as atName the end of 2005 the end of 2006 2006 1H Production

(thousand (thousand metricmetric tons) tons)

Anhui BBCA Biochemical Co. ( Anhui Fengyuan Group 174.3Ltd. ********************* 440.0 (24.7%) provincial SOE

( A share public (74.73%)( Other legal entities (0.58%)

Henan Tianguan Fuel ( Sinopec Group (20%) 188.3Ethanol Co. Ltd.********** 300.0 ( Henan Provincial Investment

Company (20%)( Henan Tianguan Group

(60%)

Jilin Fuel ****************** 400.0 ( China National Petroleum 187.4Corporation (55%)

( Jiliang Group (25%)( China Agri-Industries

Holdings Limited (20%)(1)

Heilongjiang Alcohol ******** 180.0 ( China Agri-Industries 74.0Holdings Limited (100%)(1)

Source: The websites and interim reports of the above relevant companies

Note:

(1) Such shareholding has been transferred to us under the Reorganization.

The following table sets forth the historical production of fuel ethanol of the above four producersfrom 2003 to the first half of 2006.

2003 2004 2005 2006 1H(thousand metric tons)

Total fuel ethanol production ********************************** 58.0 218.0 772.0 624.0Source: China Brewing Industry Association

Investment in each single fuel ethanol project requires official approval from the NationalDevelopment and Reform Commission. The National Development and Reform Commission alsooperates a bidding process to select the appropriate entity to conduct selected fuel ethanol projectsfrom time to time.

The fuel ethanol producers sell their products to major gasoline retailers including PetroChina andSinopec. Gasoline retailers provide facilities to blend fuel ethanol with gasoline and also upgrade theirown gasoline station facilities to accommodate the mixed fuel.

Pricing and Subsidy

On February 10, 2004, the National Development and Reform Commission together with eightother government departments published a notice on pricing, subsidy and tax preferential policies forfuel ethanol producers.

The selling price of fuel ethanol is currently set at 91.11% of the guidance wholesale price of No. 90gasoline set by the National Development and Reform Commission from time to time.

52

INDUSTRY OVERVIEW

Fuel ethanol producers also enjoy a waiver of the 5% consumption tax, a refund of all VAT, andfurther benefits from the financial subsidy policy. The financial subsidy, a fixed amount per metric ton offuel ethanol produced, is set by the Ministry of Finance and subject to adjustments from time to time.The following table states the subsidy approved by the Ministry of Finance from 2004 to 2008 for eachfuel ethanol producer:

2004 2005 2006 2007-2008(RMB/metric ton)

Heilongjiang Alcohol 1,883 1,628 1,373 1,373Jilin Fuel 2,736 1,673 1,373 1,373Henan Tianguan Fuel Ethanol Co. Ltd. 2,070 1,647 1,373 1,373Anhui BBCA Biochemical Co. Ltd. No sales yet 1,883 1,628 1,373

Source: Ministry of Finance of the PRC, company public filings

As at the Latest Practicable Date, there is no indication from the Ministry of Finance about potentialchanges in these subsidies.

Recent Industry Policy Development

On September 30, 2006, the Ministry of Finance, the National Development and ReformCommission, the Ministry of Agriculture, the State Administration of Taxation and the State ForestryAdministration jointly published a notice on the financial support and preferential tax policies for thebiofuel and biochemical industry. On December 14, 2006, the National Development and ReformCommission and the Ministry of Finance published a notice on the supervision of fuel ethanol greenfieldprojects. The two notices set out the government’s policy direction for this industry before the officialpublication of ‘‘The 11th Five-Year Plan for Fuel Ethanol’’ which is in the process of discussions andapprovals. According to the notices, biofuel industry development should not adversely affect foodsupply security, and the government is encouraging biofuel projects to use non-grain feedstocks suchas sweet potato, tapioca and sweet sorghum or feedstocks on undeveloped land resources.Government financial support and preferential tax policies will be designed to incentivise operatingefficiency and promote fair competition. It is also intended that a risk fund be established, as part of thesubsidy mechanism, funded through payments by producers to help support the level of subsidy asnecessitated by market forces and which should be flexible and adaptable to commodity market trends.A subsidy will be introduced to encourage the development of biofuel feedstock on the undevelopedland. All fuel ethanol projects should be submitted for the National Development and ReformCommission’s approval before its construction, and the combination of biofuel and biochemicalindustries is highly encouraged, to speed up the industrialization of biology resources.

Corn Processing Industry in the PRC

Apart from fuel ethanol and animal feed, corn can also be processed into starch, the basic materialfor further processing into three main categories of biochemicals, including sweeteners (crystal sugar,glucose syrup, maltose, maltodextrin, fructose syrup, and corn syrup) that can replace sugar for foodand beverages; amino acids, such as glutamic acid or monosodium glutamate, that are used as foodadditives; organic acid including lactic acid and polylactic acid that can be used for degradable plastic.With fuel ethanol processed from corn, ethylene and glycol can also be produced as raw materials forpolymers as hydrocarbon energy prices increase.

53

INDUSTRY OVERVIEW

The following table shows the production of the above major products processed from corn in Chinafor the period from 2001 to 2005.

Compound annual2001 2002 2003 2004 2005 growth rate Usage(thousand metric tons)

Denatured starch *** 350 400 450 530 700 18.9% Industrial useGlucose/maltose **** 1,070 1,760 1,940 2,066 2,570 24.5% Food and

beverageCrystal************* 365 642 784 900 1220 35.2% MedicalFructose syrup ***** 30 40 60 140 230 66.4% BeverageMaltodextrin ******** 135 158 216 367 510 39.4% Powdered

foodMonosodium

glutamate ******** 912.8 1,102.8 1,189.8 1,153.0 1,359.7 10.5% Food

Source: Beijing Oriental Agribusiness Consulting

High value-added products such as organic ethylene, glycol, and polylactic acid are not widelyproduced or not produced at all in China.

The top five corn processors and their market positions are listed below.

Corn Processing Market ShareName Major Products Capacity in 2005 in 2005

(thousandmetric tons)

Zhucheng Xingmao Corn Starch 2,500 10%Developing Co., Ltd. *********

Global Bio-chem Technology Amino acid 2,000 8%Group Company Limited *****

Xiwang Group Co., Ltd. ******** Sweeteners 1,200 5%Luzhou Group **************** Sweeteners 1,500 6%China Resources (Jilin) Bio- Denatured starch and sweeteners 950 4%

chemical Co., Ltd. ***********

Source: Beijing Oriental Agribusiness Consulting

Corn is purchased and sold in regional markets rather than national markets due to transportationlimitations. Its price may be affected by the weather and the supply and demand of the regional markets.Corn futures are also traded on the Dalian Commodity Exchange. The following diagram showshistorical corn prices (including 13% VAT) for the past six years in the three provinces of northeasternChina.

Heilongjiang Jilin Liaoning

(RMB/metric ton)

2001 ********************************************************* 1,019 1,049 1,1552002 ********************************************************* 925 939 1,0252003 ********************************************************* 972 1,002 1,0892004 ********************************************************* 1,103 1,144 1,2372005 ********************************************************* 1,068 1,105 1,2062006 ********************************************************* 1,142 1,192 1,285

Source: National Grain & Oil Information Center

THE PRC OILSEED PROCESSING INDUSTRY

Oilseeds such as soybeans, peanuts, and rapeseeds can be processed to produce edible oil, feedmeal and fats.

54

INDUSTRY OVERVIEW

Edible oil can be categorized by its raw materials: soybean oil, peanut oil, rapeseed oil, sunflowerseed oil, palm oil, cottonseed oil, corn oil, etc. It can also be classified according to its level ofprocessing: crude oil, fourth grade oil, third grade oil, second grade oil and first grade oil.

Edible Oil Consumption

In China, soybean oil and rapeseed oil are the major edible oils that people consume. For theperiod from 2001 to 2005, the total edible oil consumption in China achieved compound annual growthrate of 9.2%, while soybean oil consumption in particular achieved compound annual growth rate closeto 20%. China also exports very small amounts of edible oil mainly soybean oil, rapeseed oil and peanutoil to Malaysia, Japan, South Korea, North Korea and other Asian countries.

Compound annual2001 2002 2003 2004 2005 growth rate(thousand metric tons)

Total edible oil export********** 136 104 41 45 69 —Total edible oil consumption(1) ** 13,077 13,838 16,394 17,442 18,575 9.2%

Soybean oil consumption **** 3,542 4,137 6,389 7,174 7,214 19.5%Rapeseed oil consumption *** 4,307 4,213 3,658 4,363 4,756 2.5%

Source: United States Department of Agriculture

Note:

(1) Includes the consumption of soybean oil, rapeseed oil, peanut oil, cottonseed oil, sunflower seed oil, palm oil, palm kerneloil, and cocoa butter.

During the same time, edible oil consumption per capita in China grew from 11 kilograms per capitaper year in 2001 to 16 kilograms per capita per year in 2005. However, this is still only half that of thedeveloped countries and region (34 kilograms per capita for the US and 33 kilograms per capita for theEuropean Union) according to the Food and Agriculture Organization of the United Nations and theUnited States Department of Agriculture. The growth of edible oil consumption may be attributed to thetrend of replacing homemade animal oil with such edible oil for cooking, increasing disposable income,a growing appetite for healthy edible oil and fast growth of the food processing industry as a result ofnatural population growth and urbanization. People in China consume both animal fats and vegetablesoil, with total consumption around 25 million metric tons in 2005, for which vegetable oil accounts for80%, according to the United States Department of Agriculture. There is still large potential forvegetable edible oil to largely replace less healthy animal fats. Every year, about 20 million Chinesepeople move from rural areas into urban areas, and by the end of 2010, the urbanization ratio in thePRC may reach 38%, based on data from the National Bureau of Statistics of China. Increasingdisposable income and continued urbanization has encouraged the industrial use of edible oil in theproduction of convenience food for a growing number of the population who lead a faster-paced life.Consumers are also increasingly conscious of the health benefits of these edible oils.

Oilseed Meal Consumption

Oilseed meals can also be categorized by their raw materials: soybean meal, rapeseed meal etc.,and can be used for producing feed for poultry, livestock and aquatic livestock.


Total animal feed consumption************ 78.1 83.0 87.1 96.7 103.0 7.2%Total oilseed meals consumption********** 29.2 29.9 33.2 36.0 37.1 6.2%

Soybean meal consumption ************ 15.0 15.2 20.2 19.5 22.8 11.9%

Source: National Grain & Oil Information Center, China Feed Industry Association, United States Department of Agriculture

According to the United States Department of Agriculture, soybean meal accounted for 61.3% ofthe total consumption of oilseed meals in the PRC in 2005, used mainly for feeding livestock; rapeseed

55

INDUSTRY OVERVIEW

meal for 20.9%, mainly used for feeding aquatic livestock; cottonseed meal for 9.6%; peanut meal for7.4%; with the other various oilseed meals accounting for 5%.

With the growth of the PRC economy and rising disposable income, the consumption of meat,eggs, dairy and aquatic products has also been increasing. This has propelled feed meal production toincrease at an average annual growth rate of 8% in the past five years according to the United StatesDepartment of Agriculture. It is estimated that total feed meal consumption will increase to 140 millionmetric tons by 2010, with soybean meal consumption reaching 31 million metric tons.

Oilseed Products Supply

In line with the growth in consumption of edible oil and consumption of oilseed meals, the domesticproduction of both products have grown at a compound annual rate of 6.3% and 7.9%, respectively,during the period from 2001 to 2005.

Despite the overcapacity in the industry, China imported a significant portion of its oil consumptionin 2005, mainly palm oil (65.9%) and palm kernel oil (5.4%), used in the industrial production ofpackaged food, and high-quality crude soybean oil (25.9%), according to China Customs. After Chinaentered the World Trade Organization in December 2001, the tariff for imported edible oil was reducedto 9%. This has encouraged more competition in the domestic supply market.

Oilseed meals produced in China are primarily consumed domestically, with the remainingexported to nearby Asian countries.


Total edible oil production(1) ************** 10.8 11.3 11.8 12.0 13.8 6.3%Total edible oil import******************** 2.91 3.3 5.7 7.1 6.7 23.2%Total oilseed meal production************* 28.7 29.9 33.6 33.5 38.9 7.9%

Source: United States Department of Agriculture

Note:

(1) Includes the production of soybean oil, rapeseed oil, peanut oil, cottonseed oil, sunflower seed oil, palm oil, palm kernel oil,and cocoa butter.

The oilseed processing industry in the PRC is undergoing consolidation. Currently there are over1,000 producers operating at an average utilization rate of lower than 40%. Smaller processors withoutstable procurement of raw materials, the ability to manage price risk, economies of scale or any productresearch and development are being forced to withdraw from the market gradually as their margins aresqueezed. The number of total producers has decreased over the years and more market share isconcentrated on fewer processors.

Total Number of Oilseed Processors with Daily Processing CapacityExceeding 30 metric tons

Number of oilseed processors 2003 2004 2005

H 1,000 metric tons per day ******************************************* 37 47 63400 to 1,000 metric tons per day**************************************** 50 74 85200 to 400 metric tons per day ***************************************** 87 107 151100 to 200 metric tons per day ***************************************** 224 187 22030 to 100 metric tons per day ****************************************** 1,095 475 524Total ***************************************************************** 1,493 890 1,043

Source: China Food Industry Yearbook, 2005 and the Statistics Report of National Grains & Oil Processing Industry

56

INDUSTRY OVERVIEW

The top five soybean processors took up a total share of nearly two-thirds of the PRC market at theend of 2005.

CrushingName Capacity Market Share

(millionmetric tons/year)

Yihai Group**************************************************** 4.84 17.9%COFCO Group(1) *********************************************** 4.11 15.2%Cargill Group ************************************************** 3.72 13.8%Heilongjiang Jiusan Oil & Fat Co., Ltd. **************************** 2.25 8.3%Dalian Hualiang (Jinshi) Enterprise Group Co. Ltd. ***************** 1.42 5.2%Total ********************************************************** 16.34 60.4%

Source: China National Association of Grain Sector

Note:

(1) The soybean processing business has been transferred to us under the Reorganization.

Raw Materials for Oilseed Processing

Oilseeds are available in both domestic and international markets. Peanuts and rapeseeds can bepurchased within China, while soybeans are mostly imported. Soybeans are traded on the DalianCommodity Exchange in China and other commodity exchanges all over the world. The prices andsupply volumes are both influenced by the weather and the crop harvest in the major productionregions.

The cost, insurance and freight (CIF) price of imported soybeans is calculated by totalling thesoybean free on board (FOB) price, transportation fees, insurance, uploading and downloadingexpenses.

The following table shows the average CIF price of imported soybeans in China for the period from2001 to 2005:

201.6 219.4

261.3

344.9295.7

0

50

100

150

200

250

300

350

2001 2002 2003 2004 2005

(US

$/m

etric

ton)

Source: China Customs

International soybean prices have been increasing, just as China has been increasing its demand,and have been driven higher by lower production in US in 2003 and 2004. With recovery in production inthe US in 2005, the average price decreased by 14% in 2005 from the previous year.

THE PRC RICE TRADING AND PROCESSING INDUSTRY

China is the largest rice producing country in the world. Consumers in China mainly consume threekinds of rice: long grain (indica rice), short grain (japonica rice) and glutinous rice. Long grain rice growsin the southern part of China (south of the Yangtze River), is slim and long, and yields normally two tothree crops a year. Short grain rice grows in the northern part of China (north of Yangtze River), is round

57

INDUSTRY OVERVIEW

and short, and normally yields only one crop a year. Glutinous rice can be both long grain and shortgrain.

Rice can also be categorized by the way it is processed: brown rice, white rice, parboiled rice andbroken rice. Paddy after peeling off the chaff becomes brown rice, and brown rice can be further milledinto white rice by removing the skin. Parboiled rice is produced by soaking paddy in hot water, steaming,drying and milling it. Parboiled rice is less sticky, with a higher output ratio and higher nutrition content.Since Chinese consumers are not accustomed to parboiled rice, domestically produced parboiled rice isprimarily exported to Africa, Central Asia and the Middle East.

The PRC rice industry generally is influenced by several major factors, including relatedgovernment policies that encourage agricultural production, international trade, the minimum purchaseprice and land use, technological breakthroughs that can improve productivity and result in theinnovation of new products, weather, and consumer preferences.

For the period from 2001 to 2005, the production, import and export, and consumption of paddy inChina are set out in the table below.

2001 2002 2003 2004 2005(thousand metric tons)

Total production of paddy ****************** 177,580 174,539 160,656 179,088 183,000Total export ****************************** 1,848 1,965 2,589 882 690

COFCO Group ************************* 1,520 1,656 2,200 642 515Others(1) ******************************* 328 309 389 240 175

Total import ****************************** 295 236 257 761 514COFCO Group ************************* 295 154 64 62 47Others(1) ******************************* — 82 193 699 467

Total consumption ************************ 197,765 197,600 190,861 184,900 182,000Food consumption ********************** 153,000 153,000 152,000 152,000 153,000Feed and seed consumption ************* 31,800 28,700 25,100 22,200 19,000Industrial consumption ****************** 2,200 2,200 2,500 2,500 2,600Others********************************* 12,765 13,700 11,261 8,200 7,400

Source: China Customs, China Food Industry Yearbook

Note:

(1) Including border trading volumes

According to the China Food Industry Yearbook 2005, the major rice producing provinces includeHunan, Jiangsu, Jiangxi, Sichuan, Hubei, Anhui, Heilongjiang, Guangdong and Guangxi. Theseprovinces account for over 70% of the country’s total rice production. The country’s rice production isstable, usually above 170 million metric tons per year. However, there has been a decrease inproduction since 1997 and production fell to its lowest level in 2003, mainly due to a decrease inproduction area. Production increased 11% in 2004 as a result of a series of stimulus policies by thecentral government including setting a minimum purchase price for long grain early crop rice in its mainproduction regions of RMB1.40 per kilogram, taking out a certain percentage of the national landpremium to fund the development of agricultural land, increasing the agricultural subsidy funding formajor agricultural products, opening the rice purchase market, and reducing the agricultural tax by onebasis point. Rice production in 2005 increased further with the continuance of these stimulus policies.

According to the 2005 Statistics Report of National Grains & Oils Processing Industry, there were7,260 rice processors in China at the end of 2005, with a total processing capacity of 124.5 millionmetric tons per year. However, the industry remains very segmented, with 82% of the players beingsmall processors with daily processing capacities below 100 metric tons. COFCO is the only riceprocessor that produces parboiled rice.

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INDUSTRY OVERVIEW

2001-2005 Top Rice Consumption Provinces

Heilongjiang

11%

Jiangxi

10%

Hubei

10%

Hunan

9%

Anhui

9%

Jiangsu

7%

Sichuan

6%

Guangdong

4%

Jilin

3%

Liaoning

3%

Others

28%

Source: Statistics of State Grain Administration

Southern China, especially the areas along the Yangze River including the provinces of Hunan,Hubei, Jiangxi, Anhui and Jiangsu, traditionally consumes most of the rice in China and represents 44%of national rice consumption. People in northern China have gradually been changing their consumptionhabits by eating more rice. Chinese consumers are gradually starting to consume high-quality, nutritiousand branded rice, especially in the Yangtze River Delta area and Pearl River Delta area.

Rice price in the domestic market is determined by supply and demand in any given year. However,according to the notice published in March 2006 by the National Development and Reform Commission,the Ministry of Finance, the State Grain Administration and China Agricultural Development Bank, aminimum purchase price for long grain early crop rice produced in Anhui, Jiangxi, Hubei, and Hunanprovinces was set at RMB1.40 per kilogram.

The rice exports from China are regulated by the Chinese government which issues licenses toexport companies and determines the export quota each year. Since the PRC entered the World TradeOrganization in December 2001, rice exports have been defined as a state-owned trading business.Only two state-owned enterprises are licensed to conduct such business in China: Jilin Grain GroupCo., Ltd. ( ) and COFCO. COFCO exports 70% to 80% of the total export volumeeach year. During the seven years from 1997 to 2003, the average amount of rice exported from Chinawas approximately two million metric tons per year. As there was a big paddy production cutbackdomestically in 2003, the government reduced the export volume in 2004 and 2005 to secure domesticdemand.

Rice products for export include paddy, white rice and brown rice of long grain and short graintypes, and parboiled rice processed from long grain rice, especially long grain early crop rice.

After China’s entry into the World Trade Organization in December 2001, both state-owned andprivately owned entities may import rice, subject to tariff rate quotas. Traditionally, China imports ricemainly from Thailand.

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INDUSTRY OVERVIEW

The pricing of rice on the international market is determined by worldwide supply and demand. AsThailand is the largest rice exporter in the world, Thai rice with 25% broken rice content is used as thebenchmark for rice prices. The chart below illustrates the historical price of Thai rice compared toChinese rice, both with 25% broken rice content.

2001-2005 Rice Trading Price Trend

225

250

150

169170

175175

182253

260

0

50

100

150

200

250

300

0

50

100

150

200

250

300

2001 2002 2003 2004 2005

US

$ /

me

tric

to

n

Thailand Rice PRC Rice

Source: The Rice Trader

Because of good harvests before 2003, there was an oversupply in the international rice marketwhich suppressed prices. The price increase in 2004 was caused by a number of major rice supplyingcountries, including China, halting nearly all of their rice exports.

THE PRC BREWING MATERIALS INDUSTRY

Barley malt is to beer what grapes are to wine; it is regarded as the ‘‘soul’’ of the beer, andresponsible for giving beer its color and sweet flavor, and most importantly, the sugars needed forfermentation.

Converting barley into malt involves steeping malting barley in water under controlled conditions forone to three days until a desired moisture level is achieved. The wet barley is then transported toanother vessel, called a germination box, where it is allowed to germinate under controlled conditionsfor four to five days. The barley kernel begins to grow, converting stored energy into usable simplesugars. At this point, the grain is called ‘‘green malt’’. It is then moved to kilns, where it is heated anddried to stop the germination process and reduce the moisture level. The malt takes on its distinct colourand flavor during kilning which can last up to a day. Malt by-products such as screening husks and rootare separated and used as animal feed. Malt is mostly used to produce beer. To a small extent, malt canalso be used by the distilling industry to produce hard liquors, and by the food industry to produce somecake mixes and breads.

1.25 metric tons of barley is needed to produce one metric ton of malt, and malt makes up roughly8% of the cost of beer production. Furthermore, as conducting malting business requires expertise inagricultural commodity procurement and extensive capital outlay, most breweries prefer to purchasemalt from third parties instead of producing malt themselves. However, as the quality of malt determinesthe taste, characteristics and nutrition of the beer and is therefore critical to beer producers, breweriesnormally work very closely with their malt suppliers to decide together the specifications of the brewingmalt and to develop new products.

Brewing malt can be categorized by the different types of barley it is produced from: two-row, four-row and six-row barley malts, with different characteristics and specifications. There are also specialtymalts including dark roasted malt, crystal malt, chocolate malt etc. produced from special procedures toadd to beer.

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INDUSTRY OVERVIEW

The PRC beer industry has grown at a compound annual growth rate of 7.5% over the period from2001 to 2005. More people are used to drinking beer due to the impact of internationalization andurbanization that has resulted in changes of lifestyle and consumption habits. The following table showshow the consumption growth of beer in China from 2001 to 2005 has resulted in a compound annualgrowth rate of 8.7% for the consumption of malt of which 70% is from imported barley.

Compound annual2001 2002 2003 2004 2005 growth rate

Beer sales volume (million liters)*********** 22.7 24.3 26.0 27.7 29.4 6.7%Beer production (million liters) ************* 22.7 23.9 25.4 29.1 30.6 7.8%Malt sales volume (million metric tons)(1) **** 1.7 1.8 1.9 2.2 2.3 7.8%Consumption of malt processed from

imported barley (million metric tons)(1) **** 1.2 1.2 1.1 1.5 1.6 7.5%

Source: National Bureau of Statistics of China, Euromonitor, Dalian COFCO Malt Co., Ltd.

Note:

(1) Excluding the self-produced malt volumes.

According to Euromonitor, such beer consumption growth is expected to continue from 2006 to2010, but at a slightly slower pace since the PRC market is expected to be gradually saturated in thenext five years.

Compound annual2006 2007 2008 2009 2010 growth rate

Beer consumption (million liters)************ 31.1 32.9 35.0 36.9 38.7 5.6%

Source: Euromonitor

China’s malt consumption varies geographically, with eastern China being the top beer productionarea and where consumers are picking up beer drinking lifestyles with higher disposal income andgreater internationalization influence than before. Northern and northeastern China have a long historyof beer drinking and are China’s second highest beer production area. Our two brewing malt productionfacilities are located in the above two areas.

In eastern China, where China had its largest beer production, 11.2 million metric tons wereproduced in 2005, representing 36.6% of China’s total beer production, and demand for malt was mainlyfor imported malt.

In the northern and northeastern China markets, beer production in 2005 was 8.7 million metrictons, accounting for 28.5% of the total beer production in China, and demand for malt was around 50%for imported malt and 50% for domestic malt.

Currently, China has more than 100 brewing malt producers. The following table shows the top fivemalt producers that accounted for over 50% of the PRC market in 2005:

Location Capacity

Dalian COFCO Malt Co., Ltd. *********** Dalian, Liaoning Province 300,000 metric tonsGuangzhou Malting Co. **************** Guangzhou, Guangdong Province 200,000 metric tonsNingbo Malting Company Limited ******* Ningbo, Zhejiang Province 200,000 metric tonsHarbin Longken Malting Co. ************ Harbin, Heilongjiang Province 200,000 metric tonsChengde Sihai Co. ******************** Chengde, Hebei Province 270,000 metric tons

Source: The websites of the above relevant companies.

Malting barley (with 10% to 12% protein content) can be purchased within China and from themajor producing countries such as Australia, Europe, and Canada. The prices and supply volumes areall influenced by weather and crop harvests in the major production regions. The CIF price of importedbarley consists of the FOB price, transportation fees, insurance, uploading and downloading expenses,3% customs tax and 13% VAT tax.

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INDUSTRY OVERVIEW

The following table shows the average CIF price of imported malting barley in China for the past fiveyears:

161 153

197 188 197

0

50

100

150

200

250

2001 2002 2003 2004 2005

(US

$ p

er m

etri

c to

n)

Source: China Customs

Australia, a major barley exporting country, suffered a severe drought during the 2002/2003 cropseason, resulting in a price hike of more than US$80 per metric ton in 2003, while a weakeningUS dollar and surging bulk freight helped maintain the barley price at a high level for 2004 and 2005.

THE PRC WHEAT PROCESSING INDUSTRY

In China, roughly 85% of wheat consumption each year is used to produce general purpose flour,catering mostly to the rural population who do not require differentiation among the flour products andcustomized flour catering mostly to the urban population and industrial usage. Customized flourincludes steaming flour (used to produce Chinese dim sums that can be steamed), boiling flour (used toproduce noodles and dumplings that can be boiled) and baking flour (used to bake bread, biscuits andcakes). Different specifications of wheat and processing procedures are required for different usages.Otherwise, wheat is used in animal feed products, seeding, other industrial consumption or exported.

Demand for and Consumption of Flour

Close to 90% of the flour consumed in the PRC is low quality general-purpose flour with the lowestprofit margin. Around 2% is customized steaming and boiling flour used to produce traditional Chinesedim sums, noodles, and dumplings; and roughly 10% is customized baking flour with the highest profitmargin. However, the trend of consuming bakery products due to the influence of western culture andlifestyle changes has increased the demand for baking flour.

The table below sets fourth the national consumption volume from 2001 to 2005:


Consumption of general flour ******************************* 20.8 24.0 24.4 27.8 30.5Consumption of customized flour**************************** 2.3 3.1 3.5 3.8 4.3Consumption of baking flour ******************************** 1.4 1.9 2.3 2.5 3.5Consumption of steaming and boiling flour ******************* 0.9 1.2 1.2 1.3 0.8Total flour consumption ********************************** 23.1 27.1 27.9 31.6 34.8

Source: China Grain Industry Association

Supply of Flour

The flour supply market is fragmented with many small producers that produce low-margin productsusing outdated techniques at a low utilization rate. According to the 2005 Statistics Report of NationalGrain & Oil Processing Industry, there were altogether 2,815 wheat processors with a total wheatprocessing capacity of 80.9 million metric tons per year in the PRC in 2005. Among these processors,1,848 wheat processors had a daily wheat processing capacity below 100 metric tons, 827 wheat

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INDUSTRY OVERVIEW

processors had a daily wheat processing capacity between 100-200 metric tons, 114 wheat processorshad a daily wheat processing capacity between 400 to 1,000 metric tons, and only 26 wheat processorshad a daily wheat processing capacity above 1,000 metric tons. However, the market has been in aphase of consolidation for several years, and the total number of wheat processors has reducedsignificantly, while the total number and market share of big wheat processors have increased and theaverage industry utilization rate has significantly improved.

The production of general purpose flour is mainly in northern and central China, while theproduction of customized flour is mainly in eastern and southern China.

The table below sets forth the national production volume from 2001 to 2005:


Customized flour ****************************************** 2.3 3.1 3.5 3.8 4.3General purpose flour************************************** 20.8 24.0 24.4 25.6 30.3Total production****************************************** 23.1 27.1 27.9 29.4 34.6


The following table sets forth the industry consolidation situation since 2002.

Total Number of Small to medium Big Wheat Super BigYear Wheat Processors Wheat Processors(1) Processors(1) Wheat Processors(1) Utilization Rate

2002 ********* 6,590 6,543 43 4 38%2003 ********* 3,500 3,410 80 10 41%2004 ********* 1,990 1,880 95 15 51%2005 ********* 2,815 2,675 114 26 61%


Note:

(1) Small to medium wheat processors refer to those with a daily wheat processing capacity below 400 metric tons; big wheatprocessors to those with 400 or 1,000 metric tons wheat processing capacity per day; super big wheat processors to thosewith a wheat processing capacity above 1,000 metric tons per day.

Raw Material

Wheat can be purchased either from the domestic market or international markets. The followingtable sets out the domestic production, and import and export of wheat from 2001 to 2005 together withestimates for 2006:

2001 2002 2003 2004 2005 2006E(million metric tons)

Total production******************************** 93.9 90.3 86.5 92.0 97.5 103.1Import **************************************** 2.3 2.3 2.3 8.9 0.9 1.3Export **************************************** 1.1 1.4 3.0 1.6 0.2 1.2Total consumption****************************** 100.3 91.2 85.8 102.0 100.9 102.9

Source: National Bureau of Statistics of China, Food and Agriculture Organization of the United Nations, National Grain & OilInformation Center, China Customs

Import of wheat in China is subject to tariff rate quotas, with 90% of the quota for state-ownedenterprises for which COFCO acts as the only licensed trading agent, and the rest of the 10% forprivately-owned enterprises. China mainly imports wheat from the US, Canada and Australia.

Export of wheat is subject to permit administration by the central government according to thesupply and inventory level of the year. China mainly exports feeding wheat to Southeast Asian countriesand South Korea.

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INDUSTRY OVERVIEW

The prices and supply volumes of wheat are all influenced by global weather and crops harvests.The following chart shows the pricing trend for the period from January 2002 to January 2006 for wheatin China:

Historical Wheat Wholesale Prices in China

980

1080

1180

1280

1380

1480

1580

1680

1780

03/01/02 08/01/02 01/01/03 06/01/03 11/01/03 04/01/04 09/01/04 02/01/05 07/01/05 12/01/05 05/01/06

RM

B /

met

ric

ton

Zhengzhou Shijiazhuang Heze

Source: Zhengzhou Commodity Exchange

The price surge from the second half of 2003 to the beginning of 2004 was due to a big productioncutback because of the decrease of farming land area. After the State Council adopted a series ofmeasures to stimulate production and to protect farmers’ interests, production has recovered since andthe price has fallen. However, the price was not able to adjust back to the 2002 level because of theminimum purchase price set for major production regions.

RELATED PRC GOVERNMENT POLICIES ON AGRICULTURE

The Central Government has taken serious measures to protect the interests of farmers and tosecure the supply of national agricultural products. The following sub-section summarizes the majorpolicies affecting the industries mentioned above.

The Agriculture Risk Fund

In 1994, the State Council published a notice to set up a Grain Risk Fund at both the centralgovernment and provincial government level.

The Grain Risk Fund at the central government level is specially used to compensate for expensesrelated to national grain reserve and the central government efforts to adjust the market prices ofagricultural products.

The Grain Risk Fund at the provincial level is used to for various subsidies and expenses related tothe provincial government efforts to balance the market prices of agricultural products.

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INDUSTRY OVERVIEW

The funding of the Grain Risk Fund at the central government level comes from the centralgovernment financial budget. The funding of the Grain Risk Fund at the provincial level consists of twoparts: the central government subsidy and the provincial government financial budget at the ratio of1:1.5. The amount of the central government subsidy is dependent upon the amount of the provincialgovernment contribution.

Direct Subsidy

Since the beginning of 2004, the central government has started several subsidies to farmers,including the direct subsidy to farmers from the Grain Risk Fund, which accounts for over 50% of theGrain Risk Fund in some major production provinces, expanding the seeding subsidy in certain majoragriculture production regions to more grain categories, and agricultural machinery and equipmentsubsidies.

Waiver of Various Taxes

In 2004, the central government of the PRC waived the Agricultural Special Products Tax onfarmer’s income from various agricultural products except for tobacco leaves and lowered theAgricultural Tax from 8.4% of the farmer’s annual production value to 7.4%. In 2006, the Agricultural Taxwas completely abolished by the central government of the PRC.

Minimum Purchase Prices for Certain Agricultural Products

The central government started to set minimum purchase prices for certain agricultural products in2004. The main purpose is to encourage production of certain important agricultural products in shortsupply and guarantee the security of grain supply.

These agricultural products include wheat products from Hebei, Jiangsu, Anhui, Shandong, Henan,and Hubei provinces, and long grain early crop rice from Anhui, Jiangxi, Hubei and Hunan provinces.The minimum purchase price for the long grain early crop rice is currently set at RMB1.40 per kilogram,and the minimum purchase prices for different wheat products vary from RMB1.38 per kilogram toRMB1.44 per kilogram.

According to the latest notice published by the State Council on January 29, 2007, the minimumpurchase price policy will continue to take effect.

65

REGULATORY OVERVIEW

OVERVIEW OF PRC LAWS

Food Hygiene Law

The PRC Food Hygiene Law ( ) (‘‘Food Hygiene Law’’) promulgated in1995 sets out the legal framework for food production and the administration of the food industry. TheFood Hygiene Law specifies the hygiene standards for foodstuffs, food additives, food containers, foodpackaging materials and utensils, and the requirements for food packaging labels. It also sets outhygiene requirements in respect of premises, facilities and equipment used for food production,transportation and trading.

The Ministry of Health ( ) is an authority at the ministerial level under the PRC State Council,primarily responsible for the overall administration of national public health in the PRC. The FoodHygiene Law provides that enterprises intending to engage in food production shall first obtain foodhygiene permits issued by local public health administrations before applying to be registered with therelevant local administration of industry and commerce. No one is allowed to engage in food productionwithout such food hygiene permits. Pursuant to the Measures for the Administration of Food HygienePermits ( ) issued by the Ministry of Health in 2005, a food hygiene permit isvalid for a term of four years.

Should any enterprise violate the Food Hygiene Law, the relevant public health administration may,taking into account the individual circumstances of each case, issue a warning to the enterprise, requireit to rectify its violation, confiscate its illegal gains, impose a fine on it, require it to stop production,require it to make an immediate announcement recalling food it has sold or withdraw its food hygienepermit. If any such violation constitutes a crime, the enterprise may be prosecuted.

The Law on the Quality and Safety of Agricultural Products

The Law of the PRC on the Quality and Safety of Agricultural Products () (‘‘Law on the Safety of Agricultural Products’’) was promulgated on April 29, 2006 to

regulate the quality and safety of agricultural products, maintain public health and promote thedevelopment of agricultural industry and economic development in rural areas. Under the Law on theSafety of Agricultural Products, agricultural products include plants, animals, and micro-organisms andtheir related products.

Enterprises and collectives engaged in the production of agricultural products shall conduct self-inspection or submit to inspections by inspection and testing institutions on the quality and safety ofthese agricultural products and maintain records of the agricultural products they manufacture. Anyproduct which fails to meet the quality and safety standards for agricultural products may not be sold.

Packaging and labelling requirements apply to agricultural products which are required to bepackaged and labelled before they can be sold, including specifying the name of the product, place ofproduction, producer, date of production, expiry date and product quality grade shall be stated on thepackaging and labels as required. Any additive used in the agricultural products must also be stated.

Any genetically modified agricultural products must be labelled in accordance with the relevantprovisions on the administration of the safety of genetically modified agricultural products.

Any animal, plant, and their products which are required by law to be quarantined shall be attachedwith quarantine labels and quarantine certificates.

The agricultural products which are offered for sale must meet the relevant quality and safetystandards. Producers may use pollution-free product labels and/or agricultural products quality labelssubject to the approvals of the relevant authorities.

Regulations on Food Exports

On April 19, 2002, the General Administration of Quality Supervision, Inspection and Quarantine ofthe PRC promulgated the Provisions on the Administration of the Hygiene Registration of Export Food

66

REGULATORY OVERVIEW

Production Enterprises ( ), pursuant to which all enterprisesengaged in the production, processing or storage of food for export must obtain hygiene registrationcertificates, which are valid for a term of three years.

Regulations on the Administration of Permits for the Production of Industrial Products

The Regulations on the Administration of Permits for the Production of Industrial Products( ) (‘‘Production Permit Regulations’’) were promulgated by the StateCouncil on July 9, 2005 and came into force on September 1, 2005. Pursuant to the Production PermitRegulations, the government should implement a system to issue production permits to enterpriseswhich are engaged in the production of processed food directly relating to human health (such as meatand dairy products, beverages, rice, noodles, edible oil and wine). The government should alsoformulate an industrial product catalogue. Enterprises which manufacture products falling under thesaid catalogue should apply for and obtain production permits from the designated local authorities. Noone is allowed to manufacture those products without valid production permits.

Standardization Law

The PRC Standardization Law ( ) (‘‘Standardization Law’’), which cameinto effect on April 1, 1989, sets out the legal framework for the development of standard directives andtheir applications by all industries and sectors nationwide. Pursuant to the Standardization Law and theinterpretations thereof, food hygiene standards are mandatory nationwide standards which are set bythe national health supervisory authority, with codes and dissemination methods formulated by thenational standardization administrative authority in conjunction with the relevant national healthsupervisory authority.

Where products do not conform with the mandatory standards, manufacturers may be required tostop production and such products may be confiscated, destroyed or sent for mandatory technicaltesting and relevant manufacturers and responsible persons fined.

Where products for sale do not conform with the mandatory standards, the distributors may berequired to stop sales of such products, recall the products, destroy the products or send the productsfor mandatory technical testing. Any profits will be forfeited, and the distributors and relevant responsiblepersons will be fined.

Regulations on the Administration of Grain Distribution

On May 26, 2004, the State Council promulgated the Regulations on the Administration of GrainDistribution ( ) (‘‘Regulations’’) to regulate the purchase, storage, transportation,processing, import and export of wheat, paddy, corn, food grains and other food products.

Enterprises which engage in grain purchases without holding grain purchase permits or withouthaving registered with the relevant local industrial and commercial administration shall be subject toadministrative penalties. If failure to comply with the Regulations constitutes a crime, the violatingenterprise may also be prosecuted.

Measures on the Administration of Genetically Modified Food

Promulgated by the Ministry of Health on April 8, 2002, the Measures on the Administration ofGenetically Modified Food ( ) (‘‘Measures’’) took effect on 1 July of the sameyear. Pursuant to the Measures, the production or import of genetically modified food is subject to theexamination and approval of the Ministry of Health. Any genetically modified food without such approvalcannot be produced or imported. Manufacturers must ensure the safety for consumption and nutritionalquality of genetically modified food manufactured by them.

67

REGULATORY OVERVIEW

Foreign Trade Law

The PRC Foreign Trade Law ( ) (‘‘Foreign Trade Law’’) was adopted in1995 and further amended in 2004. Under the Foreign Trade Law, the import and export of goods maybe subject to the state trading. Pursuant to an announcement issued by the Ministry of Foreign Tradeand Economic Co-operation (now known as the Ministry of Commerce), rice and corn are included inthe Catalogue of Goods Subject to the Administration of State-administered Export Trade( ). COFCO and Jilin Food Import and Export Group Company Limited areauthorized to engage in the state-administered export of rice and corn. Wheat, corn, rice and certaintypes of plant-based oil are included in the Catalogue of Goods Subject to the Administration of State-administered Import Trade ( ). COFCO is authorized to engage in the state-administered import of the above wheat, corn, rice and plant-based oils.

The Foreign Trade Law permits products to be imported and exported freely, although thegovernment may impose quotas or permit requirements on certain imported or exported products andtariff rate quotas on certain imported products. Pursuant to the 2007 Catalogue of Goods Subject to theAdministration of Export Permits ( ), the government may impose quotasand permit restrictions on the export of corn, rice and wheat.

Pursuant to the Interim Measures on the Administration of Agricultural Products Import Tariff RateQuotas ( ), the State implements tariff rate quotas for wheat (includingwheat flour and grain), maize (including maize flour and grain), rice (including rice flour and grain),soybean oil, rapeseed oil, palm oil, sugar, cotton, wool, and wool top. Pursuant to the Ministry ofCommerce No. 93 2005 — Cancellation of Import Tariff Rate Quotas for Soybean Oil, Palm Oil, RapeseedOil and Implementation of a System of Automatic Import Permits for Administration of State-run ImportTrade’’ (

), with effect from January 1, 2006, the tariff rate quota administration of soybean oil,palm oil, rapeseed oil was canceled, and a system of automatic import permits for administration of thestate-run import trade was implemented.

Environmental Protection Law

Promulgated on December 26, 1989, the PRC Environmental Protection Law( ) (‘‘Environmental Protection Law’’) sets out the legal framework forenvironmental protection in the PRC. The purpose of the Environmental Protection Law is to protect andenhance the living environment, to prevent and remove environmental pollution, contamination andother public hazards, and to safeguard public health. The State Administration for EnvironmentalProtection is primarily responsible for the supervision and administration of environmental protectionwork nationwide and formulating national waste discharge limits and standards. Local environmentalprotection authorities at county level and above are responsible for the environmental protection in theirjurisdictions.

Enterprises which discharge contaminants must report and register with the State Administrationfor Environmental Protection or their relevant local environment protection authorities. Enterprisesdischarging contaminants in excess of the discharge limits or standards prescribed by the central orlocal authorities must pay discharge fees for the excess in accordance with the state regulations, andthey are also responsible for the treatment of the excessive discharge.

Government authorities can impose different penalties on persons or enterprises in violation of theEnvironmental Protection Law, depending on the individual circumstances of each case and the extentof contamination. Such penalties include warnings, fines, imposition of deadlines for remedying thecontamination, orders to stop production or use, orders to re-install contamination prevention andtreatment facilities which have been removed without permission or left unused, administrative actionsagainst relevant responsible persons or enterprises, or orders to close down those enterprises. Wherethe violation is serious, the persons or enterprises responsible for the violation may be required to pay

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REGULATORY OVERVIEW

damages to victims of the contamination. Where serious environmental contamination occurs inviolation of the provisions of the Environmental Protection Law which results in serious loss of publicand private property, persons or enterprises directly responsible for such contamination may be heldcriminally liable.

Laws on the Prevention and Treatment of Water Pollution and Air Pollution

The PRC Law on the Prevention and Treatment of Water Pollution ( )(‘‘Law on the Prevention and Treatment of Water Pollution’’) promulgated on May 11, 1984 and thePRC Law for the Prevention and Treatment of Air Pollution ( ) (‘‘Law onthe Prevention and Treatment of Air Pollution’’) promulgated on September 5, 1987 set out the legalframework for the prevention and treatment of water and air pollution. The environmental protectionauthorities at various levels of the government are required to implement a centralized system ofsupervision and administration in relation to the prevention and elimination of water and air pollution.The State Environmental Protection Administration formulates the national standards on water and airquality and standards in relation to the discharge of pollutants.

Construction, expansion and alteration projects which discharge pollutants into water or the airmust comply with relevant regulations. An enterprise which discharges pollutants into water or the airmust submit a report to the local environmental protection authority giving details of pollutant dischargefacilities and treatment facilities it applies and the types, quantity and concentration of pollutants itdischarges. It must also provide technical information in respect of pollution prevention and elimination.The pollutants discharged by enterprises into water or the air shall not exceed the discharge standardsstipulated by the central and local authorities. Any sewage charge should be paid according to the typesand quantities of pollutants discharged.

With regard to any violation of the provisions of the Law on the Prevention and Treatment of WaterPollution or the Law on the Prevention and Treatment of Air Pollution, environmental protectionauthorities may require the enterprise responsible for such violation to stop the discharge of pollutantsand rectify the problem by a certain deadline, issue a warning, impose a fine or require the suspensionof the enterprise’s business or even its closure. Enterprises which create water or air pollution hazardsare responsible for eliminating such hazards, and must compensate those directly affected by thepollution for their losses.

Industrial Policy

The Provisions on Foreign Investment Guidance ( ) (‘‘Provisions’’) werepromulgated by the State Council and took effect on April 1, 2002. Pursuant to the Provisions, foreign-invested projects fall into four categories: encouraged, permitted, restricted and prohibited projects.

On November 30, 2004, the National Development and Reform Commission and the Ministry ofCommerce jointly issued the current Foreign Investment Industrial Guidance Catalogue( ) which came into effect on January 1, 2005. Our investments in the PRC areregulated by the foregoing industrial policies.

Among the main industries we are engaged in, the wheat and rice processing business falls into theencouraged category of foreign investment projects, foreign trading and oilseed processing falls into therestricted category, while the biofuel and biochemical business and production of brewing materials fallinto the permitted category. We have obtained all the necessary approvals from the PRC governmentalauthorities in charge of foreign investment in respect of our investments in the PRC.

The Ministry of Commerce and other ministries jointly promulgated the Regulations on Mergers andAcquisitions of Domestic Enterprises by Foreign Investors ( )(‘‘M&A Rules’’), which came into effect on September 8, 2006. According to the M&A Rules, mergers andacquisitions of domestic enterprises by foreign investors shall be reviewed and approved by the Ministry ofCommerce or its local branches. Particularly, the establishment of a special purpose vehicle which is

69

REGULATORY OVERVIEW

controlled by domestic companies or persons and which acquires an equity interest in a domesticcompany for the purpose of listing overseas, must be approved by the Ministry of Commerce and suchspecial purpose vehicle must obtain the approval of China Securities Regulatory Commission before itspublic offering and listing overseas. Our PRC legal counsel and the Sponsor’s PRC legal counsel haveboth confirmed that the M&A Rules with respect to special purpose vehicles apply only to cases where theconsideration for the merger and acquisitions of domestic enterprises is in the form of shares, that isthrough a share swap arrangement. Given that there is no share swap arrangement between domesticenterprises and our Company under the Reorganization, our PRC legal counsel and our Sponsor’s PRClegal counsel have both confirmed that the Reorganization and listing are not subject to the approvalrequirements with respect to the special purpose vehicle as stipulated in the M&A Rules. Notwithstandingthe foregoing, our establishment is subject to the approval of the Ministry of Commerce pursuant to theRatification Provisions on Particulars for Mainland Enterprises to Invest in Hong Kong or Macau andEstablish New Enterprises ( ), andour listing is subject to the approval of the China Securities Regulatory Commission pursuant to the Noticeof the State Council regarding the Further Strengthening of the Administration of Share Issuance andListing of Joint Stock Companies Outside the Mainland (

). We obtained such approvals from the China Securities Regulatory Commission on January 30,2007 and from the Ministry of Commerce on January 12, 2007, respectively.

Foreign Exchange Regulations

The PRC Regulations for the Control of Foreign Exchange ( )(‘‘Control of Foreign Exchange Regulations’’), which were promulgated by the State Council onJanuary 29, 1996 and amended on January 14, 1997, classify all international payments and transfersunder current account items or capital account items.

A1A 31The PRC government imposes restrictions on international payments and transfers under currentaccount items. However, unless otherwise stipulated in relevant regulations, foreign exchange revenueunder current account items must be repatriated to China in a timely manner. All onshore institutions(including foreign-invested enterprises) that are approved to open foreign exchange current accounts bythe State Administration of Foreign Exchange and its branches can keep foreign exchange revenueunder current account items within a verified maximum amount and the excess must be sold to thedesignated foreign exchange banks at the prevailing foreign exchange rate in the market. Moreover,China has also established a reconciliation system on foreign exchange paid from imports and foreignexchange received from exports, which requires examining and verifying the authenticity of foreignexchange settlements under current account items.

There are still many foreign exchange restrictions under capital account items in the PRC. Unlessotherwise stipulated in the regulations of the State Council, foreign exchange under capital accountitems must be repatriated to China; foreign exchange revenue under capital account items of onshoreinstitutions must be deposited in a special foreign exchange bank account; the settlement of foreignexchange capital from investments by foreign investors must be transacted at designated banksauthorized by the foreign exchange administration authority by presenting relevant documents, andother foreign exchange revenue under capital account items must be sold to designated foreignexchange banks after obtaining approval by the foreign exchange administration authority. Other thancertain items which may be transacted by designated foreign exchange banks, the purchase andpayment of foreign exchange under capital account items must be approved by the foreign exchangeadministration authority and can be settled at such banks by presenting the approval.

We are in compliance with the relevant regulations on foreign exchange in the PRC and have notbeen penalized for any material breach of regulations on foreign exchange administration.

According to the relevant requirements of the State Administration of Foreign Exchange and theChina Securities Regulatory Commission, all Chinese companies and the domestic shareholder ofoverseas listed state-controlled companies must register with the State Administration of Foreign

70

REGULATORY OVERVIEW

Exchange before their public offering and listing on overseas exchanges. On October 21, 2005, the StateAdministration of Foreign Exchange promulgated the Notice on Issues Relating to Foreign ExchangeControl on Fund Raisings by Domestic Residents through Offshore Special Purpose Vehicles and Round-trip Investments ( ) (‘‘Noticeon SPVs’’), according to which overseas special purpose vehicles established by domestic residents(including companies), which hold domestic interests for the purpose of financing, must register with theState Administration of Foreign Exchange. Our PRC legal counsel and our Sponsor’s PRC legal counselhave both advised that the Notice on SPVs does not apply to our Global Offering and listing on the HongKong Stock Exchange.

Our controlling shareholder, COFCO, invested in our Company and all our subsidiaries throughCOFCO (HK). COFCO has obtained all relevant foreign exchange registration certificates with respectto its investment in COFCO (HK) and passed the annual inspection for its investment in COFCO (HK) forthe years 2003, 2004 and 2005 conducted jointly by the Ministry of Commerce and the StateAdministration of Foreign Exchange. The Company and COFCO have complied with all relevant rules,regulations and registration requirements imposed by the relevant PRC laws and regulations in thisregard.

71

OUR HISTORY AND REORGANIZATION

HISTORY

A1A 5

3rd Sch(21)

Our Company was incorporated in Hong Kong on November 18, 2006 and became a wholly ownedsubsidiary of COFCO International on December 28, 2006. Our Company will be the overseas listedflagship of COFCO for its Agri-industrial Business. Before the establishment of our Company andcompletion of the Reorganization, our businesses were conducted by COFCO Group and COFCOInternational Group.

COFCO is a state-owned company in the PRC which commenced business in 1952. COFCO hasbeen listed in Fortune magazine’s Global Top 500 Companies in each year since 1994 and is one of the159 enterprises under the direct purview of the State-owned Assets Supervision and AdministrationCommission of the State Council of the PRC. COFCO is involved in a wide array of businesses includingagricultural commodities trading, food processing, hotel management, real estate development, logisticsand financial services. Over the years, COFCO has become both the largest agricultural import andexport company and a company with the longest history in trading of agricultural commodities andfoodstuffs in the PRC.

COFCO International was incorporated in Bermuda on May 14, 1990 and its shares are listed onthe main board of the Hong Kong Stock Exchange. Immediately prior to the completion of theReorganization, COFCO International was primarily engaged in five food-related core businessinvolving oilseed processing, wineries, confectionery, wheat processing and trading, and was held as toapproximately 62.4% by COFCO (HK) and its associates and as to approximately 37.6% by othershareholders. COFCO (HK) is a direct wholly owned subsidiary of COFCO. Following completion of theReorganization, COFCO holds an indirect interest of approximately 74.25% in COFCO Internationalthrough COFCO (HK).

Our rice trading business dates back to the 1950s. Since 2000, we expanded our business toinclude rice processing. On July 31, 2001, we set up COFCO Jiangxi Rice Processing Limited( ), which runs the only parboiled rice processing plant in the PRC.

Our oilseed processing business began in the early 1990s. During the period between 1992 and1999, we established three edible oil crushing and refining factories in Rizhao in Shandong Province,Zhangjiagang in Jiangsu Province and Zengcheng in Guangdong Province. Since 2000, we establishedtwo factories in Heze in Shandong Province and Jingmen in Hubei Province, which saw us develop intoone of the largest oilseed processers in the PRC.

Our wheat processing business started in the early 1990s when we invested in four flour mills inQinhuangdao in Hebei Province, Zhengzhou in Henan Province, Xiamen in Fujian Province andShenyang in Liaoning Province. From 2002 to 2005, we acquired three additional flour mills in Dezhouin Shandong Province, Puyang in Henan Province and Shenyang in Liaoning Province and establisheda facility to produce frozen dough and bakery products in Beijing on December 14, 2005, making us oneof the largest wheat processing groups in the PRC.

Since the 1990s, we have been engaged in the importation and distribution of malting barley mainlyto various industrial users in the PRC. In 1995 when Dalian COFCO Malt Co., Ltd.( ) was established, we expanded our business to the production of brewingmaterials.

In 2006, we completed the acquisitions from China Resources (Holdings) Company Limited and itsassociates of their respective interests in Techbo Limited and Jilin Fuel. The sole business of TechboLimited is to hold a 100% equity interest in Heilongjiang Alcohol which in turn holds a 65% equityinterest in Heilongjiang Winery. Heilongjiang Alcohol is mainly engaged in the production and sale ofbiofuel products and Heilongjiang Winery is engaged in the production of consumable spirits. Theconsideration for the acquisition of the interest in Techbo Limited was RMB947.9 million which wasagreed through negotiation by reference to a multiple of net book value of Heilongjiang Alcohol as atSeptember 30, 2005, as decided by an independent valuer. Jilin Fuel is also engaged in biofuelbusiness. These acquisitions contributed to the expansion of our lines of business and our range of

72


products. Following the acquisitions, we set up several new factories to strengthen our operations in thebiofuel and biochemical business.

REORGANIZATION

In 2006, COFCO and its subsidiaries underwent the Reorganization pursuant to which certaincompanies within COFCO Group and COFCO International Group became our subsidiaries orassociated companies. The objective of the Reorganization was to establish our Group as the operatingplatform for the Agri-industrial Business. As part of the Reorganization, on October 8, 2006, China Agri,a wholly owned subsidiary of our Company, entered into the Sale and Purchase Agreement withCOFCO International, pursuant to which COFCO International transferred to China Agri substantially allof its oilseed processing business (other than the business of marketing and distribution of consumer-pack edible oil), wheat processing business and rice trading business, together with shareholders’ loansthat the target companies owed to COFCO International. The consumer-pack edible oil business hasbeen retained by COFCO International to which we will be a main supplier of edible oil products. Seethe section headed ‘‘Connected Transactions — Supply and Packaging of Consumer-pack Edible Oil forCOFCO International Group’’ for more details on the relationship between COFCO International and usregarding the supply of consumer-pack edible oil products.

China Agri agreed to acquire from COFCO (HK) substantially all of its biofuel and biochemicalbusiness, oilseed processing business, rice processing business, brewing materials business andwheat processing business, held by Full Extent Group Limited, together with outstanding shareholders’loans, pursuant to the Master Sale and Purchase Agreement entered into by China Agri, COFCOInternational, COFCO and COFCO (HK) on October 8, 2006. On November 21, 2006, shareholders ofCOFCO International approved in a special general meeting the Master Sale and Purchase Agreement.

As part of the Reorganization, the trading business in respect of non-rice grain, vegetables, fruitsand seafood (‘‘Non-rice Foodstuffs Trading Business’’), operated by COFCO Beijing, a subsidiary ofCOFCO International, was separated from the rice trading business operated by COFCO Beijing. SuchNon-rice Foodstuffs Trading Business, together with COFCO International’s other non-core businesses,was transferred to COFCO (HK) pursuant to the Master Sale and Purchase Agreement. Such non-corebusinesses include COFCO International’s businesses such as consultancy services, trading andthermal power generation.

Upon completion of the Sale and Purchase Agreement and the Master Sale and PurchaseAgreement on December 31, 2006, China Agri issued and alloted, in aggregate, 2,691,383,356 sharesto COFCO International credited as fully paid.

On January 10, 2007, our Company and COFCO International entered into the Share SwapAgreement pursuant to which we acquired all the shares of China Agri then in issue from COFCOInternational and issued and alloted 2,791,383,346 of our shares to COFCO International credited asfully paid. Following completion of the Share Swap Agreement on January 10, 2007, China Agri becamea wholly owned subsidiary of our Company.

Further details of the Reorganization are set out in the section headed ‘‘Corporate Reorganization’’in Appendix VII to this prospectus.

On February 8, 2007, the board of directors of COFCO International conditionally declared aspecial dividend by way of distribution in specie to Qualifying COFCO International Shareholders of anaggregate of 2,791,383,356 of our shares, constituting the entire issued share capital of our Companyas at the date of this prospectus.

73


The following chart illustrates the major operational subsidiaries and associated companies of ourCompany and its major shareholders immediately following the completion of the Global Offering,assuming the Over-allotment Option is not exercised:

LR 8.08(1)(a),(b)

Oilseed Processing Wheat Processing

72.9%

100%

70%

50.4%

40%

24%

89.4%

55%

51%

100%

100%

88%

100%

83.5%

Brewing Materials

100%

100%

100%

66.9%

69.3%

80%

55%

100%

100%

60%

30.3%

10%

65%

59.4%

COFCO

40.6%

China Resources

(Heilongjiang)Alcohol Co., Ltd.

ChinaResources

Winery(Heilongjiang)

Co., Ltd.

Our Company

China Agri

Rice Trading and ProcessingBiofuel and Biochemical

Guangxi COFCO

Bio-Energy Co., Ltd.

20%

100%

100%

COFCO Biochemical

Energy (Hengshui)

Co., Ltd.

COFCO Bio-Chemical Energy

(Gongzhuling) Co., Ltd.

COFCO Bio-Chemical

Energy (Yushu) Co., Ltd.

Jilin Fuel EthanolCo., Ltd.

Eastbay Oils & Fats Industries

(Guangzhou) Co., Ltd.

East Ocean Oils & Grains

Industries (Zhangjiagang)

Co., Ltd.

Yellowsea Oils & Grains

Industries (Shandong)

Co., Ltd.

COFCO Xiangrui Oils & Grains

Industries (Jingmen) Co., Ltd.

COFCO ADM Oils & Grains

Industries (Heze)

Co., Ltd.

Northsea Oils & Grains

Industries (Tianjin) Co., Ltd.

Shenzhen Nantian Oilmills

Co., Ltd.

20%

24%

Great Ocean Oil & Grain

Industries (Fang Cheng Gang)

Co., Ltd.

Laiyang Luhua Fragrant

Peanut Oil Co., Ltd.

54%

COFCO TTC(Beijing)Foods

Co., Ltd.

Xiamen Haijia Flour Mills Co.,

Ltd.

Zhengzhou Haijia Food

Co., Ltd.

COFCOLiaoning

Silverdyne RiceCo., Ltd.

COFCO Jiangxi Rice Processing

Limited

COFCO International

(Beijing)Co., Ltd.

Dalian COFCO

Malt Co., Ltd.

COFCO Malt (Jiangyin) Co., Ltd.

ShanghaiCOFCOBrewingMaterialsCo., Ltd.

Shenyang Dongda

Grains Oils & Foodstuffs

Industries Co., Ltd.

Shenyang Xiangxue Flour Limited Liability

Company

ShenzhenSouthseas Grains

IndustriesLtd.

Puyang COFCO

Flour Industry Co., Ltd.

Shandong COFCO

Lude Foods Co., Ltd.

COFCO Industry

(Qinhuangdao) Pangthai Co., Ltd.

100%

PublicCOFCO

(HK)

Shandong LuhuaFragrant

Peanut OilCo., Ltd.

74


Other shareholders of our non-wholly owned subsidiariesOther shareholders/beneficial owners

Non-wholly owned subsidiaries and their respective equity interests

China Resources Winery (Heilongjiang) Co., Ltd. COFCO Grain & Oil Imp. & Exp. Co.( ) ***************** ( ) (35%)

COFCO Biochemical Energy (Hengshui) Co., Hebei Hengshui Laobaigan Liquor (Group) Co.,Ltd. ( ) ********** Ltd. ( ) (12%)

Eastbay Oils & Fats Industries (Guangzhou) Co., Archer Daniels Midland Asia-Pacific LimitedLtd. ( ) ********* (10.6%, held through Grand Silver (Guangdong)

Co. Limited)East Ocean Oils & Grains Industries Archer Daniels Midland Asia-Pacific Limited

(Zhangjiagang) Co., Ltd. (22%)( ) *********** Modern Century Limited (2%)

Kenspot International Pte Ltd (22%)Yellowsea Oils & Grains Industries (Shandong) Archer Daniels Midland Asia-Pacific Limited

Co., Ltd. ( ) ***** (13.53%, held through Grand Silver (Lanshan)Limited)Wilmar Holdings Pte Ltd (11.22%, held throughGrand Silver (Lanshan) Limited)Samtah Co. Ltd. (2.31%, held through GrandSilver (Lanshan) Limited)

COFCO ADM Oils & Grains Industries (Heze) Archer Daniels Midland China Holdings LimitedCo., Ltd. (30%)( ) *******

COFCO Jiangxi Rice Processing Limited Jiangxi Jinjia Grains Co., Ltd.( ) ****************** ( ) (16.5%)

Zhengzhou Haijia Food Co., Ltd. China Zhengzhou No. 2 Flour Mill( ) ******************** ( ) (45%)

Xiamen Haijia Flour Mills Co., Ltd. Xiamen Flour Foodstuffs Development Company( ) ******************** ( ) (40%)

COFCO TTC (Beijing) Foods Co., Ltd. Toyota Tsusho Corp. (49%)( ) **************

Shenyang Dongda Grains Oils & Foodstuffs Shenyang No. 5 Grains Storage DepotIndustries Co., Ltd. ( ) (33.1%)( ) ***********

Shenyang Xiangxue Flour Company Limited Shenyang Oils and Grains Group Ltd.Liability Company ( ) (10.26%)( ) ***************

Shenyang No. 2 Grains Storage Depot( ) (16.16%)Certain individuals (4.29%)

Puyang COFCO Flour Industry Co., Ltd. Hakubaku Co., Ltd. (20%)( ) *******************

Shandong COFCO Lude Foods Co., Ltd. Shandong Dezhou Grains and Oils Group( ) *************** Corporation ( ) (45%)

Save for COFCO Grain & Oil Imp. & Exp. Co. ( ), the othershareholders/beneficial owners of our Company’s non-wholly owned subsidiaries listed above areindependent of COFCO and our Company.

75


Other shareholders of our associated companiesOther shareholders/beneficial owners

Associated companies and their respective equity interests

Jilin Fuel Ethanol Co., Ltd. Jilin Grain Group Co., Ltd.( ) **************** ( ) (25%)

China National Petroleum Corporation( ) (55%)

Shenzhen Nantian Oilmills Co., Kerry Oils & Grains (China) LimitedLtd.( ) ************* ( ) (60%)

China Nanshan Development (Group) Co., Ltd.( ) (20%)

Great Ocean Oil & Grain Industries (Fang Archer Daniels Midland China Holdings LimitedCheng Gang) Co., Ltd. (30%)( ) ************ Wilmar Holdings Pte Ltd (30%)

Laiyang Luhua Fragrant Peanut Oil Co., Ltd. Shandong Luhua Group Co., Ltd.( ) ************** ( ) (51%)

Grand Silver (Laiyang) Co. Limited (49%) (25%interest beneficially owned by Wilmar HoldingsPte Ltd and 24% interest beneficially owned byour Company)

Shandong Luhua Fragrant Peanut Oil Co., Ltd. Shandong Luhua Group Co., Ltd.( ) ************** ( ) (51%)

Grand Silver (Laiyang) Co. Limited (49%) (25%interest beneficially owned by Wilmar HoldingsPte Ltd and 24% interest beneficially owned byour Company)

COFCO Liaoning Silverdyne Rice Co., Ltd. Liaoning Cereals & Oils Imp. & Exp. Co., Ltd.( ) **************** ( ) (86.8%)

Liaoning Taian National Grains Storage Depot( ) (3.2%)

Shenzhen Southseas Grains Industries Ltd. China Nanshan Development (Group) Co., Ltd.( ) **************** ( ) (20.6%)

Foshan City Shunde District Grains & OilsTrading Co., Ltd.( ) (9.6%)AWB Limited (8%)Lassiter Limited (61.7%) (31.4% interestbeneficially owned by Kerry Oils & Grains(China) Limited and 30.3% interest beneficiallyowned by our Company)

Northsea Oils & Grains Industries (Tianjin) Co., Archer Daniels Midland Asia-Pacific LimitedLtd. ( )(note) ***** (22.3%, held through Grand Silver International

Limited)Wilmar Holdings Pte Ltd (18.2%, held throughGrand Silver International Limited)Samtah Co. Ltd. (4.1%, held through GrandSilver International Limited)COFCO Tianjin Cereals and Oils Imp. & Exp.Company ( ) (5.0%)

Note: Our Company holds, in aggregate, an attributable interest of approximately 50.4% inNorthsea. Our Company’s attributable interest in Northsea is held through a wholly owned subsidiaryand Grand Silver International Limited ( ) in which our Company holds a 24% interest.Northsea is not treated or considered as our subsidiary under applicable accounting rules.

76

BUSINESS

OVERVIEW

A1A 34(1)(a)

3rd Sch (1)

A1A 28(1)(a)

We are a leading producer and supplier of processed agricultural products in China. Through ourfive business divisions, we offer a diverse range of products to our customers in and outside China andwe enjoy market leading positions in the majority of our businesses. Our principal product and servicecategories are:

( Biofuel and biochemical — production and sale of mainly corn-based products, comprisingthe biofuel product of fuel ethanol; biochemical products such as starch, sweeteners (mainlymaltodextrin, fructose syrup and malt syrup), amino acid, lactic acid and polylactic acid; andother co-products such as consumable ethanol, anhydrous ethanol, dried distiller’s grain withsolubles (or DDGS), animal feed and crude corn oil;

( Oilseed processing — production and sale of edible oils and fats, and oilseed meals;

( Rice trading and processing — international trading of rice products and processing ofpaddy into parboiled rice, white rice and other rice products;

( Brewing materials — production and sale of malt used for beer brewage, and the importationand distribution of malting barley in the PRC; and

( Wheat processing — processing wheat and sale of wheat flour and flour products.

We are one of China’s largest oilseed processors and wheat processors (both in terms of annualoutput) according to statistics issued by the China National Association of Grain Sector and the StateGrain Administration. According to China Customs, we are also China’s largest exporter of rice,accounting for approximately 74.6% of China’s rice exports in 2005.

We sell the majority of our products in the domestic market through our sales and distributionnetworks across China. We also export our rice products to Japan, South Korea, Southeast Asia, theMiddle East and Africa. In 2005, approximately 90% of our revenues were derived from sales in China.

We have enjoyed stable growth in recent years. Our revenue grew to HK$16,300.4 million in 2005,from HK$12,529.2 million and HK$16,050.1 million, respectively, in 2003 and 2004, representing acompound annual growth rate of 14.1% in the three-year period ended December 31, 2005. The tablebelow presents our revenue and profit attributable to the equity holders of our Company for the threeyears ended December 31, 2005 and the nine months ended September 30, 2006:


2003 2004 2005 2005 2006


Revenue ******************** 12,529.2 16,050.1 16,300.4 12,080.7 13,837.2Profit attributable to the equity

holders of the Company **** 247.3 130.7 254.9 224.5 506.6

All of our key operations, production facilities and operating assets are located in China.

OUR COMPETITIVE STRENGTHS

Our success to date and potential for future growth may be attributed to our strengths, whichinclude the following:

Leading market position and well-recognized reputation in the industries we operate in

Our operations and businesses are among the largest and most established in China’s agriculturalprocessing and trading industry. Over the years, we have built leading market positions in many of ourproduct areas. According to the statistics issued by the China National Association of Grain Sector andthe State Grain Administration, we are one of the largest wheat processors and oilseed processor in

77

BUSINESS

China. We are also the largest exporter of rice in China. Our biofuel business was one of the earliestproducers of fuel ethanol approved by the National Development and Reform Commission and otherministries in China. Should the expansion of our biofuel production capacity proceed according to ourcurrent plans, we also expect to become one of the largest producers of fuel ethanol in China.

Our leading market positions and long history of supplying reliable and high-quality processedagricultural products have helped to instill customer confidence in our products and have enabled us toenter into long-term relationships with many of our customers.

Broad and diversified portfolio of products enabling us to capture different potential growthtrends in food and energy consumption in China

We produce a broad range of processed agricultural products used in fuel, processed foods andbeverages, and animal feeds, for industrial purposes. These products include fuel ethanol, consumableethanol and anhydrous ethanol, oilseed-based edible oils, animal feeds, processed rice, flour, noodlesand malt. From 2007, we will also begin producing corn-based food ingredients such as starch andsweeteners.

Not only does our broad product portfolio provide us a well diversified revenue and customer base,it also enables us to tap into a number of different trends in food and energy consumption that haveemerged as a result of China’s economic growth. For example, rising disposable incomes as a result ofthe fast growing economy in China, particularly among the urban population, are bringing aboutchanges in food consumption. A faster pace of life has contributed to an increased demand forconvenient and processed food, which in turn drives the production levels of the food processingindustry. The Chinese population is consuming increasing amounts of meat and dairy products as wellas processed foods and beverages as a result of rising household incomes. In addition, over the past20 years, the Chinese have been increasing the amount of vegetable oil they consume. These trendshave led to increases in demand for edible oils, animal feeds, flour, and food additives. Furthermore, ourbroad portfolio of products enables us to serve as a one-stop supplier to large-scale food producerswhose needs are typically diverse and whose purchasing volumes can be large.

In terms of energy consumption, wider car ownership in China has led to greater concerns over airpollution, increasing dependence on fuel imports and rising energy prices, giving impetus to theconsumption of fuel ethanol, which is an environmentally friendly additive to gasoline to increase theburning efficiency of gasoline, thereby reducing emission levels and enhancing fuel efficiency, while atthe same time reducing fuel cost. Currently, we wholly or partially own two of the four licensed operatingfuel ethanol production facilities in China.

Another advantage of having a diversified product portfolio is that our revenues and costs are notoverly concentrated on any one product sector, hence mitigating any volatility in our overall earningsand financial position as a result of changes in selling prices or raw material costs within any oneproduct segment.

Highly experienced management team

Members of our senior management team and key operating personnel possess extensiveoperating and industry experience in our business areas with many of them having acquired theirexperience within COFCO Group itself.

For example, the managing Director of our Company, Mr. Yu Xubo, has over 18 years of experiencein agricultural commodities trading, accumulated from his various positions within COFCO Group.Mr. Lu Jun, one of our executive Directors and head of the oilseed processing division, has over13 years of experience in agricultural commodities trading and risk management within COFCO Group.Mr. Yue Guojun, one of our executive Directors and head of our biofuel and biochemical division, hasover 20 years of experience in chemical engineering, operations and production management, includingnine years spent at the China Resources Group. Mr. Li Wai Kwan, our financial controller and head of

78

BUSINESS

investor relations department, has over ten years of experience in accounting, financial management,business planning, corporate finance and treasury operations. Other members of our seniormanagement and key operating personnel have significant experience in the production of edible oils;the processing of wheat, rice and barley; and the sourcing and trading of various agriculturalcommodities.

Our Directors are of the view that the collective strengths and experience of our seniormanagement team and key operating personnel will enable us to meet the challenges of our business,and to successfully implement our investment plans and business strategies.

Strategically positioned nationwide production, sales and distribution network

Our subsidiaries currently operate five oilseed processing facilities and we own a majority interestin eight wheat processing production facilities, two rice processing facilities, one biofuel and biochemicalproduction facility and one malt production facility. These facilities, located in ten different provinces inChina, are strategically situated either (i) in the case of facilities that use domestically sourced rawmaterials, close to or within the key raw materials growing areas, (ii) in the case of facilities that useimported raw materials, near the relevant port and/or rail transport facilities and at the same timelocated within or in proximity to the market. For example, our biofuel and biochemical processingproduction facility, which uses corn as its main feedstock, is located in Heilongjiang Province, which is apart of northern China’s main corn growing area; whereas our soybean oil production facilities, whichuse imported soybeans as inputs, are located near dry-bulk cargo ports as well as key edible oil marketsthroughout China. Our malt facility in Dalian is located close to Dalian port, where imported barley isunloaded, and also to the major beer production and consumption areas of northeastern China.

By situating our facilities in or near the raw material growing areas, near ports and rail transportfacilities in or close to markets, we are better able to manage our supply chain to keep our logistics costslow while at the same time ensuring stable supplies for, and timely deliveries to, our production facilitiesand to our customers.

As at September 30, 2006, we had a sales force of approximately 1,000 employees across thePRC. In addition, we sell our products through a network of third-party distributors, many of whom haveformed long-term supply relationships with us. Such an extensive national platform offers us security ofraw materials and transportation of our raw materials and products at competitive cost, extends ourreach to our customers and reinforces our leading market position.

Large-scale and efficient operations

We are a large-scale producer of processed agricultural products in China. As at September 30,2006, we had an annual oilseed crushing capacity of approximately 4.9 million metric tons, an annualcrude edible oil refining capacity of approximately 1.2 million metric tons, an annual wheat processingcapacity of approximately 1.4 million metric tons and an annual malt processing capacity ofapproximately 360,000 metric tons.

According to the China Food Industry Yearbook 2004, we were one of the five largest edible oilproducers in China in 2003, representing approximately 11.2% of the total oils and fats production inChina for 2003. We were also one of the largest edible oil producers in China in 2005, with actual edibleoil production of approximately 1.4 million metric tons.

By the end of 2008, we expect our annual fuel ethanol production capacity to grow to1.08 million metric tons and our annual corn processing capacity for biochemical purposes to reachapproximately 1.5 million metric tons. The large-scale nature of our production volumes enable us toreap significant economies of scale in terms of operating and purchasing costs, to share best practicesamong the different entities and businesses within our Group, and to serve our customers reliably.

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BUSINESS

Strong ability to obtain a stable supply of raw materials at competitive costs through well-integrated supply chains

A stable supply of high-quality raw materials at competitive costs is crucial to our business. Welocate our fuel ethanol plants within the corn producing area where we are able to source approximately50% of our raw materials from local farmers at a relatively lower cost as no third-party agents or costlylogistics arrangements are involved. We have established long-term and stable relationships with state-owned grain depots and local grain warehouses throughout China which provide us stable supplies ofraw materials such as corn, wheat and paddy. We have also established long-term strategicrelationships with leading overseas suppliers such as Archer Daniels Midland and Cargill Inc., whoseprocurement strength and strong international logistics capabilities help to ensure that we receive astable supply of raw materials. Our ability to secure a steady supply of raw materials helps to lay a solidfoundation for our future sustainable growth and expansion.

A1A 34(1)(c)OUR STRATEGIES

We intend to implement the following principal strategies to grow our business and create value forour shareholders:

Continue to respond quickly to and satisfy our customers’ needs and preferences to captureopportunities arising from the changing food consumption patterns in China

We will continue to maintain a broad portfolio of processed agricultural products so as to capturemultiple growth opportunities arising from the changing food consumption patterns in China, particularlythose relating to increases in consumption of meat and dairy products, vegetable oils, and processedfoods and beverages. More importantly, as consumers tastes evolve, we will continue to monitor markettrends and consumer preferences, and constantly improve our product offerings while introducing newproducts to meet demand. For example, our wheat processing business has invested in new capabilitiesto produce frozen dough and higher-end noodles and bakery products. By maintaining a diversified andcontinually updated portfolio of products, we can better meet the increasing demands of Chineseconsumers for high-quality and healthier food.

Become the leading supplier of fuel ethanol in China to meet the growing demand for moreenvironmentally friendly fuel

We plan to strategically expand our fuel ethanol production capacity to capture growing demand inChina for fuel ethanol as an additive to gasoline to produce more environmentally friendly fuel. Our goalis to become the leading fuel ethanol supplier in China. We currently have interests in corn-based fuelethanol production facilities in the northeastern provinces of Heilongjiang and Jilin in China. We are inthe process of expanding the production capacity of our fuel ethanol facility in Zhaodong, HeilongjiangProvince. We have also recently won a bid to build the first phase of a tapioca-based fuel ethanolproduction facility in Guangxi Zhuang Autonomous Region in southern China. In addition, we arepursuing other fuel ethanol production projects in northeastern, central and northern China to reach atotal target annual fuel ethanol production capacity of 1.08 million metric tons by the end of 2008.

We also plan to expand the corn processing capacity of our biochemical business by investing ingreenfield projects or by pursuing selective acquisition opportunities in Jilin Province and eastern China.The products processed by our biochemical business are starch and starch-based further processedproducts.

Continue to rationalize and integrate our operations, purchases, sales and distribution functionsto reap cost efficiencies and achieve greater cost competitiveness

We view continued improvements in cost efficiency and effective cost control as critical elements inmaximizing our profitability and enhancing our competitiveness. Our strategies for achieving greatercost efficiency include (1) continuing to upgrade our production processes and technologies to improve

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production efficiency; (2) coordinating and centralizing purchasing activities where appropriate tostrengthen our bargaining power with suppliers; (3) maintaining and forming long-term relationships withkey suppliers overseas as well as in domestic markets to ensure a stable supply of raw materials; and(4) consolidating our distribution networks to reduce logistics costs; (5) maximizing the synergies arisingin the integration of different business divisions; and (6) continuing to take advantage of our experiencein cost control.

Strengthen our product development capabilities through investment in research anddevelopment

We plan to continue to invest in research and development in each of our product areas tocontinually improve our production processes, and to create new and better products for our customers.Where appropriate, we will also enter into strategic alliances, partnerships or joint ventures withresearch institutions and world-class industry players to develop, produce and market new products. Forexample, we are conducting cellulosic ethanol research with a view to securing a more economicalsource of energy.

Attract and retain the best personnel through a strong corporate culture, investment in trainingand competitive incentive schemes

Attracting and retaining the best personnel is important to our long-term success. We will continueto focus on attracting and retaining highly skilled technical and managerial personnel. We intend to dothis by continuing to develop a strong corporate culture focused on integrity, teamwork, professionalismand innovation, offering competitive compensation schemes linked to our equity market performance forsenior management and key technical staff, and investing in employee training and development for ourstaff, particularly our management personnel. More importantly, we would like to set up an all-roundevaluation system and increasingly base promotion on the performance and merit of our employees.

OUR BUSINESS

Our business is organized into five business divisions: the biofuel and biochemical division, theoilseed processing division, the rice trading and processing division, the brewing materials division andthe wheat processing division.

Biofuel and Biochemical Division

Overview

We acquired a 100% interest in Heilongjiang Alcohol together with its management team and a20% interest in Jilin Fuel in early 2006 to form our biofuel and biochemical division. Our biofuel andbiochemical division currently produces fuel ethanol, consumable ethanol, anhydrous ethanol and otherfood and feed ingredients. We also plan to produce biochemical products from corn, including starch,sweeteners (mainly maltodextrin, fructose syrup and malt syrup), amino acid, lactic acid, polylactic acidand glycols. Our biofuel and biochemical division generated 6.7% of our total revenue and 30.2% of ourtotal profit attributable to the equity holders of our Company for the nine months ended September 30,2006.

Currently, we wholly or partially own two of the four licensed operating fuel ethanol productionfacilities in China. Our wholly owned fuel ethanol production facility in Zhaodong, Heilongjiang Province,had a total annual fuel ethanol production capacity of 180,000 metric tons as of September 30, 2006.We plan to expand our production footprint to the major raw material producing regions nationwide bythe end of 2008, adding another 900,000 metric tons of fuel ethanol production capacity with newfacilities in Liaoning Province, Guangxi Zhuang Autonomous Region, Hubei Province and HebeiProvince, located in the major corn producing region in north and northeastern China, the major tapiocaproducing region in southern China and the major sweet potato producing region in central China,respectively. By the end of 2008, we expect to have a total annual fuel ethanol production capacity of

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1,080,000 metric tons. See ‘‘— Expansion Plans’’ below. We also plan to add approximately 1.5 millionmetric tons of annual corn processing capacity for our corn-based biochemical business by the end of2008, through a combination of new projects and acquisitions, all located in the corn producing regionsin northeastern China and eastern China. See ‘‘— New Business’’ below.

Over the years, we have cultivated close relationships and established a strong reputation withdomestic raw materials suppliers. In addition, Mr. Yue Guojun, one of our executive Directors and headof our biofuel and biochemical division, has over 20 years’ experience in the production and sales ofchemical products, including fuel ethanol. This, coupled with our management team’s experience inrelated technologies, will help to position us to capture market opportunities.

Pursuant to a notice issued by the National Development and Reform Commission and the Ministryof Finance on December 14, 2006, the PRC Government has indicated it supports the development ofprojects for biofuel products derived from non-grain crops. Our Directors are of the view that such policywill not have any negative impact on the Group’s biofuel business. Our five-year development plan(including our development plan for our biofuel business) has been endorsed in principle by the NationalDevelopment and Reform Commission and the Ministry of Finance. As further explained below, we wonthe right to build the first phase of a tapioca-based fuel ethanol production facility in Guangxi ZhuangAutonomous Region and we also plan to build a sweet potato-based fuel ethanol production facility inHubei Province. We have also been carrying out research on non-grain feedstock such as cellulose. OurDirectors are of the view that our non-corn based fuel ethanol business and research will benefit fromthe PRC Government’s policy supporting biofuel products derived from non-grain crops.

Products

Our biofuel and biochemical division is principally engaged in the production of fuel ethanol,consumable ethanol, anhydrous ethanol, and other food and feed ingredients such as crude corn oil andDDGS feed. We are also planning to produce biochemical products from corn, including starch,sweeteners (mainly maltodextrin, fructose syrup and malt syrup), amino acid, lactic acid, polylactic acidand glycols, etc.

The table below sets out our revenue by product after we acquired Heilongjiang Alcohol onJanuary 27, 2006 until September 30, 2006:

From January 27 toSeptember 30, 2006

Volume Revenue

(thousand (HK$ (%)metric tons) millions)

Fuel ethanol ******************************************************* 98.6 362.0 39.3Consumable ethanol************************************************ 75.7 308.8 33.5Anhydrous ethanol ************************************************* 16.2 73.6 8.0Crude corn oil ***************************************************** 12.5 47.3 5.1DDGS feed ******************************************************** 121.5 123.0 13.3Others ************************************************************ 4.9 7.5 0.8

Total************************************************************** 329.4 922.2 100.0

Fuel Ethanol

Fuel ethanol is a form of alcohol, produced by fermenting and distilling starch crops that have beenconverted into simple sugars, and is primarily used as a gasoline blending additive. We currently usecorn as our raw material for the production of fuel ethanol and plan to diversify our raw materials toinclude sweet potato and tapioca.

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Consumable Ethanol

Consumable ethanol is an aqueous ethanol with low impurity. It is produced by fermenting anddistilling grain, sweet potato, tapioca or sugar cane. Consumable ethanol is commonly used as a rawmaterial in the food and beverage industry and as an important basic chemical raw material.

Anhydrous Ethanol

Anhydrous ethanol is a type of low water content ethanol, produced by dehydrating 95-degree proofaqueous ethanol. Anhydrous ethanol is an important organic chemical raw material primarily used as anunderlying raw material and solvent in the chemical reagent, pharmaceutical, cosmetics and fragranceindustries.

Crude Corn Oil

Crude corn oil is extracted from corn germ and can be refined into edible corn oil which has a highsmoke point, making it a valuable frying oil. Edible corn oil is also a key ingredient in some margarines.

DDGS Feed

DDGS is the dried residual co-product of the grain fermentation and distillation process. It is high inprotein, as most of the grain starch has been removed.

Other

Other biofuel and biochemical products we produce include carbon dioxide and Chinese liquor.

Production Process

The production process we use to produce ethanol, DDGS feed and crude corn oil includes thefollowing steps:

( the corn is inspected and cleaned. The corn germ is separated from the rest of the kernel. Thecorn germ is pressed and crude corn oil is extracted;

( the corn remaining after germ separation is milled into corn powder and mixed with water tomake corn slurry. This slurry undergoes liquefaction, saccharification and fermentation. Afterdifferential pressure distillation, different grades of consumable ethanol are produced;

( the 95-degree proof aqueous consumable ethanol is passed through a molecular sieve andundergoes pressure swing adsorption and dehydration to become anhydrous ethanol;

( denaturant is added to the anhydrous ethanol that will be used as fuel ethanol to make itsuitable for vehicle engine use; and

( the wastewater produced during the distillation process is subject to separation, evaporation forconcentration and drying to produce DDGS feed.

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Set forth below is an integrated flow chart of the manufacturing process of our fuel ethanol and itsco-products and biochemical products:

Corn

Germ Separation

Crushing Milling

Saccharification

Fermentation

Distillation Consumable Ethanol

PressureSwing

AbsorptionAnhydrous Ethanol

Crude Corn OilExtraction

DDGS Feed

Separation

Drying

Liquefaction

Addition of Denaturant Fuel EthanolEvaporation

Sales

Most products of our biofuel and biochemical division are sold within China. Our biofuel andbiochemical division sells its products to both distributors and end-user customers. We have notretained any agent for the sale of our products in this sector. We have maintained cooperationrelationships with our distributors for three to eight years with respect to the distribution of the productsof our biofuel and biochemical division. The title to the goods sold through distributors is transferred tosuch distributors upon delivery. Our sales revenue is recognized on an accrual basis. We have not paidany commission or offered any sales incentive to our distributors. For distributors who have performedwell and have maintained a long-term relationship with us, we offer them credit limits by reference totheir previous sales records for a maximum credit period of 20 days provided that they can meet therelevant credit standards set out by us.

We are required to sell all the fuel ethanol we produce at our wholly owned facility in Zhaodong andour partly owned facility in Jilin, in the geographic areas designated by the National Development andReform Commission, namely, the three northeastern provinces of Heilongjiang, Jilin and Liaoning.Within these designated areas, we sell all of our fuel ethanol directly to PetroChina Company Limited

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and China Petroleum and Chemical Corporation (Sinopec). Their blending stations blend fuel ethanolwith gasoline at a 1:9 (ethanol:gasoline) ratio to make ‘‘gasohol’’ that is then sold to consumers.

For the nine months ended September 30, 2006, we sold approximately 80% of our consumableethanol directly to Chinese liquor producers, chemical plants and pharmaceutical factories acrossChina.

We sell a majority of our DDGS feed and crude corn oil directly to industrial customers, which areprimarily located in northeastern China and northern China.

The selling price of fuel ethanol is currently set at 91.11% of the guidance wholesale price of No. 90gasoline which is periodically announced by the National Development and Reform Commission.

Raw Materials and Suppliers

The most important raw material we currently use in our production of biofuel and biochemicalproducts is corn, which accounts for almost all of the total raw materials we currently use. We also use asmall amount of other non-corn feedstocks such as aged paddy.

We purchase approximately 50% of the corn we use directly from farmers, as our wholly and partlyowned biofuel and biochemical production facilities are located in corn producing areas. We canpurchase corn from farmers at relatively low prices as no third-party agents or costly logisticsarrangements are involved. We also enter into contracts with grain depots and warehouses to maintaina stable supply of raw materials. These contracts enable us to fix the purchase prices in advance. In theevent that we cannot purchase all the corn we need through these channels, we will purchase corn fromgrain depots and warehouses at prevailing market prices.

Our purchase agreements with suppliers usually include for our specifications for quality; that thesuppliers will be responsible for any problem on the quality of goods provided which is caused duringproduction or transportation; and for standards of packaging; that the costs of packaging will be borneby the suppliers; that the suppliers will deliver to our production facilities which need the goods; that thesuppliers are responsible for the cost of transporting the goods to our production facilities by motorvehicles and for terms on examination of samples, return of goods, payment terms, penalties for latedelivery (usually calculated as a percentage of the contract sum per day) and terms for the settlement ofany disputes. For the three years ended December 31, 2005 and the nine months ended September 30,2006, we did not experience any raw material shortage that materially affected our ordinary businessoperation.

Currently, our biofuel and biochemical division purchases all of its raw materials from the domesticmarket. Accordingly, our purchases are in local currency.

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A1A 28(8)Production Facilities

We wholly own our production facility in Zhaodong and have a 20% interest in the production facilityin Jilin. The table below sets out relevant information about these production facilities as atSeptember 30, 2006:

AnnualConsumable Annual Fuel

Interest Annual Corn Ethanol EthanolOwned Processing Production Production

Production Facility Location by us Capacity Capacity Capacity Products Manufactured(%) (metric tons) (metric tons) (metric tons)

Zhaodong, HeilongjiangProvince************ 100.0 750,000 250,000(1) 180,000 Fuel ethanol, consumable

ethanol, anhydrousethanol, DDGS feed,crude corn oil and others

Jilin, Jilin Province***** 20.0 — — 400,000 Fuel ethanol, DDGS feed,crude corn oil and others

Note:

(1) The consumable ethanol production capacity includes the fuel ethanol production capacity.

In January 2006 we acquired our Zhaodong facility, which has two production lines for consumableethanol and fuel ethanol that commenced operations in 1994 and 1996 respectively. Fuel ethanolproduction capabilities were added to these two production lines in 2001 and 2003 respectively. OurZhaodong facility is located in Heilongjiang Province, a major corn producing area in China. It was oneof the earliest fuel ethanol producers in China, and has an exclusive license from the NationalDevelopment and Reform Commission to produce and sell fuel ethanol in Heilongjiang Province. Thefollowing table sets out the annual production capacity, the actual annual production and the utilizationrates of our wholly owned production facility in Zhaodong. As consumable ethanol can be furtherprocessed into anhydrous ethanol or fuel ethanol, it is therefore used as the basis of our calculation ofoverall production capacity and utilization rates:


2003 2004 2005 2006

Annual consumable ethanol production capacity (metrictons) *********************************************** 250,000 250,000 250,000 250,000

Actual consumable ethanol production(1)(metric tons) ****** 246,676 247,008 249,366 184,365Utilization Rate(2)(%) *********************************** 98.7 98.8 99.7 98.3

Notes:

(1) This represents the total amount of actual production of consumable ethanol, including the part sold as consumable ethanolas well as the part used in the production of anhydrous ethanol and fuel ethanol.

(2) Utilization rates are calculated by dividing actual consumable ethanol production by annual consumable ethanol productioncapacity; utilization rates for the nine months ended September 30, 2006 are calculated by dividing the actual nine-monthconsumable ethanol production by a 9/12 proportion of the annual consumable ethanol production capacity.

Expansion Plans

We are in the process of increasing the consumable ethanol production capacity of our Zhaodongfacility. We obtained the final approval of the Development and Reform Commission of HeilongjiangProvince for such expansion plan on April 4, 2006. We have applied key technologies designed byDelta-T Corporation to the alcohol and feed workshops of our Zhaodong facility to improve productquality and reduce production costs. The core equipment used in this project was imported fromSwitzerland, Canada, the US and South Korea. Other equipment and machinery were provided bydomestic suppliers. The project was funded by shareholder investment, bank loans and internal funds ofour Zhaodong facility. Construction for this expansion started in April 2006. The expansion is expected

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to be completed by 2007, when our annual consumable ethanol production capacity will be expandedfrom 250,000 metric tons to 400,000 metric tons with the addition of a new production line. We expect toinvest approximately HK$769.5 million in the expansion plan of our Zhaodong facility.

We have also recently successfully bid for the right to build and operate a new project for theproduction of fuel ethanol in Guangxi Zhuang Autonomous Region. Our Guangxi project was approvedby the Development and Reform Commission of Guangxi Zhuang Autonomous Region on August 7,2006 and is now subject to the review and approval process of the National Development and ReformCommission. We have also received the preliminary approval of the Development and ReformCommission of Hebei Province to start the necessary preparatory work to build a fuel ethanol project inHebei Province and we are now applying for the approval of the National Development and ReformCommission for this project. The technology and equipment to be used in our future Guangxi facility andHebei facility will be provided by domestic suppliers and the two projects will be funded by shareholderinvestment and bank loans.

We are also considering launching new biofuel projects for the production of fuel ethanol inLiaoning Province and Hubei Province. We have completed our preliminary studies for these twopotential projects and are at the preparatory stage of applying for the requisite government approvals.

We expect to invest a total of approximately HK$2.8 billion in the above four new fuel ethanolprojects. We expect these new facilities to increase our annual fuel ethanol production capacity by900,000 metric tons.

The table below sets out information on our above expansion plans:Additional

ConsumableEthanol/Fuel

Ethanol ProductionLocation of Project Start of Construction Start of Operations Capacity

(metric tons)

Zhaodong, Heilongjiang***************** April 2006 Early 2007 150,000(1)

Guangxi ****************************** Early 2007 Late 2007 200,000(2)

Hebei********************************* Mid-2007 Mid-2008 300,000(2)

Liaoning ****************************** Early 2008 Late 2008 300,000(2)

Hubei********************************* Early 2008 Late 2008 100,000(2)

Notes:

(1) The additional capacity for the production of consumable ethanol.

(2) The additional capacity for the production of fuel ethanol.

The table below sets out our estimated capital expenditure for the above expansion plans:Total Capital

Estimated Schedule ofCapital Expenditure Expenditure(HK$ millions) Capital Expenditure(1)as at the Latest from 2006

Location of Project Practicable Date 2006 2007 2008 to 2008

Zhaodong, Heilongjiang******************** 427.8 580.5 158.9 30.0 769.5Guangxi********************************** 47.6 42.5 486.6 — 529.1Hebei************************************ 0 50.0 452.0 452.0 954.0Liaoning ********************************* 0 — — 955.0 955.0Hubei************************************ 0 — — 413.4 413.4

Note:

(1) Estimated schedule of capital expenditure as well as the estimated amount of capital expenditure are subject to changes.

Quality Control

We adhere to strict internal quality control guidelines that apply to our entire procurement andproduction process in our biofuel and biochemical division, from sourcing of raw materials, processing,

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packaging and inventory storage to sales and distribution. The division has instituted specific qualitystandards for each stage of our biofuel and biochemical production processes, and has adopted a‘‘Three-Level Quality Control System’’. This system imposes controls and procedures at the individualworker, workshop and production facility levels, in order to comply with quality control requirements.Under such system, each individual worker must carry out production operations in strict accordancewith our operational procedures. At the workshop level, our engineers and the personnel in charge ofthe workshop monitor the production process on a daily basis to ensure product quality. Raw materialsand final products are subject to inspection conducted by the product control division of our facilities.The three levels of our quality control system as a whole help to ensure our effective quality control overour products. Our wholly owned Zhaodong facility obtained ISO9001: 2000 certification in December2004 (expiring in December 2007). The Jilin facility also obtained ISO9001:2000 certification inSeptember 2004 (expiring in September 2007). Please see the section ‘‘Business — Quality Control’’ fora general description of our overall quality control systems.

Research and Development

A1A 28(5)Our biofuel and biochemical division has its own research and development department,responsible for developing new products and improving our processing techniques to lower productioncosts and improve efficiency. Our research and development team currently comprises two seniorengineers, seven engineers and four assistant engineers.

We began a cellulosic ethanol research and development program in June 2006. Cellulosic ethanolcan be produced from a wide variety of biomass, including urban, agricultural, and forestry wastes. Thetechnology therefore utilizes a relatively cheaper and widely available source of raw materials for fuelethanol production.

We have a pilot plant with a planned total investment of approximately RMB45 million for ourcellulosic ethanol research and development program. As at September 30, 2006, we had alreadyinvested approximately RMB40.7 million in this plant. According to our joint development agreementwith Novozymes A/S, a world leading enzyme supplier, Novozymes A/S should provide us with theirmost advanced enzyme and designate specialist staff to work with us to decrease the cost of theenzyme in the production of cellulosic ethanol. Our pilot plant also uses equipment with pre-treatmenttechnology from SunOpta Inc. in our development of cellulosic ethanol technology.

A1A 34(1)(c)New Business

Our biofuel and biochemical division has established another corn processing arm, which will beprimarily engaged in the production and sales of starch, sweeteners (mainly maltodextrin, fructosesyrup and malt syrup), amino acid, lactic acid and polylactic acid, feed ingredients (comprising glutenmeal, gluten feed and corn meal) and crude corn oil. The production of these products represents anatural extension of the existing products of our biofuel and biochemical division and we expect to beable to leverage our raw material purchasing power, processing technologies and economies of scaleas we expand our line of products.

We have two new corn processing and biochemical production facilities located in Yushu andGongzhuling, both located in Jilin Province, under construction.

We obtained the final approval of the Development and Reform Commission of Jilin Province for ourYushu project on June 6, 2006. The technology and equipment to be used in our Yushu facility havebeen and will be provided by both overseas and domestic suppliers and the project will be funded byshareholder investment and bank loans. We started construction on our Yushu facility in mid-2006, andwe expect phase one to commence production in mid-2007. The primary products of this facility includestarch, lactic acid and polylactic acid, with some by-products, including feed ingredients and crude cornoil. We expect phase one of the Yushu facility to have an annual corn processing capacity of600,000 metric tons. We expect this facility to be capable of yielding 410,000 metric tons of starch,97,000 metric tons of feed, 31,000 metric tons of corn gluten meal, 16,000 metric tons of refined corn oil

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and 18,000 metric tons of corn germ meal in total. The commencement of construction of phase two ofthe Yushu facility will depend on market conditions. The major products of phase two of the Yushufacility will be lactic acid and polylactic acid.

We have filed with the Development and Reform Commission of Jilin Province on July 6, 2006 forour Gongzhuling project. The technology and equipment to be used in our Gongzhuling facility havebeen and will be provided by both overseas and domestic suppliers and the project will be funded byshareholder investment and bank loans. We started construction of our Gongzhuling facility in mid-2006and we expect it to commence production in mid-2007. The primary products of this facility will includestarch, fructose syrup, malt syrup, maltodextrin, crude corn oil and feed. We expect the Gongzhulingfacility to have an annual corn processing capacity of 600,000 metric tons, which will be capable ofyielding 219,900 metric tons of starch, 200,000 metric tons of fructose syrup and maltodextrin,16,000 metric tons of crude corn oil, and 146,100 metric tons of feed.

In addition to the Yushu and Gongzhuling facilities, we are also considering expanding ourbiochemical production facilities in the eastern China region either through investments in greenfieldprojects or by pursuing selective acquisition opportunities to produce 200,000 metric tons of fructosesyrup per year.

The table below sets out information on our new projects in Gongzhuling, Yushu and EasternChina:

Additional CornLocation of Project Start of Construction Start of Operations Processing Capacity

(metric tons)

Gongzhuling, Jilin Mid-2006 Mid-2007 600,000Yushu, Jilin Mid-2006 Mid-2007 600,000Eastern China Mid-2007 Mid-2008 255,200

The table below sets out our estimated capital expenditure for our new projects in Gongzhuling,Yushu and eastern China.

Total CapitalCapital Expenditure Expenditure

Estimated Time Schedule of Capital Expenditure(1)(HK$ millions) as at the Latest from 2006

Location of Project Practicable Date 2006 2007 2008 to 2008

Gongzhuling, Jilin 427.5 372.8 603.5 — 976.3Yushu, Jilin 306.4 231.1 249.0 211.9 692.0Eastern China 0 — 169.5 169.5 339.0

Note:

(1) Estimated time schedule of capital expenditure as well as the estimated amount of capital expenditure are subject tochanges.

Oilseed Processing Division

Overview

We are one of China’s largest oilseed processors in terms of annual output according to thestatistics issued by the China National Association of Grain Sector and the State Grain Administration.We are a national enterprise with wholly or partly owned production sites in the northeastern andeastern coastal regions close to ports for soybean importation, and in central China close to rapeseedproducing sites.

Our oilseed processing division processes mainly soybeans, rapeseeds, cottonseeds, peanuts andpalm oil. This division is the biggest revenue contributor to our Company, accounting for 61.2% of ourtotal revenue after inter-segment elimination and 36.8% of the total profit attributable to the equityholders of our Company for the year ended December 31, 2005, and 57.9% of our total revenue and

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28.7% of our total profit attributable to the equity holders of our Company for the nine months endedSeptember 30, 2006.

As of September 30, 2006 our majority-owned oilseed processing facilities had an annual crushingcapacity of approximately 4.9 million metric tons and an annual refining capacity of approximately1.2 million metric tons. From 2006 to 2008, we plan to invest approximately RMB906.7 million in thefollowing ways: we intend to strengthen our market-leading position in oilseed processing byrationalization of our existing oilseed processing and production capacities along the coastal regions;alignment of our crushing and refining capacities to increase our crude edible oil refining capacity by anadditional 240,000 metric tons per year; selective acquisitions of additional plants to complete ournational network of oilseed processing production facilities to increase our annual soybean processingcapacity by 600,000 metric tons, our annual soybean oil refining capacity by 300,000 metric tons andour annual palm oil production capacity by 120,000 metric tons; and internal integration of our marketingefforts with our sales and distribution network.

Products

Our oilseed processing division processes soybeans, rapeseeds, cottonseeds, peanuts, otheroilseeds and palm oil into bulk edible oils, specialty oils and fats, oilseed meals and other products. Weproduce and sell a host of oilseed meal products with varying protein content, which we primarily sell asanimal feed ingredients. Our other products include lecithin and animal feed. We sell our oils and fats,oilseed meals, lecithin and animal feed products primarily under the ‘‘ ’’ (sihai) and ‘‘ ’’(xiyingying) brands. We currently produce all of these products at our wholly or partly owned oilseedprocessing production facilities located in China.

The table below sets out our revenue by product segment for the periods indicated:Year ended December 31

2003 2004 2005Volume Revenue Volume Revenue Volume Revenue

(thousand (HK$ millions) (%) (thousand (HK$ millions) (%) (thousand (HK$ millions) (%)metric metric metrictons) tons) tons)

Bulk edible oils ********* 900.6 4,287.2 47.7 1,024.9 5,438.8 47.4 1,127.0 5,479.5 47.0Oilseed Meals ********** 2,007.2 3,541.1 39.3 2,251.6 5,201.7 45.3 2,597.1 5,481.0 47.0Feeds ***************** 177.3 315.5 3.5 177.3 398.0 3.5 166.3 354.7 3.0Others(1) *************** — 856.7 9.5 — 441.3 3.8 — 352.8 3.0

Total ****************** 3,085.1 9,000.5 100.0 3,453.8 11,479.8 100.0 3,890.4 11,668.0 100.0

Nine months ended September 302005 2006

Volume Revenue Volume Revenue(thousand (HK$ millions) (%) (thousand (HK$ millions) (%)

metric metric(unaudited)tons) tons)

Bulk edible oils ********************************** 806.7 3,693.2 42.9 976 4,661.3 50.6Oilseed Meals *********************************** 1,963.6 4,177.6 48.5 1,948 3,761.1 40.9Feeds ****************************************** 118.4 259.5 3.0 147 300.5 3.3Others(1) **************************************** — 485.6 5.6 — 480.3 5.2

Total ******************************************* 2,888.7 8,615.9 100.0 3,071 9,203.2 100.0

Note:

(1) The nature of ‘‘Others’’ is the summation of all miscellaneous products, with different units of measurement. Thus, theaggregation of such products in terms of tonnage is not possible.

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Production Process

Set forth below is a flow chart of the manufacturing process of our soybean processed products:

Cleaning

Heating

Cracking

Soybeans

Dehulling

Heating

Soybean Hulls

Low ProteinHulled Soybean Meal

Extraction Crude Soybean Oil

Heating

Grinding

Mixing

Evaporationand Heating

Refining Refined Soybean Oil

Crushing

High ProteinDehulled Soybean Meal

Drying andCooling

Our soybean processed products manufacturing process includes the following principal steps:

( the soybeans are fed into shaker screens in the processing workshop to separate impurities,and then cleaned;

( the cleaned soybeans are then heated to soften the soybeans to facilitate cracking andcrushing, and to adjust their moisture content;

( the heated soybeans are cracked and dehulled, then separated into cracked soybeans andsoybean hulls;

( the separated hulls can be directly packaged, or ground after heating by hot air, and finallymixed with soybean meals to form low-protein hulled soybean meals with different levels ofprotein content;

( the cracked soybeans are crushed and the resulting soybean flakes are sent to the percolationworkshop where soybean oil is extracted and sent for refining;

( the solvent in the soybean flakes is removed by evaporation and heating. This also helps toadjust the moisture level to a proper level; and

( the flakes are then dried and cooled to become high-protein dehulled soybean meals.

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Sales

We have an extensive national sales and distribution network for our oilseed processed productsand most of our oilseed processed products are sold to distributors. Sales to our key account clients aremainly conducted in the form of direct sales. We have not retained any agent for the sale of our productsin this sector. We have maintained cooperation relationships with our distributors for three to five yearsand we treat them in the same way as our end-user customers. The title to the goods sold throughdistributors is transferred to such distributors upon delivery. Our sales revenue is recognized on anaccrual basis. No commission is paid to our distributors. As a sales incentive, we may, at our discretion,apply a discount of the commodity price available to the distributors at the end of each year, which islimited to a maximum of 0.1%, for the following year based on their sales performance. For distributorswho have preformed well and have maintained a long-term relationship with us, we offer them creditlimits by reference to their previous sales records for a maximum credit period of 45 days provided thatthey can meet the relevant credit standards set out by us.

As at September 30, 2006, we had approximately 33 bulk edible oil distributors, 50 palm oildistributors and 196 oilseed meals distributors across almost all provinces, autonomous regions andmunicipalities in China. We have made the eastern coastal region of China and central China our targetmarkets for oilseed processed products, and we assist our distributors in developing sub-distributors intheir regions and in distributing our products to rural and more remote areas. For the nine months endedSeptember 30, 2006, we also sold approximately 3.2% of our oils and fats and 0.5% of our oilseedmeals directly to key accounts such as large food processing companies and animal feed producers.

For the nine months ended September 30, 2006, we sold approximately 26.8% of our bulk edible oildirectly to our associate COFCO International, and we also provide it with a packaging service. Theconsumer-pack edible oil we supply to COFCO International is mainly marketed under the ‘‘ ’’(fulinmen) and ‘‘Fortune’’ brands by COFCO International. Our edible oil customers also include largefood manufacturers such as Unilever Foods (China) Ltd ( ). We sell ourpalm oil and specialty oils and fats for primarily to top-class food service providers, including InnerMongolia Yili Industrial Group Company Limited ( ), Tingyi (CaymanIslands) Holding Corp ( ), WantWant Group ( ), Pepsi Foods (China) Co.,Ltd. ( ) and Guangzhou Uni-Present Enterprises Corporation( ).

The price of our oilseed processed products is generally determined by market supply anddemand.

We received RMB247.2 million of our sales revenue for the nine months ended September 30,2006 in foreign currencies through the export of our oilseed processed products.


The raw materials we use in the production of our oils and fats are primarily soybeans, rapeseeds,cottonseeds, peanuts, palm oil, crude soybean oil and other agricultural products. Soybeans are themost important raw material for our oilseed processing production, accounting for 64% and 73% of ourraw materials for the year ended December 31, 2005 and the nine months ended September 30, 2006,respectively.

For the nine months ended September 30, 2006, we imported all of our soybeans, mainly from theUnited States, Brazil and Argentina. Accordingly, almost all our purchases are in foreign currencies. Ourmajor international suppliers include Archer Daniels Midland, Bunge, Cargill Inc. and Louis Dreyfus. Weimport almost all of our palm oil from Malaysia and Indonesia. We also import part of our rapeseedsfrom Canada. Cottonseeds, peanuts and a majority of our rapeseeds are primarily purchased fromdomestic markets near our production facilities.

Our purchase agreements with suppliers usually include our specifications on quality, qualityassurance packaging standards, terms of delivery, terms on examination of samples and terms on

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return of goods, payment terms and terms for settlement of any disputes and provide that the cost of thepackaging will be borne by the suppliers.

We seek to reduce the risk of price fluctuations in the raw materials used for our oilseed processingand our oilseed processed products by conducting hedging transactions from time to time through theChicago Board of Trade and the Dalian Commodity Exchange. We currently have an experienced teamof 15 staff, who are responsible for our hedging transactions. We have a risk management function thatsets our hedging policy and manages our hedging transactions.

A1A 28(8)

Production Facilities

We strategically locate our majority-owned oilseed processing production facilities along the coastalregions and the Yangtze River. The production facilities located in coastal regions are close to the portsthrough which we import the soybeans used in our production and our major markets. The productionfacilities located along the Yangtze River are close to the major rapeseed producing area and our majorrapeseed meal customers.

The following table sets out a list of our wholly or partly owned key production facilities and theirrespective total annual production capacities at each of our facilities as at September 30, 2006:

Annual AnnualInterest Crushing Refining

Production Owned by Production ProductionFacility Location us Capacity Capacity Products Manufactured

(%) (metric tons) (metric tons)

Jingmen, Hubei ************* 100.0 240,000 120,000 Rapeseed oil, rapeseed mealZengcheng, Guangdong****** 89.4 — 120,000 Soybean oil, peanut oil, palm oilRizhao, Shandong*********** 72.9 660,000 240,000 Soybean oil, rapeseed oil,

peanut oil, soybean meal, palmoil, animal feeds, peanut meal

Heze, Shandong ************ 70.0 360,000 120,000 Peanut oil, soybean oil,rapeseed oil, peanut meal,soybean meal

Zhangjiagang, Jiangsu ******* 54.0 3,600,000 570,000 Soybean oil, margarine, pastrymargarine, lecithin, soybeanmeal, animal feeds

Tianjin ********************* 50.4(1) — 270,000 Soybean oil, corn oil, rapeseedoil, sunflower seed oil, palm oil,margarine, pastry margarine

Fangchenggang, Guangxi **** 40.0 2,250,000 570,000 Soybean oil, rapeseed oil,peanut oil, corn oil, soybeanmeal

Shawan, Xinjiang ************ 36.1(2) 90,000 36,000 Soybean oil, rapeseed oil,cottonseed oil, sunflower seedoil, safflower seed oil and by-products

Laiyang, Shandong ********** 24.0 270,000 — Peanut oilDingtao, Shandong ********** 24.0 240,000 — Peanut oilShenzhen, Guangdong******* 20.0 240,000 — Soybean oil, rapeseed oil,

peanut oil, oilseed meals,lecithin, feed ingredients

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Notes:

(1) We hold, in aggregate, an attributable interest of approximately 50.4% of Northsea, which operates our Tianjin facility. Wehold an attributable interest in Northsea through a wholly owned subsidiary and Grand Silver International Limited, in whichour Company holds a 24% interest. Northsea is not treated or considered as our subsidiary under the applicable accountingrules.

(2) The Tianjin facility holds 71.6% of the Shawan facility’s equity interest.

The following table sets out the crushing and refining capacities and the respective utilization ratesof our majority-owned production facilities:

Utilization Rate(1)

Nine months Nine monthsended Year ended ended

Year ended December 31 September 30 December 31 September 30ProductionFacility Location 2003 2004 2005 2006 2003 2004 2005 2006

(thousand (thousand (%)metric tons) metric tons)

Jingmen, Hubei(2)

Annual oilseed crushing capacity**** — — 240 240 — — — 31.3Annual crude edible oil refining

capacity ************************ — — 120 120 — — — —Zengcheng, Guangdong

Annual crude edible oil refiningcapacity(3) ********************** 120 120 120 120 95.8 113.3 115.8 109.5

Rizhao, ShandongAnnual oilseed crushing capacity(4) ** 660 660 660 660 77.3 72.7 90.3 91.8Annual crude edible oil refining

capacity(5) ********************** 240 240 240 240 45.4 58.3 80.4 68.0Heze, Shandong(6)

Annual oilseed crushing capacity**** — 360 360 360 — 11.0 60.3 35.3Annual crude edible oil refining

capacity ************************ — 120 120 120 — 3.7 27.2 28.9Zhangjiagang, Jiangsu

Annual oilseed crushing capacity(7) ** 2,400 3,600 3,600 3,600 92.1 63.6 70.8 78.7Annual crude edible oil refining

capacity(8) ********************** 570 570 570 570 95.4 98.2 109.1 115.7

Notes:

(1) Utilization rates are calculated by dividing actual crushing or refining volume by annual crushing or refining capacity;utilization rates for the nine months ended September 30, 2006 are calculated by dividing the actual nine-month crushing orrefining volume by a 9/12 proportion of the annual crushing or refining capacity.

(2) The Jingmen facility is still in the testing stage and has not fully commenced operations.

(3) The Zengcheng facility’s crude edible oil refining production line commenced operations in June 1996.

(4) The Rizhao facility has a soybean crushing production line that commenced operations in April 2002 and a peanut crushingproduction line that commenced operations in October 1994.

(5) The Rizhao facility’s crude edible oil refining production line commenced operations in December 1996.

(6) The Heze facility commenced oilseed crushing operations in July 2004 and its crude edible oil refining operation thereafter.Utilization rates for the year ended December 31, 2004 are calculated by dividing the actual production for the year fromcommencement of operations from July 2004 onwards by the full annual crushing and refining capacities.

(7) The Zhangjiagang facility has four oilseed crushing production lines that commenced operations in December 1996, May2001, July 2002 and December 2003, respectively.

(8) The Zhangjiagang facility also has three crude edible oil refining production lines that commenced operations in July 1995,July 2001 and March 2003, respectively.

Our Zhangjiagang facility is strategically located close to Zhangjiagang port, China’s largestsoybean importing port. Our Zhangjiagang facility is equipped with advanced oil crushing, extractionand refining equipment imported from the United States and Europe, and as of September 30, 2006, wehad a soybean processing capacity of approximately 12,000 metric tons per day, which yieldedapproximately 2,200 metric tons of crude soybean oil and approximately 9,400 metric tons of soybeanmeal per day.

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Our Zhangjiagang facility is the main supplier of consumer-pack edible oil marketed under the‘‘ ’’ (fulinmen) and ‘‘Fortune’’ brand names.

For more details on our Zhangjiagang facility, see ‘‘Rice Trading and Processing Division’’ and‘‘Wheat Processing Division’’ in this section.

Expansion Plan

We intend to strengthen our market leading position in oilseed processing by selective acquisitionsof additional plants.

Among others, we plan to acquire the 100% equity interest in Dongguan Zhong Gu Oils & Fats Co.,Ltd. ( ) (‘‘Dongguan Zhong Gu’’), which is currently a wholly owned subsidiary ofChina Grains and Oils Group Corporation. COFCO is in the process of effecting a transfer of the 100%equity interest of China Grains and Oils Group Corporation pursuant to a notice issued by the State-owned Assets Supervision and Administration Commission of the State Council of the PRC. We havean option and a pre-emptive right under the Non-competition Deed executed by COFCO and COFCO(HK) in favor of us to acquire COFCO’s interest in Dongguan Zhong Gu, which would be subject tovaluation by an independent valuer jointly appointed by COFCO and us. This option and pre-emptiveright is effective once the transfer of China Grains and Oils Group Corporation to COFCO is completed,which is expected by the end of 2007. Please refer to the section headed ‘‘Relationship with COFCOand COFCO International — Non-competition — Retained Interests — China Grains Oils’’ for moredetailed information about China Grains and Oils Group Corporation, Dongguan Zhong Gu and theNon-competition Deed.

The business of Dongguan Zhong Gu includes oil extraction, soybean meal production and saleand storage of edible oils, which are virtually identical in nature to our oilseed processing business. Theacquisition will help to complete our national network of oilseed processing production facilities and toincrease our annual soybean processing capacity by 600,000 metric tons, annual soybean oil refiningcapacity by 300,000 metric tons, and annual palm oil production capacity by 120,000 metric tons by2008.

Quality Control

Our oilseed processing division has established a quality management system for the entireprocurement and production process, ranging from raw materials purchasing, processing, packaging,storage to sales, logistics and distribution, and from raw materials selection to the delivery of finishedproducts to businesses and consumers. We have also established strict internal quality controlstandards for each stage of production. Our Zengcheng facility obtained ISO 9001:2000 certification inSeptember 2004 (expiring in September 2007); our Zhangjiagang facility obtained ISO 9001:2000certification in February 2005 (expiring in February 2008), ISO 14001:2004 certification in January 2005(expiring in January 2008) and HACCP certification in December 2006 (expiring in January 2008); ourHeze facility obtained ISO 9001:2000 certification in March 2006 (expiring in March 2009); and ourRizhao facility obtained ISO 9001:2000 certification in August 2006 (expiring in July 2009).


A1A 28(5)Our oilseed processing division has its own research and development team. The team currentlycomprises two senior engineers, seven engineers and five assistant engineers, and other technicalspecialists. They also work with various research organizations and academics.

Our subsidiary, East Ocean Oils & Grains Industries (Zhangjiagang) Co., Ltd.( ) (‘‘East Ocean’’), in which we have a 54% interest, established aresearch and development centre with Southern Yangtze University in Jiangsu province to study thedeep-processing of oil products, beginning November 19, 2004. According to the cooperationagreement between East Ocean and Southern Yangtze University, East Ocean is responsible for

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providing research funds and Southern Yangtze University is responsible for the research with respectto the deep processing of oil products. The research results belong to East Ocean and SouthernYangtze University is not allowed to use the research results or to transfer the research results to anyother parties. The cooperation agreement has a term of ten years. As at the Latest Practicable Date,East Ocean has invested about RMB 1 million in research activities.

Northsea, in which we have a 50.4% interest, has cooperated with a scientific research institute onthe study of vitamin A-fortified edible oil. Northsea was awarded the Science and Technology Prize bythe Chinese Cereals and Oils Association in 2006 for its outstanding contribution to the research anddevelopment of vitamin A-fortified edible oil. Senior management of Northsea has also been involved inthe drafting of national standards with respect to various types of oilseed processing products such assoybean oil, peanut oil, oilseed processed oils and vitamin A-fortified edible oil.

In addition to the above, we have continuously conducted surveys on the eating and drinking habitsof various types of customers over the years across various regional markets, as well as independentresearch and development. Our oilseed processing division has worked to maintain and improve thequality of our existing products, by researching and improving our processes and equipment. We havealso worked to steadily improve operational efficiency, lower production costs and develop new productsby process re-engineering, to continuously provide customers with nutritious and healthy products tosatisfy their ever-changing demands, and to enhance customer satisfaction.

Strategic Cooperation

We have had strategic cooperation arrangements with Archer Daniels Midland and Wilmar sinceour first oilseed processing production facility in Tianjin was established in 1992. Archer Daniels Midlandis one of the largest agricultural processors in the world and Wilmar is an international producer anddistributor of bulk edible oils and derivative products. Pursuant to our joint venture agreement withArcher Daniels Midland and Wilmar, each party to the joint venture agreement should contribute itscapital contribution to the joint venture and operate the joint venture in accordance with the terms of therelevant joint venture agreement. The Group shares the profits of these joint ventures with ArcherDaniels Midland and/or Wilmar (as the case maybe) in accordance with its respective shareholdings inthe joint ventures.

Joint Ventures with Archer Daniels Midland and Wilmar

East Ocean is a joint venture in which the Group holds a 54% interest, Archer Daniels Midlandholds a 22% interest and Wilmar holds a 22% interest through Kenspot International Pte Ltd. It wasincorporated on June 5, 1993 with a business term of 50 years. Its registered capital is US$ 11.3 million,which has been fully paid up.

Yellowsea Oils & Grains Industries (Shandong) Co., Ltd. ( ) is a jointventure in which the Group holds a 72.9% interest and Archer Daniels Midland holds a 13.53% interestthrough Grand Silver (Lanshan) Limited and Wilmar holds an 11.22% through Grand Silver (Lanshan)Limited. It was incorporated on August 10, 1992 with a business term of 50 years. Its registered capitalis US$47,773,776, which has been fully paid up.

Northsea is a joint venture in which the Group holds a 50.4% interest and Archer Daniels Midlandholds a 22.3% interest through Grand Silver International Limited and Wilmar holds an 18.2% interestthrough Grand Silver International Limited. It was incorporated on April 8, 1992 with a business term of50 years. Its registered capital is US$51.557 million, which has been fully paid up.

Great Ocean Oil & Grain Industries (Fang Cheng Gang) Co., Ltd. ( )is a joint venture in which the Group holds a 40% interest and each of ADM China Holdings Ltd. andWilmar holds a 30% interest. It was incorporated on August 8, 2000 with a business term of 50 years. Itsregistered capital is US$44.5 million, which has been fully paid up.

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Both Laiyang Luhua Fragrant Peanut Oil Co., Ltd. ( ) and ShandongLuhua Fragrant Peanut Oil Co., Ltd. ( ) are joint ventures in which theGroup holds a 24% interest and Wilmar holds a 25% interest through Grand Silver (Laiyang) Co. Limited( ). Laiyang Luhua Fragrant Peanut Oil Co., Ltd. ( )was incorporated on October 27, 1993 with a registered capital of US$9.355 million which has been fullypaid up. Shandong Luhua Fragrant Peanut Oil Co., Ltd. ( ) wasincorporated on April 2, 2003 with a registered capital of RMB60 million which has been fully paid up.Both of these two joint ventures have a business term of 50 years.

Joint Ventures with Archer Daniels Midland

Eastbay Oils & Fats Industries (Guangzhou) Co., Ltd. ( ) is a jointventure in which the Group holds an 89.4% interest and Archer Daniels Midland holds a 10.6% interestthrough Grand Silver (Guangdong) Co. Limited. It was incorporated on March 16, 1995 with a businessterm of 50 years. Its registered capital is RMB51.7 million, which has been fully paid up.

COFCO ADM Oils & Grains Industries (Heze) Co., Ltd. ( ) is ajoint venture in which the Group holds a 70% interest and Archer Daniels Midland holds a 30% interest.It was incorporated on June 12, 2003 with a business term of 50 years. Its registered capital isUS$22.4 million, which has been fully paid up.

Our joint venture arrangements have enabled us to benefit from our joint venture partners’ richexperience and good reputation in the oilseed processing industry, their raw material and sourcingpurchasing power, and their advanced technology and management expertise, and helps to improve ourcompetitive position in both the PRC and international markets.

Save for the 10.72% ownership interest that COFCO (HK) indirectly holds in Wilmar InternationalHoldings Limited, which holds a 91.27% interest in Wilmar, the 0.82% interest that COFCO (HK) holdsdirectly in Wilmar, and the joint venture relationship, our Directors confirm that neither Archer DanielsMidland nor Wilmar has any other relationship with our Group, our Directors, shareholders or associatesas at the Latest Practicable Date.

As disclosed in the section headed ‘‘Our History and Reorganization’’, the Group holds thecontrolling interests in its joint ventures with Archer Daniels Midland and Wilmar other than Great OceanOil & Grain Industries (Fang Cheng Gang) Co., Ltd. ( ), Laiyang LuhuaFragrant Peanut Oil Co., Ltd. ( ) and Shandong Luhua Fragrant Peanut OilCo., Ltd. ( ). There will be no competition among the Group’s controlledjoint ventures, and as to Great Ocean Oil & Grain Industries (Fang Cheng Gang) Co., Ltd.( ), Laiyang Luhua Fragrant Peanut Oil Co., Ltd.( ) and Shandong Luhua Fragrant Peanut Oil Co., Ltd.( ), we perceive them as our ordinary competitors in the oilseed processingmarket, which is a mature and competitive market in the PRC.

Rice Trading and Processing Division

Overview

Our rice trading and processing division is primarily engaged in exporting the parboiled rice weproduce, and white rice we produce or purchase from other producers. We are China’s largest exporterof rice in terms of export volume. We exported approximately 500,400 metric tons and approximately426,200 metric tons of rice during the year ended December 31, 2005 and the nine months endedSeptember 30, 2006, respectively. We also sell white rice we import from Thailand and Pakistan todomestic purchasers. We sell approximately 38,500 metric tons and approximately 26,600 metric tonsof rice we import to domestic purchasers during the year ended December 31, 2005 and the ninemonths ended September 30, 2006, respectively, accounting for 0.76% and 0.4% of our total revenue inthe same period.

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We are the majority owner of the only parboiled rice processing facility in China, which is also oneof the largest in Asia in terms of production capacity. Our two majority-owned rice production facilitieshad a total rice processing capacity of 295,000 metric tons per year as at September 30, 2006. Our ricetrading and processing division accounted for 8.1% of our total revenue and 29.1% of our total profitattributable to the equity holders of the Company for the year ended December 31, 2005, and 8.7% ofour total revenue and 14.3% of our total profit attributable to the equity holders of the Company for thenine months ended September 30, 2006.

We currently plan to invest approximately RMB463.6 million to further strengthen our leadingposition in rice trading and processing by building or acquiring a new rice processing facility to addanother 300,000 metric tons per year of short grain white rice processing capacity between 2006 and2008.

Products

Our principal rice products are parboiled rice, white rice (comprising long grain and short grain) andby-products, including broken rice, discolored kernels and rice bran. In the nine months endedSeptember 30, 2006, we exported approximately 426,200 metric tons of rice, of which approximately73,100 metric tons were parboiled rice.

Parboiled Rice

Parboiled rice is characterized by its high quality, purity and high nutrition. Our parboiled rice isproduced from long grain paddy from southern China. Parboiled rice has a higher cooking yield, has alonger shelf life and is easier to store than normal white rice. Parboiled rice, though still new to mostChinese consumers, is widely accepted as a healthy and natural food in the United States, Europe andthe Middle East, where its consumption is increasing annually. We have started introducing parboiledrice to Chinese consumers.

White Rice

Our white rice products are primarily long grain and short grain rice, which we produce from longgrain paddy and short grain paddy growing in different areas in China.

The table below sets out our revenue by product segment for the periods indicated:Year ended December 31


(thousand (thousand (thousand(HK$ millions) (%) (HK$ millions) (%) (HK$ millions) (%)metric metric metrictons) tons) tons)

Parboiled rice************ — — — — — — 79.2 179.2 13.6White rice *************** 776.9 1,237.9 100.0 518.6 1,027.7 100.0 421.2 1,135.1 86.4

Total ******************* 776.9 1,237.9 100.0 518.6 1,027.7 100.0 500.4 1,314.3 100.0



metric metric(unaudited)tons) tons)

Parboiled rice ******************************** 35.4 88.3 9.5 73.1 179.4 14.9White rice************************************ 286.3 837.5 90.5 353.1 1,024.4 85.1

Total **************************************** 321.7 925.8 100.0 426.2 1,203.8 100.0

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Production Process

Set forth below is a flow chart of our parboiled rice manufacturing process:

Cleaningand Grading

Soaking Cooking Dryingand Tempering

ParboiledRice

Cleaning Dehulling Whitening PolishingPaddy

Our production of parboiled rice includes the following main steps:( the paddy is first cleaned to remove stones, soil, hemp, hay, impurities and the lighter paddy

before grading;( soaking takes place in tanks with controlled pressure and temperature settings;( the water is then drained from the paddy and the paddy is carefully cooked by high-pressure

steam;( drying and tempering are carried out in multiple stages employing controlled temperatures and

atmospheric pressures;( the dried parboiled rice is cleaned again to remove any remaining impurities; and( the husks and bran layers are removed, and the resulting rice is whitened and polished.

Our production of white rice includes the following steps:

( the paddy is cleaned to remove stones, soil, hemp, hay, impurities and the lighter paddy;( the husks are rubbed off the cleaned paddy. The resulting brown rice is separated from the

husks;( the bran layers of the brown rice are removed;( the resulting rice is whitened and polished;( the rice (whole grain, head rice, and broken rice) is sieved using several sizing techniques;( discoloured rice is removed; and( the processed rice is packed and sorted by grade and packaged into individual bags before

delivery to customers.

Sales

Our rice trading and processing division sells almost all of its products to distributors. We have notretained any agent for the sale of our products in this sector. We have maintained cooperationrelationships with our distributors for two to ten years, although we do not enter into long-term supplycontracts with them. We treat our distributors in the same way as our end-user customers. The title tothe goods sold through distributors is transferred to such distributors upon delivery. Our sales revenue isrecognized on an accrual basis. We have not paid any commission, or offered any sales incentive orcredits, to overseas distributors. In a few cases, we offer some domestic distributors (such as well-known supermarkets) credit limits by reference to their previous sales records for a maximum creditperiod of two months, provided that they can meet relevant credit standards set by us.

COFCO is, in China, one of the only two licensed rice exporters. Currently, we conduct our riceexport business under a rice import and export agency agreement with COFCO whereby COFCOBeijing has appointed COFCO as its non-exclusive agent for the import and export of rice productswithin the export quotas granted by the PRC government to COFCO.

We export our short grain rice primarily to major traditional markets such as Japan, South Korea,Hong Kong, Central America and the South Pacific Islands and our long grain white rice primarily toAfrica and Southeast Asia.

Currently, almost all of the parboiled rice we produce is exported to the Middle East, Africa, EasternEurope, Central Asia and the Americas. Sales to Central Asia, the Middle East and Africa make up themajority of our parboiled rice exports.

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As almost all of our rice products are produced for export. The prices of our rice products aredetermined by market supply and demand. Our customers are principally international grain traders,who have their own sales networks in different countries. We have long-standing relationships with mostof our major customers. We typically place specific deliveries pursuant to our customers’ purchaseorders. All our sales for rice are made in foreign currencies through exports. We are also currently in theprocess of expanding our business into the domestic rice trading market and rice processing industry.


The raw material used in the production of parboiled rice and white rice is paddy.

We purchase all our paddy on the domestic market from state-owned grain depots and local grainwarehouses, as well as directly from farmers. Accordingly, all our purchases are in local currency. Wemaintain stable long-term relationships with our suppliers and we did not experience any shortage ofraw paddy which affected our normal production during the past three years ended December 31, 2005and the nine months ended September 30, 2006.

In our rice trading business, we select suppliers that have a sound quality control system, andadvanced technology and processing equipment to process the rice we need.

Production Facilities

A1A 28(8)Currently, we have three partly owned rice production facilities located in Nanchang, JiangxiProvince, Anshan, Liaoning Province and Zhangjiagang, Jiangsu Province. The following table sets outa list of our partly owned rice production facilities and their respective annual production capacities as atSeptember 30, 2006:Production Interest AnnualFacility Location Owned by us Production Capacity Products Manufactured

(%) (metric tons)

Nanchang, Jiangxi ******************** 83.5 220,000 Parboiled rice, white rice and rice by-productsZhangjiagang, Jiangsu***************** 54.0 75,000 Nutrition-fortified rice, enriched rice pellets,

white rice and rice by-productsAnshan, Liaoning ********************* 10.0 50,000 White rice and rice by-products

The following table sets out the annual paddy processing capacities and the utilization rates of ourmajority owned production facilities:

Annual PaddyProcessing Capacity Utilization Rate(1)

Year ended Nine months Year ended Nine monthsDecember 31 ended September 30 December 31 ended September 30Production

Facility Location 2003 2004 2005 2006 2003 2004 2005 2006

(thousand metric tons) (thousand metric tons) (%)

Nanchang, Jiangxi(2) ********* — 300 300 300 — 3.4 54.9 86.6Zhangjiagang, Jiangsu(3) ***** 75 112.5 112.5 112.5 45.4 28.2 29.3 29.8

Notes:

(1) Utilization rates are calculated by dividing actual paddy processed by annual paddy processing capacity; utilization rates forthe nine months ended September 30, 2006 are calculated by dividing the actual nine-month paddy processing volume by a9/12 proportion of the annual paddy processing capacity.

(2) The Nanchang facility commenced operations in November 2004.

(3) The Zhangjiagang facility commenced operations in May 2003.

Our Nanchang facility, located in Jiangxi Province, commenced production of parboiled rice inNovember 2004. It is currently the only manufacturer of parboiled rice in China. This production facilityhas an annual production capacity of 180,000 metric tons of parboiled rice and 40,000 metric tons of

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white rice as of September 30, 2006. For more details on our Zhangjiagang facility, see ‘‘OilseedProcessing Division’’ and ‘‘Wheat Processing Division’’ in this section.

Quality Control

In order to ensure the high quality of our rice products, we apply stringent quality criteria to ourproducts, from the selection of suppliers to the technical requirements of production and methods ofproduct testing.

We adhere to strict internal quality control guidelines that apply to our entire procurement andproduction process for our rice trading and processing division, from sourcing of raw materials toprocessing, packaging and inventory storage to sales and distribution. We have instituted specificquality standards for each stage of our rice production process. Our Directors confirm that our qualitystandards for rice processing meet all applicable PRC quality standards.

Each of our rice production facilities has its own quality control department. Our rice trading andprocessing division provides regular training to our workers and we undertake thorough investigationsand analysis if any quality issues arise. We have instituted specific quality standards for each stage ofthe rice production process.

Our Nanchang facility obtained HACCP certification in August 2006 (expiring in August 2009) andthe ISO9001: 2000 certification in May 2006 (expiring in May 2009). Our Anshan facility obtainedHACCP certification in September 2006 (expiring in September 2009) and ISO14001:2004 certificationin September 2006 (expiring in September 2009) and ISO9001:2000 certification in September 2006(expiring in September 2009). Our Zhangjiagang facility obtained ISO 9001: 2000 certification inFebruary 2005 (expiring in February 2008), ISO14001: 2004 certification in January 2005 (expiring inJanuary 2008) and HACCP certification in December 2006 (expiring in January 2008).


A1A 28(5)We are able to develop new rice product varieties to cater to customer preferences. To betterposition ourselves in the domestic rice market, our rice trading and processing division established aresearch and development department in Beijing in August 2006 to focus on developing different typesof blended rice. Blended rice is a mixture of different types of rice at given ratios to yield differentnutritional values and to cater to different customer tastes. This research and development teamconsists of engineers with crop science and food engineering backgrounds. We expect to introduce ourblended rice to the domestic market in China in the first half of 2007.

Brewing Materials Division

Overview

Our brewing materials division is engaged in the production of malt from malting barley and theimport and domestic trading of malting barley. Animal feed ingredients such as malt root and barleyhusk are also produced as by-products. We own the biggest single malt production facility in China, andthe quality of our malt products is well recognized by the premium beer breweries in China. We providemalt to Tsingtao, Yanjing, Budweiser, San Miguel, Blue Ribbon and Asahi. Our brewing materialsdivision generated 5.3% of our total revenue and 12.6% of our total profit attributable to the equityholders of our Company for the year ended December 31, 2005, and 5.1% of the total revenue and8.6% of the total profit attributable to the equity holders of our Company for the nine months endedSeptember 30, 2006.

We own one malt production facility in Dalian, Liaoning Province with an annual malt productioncapacity of 360,000 metric tons, as of September 30, 2006, and are currently constructing anotherproduction facility in Jiangyin, Jiangsu Province. By the end of 2008, we expect to have a total annualmalt production capacity of 680,000 metric tons.

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Products

Our brewing materials division is primarily engaged in the production of malt and distribution of themalting barley in China. For each of the three years ended December 31, 2003, 2004, 2005 and thenine months ended September 30, 2006, our annual malt production was approximately 202,000 metrictons, 253,000 metric tons, 278,000 metric tons and 250,000 metric tons, respectively.

The table below sets out our revenue and volume by product segment for the periods indicated:Year ended December 31


(thousand (thousand (thousand(HK$ millions) (%) (HK$ millions) (%) (HK$ millions) (%)metric tons) metric tons) metric tons)

Malt *********** 135.8 324.5 56.6 245.0 572.1 71.6 251.1 635.8 73.5Malting barley ** 146.2 219.6 38.3 134.1 208.7 26.1 116.4 205.2 23.7Others ********* 64.2 29.5 5.1 32.3 17.9 2.3 40.4 24.1 2.8

Total ******** 346.2 573.6 100.0 411.4 798.7 100.0 407.9 865.1 100.0


Volume Revenue Volume Revenue(thousand (thousand(HK$ millions) (%) (HK$ millions) (%)

metric tons) metric tons)(unaudited)

Malt ************************************** 198.7 496.9 71.3 229.7 585.1 82.7Malting barley ***************************** 103.2 182.9 26.3 59.4 95.6 13.5Others************************************ 28.2 16.8 2.4 52.4 27.1 3.8

Total *********************************** 330.1 696.6 100.0 341.5 707.8 100.0

Malt

Malt is produced by germinating malting barley. It is the basic ingredient used to produce beer.Often referred to as the ‘‘soul’’ of beer, malt provides most of the complex carbohydrates that arenecessary to give beer its distinctive flavor, nutritional value, and alcohol content.

We are able to process a large variety of malting barley, including the barley varieties Metcalfe,Schooner, Gairdner and Prestige to satisfy the different malt requirements for the beer products of ourbrewery customers.

Malt By-Products

By-products of the malting process include malt root and barley husk, which we sell to ourcustomers for the production of animal feed.

Production Process

Set forth below is a flow chart of our malt production process:

SteepingCleaningMalting Barley Germination Kilning Deculming Malt

Our malt production process includes the following steps:

( the barley is cleaned and graded, and the impurities are removed. The selected barley is thentransferred to the malt house;

( the barley undergoes steeping for 48 hours, germination for 96 hours, and kilning for 24 hours;

( after removing the malt root (‘‘deculming’’), the kilned malt is fed into the silo for storage; and

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( after cleaning and selection, the malt in the silo is separately packaged or shipped as bulkcargo.

Sales

We sell all the malt we produce directly to our customers and no distributor is involved in our salesprocess. The title to the goods we sell is transferred to our end-user customers upon delivery. Ourcustomers are ranked and categorized according to their credit ratings and are granted with differentcredit treatments. For our end-user customers who have a good track record, we offer them credit limitsby reference to their previous sales records for a maximum credit period of not more than 30 daysprovided that they can meet the relevant credit standards set out by us.

Many of our customers are large domestic and foreign-invested breweries located in China, and,currently, our major customers include Tsingtao Brewery Co., Ltd. ( ), BeijingYanjing Brewery Co., Ltd. ( ), Budweiser Wuhan International BrewingCompany Ltd. ( ), San Miguel Brewing International Ltd.( ), China Resources Snow Breweries Ltd. ( ), InBevManagement (Shanghai) Co., Ltd. ( ), Kirin Brewery (Zhuhai) Co., Ltd.( ), Blue Ribbon Beer Enterprises ( ), Beijing Beer Asahi Co., Ltd.( ) and Suntory (China) Holding Co., Ltd. ( ). Membersof our brewing materials sales team typically have some technical knowledge of malt and beerprocessing. This allows the team to better understand the technical requirements and specifications ofour customers’ purchasing teams and provide a better service to our customers. The prices of ourbrewing materials are determined by market supply and demand.

We currently export a small portion of our malt to Russia, South Korea, Vietnam and Hong Kong.We received RMB34.9 million for the nine months ended September 30, 2006 in foreign currenciesthrough the export of our malt.


We use malting barley to produce our malt. Malting barley is a special kind of barley used for theproduction of malt, with a 10% to 12% protein content and 98% or more varietal purity.

Since the barley produced in China cannot satisfy the high quantity and quality demands of ourcustomers, we import almost all of the malting barley we need from Australia, Canada and Europe, themajor malting barley producing areas in the world and accordingly almost all our purchases of rawmaterials are in foreign currencies. We purchase malting barley from both global trading companies andlocal exporters. Our purchase agreements with suppliers usually include our specifications on quality,loading dates, place of delivery, packaging specifications, and specifying that we are responsible forinsurance, the costs of clearing customs and unloading, as well as custom duties and value added tax.

During the years ended December 31, 2003, 2004, 2005 and the nine months endedSeptember 30, 2006, we did not experience any major shortage in the supply of malting barley.


Currently, we have a wholly owned malt production facility in Dalian, Liaoning Province, which is thelargest single production facility in China in terms of annual production capacity. Our Dalian facilityhouses three production lines. Its first production line commenced operations in June 1998 and itssecond in June 1999. Its annual production capacity for each of the three years ended December 31,2003, 2004 and 2005, was 300,000 metric tons of malt and for the nine months ended September 30,2006 was increased to 360,000 metric tons. The facility had a utilization rate of approximately 67.3%,84.4%, 92.8% and 92.4% for each of the three years ended December 31, 2003, 2004 and 2005 andthe nine months ended September 30, 2006, respectively. It is also equipped with special railtracks

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connecting it to the Chinese national railway network, which helps to give us a logistical advantage inthe transportation and delivery of our products to our customers.

Our Dalian facility has been designated as a high-tech enterprise by the Foreign Economic andTrade Commission of Dalian Municipal Government and enjoys a preferential tax rate applicable to high-tech enterprises. Our Dalian facility was honored as an excellent enterprise of beer industry-relatedindustries by the China Food Industry Society in 2005, and our Dalian facility was included in the ‘‘ChinaEnterprise New Records’’ in 2003 for our top annual sales volume and market share of malt in 2002.

Expansion Plans

To expand our malt market share in the eastern and southern regions of China, we are constructinga new malt production facility in Jiangyin, Jiangsu Province. Phase one of our Jiangyin facility isscheduled to enter production in the first quarter of 2007. Phase two is scheduled to enter production in2008. Our Jiangyin production facility will have two production lines and the total designed productioncapacity is 120,000 metric tons per year for phase one and 200,000 metric tons per year for phase two.Our new Jiangyin facility is located along the Yangtze River and the facility will have its own deep-waterberth. The berth is 285 meters long and can accept ships with a tonnage of 70,000 metric tons. Thedeep-water berth will allow shipments of malting barley to be delivered directly to our facility.

We also plan to build a new malt production facility in Dongguan, Guangdong Province which isexpected to add another 120,000 metric tons of annual malt production capacity. Our new Dongguanfacility is expected to start its operations, in late 2009.

Technology and equipment to be used in Phase one of our Jiangyin facility will be provided by bothoverseas and domestic suppliers. The Group has not decided on the source of technology andequipment to be used in the Phase II of our Jiangyin facility and Dongguan facility. All of these projectswill be funded from shareholders investment and bank loans.

The table below sets out information on our above expansion plans:

Location of Project Start of Construction Start of Operations Additional Capacity

(metric tons)

Jiangyin (Phase I), Jiangsu ************** Early 2005 Early 2007 120,000Jiangyin (Phase II), Jiangsu************** Early 2007 Late 2008 200,000Dongguan, Guangdong****************** Early 2008 Late 2009 120,000

The table below sets out our estimated capital expenditure for the above future expansion plans:

Capital(HK$ millions) Expenditure Total

as at the CapitalEstimated Time Schedule ofLatest Expenditure

Capital Expenditure(1)Practicable from 2006

Location of Project Date 2006 2007 2008 to 2008

Jiangyin (Phase I and II), Jiangsu********** 315.4 150.0 150.0 130.0 430.0Dongguan, Guangdong ******************* 0 0 0 80.0 80.0

Note:

(1) Estimated time schedule of capital expenditure as well as the estimated amount of capital expenditure are subject tochanges.

Quality Control

We adhere to strict internal quality control guidelines that apply to our entire procurement andproduction process in our brewing materials division, from sourcing of raw materials to processing,packaging and inventory storage to sales and distribution. Our Directors confirm that our malt qualitystandards meet all applicable PRC quality standards.

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Our malting process is monitored constantly by experienced personnel who can make timelydecisions, supported by quality control laboratories with automated equipment and sophisticatedmethodology. Each batch of kilned samples is analyzed for the required chemical and physicalcharacteristics. The results are used by our brewing materials team in barley procurement through toproduction, to adapt our procedures to ensure that we produce consistently high-quality malt that meetsour customers’ specifications.

Our Dalian production facility obtained ISO9001:2000 certification in November 2005 (expiring inNovember 2008) and HACCP standard certifications in November 2005 (expiring in November 2008).


A1A 28(5)Our brewing materials division has nine engineers responsible for the continuous modification andimprovements to our brewing materials processing technologies, including in the areas of productivityenhancement, water usage efficiency and reduction of production cycle time. They also focus onintroducing high-quality raw materials into China, which helps to give us an important competitive edgeover our competitors in China. In addition, we are currently considering working with Dalian Institute ofLight Industry on further research and development. These efforts are aimed at improving productquality as well as reducing production costs.

Wheat Processing Division

Overview

We are one of the largest wheat processors in China in terms of annual output according to thestatistics issued by the China National Association of Grain Sector and the State Grain Administration.Currently we have operations in nine wholly or partly owned wheat processing facilities, which arelocated in northeastern China, northern China, the Yangtze River Delta region and central China. Ourwheat processing division accounts for 10.2% of our total revenue and 6.0% of our profit attributable toequity holders of the Company for the year ended December 31, 2005, and 8.9% of our total revenueand 7.4% of our total profit attributable to equity holders of the Company for the nine months endedSeptember 30, 2006.

We currently produce flour and noodles. Our majority-owned wheat processing production facilitieshave a total wheat processing capacity of approximately 1.4 million metric tons per year as atSeptember 30, 2006. We provide high-quality flour to premium food brands in China, such as Uni-President, Master Kong noodles, Nabisco, Danone and Pillsbury.

From 2006 to 2008, we plan to spend HK$368.5 million to adjust our wheat product mix to includemore high-end products that can yield higher profit margins and to further expand an additional360,000 metric tons of annual wheat processing capacity, 30,000 metric tons of annual noodlesproduction capacity and 3,000 metric tons of annual bakery products production capacity. We haveformed strategic partnerships with Hakubaku, to introduce high-end noodle products, and with ToyotaTsusho to produce top-quality frozen dough and bakery products.

Products

Currently, our wheat processing division is primarily engaged in the processing and sale of a broadrange of flour and noodles. We are also planning to start production of frozen dough and bakeryproducts (including bread, cakes and other products), once our new wheat processing production facilitycommences production in March 2007. Our flour marketed under the ‘‘ ’’ (dongda), ‘‘ ’’(xiangxue) and ‘‘ ’’ (shenxiang) brands has been attested as quality-assured flour by the ChinaNational Association of Grain Sector.

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The table below sets out our revenue and volume by product category of our wheat processingdivision for the periods indicated:

Year ended December 312003 2004 2005

Volume Revenue Volume Revenue Volume Revenue(thousand (HK$ millions) (%) (thousand (HK$ millions) (%) (thousand (HK$ millions) (%)

metric tons) metric tons) metric tons)

Flour ********* 573.3 789.6 76.7 643.0 1,164.8 75.4 685.6 1,243.0 74.8Noodles ****** 10.5 15.7 1.5 23.4 49.8 3.2 33.2 73.0 4.4Others(1) ****** 220.6 224.7 21.8 268.6 330.7 21.4 281.3 346.2 20.8Total ********* 804.4 1,030.0 100.0 935.0 1,545.3 100.0 1,000.1 1,662.2 100.0



metric tons) metric tons)(unaudited)

Flour ************************************** 509.2 927.6 74.6 525.7 942.4 76.4Noodles *********************************** 24.8 54.8 4.4 25.9 56.4 4.6Others(1) *********************************** 210.3 261.6 21.0 205.6 234.4 19.0Total ************************************** 744.3 1,244.0 100.0 757.2 1,233.2 100.0

Note:

(1) Others include wheat bran and instant noodles

Flour

We process a wide variety of flour in two main categories:

( Customized flour: produced from high-quality wheat to customer specifications, customizedflour is widely used by catering suppliers to produce both western and traditional Chinese food.

( General purpose flour: a lower-end product, general purpose flour is used to make a widerange of cooked foods and is for everyday use by consumers.

Noodles

We currently produce a wide range of dried noodles to satisfy the different needs of our customers.Our dried noodle products currently include a variety of noodles, including wheat, multigrain, vegetable,algae and nutritionally fortified noodles. We recently brought to market a range of dried noodles that areprocessed using the advanced processing technologies of our joint venture partner Hakubaku (aleading Japanese dried noodle maker). We plan to upgrade our processing technologies across all ourdry noodles production facilities.

We are planning to launch a range of high-quality semi-dried and non-dried noodle productsdepending on market demand. Because the production of semi-dried and non-dried noodles requiresproprietary technology, we plan to adopt the latest processing technologies from overseas. Theproduction and sale of semi-dried and non-dried noodles are expected to yield much higher profitmargins compared with normal dried noodles.

New Products

We expect to start production of a variety of freshly baked bread, frozen dough and cakes after ournew Beijing facility commences production. We expect to introduce our cakes freshly baked bread tomarket first before introducing other products.

We do not expect these new products to compete with COFCO International’s Food and BeverageBusiness because COFCO International does not, and will not be allowed to, pursuant to the Non-Competition Deed dated February 16, 2007 executed by COFCO and COFCO (HK) in favour of us,

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manufacture any of these products. Please refer to the section headed ‘‘Relationship with COFCO andCOFCO International’’ for more information about the Non-Competition Deed.

Production Process

Set forth below is a flow chart of our manufacturing process of flour:

SteepingCleaning Milling Sifting FlourWheat

Our production of flour includes the following steps:

( the wheat is cleaned to remove any impurities;

( the cleaned wheat is steeped in water. This makes the wheat easier to mill;

( the steeped wheat is machine milled; and

( the milled wheat is passed through a series of rotating sieves which separate the differentmilled components. The finest particles are flour.

We blend different types of flour to make our finished products, which are then packed anddelivered to customers.

Set forth below is a flow chart of our dried noodles manufacturing process:

RollingDough Making Cutting Drying Cutting Dried NoodlesFlour

Our production of dried noodles includes the following steps:

( flour and water are blended to make dough;

( the dough is rolled into sheets;

( the dough sheets are cut into thin strips;

( the thin strips are dried;

( the strips are cut into same lengths; and

( the finished noodles are then packed and delivered to customers.

Sales

We sell approximately half our flour and noodle products directly to our end-user customers andhalf to third-party distributors through our nationwide wheat product sales network. We have notretained any agent for the sale of our products in this sector. We have established cooperationrelationships with our distributors for many years with some of them for ten years and we treat them inthe same way as our customers. The title to the goods sold through distributors is transferred upondelivery. Our sales revenue is recognized on an accrual basis. We have not paid any commission, oroffered any sales incentives or credits, to our distributors. For distributors who have performed well, weoffer them credit limits by reference to their previous sales records for a maximum credit period of notmore than 30 days provided that they can meet the relevant credit standards set by us.

We divide our operational areas in China into five regions: the northeastern region, Beijing-Tianjin-Tangshan region, central region, Yangtze River Delta region and Pearl River Delta region. We haveestablished regional management teams, who are exclusively responsible for product marketing andsales in each region. By eliminating competition among production facilities through a clearerdemarcation of each facility’s sales region(s), we have decreased previously duplicative sales costs. Wehave also raised operational efficiency and gained more bargaining power as a whole through thesharing of resources among facilities. We rank a few of the major cities and the most economicallydeveloped areas in China as our ‘‘First-Tier’’ target markets; large provincial capitals and the more

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economically developed areas in China as our ‘‘Second-Tier’’ target markets; and the areas surroundingprovincial capitals as our ‘‘Third-Tier’’ target markets.

We focus on selling to larger companies that present lower operational risk, and we aim to workclosely with these customers to research and develop new products that meet their specific needs. Inthis way, we aim to develop strategic partnerships for our mutual development and benefit. For our non-key accounts, we usually sell through distributors.

Our major flour and noodle customers include leading food brands such as Danone, Nabisco,Tingyi and Hualong, as well as super and hyper-markets such as Carrefour and Wal-mart, and somelarge-scale chain retailers and bakeries, such as Holiland. Currently, we sell all of our products in China.

As our flour and noodle products are all sold within China, all our revenues on their sales are inRMB. The price of our flour and noodle products is determined by market supply and demand.


We purchase almost all of the wheat we use in our flour production from the domestic market andprocure all the flour we use in our noodle production internally. Accordingly, almost all of our purchasesare in local currency. We seek to ensure the stable raw material supply for our production by sourcingraw materials through a variety of channels, including bidding at auction for state reserves of grain,purchasing existing wheat inventory from state-owned depots and warehouses, purchasing fromcommodity traders, purchasing directly from farmers and entering into joint purchasing efforts withdepots and warehouses. Our purchase agreements with suppliers usually include our specifications onquality, that transportation costs be borne by the supplier, place of delivery, payment terms and terms tosettle any disputes.

We have established strategic alliances with depots and warehouses to ensure a stable supply ofwheat as well as help control our raw material costs. By entering into some long-term contracts, we areless exposed to the risk of any sudden increases in the price of our raw materials. We maintain stablerelationships with our suppliers and accordingly, over the three years ended December 31, 2003, 2004,2005 and the nine months ended September 30, 2006, we did not experience any major shortage of rawmaterials that affected our normal production.


As at September 30, 2006, our wheat processing division wholly or partly owned nine productionfacilities. In addition, we are currently constructing a new facility in Beijing for our frozen dough andbakery products.

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The following table sets out a list of our key wholly or partly owned wheat processing productionfacilities and their respective total annual production capacities at each of our wholly and partly ownedfacilities as at September 30, 2006:

AnnualAnnual Dried

Interest Wheat NoodlesProduction Owned Processing ProductionFacility Location by us Capacity Capacity Products Manufactured

(metric tons) (metric tons)(%)

Qinhuangdao, Hebei ******** 100.0 340,000 — FlourPuyang, Henan************* 80.0 110,000 18,000 Flour, dried noodlesShenyang (xiangxue ( )),

Liaoning ***************** 69.3 180,000 18,000 Flour, dried noodlesShenyang (dongda ( )),

Liaoning ***************** 66.9 100,000 — FlourXiamen, Fujian ************* 60.0 71,000 — FlourDezhou, Shandong ********* 55.0 170,000 4,500 Flour, dried noodlesZhengzhou, Henan ********* 55.0 220,000 6,000 Flour, dried noodlesZhangjiagang, Jiangsu ****** 54.0 170,000 — FlourShenzhen, Guangdong****** 30.3 225,000 — Flour, animal feeds

The table below sets out the annual wheat processing capacity and the respective utilization ratesof our majority owned production facilities:

Annual WheatProcessing Capacity Utilization Rate(1)

Nine months Nine monthsYear ended ended Year ended ended

December 31 September 30 December 31 September 30ProductionFacility Location 2003 2004 2005 2006 2003 2004 2005 2006

(metric tons) (metric tons) (%)

Qinhuangdao, Hebei(2) ********* 220,000 220,000 220,000 340,000 100.0 100.0 94.0 85.0Puyang, Henan(3) ************* 110,000 110,000 110,000 110,000 32.8 66.9 83.9 78.3Shenyang (xiangxue ( )),

Liaoning(4)****************** 180,000 180,000 180,000 180,000 99.1 106.6 78.1 60.5Shenyang (dongda ( )),

Liaoning(5)****************** 100,000 100,000 100,000 100,000 100.0 100.0 100.0 106.0Xiamen, Fujian(6) ************** 71,000 71,000 71,000 71,000 115.3 115.4 121.2 101.0Dezhou, Shandong(7) ********** 159,000 159,000 170,000 170,000 86.8 59.5 53.6 73.9Zhengzhou, Henan(8) ********** 220,000 220,000 220,000 220,000 109.8 110.6 117.2 101.0Zhangjiagang, Jiangsu********* 130,000 130,000 170,000 170,000 96.4 99.2 86.6 105.0

The table below sets out the annual dried noodles production capacity and the respective utilizationrates of our majority owned production facilities:

Annual Dried NoodlesProduction Capacity Utilization Rate(1)

Nine months Nine monthsYear ended ended ended

December 31 September 30 Year ended December 31 September 30ProductionFacility Location 2003 2004 2005 2006 2003 2004 2005 2006

(metric tons) (metric tons) (%)

Puyang, Henan(3) ************* 12,000 12,000 12,000 18,000 35.3 68.4 92.6 48.8Shenyang (xiangxue ( )),

Liaoning(4)****************** 18,000 18,000 18,000 18,000 57.8 70.0 69.8 61.6Dezhou, Shandong(7) ********** 9,000 4,500 4,500 4,500 41.0 47.3 42.5 37.7Zhengzhou, Henan(8) ********** 6,000 6,000 6,000 6,000 97.8 93.3 114.1 75.6

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Notes:

(1) Utilization rates are calculated by dividing the actual wheat processing volume or the dried noodles production volume by theannual wheat processing capacity or the dried noodles production capacity; utilization rates for the nine months endedSeptember 30, 2006 are calculated by dividing the actual nine-month wheat processing volume or the dried noodlesproduction volume by a 9/12 proportion of the annual wheat processing capacity or the dried noodles production capacity.

(2) The Qinhuangdao facility commenced operations in January 1996.

(3) The Puyang facility has one flour production line which commenced operations in January 2003 and three dried noodlesproduction lines which commenced operations in February 2003, July 2003 and March 2006 respectively.

(4) The Shenyang (xiangxue ( )) facility has two flour production lines which commenced operations in 1992 and 1996respectively and four dried noodles production lines which commenced operations in June 1985, February 1992, July 1996and September 1997 respectively.

(5) The Shenyang (dongda ( )) facility commenced operations on January 1994.

(6) The Xiamen facility commenced operations in April 1996.

(7) The Dezhou facility has two flour production lines which commenced operations in September 2002 and November 2004respectively and one dried noodles production line which commenced operations in June 2001.

(8) The Zhengzhou facility has two flour production lines which commenced operations in November 1988 and December 1999respectively and one dried noodles production line which commenced operations in June 1995.

Our Qinhuangdao facility in Hebei Province commenced operations in 1996. It is one of the largestflour producers in China with a wheat processing capacity of 340,000 metric tons per year. The principalproduction technologies and equipment for the flour production line were imported from a Swissmanufacturer. The facility uses advanced imported flour testing instruments in a baking laboratory whichcombines testing and production functions. This baking laboratory is capable of carrying outcomprehensive quality testing as well as test baking. Our wheat flour sold under the ‘‘ ’’ (pengtai)brand was awarded as one of ‘‘Chinese Famous Agricultural Products’’ by the Ministry of Agriculture inOctober 2006.

For more details of our Zhangjiagang Facility, see ‘‘Oilseed Processing Division’’ and ‘‘Rice Tradingand Processing Division’’ in this section.

We locate our wheat processing production facilities according to their proximity to raw material-producing areas and to our customers, which promotes the coordination of production and sales. Beingclose to our customers helps us identify market trends and collect customer information quickly so thatwe can decide the direction of new product development.

Expansion Plan

We currently plan to establish a joint venture with Zhong Wang International Investment (Group)Co., Ltd. ( ), an independent third party to us, to operate a new wheatprocessing facility in Luohe, Henan Province. Zhong Wang International Investment (Group) Co., Ltd.( ), a PRC-incorporated company, is mainly engaged in the production of foodand agricultural products and related investments. The proposed registered capital of the joint venture isRMB40 million and we will hold a 95% interest in the joint venture. We are in the process of acquiringthe production plants, equipment, machinery and the relevant land use right for the establishment of thefacility. We expect our Luohe facility to start its operation in 2007 with a designed annual wheatprocessing capacity of 150,000 metric tons. The project will be funded by shareholder investment andits equipment and machinery will be provided by domestic suppliers.

Quality Control

We adhere to strict internal quality control guidelines that apply to our entire procurement andproduction process for our wheat processing division, from sourcing of raw materials to processing,packaging and inventory storage to sales and distribution. We have instituted specific quality standardsfor each stage of our wheat processing production.

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Our Qinhuangdao facility obtained ISO9001:2000 certification in January 2006 (expiring in January2009), ISO14001:2004 certification in January 2006 (expiring in January 2009) and HACCP certificationin February 2005 (expiring in February 2008); our Shenyang (xiangxue) facility obtained ISO9001:2000certification in December 2006 (expiring in December 2009) and HACCP Certification in December2006 (expiring in December 2009); our Dezhou facility obtained ISO9001:2000 certification in February2005 (expiring in February 2008) and HACCP certification in December 2005 (expiring in December2008); our Zhengzhou facility obtained ISO9001:2000 certification in April 2005 (expiring in April 2008);our Xiamen facility obtained ISO9001:2000 certification in June 2005 (expiring in June 2008) andHACCP certification in January 2006 (expiring in January 2009); and our Zhangjiagang facility obtainedISO 9001:2000 certification in February 2005 (expiring in February 2008), ISO 14001:2004 certificationin January 2005 (expiring in January 2008) and HACCP certification in December 2006 (expiring inJanuary 2008).


A1A 28(5)Our wheat processing division has established a technology research and development committee,which is responsible for technology innovation and the development of new products and technicalservices for our customers.

Each of our key wheat processing production facilities has its own research and developmentdepartment responsible for developing innovative new products and improving our processingtechniques to enhance the quality of our products. Currently, our research and development teamcomprises senior engineers, engineers and assistant engineers. Most of our facilities are equipped withadvanced research equipment.

Strategic Cooperation

We have a long-term strategic relationship with Toyota Tsusho, a leading Japanese conglomerate.In December 2005, we established COFCO TTC (Beijing) Foods Co., Ltd. (

), a joint venture with Toyota Tsusho for the production of frozen dough and bakeryproducts in Beijing. We own 51% of the joint venture and Toyota Tsusho owns 49%. Through this jointventure we expect to benefit from Toyota Tsusho’s significant expertise in the areas of productiontechnologies, quality control, and research and development.

We have also established Puyang COFCO Flour Industry Co., Ltd. ( ) withHakubaku, a leading Japanese dried noodle maker, in Puyang, Henan Province. Pursuant to ourtechnology license agreement with Hakubaku, we have been granted an exclusive right to useHakubaku’s technology in China until April 2015 with respect to dried noodles processing. In addition,Hakubaku undertook not to enter into any agreement or to provide any technology assistance to anyother party in China by April 2015. Through this joint venture we expect to benefit from Hakubaku’sadvanced processing technologies.

Save for the joint venture relationship, neither Toyota Tsusho nor Hakubaku has any otherrelationship with our Group, its Directors, shareholders or associates.

CUSTOMERS AND SUPPLIERS

Our customers include food processing companies, food ingredient distributors, feed producers,feed ingredient distributors and non-food industrial companies. We usually sign sales contracts with ourcustomers that set out the total sales volume, pricing mechanism, product specifications, paymentterms and delivery schedule. We apply strict quality control to our products. In rare cases where thereare quality issues with respect to our products, we may allow the products to be returned.

We have established stringent credit control procedures. Our sales department assesses thecreditworthiness of potential customers and proposes credit limits for approval by different levels of

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management. We conduct our credit limit checks prior to delivery of our products. We generally sell toour large customers at a slight discount and may grant them credit periods.

A1A 28(1)(b)(vii)

For each of the three years ended December 31, 2003, 2004, 2005 and the nine months endedSeptember 30, 2006, our sales to our five largest customers amounted in aggregate for less than 30%of our total revenue.

A1A 28(1)(b)(ii)

A1A 28(1)(b)(i)

A1A 28(1)(b)(v)

For each of the three years ended December 31, 2003, 2004, 2005 and the nine months endedSeptember 30, 2006, our purchases from our five largest suppliers amounted in aggregate toapproximately RMB5,646.7 million, RMB6,743.8 million, RMB8,100.0 million and RMB11,736.0 million,respectively, or approximately 47.9%, 44.1%, 52.9% and 54.3% of our total purchases of raw materialsfor the same periods. Purchases from our largest supplier, Grand Ocean International Trading Limited( ), accounted for approximately 44.8%, 40.6%, 48.8% and 47.4% of our totalpurchases for the same periods. None of our Directors or their respective associates or any of ourexisting shareholders who, to the knowledge of our Directors, own more than five per cent of our issuedshare capital, has any interest in any of our five largest suppliers.

We have different credit policy arrangements with different suppliers. For example, where goodsarrive in China at the port, settlement is made based on confirmation by the port transport agent andinspection certification provided by the supplier.

Some suppliers with which we have had a long-standing relationship provide us with credit periodsof 90 days.

We normally settle the payment to our suppliers through bank transfer or letters of acceptancewithin 40 working days of delivery, while suppliers usually request, and our Group’s purchases areusually carried out on the basis of, payment upon delivery. We usually pay in advance for our purchaseswithin the PRC or pay a deposit beforehand, while we pay according to the collection order for importedpurchases.

For our biofuel and biochemical division, the corn is usually delivered to us only after we have madepayment. For our other raw materials, we are usually subject to payment on delivery, with a minimumsum payable.

DISTRIBUTION AND DIRECT SALES

Our distribution policies are decided based on market conditions, industry practice and our ownbusiness conditions and strategy. We sell a portion of our products through distributors to reduce therisks associated with smaller customers and also to better service our customers through thedistributors, since they usually have specialized logistical arrangements and a more expansivegeographical reach to deal with smaller customers.

For the nine months ended September 30, 2006, our biofuel and biochemical division soldapproximately 75% of our alcohol products and 66% of our animal feeds directly to our customers andthe remainder respectively through distributors. Our oilseed processing division sold approximately14.2% of our oils and fats directly to our customers and 85.8% through our distributors. We sold 16% ofour oilseed meals directly to our customers and 84% through our distributors. Our rice trading andprocessing division sold approximately 1% of our rice products directly to customers and 99% throughdistributors; our wheat processing division sold approximately half of our wheat processed productsdirectly to our customers and half through distributors; and our brewing materials division sold all of ourmalt directly to our customers.

We generally enter into sale and purchase agreements or distributor agreements with ourdistributors. As we have many products across our five divisions and sell to a wide variety of distributorsin different industries and in different geographical areas, we have different terms specific to each sale.These agreements usually include terms on total sales volume, pricing mechanism, productspecifications, payment terms, delivery schedule and termination and renewal.

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QUALITY CONTROL

We have internal quality control handbooks that cover an explanation of the business unit; the rulesand guidelines for work processes; the purchase and management of raw materials and other materials;the production process and operational rules and guidelines; management of resources, storage andtransportation; production standards and product quality control; health and safety operationalmanagement; examination methods of raw materials and products; and customer service managementrules.

Our internal quality controls are mainly operated according to the requirements of ISO9001 qualitymanagement systems, and follow national and industry standards. The goods we export are alsosubject to quality control and standards imposed by the importing countries.

Our quality control staff generally have a relevant professional or technical background, and includeengineers, middle-level engineers and senior engineers. Our professional technical staff undergonational, industry or business unit professional technical skills training and quality control managementtraining, for instance, training on ISO9000, standardization engineering and safety, etc., and areaccordingly qualified.

The directors of each of our facilities which have obtained standard certifications have confirmedthat they believe that there is no impediment to obtaining renewal of the relevant certification on thebasis of the facilities strictly implementing the quality controls required by those certifications.

LOGISTICS AND INVENTORY

Transportation

We transport our products primarily by rail, road and water, principally by barge. Most of ourproduction facilities are equipped with dedicated railtracks connecting railway stations to ourwarehouses. We primarily use our own trucks and our own riverside loading and unloading facilities. Insome cases, we outsource some of the transportation to third-party logistics companies to reduce costs.For overseas customers, we generally use sea freight. We usually but not invariably bear thetransportation and product delivery costs for the sale of our products.

There were few incidents of delivery delays or poor handling by distributors or transport operatorsduring the three years ended December 31, 2005 and the nine months ended September 30, 2006.Such delays were due to insufficient carrying capacity during peak transportation periods such as theGolden Week holiday period in China. Delivery delays or poor handling by distributors or transportoperators have different degrees of impact on our business, but have not adversely affected our financialcondition or operation materially.

To prevent or deal with such delays, we have implemented various measures, including notifyingour customers to pay in advance so that we can prepare goods earlier, communicating with the raildepartment in advance, managing transportation and logistics by arranging for two or three differentloading points near our goods facilities and factoring into our costs such arrangements to make surethat logistics run smoothly.

Inventory Control

Our inventory comprises mainly raw materials and finished products, which we store in our own andthird-party warehouses. We stock up raw materials mainly for our own production purposes. Wemanage our inventory according to our businesses and production plans, using information technology,such as an enterprise resource planning system, to monitor our inventory levels. We also employ thefirst-in-first-out principle of accounting for our inventories and conduct periodic stocktaking of ourinventory.

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The ranges of optimal storage for our biofuel and biochemical division are approximately50,000 metric tons of coal, 100,000 metric tons of corn, 4,000 metric tons of animal feed, 10,000 metrictons of consumable ethanol and 1,900 metric tons of crude corn oil.

For our oilseed processing division, the range of optimal storage is approximately 100,000 to200,000 metric tons for our soybeans and around 100,000 metric tons for our bulk edible oil.

For our rice trading and processing division, we do not usually keep stock of unsold productsbecause generally we can sell all rice products we produce. Our Nanchang facility usually keeps anormal monthly inventory of 30,000 metric tons of paddy as its raw material.

Our brewing materials division keeps an inventory of 60,000 to 80,000 metric tons of malting barleyand we may store up to 50,000 metric tons of brewing malt where production costs are low.

Our wheat processing division keeps an inventory of approximately 50,000 metric tons of wheatand other raw materials.

We use storage inventory software to monitor and control our inventories and conduct periodic(once or twice a year) and ad hoc stock-takes. Our senior management reviews inventory reports on afrequent basis and our Directors plan to review the age of inventories at least once a year or suchadditional time they may consider necessary. We also have complete procedures on inventorymovements and approvals on checking the age of inventories. Some of our facilities also carry outmonthly stock-takes or seasonal stock-takes.

EMPLOYEES

A1A 28(7)As at September 30, 2006, we had 10,860 full time employees. In addition to our full-timeemployees, we also employ temporary employees during production peak periods. The following tablesshow the breakdown of our full-time employees by division and function as at September 30, 2006.

Number of PercentageDivision Employees of Total

Biofuel and biochemical *********************************************** 4,901 45.1%Oilseed processing**************************************************** 2,806 25.8%Rice trading and processing******************************************** 377 3.5%Brewing materials***************************************************** 173 1.6%Wheat processing***************************************************** 2,603 24.0%

Total **************************************************************** 10,860 100.0%

Number of PercentageFunction Employees of Total

Production *********************************************************** 5,345 49.2%Sales and marketing ************************************************** 976 9.0%Quality control ******************************************************** 757 7.0%Management and other administration*********************************** 1,281 11.8%Research and development ******************************************** 188 1.7%Others*************************************************************** 2,313 21.3%

Total **************************************************************** 10,860 100.0%

We enter into individual employment contracts with our employees to cover matters such as wages,employee benefits, health and safety conditions at the workplace, confidentiality for commercial secrets,and grounds for termination. Other than employment contracts with middle and senior management,these employment contracts have a term of between one and three years with a probation period ofbetween one and three months.

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We set targets for our employees based on their position and department and periodically reviewtheir performance. The results of such reviews will be used in their salary reviews, bonus awards andpromotion appraisals. Our employee remuneration package may comprise one or more of the followingelements: basic salary, monthly performance-related bonus, annual performance-related bonus andannual discretionary bonus. The relative weight of each of these elements in an employee’sremuneration package will depend on his or her seniority and department. We also provide ouremployees with a range of benefits including housing allowances and medical insurance.

For the three years ended December 31, 2003, 2004, 2005 and the nine months endedSeptember 30, 2006, we incurred employee costs of HK$129.6 million, HK$146.5 million,HK$171.8 million and HK$181.5 million, respectively, representing approximately 1.03%, 0.91%, 1.05%,and 1.31% of our total revenue for those periods.

Our labor costs increased during the three years ended December 31, 2005 and the nine monthsended September 30, 2006, as we increased the number of employees to meet the need of ourbusiness expansion and because of an increase in average wages and employee benefits.

Training and Development

We place great emphasis on the training and development of our employees. We invest incontinuing education and training programs for our management staff and other employees with a viewto constantly upgrading their skills and knowledge. We have arranged for internal and externalvocational training courses to develop our employees’ skills and knowledge. These training coursesinclude further educational studies, basic production processes and skills training and professionaldevelopment courses for our management personnel. New recruits are required to attend trainingcourses to ensure that they are equipped with the necessary skills to perform their duties.

Employee Relations

We have not experienced any strikes, work stoppages or significant labor disputes which havematerially affected our operations in the past. Our Directors consider our relations with our employees tobe good.

In accordance with PRC regulations, we have established an employee labor union, in which all ouremployees are eligible for participation. We have not experienced any major disputes with, nor has therebeen any major labor action taken by, our labor union.

Employee Benefits

In accordance with applicable PRC regulations on social insurance, we participate in a pensioncontribution plan, a medical insurance plan, an unemployment insurance plan and a housing fund forour employees as required by the local government. We comply with all statutory social insurance andhousing fund obligations applicable to us under PRC laws in all material aspects.

Under the Master Sale and Purchase Agreement, COFCO (HK), our controlling shareholder, hasundertaken to indemnify us from and against all claims, liabilities, losses, costs and expenses which wemay suffer or incur in connection with any underpayment, non-payment or late payment of socialinsurance and housing fund contributions, for our subsidiaries established in China.

INTELLECTUAL PROPERTY

As at the Latest Practicable Date, we had registered 46 trademarks and nine patents. In addition toour registered intellectual property rights, we have developed a significant amount of processing andpreparation know-how, such as in relation to our recipes or processing techniques. We have stringentconfidentiality protection arrangements in place to protect these trade secrets, including restrictingaccess to such information to authorized personnel only and requiring our technical and management

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personnel to enter into confidentiality and non-competition undertakings to ensure that our trade secretsare not passed on to competitors.

We are licensed by COFCO to use the ‘‘ ’’ (zhongliang) brand for our flour production facilities.We do not license any of our intellectual property rights to any third parties.

Our Directors confirm that we are not involved in any proceedings in respect of, and we have notreceived notice of any claims of infringement of, any intellectual property rights that may be threatenedor pending, in which we may be involved whether as claimant or respondent.

For further details of our intellectual property rights, please refer to the section headed ‘‘IntellectualProperty’’ as set in Appendix VII — ‘‘Statutory and General Information — Intellectual Property’’.

PROPERTY

Owned Properties

As at the Latest Practical Date, we used 40 parcels of land (with a total area of approximately3.7 million square meters) and 500 buildings (with a total gross floor area of approximately 1 millionsquare meters) for our production facilities and offices throughout China. Savills Valuation andProfessional Services Limited, an independent valuer, has valued our owned properties atapproximately HK$2,957.4 million as at December 31, 2006. The text of the letter and the valuationcertificate issued by Savills Valuation and Professional Services Limited are set out in Appendix V —‘‘Property Valuation’’.

Buildings

Among the 500 buildings we use, we had not obtained building ownership certificates for61 buildings as at the Latest Practicable Date. Most of these buildings are used for ancillary uses suchas offices, storage, canteens and guardrooms. Only eight buildings are used for production ofpackaging stuff and wheat processing.

The 61 buildings have a total gross floor area of 70,250.61 square meters, which representsapproximately 7.1% of the total gross area of the Group’s buildings. As at September 30, 2006, thesebuildings had a total net book value of approximately HK$35.8 million, representing approximately 0.8%of the Group’s net asset value. We are in the process of applying for the building ownership certificatesof these buildings.

We consider that the buildings for which we do not hold building ownership certificates are notmaterial to our business operations because: (i) they are not used for our core business operations; and(ii) we believe we can relocate to alternative buildings without materially affecting our operations if weare required by any authority to cease using these buildings. According to our PRC legal counsel,Commerce & Finance Law Offices, no penalties may be levied against the Group for occupying thesebuildings.

Land Use Rights

Among the 500 buildings which we use, there are 69 buildings for which we have not obtained therelevant land use right certificates as at the Latest Practicable Date. 19 of these buildings arecommodity housing we purchased from independent third parties, a majority of which are used asdormitories, with the remaining used as offices. Our PRC legal counsel, Commerce & Finance LawOffices, has advised us that we have paid the consideration in full, that the sellers of the commodityhousing have obtained the relevant land use rights certificates and that there is no legal impediment forus to obtain the relevant land use rights certificates. The applications to obtain such certificates arebeing processed. The remaining 50 buildings consist of one building on leased land used by ourHuangshi facility (please see ‘‘— Leased Properties’’ below) and 49 buildings on the two pieces of landused by our Xiamen and Zhengzhou facilities described below.

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As at the Latest Practicable Date, we do not hold land use rights certificates for two pieces of landused by our Xiamen and Zhengzhou facilities for housing our wheat processing facilities. The land usedby our Xiamen facility and Zhengzhou facility has an area of 29257.8 square meters and48400.0 square meters, respectively, representing approximately 0.8% and 1.3%, respectively, of theGroup’s total gross area of land. As at September 30, 2006, these two pieces of land had an aggregatenet book value of approximately HK$6.1 million, representing approximately 0.1% of the Group’s netasset value.

Our Xiamen facility is operated by Xiamen Haijia Flour Mills Co., Ltd. ( )(‘‘Xiamen Haijia’’), a joint venture between Xiamen Flour Food Stuffs Development Company( ) (‘‘Xiamen Flour’’) and us. As at September 30, 2006, the net assets of XiamenHaijia were approximately HK$46.1 million, representing only 0.97% of the total net asset value of theGroup. Its profit attributable to the equity holders for the period ended September 30, 2006 amounted toapproximately HK$1.7 million, being only 0.33% of the Group’s profit attributable to equity holders forthe same period. According to our joint venture agreement with Xiamen Flour, Xiamen Flour promisedto contribute its land use rights together with its other fixed assets and equipment as its equitycontribution to Xiamen Haijia. Xiamen Flour also undertook that Xiamen Haijia would be able to obtainthe relevant land use rights certificate and that it would assist Xiamen Haijia to complete all the relevantapplication procedures. We obtained an arbitration award granted by the China International Economicand Trade Arbitration Commission on February 7, 2005, pursuant to which Xiamen Flour was ordered totransfer all relevant land use rights to Xiamen Haijia. We have filed with the relevant court to enforce thearbitration award. According to our PRC legal counsel, Commerce & Finance Law Offices, our Xiamenfacility may continue to use the relevant land without incurring any penalties for the lack of the land userights certificate.

Our Zhengzhou facility is operated by Zhengzhou Haijia Food Co., Ltd. ( )(‘‘Zhengzhou Haijia’’), a joint venture between China Zhengzhou No. 2 Flour Mill ( )(‘‘Zhengzhou Flour’’) and us. As at September 30, 2006, the net assets of Zhengzhou Haijia wasapproximately HK$51.4 million, representing only 1.09% of the total net asset value of the Group. Itsprofit attributable to the equity holders for the period ended September 30, 2006 amounted toapproximately HK$7.1 million, representing only 1.4% of the Group’s profit attributable to equity holdersfor the same period. According to our joint venture agreement with Zhengzhou Flour, Zhengzhou Flour,which holds the relevant land use rights certificate, has contributed the buildings and structures on theland as its equity contribution to Zhengzhou Haijia. According to our PRC legal counsel, Commerce &Finance Law Offices, our Zhengzhou facility may continue to use the relevant buildings and structureswithout incurring any penalties.

Leased Properties

As at the Latest Practicable Date, we leased 74 buildings with a total gross floor area of 45,996.85square meters from third parties (including COFCO Group) throughout China. Our Huangshi facility alsoleases a piece of land from Huangshi Municipality Oils and Fats Corporation ( ) for a periodfrom July 1, 2002 to July 1, 2012. The land is used to house oil-refining and ancillary equipment, and forwarehouses, a canteen and storage of oil containers. The net book value of the fixed assets on the landwas HK$3,817,925 as at September 30, 2006, representing 0.08% of total net asset value of Group asat September 30, 2006. Huangshi Municipality Oils and Fats Corporation, although holding the requiredland use rights certificate for the land, has not performed its obligation to register the lease with relevantauthorities pursuant to the relevant PRC laws and regulations. Our PRC legal counsel, Commerce &Finance Law Offices, has confirmed that our lease agreement with the lessor is legal, valid andenforceable and our rights as the lessee would not be affected and we will not, as lessee, suffer anypenalty for such lack of registration under PRC laws and regulations.

Our indirect wholly owned subsidiaries, COFCO Beijing and Heilongjiang Alcohol, both leasedcertain properties for general commercial business and ancillary uses in COFCO Plaza in Beijing fromBeijing COFCO Plaza Development Co., Ltd, a subsidiary of COFCO. COFCO Beijing and Heilongjiang

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Alcohol plan to continue their respective leases with COFCO after the Global Offering, which willconstitute continuing connected transactions of our Company pursuant to the Hong Kong Listing Rules.For more detailed information about these continuing connected transactions, please refer to the sectionheaded ‘‘Connected Transactions — Exempt Continuing Connected Transactions — PropertiesLeasing’’ in this prospectus.

Indemnity from COFCO

For the reasons explained above, it is unlikely that the Group will be compelled to vacate thebuildings or the land for which we do not hold the building ownership certificates and/or land use rightscertificates. Nevertheless, pursuant to a letter of undertaking dated February 14, 2007, COFCO hasagreed to indemnify the Group for any damages or losses which may be suffered by the Group due tothe absence of the relevant building ownership certificates and/or land use rights certificates in respectof buildings and land we currently use. Please refer to Appendix V — ‘‘Property Valuation’’ for moredetailed information about our properties.

INSURANCE

We maintain insurance coverage on various of our properties and fixed assets, production facilities,equipment, inventory and transportation vehicles as well as product liability insurance and businessinterruption insurance. In addition, we also provide social security insurance for our employees asrequired by the PRC social security regulations, such as pension insurance, unemployment insurance,work injury insurance and medical insurance.

We have not experienced any power shortages or business interruptions which had a materialadverse effect on our business. Based on industry practice in the PRC, our experience in running ourbusinesses, insurance products available in the PRC and advise received from insurance agents, ourDirectors are of the view that we have sufficient insurance coverage for our current operations.

ENVIRONMENTAL PROTECTION

We are subject to PRC national and local laws and regulations with respect to environmentalprotection, under which all enterprises that discharge contaminants and other pollutants must takeeffective measures to prevent and cure the pollution and damage caused by waste gas, wastewater andother pollutants that they produce through their construction or other activities. Enterprises thatdischarge contaminants must report and register with the State Administration for EnvironmentalProtection or the relevant local environmental protection department. Enterprises dischargingcontaminants in excess of the discharge limits or standards prescribed by the State or by the localauthorities must pay discharge fees for the excess in accordance with state regulations, and they willalso be responsible for handling the excess discharge. For further information for applicable PRCenvironmental laws and regulations, please refer to the section headed ‘‘Regulatory Overview’’ in thisprospectus.

To ensure our compliance with the relevant environmental laws and regulations, we have institutedanti-pollution measures and we carry out regular internal inspections at each of our production facilities.Our Directors confirm that we have not received any notice of non-compliance with applicable PRCenvironmental laws and regulations that could have a material adverse effect on our financial conditionor results of operation in the past five years.

Anti-pollution Measures

The main pollution that we may cause to the environment includes the discharge of wastewater,waste gas, waste residue, physical waste materials and noise. We have invested in and constructedpollution treatment facilities and implemented relevant pollution treatment systems and schemes tohandle and dispose of such pollution in order to meet all pollution discharge standards formulated by theState and to comply with the applicable environmental protection laws. We retrieve and recycle

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wastewater, waste gas, waste residue and physical waste materials that have been handled anddisposed of to reduce the pollution discharge and take measures such as using sound-proof walls, basicvibration-absorption materials and installing soundproofing facilities, etc. to reduce noise. Our Directorsconfirm that our environmental protection systems and facilities meet national waste treatmentstandards and comply with the applicable national and provincial environmental protection laws andregulations governing wastewater, waste gas, waste residue, physical waste materials and noise.

The Group’s annual cost expenditure on environmental protection (including but not limited toenvironmental protection fees and operational fees of pollution control equipment) for 2005 wasapproximately RMB11.0 million and its annual capital expenditure (mainly the capital expenditure onpollution control equipment) for 2005 was approximately RMB15.1 million. The Group estimates that itsannual cost expenditure and annual capital expenditure on environmental protection for 2006 areRMB13.3 million and RMB62.6 million, respectively. The significant increase in annual capitalexpenditure on environmental protection from 2005 to 2006 is mainly attributable to the Group’sproposed construction of waste water disposal facilities for our new biofuel and biochemical projects inZhaodong, Yushu and Gongzhuling.

Potential Risk Control

PRC companies are required to carry out environmental impact studies before the commencementof construction affecting the environment to ensure that their production processes meet PRCenvironmental standards. We conduct environmental feasibility studies for all our new production,expansion and reconstruction projects affecting the environment. New production, expansion orreconstruction projects must include facilities for the prevention and control of pollution and treatment ofwaste materials. We designed our existing facilities strictly in accordance with the relevant nationalstandards and we aim for all our facilities to adopt technological advanced and safe processes toenhance safety. Before our new facilities may be put into operation, the pollution control and wasteprocessing mechanisms are inspected by the relevant environmental protection authorities and must belaunched simultaneously with the new facilities. We check our pollution control and waste processingmechanism on a regular basis for safe operation.

We have formulated special environmental and safety management systems and measuresapplicable to all departments relating to the Group’s environmental and safety work to address potentialfuture risks. Our general manager is fully responsible for the environmental and safety work inaccordance with PRC Environmental Protection law and Interim Measures of Reporting EnvironmentalPollution and Accident and some other relevant laws and regulations. We have also adoptedenvironmental and safety accident emergency schemes and rescue and control measures in case ofaccident and emergency and have established emergency, rescue and fire fighting organizations. Allsuch measures, taken as a whole, should materially reduce potential future risks.

Advanced Technology and Research and Development

We have adopted and imported many technologically advanced production systems and we investsignificantly in environmental research and development to reduce the impact on the environment. OurGongzhuling facility utilizes a range of systems and key processes relating to wastewater treatmentdesigned and provided by Netherlands Paques company. These have enhanced our ability to complywith national standards for wastewater treatment. A central laboratory and environmental and safetyinspection laboratory, with 26 examination and inspection staff in total, with reducing the impact on theenvironment to a minimum as their aim.

Expansion of Facilities

When carrying out construction of expansion projects or new production, we comply with therequirements of the environmental laws and regulations by commissioning environmental impactassessment reports or other assessment documents. Such documents evaluate the impact of the

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environmental pollution produced by such construction projects and specify preventative and curativemeasures. We submit such reports and documents to the administration authority for environmentalprotection for approval. The measures for preventing and curing pollution in construction projects areformulated and then implemented at the same time as the main project is carried out.

Environmental Penalty

Our subsidiary, COFCO Jiangxi Rice Processing Limited ( ), was finedRMB80,000 by the Jiangxi Province Environmental Protection Authority on August 23, 2005 for startingproduction before wastewater processes were fully put in place. As COFCO Jiangxi Rice ProcessingLimited ( ) has not appealed nor carried out its obligations under the decision,the Jiangxi Province Environmental Protection Authority has applied to the Nanchang city intermediatecourt for enforcement. On January 23, 2006, the Nanchang city intermediate court enforced a judgmentof RMB38,384 against COFCO Jiangxi Rice Processing Limited ( ) and suchenforcement has been completed.

Our Directors confirm that we currently comply with national and provincial environmental laws andregulations applicable to us in all material aspects. Except for the penalty imposed on COFCO JiangxiRice Processing Limited ( ) mentioned above, we have not been fined anyamount in excess of RMB10,000 nor have any of our licenses been rescinded for violation of anyenvironmental protection regulations. Our Directors confirm that we are not currently subject to anymaterial environmental claims, lawsuits, penalties or disciplinary actions.

SAFE PRODUCTION

According to the PRC Safe Production Law, Safe Production Permit Regulations and SafeManagement of Hazardous Chemical Ordinance, enterprises producing hazardous chemicals mustsatisfy the safe production conditions required by the government and obtain a safe production permit.All our subsidiaries engaging in biofuel production have obtained the safe production permits, except forthose that have not commenced production.

We have had no accident resulting from the improper handling of hazardous materials. We haveformulated and implemented preventative environmental and safety measures in the handling ofhazardous materials. All hazardous materials must be stored, transported and operated in compliancewith the relevant laws and regulations. Accident detection systems and facilities near to the hazardousmaterials to ensure prompt detection of accidents and to predict how any accident would develop.Heilongjiang Alcohol has adopted measures to ensure that its dangerous chemicals operations fullycomply with the relevant laws and regulations governing the production, storage, transportation andoperation of dangerous chemicals. Environmental and safety accident emergency schemes and rescueand control measures in case of accidents and emergencies in handling hazardous materials have beenformulated and emergency, rescue and fire fighting teams have been established with designatedpersonnel.

Our Directors confirm that the safety systems and measures we have formulated and implementedfully comply with the relevant laws and regulations and help to ensure safety in handling hazardousmaterials.

LEGAL PROCEEDINGS

A1A 40In 2006, China Railway Jinan Survey & Design Consulting Institute (‘‘Sinotrain Jinan’’)commenced legal action against Heilongjiang Alcohol, a subsidiary of the Company, seeking to enforcesecurity over 200 tank trucks registered in the name of Heilongjiang Alcohol. Heilongjiang Alcohol andSinotrain Jinan had entered into a security agreement, pursuant to which Heilongjiang Alcohol granted acharge over the 200 tank trucks in favor of Sinotrain Jinan to secure a debt in the amount ofRMB9,832,893 owed by Shandong Jiujiu Co. Ltd. (‘‘Jiujiu’’) to Sinotrain Jinan. Jiujiu failed to repay theoutstanding loan at the due date and Sinotrain Jinan commenced legal action against Heilongjiang

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Alcohol for the enforcement of the security. The court of first instance ruled that Sinotrain Jinan couldauction or sell off the secured tank trucks for the repayment of the loan in the amount of RMB9,832,893together with interest, and this ruling was upheld by the People’s Higher Court of Shandong.

The 200 tank trucks which were charged to Sinotrain Jinan were purchased by Heilongjiang Alcoholfrom Jiujiu. As Heilongjiang Alcohol had not paid the consideration for the 200 tank trucks, it agreed togrant a charge over the 200 tank trucks in favor of Sinotrain Jinan to secure a debt owed by Jiujiu.Heilongjiang Alcohol has not paid the secured debt of approximately RMB9.8 million to Sinotrain Jinan.Pursuant to PRC law, in the event that the security over the 200 tank trucks is enforced, HeilongjiangAlcohol is entitled to deduct any of its losses arising from such enforcement from the outstandingamount payable by Heilongjiang Alcohol to Jiujiu in relation to the purchase of the 200 tank trucks.

Each of Jiujiu and Sinotrain Jinan is an independent third party of our Group.

Our Directors confirm that the result of such legal proceedings will not adversely affect theoperations or financial condition of our Group or Heilongjiang Alcohol.

Our Directors confirm that we have not otherwise received notice of any other litigation or arbitrationproceedings pending or threatened against us or any of our directors that could have a material adverseeffect on our financial condition or results of operation.

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COMPLIANCE

Approvals and compliance

We confirm that we are in compliance with all applicable laws and regulations of the PRC and haveobtained all necessary licenses, permits, approvals or certificates, in each case, that are necessary forthe commencement and continuance of our operations in the PRC, except otherwise disclosed in thesection below.

We have obtained the approvals, permits, licenses and certificates set out in the following tablefrom the relevant governmental authorities of the PRC:Name Approval Number Date Validity Period

COFCO Jiangxi Business license Qi He Gan Zong Zi May 14, 2002 July 31, 2001 toRice Processing No. 003314 July 30, 2016Limited Sanitation Permit Jin Wei Shi Xu Zi April 3, 2006 April 3, 2006 to( (2006) No. 3-041 March 31, 2007)

August 13, 2004 toManufacturing No. QS3600 0102 August 13, 2004August 22, 2007Permit 9912

Cereals Purchase Gan 0010011.0 September 5, 2006 N/APermitTransport Business Gan Jiao Yun Zheng October 31, 2006 October 31, 2006 toPermit Xu Ke Nan Zi October 30, 2010

No. 24032397COFCO Business license Qi Du Jing Zong Zi August 26, 2003 May 31, 2001 toInternational No 015899 May 30, 2031(Beijing) Co., Ltd. Sanitation Permit Dong Wei Shi Jian April 6, 2006 April 6, 2006 to( Zi [2006] No. 00770 April 6, 2011

)Certificate of Hai Guan Deng Ji June 26, 2001 June 26, 2001 toCustom Clearance Bian Ma June 26, 2008Registry No. 1101940171

China Resources Business license Qi He Hei Zong Fu April 20, 2006 February 18, 1998 to(Heilongjiang) Zi No. 002155 February 17, 2043Alcohol Co., Ltd. (Hei)WH An Xu July 4, 2005 toSafe Production July 4, 2005( Zheng Zi July 3, 2008Permit

) No. [2005]0013No. XK16-218- May 10, 2005 toManufacturing May 10, 200500019 May 9, 2010Permit

N/AHei No. 0590069-0 December 13, 2005Cereals PurchasePermit

N/AHa Guan Zi Di January 16, 2002Certificate of Self-No. 2314930102service Customs

Clearance EntityChina Resources Business license No. 2323031100209 March 25, 2005 May 17, 2002 toWinery May 17, 2022(Heilongjiang) Co., Manufacturing No. XK16-030 2067 June 12, 2002 June 12, 2002 toLtd. Permit January 30, 2007( Hei No. 0590051-0 April 28, 2005Cereals Purchase N/A)

PermitZhao Wei Jian Zi March 25, 2005Sanitation Permit January 1, 2005 to[2005] No. 050105 December 31, 2007

Guangxi COFCO Business license (Qi) No. February 20, 2006 N/ABio-Energy Co., Ltd. 4500001001803(

)(1)

Note:

(1) As this company has not started the construction of its production facility, we have not applied for those related licenses suchas Manufacturing Permit and Safe Production Permit.

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Name Approval Number Date Validity Period

COFCO Business license Qi He Ji Heng Zong July 7, 2006 July 7, 2006 toBiochemical Energy Fu Zi Di July 7, 2046(Hengshui) Co., Ltd. No. 131100100192(

)(1)

COFCO Bio- Business license Qi Du Ji Zong Fu Zi July 19, 2006 April 21, 2006 toChemical Energy No. 00953 April 20, 2036(Gongzhuling) Co.,Ltd.(

)(2)

COFCO Bio- Business license Qi Du Ji Zong Zi Di October 19, 2006 April 25, 2006 toChemical Energy No. 000955 April 24, 2036(Yushu) Co., Ltd. Cereals Purchase October 23, 2006Ji No. 00100820 N/A ( Permit

)(2)

Certificate of 2201940760 May 12, 2006 May 2, 2006 toCustoms Clearance April 30, 2009Registry

Dalian COFCO Malt Business license Qi Du Liao Da Zong September 29, 2001 December 6, 1995 toCo., Ltd. Zi No. 04888 December 5, 2045( Certificate of Self- July 31, 2001Guan Zi Di Up to April 30, 2007

) service Customs No. 2102940852Clearance EntitySanitation Permit Pu Wei Shi Zi June 3, 2005 N/A

[2005] DiNo. 102152

COFCO Malt Business license Qi Du Su Deng April 10, 2006 October 10, 2003 to(Jiangyin) Co., Ltd. Zong Fu Zi Di No. October 9, 2053( 000022

)(3)

Shanghai COFCO Business license No. 3101151016290 April 25, 2006 August 1, 2001 toBrewing Materials July 31, 2011Co., Ltd. Certificate of No. 3122411353 September 8, 2003 September 8, 2003( Customs Clearance to April 30, 2008

) RegistryZhengzhou Haijia Business license Qi He Yu Zheng August 10, 2004 December 31, 1993Food Co., Ltd. Zong Zi Di to December 30,( No. 000584 2023

)Sanitation Permit Zheng Wei Zheng Zi April 2, 2004 April 2, 2004 to

[2004] No. 0338 April 1, 2008Manufacturing No. QS4100 0101 February 17, 2006 February 17, 2006Permit 0184 to February 16,

2009Cereals Purchase Yu No. 002 0013 0 April 30, 2005 N/APermitCertificate of Self- Zheng Guan Zi Di March 25, 1998 March 25, 1998 toservice Customs No. 4101930938 November 19, 2008Clearance Registry

Notes:

(1) As this company has not started the construction of its production facility, we have not applied for those related licensessuch as Manufacturing Permit and Safe Production Permit.

(2) As the production facilities of these two companies are still under construction, we have not applied for those relatedlicenses such as Manufacturing Permit and Safe Production Permit.

(3) As the production facility of this company has not yet commenced operation, we have not applied for Food Sanitation Permit.

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Xiamen Haijia Flour Business license Qi He Min Xia Zong January 18, 2006 April 29 1994 toMills Co., Ltd. Fu Zi No. 02322 April 28, 2044( Sanitation Permit Hu Wei Shi Chan Zi May 8, 2006 May 8, 2006 to

) [2006] May 7, 2008No. 20060013

Manufacturing No. QS3502 0101 April 30, 2006 April 30, 2006 toPermit 0107 April 29, 2009Cereals Purchase Min No. 20000060 December 29, 2004 N/APermitSanitation No. 3502/15008 December 21, 2006 December 21, 2006Registration to December 20,Certificate 2009

Shenyang Dongda Business License Qi He Liao Shen April 5, 2006 July 14, 1993 toGrains Oils & Zong Fu Zi Di July 13, 2043Foodstuffs No. 111000672(1-1)Industries Co., Ltd. Sanitation Permit Shen Nong Wei Shi April 28, 2006 April 28, 2006 to( Zi [2006] Di April 27, 2007

) No. 70113Manufacturing QS2101 0101 0042 January 9, 2003 January 9, 2003 toPermit January 8 2006(1)

Cereals Purchase Liao O1000080 December 7, 2004 N/APermit

Shenyang Xiangxue Business license Qi He Liao Shen December 28, 2005 N/AFlour Limited Zong Fu Zi DiLiability Company No. 111603258( Sanitation Permit Shen Nong Wei Shi April 28, 2006 April 28 2006 to

) Zi No. 70116 April 27 2008Cereals Purchase Liao O1000110 December 13, 2004 N/APermitManufacturing No. QS2101 0101 June 16, 2006 June 16, 2006 toPermit 0041 January 8, 2009

Shandong COFCO Business license Qi He Lu De Zong February 23, 2002 March 15, 2002 toLude Foods Co., Fu Zi Di No. March 14, 2052Ltd. 000559-1/1( April 24, 2006 toNo. QS3714 0101Manufacturing April 24, 2006

) February 24, 20090405PermitMarch 10, 2006 toLu Fei Wei Shi Zi March 10 2006Sanitation PermitMarch 1, 2007[2006] No. 1-1-093

Puyang COFCO Business license Qi Du Yu Pu Zong May 26, 2005 October 15, 2002 toFlour Industry Co., Zi Di No. 000132 October 14, 2052Ltd. Sanitation Permit Pu Wei Shi Zi July 8, 2005 July 8, 2005 to( [2005] Di No. 0679 July 7, 2009

) Manufacturing No. QS4109 0101 December 29, 2006 December 29, 2006Permit 2983 to September 28,

2009Cereals Purchase Yu No. 06300080 June 7, 2005 N/APermit

Notes:

(1) Shenyang Xiangxue Flour Limited Liability Company ( ) is in the process of acquiring thiscompany. After the completion of the acquisition, this company will not conduct business in its own name. Thus, it will notneed to apply for a new Manufacturing Permit after the expiration of the old one. Shenyang Dongda Grains Oil & FoodstuffsIndustries Co., Ltd. ( ) has not carried out any manufacturing operation since the expirationof its Manufacturing Permit.

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COFCO TTC Business license Qi Du Jing Zong Zi May 15, 2006 December 14, 2005(Beijing) Foods Co., No. 027893 to December 13,Ltd. 2025(

)(1)

COFCO Industry Business license No. 130011100005 August 2, 2005 April 20, 1992 to(Qinhuangdao) April 19, 2042Pangthai Co., Ltd. Sanitation Permit Qin Shan Kai Wei July 21, 2006 July 21, 2006 to( Shi Zi [2006] Di July 23, 2009) No. 148

Manufacturing No. QS1300 0101 March 10, 2006 March 10, 2006 toPermit 0022 January 8, 2009Certificate of Self- Qin Huang Dao June 6, 2002 N/Aservice Customs Guan Zi DiClearance Registry 1303240003

East Ocean Oils & Business license Qi Du Su Zong Fu April 20, 2004 June 5, 1993 toGrains Industries Zi Di No. 010042 June 5, 2043(Zhangjiagang) Co., Manufacturing No. QS3200 0201 December 20, 2005 December 20, 2005Ltd. Permit 0048 to December 19,( 2008

) Manufacturing No. XK33-102 9048 May 26, 2006 May 26, 2006 toPermit September 18, 2009Manufacturing No. QS3200 0101 December 20, 2005 December 20, 2005Permit 0070 to December 19,

2008Manufacturing No. QS3200 0102 August 12, 2006 August 12, 2006 toPermit 2406 August 28, 2009Manufacturing No. QS3205 2301 February 17, 2006 Up to February 18,Permit 0004 2009Manufacturing No. XK33-201- May 26, 2006 Up toPermit 00066 September 18, 2009Safe Production (Su) WH An Xu February 24, 2006 February 24, 2006Permit Zheng Zi [E00337] to February 23,

2009Sanitation Permit Zhang Shi Wei Zi July 30, 2004 July 30, 2004 to

No. ZJ22002771 July 29, 2008Cereals Purchase Su 00000370 December 12, 2005 Not specifiedPermit

Eastbay Oils & Fats Business license Qi Du Yue Sui Zong March 30, 2006 March 16, 1995 toIndustries Di No. 001224 March 16, 2045(Guangzhou) Co., Manufacturing March 17, 2006No. QS4401 0201 March 17, 2006 toLtd. Permit 0130 January 8, 2009(

July 17, 2006Sanitation Permit Yue Zeng Wei Shi July 17, 2006 to)Zheng Zi (2006) Di July 17, 2007No. 02255

COFCO Xiangrui Business license Qi Du E Zong Fu Zi April 10, 2006 August 18, 2004 toOils & Grains Di No. 503041 August 17, 2054Industries (Jingmen) Sanitation Permit Zhong Wei Shi Zi March 29, 2006 March 29, 2006 toCo., Ltd. [2006] No. 0183 March 28, 2007( Certificate of Hai Guan Zhu Ce January 19, 2005 January 19, 2005 to

) Custom Clearance Deng Ji Bian Ma April 19, 2009Registry No. 420894009

Notes:

(1) As the production facility of this company is still under construction, we have not applied for those related licenses such asManufacturing Permit and Safe Production Permit.

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Yellowsea Oils & Business license Qi Du Lu Zong Fu August 26, 2005 August 10, 1992 toGrains Industries Zi Di No. 003087 August 9, 2042(Shandong) Co., Sanitation Permit May 10, 2006Lu Lan Wei Shi May 10, 2006 toLtd. Zheng Zi (2006) Di May 9, 2009( No. 0348Manufacturing) Permit January 16, 2006 toNo. QS3700 0201 January 16, 2006

January 15, 20090081COFCO ADM Oils & Business license Qi Du Lu He Zong April 20, 2006 June 12, 2003 toGrains Industries Fu Di No. 000178 June 11, 2053(Heze) Co., Ltd. Food Sanitation Lu He Wei Zheng April 30, 2004 April 30, 2004 to( Permit Shi Zheng Zi [2004] April 29, 2007

No. 0068)Manufacturing No. June 30, 2005 June 30, 2005 toPermit QS371702013205 June 29, 2008

All of our approvals and permits are within their respective validity periods. Our Directors are of theview that there is no impediment to obtain the renewal of any of the above approvals, permits, licensesand certificates.

With respect to those newly established enterprises including COFCO TTC (Beijing) Foods Co., Ltd.( ), Guangxi COFCO Bio-Energy Co., Ltd. ( ),COFCO Biochemical Energy (Hengshui) Co., Ltd. ( ), COFCO Bio-ChemicalEnergy (Gongzhuling) Co., Ltd. ( ), COFCO Bio-Chemical Energy(Yushu) Co., Ltd. ( ) and COFCO Malt (Jiangxin) Co., Ltd.( ), our Directors are of the view that there will be no impediment in obtaining thenecessary approvals, permits, licenses and certificates of the PRC before they commence their production.

Capital contribution to our subsidiaries

Except for the following two subsidiaries, we have fully paid our contribution to the registered capitalof our subsidiaries in the PRC:

ShareholdingHeld by the Deadline for Capital

Name Company Registered Capital Paid-in Capital Contribution

Heilongjiang Alcohol 100% RMB380,000,000 RMB196,800,000 September 30, 2007COFCO Biochemical 88% RMB230,000,000 RMB97,283,200 July 7, 2008

Energy (Hengshui)Co., Ltd.(

)

Under PRC law, investors shall contribute the registered capital of a foreign-invested companyaccording to the joint venture agreement for, and/or the articles of associations of, the company withinthe time limits stipulated by the relevant laws and regulations. We have paid part of the registeredcapital of the above two subsidiaries pursuant to their respective joint venture agreements and/orarticles of associations, and will pay the outstanding balance of capital contribution before the due datefor payment. Our PRC legal counsel, Commerce & Finance Law Offices, has confirmed that our capitalcontributions to the above subsidiaries are in compliance with the requirements of PRC laws andregulations and therefore, no penalty will be imposed for not paying the registered capital in full beforethe due date for payment.

COMPETITION

The agricultural product processing industry in the PRC is competitive. As at December 31, 2005,there were over 12,000 agricultural products processing enterprises operating in the PRC, includingdomestic, foreign, and foreign-invested enterprises. In our biofuel business, we face limited competition

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in our current markets due to the fact that the production and sale of fuel ethanol is highly regulated bythe PRC Government. The amount of production and the geographic areas within which the product canbe sold are also subject to the approval of the National Development and Reform Commission. Ourmajor competitors in the domestic consumable ethanol market are Ji’an Biochemical Qian’an AlcoholCo., Ltd. and Jilin Province New Tianlong Wine Industry Co., Ltd., which also use corn as raw materials.In our brewing materials business, our major competitor is Supertime Development Ltd (‘‘Supertime’’).Supertime is a group that is mainly engaged in processing and sale of malt. Although our Dalian facilityis the largest single facility in China, Supertime owns more plants and has a larger total productioncapacity than us. In our oilseed processing business, our key oilseed competitors are domestic andinternational oilseed processors of a similar size and scale to us. In particular, a number of foreigncompanies, including Wilmar, Archer Daniels Midland, Cargill Inc. and Bunge, have established oilseedprocessing facilities in China. In our rice processing business, we are the only parboiled rice producer inChina and we currently have no competitor in this market in China. We face competition frominternational competitors including producers from Thailand and India. In particular, Thailand is a majorrice export country in the world and enjoy a significant share of the market. In our wheat processingbusiness, our principal competitors are Hebei Wudeli Flour Mill Group Corporation (‘‘Wudeli’’), HebeiHualong Nisshin Food Co., Ltd., and Shekou Lamsoon Flour Co., Ltd.. Wudeli is a milling companyengaged in the processing and sales of a wide range of general purpose flour and special purpose flour.Wudeli has one of the largest wheat processing capacities in the PRC flour industry.

Our ability to compete against these competitors is, to a significant extent, dependent on our abilityto distinguish our products from those of our competitors by providing products that are competitive interms of quality and price. Our competitors, especially foreign competitors, may have greater access tofinancial resources, more experience in resource allocation, better ability in product innovation andlonger operating histories. Some of our international competitors may also have better managementand utilize more advanced technology than we do. Some of our competitors in any particular marketmay also benefit from raw material sources or production facilities that are closer to such markets, whichprovide them with competitive advantages in terms of cost and proximity to customers. See ‘‘RiskFactors — Risks Relating to the Industries We Operate In — We face increasing competition from bothdomestic and foreign companies, which may affect our market share and profit margin’’.

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RELATIONSHIP WITH COFCO AND COFCO INTERNATIONAL


A1A 28(2)

A1A 27A

We were established in Hong Kong on November 18, 2006. On December 28, 2006, COFCOInternational acquired all of the then issued shares of our Company and became our sole shareholder.As part of the Reorganization, COFCO (HK) and COFCO International transferred to our Group most oftheir Agri-industrial Businesses. As at the Listing Date, COFCO International will not hold any shares inour Company and COFCO will indirectly own and control approximately 59.4% of our issued sharecapital (assuming that the Over-allotment Option is not exercised).

LR 8.10(1)(a)COFCO is the ultimate shareholder of COFCO International and our Company. It is involved in awide array of businesses including agricultural commodities trading, food processing, hotelmanagement, real estate development, logistics and financial services. The agricultural commoditiestrading business carried on by COFCO Group comprises the trading of various non-rice grains, meals,vegetables, fruits and seafood and the food processing business of COFCO Group comprises theprocessing of sugar, tomato paste, peanuts and meat. Our Group does not engage in any of thesebusinesses. The Directors believe that the businesses of COFCO and COFCO International are not,directly or indirectly, in competition with our businesses, save for the businesses relating to the RetainedInterests described below. COFCO has given us non-compete undertakings, details of which are set outin the subsection headed ‘‘Non-competition — Non-competion Deed’’ below. COFCO International andCOFCO have also entered into a non-competition deed, brief information in relation to which is set out inthe subsection headed ‘‘Non-competition — COFCO International Non-competition Deed’’ below.

COFCO International was incorporated in Bermuda on May 14, 1990 and its shares are listed onthe main board of the Hong Kong Stock Exchange. Immediately prior to the Reorganization, COFCOInternational was primarily engaged in five food-related core businesses involving oilseed processing,wineries, confectionery, wheat processing and trading. Upon completion of the Spin-off, COFCOInternational Group will continue to operate the Food and Beverage Business by focusing on producingand distributing food and beverage products which can be sold directly to consumers. Our Group, on theother hand, will be principally engaged in our Agri-industrial Business by focusing on producingprocessed agricultural products which are not for direct distribution to consumers, but rather forwholesale, and/or use in industrial food, beverage and fuel production and other industries.

A1A 27AFrom the Listing Date, our Company will operate independently from COFCO Group and COFCOInternational Group in all essential respects.

Independence from COFCO Group

Having considered the following factors, our Directors believe that we can conduct our businessindependently of COFCO and its associates from the Listing Date:

Independence of business operations

We are mainly engaged in fuel ethanol production, oilseed crushing and refining, rice trading andprocessing, malt production and distribution and wheat processing. We hold all of the production andoperating facilities and technology relating to our business operations. Sales, marketing andadministrative functions relating to our business are carried out independently by our Group. We havesufficient operational capacity in terms of capital, equipment and employees to operate our businessesindependently of COFCO Group.

Independence of access to customers and sources of supplies/raw materials for production

Our Directors are of the view that our sales and marketing functions and raw materials procurementfunctions are carried out independently from those of COFCO Group.

The percentage of our estimated aggregate sales to COFCO Group to our total sales for 2006,2007 and 2008 are expected to be 2.9%, 2.9% and 2.3%, respectively. The relevant transactions will beconducted on normal commercial terms.

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We estimate that our aggregate purchases from COFCO Group will be 46.7%, 41.7% and 0.8%,respectively, of our total purchases for 2006, 2007 and 2008. Our estimated aggregate purchases ofsoybeans from Grand Ocean International Trading Limited ( ) (‘‘Grand Ocean’’),a subsidiary of COFCO, are expected to amount to approximately 95% of our total purchases fromCOFCO Group in 2006 and 2007. We have maintained a stable relationship with Grand Oceanregarding such purchases during the three years ended December 31, 2005 and the nine monthsended September 30, 2006 and the prices for such purchases were determined by negotiation withreference to the then prices of soybeans traded on Chicago Board of Trade. During the three yearsended December 31, 2005 and the nine months ended September 30, 2006, the prices for ourpurchases of soybeans from Grand Ocean were comparable with the market prices (see the sectionheaded ‘‘Financial Information — Factors Affecting Our Results of Operations — Fluctuations inAgricultural Raw Material Prices’’ for details of our average purchase prices for soybeans and thesection headed ‘‘Industry Overview — the PRC Oilseed Processing Industry — Raw Materials forOilseed Processing’’ for details of average prices of imported soybeans in China). We expect toterminate such purchases from Grand Ocean from 2008 and rely on our own purchase channelsthereafter. The soybeans that we purchase from Grand Ocean are generally and widely available in themarket at comparable market prices. Therefore those purchases are not of such materiality as to affectthe ability of our Group to carry on our business independent of our ultimate controlling shareholder,COFCO, and its associates from the Listing Date.

Financial independence

We have our own financial management and relevant personnel who are independent from COFCOGroup. We have historically engaged COFCO Finance Corporation Limited ( )(‘‘COFCO Finance’’), a PRC-incorporated non-bank financial institution and a wholly owned subsidiaryof COFCO, for deposits, loans and other financial services licensed by PBOC. All arrangementsbetween our Group and COFCO Finance, including deposits of our Group placed with COFCO Financeand loans from COFCO Finance to our Group, will be eliminated prior to the Listing Date. Our Grouphas its own settlement and treasury functions. No settlement or treasury functions are currently carriedout by COFCO Group, including COFCO Finance, for or on behalf of our Group.

Independence of management

Our Board, which includes three independent non-executive Directors, will function independentlyof COFCO. Mr. Ning will be the only Director who is also a director of COFCO, and he is the chairman ofboth COFCO and our Company. Mr. Ning has a non-executive role on our Board and his role in ourCompany will be to provide leadership for the Board and he will be closely involved in formulating ourCompany’s corporate and business strategies. However, as chairman and a non-executive Director, hewill not be involved in the daily management of our Company. Our non-executive Directors, Mr. ChiJingtao and Mr. Ma Wangjun, also hold positions in COFCO as the head of human resourcesdepartment and the head of finance department, respectively, but will not be involved in the dailymanagement of our Company.

Our senior management is independent from the management of COFCO. Mr. Yu Xubo, ourexecutive Director and managing Director will remain a member of the senior management of COFCObut will not retain any specific management role in COFCO Group. Mr. Lu Jun, a Director and a memberof our senior management, will retain his designation as an assistant president of COFCO but will notretain any specific management role in COFCO Group. Therefore, our Directors believe that thedesignation of Mr. Yu and Mr. Lu in COFCO will not give rise to any conflicts of interest and will not inany way impact upon the proper discharge of their fiduciary or other duties to the Company.

Matters considered by the Board which involve transactions between the Company and any ofCOFCO and/or its associates (excluding our Group) will be considered and voted on solely by theindependent non-executive Directors (‘‘INEDs’’) and decided by majority vote. Messrs. Ning, Yu, Lu, Chiand Ma will not be counted in the quorum and will abstain from voting on such matters. In addition, they

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will absent themselves from Board meetings when such matters are discussed unless expresslyrequested to attend by a majority of the INEDs.

Independence from COFCO International Group

Independence of operation capabilities and technology

Following the completion of the Spin-off, COFCO International Group and we will be in possessionof all production and operating facilities relevant to our respective businesses, and there will be nooverlap or sharing of facilities or technology. We will be in possession of all production and operatingfacilities and technology (including any relevant sales, marketing and administrative functions) relatingto fuel ethanol production, oilseed crushing and refining, rice trading and processing, malt productionand wheat processing, all of which are relevant to our overall business model of being a processor andwholesale supplier of agricultural commodity products. COFCO International Group will be inpossession of all production and operating facilities and technology (including any relevant sales,marketing and administrative functions) relating to the production and the bottling of beverages, theproduction of grape and Chinese rice wines and the manufacturing of confectionery that are relevant tothe integrated production-and-distribution business models of those respective business lines.

In the case of its consumer-pack edible oil business, COFCO International Group’s business modelis not one of integrated production-and-distribution, but rather one of brand management andoutsourced manufacturing. COFCO International has a broad sales and marketing network and thepossession of oil production facilities is not strictly necessary to its operations, especially given thesignificant number of large-scale bulk oil producers in China who are capable and willing to produce andpackage edible oils for COFCO International Group on a cost-effective basis. COFCO InternationalGroup will therefore have no oil production facilities or technology of its own. As COFCO InternationalGroup will focus on consumer-oriented products while we will focus on products for wholesale andindustrial use, the bulk oil business, namely crushing and refining of oilseeds to produce bulk oils, wastransferred from COFCO International Group to us under the Reorganization. COFCO InternationalGroup will continue to market and distribute consumer-pack edible oils as its products are orientedtowards individual consumers. COFCO International Group will not have its own crushing and refiningfacilities as its business will be focused primarily on the marketing and distribution of branded oilproducts rather than the manufacturing of oil products themselves. We will not be engaged in the salesor marketing of consumer-pack edible oil as we will only be engaged in the manufacturing of bulk oil andour principal customers will be wholesalers and industrial users. COFCO International Group, havingdecided not to invest in and manage any oil-related manufacturing facilities, will purchase oil on a bulkbasis from third-party producers, including us, and instruct such third-party producers to package andlabel such purchased oil into consumer-packs for its purpose of distribution and sale to its customers.We will be one of the key suppliers of COFCO International Group as reflected in the Supply andPackaging Agreement outlined in the section headed ‘‘Connected Transactions — Non-ExemptContinuing Connected Transaction with COFCO International Group — Supply and Packaging ofConsumer-pack Edible Oil for COFCO International Group’’. However, this agreement is not exclusive toeither party, and both parties are free to purchase from, or supply to, any third parties should the termsfrom such parties be more favorable. There are a large number of wholesalers and industrial users ofbulk oil across China and we expect to be able to diversify our customer base readily.

The fact that COFCO International Group does not have oil production facilities or technology andthat it purchases bulk oil from us will not affect our ability and the ability of COFCO International Groupto operate independently from each other in any material respect.

Independence of access to customers

COFCO International Group’s customers are retailers and distributors, for example, supermarketchains, speciality distributors and others, who sell prepared food and beverage products to consumersfor direct consumption. By contrast, our customers are industrial manufacturers of food and beverage

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products, producers of gasoline, makers of animal feed and other types of customers who purchase ourproducts on a wholesale basis to make their own products. COFCO International Group and we willmaintain our respective independent sales and marketing functions. There is no overlap between ourcustomer base and that of COFCO International Group and in terms of access to customers, we areindependent of, and are not reliant on, COFCO International Group.

We estimate that our aggregate sales to COFCO International Group will be 14.6%, 14.3% and11.1%, respectively, of our total sales for 2006, 2007 and 2008. The relevant transactions will beconducted on normal commercial terms.

Independence of sources of supplies/raw materials for production

COFCO International Group and we use different types of key supplies and raw materials inproduction of entirely different products. The supplies that we need are raw agricultural products,including paddy, wheat, corn, barley, soybean and rapeseed, which we source directly from farmers,national grain stations or overseas suppliers. The supplies that COFCO International Group usesinclude grapes and wine condensate, cocoa butter, sugar, milk, bulk edible oil, soft drink condensate, allof which are processed or semi-processed industrial food ingredients that are sourced from upstreamagricultural food processors. COFCO International Group and we will maintain our respectiveindependent raw materials procurement functions. We did not make any purchases from COFCOInternational Group in 2006 and we do not expect to make any such purchases in 2007 and 2008. Assuch, COFCO International Group and we will be independent of each other as regards procurement ofsupplies and raw materials.

Financial independence

Each of our Company and COFCO International will have separate and independent qualifiedaccountants and financial controllers who will be responsible for their respective separate financedepartments. There will be no financial transactions between our Group and COFCO InternationalGroup.

Independence of management

The management teams of our Group responsible for our day-to-day management and operationsand those of COFCO International are separate and independent in all material respects. There will beno sharing of essential administrative functions and there will not be any overlap between our seniormanagement team and that of COFCO International.

The boards of directors of COFCO International and us will function independently of each other.COFCO International and we have only one common director, Mr. Ning Gaoning, who is the chairmanof both companies. Considering that Mr. Ning’s extensive experience in business restructurings,governmental relations and consumer-related and agricultural products processing businesses, hisappointment is highly valued and directly relevant to the businesses of our Group and COFCOInternational Group, he is the chairman of both our Company and COFCO International. However, theDirectors believe that the independence of management of our Company will not be compromised byMr. Ning’s dual role on the boards of our Company and COFCO International on the basis that(i) Mr. Ning will not assume any management position in our Company; (ii) each of COFCO Internationaland our Company will have three INEDs who are not common to each other; and (iii) Messrs. Ning, Yu,Lu, Chi and Ma will not be counted in the quorum and will abstain from voting on matters considered bythe Board which involve transactions between the Company and COFCO International and/or itsassociates and such matters will be considered and voted on solely by the INEDs and decided bymajority vote. In addition, Messrs. Ning, Yu, Lu, Chi and Ma will not participate in any consideration ofsuch matters by the Board unless expressly requested to do so by a majority of the INEDs.

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NON-COMPETITION

Retained Interests

The following interests currently anticipated to be held or acquired by COFCO Group compete ormay compete with our businesses (the ‘‘Retained Interests’’) after the Global Offering:

( a 100% equity interest in each of Fei County Zhong Zhi Oils & Fats Co., Ltd.( ) and Dongguan Zhong Gu Oils & Fats Co., Ltd.( ), both of which are principally engaged in oil extraction and soybeanmeal production business;

( a 37.03% interest in China Resources (Jilin) Bio-chemical Co., Ltd.( ), a company listed on the Shanghai Stock Exchange, which isprimarily engaged in corn processing business;

( a 20.74% interest in Anhui BBCA Biochemical Co., Ltd. ( ), acompany listed on the Shenzhen Stock Exchange, which is involved in bio-chemical business;and

( a 49.08% equity interest in Xinjiang Tayuan Safflower Co., Ltd. ( ),the business of which includes edible safflower oil extraction.

Our Directors believe that, save for the above, there is generally no competition between ourbusiness and the business of COFCO Group. Pursuant to a non-competition deed (‘‘Non-competitionDeed’’) executed by COFCO and COFCO (HK) in favor of us, COFCO and COFCO (HK) haveundertaken not to be engaged or interested in any business competing with ours and granted us, amongother things, the option to acquire, as well as the pre-emptive right to purchase, the Retained Interests.Pursuant to the Non-competition Deed, Retained Interests are defined to include new businessopportunities, and COFCO and COFCO (HK) have undertaken to offer to our Company any newbusiness opportunities relating to our business upon terms not less favorable to our Company thanCOFCO or COFCO (HK) or their relevant subsidiaries. For details, please see the section headed ‘‘Non-competition Deed’’ below.

China Grains Oils

Pursuant to a notice issued by the State-owned Assets Supervision and AdministrationCommission of the State Council of the PRC (‘‘SASAC’’) on March 14, 2006 (‘‘Notice’’), a 100% equityinterest in China Grains and Oils Group Corporation ( ) (‘‘CGOG’’) will be transferredto COFCO. Upon completion of this transfer, COFCO will beneficially hold a 100% equity interest in twowholly owned subsidiaries of CGOG, namely, Fei County Zhong Zhi Oils & Fats Co., Ltd. and DongguanZhong Gu Oils & Fats Co., Ltd. (collectively, ‘‘China Grains Oils’’). The transfer is expected to becompleted by the end of 2007.

Scope and size of business

The business of China Grains Oils includes oil extraction and soybean meal production, which arevirtually identical in nature to our oilseed processing business. As at June 30, 2006, China Grains Oilshas, in aggregate, an annual soybean crushing capacity of 655,000 metric tons, equivalent toapproximately 11.2% of the crushing capacity of our oilseed processing business. The combinedrevenue and net loss from the ordinary business of China Grains Oils for the year of 2005 wereRMB2,000.6 million and RMB18.5 million, respectively.

Reasons for non-inclusion in our Group

COFCO has not transferred its right to acquire CGOG to us because no such transfer would bepermitted under PRC law. The transfer of CGOG to COFCO under the Notice involves a transfer ofstate-owned assets for which no consideration is payable. This is permissible only between wholly state-

132


owned entities pursuant to relevant state-owned assets administration regulations. Therefore, the rightsunder the Notice cannot be assigned or transferred from COFCO to our Company, which is not a whollystate-owned entity. Further, CGOG holds interests in numerous businesses other than China GrainsOils, such as entities engaged in storage and transportation, equipment manufacturing and engineering,derivatives and capital market operations and real estate business. Such other businesses are notrelated to our business and would not strategically fit with our core businesses. Accordingly, we wouldconsider acquiring from CGOG only those assets or entities that would provide synergy to our corebusinesses before the completion of the transfer of CGOG to COFCO or acquiring such assets orentities from COFCO after the completion of the transfer.

Delineation

Dongguan Zhong Gu Oils & Fats Co., Ltd. ( ) operates predominantly inGuangdong Province where we do not have any significant business.

In any event, we have an option and a pre-emptive right under the Non-competition Deed to acquireCOFCO’s interest in China Grains Oils subject to valuation by an independent valuer jointly appointedby COFCO and us. This option and pre-emptive right will become effective once the transfer of CGOGto COFCO is completed.

Management

Given that COFCO will hold a 100% interest in China Grains Oils upon completion of the transfer ofCGOG to COFCO, COFCO will be involved in the management of the business of China Grains Oils.

The management of China Grains Oils will be independent of ours upon completion of the transferof CGOG to COFCO.

Progress of the transfer

COFCO is currently in the process of effecting the transfer of CGOG to COFCO throughregistrations with SASAC and the PRC State Administration of Industry and Commerce. The registrationwith SASAC involves the assessment and audit by SASAC of CGOG, the timing and process of which isnot within the control of COFCO. Nevertheless, COFCO expects such registrations to be completed bythe end of 2007. Subject to valuation and agreement of commercial terms, COFCO would be able toinject the interests or certain assets of China Grains Oils to our Company shortly thereafter pursuant tothe terms and conditions set out in the Non-competition Deed.

Jilin Bio-chemical

A subsidiary of COFCO entered into a share sale and purchase agreement on November 25, 2005to acquire from China Resources Group a 37.03% interest in China Resources (Jilin) Bio-chemical Co.,Ltd. (‘‘Jilin Bio-chemical’’). This agreement was entered into prior to the finalisation of the plan inrelation to the Reorganization. The acquisition is expected to be completed by the end of 2007.


Jilin Bio-chemical has been listed on the Shanghai Stock Exchange since April 1996. It holds a57% equity interest in Yellow Dragon Food Industry Co., Ltd. ( ) and a 49% equityinterest in Cerestar China Resources Maize Industry Co., Ltd. ( ), bothof which mainly engage in the production of starch. As at June 30, 2006, Jilin Bio-chemical had anannual corn processing capacity of 489,000 metric tons equivalent to approximately 65.2% of ourannual corn processing capacity. For the six months ended June 30, 2006, the revenue and profitattributable to equity holders from the ordinary business of Jilin Bio-chemical were RMB570.0 millionand RMB8.6 million, respectively.

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COFCO has not sought to transfer to us its rights under the share sale and purchase agreement toacquire the interest in Jilin Bio-chemical as Jilin Bio-chemical has yet to undergo a share reclassificationprogram under which the non-tradable shares in Jilin Bio-chemical are required, by the China SecuritiesRegulatory Commission, to be converted to tradable shares. The completion of the acquisition of JilinBio-Chemical by COFCO is conditional upon completion of the share reclassification. There is currentlyno certainty as to if or when such a program will be announced and if it is adopted, what impact it wouldhave on the value of non-tradable shares in Jilin Bio-chemical. We believe it would be in our best interestto consider the acquisition of the interest or business of Jilin Bio-chemical only after such prospectsbecome clearer.

Delineation

We have an option and a pre-emptive right under the Non-competition Deed to acquire thebusiness of Jilin Bio-chemical subject to a valuation conducted by an independent valuer jointlyappointed by COFCO and us. This option and pre-emptive right will become effective once the transferof the 37.03% interest in Jilin Bio-chemical to COFCO is completed.

Management

LR8.10 2(b)Save for Mr. Yu Xubo, who is the chairman of Jilin Bio-chemical, and Mr. Yue Guojun, who is thevice chairman of Jilin Bio-chemical, who are also our executive Directors, and Mr. Hu Yonglei who is adirector of Jilin Bio-chemical and a member of our senior management, the management of Jilin Bio-chemical is independent of ours.

Progress of the acquisition

COFCO’s subsidiary has contractually agreed to acquire the 37.03% interest in Jilin Bio-chemicalfrom China Resources Group, a company incorporated in Hong Kong and mainly engaged in themanufacture and distribution of daily consumer goods, development of properties and related business,infrastructure and public utilities. The acquisition has been approved by the SASAC and the Ministry ofCommerce, but is subject to the approval from the China Securities Regulatory Commission andconditional upon the completion of the share reclassification program. COFCO expects to complete theshare reclassification program and obtain all relevant governmental approvals by the end of 2007. Oncethe acquisition is completed, COFCO will seek to transfer to our Company its interest in Jilin Bio-chemical or certain business or assets of Jilin Bio-chemical pursuant to the terms and conditions set outin the Non-competition Deed, and we will consider whether to acquire the same by exercising the optiongranted under the Non-competition Deed.

Anhui BBCA

On December 8, 2006, COFCO entered into a share sale and purchase agreement with FengyuanGroup Corporation ( ) (‘‘Fengyuan Group’’), the controlling shareholder of AnhuiBBCA Biochemical Co., Ltd. (‘‘Anhui BBCA’’), a company listed on the Shenzhen Stock Exchange, inrelation to the acquisition of 200,000,000 shares of Anhui BBCA amounting to approximately 20.74% ofits issued share capital.


As at December 31, 2005, Fengyuan Group holds a 24.71% interest in Anhui BBCA, a companyengaged mainly in the processing of agricultural products to produce biofuel and biomaterials with anannual production capacity of 440,000 metric tons of fuel ethanol. The revenue and profit attributable toequity holders from the ordinary business of Anhui BBCA for the six months ended June 30, 2006 wereRMB2,053.0 million and RMB84.1 million, respectively. The annual fuel ethanol production capacity ofAnhui BBCA is equivalent to approximately 2.4 times our annual fuel ethanol production capacity and

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approximately 64.7% of our planned future annual fuel ethanol production capacity (after taking intoaccount our new projects located in Guangxi Zhuang Autonomous Region and Hebei Province).


We did not enter into the relevant sale and purchase agreement directly with Fengyuan Group andCOFCO has not sought to assign its right to acquire the 20.74% interest in Anhui BBCA to us under therelevant agreement primarily because our Company is not a PRC-incorporated company and thereforethe procedures for the acquisition of shares of Anhui BBCA, which are listed on the Shenzhen StockExchange, by our Company would be complicated and time-consuming which, we believe, would likelyresult in Fengyuan Group choosing another purchaser and in us losing this particular opportunity. Asdiscussed in the paragraph below headed ‘‘Delineation’’, Anhui BBCA’s businesses do not currentlycompete with ours. Accordingly, we believe it to be in our best interest for the proposed acquisition to becompleted by COFCO, after which we will consider whether to seek to acquire such interest in AnhuiBBCA through the option granted under the Non-competition Deed.

Delineation

Anhui BBCA is mainly engaged in the production and sale of fuel ethanol and certain biochemicalproducts including citric acid, lactic acid, biochemical ethylene and ethane oxide, but our Group doesnot produce such biochemical products, although we are planning to produce lactic acid. According to anotice jointly issued by the National Development and Reform Commission and other PRC authorities,sales of fuel ethanol produced by Anhui BBCA are only permitted within Anhui Province, JiangsuProvince, Shandong Province and part of Hebei Province, while sales of fuel ethanol of our Group arelimited to Heilongjiang Province. Furthermore, our new fuel ethanol projects have no plans to sell theirproducts in the same sales areas as that of Anhui BBCA. Therefore, Anhui BBCA’s business does notcompete with ours.

We have an option and a pre-emptive right under the Non-competition Deed to acquire any interestin Anhui BBCA from COFCO subject to a valuation conducted by an independent valuer jointlyappointed by COFCO and us. The option and pre-emptive right will become effective once COFCOcompletes its acquisition of shares in Anhui BBCA.

Management

Currently, the management of Anhui BBCA is independent of ours. It is also currently anticipatedthat its management will continue to be independent of ours after completion of the acquisition byCOFCO of the 20.74% interest in Anhui BBCA.


On December 8, 2006, COFCO entered into a share sale and purchase agreement (‘‘SPA’’) withFengyuan Group in relation to COFCO’s acquisition of 200,000,000 shares of Anhui BBCA amountingto approximately 20.74% of its issued share capital. In order to complete the proposed acquisition,COFCO and Fengyuan Group have obtained the approval of local SASAC and will need to apply for theapproval of the SASAC and the China Securities Regulatory Commission and to register with theShenzhen Stock Exchange. It is expected that the acquisition will not be completed until the end of2007. Once the acquisition is completed, it is COFCO’s current intention to seek to transfer its interest inAnhui BBCA or certain business or assets of Anhui BBCA to our Company pursuant to the terms andconditions set out in the Non-competition Deed. We will consider whether to exercise such option oncethe option granted to us under the Non-competition Deed becomes effective in respect of the200,000,000 shares of Anhui BBCA.

Under the SPA, COFCO has agreed to make a pre-payment of RMB700 million to Fengyuan Groupand Fengyuan Group has agreed to grant a pledge over the 200,000,000 shares of Anhui BBCA held byit to COFCO. Under a share pledge agreement between COFCO and Fengyuan Group, Fengyuan

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Group has agreed to pledge an additional 38,203,058 shares of Anhui BBCA held by it to COFCO as aguarantee of the performance of its obligations under the SPA. Upon completion of the SPA, the pledgeover the 200,000,000 shares of Anhui BBCA will be released and such shares will be transferred toCOFCO and the pledge over the 38,203,058 shares of Anhui BBCA will lapse. Currently, COFCO hasno intention to acquire the additional 38,203,058 shares of Anhui BBCA held by Fengyuan Group.

Xinjiang Tayuan

COFCO is currently in the process of acquiring a 49.08% equity interest in Xinjiang TayuanSafflower Co., Ltd. (‘‘Xinjiang Tayuan’’) the business of which is similar to the business previouslyconducted by one of our associates, Xinjiang Tianhai Grains and Oils Industries Co., Ltd.( ) (‘‘Tianhai’’). Currently, Xinjiang Tayuan has three corporate shareholders,which are all wholly state-owned companies and collectively hold an 85.65% equity interest in XinjiangTayuan, and eight individual shareholders, who collectively hold a 14.35% equity interest in XinjiangTayuan.


Xinjiang Tayuan is mainly engaged in the business of safflower oil extraction with an annualproduction capacity of 10,000 metric tons as at June 30, 2006. The revenue and profit attributable toequity holders from the ordinary business of Xinjiang Tayuan for the year ended December 31, 2005were approximately RMB12.2 million and RMB0.6 million, respectively.


COFCO has not sought to transfer its right to acquire the interest in Xinjiang Tayuan to us as part ofthe Reorganization primarily because:

(i) although safflower oil is edible, safflower oil produced by Xinjiang Tayuan is used mainly formedicinal purposes. Its customers purchase safflower oil for medical use and the safflower oil is packedand processed accordingly. The oil produced by our oilseed processing division is used predominantlyas edible oil. The nature of the business of Xinjiang Tayuan would therefore be incompatible with that ofours;

(ii) although Tianhai used to produce and continues to have the capacity to produce safflower oil, ithas ceased to produce safflower oil since April 2006 due to a downturn in the market. We do notcurrently produce safflower oil at all and will stop this business after the relevant inventory has been soldout; and

(iii) the profits of Tianhai arising from the safflower oil business accounted for less than 5% of theprofits of our oilseed business for the year ended December 31, 2006.

In addition, Xinjiang Tayuan has stopped production since the end of 2005 due to a downturn in themarket. Some of its real estate assets were charged to a bank to secure the unpaid debts whichXinjiang Tayuan had owed to the bank. Since the economic prospects for Xinjiang Tayuan as a wholeare currently uncertain, we believe it would be in our best interest to consider the acquisition of theinterest only after such prospects become clearer.

Delineation

The oil produced by our oilseed processing business is used mainly for edible purposes. Generally,we do not sell oil products to our customers for medicinal purposes.

We have an option and a pre-emptive right under the Non-competition Deed to acquire any interestin Xinjiang Tayuan to be acquired by COFCO subject to a valuation conducted by an independent valuerjointly appointed by COFCO and us. The option and pre-emptive right will become effective onceCOFCO completes its acquisition of the 49.08% equity interest in Xinjiang Tayuan.

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Management

Given that COFCO will hold a 49.08% interest in Xinjiang Tayuan and thus will be a controllingshareholder of Xinjiang Tayuan upon completion, COFCO will be involved in the management of itsbusiness. Our Director, Mr. Lu Jun, will be a director and chairman of Xinjiang Tayuan. It is currentlyanticipated that save for Mr. Lu, the management of Xinjiang Tayuan will be independent of ours.


On December 12, 2006, a subsidiary of COFCO entered into a sale and purchase agreement toacquire a 14.35% equity interest in Xinjiang Tayuan from all of the individual shareholders of XinjiangTayuan. On December 15, 2006, such subsidiary of COFCO entered into an agreement to acquirefurther equity through an increase in the registered capital of Xinjiang Tayuan. Currently COFCO is inthe process of effecting the acquisitions through registrations with relevant authorities. After completionof the two acquisitions described above, COFCO expects to hold an indirect 49.08% equity interest inXinjiang Tayuan in total and hence become the controlling shareholder thereof. The acquisition of theequity interest in Xinjiang Tayuan by COFCO is mainly for strategic reasons. Given that Xinjiang islocated in an area which has a large production of safflower, COFCO currently intends to developXinjiang Tayuan as a producer of high-end safflower edible oil and will seek to transfer its interest inXinjiang Tayuan to our Group pursuant to the terms and conditions set out in the Non-competition Deedafter completion of the acquisition. However, considering the uncertainty of the economic prospects ofXinjiang Tayuan, our Company currently has no specific timetable or plan on any acquisition ofCOFCO’s interest in Xinjiang Tayuan.

Non-competition Deed

COFCO, COFCO (HK) and we executed the Non-competition Deed on February 16, 2007 pursuantto which each of COFCO and COFCO (HK) undertook that other than the Retained Interests describedabove, and for so long as COFCO and its associates hold not less than 30% of issued share capital inour Company, they would not, and would procure that none of its subsidiaries (other than any memberof our Group) will, at any time, either on their own behalf or as agent of any person, directly or indirectly,be employed or otherwise engaged or interested in any capacity (which should include through itsinterest in COFCO International so long as it holds 10% or more of the issued share capital of COFCOInternational) in any business which competes with our business or any part of it in any country in theworld in which we carry on our business from time to time provided that this restriction shall not prohibitCOFCO or COFCO (HK) from holding shares in aggregate up to 5% of the issued share capital of anycompeting company, the shares of which are listed or dealt in on any stock exchange.

COFCO and COFCO (HK) have granted to us in the Non-competition Deed options to acquire all orpart of the Retained Interests held by COFCO on the basis of a valuation to be conducted by anindependent valuer jointly appointed by COFCO and us subject to any relevant laws and applicablerules, relevant authorities’ approvals and existing third-party pre-emptive rights (if any). In the event thatCOFCO and we cannot agree on which independent valuer to appoint, the matter will be referred to thePresident of the Hong Kong Institute of Surveyors for final determination. The valuation methodology tobe adopted may include discounted cash flow method, comparable company valuation method andcomparable transaction valuation method, as appropriate. Under the Non-competition Deed, if COFCOor COFCO (HK) intends to transfer, sell, lease, license or dispose to any third party any direct or indirectinterest in any of such Retained Interests, we have also been granted pre-emptive rights to purchaseany Retained Interests on terms no less favorable than those offered to such third party. Currently, weare not aware of any existing third-party pre-emptive rights in relation to the Retained Interests.However, if we acquire COFCO’s indirect equity interest in any subsidiary or associated company of theRetained Interests which is a PRC-incorporated limited liability company, other shareholders of suchsubsidiary or associated company might have pre-emptive rights over the equity interest proposed to beacquired by us. Nevertheless, we currently do not have any plan to acquire any subsidiary or associatedcompany of the Retained Interests.

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LR8.10(1)(b)

If we decide to exercise any of the options and pre-emptive rights granted under the Non-competition Deed, we will ensure that the then enlarged group will comply with the trading recordrequirements under Rule 8.05 of the Hong Kong Listing Rules. In addition, the INEDs will review on anannual basis the compliance by COFCO and COFCO (HK) with the Non-competition Deed with respectto the Retained Interests and any future businesses acquired or developed by COFCO andCOFCO (HK) that may compete with ours. Pursuant to the Non-competition Deed, COFCO andCOFCO (HK) have undertaken to the Company to provide all information necessary for such annualreview by the INEDs and the exercise of our rights under the Non-competition Deed. When consideringwhether to exercise the options or pre-emptive rights under the Non-competition Deed, the Board willtake into account the growth prospects, capability of the collaboration with our existing businesses andearning potential of the business of the Retained Interests. We will make timely disclosure when anyoption has become effective. Further, we will disclose by way of separate announcement our decisionsas to whether to exercise options under the Non-competition Deed. We will also disclose such decisionand any decision regarding the exercise of any pre-emptive rights under the Non-competition Deed inour annual report. In addition, we will ensure that our annual report includes a disclosure on ourcompliance, and declarations by COFCO and COFCO (HK) on their compliance, with the terms of theNon-competition Deed.

The Non-competition Deed will take effect on the Listing Date and will remain effective until theearlier of (a) the date on which COFCO directly or indirectly holds less than 30% of our issued sharecapital or (b) the date on which our shares cease to be listed on the Hong Kong Stock Exchange. Theoptions and the pre-emptive rights will remain in effect so long as the Non-competition Deed remainseffective.

The Board, save as described below, will promptly consider, upon a relevant option becomingeffective or a pre-emptive right arising, whether to exercise such option or pre-emptive right. Anydecision to exercise options and pre-emptive rights under the Non-competition Deed will be voted onsolely by the INEDs and decided by majority vote. The Board will take steps to implement the decisionof the INEDs within a reasonable time (which would be expected to be not longer than six months) ofsuch decision and, in any event, in accordance with the Hong Kong Listing Rules. In considering thematters described above, the INEDs may employ an independent financial adviser and legal advisers, atour Company’s cost, to advise them on the terms of any pre-emptive right or relevant option.

A final and definitive decision will be made as to whether to exercise an option or not on the fifthanniversary of the relevant option becoming effective, if such decision has not been taken before suchtime. COFCO and COFCO (HK) have undertaken to us that where, on the fifth anniversary of an optionhaving become effective, a decision is made not to exercise such option, they will dispose of the relevantRetained Interest to independent third parties within six months of such decision having becomeeffective. If for any reason further time beyond the fifth anniversary is deemed necessary for the properevaluation of any option, any such decision to extend would be voted on solely by the INEDs anddecided by majority vote.

Messrs. Ning Gaoning, Yu Xubo, Lu Jun, Chi Jingtao and Ma Wangjun, who also hold positions inCOFCO, will not be counted in the quorum and will abstain from voting on matters considered by theBoard which involve transactions between the Company and any of COFCO and/or its associates(excluding our Group), including for this purpose the consideration of whether to exercise options andpre-emptive rights under the Non-competition Deed. In addition, they will absent themselves from Boardmeetings when such matters are discussed unless expressly requested to attend by a majority of ourINEDs.

COFCO International Non-competition Deed

As COFCO International is also a company listed on the Hong Kong Stock Exchange, COFCO andCOFCO (HK) entered into a deed of non-competition in favor of COFCO International on October 8,2006 (‘‘COFCO International Non-competition Deed’’), under which each of COFCO and

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COFCO (HK) undertook that for so long as COFCO and its associates hold not less than 30% of issuedshare capital in COFCO International and COFCO International Shares remain listed on the main boardof Hong Kong Stock Exchange, they will not, and will procure their subsidiaries (other than any memberof COFCO International Group) will not, at any time, either on their own behalf or as agent of anyperson, directly or indirectly, be employed or otherwise engaged or interested in any capacity (includingthrough its interest in our Company so long as it holds 10% or more of the issue share capital of ourCompany) in any business which competes with any business relating to the Food and BeveragesBusiness carried on by COFCO International or any part of it in any country in the world in whichCOFCO International carries on its business from time to time provided that this restriction shall notprohibit COFCO or COFCO (HK) from holding shares in aggregate up to 5% of the issued share capitalof any competing company, the shares of which are listed or dealt in on any stock exchange.

Immediately after the completion of the Global Offering, COFCO International will not hold anyshares in our Company and COFCO will indirectly own and control 59.4% of our issued share capital(assuming that the Over-allotment Option is not exercised).

Although neither us nor COFCO International has entered into any contractual restriction orprovided any undertaking that would prevent one party from competing with the other party, we believethat the above two undertakings given by COFCO and COFCO (HK) in favor of us and COFCOInternational under the Non-competition Deed and COFCO International Non-competition Deed,respectively, will in effect restrict the two parties from being engaged in any mutually competingbusiness for so long as COFCO is the ultimate beneficial controlling shareholder of us and COFCOInternational or the controlling shareholder of either and a holder of 10% or more of the issued sharecapital of the other.

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CONNECTED TRANSACTIONS

In connection with our Reorganization and to regulate the continuing business relationship betweenus and COFCO Group as well as between us and COFCO International Group, we have entered intovarious agreements with members of COFCO Group and COFCO International Group, respectively. Wehave also entered into a number of agreements on a continuing basis with other connected persons (asdefined in the Hong Kong Listing Rules). Upon the listing of our shares on the Hong Kong StockExchange, these transactions will constitute connected transactions of the Company, details of whichare set out below.

Key information relating to our continuing connected transactions is set forth below, includingdetails of the terms of the continuing connected transactions and forecast figures for these transactionsbased on certain business assumptions. The historical amounts mentioned below should not be read orrelied upon as an indication of future transaction amounts.

CONNECTED TRANSACTIONS IN CONNECTION WITH THE REORGANIZATION

Sale and Purchase Agreement

Under the Reorganization, China Agri entered into the Sale and Purchase Agreement with COFCOInternational on October 8, 2006 pursuant to which China Agri agreed to acquire fromCOFCO International its Agri-industrial Business as well as certain shareholders’ loans. Asconsideration for the acquisition, China Agri issued an aggregate of 1,016,670,752 China Agri’s sharesto COFCO International credited as fully paid. See details in the section headed ‘‘Corporatereorganization’’ in Appendix VII to this prospectus.

Master Sale and Purchase Agreement

China Agri also entered into the Master Sale and Purchase Agreement with COFCO, COFCO(HK) and COFCO International on October 8, 2006 pursuant to which China Agri agreed to acquire fromCOFCO (HK) its Agri-industrial Business by acquiring all of the issued shares of Full Extent GroupLimited (‘‘Full Extent’’), a wholly owned subsidiary of COFCO (HK), which was the holding company ofthe Agri-industrial Business of COFCO (HK) prior to the completion of the Reorganization, as well asrelevant shareholders’ loans. China Agri issued an aggregate of 1,674,712,604 China Agri’s shares, allcredited as fully paid, to COFCO International in consideration of COFCO International’s payment toCOFCO (HK) for China Agri’s acquisition of the Agri-Industrial Business and relevant shareholders’loans. See details in the section headed ‘‘Corporate reorganization’’ in Appendix VII to this prospectus.

According to the Master Sale and Purchase Agreement, COFCO (HK) has agreed to indemnify usfrom and against all claims, liabilities, losses, costs and expenses which we may suffer or incur inconnection with, among other things, the following:

(A) the settlement of any claim that any of the representations and warranties given by COFCO(HK) is untrue or misleading or has been breached; and

(B) any claims by any government entity against any company acquired by China Agri under theMaster Sale and Purchase Agreement, due to or in connection with any underpayment, non-payment or late payment of social insurance and housing fund contributions for any of itsemployees.

According to the Master Sale and Purchase Agreement, COFCO has agreed to guarantee asprincipal obligor the due and punctual performance and observance by COFCO (HK) of all of itsobligations under the Master Sale and Purchase Agreement. COFCO further agreed to indemnify usagainst all losses, costs and expenses incurred by us arising from any failure by COFCO (HK) toperform and/or observe its obligations under the Master Sale and Purchase Agreement.

Tax Deed

In connection with the Master Sale and Purchase Agreement, COFCO and COFCO (HK) enteredinto a Tax Deed in favor of China Agri pursuant to which they jointly and severally agreed to indemnify

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China Agri against, among other things, all taxes payable by China Agri as a result of China Agri’sacquisition of the issued shares of Full Extent except, among other things, for the following:

(A) where specific provision or reserve has been made for the taxes in the unaudited financialreports of any of Full Extent and its subsidiaries; and

(B) where the taxes arose are related to the ordinary course of trade of any of Full Extent and itssubsidiaries.

Non-competition Deed

In relation to the separate listing of our shares on the Hong Kong Stock Exchange, COFCO andCOFCO (HK) have given non-compete undertakings in our favor to the effect that, other than certainRetained Interests, for so long as COFCO and its associates hold not less than 30% of the issued sharecapital of our Company and our shares remain listed on the main board of the Hong Kong StockExchange, they and their subsidiaries (except for any member of our Group) will not be engaged orinterested in any business which competes with our business and have granted us options and pre-emptive rights to acquire the Retained Interests or relevant business (as the case may be) from COFCOor COFCO (HK). See the subsection headed ‘‘Relationship with COFCO and COFCO International —Non-competition — Non-competition Deed’’ for details of the terms of the non-compete undertakings ofCOFCO and COFCO (HK).

CONTINUING CONNECTED TRANSACTIONS WITH COFCO GROUP

Following the Global Offering (assuming the Over-allotment Option is not exercised), COFCO willultimately hold approximately 59.4% of our issued share capital. As a result, each of the members ofCOFCO Group is a connected person of our Company under the Hong Kong Listing Rules.

We have regularly engaged in various continuing transactions in our ordinary course of businesswith COFCO Group. Each of these transactions will constitute continuing connected transactions underRule 14A.13(1)(a) of the Hong Kong Listing Rules if entered into or such transactions continue followingthe listing of our shares.

Non-exempt Continuing Connected Transactions with COFCO Group

Mutual Supply of Materials and Ancillary Services

From time to time, certain of our subsidiaries have traded in certain raw materials and products withcertain COFCO Group entities. COFCO Group has also provided certain ancillary equipment andservices to some of our subsidiaries. These transactions have been entered into in the ordinary courseof our business and on normal commercial terms. These transactions existed prior to the GlobalOffering and will only become connected transactions of the Company following the Spin-off. Theexistence of such transactions contributed to the turnover and stabilized the performance of our Group.The raw materials supplied by COFCO Group to our subsidiaries under such transactions stabilized thesupply of our Group’s raw materials and enabled our Group to have an assured level of quantity in theraw materials supply, while the products sales by our subsidiaries to COFCO Group under suchtransactions steadily contributed to the turnover of our Group.

Following the Global Offering, our subsidiaries will continue the above transactions with COFCOGroup on an arm’s-length basis.

China Agri and COFCO entered into an agreement on December 8, 2006 and a supplementaryagreement on January 12, 2007, to regulate the relationship between COFCO Group and our Group in

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respect of the mutual supply of raw materials and products as well as ancillary equipment and services(‘‘Mutual Supply Agreement’’). The principal terms of the Mutual Supply Agreement are as follows:

( raw materials and ancillary equipment and services to be supplied by COFCO Group to ourGroup include soybeans, palm oil, oil tanks, wheat, white rice as well as logistics and supportservices;

( products to be supplied by our Group to COFCO Group include bulk edible oils, soybean feedand soybean meal;

( the Mutual Supply Agreement is for a term commencing from its effective date toDecember 31, 2008 and may be renewed by mutual agreement between the parties;

( the terms offered by each party pursuant to the Mutual Supply Agreement shall not be lessfavorable than the terms offered by independent third parties;

( if the terms and conditions of the supply of similar products, equipment or services offered byone party to the other party are better than those offered by any independent third party, theother party shall give priority to that party when sourcing the supplies;

( the Mutual Supply Agreement may be terminated by mutual agreement;

( the above raw materials and products as well as the ancillary equipment and services will beprovided at the market price or negotiated price based on the market price;

( both parties have a non-exclusive right with regard to their respective sales and purchases;and

( the Mutual Supply Agreement became effective upon completion of the Reorganization.

Should the Mutual Supply Agreement be renewed, we will ensure that the requirements underChapter 14A of the Hong Kong Listing Rules are complied with.

The raw materials supplied by COFCO Group to our Group under the Mutual Supply Agreementhave been and will continue to be used as raw materials by our Group for processing, while the productssold by our Group to COFCO Group are final products and by-products after processing. Soybeans andpalm oil supplied by COFCO Group will be processed by our Group into bulk edible oil, soybean mealsand soybean feed for subsequent supply to clients, including COFCO Group.

We purchase white rice from the trading subsidiaries of COFCO Group to polish, sieve and pack,and export such processed rice under the rice import and export agency agreement with COFCO. Seedetails of this agreement under subsection headed ‘‘Rice Import and Export Agency Agreement’’ in thissection. With respect to the supply of oil and soybeans, we purchase palm oil and soybeans fromCOFCO Group as raw materials and supply to COFCO Group bulk edible oil, soybean feed andsoybean meal as finished products and by-products.

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Historical Transaction Values

For the years ended December 31, 2003, 2004 and 2005 and the nine months endedSeptember 30, 2006, the aggregate expenditures for the raw materials and ancillary equipment andservices supplied by COFCO Group to our Group, being the subject matter of the Mutual SupplyAgreement, are set out below:

Historical transaction values for

nine monthsended

the year ended December 31 September 30,Transactions 2003 2004 2005 2006

(RMB millions)

Soybeans and palm oil***************************** 5,606.0 6238.6 7,299.4 5,277.4Oil tanks ***************************************** 0.0 0.0 4.2 1.4Wheat ******************************************* 8.2 16.2 1.8 0.00White rice **************************************** 61.9 3.9 43.4 24.3Logistics and support services ********************** 21.2 5.8 11.1 0.0Total ********************************************* 5,697.3 6264.5 7,359.9 5,303.1

For the years ended December 31, 2003, 2004 and 2005 and the nine months endedSeptember 30, 2006, the aggregate revenues for the products supplied by us to COFCO Group, beingthe subject matter of the Mutual Supply Agreement, are set out below:


nine monthsthe year ended endedDecember 31 September 30,

Transactions 2003 2004 2005 2006

(RMB millions)

Bulk edible oil ***************************************** 0.0 2.9 34.2 27.0Soybean feed and soybean meal ************************ 197.8 292.4 357.6 486.5Total ************************************************* 197.8 295.3 391.8 513.5

Annual Caps

Based on the average historical growth rate and the anticipated business growth, it is assumed thatthe sales to COFCO Group under the Mutual Supply Agreement will grow at around 20% annually whilethe sales to our Group under the subject of the Mutual Supply Agreement will grow at around 10%annually. It is also assumed that the need for the mutual supply of raw materials and products as well asancillary equipment and services between COFCO Group and our Group will continue to increase.

(1) It is assumed that our annual expenditures in respect of the raw materials and ancillaryservices to be supplied by COFCO Group to our Group for the year ended December 31,2006 and the years ending December 31, 2007 and 2008 will not exceed RMB8,079.1 million,RMB8,701.2 million and RMB78.3 million, respectively. In arriving at the above annualexpenditure for the year ending December 31, 2008, we take into account, among otherthings, the possible termination of the soybean purchases from COFCO Group by our Groupbefore 2008. We plan to develop our overseas purchase channels and aim to importsoybeans directly from overseas suppliers other than through COFCO Group from 2008,which would lead to a significant decrease in the annual cap on the estimated expenditure inrespect of supplies by COFCO Group to our Group from RMB8,701.2 million in 2007 toRMB78.3 million in 2008.

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The breakdown of the above annual caps is set out below:Annual caps for the year

ended/ending December 31Transactions 2006 2007 2008

(RMB millions)

Soybeans and palm oil ************************************ 8,022.0 8,647.0 22.0Oil tanks ************************************************* 2.1 2.2 2.3Wheat *************************************************** 15.0 20.0 30.0White rice************************************************ 20.0 10.0 0.0Logistic and support services ****************************** 20.0 22.0 24.0

(2) With respect to the annual revenues in respect of the products to be supplied by our Group toCOFCO Group, the average historical growth rate is more than 30%. Our Directors believethat the annual revenues will continue to grow by around 20%, it is therefore expected that ourannual revenues in respect of products supplied by our Group to COFCO Group under theMutual Supply Agreement for the year ended December 31, 2006 and the years endingDecember 31, 2007 and 2008 will not exceed RMB556.6 million, RMB676.8 million andRMB797.0 million, respectively.

The breakdown of the above annual caps is set out below:Annual caps for the year

ended/endingDecember 31

Transactions 2006 2007 2008(RMB millions)

Bulk edible oil ********************************************** 50.0 70.0 90.0Soybean feed and soybean meal ***************************** 506.6 606.8 707.0

Exempt Continuing Connected Transactions with COFCO Group

Properties Leasing

Prior to the Global Offering, COFCO Beijing and Heilongjiang Alcohol, both indirect wholly ownedsubsidiaries of our Company, leased certain properties for general commercial business and ancillaryuses in COFCO Plaza in Beijing from Beijing COFCO Plaza Development Co., Ltd.( ) (‘‘COFCO Plaza Co.’’), a subsidiary of COFCO. The business operationsof COFCO Group in Beijing are located in premises situated in COFCO Plaza. Given the closeconnection of the Group with COFCO Group, it would be more efficient if certain subsidiaries of ourCompany in Beijing are conducted in the immediate vicinity of COFCO Group. Therefore, both COFCOBeijing and Heilongjiang Alcohol will continue to occupy these properties following the Global Offering.COFCO Beijing and Heilongjiang Alcohol entered into properties leasing agreements (‘‘PropertiesLeasing Agreements’’) with COFCO Plaza Co. on January 4, 2006 and March 6, 2006, respectively,regarding the terms and conditions of the leases of the properties. The principal terms of the PropertiesLeasing Agreements are:

( the properties which COFCO Beijing and Heilongjiang Alcohol lease from COFCO Plaza Co.cover an aggregate gross floor area of approximately 2,115.8 square metres for various usesincluding as offices;

( the leases are for a period of not more than three years, and may be renewed uponagreement;

( the annual rentals and management fees shall be calculated based on comparable marketrates and shall be payable by COFCO Beijing and Heilongjiang Alcohol respectively on aquarterly basis within the first three days of each quarter; and

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( COFCO Plaza Co. retains the right to review the rentals and management fees every twoyears, although the revised rentals and management fees shall not be higher than the marketrates of similar properties.

Should any of the terms of the Properties Leasing Agreements be renewed, we will ensure that therequirements of Chapter 14A of the Hong Kong Listing Rules are complied with.


The aggregate historical rentals and management fees paid by COFCO Beijing and HeilongjiangAlcohol to COFCO Plaza Co. for each of the three years ended December 31, 2003, 2004 and 2005 andthe nine months ended September 30, 2006 are RMB4.3 million, RMB4.5 million, RMB4.5 million andRMB3.8 million, respectively. As the Properties Leasing Agreement between Heilongjiang Alcohol andCOFCO Plaza Co. with annual rentals and management fees of RMB2.3 million took effect from April 1,2006, the rentals and management fees for the nine months ended September 30, 2006 increased byRMB0.4 million from those of the same period in 2005.

Savills Valuation and Professional Services Limited, an independent valuer, has confirmed that therentals and management fees under the Properties Leasing Agreement reflect the prevailing marketrates in the vicinity of COFCO Plaza in Beijing and the terms of the agreements are fair and reasonableto COFCO Beijing and Heilongjiang Alcohol.

Based on the amount of rentals and management fees paid by COFCO Beijing to COFCO PlazaCo. under the above property leasing agreements for the year ended December 31, 2005, theapplicable percentage ratios (as defined in the Hong Kong Listing Rules) in respect of such continuingconnected transactions, on an annual basis, are less than 0.1%. Therefore the agreements willconstitute a de minimis transaction for us under Rule 14A.33(3) of the Hong Kong Listing Rules after theGlobal Offering and will be exempt from the reporting, announcement and independent shareholders’approval requirements under Chapter 14A of the Hong Kong Listing Rules.

Rice Import and Export Agency Agreement

Under PRC laws, anyone exporting and importing rice must obtain a valid license and hold anofficial quota for the export, and hold an official tariff rate quota for the import of rice products, orotherwise engage a party with a license and quota and/or tariff rate quota, as its agent, to do so.COFCO is one of the two companies licensed by the PRC Government to export rice and it also holdsan official quota for rice export. It also holds an official tariff rate quota for rice import.

We used to engage COFCO as our agent to import and export rice. Given that transfer of thelicense, quota or tariff rate quota for rice export or import held by COFCO to us is currently not permittedunder the PRC regulations and no fee is payable in relation to the rice import and export agencyservices to be provided by COFCO to us, we will continue to export and import rice products throughCOFCO after our listing.

Such agency services will be regulated by a rice import and export agency agreement (‘‘RiceImport and Export Agency Agreement’’) dated December 29, 2006 entered into between COFCOBeijing, an indirect wholly owned subsidiary of our Company, and COFCO for the import and export ofrice products by COFCO as the non-exclusive agent of COFCO Beijing from the effective date toDecember 31, 2008. The principal terms of the Rice Import and Export Agency Agreement are:

( COFCO will act as COFCO Beijing’s non-exclusive agent for rice import and export;

( COFCO unconditionally undertakes that it will not act as an agent for rice import or export forany entity other than COFCO Beijing;

( COFCO is obligated to apply for and maintain rice export quota and import tariff rate quota andenter into export and import contracts with overseas customers of COFCO Beijing;

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( in relation to the export of rice products, COFCO Beijing is responsible for (1) sourcing riceproducts and entering into rice purchase agreements with suppliers, (2) determining the priceof its rice products to be exported, (3) handling all procedures in relation to the export of riceproducts; and (4) receiving funds from overseas customers and settling payments with ricesuppliers;

( in relation to the import of rice products, COFCO Beijing is responsible for (1) entering intoimport agency agreements with customers, (2) determining the price of its rice products to beimported, (3) handling all procedures in relation to the import of rice products; and (4) receivingfunds from customers and settling payments with overseas rice suppliers;

( there will be no agency fee; and

( the term may be renewed at COFCO Beijing’s determination.

COFCO Beijing is not prohibited from entering into any agency relationship with any other licensedcompany under the Rice Import and Export Agency Agreement. We believe the terms of the Rice Importand Export Agency Agreement are more favorable to our Group than terms that our Group couldcurrently obtain from the other rice export license holder. Should the Rice Import and Export AgencyAgreement be renewed, we will ensure that the requirements of Chapter 14A of the Hong Kong ListingRules are complied with.


For the years ended December 31, 2003, 2004 and 2005 and the nine months endedSeptember 30, 2006, no expenditure was incurred for the agency service provided by COFCO toCOFCO Beijing under the Rice Import and Export Agency Agreement, as COFCO waived its right tocollect agency fees from COFCO Beijing for these years.

Given that there will be no agency fee to be paid by COFCO Beijing to COFCO for the term of theRice Import and Export Agency Agreement, the Rice Import and Export Agency Agreement willconstitute a de minimis transaction for us under Rule 14A.33(3) of the Hong Kong Listing Rules after theGlobal Offering and will be exempt from the reporting, announcement and independent shareholders’approval requirements under Chapter 14A of the Hong Kong Listing Rules.

Trademarks license agreements with COFCO Group

Three of our subsidiaries in the oilseed processing business (collectively, ‘‘Oil Factories’’),separately or collectively (as the case may be), entered into five trademarks license agreements(collectively, ‘‘Fortune Trademarks License Agreements’’) with Grand Silver Services Limited(‘‘GSSL’’), an indirect subsidiary of COFCO, between 2001 and 2004. One of the Fortune TrademarksLicense Agreements was also entered into by Grand Silver Holdings Limited, the controlling shareholderof GSSL and an indirect subsidiary of COFCO. Pursuant to the Fortune Trademarks LicenseAgreements:

( GSSL granted to each of the Oil Factories rights to use certain ‘‘ ’’ (fulinmen) and‘‘Fortune’’ trademarks registered in the PRC and owned by GSSL (the ‘‘FortuneTrademarks’’);

( GSSL undertakes that it will not grant to any third parties other than the Oil Factories andCOFCO International Group rights to use the Fortune Trademarks;

( the terms of the Fortune Trademarks License Agreements vary from ten to 15 yearscommencing from the respective signing dates of each of the respective Fortune TrademarksLicense Agreements;

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( in respect of two of the Fortune Trademarks License Agreements entered into in 2001,royalties will be payable to GSSL at the rate of 1.5% of the total annual revenues of each of therespective Oil Factories from January 1, 2005 to the respective expiry dates; and

( the rate of royalties payable to GSSL in respect of the other Fortune Trademarks LicenseAgreements is negotiable between the parties.

Under the Fortune Trademarks License Agreements executed in 2001, the royalties payable toGSSL at the rate of 1.5% of total annual revenue of each of the respective Oil Factories from January 1,2005 to the respective expiry dates were determined based on the expected growth of the business ofthe corresponding Oil Factories. However, the royalties have been waived by GSSL year by year and noroyalties have been paid to GSSL so far.

Following completion of the Reorganization, the consumer-pack edible oil business, which involvesthe marketing and distribution of consumer-pack edible oil products under brands including the FortuneTrademarks, is conducted by COFCO Foods, a wholly owned subsidiary of COFCO International. Wewill supply and package bulk edible oil at the instructions of COFCO Foods from time to time. In light ofthis, separate supplementary agreements to each of the Fortune Trademarks License Agreements(each, a ‘‘Supplementary and Amendment Agreement’’) were entered into by the relevant parties onSeptember 30, 2006, pursuant to which:

( all parties agreed that GSSL may also grant to COFCO Foods rights to use the FortuneTrademarks on any products falling within the category of edible oils;

( the Oil Factories have undertaken to use the Fortune Trademarks solely for the purpose ofsupplying and packaging bulk edible oil products to COFCO Foods; and

( royalties to be payable by the Oil Factories in respect of the Fortune Trademarks will be waivedfrom the date of the signing of the Supplementary and Amendment Agreement toDecember 31, 2008.

Should these agreements be renewed, we will ensure the requirements of Chapter 14A of the HongKong Listing Rules are complied with.


For the years ended 31 December 2003, 2004 and 2005 and the nine months endedSeptember 30, 2006, there was no expenditure for the trademarks licensed by GSSL to the OilFactories, as GSSL waived all royalties due from the Oil Factories for these years.

Annual Caps

As the grant to the Oil Factories of the rights to use the Fortune Trademarks will be on a free-of-charge basis, the transactions under the Fortune Trademarks License Agreements and theSupplemental and Amendment Agreements will constitute de minimis transactions for us underChapter 14A of the Hong Kong Listing Rules and will be exempt from the reporting, announcement andindependent shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules.

CONTINUING CONNECTED TRANSACTIONS WITH COFCO INTERNATIONAL GROUP

Prior to completion of the Spin-off, COFCO International holds a 100% interest in our Company.Following the Global Offering (assuming the Over-allotment Option is not exercised), COFCO willindirectly hold approximately 59.4% of our issued share capital while COFCO International will holdnone. However, COFCO International is a subsidiary of COFCO, and therefore, COFCO Internationaland its associates (as defined in the Hong Kong Listing Rules) are connected persons of our Companyunder the Hong Kong Listing Rules.

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After the Global Offering, our Group will engage in various transactions in the ordinary course ofour business with COFCO International Group. Each of these transactions will constitute a continuingconnected transaction under Rule 14A.13(1)(a) of the Hong Kong Listing Rules following the listing ofour shares.

Non-Exempt Continuing Connected Transaction with COFCO International Group

Supply and Packaging of Consumer-pack Edible Oil for COFCO International Group

COFCO Foods and China Agri entered into a supply and packaging agreement on October 8, 2006and a supplementary agreement on January 12, 2007 (‘‘Supply and Packaging Agreement’’),pursuant to which:

( certain of China Agri’s subsidiaries and associates will supply oil to COFCO Foods inconsumer packs. The consumer packs will be labelled using trademarks owned by or licensedfor use by COFCO Foods;

( the supply and packaging shall be conducted in accordance with the specifications set byCOFCO Foods;

( the price payable by COFCO Foods will be agreed between the parties with reference to theprevailing market price; and

( the term shall be for a period from the effective date of the Supply and Packaging Agreement toDecember 31, 2008 and may be renewed upon mutual agreement between the parties.

Should the terms of the Supply and Packaging Agreement be renewed, we will ensure that therequirements under Chapter 14A of the Hong Kong Listing Rules are complied with.


For the years ended December 31, 2003, 2004 and 2005 and the nine months endedSeptember 30, 2006, the aggregate values of the consumer-pack oil supplied by us to COFCO Foodswas approximately RMB1,188.0 million, RMB1,757.3 million, RMB1,786.3 million andRMB1,211.1 million, respectively. The average annual growth rate of the historical transaction values ofthe consumer-pack edible oil from 2003 to 2005 was 25%, which was higher than the annual industrygrowth rate of 20%. We believe the 5% difference was attributable to the strong sales channelsestablished by COFCO International and its subsidiaries for this type of products, which resulted in theirbeing well equipped to take advantages of the strong market demand for consumer-pack edible oil.

Annual Caps

After completion of the Reorganization, COFCO International is not involved in the production ofbulk oil products anymore, but focuses on the sale and distribution of consumer-pack edible oil. Throughits broad sales and marketing network, COFCO Foods is expected to continue to increase its salesvolume of consumer-pack edible oil. It is therefore expected that the demand of COFCO Foods forconsumer-pack edible oil will grow accordingly. As we are one of the key suppliers of COFCO Foods,the need for consumer-pack edible oil to be supplied and packaged by us to COFCO Foods isanticipated to continue to increase. Based on the historical values for the above transactions, it isexpected that pursuant to the Supply and Packaging Agreement, the annual values of consumer-packedible oil to be supplied to COFCO Foods for the year ended December 31, 2006 and the years endingDecember 31, 2007 and 2008 shall not exceed approximately RMB2,220.0 million, RMB3,183.0 millionand RMB3,810.0 million, respectively.

The amount for the year ended December 31, 2006 is set on the basis that (1) the peak season forsale of consumer-pack edible oil is normally in the second half of a year and the amount to be suppliedto COFCO Foods therefore increased significantly in the second half of 2006; (2) the annual industrygrowth rate for consumer-pack edible oil is generally around 20%; and (3) COFCO Foods has increased

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its marketing and promotion activities which increased demand for consumer-pack edible oil in thesecond half of 2006. The industry growth rate for consumer-pack edible oil is expected to reach 30%due to the expected growth of population and the improvement of consumption standards in China. Indetermining the caps for 2007 and 2008, the Directors have taken into account the expected industrygrowth rate for consumer-pack edible oil and the marketing and promotion plans of COFCO Foods in2007 and 2008. Since the completion of the Reorganization, COFCO Foods has concentrated on thesale and distribution of consumer-pack edible oil to consumers, which has led to an increase in sales ofconsumer-pack edible oil. It is expected to lead to a significant boost in sales in the short term and asteady increase thereafter. It is therefore estimated that the volume of consumer-pack edible oil to bepurchased from us will increase by around 40% in 2007 and by around 20% in 2008.

Exempt Continuing Connected Transaction with COFCO International Group

Trademarks License Agreement with COFCO Foods

As part of the Reorganization, most of the intellectual property rights, particularly trademarksrelating to oil, rice and flour, have been transferred to or retained by COFCO Foods. COFCO Foods andChina Agri entered into an agreement in respect of trademarks licenses between COFCO Foods andcertain of China Agri’s subsidiaries on October 8, 2006 (‘‘Trademarks License Agreement’’) and asupplementary agreement on January 12, 2007, pursuant to which:

( in connection with the Supply and Packaging Agreement, COFCO Foods will grant to certain ofChina Agri’s subsidiaries and associates the right to use certain trademarks (including ‘‘ ’’(sihai)) falling within the category of edible oil, and patents owned by COFCO Foods, only forthe purpose of supplying and packaging consumer-pack edible oil for sale and distribution byCOFCO Foods (‘‘Consumer-pack Edible Oil Trademarks License’’);

( COFCO Foods will grant to certain of China Agri’s subsidiaries and associates, as designatedby COFCO Foods, the right to use certain trademarks falling within the category of edible oil,and patents owned by COFCO Foods, for our production and sale of bulk edible oil (‘‘BulkEdible Oil Trademarks License’’);

( COFCO Foods will grant to certain of China Agri’s subsidiaries and associates, as designatedby COFCO Foods, the right to use certain trademarks falling within the categories of rice, flourand bread, and patents owned by COFCO Foods, for (i) supplying such products for sale anddistribution by COFCO Foods (‘‘Non Oil-related Products Supply License’’) and(ii) production and sale of such products by us (‘‘Non Oil-related Products Sale License’’);

( all of the above trademarks licensed under the Trademarks License Agreement should be inthe form of Romanized spelling (pinyin), Chinese characters as well as in the form of a logo;

( the licenses under the Trademarks License Agreement are granted on a royalty-free basis; and

( the term of the Trademarks License Agreement is (i) ten years for the Consumer-pack EdibleOil Trademarks License, Bulk Edible Oil Trademarks License and Non Oil-related ProductsSupply License, and (ii) two years for the Non Oil-related Products Sale License.


There were no historical figures since no such licenses were granted by COFCO Foods during thethree years ended December 31, 2005 and the nine months ended September 30, 2006.

The intellectual property rights granted under the Trademarks License Agreement are granted on aroyalty-free basis, and the transactions will therefore constitute de minimis transactions for us underRule 14A.33 of the Hong Kong Listing Rules and would be exempt from the reporting, announcementand independent shareholders’ approval requirements under Chapter 14A of the Hong Kong ListingRules.

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OTHER NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Mutual Supply with Wilmar

Wilmar indirectly holds a 22% equity interest and an 11.22% equity interest in East Ocean Oils &Grains Industries (Zhangjiagang) Co., Ltd. ( ) (‘‘East Ocean’’) andYellowsea Oils & Grains Industries (Shandong) Co., Ltd. ( ) (‘‘Yellowsea’’),respectively, both of which are our non-wholly owned subsidiaries. According to the Hong Kong ListingRules, Wilmar is a substantial shareholder (as defined in the Hong Kong Listing Rules) of oursubsidiaries, and therefore, it and its associates (as defined in the Hong Kong Listing Rules) are ourconnected persons. Besides being substantial shareholders of certain of our non-wholly ownedsubsidiaries, Wilmar is also a substantial shareholder in certain subsidiaries of COFCO.

Given the different locations for the production of different types of oilseeds and the disparity in theircrushing, refining and packaging capacity, certain of our non-wholly owned subsidiaries, namely, EastOcean, Yellowsea, and COFCO ADM Oils & Grains Industries (Heze) Co., Ltd.( ) (‘‘Heze’’), have engaged in the mutual supply of different types ofoil and soybean meal and feed with Wilmar and its associates (‘‘Wilmar Group’’). In view of successfulpast experience, the transactions will continue after the Global Offering.

To regulate the relationship between the parties in this respect, Wilmar and China Agri entered intoan agreement on December 8, 2006 (‘‘Oil-related Mutual Supply Agreement’’) and a supplementaryagreement on January 12, 2007. The principal terms of the Oil-related Mutual Supply Agreementinclude the following:

( products to be supplied by Wilmar Group to the subsidiaries of China Agri include bulk edibleoil, refined edible oil and packaging materials;

( products to be supplied by the subsidiaries of China Agri to Wilmar Group include bulk edibleoil and soybean meal and feed and packaging materials;

( the term for this agreement is from January 1, 2007 to December 31, 2008 and may berenewed upon mutual agreement between the parties;

( the above products will be provided with reference to the prevailing market prices at therelevant time;

( the terms and conditions for the provision of the above products by one party to the other partyshall be not less favorable than those for the provision of such products by that party to anyother independent third party;

( each party is entitled to purchase or obtain (as the case may be) the above products from anyindependent third party if a third party is able to provide such products to it on better terms andconditions than those offered by the other party and if the terms and conditions of the supply ofsimilar products or services offered by one party are better than those offered by anindependent third party, the other party shall give priority to that party when sourcing thesupplies; and

( The Oil-related Mutual Supply Agreement became effective from January 1, 2007.

Should the terms be renewed, we will ensure that the requirements under Chapter 14A of the HongKong Listing Rules are complied with.

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For the years ended December 31, 2003, 2004 and 2005 and the nine months endedSeptember 30, 2006, the aggregate expenditures for the products supplied by Wilmar Group to us areset out below:



Transaction 2003 2004 2005 2006

(RMB millions)

Bulk edible oil ******************************************** 30.0 67.1 35.4 13.0Refined oil *********************************************** 19.5 14.2 6.7 44.4Packaging materials *************************************** 0.0 0.1 0.3 0.0Total***************************************************** 49.5 81.4 42.4 57.4

The historical transaction values for the supply of products from Wilmar Group to us decreasedsignificantly from RMB81.4 million in 2004 to RMB42.4 million in 2005. The decrease was due to thefact that the market price declined dramatically from 2004 to 2005, which led to a decrease in profitsfrom the oil processing business. To lessen the potential exposure to such market risks, we tightenedcontrol over inventory levels for oil products and therefore reduced the purchase of oil products includingthose from Wilmar Group in 2005. However, the amount of such products purchased from Wilmar Groupincreased during the nine months ended September 30, 2006 as our demand for such productsincreased as result of our enhanced capability in marketing and risk management.

For the years ended December 31, 2003, 2004 and 2005 and the nine months endedSeptember 30, 2006, the aggregate revenues for the products supplied by our Group to Wilmar Groupare set out below:



Transactions 2003 2004 2005 2006

(RMB millions)

Bulk edible oil, soybean meal and feed ********************* 0.0 33.0 112.5 70.5Packaging materials ************************************** 0.0 0.0 3.2 2.1Total **************************************************** 0.0 33.0 115.7 72.6

In view of the successful trial supply of such products to Wilmar Group in 2004, Wilmar Groupincreased its purchase of such products from our Group in 2005, which led to the significant increase inthe historical transaction values from 2004 to 2005.

Annual Caps

Based on the historical transaction values between Wilmar Group and our Group, it is assumed that(1) our annual expenditure in respect of the products to be supplied by Wilmar Group to our Group forthe year ended December 31, 2006 and the years ending December 31, 2007 and 2008 will not exceedRMB61.4 million, RMB71.7 million and RMB81.9 million, respectively; and (2) our annual revenues inrespect of products supplied by our Group to Wilmar Group for the year ended December 31, 2006 andthe years ending December 31, 2007 and 2008 will not exceed RMB78.1 million, RMB102.2 million andRMB126.2 million, respectively. The mutual supply of products between our Group and Wilmar Group isestimated to increase during the period between 2006 and 2008 for the following reasons: (1) the oilfactories of our Group have enhanced their marketing ability and strengthened their ability to managemarket risk by integrating the purchase of raw materials and products sales since 2006; and (2) aftercompletion of the Reorganization, several changes are expected to have a positive effect on the

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production and processing storage and transportation of oil products, which include (i) the Group hasceased to engage in the sale or marketing of consumer-pack edible oil and concentrated on theproduction, processing and sale of bulk edible oil and packaging of consumer-pack edible oil;(ii) purchases of raw materials and products sales have been centrally managed by our Company; and(iii) the oil factories have focused on the oil production and processing under the strategic plan of ourCompany. It is therefore expected that the sale and demand of such products, including the supply andpurchase of such products to and from Wilmar Group, will increase. In view of the existing cooperationwith Wilmar Group in the past, both Wilmar and we intend to maintain and expand the long-termrelationship in the future.

Wheat Purchase Transactions with Shandong Dezhou Grains & Oils Group Corporation

Shandong Dezhou Grains & Oils Group Corporation ( ) (‘‘DezhouGrains’’) holds a 45% equity interest in our non-wholly owned subsidiary, Shandong COFCO LudeFoods Co., Ltd. ( ) (‘‘COFCO Lude’’). According to the Hong Kong ListingRules, Dezhou Grains is a substantial shareholder (as defined in the Hong Kong Listing Rules) in one ofour subsidiaries, and therefore, it and its associates (as defined in the Hong Kong Listing Rules) are ourconnected persons for the purpose of the Listing Rules. Apart from being a substantial shareholder inCOFCO Lude, Dezhou Grains has no connection with our Company or its shareholders.

Historically, COFCO Lude purchased wheat from certain subsidiaries of Dezhou Grains (‘‘DezhouGrains entities’’) for its wheat processing business. The transactions have been carried out in theordinary course of COFCO Lude’s business and on normal commercial terms. In view of pastexperience, COFCO Lude intends to continue the wheat purchase transactions with Dezhou Grainsentities after the Global Offering. To regulate the relationship between them in respect of the wheatpurchases, COFCO Lude and Dezhou Grains entered into a wheat purchase agreement onDecember 8, 2006 (‘‘Lude Wheat Purchase Agreement’’) and a supplementary agreement onJanuary 12, 2007, pursuant to which:

( COFCO Lude will purchase wheat from Dezhou Grains entities at a price that shall be agreedbetween the parties with reference to the prevailing market prices at the relevant time; and

( the Lude Wheat Purchase Agreement is for a term of not more than three years from itseffective date to December 31, 2008 and may be renewed upon mutual agreement betweenthe two parties thereof.

The Lude Wheat Purchase Agreement was negotiated on an arm’s-length basis and their termsrepresent normal commercial terms.


For the years ended December 31, 2003, 2004 and 2005 and the nine months endedSeptember 30, 2006, the aggregate expenditures for the wheat purchased by COFCO Lude fromDezhou Grains entities was RMB12.8 million, RMB7.9 million, RMB7.1 million and RMB21.6 million,respectively.

Despite having decreased from 2003 to 2005 due to the fluctuation in the market demand, thehistorical figures increased significantly during the nine months ended September 30, 2006. Thisincrease is mainly attributable to the fact that COFCO Lude started purchasing wheat from three,instead of two, subsidiaries of Dezhou Grains from 2005 and after a one-year trial cooperation with thethird subsidiary of Dezhou Grains, COFCO Lude established a long-term contractual relationship withthis company and significantly increased the amount of wheat purchased from them in 2006.

Annual Caps

After completion of the Reorganization, our processing capability is expected to be enhanced,which will lead to a significant boost to wheat purchasers shortly thereafter. Dezhou Grains entities areamong the largest wheat suppliers in terms of business scale. Establishing a long-term cooperation withDezhou Grains entities is therefore expected to stabilize the performance of our wheat processing

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business. Taking into account these factors, the Directors assume that the flour processing business ofCOFCO Lude will continue to grow and the amount of wheat purchased from Dezhou Grains entities willcontinue to increase. Based on the historical transaction values, it is expected that the annualexpenditures in respect of the wheat to be purchased by COFCO Lude from Dezhou Grains entitiespursuant to the Lude Wheat Purchase Agreement for the year ended December 31, 2006 and the yearsending December 31, 2007 and 2008 shall not exceed RMB25.0 million, RMB29.3 million andRMB33.2 million, respectively.

Wheat Purchase Transactions with Shenyang No. 2 Grains Storage Depot

Shenyang No. 2 Grains Storage Depot ( ) (‘‘No. 2 Storage’’) holds a 16.16%equity interest in our non-wholly owned subsidiary, Shenyang Xiangxue Flour Limited Liability Company( ) (‘‘Xiangxue’’). According to the Hong Kong Listing Rules, No. 2 Storage isa substantial shareholder (as defined in the Hong Kong Listing Rules) of one of our subsidiaries, andtherefore, is our connected person for the purpose of the Hong Kong Listing Rules. Apart from being asubstantial shareholder of Xiangxue, No. 2 Storage has no connection with our Company or itsshareholders.

Prior to the Reorganization, Xiangxue purchased wheat from No. 2 Storage for its wheatprocessing business. The transactions have been carried out in the ordinary course of Xiangxue’sbusiness and on normal commercial terms. In view of past experience, the transaction will continue afterthe Global Offering.

Xiangxue and No. 2 Storage entered into a wheat purchase agreement on December 8, 2006 aswell as a supplementary agreement on January 12, 2007 to regulate the relationship between them inrespect of wheat purchases (‘‘Xiangxue Wheat Purchase Agreement’’), pursuant to which:

( Xiangxue will purchase wheat from No. 2 Storage at the price that shall be agreed between theparties with reference to the prevailing market price; and

( the Xiangxue Wheat Purchase Agreement is for a term of not more than three years from itseffective date to December 31, 2008 and may be renewed upon mutual agreement betweenthe two parties thereof.

The Xiangxue Wheat Purchase Agreement was negotiated on an arm’s-length basis and theirterms represent normal commercial terms.


For the years ended December 31, 2003, 2004 and 2005 and the nine months endedSeptember 30, 2006, the aggregate expenditures for the wheat purchased by Xiangxue from No. 2Storage was RMB195.7 million, RMB164.3 million, RMB212.5 million and RMB52.7 million,respectively. The historical transaction values fluctuated from 2003 to 2005, and this was mainlyattributable to the fact that our inventory of wheat varied slightly in each of these years, which resulted inour demand for wheat from No. 2 Storage decreasing in 2004 and increasing in 2005. The Group’sinventory of wheat in 2003 to 2005 varied due to the volatility of the amount of wheat sold in the previousyear and the anticipated purchase price of wheat in each of the following years. The decrease in thehistorical transaction values in the first nine months of 2006 was due to Xiangxue’s increasing ability topurchase wheat directly from wheat farmers rather than No. 2 Storage. This has not only increasedpurchasing efficiency and flexibility for Xiangxue but also reduced its costs of wheat purchases.

Annual Caps

The Directors assume that Xiangxue will continue to develop its relationship with wheat farmersand the need for the wheat purchased from No. 2 Storage will continue to decrease. Based on thehistorical transaction values, it is expected that pursuant to the Xiangxue Wheat Purchase Agreementthe annual expenditures in respect of the wheat to be purchased by Xiangxue from No. 2 Storage for the

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year ended December 31, 2006 and the years ending December 31, 2007 and 2008 shall not exceedRMB35.0 million, RMB6.0 million and RMB6.0 million, respectively.

SUMMARY OF THE EXEMPT AND NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Set out below is a summary of the exempt and non-exempt continuing connected transactionsmentioned above and, where applicable, the relevant waivers sought from the Hong Kong StockExchange and the proposed annual caps.

Exempt continuing connected transactions under Rule 14A.33(3)



2003 2004 2005 2006

(RMB millions)

Properties Leasing Transactions*************************** 4.3 4.5 4.5 3.8Rice Import and Export Agency Agreement **************** — — — —Trademark License

( Trademark License Transactions with COFCO Group **** — — — —( Trademark License Transactions with COFCO

International Group ********************************** — — — —

No annual caps are set for the year ended December 31, 2006 and the years ending December 31,2007 and 2008.

Non-exempt continuing connected transactions for which waivers from the announcementrequirement are sought from the Hong Kong Stock Exchange

(i) The historical values of the following transactions for which waivers from the announcementrequirement are sought from the Hong Kong Stock Exchange are as follows:



2003 2004 2005 2006

(RMB millions)

Mutual Supply Transactions with Wilmar( Supply by Wilmar Group to the Group *************** 49.5 81.4 42.4 57.4( Supply by our Group to Wilmar Group *************** 0.0 33.0 115.7 72.6

Wheat Purchase Transactions with No. 2 Storage ********* 195.7 164.3 212.5 52.7Wheat Purchase Transactions with Dezhou Grains ******** 12.8 7.9 7.1 21.6

(ii) The annual caps of the following transactions for which waivers from the announcementrequirement are sought from the Hong Kong Stock Exchange are as follows:

Annual caps for the yearended/endingDecember 31

2006 2007 2008(RMB millions)

Mutual Supply Transactions with Wilmar( Supply by Wilmar Group to our Group******************************* 61.4 71.7 81.9( Supply by our Group to Wilmar Group******************************* 78.1 102.2 126.2

Wheat Purchase Transactions with No. 2 Storage ************************ 35.0 6.0 6.0Wheat Purchase Transactions with Dezhou Grains************************ 25.0 29.3 33.2

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Non-exempt continuing connected transactions for which waivers from the announcementand independent shareholders’ approval requirements are sought from the Hong Kong StockExchange

(i) The historical values of the following transactions for which waivers from the announcement andindependent shareholders’ approval requirements are sought from the Hong Kong StockExchange are as follows:


nine monthsended

the year ended December 31 September 30,2003 2004 2005 2006

(RMB millions)

Mutual Supply of Materials and Ancillary Services( Supply by COFCO Group to our Group ********* 5,697.3 6,264.5 7,359.9 5,303.1( Supply by our Group to COFCO Group ********* 197.8 295.3 391.8 513.5

Supply and Packaging of Consumer-pack Edible OilTransactions *********************************** 1,188.0 1,757.3 1,786.3 1,211.1

(ii) The annual caps of the following transactions for which waivers from the announcement andindependent shareholders’ approval requirements are sought from the Hong Kong StockExchange are as follows:

Annual caps for the yearended/ending December 31

2006 2007 2008(RMB millions)

Mutual Supply of Materials and Ancillary Services( Supply by COFCO Group to our Group *********************** 8,079.1 8,701.2 78.3( Supply by our Group to COFCO Group *********************** 556.6 676.8 797.0

Supply and Packaging of Consumer-pack Edible Oil Transactions **** 2,220.0 3,183.0 3,810.0

APPLICATION FOR WAIVERS

The Directors (including the independent non-executive Directors) consider that the continuingconnected transactions have been and will be entered into in the ordinary and usual course of ourbusiness, on normal commercial terms and on an arm’s-length basis, and are fair and reasonable and inthe interests of the shareholders of our Company as a whole. We have applied for and the Hong KongStock Exchange has granted us waivers from compliance with the announcement and/or independentshareholders’ approval requirements related to continuing connected transactions pursuant toRule 14A.42(3) of the Hong Kong Listing Rules.

Waivers

In respect of the transactions under the Master Sale and Purchase Agreement above, save for theindemnities from each party in favor of the other, the rights and obligations of the parties in respect ofthe Master Sale and Purchase Agreement have been performed and thus the transactions will notcontinue after the Listing Date. Therefore, they will not be subject to any reporting, announcement orindependent shareholders’ approval requirements related to connected transactions under the HongKong Listing Rules. In respect of the indemnities under the Master Sale and Purchase Agreement, anypayment which in the future might be made by either party in performance of its obligations after theGlobal Offering would not constitute a new transaction. Any such payment would merely beperformance of a transaction which was entered into prior to the Global Offering.

The Tax Deed was entered into for our benefit prior to the Global Offering and is solely for thepurpose of the Global Offering. The transaction does not involve any monetary consideration.

155


Accordingly, the transaction qualifies under Rule 14A.31(2) of the Hong Kong Listing Rules as a deminimis transaction which is exempt from the reporting, announcement and independent shareholders’approval requirements.

The exercise of any options granted under the Non-competition Deed after the Listing Date wouldconstitute a connected transaction under the Hong Kong Listing Rules. In addition, pursuant toRule 14A.70(3) of the Hong Kong Listing Rules, the non-exercise of any option will be treated as if theoption were exercised and would constitute a connected transaction. We will comply with the relevantreporting, announcement and/or independent shareholders’ approval requirements pursuant to theHong Kong Listing Rules if any of the options is exercised, or if we have made a decision not to exerciseany of the options.

For each of the continuing connected transactions described in the table headed ‘‘Exemptcontinuing connected transactions under Rule 14A.33 (3)’’ above, each of the percentages ratioscalculated by reference to Rule 14.07 of the Hong Kong Listing Rules, where applicable, is on an annualbasis less than 0.1% and accordingly will qualify as de minimis transactions under Rule 14A.33 (3) ofthe Hong Kong Listing Rules. These transactions are exempt from the reporting, announcement andindependent shareholders’ approval requirements.

In relation to the non-exempt continuing connected transactions described in the table headed‘‘Non-exempt continuing connected transactions for which waivers from the announcement requirementare sought from the Hong Kong Stock Exchange’’ above, percentage ratios applicable to the relevanttotal annual revenue or the relevant total annual expenditure in respect thereof on an annual basis areexpected to be less than 2.5%. The transactions under such agreements are, therefore, exempt fromthe independent shareholders’ approval requirements under the Hong Kong Listing Rules, but would stillbe subject to the announcement requirements under the Hong Kong Listing Rules.

On the other hand, at least one of the percentage ratios including revenue ratio, asset ratio orconsideration ratio, as the case may be, on an annual basis for each of the non-exempt continuingconnected transactions described in the table headed ‘‘Non-exempt continuing connected transactionsfor which waivers from the announcement and independent shareholders’ approval requirements aresought from the Hong Kong Stock Exchange’’, is expected to be more than 2.5%. The transactionsdescribed thereunder would, therefore, be subject to the announcement and independent shareholders’approval requirements applicable to continuing connected transactions under the Hong Kong ListingRules.

LR8.10(1)(c)We will comply with the relevant requirements under Chapter 14A of the Hong Kong Listing Rules,including the proposed annual caps set out in the tables above, except to the extent that compliancetherewith has been waived by the Hong Kong Stock Exchange in writing.

In the view of the Directors (including the independent non-executive Directors) and the Sponsor,the proposed annual caps referred to above are fair and reasonable.

CONFIRMATION FROM THE SPONSOR

The Sponsor is of the view that the continuing connected transactions as described above are inthe ordinary and usual course of business of the Group, on normal commercial terms (or, when there isno available comparison, on terms no less favorable than terms available to or from (as appropriate)independent third parties) and are fair and reasonable and in the interests of the shareholders of theCompany as a whole, and will be conducted on an arm’s-length basis.

156

DIRECTORS AND SENIOR MANAGEMENT

3rd Sch(6)DIRECTORS

A1A 41(1)

Our Board is responsible and has general powers for the management and conduct of ourbusiness. The table below shows certain information in respect of members of our Board:

Name Age Position

Mr. NING Gaoning**************** 48 Chairman/Non-executive Director

Mr. YU Xubo ********************* 41 Executive Director

Mr. LU Jun*********************** 39 Executive Director

Mr. YUE Guojun****************** 43 Executive Director

Mr. CHI Jingtao ****************** 44 Non-executive Director

Mr. MA Wangjun****************** 42 Non-executive Director

Mr. LAM Wai Hon, Ambrose ******* 53 Independent Non-executive Director

Mr. SHI Yuanchun **************** 76 Independent Non-executive Director

Mr. Victor YANG****************** 61 Independent Non-executive Director

Chairman

NING Gaoning, 48, was appointed as a non-executive Director and chairman of our Board inJanuary 2007. Since December 2004, Mr. Ning has been chairman of the board of directors of COFCO;and since January 2005, chairman of the board of directors of COFCO (HK) and COFCO International.He previously held directorships in various Hong Kong-listed companies, including The Hong KongBuilding and Loan Agency Limited, China Resources Enterprise, Limited, China Resources LogicLimited, China Resources Land Limited, China Resources Cement Holdings Limited, China ResourcesPower Holdings Company Limited, China Resources Peoples Telephone Company Limited and ChinaVanke Company Limited, as well as in a number of private and state-owned companies, including ChinaResources (Holdings) Company Limited, Tate’s Cairn Tunnel Investment Holdings Company Limited,Tate’s Cairn Tunnel Company Limited, All Seasons Property Company Limited, APP (Thailand) Limited,MMG (Thailand) Limited, 219 Ruam Phathana Company Limited, HIT Investments Limited, HutchisonPorts Yantian Investments Limited, China Resources National Corporation and China Resources Co.,Limited. Before joining COFCO, he held various positions at China Resources (Holdings) CompanyLimited and its subsidiaries, including those of director, general manager and vice chairman of theboard of directors, and he also acted as general manger of China Resources National Corporationbetween June 1999 and December 2004. Mr. Ning holds a Bachelor’s degree in economics fromShandong University in China and a Master of Business Administration degree from the University ofPittsburgh in the United States. He is also a non-executive director of Lippo China Resources Limited,shares of which are listed on the Hong Kong Stock Exchange. He is currently also a director of BOCInternational Holdings Limited.

Executive Directors

YU Xubo, 41, is an executive Director and the managing Director of our Company. Mr. Yu joinedthe Group in August 2001. He is also chairman of the boards of directors of COFCO Malt (Jiangyin) Co.,Ltd. ( ), Guangxi COFCO Bio-Energy Co., Ltd. ( )and COFCO Biochemical Energy (Hengshui) Co., Ltd. ( ). Mr. Yu joinedCOFCO in 1988. He has been vice president of COFCO since June 2000 with managementresponsibility including the Group’s business. He has been an executive director of COFCO

157


International from January 2006 until the Listing Date. He previously held various other positions inCOFCO Group, including acting as general manager of COFCO Futures Co., Ltd.( ). Mr. Yu holds a Bachelor’s degree in Economics from the University ofInternational Business and Economics in Beijing and a Master of Business Administration degree fromChina Europe International Business School in Shanghai.

LU Jun, 39, is an executive Director and a deputy general manager of our Company. Mr. Lu is alsogeneral manager of our oilseed processing division. Mr. Lu joined the Group in February 2006. Hejoined COFCO in 1993. He has been assistant president of COFCO since March 2003. Mr. Lu is alsochairman of the board of directors of COFCO Xiangrui Oils & Grains Industries (Jingmen) Co., Ltd.( ), COFCO ADM Oils & Grains Industries (Heze) Co., Ltd.( ) and Eastbay Oils & Fats Industries (Guangzhou) Co., Ltd.( ) and a director of East Ocean Oils & Grains Industries (Zhangjiagang)Co., Ltd. ( ), Yellowsea Oils & Grains Industries (Shandong) Co., Ltd.( ), Northsea Oils & Grains Industries (Tianjin) Co., Ltd.( ) and Great Ocean Oil & Grain Industries (Fang Cheng Gang) Co., Ltd.( ). He previously held positions in COFCO Futures Co., Ltd.( ) including acting as general manager, taking charge of the Group’s oilseeds-related futures business. Mr. Lu holds a Bachelor’s degree and a Master’s degree in engineering fromChina Agricultural University in Beijing.

YUE Guojun, 43, is an executive Director and a deputy general manager of our Company. He isalso general manager of our biofuel and biochemical division. Mr. Yue joined our Group in December2002. He has been chairman of the board of directors of COFCO Bio-Chemical Energy (Yushu) Co.,Ltd. ( ) and COFCO Bio-Chemical Energy (Gongzhuling) Co., Ltd.( ) and a director of Guangxi COFCO Bio-Energy Co., Ltd.( ) and COFCO Biochemical Energy (Hengshui) Co., Ltd.( ). Mr. Yue joined COFCO Group as a result of the acquisition ofHeilongjiang Alcohol by COFCO Group in November 2005, and was appointed as general manager ofthe biofuel and biochemical division of COFCO. He has also acted as vice chairman of ChinaResources (Jilin) Bio-chemical Co., Ltd. ( ) since March 2005. Mr. Yue hasover 20 years’ experience in the production and sales of chemical products. Mr. Yue graduated from theChemical Engineering Department of Jilin Institute of Chemical Technology and holds a Master’sdegree in environmental engineering from Harbin Institute of Technology in Harbin.

Non-executive Directors

CHI Jingtao, 44, was appointed as a non-executive Director in January 2007. Mr. Chi joinedCOFCO in August 2003. He has been COFCO’s head of human resources since October 2004. FromJune 1993 until March 2003, he held various positions in China National Metals & Minerals Import &Export Corporation ( ), including those of general manager of humanresources and general manager of personnel. Mr. Chi holds a Bachelor’s degree in engineering fromthe Academy of Armored Forces Engineering in Beijing and a Master of Business Administration degreefrom the University of International Business and Economics in Beijing.

MA Wangjun, 42, was appointed as a non-executive Director in January 2007. He has acted as adirector of COFCO Malt (Jiangyin) Co., Ltd. ( ), East Ocean Oils & GrainsIndustries (Zhangjiagang) Co., Ltd. ( ), COFCO Industry (Qinhuangdao)Pangthai Co., Ltd. ( ), Shandong COFCO Lude Foods Co., Ltd.( ) and Guangxi COFCO Bio-Energy Co., Ltd. ( ).Mr. Ma joined COFCO in August 1988. He has been head of finance of COFCO since December 2005.He previously held other positions in COFCO, including those of deputy head of finance, generalmanager of asset management and deputy general manager of finance and planning. He has also beena director of Xinjiang Tunhe Investment Co., Ltd. ( ) since July 2005. Mr. Maholds a Bachelor’s degree in economics from the Beijing Technology and Business University.

158


Independent Non-executive Directors

LAM Wai Hon, Ambrose, 53, was appointed as an independent non-executive Director of ourCompany in January 2007. Mr. Lam is a fellow member of the Institute of Chartered Accountants inEngland and Wales and a member of Hong Kong Institute of Certified Public Accountants. Mr. Lamholds a Bachelor of Arts (Honours) degree from University of Newcastle Upon Tyne in England. Mr. Lamis chairman and a co-founder of Access Capital Limited. He has over two decades of experience incorporate finance and advisory transactions in investment banking institutions. Immediately prior to co-founding Access Capital Limited in 2000, Mr. Lam was a managing director at Deutsche Bank AG (HongKong) where he was head of global investment banking for Greater China, having joined from BankersTrust Company and Yuanta Securities (Hong Kong) Company Limited, where he held the positions ofmanaging director, head of Greater China investment banking and managing director respectively.Mr. Lam started his banking career with Kleinwort Benson Group (in London and Hong Kong) beforejoining Standard Chartered Asia Limited in Hong Kong, where he held the position of managing directorin corporate finance. Mr. Lam is also a director of Hong Kong Professional Consultants AssociationLimited.

SHI Yuanchun, 76, was appointed as an independent non-executive Director of our Company inJanuary 2007. Mr. Shi is currently a professor at the China Agricultural University. He also serves as amember of the National Science and Technology Award Committee, and an expert member of theNational Energy Leading Group. In addition, Mr. Shi is a fellow of the Chinese Academy of Sciences, theChinese Academy of Engineering and the Third World Academy of Sciences. He was formerly theprincipal of the China Agricultural University from 1987 to 1995 and vice chairman of the ChinaAssociation of Science and Technology from 1991 to 2001. He also served as a member of theAcademic Degree Committee of the State Council and the National Committee of Chinese People’sPolitical Consultative Conference, among other positions. Mr. Shi graduated from the AgronomyDepartment of Beijing Agricultural University in 1953 and holds a postgraduate degree from the Soil andAgrochemical Department of Beijing Agricultural University. He has received various awards, includingthe National Scientific and Technological Progress Prize (Special Class).

Victor YANG, 61, was appointed as an independent non-executive Director of our Company inJanuary 2007. Mr. Yang is a founding partner of Boughton Peterson Yang Anderson, a Canadian basedlaw firm, and is presently the managing partner of Boughton Peterson Yang Anderson in Hong Kong. Heis a solicitor of the Supreme Court of Hong Kong, a barrister and solicitor in British Columbia, Canadaand a solicitor of England and Wales. He holds a Bachelor of Laws and a Bachelor of Commercedegree from the University of British Columbia, Canada. Mr. Yang is presently a governor of theCanadian Chamber of Commerce in Hong Kong and a member of the Major Sports Committee of theHome Affairs Bureau, Hong Kong. Mr. Yang is a non-executive director of Lei Shing Hong Limited andan independent non-executive director of each of Ming Pao Enterprise Corporation Limited and PearlOriental Innovation Limited, all of which are listed on the Hong Kong Stock Exchange, and a director ofEupa International Corporation, shares of which are listed on the NASD (Over-the-CounterBulletin Board). Until September 2004, Mr Yang was also a director of Zindart Limited, shares of whichare listed on NASDAQ.

159


A1A 41(1)SENIOR MANAGEMENT

Name Age Position

A1A 41(5)Mr. YU Xubo ********************* 41 Executive Director and ManagingDirector

Mr. LU Jun *********************** 39 Executive Director and DeputyGeneral Manager of the Companyand General Manager of OilseedProcessing Division

Mr. YUE Guojun ****************** 43 Executive Director and DeputyGeneral Manager of the Companyand General Manager of Biofuel andBiochemical Division

Mr. LI Wai Kwan ****************** 35 Financial Controller, Head of InvestorRelations Department and QualifiedAccountant

Ms. YANG Hong ****************** 43 General Manager of Rice Trading andProcessing Division

Mr. JIANG Guojin ***************** 39 General Manager of BrewingMaterials Division

Mr. WANG Zhen ****************** 46 General Manager of WheatProcessing Division

Mr. HU Changping **************** 36 General Manager of FinanceDepartment

Mr. HU Yonglei ******************* 39 General Manager of BusinessStrategy Division

Ms. LAM Yee Yan, Daisy*********** 39 Company Secretary, Legal Counsel

YU Xubo, see ‘‘Directors and Senior Management — Directors’’.

LU Jun, see ‘‘Directors and Senior Management — Directors’’.

YUE Guojun, see ‘‘Directors and Senior Management — Directors’’.

A1A 42LI Wai Kwan, 35, is financial controller, head of investor relations department and qualifiedaccountant of our Company. Mr. Li has extensive experience in accounting, financial management,business planning, corporate finance and treasury. He was an independent non-executive director ofSunny Global Holdings Limited, the shares of which are listed on the Hong Kong Stock Exchange, fromJanuary 2005 to May 2005. He had worked for government and statutory bodies, multinationalconglomerates as well as Fortune 500 companies. He held a senior finance executive position in EspritHoldings Limited, a blue-chip company listed on the Hong Kong Stock Exchange, before he joined ourCompany. Mr. Li holds a Bachelor’s degree in Commerce from the University of Toronto and a Master ofBusiness Administration degree from the Schulich School of Business, York University. He is a certifiedmember of each of the Chartered Financial Analysts Institute, Hong Kong Institute of Certified PublicAccountants, Institute of Certified Management Accountants, Certified General Accountants of Canadaand Association of Chartered Certified Accountants.

YANG Hong, 43, is general manager of our rice trading and processing division. Ms. Yang wasappointed as vice chairman of COFCO Jiangxi Rice Processing Limited ( ), whichis a member of our Group, in August 2001. In November 2006, she was promoted to chairman of thesame company. Ms. Yang joined COFCO in August 1989, and was appointed as general manager of therice division of COFCO in July 2000, prior to which she held various other positions in COFCO,

160


including department manager and deputy division chief. Ms. Yang holds a Bachelor’s degree ineconomics from the University of International Business and Economics in Beijing.

JIANG Guojin, 39, is general manager of our brewing materials division. Mr. Jiang was appointedas general manager of Dalian COFCO Malt Co., Ltd. ( ), which is a member of theGroup in November 1995. He became a director in September 2000 and was appointed as chairman ofthe board of directors in July 2001 in the same company. He is also a director of COFCO Malt (Jiangyin)Co., Ltd. ( ) and chairman of the board of directors of Shanghai COFCOBrewing Materials Co., Ltd. ( ). Mr. Jiang joined COFCO in August 1989, andwas appointed as general manager of the brewing materials division of COFCO in July 2000, prior towhich he held various other positions, including that of general manager of Dalian COFCO MaltCo., Ltd. ( ) and deputy manager of the investment division of COFCO. Mr. Jiangholds a Bachelor’s degree in Engineering from the Beijing University of Light Industry.

WANG Zhen, 46, is general manager of our wheat processing division. Mr. Wang was appointed asa director of COFCO Industry (Qinhuangdao) Pangthai Co., Ltd. ( ) inJanuary 2003. He has also acted as chairman of the boards of directors Shenyang Dongda Grains Oils& Foodstuffs Industries Co., Ltd. ( ), Shenyang Xiangxue Flour LimitedLiability Company ( ), Puyang COFCO Flour Industry Co. Ltd.( ), Shandong COFCO Lude Foods Co., Ltd. ( ) and adirector of Shenzhen Southseas Grains Industries Ltd. ( ). Mr. Wang joinedCOFCO in December 1986, and was appointed as general manager of the flour division of COFCOInternational (Beijing) Co., Ltd. ( ) in August 2000. Prior to this, he held variouspositions, including those of deputy general manager of COFCO fruits, vegetables and aquatic productsdivision of COFCO and general manager of COFCO Industry (Qinhuangdao) Pangthai Co., Ltd.( ). Mr. Wang holds an associate degree in Japanese literature from theLuoyang University of Foreign Languages.

HU Changping, 36, is general manager of our finance department. Mr. Hu joined COFCO in 1992.Until recently, he was deputy general manager of Beijing Coca-Cola Beverage Company Limited( ). He previously also held other positions in COFCO Group, includingmanager of the finance department of COFCO Trade Development Company ( ),manager of the planning and finance department of COFCO, deputy financial controller of COFCOInternational and chief financial officer of COFCO Coca-Cola Beverages Limited( ). Mr. Hu holds a Bachelor’s degree in economics from Zhongnan Universityof Finance and Economics.

HU Yonglei, 39, is general manager of our business strategy division. Mr. Hu joined COFCO in2005, and has held the positions of deputy general manager of the biofuel and biochemical division andgeneral manager of the investment management division of COFCO. Prior to joining COFCO, he heldsuch positions as director of China Resources Development & Investment Co., Ltd.( ), director of China Resources Hainan Shimeiwan Development Co., Ltd.( ) and deputy general manager of China Resources (Jilin) Bio-chemical Co., Ltd. ( ). He has also been a director of Dalian COFCOMalt Co., Ltd. ( ) and China Resources (Jilin) Bio-chemical Co., Ltd.( ) since 2006. He holds a Bachelor’s degree in engineering from Xi’anJiaotong University and a Master’s degree in economics from the Renmin University of China.

A1A 42LAM Yee Yan, Daisy, 39, is the legal counsel and company secretary of our Company, a positionshe has held since February 9, 2007. Ms. Lam is a solicitor of the High Court of Hong Kong and wasadmitted in 1999. Prior to joining our Company, Ms. Lam worked as a solicitor in private practice in thecorporate and commercial area. Ms. Lam holds a Bachelor’s degree in accounting and finance from theUniversity of Wales, Bangor, United Kingdom.

161


MANAGEMENT PRESENCE IN HONG KONG

Under Rule 8.12 of the Hong Kong Listing Rules, an issuer must have sufficient managementpresence in Hong Kong including that normally at least two of the issuer’s executive directors must beordinarily resident in Hong Kong. Since our operations are primarily located in the PRC, we do not and,for the foreseeable future, will not have a management presence in Hong Kong.

Accordingly, we have applied to the Hong Kong Stock Exchange for, and the Hong Kong StockExchange has agreed to grant, a waiver to us from strict compliance with Rule 8.12 of the Hong KongListing Rules. We have made internal arrangements to maintain effective communication between usand the Hong Kong Stock Exchange. Currently, Mr. Yu Xubo, the managing Director of our Companyand our authorized representative, ordinarily resides in Hong Kong. Our arrangement is to have Mr. YuXubo be the principal communication channel between the Hong Kong Stock Exchange and ourCompany.

Mr. Li Wai Kwan, our financial controller, who is ordinarily resident in Hong Kong, has also beenappointed as an authorized representative under Rule 3.05 of the Hong Kong Listing Rules. Theauthorized representatives act as the primary contact points with the Hong Kong Stock Exchange. Asand when the Hong Kong Stock Exchange contacts the authorized representatives for any matters, theyhave means to contact all members of our Board (including the independent non-executive Directors)immediately at all times.

In addition, our Company has also nominated Mr. Yue Guojun, an executive Director of ourCompany who resides in Beijing, and he has agreed, to be the alternative contact person who wouldmeet with the Hong Kong Stock Exchange as and when required. He has indicated that he wouldendeavor to make travel arrangements to make himself available in Hong Kong on reasonable notice ifrequired by the Hong Kong Stock Exchange and be readily accessible by telephone, facsimile andemail.

As a result, such internal arrangement can ensure that all members of our Board can be promptlyinformed of any such matters and can maintain effective communications with the Hong Kong StockExchange.

In addition, we have appointed BCOM Securities Company Limited as our compliance adviser asrequired under Rule 3A.19 of the Hong Kong Listing Rules. BCOM Securities Company Limited is alicensed person under the Securities and Futures Ordinance, and BCOM Securities Company Limitedhas informed us that no letter of mindedness or similar order of the Securities and Futures Commissionis outstanding that will affect the ability of such licensed person to act as a compliance adviser. BCOMSecurities Company Limited will also serve as the main channel of communication between the HongKong Stock Exchange and us in Hong Kong.

AUDIT COMMITTEE

We established an audit committee on February 16, 2007 with written terms of reference assuggested under the Code on Corporate Governance Practices set out in Appendix 14 to the HongKong Listing Rules.

The audit committee has three members comprising Messrs. Lam Wai Hon, Ambrose, Ma Wangjunand Victor Yang, of whom Messrs. Lam and Yang are independent non-executive Directors and MaWangjun is a non-executive Director. The chairman of the audit committee is Mr. Lam.

The primary duties of the audit committee are to review and supervise the financial reportingprocess and internal control system of our Company, nominate and monitor external auditors andprovide advice and comments to our Directors.

162


REMUNERATION COMMITTEE

We established a remuneration committee on February 16, 2007 with written terms of reference assuggested under the Code on Corporate Governance Practices set out in Appendix 14 to the HongKong Listing Rules.

The remuneration committee has three members comprising Messrs. Chi Jingtao, Lam Wai Hon,Ambrose and Victor Yang, of whom Messrs. Lam and Yang are independent non-executive Directorsand Mr. Chi is a non-executive Director. The chairman of the remuneration committee is Mr. Chi.

The primary functions of the remuneration committee are to evaluate the performance and makerecommendations on the remuneration package of our Directors and senior management and evaluateand make recommendations on our share option scheme and retirement scheme.

NOMINATION COMMITTEE

We established a nomination committee on February 16, 2007 with written terms of reference assuggested under the Code on Corporate Governance Practices set out in Appendix 14 to the HongKong Listing Rules.

The nomination committee has three members comprising Messrs. Ning Gaoning, Lam Wai Hon,Ambrose and Victor Yang, of whom Messrs. Lam and Yang are independent non-executive Directorsand Mr. Ning is chairman of our Board. The chairman of the nomination committee is Mr. Ning.

The primary functions of the nomination committee are to make recommendations to the Boardregarding candidates to fill vacancies on the Board.

A1A 28(7)

A1A 44

3rd Sch(10)

SHARE OPTION SCHEME

We have conditionally adopted a Share Option Scheme. Details of the principal terms of our ShareOption Scheme are summarized in the paragraph headed ‘‘Share Option Scheme’’ set out inAppendix VII — ‘‘Statutory and General Information’’.

A1A 28(7)COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT

A1A 33(2)(a),

(b),(c),(d),(g)

A1A 46(2)

A1A 33(2)(a),

(b),(c)

No directors’ remuneration was paid during the three financial years ended December 31, 2003,2004 and 2005. The aggregate amount of remuneration paid by us to our Directors for the nine monthsended September 30, 2006 was HK$337,000. There was no arrangement under which a Directorwaived or agreed to waive any remuneration during the financial three years ended December 31, 2003,2004 and 2005 and the nine months ended September 30, 2006. No fees or contributions to pensionschemes or retirement benefit plans were payable to or on behalf of our Directors during the financialyears ended December 31, 2003, 2004 and 2005 and the nine months ended September 30, 2006. Forthe nine months ended September 30, 2006, the aggregate amount of salaries and contributions toretirement benefit plans paid by us to the Directors was HK$337,000 and the aggregate amount ofcontributions to pension schemes paid by us to the Directors was HK$14,000.

A1A 33(2)(e),

(f),(g)

During the last three financial years, no remuneration was paid by us to or receivable by anyDirector as an inducement to join or upon joining us. No compensation was paid by us to or receivableby any Director or past Director for each of the last three years for the loss of office as our director or ofany other office in connection with the management of our affairs. None of our Directors has waived anyemoluments for each of the last three financial years.

A1A 33(3)

A1A 33(3)(d)

The aggregate amount of fees, salaries and contributions to retirement benefit plans paid by us tothe five highest paid individuals of our Company during each of the three years ended December 31,2003, 2004 and 2005 and for the nine months ended September 30, 2006 was approximatelyHK$1.4 million, HK$2.9 million, HK$3.5 million and HK$1.6 million, respectively. During the last threefinancial years, no remuneration was paid by us to or receivable by the five highest paid individuals asan inducement to join or upon joining us.

163


A1A 33(3)(e)No compensation was paid by us to or receivable by the five highest paid individuals for the loss ofoffice in connection with the management of our affairs.

A1A 33(2)(d)

Save as disclosed above, no other payments have been paid or are payable, in respect of the yearsended December 31, 2003, 2004 and 2005 and the nine months ended September 30, 2006, by us orany of our subsidiaries to our Directors. It is estimated that an aggregate amount of approximatelyHK$1.6 million, including benefits and contributions, will be paid to our Directors as remuneration by usin respect of the year ended December 31, 2006, according to the present arrangements.

A1A 46(3)

164

SUBSTANTIAL SHAREHOLDERS

3rd Sch (30)

A1A 45(2)

So far as our Directors are aware, assuming the Over-allotment Option is not exercised, andwithout taking into account any shares to be issued pursuant to options which may be granted under ourShare Option Scheme, the following persons will, immediately following the completion of the GlobalOffering, have interests or short positions in shares or underlying shares which would fall to bedisclosed to us under the provisions of Divisions 2 and 3 of Part XV of the Hong Kong Securities andFutures Ordinance, or are, directly or indirectly, interested in 10% or more of the nominal value of anyclass of share capital carrying rights to vote in all circumstances at our general meetings.

Number of PercentageName Capacity and nature of interest Notes shares shareholding

A1A 28(2)

A1A 27AWide Smart HoldingsLimited ************** Beneficial owner (1) 1,922,550,331 55.1%

COFCO (BVI) No. 108Limited ************** Beneficial owner (1) 140,000,000 4.01%

COFCO (HK)*********** Beneficial owner (1) 10,138,000 0.29%Interest of controlled corporation (1)(2) 2,062,550,331 59.11%

COFCO**************** Interest of controlled corporation (1)(3) 2,072,688,331 59.4%

Notes:

(1) Long position in the shares of the Company.

(2) Wide Smart Holdings Limited and COFCO (BVI) No. 108 Limited are wholly owned subsidiaries of COFCO (HK). COFCO(HK) is therefore deemed to be interested in the 2,062,550,331 shares in aggregate held by Wide Smart Holdings Limitedand COFCO (BVI) No. 108 Limited as COFCO (HK) is entitled to control the exercise of or exercise one-third or more of thevoting power at general meetings of Wide Smart Holdings Limited and COFCO (BVI) No. 108 Limited, respectively.

(3) COFCO is deemed to be interested in the 2,072,688,331 shares in aggregate held by Wide Smart Holdings Limited,COFCO (BVI) No. 108 Limited and COFCO (HK) as COFCO is entitled to control the exercise of or exercise one-third ormore of the voting power at general meetings of Wide Smart Holdings Limited, COFCO (BVI) No. 108 Limited andCOFCO (HK) respectively.

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SHARE CAPITAL

A1A 15(1)

A1A 23(1)

The following is a description of the expected authorized and issued share capital of our Companyin issue and to be issued as fully paid or credited as fully paid immediately before and after completionof the Global Offering (assuming no exercise of the Over-allotment Option):

HK$

Authorized share capital:4,000,000,000 shares of HK$0.10 each ************************************* 400,000,000.00

3rd Sch (2)Issued shares:2,791,383,356 shares in issue as at the date of this prospectus**************** 279,138,335.60Shares to be issued:697,846,000 shares to be issued pursuant to the Global Offering ************** 69,784,600.00Total issued share capital:3,489,229,356 shares ***************************************************** 348,992,935.60

ASSUMPTIONS

A1A 55

(1)&(3)

The table above assumes the Global Offering becomes unconditional and is completed inaccordance with the relevant terms and conditions. It takes no account of (a) any of the new shareswhich may be issued upon the exercise of the Over-allotment Option or (b) any options which may begranted under our Share Option Scheme (see Appendix VII — ‘‘Statutory and General Information’’) or(c) any shares which may be issued under the general mandate given to our Directors for the issue andallotment of shares (see Appendix VII — ‘‘Statutory and General Information’’) or (d) any shares whichmay be repurchased by us pursuant to the general mandate given to our Directors for the repurchase ofshares (see Appendix VII — ‘‘Statutory and General Information’’).

RANKING

The Offer Shares will rank pari passu with all of the shares now in issue or to be issued, and willqualify for all dividends, income or other distributions declared, made or paid on, or any other rights andbenefits attached to or accruing from, the shares after the date of this prospectus.

GENERAL MANDATE TO ISSUE SHARES

If the Global Offering becomes unconditional as stated in the section headed ‘‘Structure of theGlobal Offering’’, our Directors have been granted a general unconditional mandate to allot, issue anddeal with shares (otherwise than pursuant to, or in consequence of the Global Offering, a rights issue orpursuant to the exercise of subscription rights which may be granted under our Share Option Scheme orany scrip dividend scheme or similar arrangements, any adjustment of rights to subscribe for sharesunder options or warrants or a special authority granted by our shareholders), with an aggregatenominal value of not more than the sum of:

( 20% of the total nominal amount of our share capital in issue immediately following thecompletion of the Global Offering excluding shares which may be issued upon the exercise ofthe Over-allotment Option (as set out in the above table); and

( the aggregate nominal value of our share capital repurchased by us (if any).

This general mandate to issue shares will expire:

( at the end of our next annual general meeting;

( at the end of the period within which we are required by law or our Articles of Association tohold our next annual general meeting; or

( when varied or revoked by an ordinary resolution of our shareholders in a general meeting;

whichever is the earliest.

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SHARE CAPITAL

For further details of this general mandate, see the section headed ‘‘Written resolutions of the soleshareholder of our Company passed on January 12, 2007, February 12, 2007 and February 28, 2007’’in Appendix VII — ‘‘Statutory and General Information’’.

GENERAL MANDATE TO REPURCHASE SHARES

If the Global Offering becomes unconditional as stated in the section headed ‘‘Structure of theGlobal Offering’’, our Directors have been granted a general unconditional mandate to exercise all thepowers of our Company to repurchase shares with an aggregate nominate value of not more than 10%of the aggregate nominal amount of our share capital in issue following completion of the GlobalOffering, excluding shares which may be issued upon the exercise of the Over-allotment Option (as setout in the above table).

This general mandate only relates to repurchases made on the Hong Kong Stock Exchange and onany other stock exchange on which the shares are listed (and which is recognized by the SFC and theHong Kong Stock Exchange for this purpose), and which are in accordance with all applicable laws andthe Hong Kong Listing Rules. A summary of the relevant Hong Kong Listing Rules is set out in thesection headed ‘‘6. Repurchase by our Company of its own securities’’ in Appendix VII — ‘‘Statutory andGeneral Information’’.

This general mandate to repurchase shares will expire:

( at the end of our next annual general meeting;

( at the end of the period within which we are required by law or our Articles of Association tohold our next annual general meeting; or

( when varied or revoked by an ordinary resolution of our shareholders in a general meeting;

whichever is the earliest.

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FINANCIAL INFORMATION

The following discussion should be read in conjunction with our combined financialstatements and the financial statements of Heilongjiang Alcohol Group as atDecember 31, 2003, 2004 and 2005 and September 30, 2006 and for the three years endedDecember 31, 2005 and for the nine months ended September 30, 2005 and 2006, and ineach case, together with the accompanying notes. See the Accountants’ Reports inAppendix I and Appendix IIB to this prospectus. The following discussion contains certainforward-looking statements that involve risks and uncertainties. Factors that could causeor contribute to such risks and uncertainties include, without limitation, those discussedin the sections entitled ‘‘Risk Factors’’ and ‘‘Business’’ and elsewhere in this prospectus.

We completed our Reorganization on December 31, 2006. See ‘‘Our History andReorganization’’. As a result, our financial statements will no longer include the resultsof the consumer-pack edible oil business and non-rice foodstuffs trading business,each of which we treated as a stand-alone division, and our businesses presentlyconsist of our biofuel and biochemical, oilseed processing, rice trading andprocessing, brewing materials and wheat processing businesses. Going forward, ourrevenue will be derived from these five divisions. See ‘‘Risk Factors — Risks relating toour business — Due to our Reorganization, the audited historical financial statementsand other historical financial data included elsewhere in this prospectus are notindicative of our future financial condition and results of operations’’. The followingdiscussion primarily focuses on our biofuel and biochemical, oilseed processing, ricetrading and processing, brewing materials and wheat processing businesses.

In strict compliance with Rule 4.04(1) of the Hong Kong Listing Rules andparagraphs 27 and 31 of the Third Schedule to the Hong Kong Companies Ordinance(the ‘‘Relevant Requirements’’), we are required to include our financial results for theyear ended December 31, 2006 in the Accountants’ Reports.

The Company has applied to the Securities and Futures Commission and the HongKong Stock Exchange for waivers from strict compliance with the RelevantRequirements on the ground that strict compliance with the Relevant Requirementswould be unduly burdensome for us in that there would not have been sufficient timefor us to produce and our accountants, Ernst & Young, to audit the financial statementsfor the year ended December 31, 2006 prior to the Global Offering. A certificate ofexemption from strict compliance with the Relevant Requirements underparagraphs 27 and 31 of the Third Schedule to the Hong Kong Companies Ordinancehas been granted by the Securities and Futures Commission to the Company undersection 38A of the Hong Kong Companies Ordinance. The Hong Kong Stock Exchangehas also granted its waiver to the Company from strict compliance with Rule 4.04(1) ofthe Hong Kong Listing Rules on condition that the Listing Date will be on or beforeMarch 31, 2007.

Our Directors consider that all information reasonably necessary for the potentialinvestors to make an informed assessment of our activities and the financial positionhas been included in this prospectus.

Our Directors confirm that they have performed sufficient due diligence on theGroup to ensure that, up to the date of this prospectus, there has been no materialadverse change in our financial position or prospects since September 30, 2006 andthere is no event since September 30, 2006 which would materially affect theinformation shown in the Accountants’ Reports set out in Appendix I, IIA and IIB.

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OVERVIEW

We are a leading producer and supplier of processed agricultural products in China. Our revenueincreased to HK$16,300.4 million in 2005 from HK$12,529.2 million and HK$16,050.1 million,respectively, in 2003 and 2004. While our profit attributable to equity holders of the Company decreasedto HK$130.7 million in 2004 compared to HK$247.3 million in 2003, our profit attributable to equityholders of the Company increased to HK$254.9 million in 2005 from HK$130.7 million in 2004. We sellthe majority of our products in the domestic market through our sales and distribution networks acrossChina. In 2005, approximately 90% of our revenue was derived from China. We also export a significantamount of our rice products (including rice products processed by us and rice we source and distribute)and a small amount of our oilseed products, flour, brewing malt and consumable ethanol, principally toJapan, South Korea, Southeast Asia and Africa. Our subsidiaries currently operate five oilseedprocessing facilities, eight wheat processing facilities, two rice processing facilities, one biofuelproduction facility and one brewing malt production facility, located in 15 provinces, autonomous regionsand municipalities across China.

We presently operate in five business segments, or divisions: biofuel and biochemical, oilseedprocessing, rice trading and processing, brewing materials and wheat processing. We classify ourbusinesses within these divisions based upon the nature of products and services offered.

Our biofuel and biochemical division began in early 2006 when COFCO Group acquiredmanagement control of Heilongjiang Alcohol Group in January 2006 and further acquired a 20% equityinterest in Jilin Fuel, which became our associate in March 2006, in each case from China Resources(Holdings) Company Limited. This division is engaged in activities related to the production of fuelethanol, consumable ethanol, anhydrous ethanol, and other food and feed ingredients such as DDGS,animal feed and crude corn oil. Our business plan calls for future operations in this division to includethe production of starch, sweeteners (mainly maltodextrin, fructose syrup and malt syrup), amino acid,lactic acid, polylactic acid and glycols. Heilongjiang Alcohol was one of the earliest fuel ethanolproducers in China. In the nine months ended September 30, 2006, our biofuel and biochemical divisioncontributed 6.7% of our total revenue and 30.2% of our total profit attributable to equity holders of theCompany. We present a discussion of Heilongjiang Alcohol Group’s historical results of operations on astand-alone basis for the three years ended December 31, 2005 and the nine months endedSeptember 30, 2005 and 2006, below.

Our oilseed processing division is engaged in activities related to crushing oilseeds, such assoybean, cottonseed, rapeseed and peanuts, and refining them into edible oils and producing oilseedmeals for the feed industry. We are also engaged in the production and sale of specialty oils and fats inthe PRC. We sell our soybean meal under the brand ‘‘ ’’ (sihai) and our bulk edible oils are solddirectly to our customers and partly to COFCO International after being packaged. We are one of thelargest oilseed processors in China in terms of annual output according to the statistics issued by theChina National Association of Grain Sector and the State Grain Administration. For the three yearsended December 31, 2005 and the nine months ended September 30, 2006, our oilseed processingdivision (after inter-segment elimination) contributed 62.8%, 61.2%, 61.2% and 57.9%, respectively, ofour total revenue and 88.2%, 30.1%, 36.8% and 28.7%, respectively, of our total profit attributable toequity holders of the Company.

Our rice trading and processing division is principally engaged in exporting parboiled rice weproduce and white rice we produce or purchase from other producers. We are the largest exporter ofrice in China in terms of export volume. For the three years ended December 31, 2005 and the ninemonths ended September 30, 2006, our rice trading and processing division contributed 9.9%, 6.4%,8.1% and 8.7%, respectively, of our revenue and 10.6%, 36.1%, 29.1% and 14.3%, respectively, of ourtotal profit attributable to equity holders of the Company.

Our brewing materials division is engaged in activities related to the production and sale of maltconsumed in the brewing of beer. We are also engaged in the trading of malting barley, the raw materialfor malt production. For the three years ended December 31, 2005 and the nine months ended

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September 30, 2006, our brewing materials division contributed 4.6%, 5.0%, 5.3% and 5.1%,respectively, of our total revenue. While it made a loss in 2003 and 2004, our brewing materials divisioncontributed 12.6% and 8.6% of our total profit attributable to equity holders of the Company in 2005 andthe nine months ended September 30, 2006, respectively.

Our wheat processing division is engaged in activities related to the production and sale of wheatflour, noodles and other by-products. We plan to also include the production of bakery products in ourfuture operations in this division. We are one of the largest wheat processors in China in terms of annualoutput according to the statistics issued by the China National Association of Grain Sector and the StateGrain Administration. For the three years ended December 31, 2005 and the nine months endedSeptember 30, 2006, our wheat processing division contributed 8.2%, 9.6%, 10.2% and 8.9%,respectively, of our total revenue, and 4.4%, 10.6%, 6.0% and 7.4%, respectively, of our total profitattributable to equity holders of the Company.

Our historical financial statements also include the results of a consumer-pack edible oil businessthat involved the retail sale of consumer-pack edible oil which was sourced and packaged from bulkedible oils produced by us under the brands ‘‘ ’’ (fulinmen) and ‘‘Fortune’’, as well as a non-ricefoodstuffs trading business, which involved the trading of grain (other than rice), fruits, vegetables andseafood. For the three years ended December 31, 2005 and the nine months ended September 30,2006, our consumer-pack edible oil business and non-rice foodstuffs trading business collectivelycontributed 14.5%, 17.8%, 15.2% and 12.7%, respectively, of our total revenue and 7.5%, 27.4%,15.5% and 10.8%, respectively, of our total profit attributable to equity holders of the Company. Ourfinancial statements will no longer include the results of consumer-pack edible oil business and non-ricefoodstuffs trading business from January 1, 2007 after the completion of the Reorganization onDecember 31, 2006. See ‘‘Risk Factors — Risks relating to our business — Due to our Reorganization,the audited historical financial statements and other historical financial data included elsewhere in thisprospectus are not indicative of our future financial condition and results of operations.’’

THE REORGANIZATION AND THE SPIN-OFF

A1A 5Our Company was incorporated in Hong Kong on November 18, 2006 and was acquired by, andbecame a wholly owned subsidiary of, COFCO International on December 28, 2006. It was establishedfor the purpose of operating the agricultural products processing and trading businesses of COFCO onan integrated basis.

COFCO Group and COFCO International Group undertook the Reorganization in 2006, pursuant towhich the biofuel and biochemical business, oilseed processing business, rice processing business,brewing materials business and wheat processing business previously conducted by COFCO Groupand the oilseed processing business, rice trading business and wheat processing business previouslyconducted by COFCO International Group were transferred to our Company.

For further details on the Reorganization and the Spin-off, please refer to the section entitled ‘‘OurHistory and Reorganization’’ in this prospectus.

RECENT DEVELOPMENTS

Upon the completion of the Reorganization on December 31, 2006, our financial statements will nolonger include the results of the consumer-pack edible oil business and the non-rice foodstuffs tradingbusiness.

China Agri issued 2,691,383,356 new shares on December 31, 2006 to COFCO International asconsideration for the acquisition of certain shareholders loans and other businesses from COFCO(HK) and COFCO International. See ‘‘Our History and Reorganization’’ and ‘‘— Indebtedness’’.

On January 10, 2007, our Company and COFCO International entered into the Share SwapAgreement pursuant to which we acquired all the shares of China Agri then in issue from COFCOInternational and issued and alloted 2,791,383,346 shares to COFCO International credited as fully

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paid. After completion of the Share Swap Agreement on January 10, 2007, China Agri became a whollyowned subsidiary of our Company.

3rd Sch(3)BASIS OF PRESENTATION

We were incorporated as a limited liability company on November 18, 2006 and became a whollyowned subsidiary of COFCO International on December 28, 2006. Prior to the Reorganization, we didnot exist as a separate group and our business operations were conducted by COFCO Group andCOFCO International Group. Since COFCO controlled the business operations and the related assetstransferred to us upon the completion of the Reorganization, and continues to control us after ourincorporation and the completion of the Reorganization, our combined financial statements have beenprepared as a reorganization of entities under common control. Our financial statements for the threeyears ended December 31, 2005 and the nine months ended September 30, 2006, as set out inAppendix I to this prospectus, present our results of operations as if we had been in existencethroughout the period and as if the business operations and related assets were transferred to us fromCOFCO Group and COFCO International as at January 1, 2003.

We account for our acquisition of Heilongjiang Alcohol and its subsidiary Heilongjiang Winery,which together form a substantial part of our biofuel and biochemical business, under the purchasemethod of accounting, and our acquisition of Jilin Fuel, which became our associate, as part of ourbiofuel and biochemical business, under the purchase method of accounting. We include in ourcombined accounts the respective financial results of Heilongjiang Alcohol and Heilongjiang Wineryfrom January 27, 2006 and our share of results of Jilin Fuel from March 1, 2006. During the past threeyears ended December 31, 2005 and the nine months ended September 30, 2006, however, the majormanagement personnel of Heilongjiang Alcohol have remained the same since such personnel joinedCOFCO Group upon COFCO Group’s acquisition of Heilongjiang Alcohol Group from China Resources(Holdings) Company Limited.

The financial information of Heilongjiang Alcohol Group as at December 31, 2003, 2004 and 2005and as at September 30, 2006 and for the three years ended December 31, 2005 and the nine monthsended September 30, 2005 and 2006 as contained in Appendix IIB to this prospectus is presented inRenminbi. For your convenience, Renminbi has been translated into HK dollars in the analysis ofhistorical results of Heilongjiang Alcohol Group.

FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Our financial results and the period-to-period comparability of our financial results are affected by anumber of factors, including but not limited to those discussed below:

Supply of Agricultural Raw Materials

We procure and process agricultural commodities, principally soybeans and other oilseeds, wheat,corn, paddy and barley, which we collectively refer to as ‘‘agricultural raw materials’’. We principallypurchase agricultural raw materials on the spot market from large distributors of agriculturalcommodities, China’s national or local grain depots or warehouses or directly from farmers. We usuallyplace purchase orders one month in advance of our anticipated actual needs, which in turn are basedon rolling forecasts. We procure malting barley, the raw material for our brewing materials operations,mostly from outside the PRC, mainly from Australia, Canada and Europe. We imported a substantialpart of the raw materials for our oilseed processing operations, approximately 76.8% and 77.2% interms of purchase value, from the North America, Brazil, Argentina, Malaysia and other countries for theyear ended December 31, 2005 and the nine months ended September 30, 2006, respectively. We alsosource a portion of the raw materials for our wheat processing operations, principally high-quality wheat,from third parties which import it from Canada, Australia and the United States. We also import whiterice from Thailand and Pakistan to sell to domestic purchasers, which amounted to approximately38,500 metric tons and approximately 26,600 metric tons, respectively, for the year ended

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December 31, 2005 and the nine months ended September 30, 2006. We source corn, paddy andwheat for our biofuel and biochemical, rice trading and processing and wheat processing operations,respectively, principally from the PRC.

The supply of these agricultural raw materials is subject to a number of factors, such as the level ofsupply and demand in the market and the quality of raw materials, which may in turn be affected bygeographic, political and economic developments and weather conditions in the countries and regionswhere they are produced.

In past years, our supply of agricultural raw materials has been relatively stable. For our biofuel andbiochemical, rice trading and processing and wheat processing operations, we strategically locate ourprocessing facilities in the vicinity of major corn, paddy and wheat cultivating areas to help us secure astable supply of these raw materials. For our oilseed processing and brewing materials operations,some of our processing facilities are strategically located close to river ports or sea ports to help ussecure convenient and cost-efficient access to imported raw materials, mainly soybeans and maltingbarley. We have also developed and maintain long-term strategic cooperation relationships withoverseas agricultural commodities suppliers such as Archer Daniels Midland and Cargill Inc. Theirextensive sourcing network and expertise in the areas of international trading, logistics and services ofagricultural commodities help us enhance our ability to secure a stable and cost-saving supply of rawmaterials.

Our planned expansion of processing capacity will likely result in a larger demand for a more stablesupply of agricultural raw materials. In addition, due to the increasing demand for corn for industrialuses and the high cost of logistics and transportation as a result of congestion in the PRC railwaysystem, in the future we may have to import corn and tapioca (which we also plan to use in our biofueland biochemical business) from outside the PRC for our biofuel and biochemical business. Our ability torespond to such challenges and to continue to obtain quality raw materials at favorable prices will have adirect effect on the utilization rate of our processing facilities, our profitability and our overall operationalperformance.

Fluctuations in Agricultural Raw Material Prices

Movements in market prices of the agricultural raw materials we use in the production of our productsimpact our cost of sales, the prices we can charge our customers and our gross profits. For the three yearsended December 31, 2005 and the nine months ended September 30, 2006, raw material costs of our Agri-industrial Business, excluding the consumer-pack edible oil and non-rice foodstuffs trading businesses,represented approximately 95.4%, 95.4%, 94.7% and 93.2%, respectively, of our total cost of sales of suchAgri-industrial Business in the same periods. Our purchase costs of agricultural raw materials mainly consistof the prices we pay for those raw materials, customs duties (if applicable) and the transportation expenses(including seaborne freight rates for imported raw materials such as soybeans and malting barley) we pay toconvey the raw materials to our processing facilities. In the case of soybeans, prices of soybeans beforefreight expenses are fixed in purchase contracts by adding a basis (the difference between the cash price onthe spot market and the price under a future contract) to the futures prices of soybeans at the ChicagoBoard of Trade.

Prices for agricultural raw materials are affected by the perceived and actual availability of, and marketdemand for, agricultural raw materials, at the worldwide level for imported raw materials such as soybeansand malting barley and at the Chinese national level for raw materials such as corn, wheat and paddy, whichwe primarily source from the PRC. The availability of agricultural raw materials is affected by:

( weather conditions in areas where the agricultural raw materials are sourced (in the case ofsoybeans, principally North America, Brazil and Argentina, in the case of malting barley,principally Australia, Canada and Europe and in the case of corn, paddy and wheat, principallythe PRC);

( currency fluctuations;

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( governmental policies;( growing patterns; and( substitution by farmers of production of other agricultural raw materials.

Demand for agricultural raw materials is affected by growth in worldwide consumption and the priceof substitute products. Prices of corn, wheat and paddy sourced from the PRC in a particular areawhere our processing facilities are located may also be influenced by the number and size of the totalprocessing facilities operating in such areas. In addition, the prices of corn, wheat and paddy we sourcewithin the PRC are subject to certain price controls imposed by the PRC authorities. Our purchaseprices for such crops cannot be lower than the minimum prices set by the relevant PRC authorities fromtime to time. See ‘‘Regulatory Overview’’ for more details. The table below sets forth the averagepurchase prices for the key agricultural raw materials that we paid for the periods indicated.

Average Purchase Prices per metric ton for Major Raw Materials

Nine months ended2003 2004 2005 September 30, 2006

Soybeans(1) ******* US$275.3 (HK$2,147.3) US$330.2 (HK$2,575.6) US$291.9 (HK$2,276.8) US$262.7 (HK$2,049.1)Malting barley(1) *** US$192.3 (HK$1,499.9) US$183.5 (HK$1,431.3) US$192.4 (HK$1,500.7) US$176.4 (HK$1,375.9)Corn(2) *********** RMB897.0 (HK$846.2) RMB1,098.0 (HK$1,035.8) RMB956.0 (HK$907.9) RMB955.0 (HK$922.7)Wheat(2) ********** RMB1,084.0 (HK$1,022.7) RMB1,452.8 (HK$1,370.6) RMB1,420.6 (HK$1,349.1) RMB1,365.9 (HK$1,323.5)Paddy(2) ********** RMB1,545.5 (HK$1,458.0) RMB1,507.9 (HK$1,422.5) RMB1,334.4 (HK$1,267.2) RMB1,480.8 (HK$1,430.7)

Notes:

(1) CIF price; for easy reference, the prices denominated in US Dollars were converted to HK dollars at the rate of US$1 perHK$7.80

(2) Excluding value added tax

In past years, we have reduced our raw material costs by strategically locating processing facilitiesin the vicinity of production areas of agricultural raw materials or places having convenienttransportation links to such facilities and by entering into strategic cooperation arrangements with large-scale overseas suppliers. When our processing plants are close to the original cultivating areas of therelevant agricultural raw materials, we purchase raw materials directly from farmers and thus reduceexpenses associated with crop storage and transportation. We plan to continue to implement such cost-control strategies in the future.

Supply, Demand and Pricing of Our Products

The profitability of our operations is principally affected by the price of our products, the volatility ofthe prices for these products and the margin between the prices of agricultural raw materials and theprices of our products.

Changes in the prices of our products are basically the result of changes in supply and demand inthe markets in which we operate. Changes in the PRC domestic demand result primarily frompopulation growth and changes to dietary habits and production of similar and competitive agriculturalproducts in the PRC. In addition, the high capital costs and time required to construct agriculturalproduct processing facilities may also contribute to imbalances between levels of production capacityand supply of, and demand for, our products. The relationship between the prices of agriculturalcommodities as raw materials and the selling prices of our products may be affected by theseimbalances.

In our biofuel and biochemical division, the selling prices of our major product, fuel ethanol,currently bear no direct relationship to the raw material cost of corn, mainly because the PRC biofuelindustry remains highly regulated by the PRC Government. Currently, there are only four authorised fuelethanol production projects in China (including the one conducted by us). The price of fuel ethanol iscurrently set by the PRC Government at 91.11% of the guidance wholesale price for No. 90 gasolinepublished by the National Development and Reform Commission from time to time. Without financial

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subsidies, this price cap would not yield a meaningful profit margin for the operating entities that run thefour authorised fuel ethanol production projects.

To compensate for the resulting losses borne by fuel ethanol manufacturers and to support the useof alternative and renewable non-petroleum based fuels, the PRC Government currently grants to fuelethanol manufacturers, including us, certain tax treatments (including exemption of consumption taxand refund of value added tax) and government subsidies in respect of their fuel ethanol operations.See ‘‘Industry Overview — The PRC Fuel Ethanol Industry — Pricing and Subsidy’’. The tax exemptionsand government subsidies we receive may not fully cover our losses attributable to the fuel ethanol pricecontrols described above, and in such case our gross profit and profit margin in the biofuel andbiochemical division and our overall financial performance may be adversely affected. We believe,however, that in the long run the prices of petroleum products will eventually be subject to reducedregulation or eventually deregulated so that market supply and demand will principally determine theprices of petroleum products and consequently the prices of fuel ethanol. As a result, the profitability ofour biofuel and biochemical division would improve. There can be no assurance, however, that thisbelief is correct.

In our oilseed processing, rice trading and processing, brewing materials and wheat processingoperations, we are exposed to market risk from changes in prices of agricultural raw materials.However, since the price movements of agricultural raw materials usually have an industry-wide effect,and our customers are mostly industrial and commercial entities, as a leading supplier in our industrywe generally are able to eventually pass along to our customers changes in prices of agricultural rawmaterials to a certain extent by raising the selling price of our finished products. Variations in the pricesof agricultural raw materials and the selling prices of our products also affect our decisions regardingwhether and when to purchase, store, process, or sell these raw materials, thereby affecting our cost ofsales and cash flows.

Because the prices of agricultural raw materials tend to be volatile, our profitability is significallyaffected by our cost of sales. As a result, gross profit and gross profit margin are the key measures ourmanagement uses to evaluate the success of our operations. Gross profit margin reflects the net marginwe earn on the difference between the purchase price of agricultural raw materials and the selling priceof our products, less the costs of storing, processing and transporting those agricultural raw materials.

Government Subsidies in Support of Fuel Ethanol Production

The success of our biofuel and biochemical division and consequently our overall performancedepends to a large extent on the existence and the level of PRC Government subsidies supporting fuelethanol production. We currently receive a financial subsidy for our fuel ethanol operations from thePRC Government. Such government subsidy is granted at a fixed amount per metric ton of fuel ethanolsold. The Ministry of Finance adjusts and publishes periodically the revised amount of subsidy permetric ton based on the selling price and the cost of sales of fuel ethanol. The selling price of fuelethanol is set at 91.11% of the guidance wholesale price for No. 90 gasoline published by the NationalDevelopment and Reform Commission periodically. For 2004 and 2005, Heilongjiang Alcohol Groupreceived a subsidy of RMB1,883 and RMB1,628 per metric ton of fuel ethanol sold, respectively. Wereceived a subsidy of RMB1,373 per metric ton of fuel ethanol sold in 2006 and expect to continue toreceive such subsidy through December 31, 2008. For the three years ended December 31, 2005 andthe nine months ended September 30, 2006, the total government subsidy Heilongjiang Alcohol Grouprecognized in relation to its fuel ethanol production amounted to RMB4.8 million (HK$4.5 million),RMB74.8 million (HK$70.6 million), RMB222.9 million (HK$211.7 million) and RMB149.8 million(HK$145.2 million), respectively. During the same periods, Heilongjiang Alcohol Group’s profit beforetax was RMB76.2 million (HK$71.9 million), RMB48.4 million (HK$45.7 million), RMB208.4 million(HK$197.9 million) and RMB197.0 million (HK$190.9 million), respectively. For the nine months endedSeptember 30, 2006, the government subsidy Heilongjiang Alcohol Group recognized in relation to itssales of fuel ethanol represented approximately 18.4% of our combined profit before tax.

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In addition, fuel ethanol producers like us also enjoy a waiver of the 5% consumption tax and therefund of all value added tax. For the three years ended December 31, 2005 and the nine months endedSeptember 30, 2006, the total refund of value added tax of Heilongjiang Alcohol Group in relation to itsfuel ethanol production amounted to RMB0.7 million (HK$0.7 million), RMB3.2 million (HK$3.0 million),RMB13.0 million (HK$12.3 million) and RMB21.0 million (HK$20.3 million), respectively.

There can be no guarantee that we will continue to receive the subsidies and tax treatmentsdescribed above.

Seasonality

Except in our brewing materials division, our sales volumes and distribution activities do notexperience material seasonal fluctuations, since consumer purchases of ethanol, edible oil, rice andflour products and our other products are by nature not seasonal. However, some of our distributorsprefer to maintain a lower level of stock in the late spring and summer, due to relatively higher storagecosts in these seasons, and they only start to build up inventories from August or September. Thispractice results in our experiencing relatively higher sales and revenue in the period from August toFebruary in our oilseed processing and wheat processing divisions.

Our purchases of agricultural raw materials are seasonal in nature. We source most of our corn,paddy and wheat from the PRC, where the harvest seasons for these crops run from the third quarter ofeach year to the first quarter of the following year. As a result, our operating results and cash flows mayvary substantially between fiscal quarters in each of our biofuel and biochemical, rice trading andprocessing and wheat processing divisions. In contrast, the sources of our soybeans and malting barleyraw materials, which are imported from the northern and southern hemispheres, are geographicallybalanced and assure us a more consistent supply of agricultural commodities throughout the year forour oilseed processing and brewing materials divisions. In addition, price and margin variations andincreased availability of agricultural raw materials during harvest seasons often cause fluctuations in ourinventories and short-term borrowings.

There is a degree of seasonality in sales volumes under our brewing materials division. Our maltoperations experience higher sales volumes in the second and third quarters due to increased beerproduction and consumption during this period of the year.

Expansion of Capacity

A key part of our business strategy is to increase our production capacity by expanding our existingproduction facilities, building new production facilities and acquiring other companies within theindustries in which we operate. Among other things:

( We are in the process of increasing our consumable ethanol production capacity atHeilongjiang Alcohol Group, part of our biofuel and biochemical operations, from 250,000metric tons per year to 400,000 metric tons per year with the addition of a new production line.We are also planning to construct two new facilities in Guangxi Zhuang Autonomous Regionand Hebei Province with an aggregate designed fuel ethanol production capacity of 500,000metric tons.

( We are currently constructing two corn processing facilities in Jilin Province for our biofuel andbiochemical business. We expect both facilities to commence production in mid-2007 with anaggregate corn processing capacity of 1.2 million metric tons per year. Major products willinclude starch, lactic acid, polylactic acid, fructose syrup, malt syrup, maltodextrin, crude cornoil and feed.

( We are currently constructing a processing facility for our brewing materials business inJiangyin in Jiangsu Province that will have one production line and a designed productioncapacity, when phase one is completed in early 2007, of 120,000 metric tons per year.

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( We are adding a new bakery products facility in Beijing for our wheat processing business. Weare also in the process of acquiring a new wheat processing facility in Luohe, Henan Province,which we expect to start operation in 2007 with a designed annual wheat processing capacityof 150,000 metric tons.

There is no assurance that we will complete our production capacity expansion according to itsplanned schedules and budgets. For more information on our expansion plans, see ‘‘Business’’.

We believe that these expansion plans we are taking across our business lines will enable us tomeet the growth in demand we anticipate for our products and will help us to capture an increased shareof the markets within which we operate. We are particularly optimistic about our biofuel and biochemicaloperations, where our capacity expansion is most pronounced. With the enhancement of our productioncapacity, we expect to become China’s largest fuel ethanol producer. In the nine months endedSeptember 30, 2006, our biofuel and biochemical operations contributed 6.7% of our total turnover and30.2% of our total profit attributable to equity holders of the Company. We believe that demand for fuelethanol will increase significantly due to its key energy and environmental benefits.

The investment in new production facilities requires significant capital expenditures, however, andwhether our expansion strategy is successful depends largely on whether our sales volumes across ourbusiness lines grow along with the growth in our capacity. To the extent that the anticipated growth indemand for our products fails to materialize, or to grow as fast as we expect, due to increasedcompetition, changes in consumer tastes or other factors, the utilization rate of our production facilitiesand sales volume will decline. In particular, the growth potential of the biofuel industry depends on anumber of factors, such as the price of, and demand for, petroleum based fuels, the emergence of otheralternative fuels or sources of renewable energy, improvements to processing technologies and PRCGovernment policies (including subsidies and other benefits). If the capacity expansion of any of ourbusiness divisions exceeds the growth in demand for the products produced by that division, we may notbe able to recover the investment costs of that capacity expansion and our business and financialcondition will suffer. See ‘‘Risk Factors — Risks relating to the industries we operate in — Our fuelethanol business is strictly regulated by the PRC Government’’.

Competition

Competition in the oilseed processing and wheat processing industries has intensified in the pastseveral years. We face competition from numerous PRC and international oilseed and wheatprocessors, some of which have larger production capacities or broader sales and distribution networksthan us. For example, most of the international leading oilseed processors, including Wilmar, ArcherDaniels Midland, Cargill Inc. and Bunge, have set up production facilities in the PRC. If we fail to remaincompetitive in various key aspects such as cost control, logistics and market allocation, and as a result,lose our existing customers or fail to secure new customers, our operating results will be adverselyaffected.

We have so far experienced limited competition in our fuel ethanol operations as the production andsale of fuel ethanol remain highly regulated in the PRC. However, more market players may join due togovernment policies encouraging the development of the alternative fuels industry. Therefore, themarket may become more competitive in the future, especially if, as we expect, the PRC Governmenteventually deregulates the fuel ethanol industry and the prices of petroleum products.

We are China’s sole parboiled rice producer and we have no competitor in this market in the PRC.However, we face severe competition in international parboiled rice markets from producers in Thailandand India. Revenue derived from the export of parboiled rice represented 13.6% and 14.9% of therevenue under our rice trading and processing division for the year ended December 31, 2005 and ninemonths ended September 30, 2006, respectively. If our current market share declines, our revenueunder the rice trading and processing division may decline and our overall operating results may beadversely affected.

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For our brewing materials operations, we own the largest single malt production facility in China,and the quality of our malt products is well recognized by the premium beer brands in China, includingTsingtao, Yanjing, Budweiser, San Miguel, Blue Ribbon and Asahi. We have been able to charge apremium for our products due to the increased market recognition.

Foreign Exchange Rates

We procure the raw material for our brewing materials operations, malting barley, principally fromoutside the PRC, mainly from Australia, Canada and Europe. We import a substantial part of the rawmaterials for our oilseed processing operations from the United States, Brazil, Argentina and Malaysia.A majority of our rice products are exported out of the PRC. We usually buy the foreign currency fromthe PRC commercial banks for the payment due under our raw material purchase agreements andconvert the foreign currency into Renminbi after we receive the payment for sales of our products. TheUS dollar is a principal functional currency for our oilseed processing, rice trading and processing andbrewing materials operations. Fluctuations in exchange rates between the US dollar and the Renminbiwill result in corresponding fluctuations in the relative Renminbi value of our revenues and expenses.

Please refer to ‘‘Risk Factors’’ and ‘‘— Market Risks’’ for a more detailed discussion of the variousfactors which may affect our results of operations.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with HKFRS requires us to adopt accountingpolicies and make estimates and assumptions that affect amounts reported in our financial statements.In applying these accounting policies, our management must make subjective and complex judgmentsthat frequently require estimates about matters that are inherently uncertain. Many of these policies,estimates and related judgments are common in our industry, while others are specific to our businessand operations. The following sections discuss the accounting policies applied in preparing our financialstatements that we believe are most dependent on the application of these judgments and estimates.

Inventories

Inventories are stated at the lower of cost and net realizable value. Net realizable value is based onthe estimated selling price in the ordinary course of business, less any estimated costs of completionand selling expenses.

The cost of inventories is determined on a weighted average basis. In the case of work in progressand finished goods, cost includes direct materials, direct labor and an appropriate share of overheads.

Management periodically reviews our inventories for slow moving inventory, obsolescence ordeclines in market value. This review requires management to estimate the net realizable value basedupon assumptions about future demand and market conditions. If our estimate of net realizable value isbelow the cost of inventory, we record a provision against the inventories for the difference between costand net realizable value, which will result in a corresponding increase in our cost of sales. If actualmarket conditions are less favorable than those projected by management, additional inventoryprovision may be required.

For the three years ended December 31, 2005 and the nine months ended September 30, 2006,we did not make significant provisions for inventories.

Goodwill

Goodwill on acquisition is initially measured at cost, being the excess of the cost of the businesscombination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities andcontingent liabilities. Following initial recognition, such goodwill is measured at cost less anyaccumulated impairment loss. Goodwill is reviewed for impairment, annually or more frequently if eventsor changes in circumstances indicate that the carrying value may be impaired.

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As at the acquisition date, any goodwill acquired is allocated to each of the cash-generating unitsexpected to benefit from the combination’s synergies. Impairment is determined by assessing therecoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverableamount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.If the estimate of goodwill impairment was incorrect, our net income would either be overstated orunderstated. Where goodwill forms part of a cash-generating unit and part of the operation within thatunit is disposed of, the goodwill associated with the operation disposed of is included in the carryingamount of the operation when determining the gain or loss on disposal of the operation. Goodwilldisposed of in this circumstance is measured on the basis of the relative values of the operationdisposed of and the portion of the cash-generating unit retained.

If the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingentliabilities exceeds the cost of the business combination, the excess is recognized immediately in ourincome statement.

Depreciation

Depreciation of our property, plant and equipment, other than construction in progress, iscalculated using the straight-line method to allocate cost to their residual values over their estimateduseful lives, as follows:

Buildings****************************************************************** 3% to 9.5%Plant, machinery and equipment********************************************* 4.5% to 20%

We review the useful life of our plant, equipment and other fixed assets annually and when thereare changes in circumstances that indicate our current expectations differ from previous estimates. Theresidual values of our assets are reviewed and, if considered appropriate, adjusted at each balancesheet date.

A1A 21Impairment of Tangible and Intangible Assets Excluding Goodwill

At each balance sheet date, we review the carrying amounts of our tangible and intangible assetsto determine whether there is any indication that those assets have suffered an impairment loss. If anysuch indication exists, the recoverable amount of the asset is estimated in order to determine the extentof the impairment loss (if any). Where the asset does not generate cash flows that are independent fromother assets, we estimate the recoverable amount of the cash-generating unit to which the assetbelongs. An intangible asset with an indefinite useful life is tested for impairment annually and wheneverthere is an indication that the asset may be impaired.

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessingvalue in use, the estimated future cash flows are discounted to their present value using a pre-taxdiscount rate that reflects the current market assessments of the time value of money and the risksspecific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than itscarrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverableamount. An impairment loss is recognized as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, so that the increasedcarrying amount does not exceed the carrying amount that would have been determined had noimpairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of animpairment loss is recognized as income immediately.

We have not recognized impairment loss on goodwill during the three years ended December 31,2005 and the nine months ended September 30, 2006.

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Allowance for doubtful debts

We extend credit to customers and other parties in the normal course of business and maintain anallowance for doubtful debts for estimated losses resulting from the inability or unwillingness ofcustomers to make required payments. We base such estimates on our historical experience, existingeconomic conditions and any specific customer collection issues we have identified. Uncollectibleaccounts receivable are written off when we determine that the balance will not be collected. While suchlosses have historically been within our expectations and the provision established, we may not continueto experience the same credit loss rates we have in the past. Circumstances in some of the industries inwhich our customers operate may affect their operating performance and cash flows, which in turn mayaffect our ability to collect its accounts receivable. As circumstances develop, the financial condition ofspecific customers changes or additional information becomes available, adjustments to the allowancefor doubtful debts may be required.

Impairment of financial assets

We assess at each balance sheet date whether there is any objective evidence that a financialasset or a group of financial assets is impaired.

Assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables carried at amortisedcost has been incurred, the amount of the loss is measured as the difference between the asset’scarrying amount and the present value of estimated future cash flows (excluding future credit losses thathave not been incurred) discounted at the financial asset’s original effective interest rate (i.e., theeffective interest rate computed at initial recognition). The carrying amount of the asset is reduced eitherdirectly or through the use of an allowance account. The amount of the impairment loss is recognised inthe income statement.

We first assess whether objective evidence of impairment exists individually for financial assets thatare individually significant, and individually or collectively for financial assets that are not individuallysignificant. If we determine that no objective evidence of impairment exists for an individually assessedfinancial asset, whether significant or not, the asset is included in a group of financial assets with similarcredit risk characteristics and that group is collectively assessed for impairment. Assets that areindividually assessed for impairment and for which an impairment loss is or continues to be recognisedare not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can berelated objectively to an event occurring after the impairment was recognised, the previously recognisedimpairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the incomestatement, to the extent that the carrying value of the asset does not exceed its amortised cost at thereversal date.

Available-for-sale financial assets

If an asset designated as available-for-sale is impaired, an amount comprising the differencebetween its cost (net of any principal payment and amortisation) and its current fair value, less anyimpairment loss previously recognised in the income statement, is transferred from equity to the incomestatement. Impairment losses on equity instruments classified as available-for-sale are not reversed inthe income statement.

Impairment losses on debt instruments are reversed through profit or loss, if the increase in fairvalue of the instrument can be objectively related to an event occurring after the impairment loss wasrecognised in the income statement.

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Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similarfinancial assets) is derecognized where:

( the rights to receive cash flows from the asset have expired;( we retain the rights to receive cash flows from the asset, but have assumed an obligation to

pay in full without material delay to a third party under a ‘‘pass-through’’ arrangement; or( we have transferred our rights to receive cash flows from the asset and either (a) have

transferred substantially all the risks and rewards of the asset, or (b) have neither transferrednor retained substantially all the risks and rewards of the asset, but has transferred control ofthe asset.

Where we have transferred our rights to receive cash flows from an asset and has neithertransferred nor retained substantially all the risks and rewards of the asset nor transferred control of theasset, the asset is recognised to the extent of our continuing involvement in the asset. Continuinginvolvement that takes the form of a guarantee over the transferred asset is measured at the lower of theoriginal carrying amount of the asset and the maximum amount of consideration that we could berequired to repay.

Where continuing involvement takes the form of a written and/or purchased option (including acash-settled option or similar provision) on the transferred asset, the extent of our continuinginvolvement is the amount of the transferred asset that we may repurchase, except in the case of awritten put option (including a cash-settled option or similar provision) on an asset measured at fairvalue, where the extent of our continuing involvement is limited to the lower of the fair value of thetransferred asset and the option exercise price.

Derivative financial instruments

We use derivative financial instruments such as commodity future contracts to hedge our risksassociated with price fluctuations in future purchases or sales of the related commodities. Suchderivative financial instruments are initially recognised at fair value on the date on which a derivativecontract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assetswhen the fair value is positive and as liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedgeaccounting are taken directly to net profit or loss for the year.

The fair value of commodity future contracts is calculated by reference to current commodity pricesfor contracts with similar maturity profiles.

Derecognition of financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or canceledor expires.

When an existing financial liability is replaced by another from the same lender on substantiallydifferent terms, or the terms of an existing liability are substantially modified, such an exchange ormodification is treated as a derecognition of the original liability and a recognition of a new liability, andthe difference between the respective carrying amounts is recognized in the income statement.

DESCRIPTION OF CERTAIN INCOME STATEMENT ITEMS

Revenue

Revenue represents sales value of goods sold, after allowances for returns and trade discounts andexcluding value added tax and other sales taxes. Intra-group transactions have been eliminated oncombination.

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We recognize revenue from sales of goods when (i) the risks and benefits associated with thegoods have been passed to customer, and we do not maintain managerial involvement or effectivecontrol over the goods, and (ii) the collectibility of the related receivables is reasonably assured.

For more details, please refer to Appendix I — ‘‘Accountants’ Report of Our Company —3. Significant Accounting Policies — Revenue recognition’’.

Cost of sales

Cost of sales mainly comprises cost of raw materials, direct labor cost, depreciation of plant,property, and equipment used in production and amortization of prepaid land premiums, energy cost,maintenance cost and other manufacturing cost, transportation cost directly relating to procurement ofagricultural raw materials and production and import tariffs. Fair value of gains and losses fromcommodity future contracts are also recorded in our cost of sales at the relevant balance sheet dates.

Other income and gains

Other income and gains mainly comprise income from gain on sales of by-products and scrapitems, agency services, government subsidies, interest income from bank deposits and rental of oildrums and soybean barrels. Other income and gains also include government grants and tax refunds inrelation to sales of fuel ethanol after our acquisition of Heilongjiang Alcohol Group.

Selling and distribution costs

Selling and distribution costs mainly comprise promotion and advertising expenses, transportationexpenses for conveying finished products to customers, insurance expenses, commissions and salariesof sales personnel.

Administrative expenses

Administrative expenses mainly comprise salaries and staff-related benefits for administrative staff,amortization of administration-related prepaid land premium, administration-related property, plant andequipment depreciation expenses, and other administration-related expenses.

Other expenses

Other expenses consist primarily of loss on disposal of property, plant and equipment, impairmentof or write-back of impairment of receivables, and foreign exchange loss.

Finance costs

Finance costs mainly consist of interest on interest-bearing bank loans and other borrowings.

Taxation

Taxation represents the corporate income tax at the statutory rates prevailing in the jurisdictions inwhich we operate on our pre-tax profit as adjusted for non-deductible expenses, income or profit notsubject to taxation, tax losses utilized from previous periods and tax losses not recognized.

In accordance with the PRC tax law, we are generally subject to a 33% corporate income tax rate.Some of our subsidiaries are entitled to preferential tax treatment or subsidies based on their industriesor location.

For example, 23 of our subsidiaries incorporated in the PRC with foreign investment which havecommenced operations are required to pay enterprise income tax according to the PRC Income TaxLaw for Enterprises with Foreign Investment and Foreign Enterprises (the ‘‘FIE Income Tax Law’’),which sets a state tax rate on enterprise income at 30%, plus a local income tax at a rate of 3%.However, seven of these subsidiaries, including Dalian COFCO Malt Co., Ltd. ( ),

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Zhengzhou Haijia Food Co., Ltd. ( ), Shenyang Dongda Grains Oils & FoodstuffsIndustries Co., Ltd. ( ), Shenyang Xiangxue Flour Limited LiabilityCompany ( ), COFCO Industry (Qinhuangdao) Pangthai Co., Ltd.( ), Yellowsea Oils & Grains Industries (Shandong) Co., Ltd.( ) and Eastbay Oils & Fats Industries (Guangzhou) Co., Ltd.( ), which are manufacturing enterprises with foreign investmentestablished in coastal economic open zones or in the old urban district of cities where special economiczones or economic and technological development zones are located, are allowed to pay income tax ata reduced rate of 24%, and Xiamen Haijia Flour Mills Co., Ltd. ( ) and East OceanOils & Grains Industries (Zhangjiagang) Co., Ltd. ( ) are manufacturingenterprises with foreign investment established in special economic zones or free trade zones and areallowed to pay income tax at a reduced rate of 15%, according to the FIE Income Tax Law and relevantapprovals of the local taxation authorities.

Furthermore, pursuant to the FIE Income Tax Law, all our PRC enterprises with foreign investment(except COFCO International (Beijing) Co., Ltd. ( ) and Shanghai COFCOBrewing Materials Co., Ltd. ( ) are, from the year that they begin to makeprofit, entitled to exemption from income tax in the first and second years and a 50% reduction from thethird to fifth years. In addition, seven of our PRC subsidiaries with foreign investment have obtainedapproval from local taxation authorities to be exempted from local income tax for periods fromthree years to ten years.

According to the Pilot Plan for Expanding the Use of Vehicle Fuel Ethanol( ) promulgated by the National Development and Reform Commission andother ministries, Heilongjiang Alcohol enjoys a full refund of the value added tax arising from the sale ofvehicle fuel ethanol; and according to Notice of Ministry of Finance on Subsidy Policy for the Loss ofFuel Ethanol Producers ( ) dated December 7, 2005, HeilongjiangAlcohol also receives a subsidy of RMB1,373 per metric ton for fuel ethanol it sells during the years from2006 to 2008.

While the above tax rates are applied to each legal entity of the Group accordingly, the effective taxrate is calculated on a consolidated basis, representing income tax expenses as percentage of profitbefore income tax expense.

No provision for Hong Kong profits tax has been made as we had no assessable profit in HongKong for the three years ended December 31, 2005 and the nine months ended September 30, 2006.

Minority interests

Minority interests consist of the interests of minority shareholders in the operating results and netassets of our non-wholly owned subsidiaries.

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REVIEW OF HISTORICAL RESULTS OF OPERATIONS

Combined Results of the Group

The table below sets forth the major components of our profit and loss as a percentage of revenuefor the periods indicated.

Nine monthsYear ended December 31 ended September 30

2003 2004 2005 2005 2006(unaudited)

% of revenue

REVENUE ******************************** 100.0 100.0 100.0 100.0 100.0Biofuel and biochemical ****************** — — — — 6.7Oilseed processing ********************** 71.8 71.5 71.6 71.3 66.5Rice trading and processing ************** 9.9 6.4 8.1 7.7 8.7Brewing materials *********************** 4.6 5.0 5.3 5.8 5.1Wheat processing *********************** 8.2 9.6 10.2 10.3 8.9Consumer-pack edible oil***************** 10.3 11.4 11.7 11.7 9.7Non-rice foodstuffs trading**************** 4.2 6.4 3.5 3.7 3.0Inter-division elimination ****************** (9.0) (10.3) (10.4) (10.5) (8.6)

Cost of sales****************************** (94.1) (95.4) (93.9) (93.9) (92.0)

Gross profit ******************************* 5.9 4.6 6.1 6.1 8.0Other income and gains ******************** 0.8 0.5 1.1 1.1 2.6Selling and distribution costs**************** (2.5) (2.2) (3.3) (3.2) (3.4)Administrative expenses ******************** (1.3) (1.1) (1.3) (1.3) (1.8)Other expenses *************************** — — — — —Finance costs ***************************** (0.6) (0.6) (0.9) (0.8) (1.2)Share of profits and losses of associates***** 0.8 0.1 0.5 0.4 1.0

PROFIT BEFORE TAX ********************* 3.1 1.3 2.2 2.3 5.2Taxation ********************************** (0.4) (0.3) (0.4) (0.5) (0.8)

PROFIT FOR THE YEAR/PERIOD ********** 2.7 1.0 1.8 1.8 4.4

ATTRIBUTABLE TO:Equity holders of the Company************ 2.0 0.8 1.6 1.9 3.7Minority interests ************************ 0.7 0.2 0.2 (0.1) 0.7

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Nine months ended September 30, 2006 compared to nine months ended September 30, 2005

Revenue

The table below sets out our total revenue and the revenue and percentage of our total revenueattributable to each of our business divisions for the nine months ended September 30, 2005 and 2006,as well as the growth rate of our revenue attributable to each of our business divisions and productgroups from the nine months ended September 30, 2005 to the nine months ended September 30,2006.

Nine months ended September 302005 2006HK$ HK$

Revenue millions millions Change %(unaudited)

Biofuel and biochemical(1)********************************* — 922.2 —fuel ethanol ********************************************* — 362.0 —consumable ethanol ************************************* — 308.8 —anhydrous ethanol *************************************** — 73.6 —DDGS************************************************** — 123.0 —crude corn oil ******************************************* — 47.3 —others ************************************************** — 7.5 —

Oilseed processing *************************************** 8,615.9 9,203.2 6.8%bulk edible oils ****************************************** 3,693.2 4,661.3 26.2%oilseed meals ******************************************* 4,177.6 3,761.1 (10.0%)feed**************************************************** 259.5 300.5 15.8%others ************************************************** 485.6 480.3 (1.1%)

Rice trading and processing ****************************** 925.8 1,203.8 30.0%parboiled rice ******************************************* 88.3 179.4 103.2%white rice *********************************************** 837.5 1,024.4 22.3%

Brewing materials **************************************** 696.6 707.8 1.6%malt**************************************************** 496.9 585.1 17.8%malting barley ******************************************* 182.9 95.6 (47.7%)others ************************************************** 16.8 27.1 61.3%

Wheat processing **************************************** 1,244.0 1,233.2 (0.9%)flour**************************************************** 927.6 942.4 1.6%wheat bran ********************************************* 202.8 187.5 (7.5%)noodles ************************************************ 54.8 56.4 2.9%instant noodles ****************************************** 58.8 46.9 (20.2%)

Consumer-pack edible oil(2) ******************************* 1,408.0 1,347.2 (4.3%)Non-rice foodstuffs trading(2) ****************************** 458.7 415.5 (9.4%)Inter-segment elimination ********************************* (1,268.3) (1,195.7) —TOTAL *************************************************** 12,080.7 13,837.2 14.5%

Notes:

(1) We started our biofuel and biochemical business in January 2006.

(2) Upon the completion of the Reorganization on December 31, 2006, our financial statements will no longer include the resultsof the consumer-pack edible oil and non-rice foodstuffs trading businesses.

Total revenue increased by HK$1,756.5 million, or 14.5%, from HK$12,080.7 million in the ninemonths ended September 30, 2005 to HK$13,837.2 million in the nine months ended September 30,

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2006, primarily due to the incorporation of revenue derived from our newly acquired biofuel andbiochemical division from January 27, 2006 and an increase in revenue from our oilseed processing andrice trading and processing businesses, partly offset by a decrease in revenue from our non-ricefoodstuffs trading and consumer-pack edible oil operations.

Revenue from our biofuel and biochemical division, mainly comprising Heilongjiang Alcohol Groupover which COFCO Group acquired management control in January 2006, was HK$922.2 million in thenine months ended September 30, 2006. In January 2006, COFCO Group acquired Techbo Limited,which held a 87.55% equity interest in Heilongjiang Alcohol. COFCO Group also acquired the remaining12.45% equity interests in Heilongjiang Alcohol and transferred such equity interests to Techbo Limited.As a result, Techbo Limited became an intermediate holding company, which owned 100% equityinterests in Heilongjiang Alcohol upon the completion of the acquisition in 2006. For the historicalfinancial information of Techbo Group, see Appendix IIA ‘‘Accountants’ Report of Techbo Group’’.Heilongjiang Alcohol Group contributed 6.7%, 14.1%, and 30.2%, respectively, to our total revenue,gross profit and profit for the period for the nine months ended September 30, 2006. For an analysis ofthe historical results of operations of Heilongjiang Alcohol Group, a key part of our biofuel andbiochemical business, including the period prior to its consolidation into our financial results, see‘‘— Heilongjiang Alcohol Group’’ below.

Revenue from our oilseed processing division increased by HK$587.3 million, or 6.8%, fromHK$8,615.9 million in the nine months ended September 30, 2005 to HK$9,203.2 million in the ninemonths ended September 30, 2006, primarily due to an increase of HK$968.1 million in revenue fromsales of bulk edible oils as a result of an increase of approximately 20.9% in the sales volume of bulkedible oils and an increase of 4.3% in the average selling price. Revenue derived from oilseed mealsdecreased from HK$4,177.6 million for the nine months ended September 30, 2005 toHK$3,761.1 million for nine months ended September 30, 2006, because of a 0.8% decrease in salesvolume coupled with a decrease of 9.3% in the average selling price. The increase in the sales volumeof bulk edible oils was primarily due to (i) an increase in production volume as we revised our businessstrategy and increased the utilization rate of our production facilities at Zhangjiagang, Jiangsu Provinceand (ii) the commencement of operations in August 2005 of COFCO Xiangrui Oils & Grains Industries(Jingmen) Co., Ltd. ( ). The decrease in the average selling price ofoilseed meals was primarily attributable to a decrease in the price of soybeans.

Revenue from our rice trading and processing division increased by HK$278.0 million, or 30.0%,from HK$925.8 million in the nine months ended September 30, 2005 to HK$1,203.8 million in the ninemonths ended September 30, 2006, due to an increase of HK$186.9 million in revenue from white riceand an increase of HK$91.1 million in revenue from parboiled rice, as a result of an increase of 22.3%and 106.5%, respectively, in the sales volume of white rice and parboiled rice. The increased salesvolume of parboiled rice and white rice was primarily attributable to (i) our exploration of new markets,mainly including Central Asia, the South Pacific Islands and South Africa, (ii) more maturemanufacturing facilities that led to improved production capacity and increased output and (iii) increaseddomestic production of raw materials and the PRC Government raising the export quota for rice. Theaverage selling price for both parboiled rice and white rice remained stable.

Revenue from our brewing materials division increased by HK$11.2 million, or 1.6%, fromHK$696.6 million in the nine months ended September 30, 2005 to HK$707.8 million in the nine monthsended September 30, 2006, primarily due to an increase of HK$88.2 million in revenue from sales ofmalt, as a result of an increase of approximately 15.6% in sales volume. Our sales volume of maltincreased in the nine months ended September 30, 2006 mainly because (i) we upgraded ourproduction techniques and increased production volume; and (ii) we developed new customers andincreased our market share. This increase of revenue in malt was partly offset by a decrease ofHK$87.3 million in revenue from malting barley distribution, as a result of a decrease in sales volumeand average selling price of malting barley that we distributed. Revenue from our malting barleydistribution business in the nine months ended September 30, 2006 decreased mainly because moremalt producers started to procure their own brewing materials directly after the adjustment and

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integration of the PRC malt production market and the size of the malting barley distribution marketdeclined in recent years.

Revenue from our wheat processing division decreased by HK$10.8 million, or 0.9%, fromHK$1,244.0 million in the nine months ended September 30, 2005 to HK$1,233.2 million in the ninemonths ended September 30, 2006, primarily due to a decrease of 7.5% in revenues from wheat branas a result of a combination of a decrease of 0.9% in the sales volume and a decrease of 6.6% in theaverage selling price. The decrease in both the sales volume and the average selling price was mainlyattributable to a reduction in the market demand for stock feed as a result of the avian flu virus.

Revenue derived from our consumer-pack edible oil division was HK$1,408.0 million in the ninemonths ended September 30, 2005 and HK$1,347.2 million in the nine months ended September 30,2006, representing 11.7% and 9.7%, respectively, of the total revenue in those periods. Revenue fromthis division decreased by 4.3%, as a result of higher discounts offered to the customers in order tomaintain our market share. Such decrease in revenue of consumer-pack edible oil mainly reflectedintensified competition from local producers in this market, which affected our sales of low-end products.

Revenue from our non-rice foodstuffs trading division was HK$458.7 million in the nine monthsended September 30, 2005 and HK$415.5 million in the nine months ended September 30, 2006,representing 3.8% and 3.0%, respectively, of our total revenue in those periods. The 9.4% decrease inrevenue from this division in the nine months ended September 30, 2006 was primarily due todecreased export business as a result of reduced market demand and the appreciation of the Renminbi.The export business of this division mainly consists of the export of beans, nuts and other agriculturalproducts.

Our financial statements will no longer include the results of consumer-pack edible oil and non-ricefoodstuffs trading businesses from January 1, 2007 upon the completion of the Reorganization, and wewill not derive any revenues from these businesses in future periods. See ‘‘Risk Factors — Risksrelating to our business — Due to our Reorganization, the audited historical financial statements andother historical financial data included elsewhere in this prospectus are not indicative of our futurefinancial condition and results of operations’’.

Cost of sales and gross profit

The tables below set out (i) our cost of sales, the percentage of our total cost of sales attributable toeach of our business divisions and (ii) our gross profit and the gross profit margin of each of ourbusiness divisions for the nine months ended September 30, 2005 and 2006.


HK$ % of total cost HK$ % of total costCost of Sales millions of sales millions of sales

(unaudited)Biofuel and biochemical ******************** — — 765.8 6.0%Oilseed processing ************************ 8,385.5 73.9% 8,795.7 69.1%Rice trading and processing **************** 783.1 6.9% 1,062.6 8.4%Brewing materials************************** 603.7 5.3% 586.9 4.6%Wheat processing ************************* 1,173.9 10.4% 1,166.6 9.2%Consumer-pack edible oil ******************* 1,264.7 11.2% 1,173.6 9.2%Non-rice foodstuffs trading ****************** 397.2 3.5% 370.6 2.9%Inter-segment elimination ******************* (1,268.3) (11.2%) (1,195.7) (9.4%)Total ************************************* 11,339.8 100.0% 12,726.1 100.0%

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HK$ HK$Gross Profit millions Margin millions Margin

(unaudited)

Biofuel and biochemical ********************************** — — 156.4 17.0%Oilseed processing*************************************** 230.4 2.7% 407.5 4.4%Rice trading and processing ****************************** 142.7 15.4% 141.2 11.7%Brewing materials**************************************** 92.9 13.3% 120.9 17.1%Wheat processing**************************************** 70.1 5.6% 66.6 5.4%Consumer-pack edible oil ********************************* 143.3 10.2% 173.6 12.9%Non-rice foodstuffs trading ******************************** 61.5 13.4% 44.9 10.8%Total *************************************************** 740.9 6.1% 1,111.1 8.0%

Total cost of sales increased by HK$1,386.3 million, or 12.2%, from HK$11,339.8 million in the ninemonths ended September 30, 2005 to HK$12,726.1 million in the nine months ended September 30,2006, generally in line with our increase in revenue, representing 93.9% and 92.0% of our total revenuein the nine months ended September 30, 2005 and 2006, respectively. Our cost of sales primarilyconsists of raw material costs, labor costs, energy costs and manufacturing costs. The increase in costsof sales for our Agri-industrial Business, excluding consumer-pack edible oil and non-rice foodstuffstrading business, in the nine months ended September 30, 2006 compared to the same period in 2005was primarily due to inclusion of the costs of our biofuel and biochemical business and increases in thecosts from our oilseed processing, rice trading and processing, brewing materials and wheat processingbusinesses as described below.

Our gross profit increased by HK$370.2 million, or 50.0%, from HK$740.9 million in the ninemonths ended September 30, 2005 to HK$1,111.1 million in the nine months ended September 30,2006, due to the incorporation of financial results from our newly acquired biofuel operations and agrowth in gross profit in our oilseed processing, consumer-pack edible oil and brewing materialsdivisions, partly offset by a decrease in gross profit from our non-rice foodstuffs trading activities, ricetrading and processing and wheat processing businesses. Our gross profit margin increased from 6.1%in the nine months ended September 30, 2005 to 8.0% in the nine months ended September 30, 2006.

Cost of sales for our biofuel and biochemical division was HK$765.8 million in the nine monthsended September 30, 2006. Raw material costs represented 77.0% of costs of sales for our biofuel andbiochemical division. Gross profit for this division was HK$156.4 million in the nine months endedSeptember 30, 2006, and our gross profit margin for this division was 17.0% in this period.

Cost of sales for our oilseed processing division increased by HK$410.2 million, or 4.9%, fromHK$8,385.5 million in the nine months ended September 30, 2005 to HK$8,795.7 million in the ninemonths ended September 30, 2006. Raw material costs and manufacturing costs were the maincontributors to the increased cost of sales for our oilseed processing division. The increase ofHK$214.6 million and HK$139.9 million, respectively, in raw material costs and manufacturing costsmainly resulted from (i) the increased sales volume of bulk edible oil and oilseed meals; (ii) thecommencement of operations in August 2005 of a new factory, COFCO Xiangrui Oils & GrainsIndustries (Jingmen) Co., Ltd. ( ); and (iii) the increased utilization rateof our production facilities as described above. Raw material costs represented 94.0% of cost of salesfor our oilseed processing division in the nine months ended September 30, 2006, compared to 96.0%in the nine months ended September 30, 2005. Gross profit from this division increased 76.9%, fromHK$230.4 million in the nine months ended September 30, 2005 to HK$407.5 million in the nine monthsended September 30, 2006, and our gross profit margin increased from 2.7% in the nine months endedSeptember 2005 to 4.4% in the nine months ended September 2006, primarily due to the increasedutilization rate of our production facilities.

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Cost of sales for our rice trading and processing division increased by HK$279.5 million, or 35.7%,from HK$783.1 million in the nine months ended September 30, 2005 to HK$1,062.6 million in the ninemonths ended September 30, 2006, primarily due to an increase of HK$258.2 million, or approximately33.5%, in the cost of raw materials, as a result of the increase in sales volume of parboiled rice andwhite rice. Raw material costs as a percentage of cost of sales for our rice trading and processingdivision decreased 1.6% from 98.4% in the nine months ended September 30, 2005 to 96.8% in thenine months ended September 30, 2006. Gross profit from this division decreased 1.1%, fromHK$142.7 million in the nine months ended September 30, 2005 to HK$141.2 million in the nine monthsended September 30, 2006, and our gross profit margin from this division decreased from 15.4% in thenine months ended September 30, 2005 to 11.7% in the nine months ended September 30, 2006. Ourgross profit margin from this division decreased in the nine months ended September 30, 2006,compared to the same period in 2005, mainly because of (i) an increased weight of exports to low-endmarkets which yielded lower profit margins and (ii) the appreciation of the Renminbi which adverselyaffected our income from US dollar denominated export contracts.

Cost of sales for our brewing materials division decreased by HK$16.8 million, or 2.8%, fromHK$603.7 million in the nine months ended September 30, 2005 to HK$586.9 million in the nine monthsended September 30, 2006, primarily due to a decrease of 4.6% in raw material costs due to areduction in the raw materials purchased as a result of our increased focus on products with a higherprofit margin. Raw material costs represented 89.6% of cost of sales for our brewing materials divisionin the nine months ended September 30, 2006, compared to 91.3% in the nine months endedSeptember 30, 2005. Gross profit from this division increased 30.1%, from HK$92.9 million in the ninemonths ended September 30, 2005 to HK$120.9 million in the nine months ended September 30, 2006,and our gross profit margin from this division increased from 13.3% in the nine months endedSeptember 30, 2005 to 17.1% in the nine months ended September 30, 2006, primarily due to ourupgrading of production techniques and decreased unit raw material costs.

Cost of sales for our wheat processing division remained stable with a slight decrease ofHK$7.3 million, or 0.6%, from HK$1,173.9 million in the nine months ended September 30, 2005 toHK$1,166.6 million in the nine months ended September 30, 2006, primarily due to a decrease ofHK$17.5 million, or approximately 1.6%, in raw material costs, partly offset by an increase of HK$7.1million, or approximately 27.7%, in manufacturing costs. The decrease in raw material costs for ourwheat processing division was in line with the decrease in our revenue. Raw material costs as apercentage of cost of sales for our wheat processing division was 94.9% in the nine months endedSeptember 30, 2005 and 94.0% in nine months ended September 30, 2006. Gross profit from thisdivision decreased 5.0%, from HK$70.1 million in the nine months ended September 30, 2005 toHK$66.6 million in the nine months ended September 30, 2006, and our gross profit margin decreasedslightly from 5.6% in the nine months ended September 30, 2005 to 5.4% in the nine months endedSeptember 30, 2006, primarily due to a reduction in the average selling price of wheat bran.

Cost of sales attributable to our consumer-pack edible oil division was HK$1,264.7 million in thenine months ended September 30, 2005 and HK$1,173.6 million in the nine months endedSeptember 30, 2006, representing 11.2% and 9.2%, respectively, of our total cost of sales for thoseperiods. Gross profit derived from our consumer-pack edible oil business was HK$143.3 million in thenine months ended September 30, 2005 and HK$173.6 million in the nine months ended September 30,2006, representing 19.3% and 15.6%, respectively, of our total gross profit for those periods. Grossprofit margin from this division increased from 10.2% in the nine months ended September 30, 2005 to12.9% in the nine months ended September 30, 2006, primarily due to our adjustment of the productmix and increased weight of products which carry a higher profit margin.

Cost of sales attributable to our non-rice foodstuffs trading business was HK$397.2 million in thenine months ended September 30, 2005 and HK$370.6 million in the nine months ended September 30,2006, representing 3.5% and 2.9%, respectively, of our total cost of sales for those periods. Gross profitderived from our non-rice foodstuffs trading business was HK$61.5 million and HK$44.9 million in thenine months ended September 30, 2005 and 2006, respectively, representing 8.3% and 4%,

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respectively, of our total gross profit for those periods. Gross profit margin from this division decreasedfrom 13.4% in the nine months ended September 30, 2005 to 10.8% in the nine months endedSeptember 30, 2006, primarily due to the decreased weight of our export business, which carries ahigher gross profit.


Other income and gains increased by HK$224.7 million, from HK$135.7 million in the nine monthsended September 30, 2005 to HK$360.4 million in the nine months ended September 30, 2006,primarily due to (i) our receipt of approximately HK$134.1 million in government grants in relation to fuelethanol production at our newly acquired fuel ethanol production facilities; and (ii) our compensationgain of HK$56.6 million for reallocation of our two wheat processing plants, in aggregate, in the ninemonths ended September 30, 2006, as we relocated the two plants as required by the new zoning planof the city and received government compensation for such relocation.


Selling and distribution costs increased by HK$87.6 million, or 22.7%, from HK$385.3 million in thenine months ended September 30, 2005 to HK$472.9 million in the nine months ended September 30,2006. Our selling and distribution costs mainly consist of promotion and advertising expenses,transportation expenses for delivery of our products to customers, insurance expenses, commissionsand salaries of sales personnel. This increase in the nine months ended September 30, 2006 wasprimarily due to the incorporation of financial results from our newly acquired biofuel operations fromJanuary 27, 2006. Our selling and distribution costs as a percentage of total revenue were 3.4% in thenine months ended September 30, 2006, compared to 3.2% in the nine months ended September 30,2005.

Our selling and distribution costs attributable to the consumer-pack edible oils and non-ricefoodstuffs trading divisions collectively represented 31.5% of our total selling and distribution costs inthe nine months ended September 30, 2006.


Administrative expenses increased by HK$85.6 million, or 53.3%, from HK$160.7 million in the ninemonths ended September 30, 2005 to HK$246.3 million in the nine months ended September 30, 2006.The main components of our administrative expenses include staff costs, depreciation and amortizationand other administration-related expenses. The increase in the nine months ended September 30, 2006was primarily due to the incorporation of financial results from our newly acquired biofuel operationssince January 27, 2006. Our administrative expenses as a percentage of total revenue were 1.8% in thenine months ended September 30, 2006, compared to 1.3% in the nine months ended September 30,2005.

Administrative expenses attributable to the consumer-pack edible oils and non-rice foodstuffstrading divisions represented 17.6% in aggregate of our total administrative expenses in the ninemonths ended September 30, 2006.

Other expenses

Other expenses increased from HK$0.3 million in the nine months ended September 30, 2005 toHK$3.8 million in the nine months ended September 30, 2006, primarily due to a loss on disposal of asubsidiary of HK$2.2 million in the nine months ended September 30, 2006. Our other expenses as apercentage of total revenue were less than 0.1% in the nine months ended September 30, 2005 and2006.

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Finance costs

Finance costs increased by HK$61.7 million, or 63.0%, from HK$97.9 million in the nine monthsended September 30, 2005 to HK$159.6 million in the nine months ended September 30, 2006,primarily due to an increase in interest expense in the nine months ended September 30, 2006 because(i) outstanding bank loans increased in our oilseed processing operations and we included outstandingbank loans of newly acquired Heilongjiang Alcohol Group in our combined accounts; and (ii) interestrates increased in the nine months ended September 30, 2006, as compared to the same period of2005. Our oilseed processing division incurred more bank loans to finance its increased working capitalrequirements, which resulted from its business expansion. Our finance costs as a percentage of totalrevenue increased during this period, from approximately 0.8% in the nine months endedSeptember 30, 2005 to 1.2% in the nine months ended September 30, 2006.

Finance costs attributable to the consumer-pack edible oils and non-rice foodstuffs trading divisionsrepresented 3.8% in aggregate of our total finance costs in the nine months ended September 30, 2006.

Share of profits and losses of associates

Our share of profits and losses of associates increased by HK$82.6 million, fromHK$42.4 million in the nine months ended September 30, 2005 to HK$125.0 million in the ninemonths ended September 30, 2006, primarily due to (i) an increased share of profit ofapproximately HK$65.2 million derived from Great Ocean Oil & Grain Industries (Fang ChengGang) Co., Ltd. ( ) (‘‘Great Ocean’’), an associate engaged in oilseedprocessing, as a result of its improved operation and (ii) the inclusion of a share of profits ofapproximately HK$14.5 million derived from Jilin Fuel. Our share of profits of associates as apercentage of revenue was 1.0% in the nine months ended September 30, 2006, compared to 0.4%in the nine months ended September 30, 2005.

Profit before tax

As a result of the changes in the items discussed above, our profit before tax increased 159.8%from HK$274.8 million in the nine months ended September 30, 2005 to HK$713.9 million in the ninemonths ended September 30, 2006.

Taxation

Tax increased by HK$49.8 million, or 80.6%, from HK$61.8 million in the nine months endedSeptember 30, 2005 to HK$111.6 million in the nine months ended September 30, 2006, primarily dueto the inclusion of tax expenses incurred by our biofuel and biochemical operation and our increasedtaxable profits. The effective tax rate decreased from 22.5% in the nine months ended September 30,2005 to 15.6% in the nine months ended September 30, 2006, mainly because Heilongjiang Alcohol, asubstantial part of our biofuel and biochemical division, enjoyed a preferential income tax rate of 15% forthe three years ended December 31, 2005. Our tax expenses as a percentage of our total revenueincreased from 0.5% in the nine months ended September 30, 2005 to 0.8% in the nine months endedSeptember 30, 2006.

Profit for the period

As a result of the changes in the items discussed above, our profit for the period increased 182.8%from HK$213.0 million in the nine months ended September 30, 2005 to HK$602.3 million in the ninemonths ended September 30, 2006.

Minority interests

Net profit attributable to minority interests amounted to HK$95.7 million in the nine months endedSeptember 30, 2006, as compared to a loss attributable to minority shareholders of HK$11.5 million in

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the nine months ended September 30, 2005, reflecting (i) an increase of HK$85.2 million in minorityshareholders’ interests in our oilseed processing subsidiaries, as a result of increased profits from thesesubsidiaries and (ii) an increase of HK$18.5 million in minority interests in our wheat processingsubsidiaries, primarily attributable to the compensation received for plant reallocations as describedabove.

Net profit for the period attributable to equity holders of the Company

As a result of the changes in the items discussed above, our net profit for the period attributable toequity holders of the Company increased 125.7%, from HK$224.5 million in the nine months endedSeptember 30, 2005 to HK$506.6 million in the nine months ended September 30, 2006. Our net profitmargin increased from 1.9% in the nine months ended September 30, 2005 to 3.7% in the nine monthsended September 30, 2006.

Year ended December 31, 2005 compared to year ended December 31, 2004

Revenue

The table below sets out our total revenue and the revenue and percentage of our total revenueattributable to each of our business divisions (excluding our biofuel and biochemical division, which westarted in January 2006) for the two years ended December 31, 2005, as well as the growth rate of ourrevenue attributable to each of our business divisions and product groups from 2004 to 2005.

Year ended December 312004 2005HK$ HK$

Revenue millions millions Change %

Oilseed processing *************************************** 11,479.8 11,668.0 1.6%bulk edible oils ****************************************** 5,438.8 5,479.5 0.7%oilseed meals ******************************************* 5,201.7 5,481.0 5.4%feed**************************************************** 398.0 354.7 (10.9%)others ************************************************** 441.3 352.8 (20.1%)

Rice trading and processing ****************************** 1,027.7 1,314.3 27.9%parboiled rice ******************************************* — 179.2 —white rice*********************************************** 1,027.7 1,135.1 10.5%

Brewing materials **************************************** 798.7 865.1 8.3%malt**************************************************** 572.1 635.8 11.1%malting barley******************************************* 208.7 205.2 (1.7%)others ************************************************** 17.9 24.1 34.6%

Wheat processing **************************************** 1,545.3 1,662.2 7.6%flour *************************************************** 1,164.8 1,243.0 6.7%wheat bran ********************************************* 257.4 268.4 4.3%noodles ************************************************ 49.8 73.0 46.5%instant noddles****************************************** 73.3 77.8 6.3%

Consumer-pack edible oil(1) ******************************* 1,835.6 1,899.0 3.5%Non-rice foodstuffs trading(1)****************************** 1,021.3 588.2 (42.4%)Inter-segment elimination ********************************* (1.658.3) (1,696.4) —TOTAL *************************************************** 16,050.1 16,300.4 1.6%

Note:

(1) Upon the completion of the Reorganization on December 31, 2006, our financial statements will no longer include the resultsof the consumer-pack edible oil and non-rice foodstuffs trading businesses.

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Total revenue increased by HK$250.3 million, or 1.6%, from HK$16,050.1 million in 2004 toHK$16,300.4 million in 2005, primarily due to the significant increase in revenue from our rice tradingand processing division, partly offset by the decrease in revenue from our non-rice foodstuffs tradingbusiness.

Revenue from our oilseed processing division increased by HK$188.2 million, or 1.6%, fromHK$11,479.8 million in 2004 to HK$11,668.0 million in 2005. Increased revenue from our oilseedprocessing division in 2005 was primarily due to (i) an increase of HK$279.3 million in revenue fromoilseed meals, as a result of an increase of 15.3% in sales volume, offsetting a decrease of 8.6% inselling price and (ii) an increase of HK$40.7 million in revenue from bulk edible oils due to an increase of10.0% in sales volume, which was partially offset by a decrease of 8.4% in selling price. The fluctuationin sales volume and selling price of oilseed meals and bulk edible oils was primarily attributable to therecovery of market demand and the decreased import price of soybeans in 2005. The increase inrevenue from oilseed meals and bulk edible oils was partly offset by a decrease of HK$43.3 million andHK$88.5 million, respectively, in revenue from feeds and others.

Revenue from our rice trading and processing division increased by HK$286.6 million, or 27.9%,from HK$1,027.7 million in 2004 to HK$1,314.3 million in 2005, primarily because we completedconstruction of our parboiled rice processing plant in Jiangxi Province, which started production inNovember 2004 and sales of parboiled rice in 2005, and because the average selling price of white riceincreased by 36.0% in 2005, which was partly offset by a decrease of 18.8% in the sales volume ofwhite rice in 2005 compared to 2004. The decrease in sales volume of white rice in 2005 resulted from alower export volume of white rice, which occurred mainly because the government restricted riceexports as a result of the shortage of supply in the domestic market. Higher average selling prices ofwhite price in 2005 were primarily attributable to decreased domestic supply, our adjustment of productmix and increasing focus on higher-end markets in the second half of 2004 and in 2005.

Revenue from our brewing materials division increased by HK$66.4 million, or 8.3%, fromHK$798.7 million in 2004 to HK$865.1 million in 2005, primarily due to an increase of HK$63.7 million inrevenue derived from sales of malt products resulting from an increase of 8.4% and 2.5%, respectively,in the average selling price and sales volume. This increase was primarily attributable to management’sincreased focus on high-end customers and increased market recognition.

Revenue from our wheat processing division increased by HK$116.9 million, or 7.6%, fromHK$1,545.3 million in 2004 to HK$1,662.2 million in 2005, primarily due to an increase of HK$78.2million and HK$23.2 million, respectively, in revenue from sales of flour and noodles. The higherrevenue from flour and noodles in 2005 mainly resulted from an increase of 6.6% and 42.1%,respectively, in the sales volume of these two products. Our acquisition of Shenyang Xiangxue FlourLimited Liability Company ( ) contributed to the growth in sales volume of bothproducts. The increase in sales volume of noodles was also attributable to a higher utilization rate in2005 of our production facilities at Puyang and Zhengzhou, Henan Province.

Revenue derived from our consumer-pack edible oil division increased by HK$63.4 million, or 3.5%,from HK$1,835.6 million in 2004 to HK$1,899.0 million in 2005, primarily due to a 15.9% increase insales volume, partly offset by a 10.7% decrease in the average selling price which mainly resulted fromlower prices of bulk oils. Revenue derived from our consumer-pack edible oil division represented 11.4%and 11.7%, respectively, of our total revenue for 2004 and 2005. The steady increase in sales volume ofconsumer-pack edible oil over 2003, 2004 and 2005 was mainly driven by the increase in marketdemand during these years.

Revenue from our non-rice foodstuffs trading division decreased by HK$433.1 million, or 42.4%,from HK$1,021.3 million in 2004 to HK$588.2 million in 2005, representing 6.4% and 3.5% respectively,of our total revenue for those periods. The decrease in revenue from the non-rice foodstuffs tradingdivision was mainly because this division ceased its soybean import and wholesale business in 2005and changed some other wholesale businesses to agency operations (which only charge commissionsfor sales) to reduce exposure to market risks.

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The tables below set out (i) our cost of sales and the percentage of our total cost of salesattributable to each of our business divisions and (ii) our gross profit and the gross profit margin of eachof our business divisions for the two years ended December 31, 2005.

Year ended December 312004 2005

HK$ % of cost HK$ % of costCost of Sales millions of sales millions of sales

Oilseed processing ******************************* 11,248.8 73.5% 11,324.7 74.0%Rice trading and processing *********************** 939.6 6.1% 1,164.3 7.6%Brewing materials ******************************** 726.4 4.7% 749.8 4.9%Wheat processing ******************************** 1,448.4 9.5% 1,558.3 10.2%Consumer-pack edible oil************************** 1,657.8 10.8% 1,696.4 11.1%Non-rice foodstuffs trading************************* 944.6 6.2% 513.7 3.3%Inter-segment elimination ************************** (1,658.3) (10.8%) (1,696.4) (11.1%)Total ******************************************** 15,307.3 100.0% 15,310.8 100.0%

Year ended December 312004 2005


Oilseed processing ******************************* 231.0 2.0% 343.3 2.9%Rice trading and processing *********************** 88.1 8.6% 150.0 11.4%Brewing materials ******************************** 72.3 9.1% 115.3 13.3%Wheat processing ******************************** 96.9 6.3% 103.9 6.3%Consumer-pack edible oil************************** 177.8 9.7% 202.6 10.7%Non-rice foodstuffs trading************************* 76.7 7.5% 74.5 12.7%Total ******************************************** 742.8 4.6% 989.6 6.1%

Total cost of sales increased by HK$3.5 million, from HK$15,307.3 million in 2004 toHK$15,310.8 million in 2005, and our gross profit increased 33.2%, from HK$742.8 million in 2004 toHK$989.6 million in 2005. The main contributors to the increase in costs of sales for our Agri-industrialBusiness, excluding consumer-pack edible oil and non-rice foodstuffs trading business, included anincrease in raw material costs, manufacturing costs and energy costs of HK$324.2 million,HK$61.1 million and HK$39.5 million, respectively. The increase in raw material costs was primarilyattributable to the increased sales volume in our rice trading and processing division and wheatprocessing division. The increases in manufacturing costs and energy costs were primarily attributableto our oilseed processing division, mainly as a result of the growth in sales volume and increased utilitycosts. Our gross profit margin increased from 4.6% in 2004 to 6.1% in 2005 due to a growth in grossprofit margin in each of our divisions, except for our wheat processing division.

Cost of sales from our oilseed processing division remained relatively stable, atHK$11,248.8 million in 2004 and HK$11,324.7 million in 2005, primarily because the costs of rawmaterials, mainly imported soybeans, remained stable, despite the increase in sales volume of soybeanmeals and bulk edible oils. The import price of soybeans leveled off in 2005 after a sharp increase in2004. Raw material costs represented 95.3% of cost of sales for our oilseed proceeding division in2005, compared to 96.0% in 2004. Gross profit from this division increased by HK$112.3 million, or48.6%, from HK$231.0 million in 2004 to HK$343.3 million in 2005, and the gross profit margin from thisdivision increased from 2.0% in 2004 to 2.9% in 2005.

Cost of sales from our rice trading and processing division increased by HK$224.7 million, or23.9%, from HK$939.6 million in 2004 to HK$1,164.3 million in 2005. Raw material costs increased by

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HK$204.4 million in 2005, which represented 97.8% of cost of sales for our rice trading and processingdivision in 2005, compared to 99.4% in 2004. Gross profit increased by HK$61.9 million, fromHK$88.1 million in 2004 to HK$150.0 million in 2005, and the gross profit margin from this divisionincreased from 8.6% in 2004 to 11.4% in 2005, mainly because the average selling price of white riceincreased substantially in 2005 and we focused on sales to the high-end market.

Cost of sales from our brewing materials division increased by HK$23.4 million, or 3.2%, fromHK$726.4 million in 2004 to HK$749.8 million in 2005. Raw material costs increased byHK$19.1 million, or approximately 2.9%. The increase in cost of sales from our brewing materialsdivision in 2005 was mainly driven by the growth in sales volume. Raw material costs represented91.1% of cost of sales for our brewing materials division in 2005, compared to 91.4% in 2004. Grossprofit from this division increased 59.5% from HK$72.3 million in 2004 to HK$115.3 million in 2005, andthe gross profit margin from this division increased from 9.1% in 2004 to 13.3% in 2005. The gross profitfrom our brewing materials division increased because the cost of sales increased slower than thegrowth in revenue from this division, despite the increased sales volume, primarily due to thestabilization of seaborne freight rates (a component of raw material costs) in 2005 as compared with asharp rise in 2004.

Cost of sales from our wheat processing division increased by HK$109.9 million, or 7.6%, fromHK$1,448.4 million in 2004 to HK$1,558.3 million in 2005. Raw material costs increased byHK$105.9 million, or approximately 7.8%, generally in line with the increase in our revenue from thisdivision from 2004 to 2005. Raw material costs represented 94.2% of cost of sales for our wheatprocessing division in 2005, compared to 94.0% in 2004. Gross profit from this division increasedapproximately 7.2%, from HK$96.9 million in 2004 to HK$103.9 million in 2005, and the gross profitmargin from this division remained relatively stable during those periods, at 6.3%.

Cost of sales attributable to our consumer-pack edible oil division was HK$1,657.8 million in 2004and HK$1,696.4 million in 2005, representing 10.8% and 11.1%, respectively, of our total cost of salesfor those periods. Gross profit derived from our consumer-pack edible oil division was HK$177.8 millionin 2004 and HK$202.6 million in 2005, representing 23.9% and 20.5%, respectively, of our total grossprofit for the same period. Gross profit margin from this division increased from 9.7% in 2004 to 10.7%in 2005, mainly because the import price of soybeans leveled off in 2005 after a price hike in 2004,which led to a lower selling price of bulk oils.

Cost of sales attributable to our non-rice foodstuffs trading division was HK$944.6 million andHK$513.7 million in 2004 and 2005, respectively, representing 6.2% and 3.3%, respectively, of our totalcost of sales for the same period. The decrease of 45.6% in cost of sales in our food trading businessfrom 2004 to 2005 was generally in line with the decrease in revenue during those periods. Gross profitderived from our non-rice foodstuffs trading business was HK$76.7 million and HK$74.5 million in 2004and 2005, respectively, representing 10.3% and 7.5%, respectively, of our total gross profit for the sameperiod. Gross profit margin from this division increased from 7.5% in 2004 to 12.7% in 2005, mainlybecause the price of agricultural products decreased in the domestic market in 2005, which resulted inlower procurement costs and a higher gross profit margin for our exporting business.


Other income and gains increased by HK$91.0 million, or 109.1%, from HK$83.4 million in 2004 toHK$174.4 million in 2005, primarily due to (i) an increase in gain on foreign exchange ofHK$61.0 million, primarily in relation to our bank loans denominated in US dollars, as a result of theappreciation of the RMB since the introduction of a managed floating exchange rate system in the PRCon July 21, 2005; (ii) an increase in income derived from sales of by-products, mainly by-products fromoil refinery processes, reflecting the opening of a new refinery in Heze, Shandong Province in 2005 and(iii) an increase in bank interest income, as a result of an increase in cash deposits in 2005.

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Selling and distribution costs increased by HK$184.1 million, or 52.5%, from HK$350.7 million in2004 to HK$534.8 million in 2005, mainly attributable to increases in promotion and advertisingexpenses and transportation expense in our oilseed processing division. Our oilseed processingdivision incurred higher expenses in 2005, because of (i) the introduction of a new sales policy in 2005of delivering goods to clients’ premises; and (ii) more promotional activities that were launched in 2005.Selling and distribution costs as a percentage of revenue were 3.3% in 2005, compared to 2.2% in2004.


Administrative expenses increased by HK$36.9 million, or 20.8%, from HK$177.1 million in 2004 toHK$214.0 million in 2005, primarily reflecting an increase in salary costs and an increase indepreciation expense relating to office buildings. These increased expenses were mainly attributable toa subsidiary, East Ocean Oils & Grains Industries (Zhangjiagang) Co., Ltd.( ), which hired more employees in 2005 and completed the constructionof the office buildings in 2004. Administrative expenses as a percentage of revenue were 1.3% in 2005,compared to 1.1% in 2004.

Other expenses

Other operating expenses decreased from HK$5.2 million in 2004 to HK$3.9 million in 2005, due tolosses on disposal of plant, property and equipment of approximately HK$5.2 million in 2004. Our otherexpenses as a percentage of revenue were less than 0.1% in 2004 and 2005.

Finance costs

Finance costs increased by HK$34.9 million, or 33.5%, from HK$104.3 million in 2004 toHK$139.2 million in 2005, primarily due to increased interest payments on bank loans and loans fromCOFCO Finance in the oilseed processing division as a result of (i) an increased amount of totaloutstanding bank loans and loans from COFCO Finance as we incurred more short-term loans in 2005to build up soybean inventories and (ii) higher interest rates as the PBOC increased benchmark interestrates at the end of 2004. Finance costs as a percentage of revenue increased slightly during this period,from 0.6% in 2004 to 0.9% in 2005.


Our share of profits and losses of associates increased by HK$64.7 million, from a profit ofHK$17.5 million in 2004 to a profit of HK$82.2 million in 2005, because of increased profits at GreatOcean and because Shenzhen Nantian Oilmills Co., Ltd. ( ) made a profit in2005 as compared to a loss in 2004. Operation and profitability of our associates in the oilseedprocessing division improved in 2005, as compared to 2004, mainly because the profitability of theseassociates was adversely affected by the sharp increase in the import price of soybeans in 2004. Shareof profits of associates as a percentage of revenue was 0.5% in 2005, compared to 0.1% in 2004.

Profit before tax

As a result of the changes in the items discussed above, our profit before tax increased 71.7%,from HK$206.4 million in 2004 to HK$354.3 million in 2005.

Taxation

Tax increased by HK$23.4 million, or 49.3%, from HK$47.5 million in 2004 to HK$70.9 million in2005, primarily due to an increase of 71.7% in our profits before tax during this period. The effectiveincome tax rate decreased from 23.0% in 2004 to 20.0% in 2005, mainly because our brewing materials

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division contributed a profit of HK$32.2 million in 2005, compared to a loss in 2004, which resulted inless tax expenses in 2005 due to utilization of deductible losses carried forward from the previous years.Our tax expenses as a percentage of total revenue were 0.4% in 2005, compared to 0.3% in 2004.

Profit for the year

As a result of the changes in the items discussed above, our profit for the year increased 78.4%,from HK$158.9 million in 2004 to HK$283.4 million in 2005.

Minority interests

Net profit attributable to minority interests was HK$28.2 million in 2004 and HK$28.5 million in2005, primarily reflecting minority shareholders’ 46% share of the increased profits of East Ocean Oils& Grains Industries (Zhangjiagang) Co., Ltd. ( ).

Net profit for the year attributable to equity holders of the Company

As a result of the changes in the items discussed above, our net profit for the year attributable toequity holders of the Company increased by HK$124.2 million, or approximately 95.0%, fromHK$130.7 million in 2004 to HK$254.9 million in 2005. Our net profit margin increased from 0.8% in2004 to 1.6% in 2005.


Revenue

The table below sets out our total revenue and the revenue and percentage of our total revenueattributable to each of our business divisions (excluding our biofuel and biochemical division, which westarted in January 2006) for 2003 and 2004 as well as the growth rate of our revenue attributable toeach of our business divisions and product groups from 2003 to 2004.

Year endedDecember 31

2003 2004

HK$ HK$Revenue millions millions Change %

Oilseed processing **************************************** 9,000.5 11,479.8 27.5%bulk edible oils ******************************************* 4,287.2 5,438.8 26.9%oilseed meals ******************************************** 3,541.1 5,201.7 46.9%feed***************************************************** 315.5 398.0 26.1%others *************************************************** 856.7 441.3 (48.5%)

Rice trading and processing ******************************* 1,237.9 1,027.7 (17.0%)parboiled rice ******************************************** — — —white rice************************************************ 1,237.9 1,027.7 (17.0%)

Brewing materials ***************************************** 573.6 798.7 39.2%malt***************************************************** 324.5 572.1 76.3%malting barley******************************************** 219.6 208.7 (5.0%)others *************************************************** 29.5 17.9 (39.3%)

Wheat processing ***************************************** 1,030.0 1,545.3 50.0%flour **************************************************** 789.6 1,164.8 47.5%wheat bran ********************************************** 166.7 257.4 54.4%noodles ************************************************* 15.7 49.8 217.5%instant noodles******************************************* 58.0 73.3 26.3%

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Year endedDecember 31

2003 2004

HK$ HK$Revenue millions millions Change %

Consumer-pack edible oil(1) ******************************** 1,288.5 1,835.6 42.5%Non-rice foodstuffs trading(1)******************************* 523.4 1,021.3 95.1%Inter-segment elimination ********************************** (1,124.7) (1,658.3) —TOTAL **************************************************** 12,529.2 16,050.1 28.1%

Note:

(1) Upon the completion of the Reorganization, our financial statements will no longer include the results of the consumer-packedible oil and non-rice foodstuffs trading businesses.

Total revenue increased by HK$3,520.9 million, or 28.1%, from HK$12,529.2 million in 2003 toHK$16,050.1 million in 2004, primarily as a result of substantial increases in revenue in each of ourbusiness divisions, except our rice trading and processing division.

Revenue from our oilseed processing division increased by HK$2,479.3 million, or 27.5%, fromHK$9,000.5 million in 2003 to HK$11,479.8 million in 2004, primarily due to (i) an increase ofHK$1,660.6 million in revenue from the sale of oilseed meals, resulting from an increase of 12.2% and31.0%, respectively, in sales volume and the average selling price of oilseed meals (principally soybeanmeal), and (ii) an increase of HK$1,151.6 million in revenue from sales of bulk edible oils, as a result ofan increase of 13.8% and 11.5%, respectively, in sales volume and the average selling price, partlyoffset by a decrease in revenue from others. Sales volume and the average selling price of oilseedmeals and bulk edible oils were higher in 2004 mainly because (i) the sales of soybean meal wereadversely affected by the SARS crisis in 2003; (ii) our production volume of bulk edible oils increased in2004 and (iii) in the case of average selling prices, the import price of soybeans increased substantiallyin 2004.

Revenue from our rice trading and processing division decreased by HK$210.2 million, or 17.0%,from HK$1,237.9 million in 2003 to HK$1,027.7 million in 2004 because an increase of 24.4% in theaverage selling prices was more than offset by a decrease of 33.2% in the sales volume of white rice.The sales volume of white rice decreased in 2004 because domestic production of rice decreased in2003 and the PRC Government restricted exports in 2004. The increase in our selling price of white ricewas primarily due to (i) our focus on the high-end markets in the second half of 2004 and (ii) theincreased market price of white rice, reflecting decreased exports from the PRC and a relative shortageof supply of rice products in the global market.

Revenue from our brewing materials division increased by HK$225.1 million, or 39.2%, fromHK$573.6 million in 2003 to HK$798.7 million in 2004, primarily due to an increase of HK$247.6 million,or 76.3%, in revenue from malt, resulting from an increase of 80.4% in sales volume, slightly offset by adecrease of 2.2% in the average selling price. The significant increase in sales volume of malt wasprimarily due to a recovery in malt production and sales volume in 2004 at our malt processing facility inDalian, Liaoning Province as compared to 2003. In July and August 2003, we suspended production ofmalt at our malt processing facility in Dalian, Liaoning Province due to the decline in demand for beerduring the SARS outbreak. The increase in revenue from sales of malt was slightly offset by a decreasein revenue from malting barley distribution and others.

Revenue from our wheat processing division increased by HK$515.3 million, or 50.0%, fromHK$1,030.0 million in 2003 to HK$1,545.3 million in 2004, primarily due to an increase ofHK$375.2 million in revenue derived from flour. The growth in revenue from flour in 2004 wasattributable to an increase of 12.2% in sales volume of flour as a result of the acquisition of ShenyangXiangxue Flour Limited Liability Company ( ) in July 2004 and an increase of31.5% in the selling prices as a result of (i) increased price of raw materials and (ii) continuousmarketing efforts and management’s adjustment of our product mix in this division to increase the

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proportion of higher-priced products, such as cookie flour, pastry flour and bread flour. The increase inrevenue from our wheat processing division was also attributable to an increase of HK$90.7 million andHK$34.1 million, respectively, in revenue from wheat bran, a by-product of flour, and noodles.

Revenue derived from our consumer-pack edible oil business increased by HK$547.1 million, or42.5%, from HK$1,288.5 million in 2003 to HK$1,835.6 million in 2004. This increase resulted from anincrease of 11.2% and 21.0%, respectively, in sales volume and the average selling price. The averageselling price of consumer-pack edible oil in 2004 was substantially higher than 2003, primarily due to thesharp increase in soybean prices and the increased selling prices of bulk oils as a result. Revenuederived from our consumer-pack edible oil business represented 10.3% and 11.4%, respectively, of ourtotal revenue for the same periods.

Revenue from our non-rice foodstuffs trading division increased by HK$497.9 million, or 95.1%,from HK$523.4 million in 2003 to HK$1,021.3 million in 2004. Revenue from this division increasedsignificantly in 2004 because we engaged in import and wholesale of soybeans in 2004. Revenue fromour food trading division represented 4.2% and 6.4%, respectively, of our total revenue of the sameperiod.


The tables below set out (i) our cost of sales and the percentage of our total cost of salesattributable to each of our business divisions and (ii) our gross profit and the gross profit margin of eachof our business divisions for the two years ended December 31, 2004.

Year ended December 31

2003 2004

HK$ % of cost of HK$ % of cost ofCosts of Sales millions sales millions sales

Oilseed processing *************************** 8,637.1 73.2% 11,248.8 73.5%Rice trading and processing ******************* 1,198.4 10.2% 939.6 6.1%Brewing materials **************************** 531.4 4.5% 726.4 4.7%Wheat processing **************************** 955.1 8.1% 1,448.4 9.5%Consumer-pack edible oil********************** 1,120.7 9.5% 1,657.8 10.8%Non-rice foodstuffs trading********************* 475.2 4.0% 944.6 6.2%Inter-segment elimination********************** (1,124.7) (9.5%) (1,658.3) (10.8%)Total**************************************** 11,793.2 100.0% 15,307.3 100.0%

Year ended December 31

2003 2004


Oilseed processing *************************** 363.4 4.0% 231.0 2.0%Rice trading and processing ******************* 39.5 3.2% 88.1 8.6%Brewing materials **************************** 42.2 7.4% 72.3 9.1%Wheat processing **************************** 74.9 7.3% 96.9 6.3%Consumer-pack edible oil********************** 167.8 13.0% 177.8 9.7%Non-rice foodstuffs trading********************* 48.2 9.2% 76.7 7.5%Total**************************************** 736.0 5.9% 742.8 4.6%

Total cost of sales increased by HK$3,514.1 million, or 29.8%, from HK$11,793.2 million in 2003 toHK$15,307.3 million in 2004, and our gross profit increased by HK$6.8 million, or 0.9%, fromHK$736.0 million in 2003 to HK$742.8 million in 2004. The main contributors to the increase in costs ofsales for Agri-industrial Business, excluding consumer-pack edible oil and non-rice foodstuffs tradingbusinesses, in 2004 included an increase in raw material costs, manufacturing costs and energy costsof HK$2,921.4 million, HK$78.3 million and HK$35.6 million, respectively. The increase in raw material

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costs was primarily due to the increased import price of soybeans in 2004 as described below. Theincreases in manufacturing costs and energy costs were primarily attributable to our oilseed processingdivision, mainly as a result of the growth in sales volume. Our gross profit margin decreased from 5.9%in 2003 to 4.6% in 2004.

Cost of sales from our oilseed processing division increased by HK$2,611.7 million, or 30.2%, fromHK$8,637.1 million in 2003 to HK$11,248.8 million in 2004, primarily due to an increase ofHK$2,518.1 million, or approximately 30.4%, in raw material costs, mainly resulting from the increasedimport price of soybeans in 2004 and increased sales volume of bulk edible oil. Raw material costsrepresented 96.0% of cost of sales from our oilseed processing division in 2004, compared to 95.9% in2003. Labor costs, energy costs and manufacturing costs increased by HK$93.1 million, orapproximately 26.3%, in aggregate. Cost of sales from our oilseed processing division increased fasterthan the increase in revenue from this division in 2004 mainly as a result of the sharp increase in theimport price of soybeans. Gross profit from this division decreased by HK$132.4 million, or 36.4%, fromHK$363.4 million in 2003 to HK$231.0 million in 2004, and gross profit margin from this divisiondecreased from 4.0% in 2003 to 2.0% in 2004.

Cost of sales from our rice trading and processing division decreased by HK$258.8 million, or21.6%, from HK$1,198.4 million in 2003 to HK$939.6 million in 2004, faster than the decrease inrevenue during those periods. Raw material costs decreased by HK$264.2 million, or approximately22.0%, during the same period. Raw material costs represented 99.4% of cost of sales for our ricetrading and processing division in 2004, compared to 100% in 2003, as we only engaged in the ricetrading business in 2003. Gross profit from this division increased approximately 123.0%, fromHK$39.5 million in 2003 to HK$88.1 million in 2004, and our gross profit margin from this divisionincreased from 3.2% in 2003 to 8.6% in 2004, mainly because our export price of white rice increased in2004.

Cost of sales from our brewing materials division increased by HK$195.0 million, or 36.7%, fromHK$531.4 million in 2003 to HK$726.4 million in 2004, primarily due to an increase in sales volume, asubstantial increase in market freight rates (a component of raw materials cost) and an increase in theprice of malting barley in 2004. Raw material costs increased by HK$172.5 million, or approximately35.1%, during the same period. Raw material costs represented 91.4% of cost of sales for our brewingmaterials division in 2004, compared to 92.4% in 2003. Gross profit from this division increased byHK$30.1 million, or 71.3%, from HK$42.2 million in 2003 to HK$72.3 million in 2004, and our gross profitmargin from this division increased from 7.4% in 2003 to 9.1% in 2004, following the end of the SARSoutbreak and a resumption of production of and demand for malt.

Cost of sales from our wheat processing division increased by HK$493.3 million, or 51.6%, fromHK$955.1 million in 2003 to HK$1,448.4 million in 2004, slightly faster than the increase in revenue fromthis division. Raw material costs increased by HK$474.6 million, or approximately 53.5%, during thesame period, primarily due to a sharp rise in wheat prices in the second half of 2003. Raw materialcosts represented 94.0% of cost of sales for our wheat processing division in 2004, compared to 92.8%in 2003. Gross profit from this division increased by HK$22.0 million, or 29.4%, from HK$74.9 million in2003 to HK$96.9 million in 2004, and our gross profit margin from this division decreased from 7.3% in2003 to 6.3% in 2004, as we were unable to completely pass along the increased wheat price tocustomers.

Cost of sales attributable to our consumer-pack edible oil division was HK$1,120.7 million in 2003and HK$1,657.8 million in 2004, representing 9.5% and 10.8%, respectively, of our total cost of sales forthe same period. Gross profit derived from our consumer-pack edible oil division was HK$167.8 millionin 2003 and HK$177.8 million in 2004, representing 22.8% and 23.9%, respectively, of our total grossprofit for the same period. Gross profit margin from this division decreased from 13.0% in 2003 to 9.7%in 2004, primarily due to the sharp increase in soybean prices and the increased selling price of bulk oilsas a result.

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Cost of sales attributable to our non-rice foodstuffs trading division was HK$475.2 million andHK$944.6 million in 2003 and 2004, respectively, representing 4.0% and 6.2%, respectively, of our totalcost of sales for the same period. Gross profit derived from our non-rice foodstuffs trading division wasHK$48.2 million and HK$76.7 million in 2003 and 2004, respectively, representing 6.5% and 10.3%,respectively, of our total gross profit for the same period. Gross profit margin from this divisiondecreased from 9.2% in 2003 to 7.5% in 2004, primarily because the soybean import and wholesalebusiness yielded low gross profit margin.


Other income and gains decreased by HK$14.0 million, or 14.4%, from HK$97.4 million in 2003 toHK$83.4 million in 2004, primarily due to a decrease in both the number and price of soybean barrelssold as a result of its decreased production volume and a decrease in government subsidies in 2004 ascompared to 2003, mainly because a government subsidy granted for export sales in our non-ricefoodstuffs trading division was terminated in 2004, more than offsetting an increase in income from therental of oil drums and soybean barrels in 2004.


Selling and distribution costs increased by HK$41.6 million, or 13.5%, from HK$309.1 million in2003 to HK$350.7 million in 2004. The increase in selling and distribution costs was primarily due to anincrease in transportation expenses, advertising expenses and staff costs in our oilseed processingdivision, which was generally in line with the growth of revenue in this division. Selling and distributioncosts as a percentage of revenue were 2.2% in 2004, compared to 2.5% in 2003.


Administrative expenses increased by HK$12.5 million, or 7.6%, from HK$164.6 million in 2003 toHK$177.1 million in 2004. The increase in 2004 was primarily due to the inclusion of administrativeexpenses incurred by Shenyang Xiangxue Flour Limited Liability Company( ), which we acquired in July 2004. Administrative expenses as a percentageof revenue were 1.1% in 2004, compared to 1.3% in 2003.

Other expenses

Other operating expenses increased by HK$0.2 million, or 4.0%, from HK$5.0 million in 2003 toHK$5.2 million in 2004.

Finance costs

Finance costs increased by HK$34.3 million, or 49.0%, from HK$70.0 million in 2003 toHK$104.3 million in 2004, primarily due to an increase in interest expense on bank loans as a result ofincreased outstanding borrowings incurred to finance our construction of new plants and increasedworking capital requirements. Finance costs as a percentage of revenue remained relatively stableduring this period, at 0.6% in both 2003 and 2004.


We had a profit of HK$102.0 million in 2003 and a profit of HK$17.5 million in 2004 from ourinvestment in associates, because profits from Great Ocean decreased substantially and ShenzhenNantian made losses in 2004, as a result of the increase in the cost of soybeans. The profitability ofmost entities in the oil processing industry was adversely affected by the substantial increase in rawmaterial costs in 2004. Our share of profits and losses of associates as a percentage of revenue was0.1% in 2004, compared to 0.8% in 2003.

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Profit before tax

As a result of the changes in the items discussed above, our profit before tax decreased byHK$180.3 million, or 46.6%, from HK$386.7 million in 2003 to HK$206.4 million in 2004.

Taxation

Tax increased by HK$1.3 million, or 2.8%, from HK$46.2 million in 2003 to HK$47.5 million in 2004,primarily due to an increase in profit before tax generated from our non-rice foodstuffs trading division,which is subject to a 33% tax rate. The effective tax rate increased from 11.9% in 2003 to 23.0% in2004. The effective tax rate was relatively low in 2003, mainly because (i) our share of profits fromassociates amounted to HK$102.0 million in 2003, as compared to HK$17.5 million in 2004, which wasnot subject to tax levies and (ii) approximately 84.2% of our profit before tax in 2003 was contributed byour oilseed processing division and most of the subsidiaries in this division enjoyed preferential tax ratesin 2003 ranging from 15% to 27%. Tax expenses as a percentage of our total revenue were 0.3% in2004, compared to 0.4% in 2003.

Profit for the year

As a result of the changes in the items discussed above, our profit for the year decreased 53.3%,from HK$340.5 million in 2003 to HK$158.9 million in 2004.

Minority interests

Net profit attributable to minority interests decreased by HK$65.0 million, from HK$93.2 million in2003 to HK$28.2 million in 2004, primarily due to the decrease in profit generated by East Ocean Oils &Grains Industries (Zhangjiagang) Co., Ltd. ( ) and Yellowsea Oils &Grains Industries (Shandong) Co., Ltd. ( ) as a result of the increased costsof soybeans.

Net profit for the year attributable to equity holders of the Company

As a result of the changes in the items discussed above, our net profit for the year attributable toequity holders of the Company decreased 47.1%, from HK$247.3 million in 2003 to HK$130.7 million in2004. Our net profit margin decreased from 2.0% in 2003 to 0.8% in 2004.

Combined Results of Heilongjiang Alcohol Group

Our biofuel and biochemical business dates back to January 27, 2006 when COFCO Groupacquired management control over Heilongjiang Alcohol and its subsidiary Heilongjiang Winery fromChina Resources (Holdings) Company Limited. The historical financial statements of HeilongjiangAlcohol Group as at December 31, 2003, 2004 and 2005 and for the three years ended December 31,2005 and for the nine months ended September 30, 2005 as set out in Appendix IIB to this prospectusand other financial data included elsewhere in this prospectus reflect Heilongjiang Alcohol Group’sfinancial results while it was under the control of its previous parent company, China Resources(Holdings) Company Limited, for those periods, while the audited historical financial statements ofHeilongjiang Alcohol Group as at and for the nine months ended September 30, 2006 as set out inAppendix IIB to this prospectus and other financial data included elsewhere in this prospectus reflectHeilongjiang Alcohol Group’s financial results while it was under the control of COFCO Group, exceptfor the period from January 1, 2006 through January 27, 2006, when it was still under the control ofChina Resources (Holdings) Company Limited. Since January 1, 2003, however, the key managementpersonnel of Heilongjiang Alcohol Group have remained the same, since such personnel joined COFCOGroup upon COFCO Group’s acquisition of Heilongjiang Alcohol Group.

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The table below sets forth the major components of Heilongjiang Alcohol Group’s profit and loss asa percentage of revenue for the periods indicated.

Nine monthsYear ended December 31 ended September 302003 2004 2005 2005 2006

(unaudited)% of revenue

REVENUE ************************************** 100.0 100.0 100.0 100.0 100.0Cost of sales ************************************ (79.3) (87.7) (87.0) (87.0) (83.1)

Gross profit ************************************* 20.7 12.3 13.0 13.0 16.9Government grants******************************* 1.2 4.9 16.4 16.7 14.1Other income and gains ************************** 0.3 0.4 1.2 1.0 2.1Selling and distribution costs ********************** (8.8) (6.8) (7.1) (7.1) (7.1)Administrative expenses ************************** (4.2) (4.2) (5.2) (5.2) (5.2)Write-back of impairment of/(impairment of)

receivables ************************************ 0.1 (0.7) — — —Other expenses********************************** (0.2) (0.2) (0.2) (0.2) (0.1)Finance costs *********************************** (1.7) (2.7) (2.8) (2.8) (2.5)

PROFIT BEFORE TAX *************************** 7.4 3.0 15.3 15.4 18.2Taxation***************************************** — — (2.4) (2.3) (2.8)

PROFIT FOR THE YEAR/PERIOD***************** 7.4 3.0 12.9 13.1 15.4

ATTRIBUTABLE TO:Equity holders of Heilongjiang Alcohol ************ 7.4 3.0 12.9 13.1 15.4Minority interests******************************* — — — — —

Nine months ended September 30, 2006 compared to nine months ended September 30, 2005

Revenue

The table below sets out Heilongjiang Alcohol Group’s total revenue and the revenue andpercentage of its total revenue attributable to each of its products for the nine months endedSeptember 30, 2005 and 2006, as well as the growth rate of its revenue attributable to each of itsproducts from the nine months ended September 30, 2005 to the nine months ended September 30,2006.

Nine months ended September 30

2005 2006

Revenue RMB millions RMB millions Change%

(unaudited)

Fuel ethanol*************************************** 320.8 409.9 27.8%Consumable ethanol ******************************* 414.1 371.2 (10.4%)Anhydrous ethanol ********************************* 44.6 82.4 84.8%DDGS ******************************************** 152.3 144.7 (5.0%)Crude corn oil ************************************* 55.4 51.8 (6.5%)Others******************************************** 6.6 8.9 (34.8%)Total ********************************************* 993.8 1,068.9 7.6%

Heilongjiang Alcohol Group’s revenue increased by RMB75.1 million (HK$72.8 million), or 7.6%,from RMB993.8 million (HK$940.2 million) in the nine months ended September 30, 2005 toRMB1,068.9 million (HK$1,035.8 million) in the nine months ended September 30, 2006, primarily dueto an increase of 27.8% in revenue from fuel ethanol, as a result of an increase of 7.0% and 19.5%,

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respectively, in sales volume and selling price. The selling price of fuel ethanol is set by relevant PRCGovernment agencies at 91.11% of the guidance wholesale price of No. 90 gasoline published by theNational Development and Reform Commission from time to time. The selling price of fuel ethanolincreased 19.5% in the nine months ended September 30, 2006, compared to the same period of 2005,because the National Development and Reform Commission increased the guidance wholesale price ofNo. 90 gasoline twice during the nine months ended September 30, 2006.


Heilongjiang Alcohol Group’s cost of sales increased by RMB23.7 million (HK$23.0 million), or2.7%, from RMB864.5 million (HK$817.9 million) in the nine months ended September 30, 2005 toRMB888.2 million (HK$860.7 million) in the nine months ended September 30, 2006, primarily due tothe increase in raw material purchase prices. Raw material costs increased by RMB21.5 million(HK$20.8 million), and represented 75.1% of cost of sales in the nine months ended September 30,2006, compared to 75.0% in the nine months ended September 30, 2005. Heilongjiang Alcohol Group’sgross profit increased by RMB51.4 million (HK$49.8 million), or 39.8%, from RMB129.3 million(HK$122.3 million) in the nine months ended September 30, 2005 to RMB180.7 million(HK$175.1 million) in the nine months ended September 30, 2006. The growth in Heilongjiang AlcoholGroup’s gross profit in the nine months ended September 30, 2006 was principally attributable to a profitcontributed by sales of fuel ethanol in the nine months ended September 30, 2006, compared to a lossin the nine months ended September 30, 2005, as a result of increased selling price. HeilongjiangAlcohol Group’s gross profit margin increased from 13.0% in the nine months ended September 30,2005 to 16.9% in the nine months ended September 30, 2006, primarily due to the increase in theaverage selling price of fuel ethanol, partly offset by a decrease in the average selling price of DDGSand crude corn oil.

Government grants

Heilongjiang Alcohol Group’s government grants decreased by RMB14.9 million (HK$14.4 million),or 9.0%, from RMB166.1 million (HK$157.1 million) in the nine months ended September 30, 2005 toRMB151.2 million (HK$146.5 million) in the nine months ended September 30, 2006, primarily becausethe government subsidy for fuel ethanol decreased by RMB255 or 15.7% per metric ton, fromRMB1,628 per metric ton sold in the nine months ended September 30, 2005 to RMB1,373 per metricton sold in the nine months ended September 30, 2006. The PRC Government adjusted the subsidygranted for fuel ethanol sold per metric ton in the nine months ended September 30, 2006, primarily inconsideration of the higher selling price of fuel ethanol during this period. Government grants as apercentage of revenue were 14.1% in the nine months ended September 30, 2006, compared to 16.7%in the nine months ended September 30, 2005.


Heilongjiang Alcohol Group’s other income and gains increased by RMB12.8 million(HK$12.4 million), from RMB10.1 million (HK$9.6 million) in the nine months ended September 30,2005 to RMB22.9 million (HK$22.2 million) in the nine months ended September 30, 2006, primarily dueto an increase in tax refunds of RMB12.5 million (HK$12.1 million). Fuel ethanol producers enjoy arefund of all value added tax. The sale of fuel ethanol by the Heilongjiang Alcohol Group increased inthe nine months ended September 30, 2006 compared to the same period in 2005. Therefore,Heilongjiang Alcohol Group paid more value added tax during the nine months ended September 30,2006 compared to the same period in 2005 based on the increased sales and as a result, received morevalue added tax refund. Other income and gains as a percentage of revenue were 2.1% in the ninemonths ended September 30, 2006, compared to 1.0% in the same period in 2005.

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Heilongjiang Alcohol Group’s selling and distribution costs increased by RMB4.9 million(HK$4.7 million), or 6.9%, from RMB70.8 million (HK$67.0 million) in the nine months endedSeptember 30, 2005 to RMB75.7 million (HK$73.4 million) in the nine months ended September 30,2006, primarily due to an increase in transportation expenses as a result of increased railway freightrates in the nine months ended September 30, 2005. Selling and distribution costs as a percentage ofrevenue remained stable at 7.1% in the nine months ended September 30, 2005 and 2006.


Heilongjiang Alcohol Group’s administrative expenses increased by RMB4.2 million(HK$4.1 million), or 8.2%, from RMB51.3 million (HK$48.5 million) in the nine months endedSeptember 30, 2005 to RMB55.5 million (HK$53.8 million) in the nine months ended September 30,2006, primarily due to an increase in salary costs. Administrative expenses as a percentage of revenueof Heilongjiang Alcohol Group remained the same at 5.2% in the nine months ended September 30,2005 and 2006.

Write-back of impairment of/(impairment of) receivables

Heilongjiang Alcohol Group’s write-back of impairment of receivables amounted to RMB0.5 million(HK$0.5 million) in the nine months ended September 30, 2006, compared to RMB0.1 million(HK$0.1 million) in the nine months ended September 30, 2005.

Other expenses

Heilongjiang Alcohol Group’s other expenses decreased from RMB2.3 million (HK$2.2 million) inthe nine months ended September 30, 2005 to RMB0.8 million (HK$0.8 million) in the nine monthsended September 30, 2006.

Finance costs

Heilongjiang Alcohol Group’s finance costs decreased by RMB1.9 million (HK$1.8 million), or 6.7%,from RMB28.2 million (HK$26.7 million) in the nine months ended September 30, 2005 toRMB26.3 million (HK$25.5 million) in the nine months ended September 30, 2006, primarily due to aslight decrease in interest expense on borrowings. Finance costs as a percentage of revenue decreasedfrom 2.8% in the nine months ended September 30, 2005 to 2.5% in the nine months endedSeptember 30, 2006.

Profit before tax

As a result of the changes in the items discussed above, Heilongjiang Alcohol Group’s profit beforetax increased by RMB44.0 million (HK$42.6 million), or 28.8%, from RMB153.0 million(HK$144.7 million) in the nine months ended September 30, 2005 to RMB197.0 million(HK$190.9 million) in the nine months ended September 30, 2006.

Taxation

Heilongjiang Alcohol Group’s tax increased by RMB8.0 million (HK$7.8 million), or 35.7%, fromRMB22.4 million (HK$21.2 million) in the nine months ended September 30, 2005 to RMB30.4 million(HK$29.5 million) in the nine months ended September 30, 2006, primarily as a result of increasedtaxable profit during the period. Heilongjiang Alcohol Group, as a foreign-invested enterprise, enjoys anexemption of the 3% local portion of the corporate income tax from 2002 to 2012 granted by thegovernment of Heilongjong Province in accordance with a foreign investment incentive policy.Heilongjiang Alcohol Group is also entitled to an exemption from the national corporate income tax forthe two years ended December 31, 2003 and a 50% reduction of the national corporate income tax for

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the three years ended December 31, 2006. The effective tax rate of Heilongjiang Alcohol Group was15.4% in the nine months ended September 30, 2006, compared to 14.7% in the nine months endedSeptember 30, 2005. Tax expenses as a percentage of revenue were 2.8% in the nine months endedSeptember 30, 2006, compared to 2.3% in the nine months ended September 30, 2005.

Profit for the period

As a result of the changes in the items discussed above, Heilongjiang Alcohol Group’s profit for theperiod increased by RMB36.0 million (HK$34.9 million), or 27.6%, from RMB130.6 million(HK$123.6 million) in the nine months ended September 30, 2005 to RMB166.6 million(HK$161.4 million) in the nine months ended September 30, 2006.

Minority interests

Net profit attributable to minority interests was RMB0.2 million (HK$0.2 million) in the nine monthsended September 30, 2005 and RMB0.1 million (HK$0.1 million) in the nine months endedSeptember 30, 2006, reflecting minority shareholders’ share of the profits of Heilongjiang Winery.

Net profit for the period attributable to equity holders of Heilongjiang Alcohol

As a result of the changes in the items discussed above, Heilongjiang Alcohol Group’s net profit forthe period attributable to equity holders of Heilongjiang Alcohol increased by RMB36.1 million(HK$35.0 million), or 27.7%, from RMB130.4 million (HK$123.4 million) in the nine months endedSeptember 30, 2005 to RMB166.5 million (HK$161.3 million) in the nine months ended September 30,2006. Heilongjiang Alcohol Group’s net profit margin increased from 13.1% in the nine months endedSeptember 30, 2005 to 15.4% in the nine months ended September 30, 2006.


Revenue

The table below sets out Heilongjiang Alcohol Group’s total revenue and the revenue andpercentage of its total revenue attributable to each of its products for the two years end December 31,2005, as well as the growth rate of its revenue attributable to each of its products from 2004 to 2005.

Year Ended December 31

2004 2005 Change %

RMB millions RMB millions

Fuel ethanol******************************************* 110.9 440.5 297.2%Consumable ethanol *********************************** 947.9 435.6 (54.0%)Anhydrous ethanol ************************************* 97.3 58.8 (39.6%)DDGS ************************************************ 311.9 203.1 (34.9%)Crude corn oil ***************************************** 113.9 70.5 (38.1%)Others************************************************ 13.8 152.9 1,008.0%Total ************************************************* 1,595.7 1,361.4 (14.7%)

Heilongjiang Alcohol Group’s total revenue decreased by RMB234.3 million (HK$222.5 million), orapproximately 14.7%, from RMB1,595.7 million (HK$1,505.4 million) in 2004 to RMB1,361.4 million(HK$1,292.9 million) in 2005, primarily because an increase in both selling volume and average sellingprice of fuel ethanol in 2005 and an increase of RMB139.1 million (HK$132.1 million) from others wasmore than offset by a decrease in sales of consumable ethanol. The revenue from others was mainlyderived from distribution of consumable ethanol. The production of consumable ethanol remained stablein 2005 compared to 2004. However, a higher volume of consumable ethanol produced was used asraw material for the production of fuel ethanol and thus the actual sales of consumable ethanol as anend product was less in 2005 compared to 2004 and the revenue derived from the sale of the

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consumable ethanol decreased as a result. The sales volume of fuel ethanol increased by 98,251 metrictons, or 254.1%, from 38,666 metric tons in 2004 to 136,917 metric tons in 2005.

Heilongjiang Alcohol Group set up a new division in Jining, Shandong Province (‘‘Jining Branch’’) inJune 2004 to operate a leased factory for the production of consumable ethanol, as well as DDGS andcrude corn oil as by-products. Due to the insufficient local supply of raw materials, which resulted inhigher costs for raw material procurement, and underperformance of production facilities, Jining branchincurred losses. Heilongjiang Alcohol Group ceased the operation of Jining Branch at the end of 2004.Excluding the contribution of Jining Branch in 2004, Heilongjiang Alcohol Group’s total revenueamounted to RMB1,210.0 million (HK$1,141.5 million) in 2004 and increased by RMB151.4 million(HK$143.8 million) in 2005.


Heilongjiang Alcohol Group’s total cost of sales decreased by RMB215.3 million(HK$204.5 million), or 15.4%, from RMB1,399.2 million (HK$1,320.0 million) in 2004 toRMB1,183.9 million (HK$1,124.3 million) in 2005, primarily due to the termination of production at JiningBranch and a decrease in the purchase cost of corn in 2005, more than offsetting increased costsresulting from higher sales volume of fuel ethanol. Raw material costs decreased by RMB183.1 million(HK$173.9 million), which represented 74.6% of cost of sales in 2005, as compared to 76.2% in 2004.The decrease in cost of sales in 2005 was also attributable to a decrease of RMB47.6 million(HK$45.2 million), collectively, in labor costs and manufacturing costs, partially offset by an increase ofRMB15.3 million (HK$14.5 million) in energy costs, mainly reflecting a substantial increase in purchaseprice of coal in 2005. Heilongjiang Alcohol Group’s gross profit decreased 9.7%, from RMB196.5 million(HK$185.4 million) in 2004 to RMB177.5 million (HK$168.6 million) in 2005. Heilongjiang AlcoholGroup’s gross profit margin increased during this period, from 12.3% in 2004 to 13.0% in 2005, primarilydue to the termination of Jining branch, more than offsetting increased gross losses attributable to fuelethanol.

Government grants

Heilongjiang Alcohol Group’s government grants increased by RMB145.2 million(HK$137.9 million), or 186.6%, from RMB77.8 million (HK$73.4 million) in 2004 to RMB223.0 million(HK$211.8 million) in 2005, primarily due to an increase in government subsidies granted for fuelethanol, as a result of the increased sales volume of fuel ethanol. Government grants as a percentageof revenue were 16.4% in 2005, compared to 4.9% in 2004.


Heilongjiang Alcohol Group’s other income and gains increased 178.0%, from RMB5.9 million(HK$5.6 million) in 2004 to RMB16.4 million (HK$15.6 million) in 2005, mainly attributable to a refund ofvalue added tax in relation to sales of fuel ethanol, which mainly reflected the increase in the valueadded tax paid by Heilongjiang Alcohol Group during the same period. Other income and gains as apercentage of revenue were 1.2% in 2005, compared to 0.4% in 2004.


Heilongjiang Alcohol Group’s selling and distribution costs decreased by RMB11.6 million(HK$11.0 million), or 10.7%, from RMB108.0 million (HK$101.9 million) in 2004 to RMB96.4 million(HK$91.5 million) in 2005, mainly because (i) Jining Branch ceased operation at the end of 2004,resulting in a decrease in rental costs and maintenance expenses of its sales office; and (ii) a higherpercentage of Heilongjiang Alcohol Group’s revenue was generated from sales of fuel ethanol withinHeilongjiang province, resulting in a decrease in transportation expenses. Selling and distribution costsas a percentage of revenue were 7.1% in 2005, compared to 6.8% in 2004.

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Heilongjiang Alcohol Group’s administrative expenses increased by RMB4.5 million(HK$4.3 million), or 6.8%, from RMB66.2 million (HK$62.5 million) in 2004 to RMB70.7 million(HK$67.1 million) in 2005, primarily because Heilongjiang Alcohol Group increased staff social securitywelfare and performance bonuses. Administrative expenses as a percentage of revenue of HeilongjiangAlcohol Group were 5.2% in 2005, compared to 4.2% in 2004.


Heilongjiang Alcohol Group’s impairment of receivables decreased by RMB11.5 million(HK$10.9 million), from RMB11.8 million (HK$11.1 million) in 2004 to RMB0.3 million (HK$0.3 million) in2005. A provision of RMB11.8 million (HK$11.1 million) was made for doubtful debts in 2004 in relationto the operation of Jining Branch.

Other expenses

Heilongjiang Alcohol Group’s other expenses remained relatively stable during the period, atRMB2.8 million (HK$2.6 million) in 2004 and RMB2.9 million (HK$2.8 million) in 2005.

Finance costs

Heilongjiang Alcohol Group’s finance costs decreased by RMB4.8 million (HK$4.6 million), or11.2%, from RMB43.0 million (HK$40.6 million) in 2004 to RMB38.2 million (HK$36.3 million) in 2005,primarily due to decreased interest expenses on bank borrowings as a result of the repayment in 2005of part of the loans Heilongjiang Alcohol Group borrowed to finance its operation of Jining Branch in2004. Finance costs as a percentage of revenue remained stable during this period, at approximately2.7% in 2004 and 2.8% in 2005.

Profit before tax

As a result of the changes in the items discussed above, in particular the increase in governmentgrants and other income and gains, Heilongjiang Alcohol Group’s profit before tax increased byRMB160.0 million (HK$151.9 million), from RMB48.4 million (HK$45.7 million) in 2004 toRMB208.4 million (HK$197.9 million) in 2005.

Taxation

Heilongjiang Alcohol Group’s tax increased by RMB32.4 million (HK$30.8 million), fromRMB0.6 million (HK$0.6 million) in 2004 to RMB33.0 million (HK$31.3 million) in 2005, as a result ofincreased taxable profit. Heilongjiang Alcohol Group’s tax expenses in 2004 were relatively low,primarily attributable to (i) a tax reduction granted for purchase of certain equipment and (ii) a decreasein taxable profit in 2004, mainly resulting from the losses incurred by Jining Branch.

Profit for the year

As a result of the changes in the items discussed above, Heilongjiang Alcohol Group’s profit for theyear increased from RMB47.8 million (HK$45.1 million) in 2004 to RMB175.4 million (HK$166.6 million)in 2005.

Minority interests

Net profit attributable to minority interests was RMB0.1 million (HK$0.1 million) in 2004 andRMB0.2 million (HK$0.2 million) in 2005, reflecting minority shareholders’ share of the profits ofHeilongjiang Winery.

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Net profit for the year attributable to equity holders of Heilongjiang Alcohol

As a result of the changes in the items discussed above, Heilongjiang Alcohol Group’s net profit forthe year attributable to equity holders of Heilongjiang Alcohol increased by RMB127.5 million(HK$121.1 million), from RMB47.7 million (HK$45.0 million) in 2004 to RMB175.2 million(HK$166.4 million) in 2005 and Heilongjiang Alcohol Group’s net profit margin increased from 3.0% in2004 to 12.9% in 2005.


Revenue

The table below sets out Heilongjiang Alcohol Group’s total revenue and the revenue andpercentage of its total revenue attributable to each of its products for the two years end December 31,2004, as well as the growth rate of its revenue attributable to each of its products from 2003 to 2004.

Year Ended December 31

Revenue 2003 2004 Change %

RMB millions RMB millions

Fuel ethanol ****************************************** 9.2 110.9 1,105.4%Consumable ethanol *********************************** 673.4 947.9 40.8%Anhydrous ethanol************************************* 73.9 97.3 31.7%DDGS************************************************ 193.2 311.9 61.4%Crude corn oil***************************************** 66.5 113.9 71.3%Others *********************************************** 6.1 13.8 126.2%Total ************************************************* 1,022.3 1,595.7 56.1%

The total revenue of Heilongjiang Alcohol Group increased by RMB573.4 million(HK$540.9 million), or approximately 56.1%, from RMB1,022.3 million (HK$964.4 million) in 2003 toRMB1,595.7 million (HK$1,505.4 million) in 2004, primarily due to (i) an increase in production volumeand consequently sales volume of consumable ethanol, DDGS and crude corn oil at Jining Branchduring the period between July 2004 to November 2004; (ii) the increase of 19.4% in average sellingprice of consumable ethanol, primarily resulting from increased raw material costs and increasedmarket demand; and (iii) an increase in both sales volume and selling price of fuel ethanol. The salesvolume of fuel ethanol increased by 34,580 metric tons, or 846.3%, from 4,086 metric tons in 2003 to38,666 metric tons in 2004. The sales volume of fuel ethanol increased significantly in 2004 mainlybecause the local government of Heilongjiang Province encouraged the use of fuel ethanol forenvironmental protection purposes and initiated a programme, pursuant to which all gasoline stations inHeilongjiang Province are required to sell gasoline blended with fuel ethanol beginning from October2004.

Excluding the contribution of Jining Branch in 2004, Heilongjiang Alcohol Group’s revenue wouldhave increased by RMB187.7 million (HK$177.1 million), or 18.4%, from RMB1,022.3 million(HK$964.4 million) in 2003 to RMB1,210.0 million (HK$1,141.5 million) in 2004.

Cost of sales

Heilongjiang Alcohol Group’s total cost of sales increased approximately 72.6%, fromRMB810.6 million (HK$764.7 million) in 2003 to RMB1,399.2 million (HK$1,320.0 million) in 2004,primarily due to an increase in sales volume of fuel ethanol and consumable ethanol, as well as anincrease in corn prices. The contributing components to the increase in cost of sales in 2004 includedan increase in raw material costs, labor costs, energy costs and manufacturing costs ofRMB444.5 million (HK$419.3 million), RMB13.3 million (HK$12.5 million), RMB73.9 million(HK$69.7 million) and RMB56.9 million (HK$53.7 million), respectively. Raw material costs represented76.2% of cost of sales in 2004, as compared to 76.7% in 2003. Gross profit of Heilongjiang AlcoholGroup decreased approximately 7.2%, from RMB211.7 million (HK$199.7 million) in 2003 toRMB196.5 million (HK$185.4 million) in 2004 primarily due to (i) decreased gross profit from

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consumable ethanol resulting from the losses incurred by Jining Branch and (ii) increased losses fromsales of fuel ethanol, because of increased sale volume and its negative gross profit margin.Heilongjiang Alcohol Group’s gross profit margin decreased during this period, from 20.7% in 2003 to12.3% in 2004, because cost of sales from Jining branch and fuel ethanol exceeded revenue in 2004.

Government grants

Heilongjiang Alcohol Group’s government grants increased by RMB66.0 million (HK$62.3 million),or 559.3%, from RMB11.8 million (HK$11.1 million) in 2003 to RMB77.8 million (HK$73.4 million) in2004, primarily as a result of the significant increase in sales volume of fuel ethanol. Government grantsas a percentage of revenue were 4.9% in 2004, compared to 1.2% in 2003.


Heilongjiang Alcohol Group’s other income and gains increased by RMB2.4 million(HK$2.3 million), or 68.6%, from RMB3.5 million (HK$3.3 million) in 2003 to RMB5.9 million(HK$5.6 million) in 2004, primarily due to an increase in value added tax refunds in relation to sales offuel ethanol.


Heilongjiang Alcohol Group’s selling and distribution costs increased by RMB18.1 million(HK$17.1 million), or 20.1%, from RMB89.9 million (HK$84.8 million) in 2003 to RMB108.0 million(HK$101.9 million) in 2004, primarily due to an increase in transportation expenses in relation to thesales from Jining Branch. Selling and distribution costs as a percentage of revenue were 6.8% in 2004,compared to 8.8% in 2003.


Heilongjiang Alcohol Group’s administrative expenses increased by RMB23.6 million(HK$22.3 million), or 55.4%, from RMB42.6 million (HK$40.2 million) in 2003 to RMB66.2 million(HK$62.5 million) in 2004, primarily due to rental and administrative expenses incurred by the operationof Jining Branch. Administrative expenses as a percentage of revenue remained stable during thisperiod, at approximately 4.2% in both 2003 and 2004.


Heilongjiang Alcohol Group’s impairment of receivables amounted to RMB11.8 million(HK$11.1 million) in 2004, primarily attributable to the provision for the losses incurred by Jining Branchin 2004, compared to a write-back of RMB0.8 million (HK$0.8 million) in 2003.

Other expenses

Heilongjiang Alcohol Group’s other expenses increased from RMB2.0 million (HK$1.9 million) in2003 to RMB2.8 million (HK$2.6 million) in 2004.

Finance costs

Heilongjiang Alcohol Group’s finance costs increased by RMB25.9 million (HK$24.4 million), or151.5%, from RMB17.1 million (HK$16.1 million) in 2003 to RMB43.0 million (HK$40.6 million) in 2004,primarily due to Heilongjiang Alcohol Group’s assumption of debt of a then fellow subsidiary as part ofconsideration for acquiring properties and equipment in the latter part of 2003, and increased interestexpenses as a result of increased outstanding bank loans in 2004, reflecting new loans HeilongjiangAlcohol Group incurred to finance its operation of Jining Branch. Finance costs as a percentage ofrevenue increased from approximately 1.7% in 2003 to approximately 2.7% in 2004.

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Profit before tax

As a result of the changes in the items discussed above, Heilongjiang Alcohol Group’s profit beforetax decreased by RMB27.8 million (HK$26.2 million), or 36.5%, from RMB76.2 million (HK$71.9 million)in 2003 to RMB48.4 million (HK$45.7 million) in 2004.

Taxation

Heilongjiang Alcohol Group recorded a tax expense of RMB0.6 million (HK$0.6 million) in 2004compared to a tax credit of RMB0.3 million (HK$0.3 million) in 2003. Heilongjiang Alcohol Group had atax credit of RMB0.3 million (HK$0.3 million) in 2003, due to a tax exemption in 2003 and a provision forbad debts and impairment of fixed assets, which resulted in a tax credit.

Profit for the year

As a result of the changes in the items discussed above, Heilongjiang Alcohol Group’s profit for theyear decreased by RMB28.7 million (HK$27.1 million), or 37.5%, from RMB76.5 million(HK$72.2 million) in 2003 to RMB47.8 million (HK$45.1 million) in 2004.

Minority interests

Net profit attributable to minority interests was RMB0.1 million (HK$0.1 million) in both 2003 and2004, reflecting minority shareholders’ share of the profits of Heilongjiang Winery.

Net profit for the year attributable to equity holders of Heilongjiang Alcohol

As a result of the changes in the items discussed above, Heilongjiang Alcohol Group’s net profit forthe year attributable to equity holders of Heilongjiang Alcohol decreased by RMB28.7 million(HK$27.1 million), or 37.6%, from RMB76.4 million (HK$72.1 million) in 2003 to RMB47.7 million(HK$45.0 million) in 2004, and Heilongjiang Alcohol Group’s net profit margin decreased from 7.4% in2003 to 3.0% in 2004.

A1A 32(5)(a),(b)LIQUIDITY AND CAPITAL RESOURCES

We operate in a capital intensive industry. Our principal sources of funds have been cashgenerated from operations and borrowings under various short-term and long-term loan facilities andlines of credit, as well as equity contributions from shareholders. Our liquidity requirements relateprimarily to purchases of fixed assets, servicing our indebtedness and working capital.

Our liquidity position is primarily affected by (i) our inventory levels of agricultural raw materials andof finished products, (ii) the level of our accounts payables and receivables, and (iii) our ability to obtainexternal financing to meet our debt obligations and to finance our capital expenditures.

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Cash Flows

The Group

The following table sets out selected cash flow data from our combined cash flow statements for theperiods indicated. Our cash and cash equivalents are held primarily in RMB.


2003 2004 2005 2005 2006

HK$ HK$ HK$ HK$ HK$millions millions millions millions millions

(unaudited)

Net cash (outflow)/inflow from operatingactivities *************************** (353.0) 614.0 264.6 971.2 16.0

Net cash (outflow)/inflow from investingactivities *************************** (857.5) (455.7) (1,022.5) (419.4) (101.0)

Net cash inflow/(outflow) from financingactivities *************************** 1,049.6 (93.6) 823.3 511.9 553.7

(Decrease)/increase in cash and cashequivalents************************* (160.9) 64.7 65.4 1,063.7 468.7

Cash and cash equivalents at the end ofthe year/period ********************* 389.9 454.0 523.8 1,550.8 1,032.3

Operating activities

Our operating activities generated cash of HK$16.0 million in the nine months endedSeptember 30, 2006, and generated cash of HK$971.2 million in the nine months ended September 30,2005. While our operating activities used cash of HK$353.0 million in 2003, net cash inflow generatedfrom our operating activities amounted to HK$614.0 million and HK$264.6 million in 2004 and 2005,respectively. Cash flows generated from or used in operating activities are primarily a result of changesin our cash flows from operations before receipt and payment of interest and tax payments, which in turndepend on the timing of the acquisition of, and the market price for, agricultural raw materialsinventories and the timing of our sales and actual settlement.

Nine months ended September 30, 2006 Net cash generated in operating activities in the ninemonths ended September 30, 2006 amounted to HK$16.0 million, while our operating profit beforechanges in working capital for the same period was HK$794.2 million. The cash outflow ofHK$778.2 million was primarily due to (i) a decrease in amounts due to related companies and amountsdue to fellow subsidiaries of an aggregate of HK$507.8 million, mainly reflecting a decrease in payablesfor purchases of raw materials through Grand Ocean (a subsidiary of COFCO serving as importingagent for our Oilseed Processing operations) and a settlement of payables to fellow subsidiaries, (ii) anincrease of HK$270.5 million in amounts due from fellow subsidiaries, primarily reflecting our depositsplaced at COFCO Finance and (iii) an increase of HK$291.1 million in prepayments, deposits and otherreceivables primarily due to an increase of HK$236.5 million of prepayments, mainly for raw materialsfor the oilseed processing division, partly offset by a decrease in accounts and bills receivable ofHK$269.8 million, primarily due to settlement of a significant amount of trade receivables at thebeginning of 2006 resulting from the sales of white rice at the end of 2005 by a rice trading subsidiary ofours.

Nine months ended September 30, 2005 Net cash generated from operating activities in the ninemonths ended September 30, 2005 amounted to HK$971.2 million, while our operating profit beforechanges in working capital for the same period was HK$466.5 million. The cash inflow ofHK$504.7 million was primarily due to (i) an increase of HK$399.6 million in accounts payable, mainlyreflecting the increase in the purchase of soybeans as raw materials, (ii) an increase ofHK$359.6 million in amounts due to fellow subsidiaries, primarily reflecting an increase in accounts

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payable to fellow subsidiaries for the purchase of raw materials, (iii) a decrease of HK$237.7 million inamounts due from fellow subsidiaries, primarily reflecting payments received from COFCO Internationaland (iv) a decrease of HK$216.0 million in accounts and bills receivable, primarily reflecting paymentsreceived from Eastbay Oils & Fats Industries (Guangzhou) Co., Ltd. ( ),partly offset by an increase in inventories of HK$730.6 million, primarily attributable to a low inventorylevel in 2004 because our oilseed processing operation consumed its soybean inventory built up in 2003and avoided replacing it with new inventory due to the significant increase in the import price ofsoybeans in 2004.

2005 Net cash generated from operating activities in 2005 amounted to HK$264.6 million, whileour operating profit before changes in working capital for the same period was HK$596.4 million. Thecash outflow of HK$331.8 million was primarily due to (i) an increase in inventories of HK$986.4 million,primarily attributable to an increase of approximately HK$689.1 million at East Ocean Oils & GrainsIndustries (Zhangjiagang) Co., Ltd. ( ) and Yellowsea Oils & GrainsIndustries (Shandong) Co., Ltd. ( ), mainly raw materials, and an increaseof approximately HK$125.0 million at East Ocean Oils & Grains Industries (Zhangjiagang) Co., Ltd.( ), mainly rapeseed inventory it purchased at the end of 2005 and (ii) anincrease of HK$142.0 million in prepayments, deposits and other receivables, mainly for raw materials,partly offset by (i) an increase in amounts due to related companies and fellow subsidiaries of anaggregate of HK$732.0 million, primarily reflecting payables for purchases of raw materials throughGrand Ocean and a fellow subsidiary; and (ii) a decrease of HK$258.5 million in amounts due fromfellow subsidiaries, primarily as a result of repayment of deposits placed at COFCO Finance.

2004 Net cash generated from operating activities in 2004 amounted to HK$614.0 million,while our operating profit before changes in working capital for the same period wasHK$457.1 million. The cash inflow of HK$156.9 million was primarily due to a decrease ininventories of HK$924.4 million and a decrease in prepayments, deposits and other receivables ofHK$454.9 million, primarily due to the use in our oilseed processing operations in 2004 of soybeaninventories we built up in 2003 as soybean prices increased sharply in 2004, partly offset by (i) anincrease in amounts due from fellow subsidiaries of HK$282.7 million, primarily resulting from thedeposits placed at COFCO Finance by one of our subsidiaries engaging in the rice tradingbusiness; (ii) a decrease in other payables and accruals of HK$259.9 million, primarily due to (x) alarge amount of prepayments received by one of our subsidiaries engaging in rice trading businessat the end of 2003 and (y) payables incurred by our oilseed processing business for its constructionof plants in 2003, which were settled in 2004; and (iii) an increase in accounts receivable ofHK$250.0 million, resulting from (x) an increase in account receivables of East Ocean Oils & GrainsIndustries (Zhangjiagang) Co., Ltd. ( ), primarily due to its increasedrevenue in 2004 and (y) sales of rice by a rice trading subsidiary of ours at the end of 2004.

2003 We had a net cash outflow of HK$353.0 million from operating activities in 2003, while ouroperating profit before changes in working capital for the same period was HK$498.8 million. The cashoutflow of HK$851.8 million was primarily due to an increase in inventories of HK$835.4 million and anincrease in prepayments, deposits and other receivables of HK$549.0 million, primarily due to the buildup of soybean inventories at East Ocean Oils & Grains Industries (Zhangjiagang) Co., Ltd.( ) in anticipation of increases in soybean prices, partly offset by (i) anincrease in accounts payable of HK$162.3 million, primarily attributable to the purchase of soybeaninventories in 2003 as described above, (ii) an increase in amounts due to fellow subsidiaries ofHK$138.1 million, mainly reflecting the accounts payable to and borrowings from subsidiaries ofCOFCO incurred by our subsidiaries and (iii) an increase in amounts due to related parties ofHK$136.6 million, primarily due to a purchase of soybeans by East Ocean Oils & Grains Industries(Zhangjiagang) Co., Ltd. ( ) from a joint venture between COFCO andthird parties.

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Investing activities

Nine months ended September 30, 2006 Net cash used in investing activities in the nine monthsended September 30, 2006 amounted to HK$101.0 million, primarily reflecting purchases of equipmentfor our oilseed processing operations, purchase of storage tanks and construction of a new fuel ethanolworkshop at Heilongjiang Alcohol, construction of malt processing facilities at Jiangyin, and cornprocessing and biochemical production facilities at Gongzhuling and Yushu, and purchasesof plant, property and equipment at Shenyang Xiangxue Flour Limited Liability Company( ), which investments were offset by (i) the release of time deposits ofHK$399.6 million pledged for bank loans and (ii) cash additions as a result of the acquisition ofHeilongjiang Alcohol Group of HK$240.1 million.

Nine months ended September 30, 2005 Net cash used in investing activities in the nine monthsended September 30, 2005 amounted to HK$419.4 million, primarily reflecting purchases of fixedassets of HK$394.9 million, partly offset by a decrease of HK$62.5 million in deposits paid forpurchases of property, plant and equipment. The purchases of fixed assets of HK$394.9 million wereprimarily related to the purchase of equipment for our oilseed processing operations, construction ofrice processing facilities at COFCO Jiangxi Rice Processing Limited ( ) and maltproduction facilities at Jiangyin, as well as construction of a new workshop at Shenyang Xiangxue FlourLimited Liability Company ( ).

2005 Net cash used in investing activities in 2005 amounted to HK$1,022.5 million, primarilyreflecting purchases of fixed assets of HK$649.9 million and time deposits of HK$404.3 million pledgedfor bank loans, partially offset by proceeds from disposal of property, plant and equipment of two of ourwheat processing facilities and compensation received in relation to such plant reallocation. Purchasesof fixed assets were primarily related to the purchase of equipment for our oilseed processingoperations, construction of rice processing facilities at COFCO Jiangxi Rice Processing Limited( ) and malt production facilities at Jiangyin, as well as construction of a newworkshop at Shenyang Xiangxue Flour Limited Liability Company ( ).

2004 Net cash used in investing activities in 2004 amounted to HK$455.7 million, primarilyreflecting purchases of fixed assets of HK$546.4 million, partly offset by compensation received inrelation to our relocation of two wheat processing plants of HK$88.7 million. The purchases of fixedassets of HK$546.4 million were mainly related to the purchase of equipment for our oilseed processingoperations, construction of rice processing facilities at COFCO Jiangxi Rice Processing Limited( ) and malt production facilities at Jiangyin, acquisition of Shenyang XiangxueFlour Limited Liability Company ( ) and construction of a new workshop atShenyang Xiangxue Flour Limited Liability Company ( ).

2003 Net cash used in investing activities in 2003 amounted to HK$857.5 million, primarilyreflecting purchases of fixed assets of HK$879.1 million. Purchases of fixed assets were primarilyrelated to the construction of rice processing facilities at COFCO Jiangxi Rice Processing Limited( ) and purchase of equipment for our oilseed processing operations.

Financing activities

Nine months ended September 30, 2006 Net cash from financing activities for the nine monthsended September 30, 2006 amounted to HK$553.7 million, primarily reflecting (i) new bank and otherloans of HK$6,664.0 million, (ii) an increase of HK$460.5 million in amounts due to immediate holdingcompany, reflecting shareholder loans from COFCO (HK) used to acquire biofuel and biochemicalbusiness and invest in COFCO Malt (Jiangyin) Co., Ltd. ( ), and(iii) HK$96.6 million in contributions from COFCO (HK) to Guangxi COFCO Bio-Energy Co., Ltd.( ), partly offset by repayments of bank and other borrowings ofHK$6,606.5 million.

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Nine months ended September 30, 2005 Net cash from financing activities for the nine monthsended September 30, 2005 amounted to HK$511.9 million, primarily reflecting new bank loans andother loans of HK$7,250.8 million, partly offset by HK$6,916.6 million in repayments of bank and otherloans.

2005 Net cash from financing activities in 2005 amounted to HK$823.3 million, primarily reflectingnew bank loans and other loans of HK$8,815.4 million, partly offset by HK$8,207.7 million inrepayments of bank and other loans.

2004 Net cash used in financing activities in 2004 amounted to HK$93.6 million, primarilyreflecting repayment of bank and other loans of HK$7,976.1 million, partly offset by new bank and otherloans of HK$7,653.8 million.

2003 Net cash from financing activities in 2003 amounted to HK$1,049.6 million, primarilyreflecting new bank loans and other loans of approximately HK$6,910.9 million, partly offset byHK$5,930.8 million in the repayments of bank and other loans.

Heilongjiang Alcohol Group

Heilongjiang Alcohol Group had cash and cash equivalents of RMB22.0 million (HK$20.8 million),RMB63.1 million (HK$59.5 million), RMB193.5 million (HK$185.9 million) and RMB22.7 million(HK$22.4 million) as at December 31, 2003, 2004 and 2005 and September 30, 2006, respectively.Heilongjiang Alcohol Group’s cash and cash equivalents are held primarily in Renminbi.

Operating activities

Heilongjiang Alcohol Group’s operating activities generated cash of RMB51.4 million(HK$48.5 million), RMB63.8 million (HK$60.2 million), RMB107.5 million (HK$102.1 million),RMB96.4 million (HK$91.2 million) and RMB151.4 million (HK$146.7 million) for the three years endedDecember 31, 2005 and the nine months ended September 30, 2005 and 2006, respectively. Cashflows from operating activities of Heilongjiang Alcohol Group are primarily a result of changes inHeilongjiang Alcohol Group’s cash flows from operations before receipt and payment of interest and taxpayments, which in turn depend on the timing of the purchase of and the market price for agriculturalraw materials inventories and the timing of Heilongjiang Alcohol Group’s sales and actual settlements.

Nine months ended September 30, 2006 Net cash from operating activities in the nine monthsended September 30, 2006 amounted to RMB151.4 million (HK$146.7 million), while HeilongjiangAlcohol Group’s operating profit before changes in working capital for the same period wasRMB122.3 million (HK$118.5 million). The cash inflow of RMB29.1 million (HK$28.2 million) wasprimarily due to a receipt of RMB239.4 million (HK$232.0 million) in the government grants in relation toproduction of fuel ethanol and a decrease in inventories of RMB55.0 million (HK$53.3 million), partlyoffset by (i) an increase in amounts due from fellow subsidiaries of RMB231.1 million(HK$223.9 million), primarily reflecting deposits Heilongjiang Alcohol Group placed at COFCO Financeafter Heilongjiang Alcohol Group was acquired by COFCO Group in early 2006; and (ii) an increase ofRMB23.5 million (HK$22.8 million) in prepayments, deposits and other receivables, primarily reflectingan increase of RMB12.7 million (HK$12.3 million) in prepayments, mainly for the purchase of corn asraw materials, and a refundable value added tax of RMB4.9 million (HK$4.7 million) as otherreceivables.

Nine months ended September 30, 2005 Net cash from operating activities in the nine monthsended September 30, 2005 amounted to RMB96.4 million (HK$91.2 million), while Heilongjiang AlcoholGroup’s operating profit before changes in working capital for the same period was RMB66.4 million(HK$62.8 million). The cash inflow of RMB30.0 million (HK$28.4 million) was primarily due to receipt ofgovernment grants of RMB108.9 million (HK$103.0 million) in relation to production of fuel ethanol anda decrease in accounts receivable of RMB37.1 million (HK$35.1 million), mainly reflecting the closure ofJining Branch at the end of 2004 and the imposition of a stricter settlement policy by Heilongjiang

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Alcohol Group, partly offset by an increase in prepayments, deposits and other receivables ofRMB94.2 million (HK$89.1 million), primarily reflecting government subsidies receivable ofRMB57.2 million (HK$54.1 million) in relation to fuel ethanol production.

2005 Net cash generated from operating activities in 2005 amounted to RMB107.5 million(HK$102.1 million), while Heilongjiang Alcohol Group’s operating profit before changes in workingcapital for the same period was RMB88.6 million (HK$84.1 million). The cash inflow of RMB18.9 million(HK$17.9 million) was primarily due to receipt of government grants of RMB223.0 million(HK$211.8 million) in relation to production of fuel ethanol and a decrease in accounts receivable ofRMB43.4 million (HK$41.2 million), mainly reflecting the closure of Jining Branch and the imposition of astricter settlement policy by Heilongjiang Alcohol Group, partly offset by (i) an increase in prepayments,deposits and other receivables of RMB127.4 million (HK$121.0 million) mainly reflecting governmentsubsidies receivable of RMB114.0 million (HK$108.3 million) in relation to fuel ethanol production and(ii) an increase in inventories of RMB79.0 million (HK$75.0 million) primarily due to a building up of corninventories in 2005 as corn prices decreased as compared to 2004.

2004 Net cash generated from operating activities in 2004 amounted to RMB63.8 million(HK$60.2 million), while Heilongjiang Alcohol Group’s operating profit before changes in working capitalfor the same period was RMB92.5 million (HK$87.3 million). The cash outflow of RMB28.7 million(HK$27.1 million) was primarily due to (i) an increase in accounts receivable of RMB53.8 million(HK$50.8 million), primarily resulting from the significant increase in sales of fuel ethanol in 2004, (ii) anincrease in prepayments, deposits and other receivables of RMB26.6 million (HK$25.1 million), primarilyattributable to the operations of Jining Branch in 2004, and (iii) interest paid of RMB43.0 million(HK$40.6 million), partly offset by an increase in other payables and accruals of RMB13.8 million(HK$13.0 million), an increase in accounts payable of RMB10.0 million (HK$9.4 million) and receipt ofgovernment grant of RMB77.8 million (HK$73.4 million) in relation to production of fuel ethanol.

2003 Net cash generated from operating activities in 2003 amounted to RMB51.4 million(HK$48.5 million), while Heilongjiang Alcohol Group’s operating profit before changes in working capitalfor the same period was RMB113.2 million (HK$106.8 million). The cash outflow of RMB61.8 million(HK$58.3 million) was primarily due to (i) an increase in inventories of RMB23.8 million(HK$22.5 million), primarily reflecting an increase in inventory of raw materials, which was generally inline with Heilongjiang Alcohol Group’s growth in production and revenue in 2003, (ii) an increase inaccounts receivable of RMB22.3 million (HK$21.0 million) and (iii) an increase in due from then fellowsubsidiaries of RMB18.6 million (HK$17.5 million), primarily relating to a prepayment in 2003 forpurchase of properties and land use rights from a fellow subsidiary in 2004, partly offset by a decreasein prepayments, deposits and other receivables of RMB18.3 million (HK$17.3 million), mainly reflectinga decrease in prepayments for purchase of raw materials.

Investing activities

Nine months ended September 30, 2006 Net cash used in investing activities in the nine monthsended September 30, 2006 amounted to RMB270.2 million (HK$261.8 million), primarily reflectingpurchases of storage tanks and construction of a new workshop (including deposits paid) ofRMB290.8 million (HK$281.8 million).

Nine months ended September 30, 2005 Net cash used in investing activities in the nine monthsended September 30, 2005 amounted to RMB6.4 million (HK$6.1 million), primarily reflecting thepurchases of items of property, plant and equipment of RMB15.2 million (HK$14.4 million), partly offsetby government grants received of RMB8.8 million (HK$8.3 million) as an incentive to purchase certainequipment.

2005 Net cash used in investing activities in 2005 amounted to RMB27.2 million(HK$25.8 million), primarily reflecting the construction of a new product line for carbon dioxide, a by-product of Heilongjiang Alcohol and upgrading of certain current production technologies.

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2004 Net cash used in investing activities in 2004 amounted to RMB31.1 million(HK$29.3 million), primarily reflecting the construction of corn drying facilities and upgrading of certaincurrent production technologies.

2003 Net cash used in investing activities in 2003 amounted to RMB27.8 million(HK$26.2 million), primarily reflecting purchase costs of equipment and construction costs of a plant inthe expansion of production capacity for consumable ethanol and upgrading the production technologyof DDGS.

Financing activities

Nine months ended September 30, 2006 Net cash used in financing activities for the nine monthsended September 30, 2006 amounted to RMB52.0 million (HK$50.4 million), reflecting net repaymentsof bank and other loans.

Nine months ended September 30, 2005 Net cash from financing activities for the nine monthsended September 30, 2005 amounted to RMB0.2 million (HK$0.2 million), reflecting other loans ofRMB7.2 million (HK$6.8 million) from China Resources Group, offset by repayment of bank loans ofapproximately the same amount.

2005 Net cash from financing activities in 2005 amounted to RMB50.1 million (HK$47.6 million),reflecting capital contributions of RMB108.5 million (HK$103.0 million) from Heilongjiang AlcoholGroup’s immediate holding company Techbo Limited, partly offset by repayments of bank borrowingsand other loans of RMB58.4 million (HK$55.5 million).

2004 Net cash from financing activities in 2004 amounted to RMB8.3 million (HK$7.8 million),reflecting new loans of RMB10.3 million (HK$9.7 million) from China Resources Group, partly offset byrepayment of bank loans of RMB2.0 million (HK$1.9 million).

2003 Net cash used in financing activities in 2003 amounted to RMB34.5 million(HK$32.5 million), reflecting repayment of bank loans of RMB22.9 million (HK$21.6 million) andrepayment of loans from China Resources Group of RMB11.7 million (HK$11.0 million).

Net Current Assets of Heilongjiang Alcohol Group

As at September 30, 2006, Heilongjiang Alcohol Group had net current assets of approximatelyRMB10.2 million (HK$10.1 million). As at September 30, 2006, current assets amounted toapproximately RMB559.1 million (HK$551.4 million), primarily comprising amounts due from a fellowsubsidiary of RMB231.1 million (HK$227.9 million), inventories of RMB126.3 million (HK$124.6 million),accounts and bills receivables of RMB73.4 million (HK$72.4 million) and other receivables andprepayments of RMB100.4 million (HK$99.0 million). As at September 30, 2006, current liabilitiesamounted to RMB548.9 million (HK$541.3 million), primarily comprising interest-bearing bank and otherborrowings of RMB435.4 million (HK$429.4 million), accounts payable of RMB33.0 million(HK$32.5 million) and other payables and accruals of RMB71.8 million (HK$70.8 million).

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CAPITAL EXPENDITURES

The following table sets out our capital expenditures for the periods indicated.

Nine monthsended

Year ended December 31 September 30

Capital Expenditures 2003 2004 2005 2006

(HK$ millions)

Biofuel and biochemical ******************************** — — — 551.9Oilseed processing ************************************ 713.6 333.1 381.7 141.2Rice trading and processing **************************** 139.0 70.0 34.9 0.9Brewing materials************************************** 2.8 18.7 137.4 112.0Wheat processing ************************************* 25.3 89.4 76.2 50.6Consumer-pack edible oil ******************************* 2.1 1.0 2.4 2.6Food Trading ****************************************** 0.9 0.3 1.0 0.1

Total ************************************************* 883.7 512.5 633.6 859.3

Our capital expenditures for the three years ended December 31, 2005 and the nine months endedSeptember 30, 2006 amounted to HK$883.7 million, HK$512.5 million, HK$633.6 million andHK$859.3 million, respectively, which were used mostly for the construction of office buildings andplants as well as the purchase of equipment. Those capital expenditures were funded primarily out ofcash flows generated from operations and borrowings.

The following table sets out our estimate of capital expenditures for the periods indicated.

Year ended/ending December 31

Estimate of Capital Expenditures 2006 2007 2008

(HK$ millions)

Biofuel and biochemical(1)**************************************** 1,276.9 2,119.5 2,231.8Oilseed processing(2) ******************************************** 200.2 706.5 —Rice trading and processing(3) ************************************ 10.2 157.7 295.7Brewing materials(4) ********************************************* 150.0 150.0 210.0Wheat processing(5) ********************************************* 98.5 163.0 107.0

Total ********************************************************** 1,735.8 3,296.7 2,844.5

Notes:

(1) Please refer to ‘‘Our Business — Biofuel and Biochemical Division — Expansion Plans’’ and ‘‘Our Business — Biofuel andBiochemical Division — New Business’’.

(2) Please refer to ‘‘Our Business — Oilseed Processing Division — Expansion Plan’’.

(3) Please refer to ‘‘Our Business — Rice Trading and Processing Division — Overview’’.

(4) Please refer to ‘‘Our Business — Brewing Materials Division — Overview’’ and ‘‘Our Business — Brewing MaterialsDivision — Expansion Plans’’.

(5) Please refer to ‘‘Our Business — Wheat Processing Division — Overview’’ and ‘‘Our Business — Wheat ProcessingDivision — Expansion Plan’’.

For the year ended December 31, 2006 and the years ending December 31, 2007 and 2008, weexpect to incur approximately HK$1,735.8 million, HK$3,296.7 million and HK$2,844.5 million,respectively, in capital expenditures on construction of property and plants and the purchase ofequipment primarily relating to expansion of our production capacity. In relation to our estimated capitalexpenditures of HK$1,735.8 million for 2006, we had incurred HK$859.3 million as capital expendituresand recorded HK$400.3 million as capital commitments as at September 30, 2006. Of our capitalcommitments of HK$1,158.9 million as at September 30, 2006 (including HK$400.3 million for 2006estimated capital expenditures), HK$699.5 million and HK$59.1 million were related to our estimatedcapital expenditures for 2007 and 2008, respectively.

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We plan to finance such capital expenditures out of the net proceeds available to us from the GlobalOffering, our cash and cash equivalents on hand, available banking facilities and cash generated fromfuture operations. The budgeted amounts may vary from the actual amounts of capital expenditures fora variety of reasons, including changes in market conditions and other factors.

There is no guarantee that any of the planned capital expenditures outlined above will proceed asplanned. Should the Global Offering not proceed and alternate sources of funding not be available toreplace the net proceeds, we may delay or cancel certain of these planned capital expenditures. On theother hand, as we continue to expand, we may incur additional capital expenditures. In the future, wemay consider additional debt or equity financing, depending on market conditions, our financialperformance and other relevant factors. We cannot assure you, however, that we will be able to raiseadditional capital, should that become necessary, on terms acceptable to us or at all.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Contractual Obligations

The following table sets out our contractual obligations as at September 30, 2006. We expect tofund such contractual obligations principally from bank loans and cash generated from our operations.

Payments due by period

Less than More thanContractual obligations Total 1 Year 2-5 Years 5 Years

(HK$ millions)

Interest-bearing debt obligations(1) ******************** 4,222.9 4,065.0 157.9 —Operating lease obligations ************************** 35.4 16.5 15.9 3.0Total ********************************************** 4,258.3 4,081.5 173.8 3.0

Note:

(1) Including short-term and long-term interest-bearing bank and other borrowings.

Capital and Other Commitments

The following table shows our capital commitments in relation to property, plant and equipment andour commitments under future contracts as at the dates indicated. We expect to fund such commitmentsprincipally from bank loans, cash generated from our operations and the proceeds from the GlobalOffering.

As at December 31 As at September 30

2003 2004 2005 2006

(HK$ millions)

Capital commitments:

Authorized, but not contracted *********************** — — 236.1 273.3Contracted, but not provided for********************** 98.8 70.9 163.4 885.6

Total ********************************************* 98.8 70.9 399.5 1,158.9

Commitments under future contracts:

Sales of soybean meal ***************************** 140.3 98.0 80.1 46.2Sales of soybeans********************************** — — 127.1 —Purchase of soybean meal ************************** 81.3 1.0 — 23.3

Total ********************************************* 221.6 99.0 207.2 69.5

Our capital commitments increased as at September 30, 2006, mainly reflecting (i) HeilongjiangAlcohol’s construction of a new consumable ethanol production line in Zhaodong, Heilongjiang Provincebeginning in April 2006; and (ii) our construction of two new corn processing and biochemicalproduction facilities located in Yushu and Gongzhuling in Jilin Province.

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ACCOUNTS AND BILLS RECEIVABLES, INVENTORY AND ACCOUNTS PAYABLES

The following table sets forth the turnover days of our accounts and bills receivables, inventoriesand accounts payables for the periods indicated:

For the ninemonths endedFor the year endedSeptember 30December 31

2003 2004 2005 2006

(days)

Turnover days of accounts and bills receivables(1) ************** 12 13 16 13Turnover days of inventories(2) ******************************* 59 45 47 58Turnover days of accounts payables(3) ************************ 9 9 11 12

Notes:

(1) Turnover days of accounts and bills receivables are derived by dividing revenue by the arithmetic mean of the opening andclosing balances of trade receivables for the relevant period and multiplying by 365 days (or 273 days for the nine monthsperiod).

(2) Turnover days of inventories are derived by dividing cost of sales by the arithmetic mean of the opening and closingbalances of inventory for the relevant period and multiplying by 365 days (or 273 days for the nine months period).

(3) Turnover days of accounts payables are derived by dividing cost of sales by the arithmetic mean of opening and closingbalances of trade payables, for the relevant period and multiplying by 365 days (or 273 days for the nine months period).

Accounts and bills receivables. Our accounts and bills receivables mainly represent tradereceivables and bill receivables. Our accounts and bills receivables amounted to HK$446.1 million,HK$704.5 million, HK$751.8 million, HK$602.2 million and HK$985.2 million, respectively, as atDecember 31, 2003, 2004 and 2005, September 30, 2006 and January 31, 2007. The movements in ouraccounts and bills receivables as at December 31, 2003, 2004 and 2005 and September 30, 2006 weregenerally in line with the increases in revenue during the corresponding periods. Our subsequentsettlement of accounts and bills receivables from September 30, 2006 to November 30, 2006 amountedto HK$320.8 million. Turnover days of accounts and bills receivables remained relatively stable in 2003,2004 and 2005.

Inventory. Our inventory consists of raw materials, finished products, products under processingand commodities held for trading purposes (mainly rice). Inventory amounted to HK$2,333.2 million,HK$1,445.8 million, HK$2,490.0 million, HK$2,881.4 million and HK$3,032.8 million, respectively, as atDecember 31, 2003, 2004 and 2005, September 30, 2006 and January 31, 2007. The inventoryturnover days for 2004 and 2005 were relatively low, which mainly resulted from the low level ofinventory as at December 31, 2004. The level of inventory as at December 31, 2004 decreasedsubstantially because we consumed the soybean inventory we built up in 2003 when the soybeans priceincreased substantially in 2004. Our subsequent settlement of inventory from September 30, 2006 toNovember 30, 2006 amounted to HK$2,658.0 million.

Accounts payables. Our accounts payables mainly represented payables for purchase of rawmaterials. Our accounts payables amounted to HK$381.3 million, HK$376.8 million, HK$511.1 million,HK$650.4 million and HK$807.2 million, respectively, as at December 31, 2003, 2004 and 2005,September 30, 2006 and January 31, 2007. The movements in our accounts payables as atDecember 31, 2003, 2004 and 2005 and September 30, 2006 were generally in line with the increasesin revenue during the corresponding periods. Accounts payables’ turnover days remained relativelystable in 2003, 2004 and 2005. Our subsequent settlement of accounts payables from September 30,2006 to November 30, 2006 amounted to HK$496.7 million.

Prepayments, deposits and other receivables. Our prepayments, deposits and otherreceivables include prepayments for raw materials, prepayments for utilities, such as electricity andwater, and others. Our prepayments, deposits and other receivables amounted to HK$1,077.5 million,HK$624.0 million, HK$793.0 million, HK$1,178.1 million and HK$1,498.4 million, respectively, as atDecember 31, 2003, 2004 and 2005, September 30, 2006 and January 31, 2007. The higher level of

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prepayments, deposits and other receivables as at December 31, 2003 and September 30, 2006 wereprimarily related to the procurement of raw materials (mainly soybeans).

Other payables and accruals. Other payables and accruals include advances from customers,accrued payroll and staff welfare, payables for construction and others. Other payables and accrualsamounted to HK$793.2 million, HK$636.9 million, HK$597.4 million, HK$842.3 million andHK$1,067.2 million, respectively, as at December 31, 2003, 2004 and 2005, September 30, 2006 andJanuary 31, 2007. Other payables and accruals were lower as at December 31, 2004 and 2005, mainlybecause payables incurred by oilseed processing business in 2003 for its construction of plants weresettled in 2004.

NET CURRENT ASSETS

The table below sets forth our current assets, current liabilities and net current assets as atJanuary 31, 2007:

HK$ millions(unaudited)

Current assetsInventories ********************************************************************* 3,032.8Accounts and bills receivable***************************************************** 985.2Prepayments, deposits and other receivables ************************************** 1,498.4Due from fellow subsidiaries ***************************************************** 471.9Due from related companies ***************************************************** 2.9Tax recoverable***************************************************************** 115.5Pledged deposits *************************************************************** 10.2Cash and cash equivalents ****************************************************** 1,260.8

Total current assets ************************************************************* 7,377.7

Current liabilitiesAccounts payable *************************************************************** 807.2Other payables and accruals ***************************************************** 1,067.2Deferred income **************************************************************** 1.3Interest-bearing bank loans and other borrowings ********************************** 3,418.4Due to fellow subsidiaries******************************************************** 438.1Due to related companies ******************************************************* 126.3Tax payable ******************************************************************** 28.1

Total current liabilities *********************************************************** 5,886.6

Net current assets ************************************************************* 1,491.1

Our net current assets amounted to HK$1,491.1 million as at January 31, 2007, compared to netcurrent liabilities of HK$715.5 million as at September 30, 2006, as a result of (i) HK$780.2 million ofamounts due to a fellow subsidiary being capitalized as shareholders’ equity upon completion of theReorganization on December 31, 2006; (ii) a decrease in short-term loans of HK$646.5 million; (iii) anincrease of HK$1,787.9 million in long-term loans; and (iv) cash inflow generated from operatingactivities.

WORKING CAPITAL

Our net current liabilities as at December 31, 2003, 2004, 2005 and September 30, 2006 amountedto HK$472.5 million, HK$695.3 million, HK$992.3 million and HK$715.5 million, respectively, because(i) our purchases of agricultural raw materials are seasonal in nature and the harvest season for theseraw materials generally starts from the last quarter of each year and as a result, our current liabilities arehigher towards the end of each year and (ii) our decision to reduce the cost of borrowing by incurringshort-term loans, which generally bear lower interest rates compared to long-term loans. As at

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December 31, 2003, 2004, 2005 and September 30, 2006, our interest-bearing short-term bank loansand short-term other borrowings amounted to approximately 54.2%, 54.1%, 50.0% and 58.9% of ourtotal current liabilities.

A1A 36Notwithstanding our historical net current liabilities, our Directors confirm that we have sufficientworking capital for at least 12 months from the date of this prospectus regardless as to whether or notthe Global Offering is successfully completed due to the following reasons: (i) of the HK$1,424.4 millionloans from COFCO Finance as at September 30, 2006, the current portion amounted toHK$1,266.4 million. By the end of 2006, except for those loans that had almost reached maturity andwere subsequently repaid when due, the maturity dates relating to such current loans, which amountedto HK$1,213.4 million, were extended to dates ranging from January 2009 to October 2009. ByFebruary 16, 2007, we had repaid or replaced all the outstanding loans owed to COFCO Finance withthird-party loans. Such third party loans consisted of HK$810.5 million of short-term loans andHK$440.0 million of long-term loans; (ii) of the HK$919.6 million amounts due to fellow subsidiaries(current portion) as at September 30, 2006, HK$780.2 million is owed to COFCO International, which,together with the long-term portion of the amounts due to fellow subsidiaries and COFCO (HK) ofHK$1,323.0 million, have been capitalized as shareholders’ equity upon completion of theReorganization on December 31, 2006; (iii) we had HK$1,260.8 million of cash and cash equivalents asat January 31, 2007, as compared with HK$823.7 million of capital expenditure commitments(contracted but not provided for) as at the same date and (iv) we expect to achieve net cashflow fromoperations.

A1A 36Taking into account our cash and cash equivalents on hand, available banking facilities and cashgenerated from future operations, the Directors confirm that we have sufficient working capital for atleast 12 months from the date of this prospectus regardless as to whether or not the Global Offering issuccessfully completed.

A1A 32(2)

A1A 32(5)(b)

3rd Sch (23)

INDEBTEDNESS

As at December 31, 2003, 2004 and 2005, September 30, 2006 and January 31, 2007, we had thefollowing outstanding interest bearing borrowings from banks, COFCO, COFCO (HK), COFCO Financeand our employees:

As at December 31 As at September 30 As at January 312003 2004 2005 2006 2007HK$ HK$ HK$ HK$ millions HK$ millions

millions millions millions (Unaudited)

Secured borrowings ********** 76.6 67.1 517.7 684.3 669.2Unsecured borrowings ******** 3,015.0 2,725.1 2,927.2 3,538.6 4,695.0

Long-term borrowings (morethan one year) ************* 448.0 435.4 363.5 157.9 1,945.8

Short-term borrowings (lessthan one year) ************* 2,643.6 2,356.8 3,081.4 4,065.0 3,418.4

Bank borrowings ************* 2,339.0 2,063.4 1,621.1 2,798.5 4,472.4Borrowings from COFCO****** 18.9 30.5 279.6 — —Borrowings from COFCO (HK) 416.9 322.5 — — —Borrowings from COFCO

Finance(1)****************** 303.7 363.2 1,533.3 1,424.4 891.8Borrowings from employees *** 13.1 12.6 10.9 — —

Total interest-bearingborrowings *************** 3,091.6 2,792.2 3,444.9 4,222.9 5,364.2

Note:

(1) Borrowings from COFCO Finance had been fully repaid by February 16, 2007.

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Our interest-bearing long-term borrowings amounted to HK$448.0 million, HK$435.4 million,HK$363.5 million, HK$157.9 million and HK$1,945.8 million as at December 31, 2003, 2004 and 2005,September 30, 2006 and January 31, 2007, respectively. Our interest-bearing short-term borrowingsamounted to HK$2,643.6 million, HK$2,356.8 million, HK$3,081.4 million, HK$4,065.0 million andHK$3,418.4 million as at December 31, 2003, 2004 and 2005, September 30, 2006 and January 31,2007, respectively. As at September 30, 2006, our bank borrowings bore interest at fixed rates rangingfrom 4.86% to 7.56% per annum. Our other interest-bearing borrowings bore interest at fixed ratesranging from 4.70% to 6.02% per year. Our borrowings are denominated principally in Renminbi andUS dollars. We use our long-term borrowings mainly to fund capital expenditures and short-termborrowings to meet our working capital requirements.

As at December 31, 2003, 2004 and 2005, our interest-bearing borrowings from our employeesamounted to HK$13.1 million, HK$12.6 million and HK$10.9 million. By September 28, 2006, we hadrepaid all of such borrowings.

As at December 31, 2003, 2004 and 2005, our interest-bearing borrowings from COFCO amountedto HK$18.9 million, HK$30.5 million and HK$279.6 million. By September 15, 2006, we replaced allsuch borrowings with bank loans and loans from COFCO Finance bearing interest at fixed rates rangingfrom 4.70% to 7.56% per annum. Our borrowings from COFCO Finance had been fully repaid byFebruary 16, 2007.

Our gearing ratio was 55.3%, 51.0%, 54.3% and 47.2% as at December 31, 2003, 2004 and 2005and September 30, 2006. The gearing ratio is derived by dividing interest-bearing borrowings by thesum of interest-bearing borrowings and total equity.

A1A 32(3)As at December 31, 2003, 2004 and 2005 and September 30, 2006, bank borrowings ofHK$76.6 million, HK$67.1 million, HK$517.7 million and HK$684.3 million, respectively, were securedby property, plant, equipment, prepaid land premiums and time deposits with a total net book value ofHK$201.6 million, HK$124.1 million, HK$1,125.0 million and HK$881.3 million, respectively. As atJanuary 31, 2007, HK$669.2 million of our bank borrowings were secured by property, plant,equipment, prepaid land premiums and time deposits.

HK$50.1 million, HK$13.0 million and HK$47.6 million of our unsecured bank borrowings wasguaranteed by COFCO and an associate of ours as at December, 31, 2003, 2004 and 2005,respectively. There was no such guarantee outstanding as at September 30, 2006 and January 31,2007.

Our borrowings from COFCO Finance of HK$303.7 million, HK$363.2 million, HK$1,533.3 millionand HK$1,424.4 million as at December 31, 2003, 2004 and 2005 and September 30, 2006,respectively, were guaranteed by COFCO. As at January 31, 2007, our borrowings from COFCOFinance amounted to HK$891.8 million, which had been fully repaid by February 16, 2007.

As at December 31, 2003, 2004 and 2005 and September 30, 2006, we had the followingoutstanding interest-free liabilities due to our holding companies, fellow subsidiaries, related companiesand minority shareholders of subsidiaries:

As at September 30As at December 312003 2004 2005 2006HK$ HK$ HK$ HK$ millions

millions millions millions

Due to COFCO (HK)************************** 280.3 342.0 460.2 920.7Due to COFCO ****************************** 150.4 176.2 182.5 —Due to fellow subsidiaries ********************* 872.4 942.6 1,426.7 1,227.5Due to related companies ********************* 165.0 22.8 537.5 370.0Due to minority shareholders of subsidiaries***** 191.3 105.3 109.9 81.4Total interest-free liabilities********************* 1,659.4 1,588.9 2,716.8 2,599.6

Part of our liabilities are amounts due to our holding companies, fellow subsidiaries and relatedcompanies and minority shareholders of subsidiaries, which included loans without fixed terms of

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repayment and trade payables incurred in the ordinary course of business as described under‘‘Relationship with COFCO and COFCO International’’. As at December 31, 2003, 2004 and 2005 andSeptember 30, 2006, such amounts in aggregate were HK$1,659.4 million, HK$1,588.9 million,HK$2,716.8 million and HK$2,599.6 million, respectively. A substantial portion of the amounts due toCOFCO (HK), COFCO and COFCO International and COFCO (BVI) Limited (a wholly owned subsidiaryof COFCO) were unsecured and interest free, without fixed terms of repayment, and were used asequity investments into our operating subsidiaries located in the PRC. Such amounts were injected intothe relevant PRC operating subsidiaries through overseas members of COFCO Group in the form ofinterest-free shareholders’ loans. Of HK$2,148.2 million of amounts due to COFCO (HK) and fellowsubsidiaries, in aggregate, as at September 30, 2006, HK$2,103.2 million was the interest-freeshareholders’ loans, all of which were transferred to China Agri as part of the Reorganization. Asconsideration for the transfers of these shareholder loans and other businesses transferred to it,China Agri issued 2,691,383,356 new shares to COFCO International. See ‘‘Our History andReorganization’’. Upon the completion of the Reorganization on December 31, 2006, these equity-related shareholders’ loans were no longer reflected in our combined balance sheet as liabilities. Theremaining portion of amounts due to COFCO (HK) and due to fellow subsidiaries as at September 30,2006 of HK$45.0 million that were not transferred to China Agri, and the amounts due to relatedcompanies as at September 30, 2006 of HK$370.0 million, represent trade payables arising from theordinary course of business.

DERIVATIVES

To manage our price exposure in future sales of soybeans, and purchases or sales of soybeanmeal, we have entered into various commodity future contracts which do not meet the criteria for hedgeaccounting under HKAS39. Through these derivative transactions, we seek to manage the market pricerisk arising from our raw materials, including soybeans, soybean meal and related products sales.These derivative financial instruments are initially recognised at fair value on the date on which aderivative contract is entered into and are subsequently remeasured at fair value. Derivatives arecarried as assets when the fair value is positive and as liabilities when the fair value is negative. Anygains or losses arising from changes in fair value on these derivatives that do not qualify for hedgeaccounting are taken directly to net profit or loss for the year. The fair value of commodity futurecontracts is calculated by reference to current commodity prices for contracts with similar maturityprofiles. Gains in fair value of non-hedging derivative financial instruments of HK$45.9 million,HK$9.7 million, HK$76.9 million, HK$93.0 million and HK$86.0 million were credited to our combinedincome statement for the three years ended December 31, 2005 and the nine months endedSeptember 30, 2005 and 2006, respectively. We limit our hedging exposure to the purchase volume ofsoybeans that is determined by our expected level of production. We have a centralized riskmanagement committee comprised of members of the senior management from the oilseed processingdivision with experience in the soybean trading market that sets the policy and meets twice a month toanalyze the soybean market based on the current data, determine what commodity and future contractsand other related hedging strategies may be appropriate and monitor the risks associated with ourderivative transactions. See ‘‘Risk Factors — Risks relating to our business — We engage in hedgingtransactions which may involve risks that can harm our business.’’

OFF-BALANCE SHEET TRANSACTIONS

A1A 32(4)

3rd Sch (24)

Other than disclosed above in reference to contractual obligations and commitments, we did nothave contingent liabilities or other off-balance-sheet arrangements that have or are reasonably likely tohave a current or future effect on our financial condition that we believe are material to investors.

Our Directors have confirmed that there have been no material changes in our indebtedness orcontingent liabilities since January 31, 2007.

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MARKET RISKS

Market risk is the risk of loss related to adverse changes in market prices of agricultural rawmaterials, interest rate, foreign exchange rate and inflation risks. We have in the past used derivatives tomanage our exposure to agricultural commodities risk. The following discussion and analysissummarizes our exposure to different market risks.

Commodities Risk

We use various agricultural commodities, including soybeans, barley, wheat, paddy and corn asraw materials in our processing activities. The availability and price of these agricultural raw materialsare subject to wide fluctuations due to unpredictable factors such as weather, planting, government(domestic and foreign) farm programs and policies, changes in global demand resulting from populationgrowth, changes in nutritional standards, and global production of similar and competitive agriculturalraw materials. For details on average purchase prices we paid for the key agricultural raw materials,please refer to ‘‘— Factors Affecting Our Results of Operations — Fluctuations on Agricultural RawMaterial Prices’’. From time-to-time, we enter into derivative contracts, primarily exchange traded futurecontracts on soybeans and soybean meal with the objective of managing our exposure to adverse pricemovements in soybeans for our oilseed processing business. We have established a centralized riskmanagement function that manages our hedging transactions and our risks associated with hedgingtransactions. We review and monitor our sensitivity to our net position on a daily basis. The changes inthe market value of such future contracts have historically been and are expected to continue to beeffective at offsetting changes in price movements of the hedged item. Net gains and losses arising fromcommodity futures contracts are recognized as a component of cost of sales in the income statement atthe relevant balance sheet dates.

Interest Rate Risk

The PBOC has the sole authority in the PRC to establish and adjust the benchmark interest ratesfor Renminbi-denominated borrowings. Financial institutions in China set their effective interest ratesbased on the benchmark interest rates published by the PBOC. A substantial portion of our bankborrowings is denominated in Renminbi and borrowed from domestic commercial banks at interest ratesthat vary in accordance with the benchmark interest rates set by the PBOC. Interest rates on our bankloans are subject to adjustments by our lenders in accordance with changes in the PBOC benchmarkrates. Historically, we have not used any interest rate swaps to hedge our exposure to cash flow interestrate risk.

We are exposed to interest rate risk resulting from changes in interest rates on our short-term andlong-term debt. Increases in interest rates will increase our interest expense on outstanding borrowingsand the cost of new borrowings, and therefore could have a material adverse effect on the our financialposition.

Currency Rate Risk

We conduct our operations primarily in the PRC. Renminbi is our major functional currency.However, a portion of our revenue, costs and borrowings is denominated in the US dollars because weimport some agricultural raw materials into and export some of our products outside the PRC. For thenine months ended September 30, 2006, 7.7% of our revenue and 43.3% of our cost of sales, and as atSeptember 30, 2006, 13.5% of our cash deposits and 52.5% of our short-term loans were denominatedin US dollars.

We convert Renminbi to US dollars to pay for our foreign currency expenses and debt serviceobligations. Renminbi currently is not a freely convertible currency. Since 1994, the conversion ofRenminbi into foreign currencies has been based on rates set by the PBOC. From 1994 to July 20,2005, the official exchange rate for the conversion of the Renminbi to the US dollar was generally stable.On July 21, 2005, the PRC Government introduced a managed floating exchange rate system to allow

224


the value of the Renminbi to fluctuate within a regulated band based on market supply and demand andby reference to a basket of currencies. On the same day, the value of the Renminbi appreciated by 2%against the US dollar. The PRC Government may take further actions that could cause future exchangerates to vary significantly from current or historical exchange rates. The fluctuation of Renminbi valuemay adversely affect our financial results. Appreciation of the Renminbi against the US dollar willadversely affect our income from export contracts denominated in US dollars. A devaluation of theRenminbi against the US dollars will increase our cost of imported raw materials, and adversely affectthe value, translated or converted to US dollars, of our earnings and our ability to satisfy our debtobligations. We closely monitor our foreign currency exposure. See ‘‘Risk Factors — Risks relating toconducting business in China — Changes in foreign exchange regulations and fluctuations in the valueof the RMB may adversely affect our business results of operations and ability to remit dividends’’.

Inflation

According to the National Bureau of Statistics of China, the year-on-year change in the consumerprice index in China was 1.2%, 3.9%, 1.8% and 1.3%, respectively, for three years ended December 31,2005 and the nine months ended September 30, 2006. Although the management believes demand forour products is relatively unlikely to be significantly affected by increases in inflation, a higher inflationrate could have a negative effect on our results of operations by eroding end-users’ buying power. Themanagement believes that our results of operation have not been materially affected by any recentinflation or deflation.

PROPERTY INTERESTS

Our property interests (including completed property and property under development held by us)have been valued at approximately RMB2,957.4 million as at December 31, 2006 by Savills Valuationand Professional Services Limited, an independent property valuer. Details of our property interests areset out in the letter and valuation certificates of Savills Valuation and Professional Services Limitedcontained in Appendix V to this prospectus.

Reconciliation of appraised property values with net book values

The reconciliation between the appraised values as at December 31, 2006 of our properties withtheir net book values as at September 30, 2006 as reflected in our financial statements are as follows:

Reconciliation between audited net book value of our properties (including buildings, constructionin progress and land use rights) as at September 30, 2006 as contained in the Accountants’ Report andtheir unaudited net book value as at December 31, 2006:

RMB millions

Net book value as at September 30, 2006********************************* 3,143.1Additions ************************************************************ 668.4Less: Depreciation**************************************************** 45.3

Disposals/writeoffs ********************************************** 68.2Net book value as at December 31, 2006 ********************************* 3,698.0

Net book value as at December 31, 2006 of properties covered in the Valuer’sReport ************************************************************** 2,613.0

The properties valued by Savills Valuation and Professional Services Limited as contained inAppendix V to this prospectus are different from the property interests included in the combined balancesheets and the accompanying notes in the Accountants’ Report in Appendix I. The values of certainequipment associated with construction in progress were included in the Accountants Report, but werenot covered by the Valuer’s Report.

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Reconciliation between our property values as at December 31, 2006 as set out in the Valuer’sReport included in Appendix V to this prospectus and the unaudited net book value of such propertiesas at December 31, 2006:

RMB millions

Value of properties (Groups 1 & 2) *************************************** 2,957.4Less: Net book value as at December 31, 2006**************************** 2,613.0Valuation surplus ******************************************************* 344.4

The above reconciliations and resultant revaluation surpluses are for reference only, as the Valuer’sReport included in Appendix V to this prospectus reflects the values of most but not all our properties.

DIVIDENDS AND DIVIDEND POLICY

After completion of the Global Offering, our shareholders will be entitled to receive dividendsdeclared by us. The declaration of, payment and amount of dividends will be subject to the discretion ofour Directors in accordance with our Articles of Association and will be dependent upon our futureoperations and earnings, financial condition, capital requirements and surplus, contractual restrictions,payments by subsidiaries of cash dividends to us and other factors that our Directors deem relevant. Inaddition, the controlling shareholder (as defined in the Hong Kong Listing Rules), subject to our Articlesof Association, may influence our dividend policy.

There is no guarantee that dividends will be paid in the future. After completion of the GlobalOffering, our Directors’ priority will be to retain earnings in order to facilitate our capital growth andexpansion.

No dividend has been declared or paid since the incorporation of the Company.

Cash dividends on the ordinary shares of the Company, if any, will be paid in Hong Kong dollars.Other distributions, if any, will be paid to the shareholders by any means as the Directors deem legal,fair and practical.

A1A 33(5)As at September 30, 2006, we had HK$730.1 million of retained profit available for distribution tothe shareholders of the Company.

A1A 21UNAUDITED PRO FORMA ADJUSTED NET TANGIBLE ASSETS

Our unaudited pro forma net tangible assets as at September 30, 2006, would amount toapproximately HK$7,218.1 million (assuming an Offer Price of HK$3.10 per share, being the low end ofthe indicative offer price range), as set out in Appendix III — ‘‘Unaudited Pro Forma FinancialInformation’’ to this prospectus.

PROFIT ESTIMATE

A1A 34(1)(b)Our Directors estimate that, on the bases set out in Appendix IV to this prospectus and in theabsence of unforeseeable circumstances, our combined profit attributable to equity holders of theCompany for the year ended December 31, 2006 will amount to not less than HK$622.0 million.

DISCLOSURE REQUIRED UNDER THE HONG KONG LISTING RULES

By a facility agreement dated February 14, 2007 (the ‘‘Facility Agreement’’) entered into betweenIndustrial and Commercial Bank of China (Asia) Limited (‘‘ICBC Asia’’) and the Company, aHK$350,000,000 term loan facility and a HK$1,380,000,000 standby letter of credit facility (the‘‘Facilities’’) were made available by ICBC Asia to the Company subject to the terms and conditionscontained therein. The term loan facility will mature in six months from the date of the Facility Agreementand the standby letter of credit facility will expire in 12 months from the date of issuance of the relevantstandby letter of credit. The standby letter of credit facility is available from the date of the FacilityAgreement until the earlier of (i) three months after the date of the Facility Agreement or (ii) the date on

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which the standby letter of credit facility is fully utilized, cancelled or terminated. Under the FacilityAgreement, it will be an event of default if our Company ceases to be a subsidiary (directly or indirectly)of COFCO, the ultimate controlling shareholder of our Company, or COFCO ceases to havemanagement control of our Company (where ‘‘management control’’ means the power to direct themanagement and policies of our Company, whether through the ownership of voting capital, by contractor otherwise) and in which event the Facilities will be immediately due and payable. Our Companyintends to use the Facilities for the Group’s capital requirements in relation to its business in the biofueldivision and general working capital.

Our Directors confirm that, as at the Latest Practicable Date, save as disclosed above, they werenot aware of any circumstances which would give rise to the disclosure requirements under Rules 13.13to 13.19 of the Hong Kong Listing Rules.

A1A 38

NO MATERIAL ADVERSE CHANGE

Our Directors confirm that except for the changes disclosed in the paragraphs above headed‘‘Recent Developments’’ and ‘‘Indebtedness’’, there has been no material change in our financial ortrading position or prospects since September 30, 2006, being the date to which our most recentaudited financial statements were prepared, as set out in Appendix I — ‘‘Accountants’ Report of OurCompany’’.

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FUTURE PLANS AND USE OF PROCEEDS

FUTURE PLANS

A1A 34

(1)(b)

See the sections headed ‘‘Business - Our Strategies’’ for a detailed description of our future plans.

USE OF PROCEEDS

A1A 17

3rd Sch(7)

We estimate that we will receive net proceeds from the Global Offering of approximatelyHK$2,246.6 million (assuming an Offer Price of HK$3.41, being the midpoint of the indicative offer pricerange), after deducting the underwriting commissions (excluding any incentive fee that we may decide topay to the Global Coordinator) and estimated expenses payable by us in the Global Offering andassuming the Over-allotment Option is not exercised. We intend to use these net proceeds for thefollowing purposes:

( up to HK$1,909.6 million to implement our business strategies as described in the sectionheaded ‘‘Business — Our Strategies — Become the leading supplier of fuel ethanol in China tomeet the growing demand for more environmentally friendly fuel’’. We plan to use this portionof the net proceeds for capital expenditures required for proposed investments in greenfieldprojects or selective acquisitions of biofuel and biochemical projects, as follows:

— up to HK$898.6 million for planned fuel ethanol projects in Hebei Province (up toHK$292.1 million), Liaoning Province (up to HK$269.6 million), Guangxi ZhuangAutonomous Region (up to HK$157.3 million), Hubei Province (up to HK$112.2 million)and Heilongjiang Province (up to HK$67.4 million);

— up to HK$1,011.0 million for biochemical projects currently under development andconstruction in Gongzhuling, Jilin Province (up to HK$449.3 million) and other plannedprojects in the eastern China region (up to HK$112.4 million) and Yushu, Jilin Province (upto HK$449.3 million); and

( up to HK$337.0 million for oilseed processing business (up to HK$134.8 million), rice tradingand processing business (up to HK$134.8 million), and brewing materials business (up toHK$67.4 million).

Up to approximately 5% to 10% of the above proceeds are expected to be used for land acquisition,50% to 70% for equipment purchases, and 20% to 40% for construction of each project.

The above allocations of the proceeds from the Global Offering will be adjusted on a pro rata basisin the event that the Offer Price is fixed at a higher or lower point in the indicative offer price range. If theOver-allotment Option is exercised in full, we estimate that the additional net proceeds to our Companyfrom the offering of these additional shares will be approximately HK$348.0 million, after deducting theunderwriting commissions (excluding any incentive fee that we may decide to pay to the GlobalCoordinator) and estimated offering expenses, assuming an Offer Price of HK$3.41, being the midpointof the indicative offer price range. Any additional proceeds received from any exercise of the Over-allotment Option will also be allocated to the above uses on a pro rata basis.

Pending the use of the net proceeds from the Global Offering for the purposes described above,and to the extent permitted under applicable laws and regulations, we intend to invest the proceeds inshort-term demand deposits and/or money market instruments.

The shares that are subject to the Redistribution are all being offered for sale by COFCO (HK)under the Offer for Sale and the net proceeds from the sale of such Sale Shares will be used to fundcash payments to Qualifying COFCO International Shareholders who elected to transfer theirentitlements to shares to COFCO (HK).

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UNDERWRITING

A1A15(2)(h)HONG KONG UNDERWRITERS


BOCI Asia Limited

ICEA Capital Limited

DBS Asia Capital Limited

UNDERWRITING ARRANGEMENTS AND EXPENSES

Hong Kong Public Offering

Hong Kong Underwriting Agreement

Pursuant to the Hong Kong Underwriting Agreement, we are initially offering 86,092,000 HongKong Offer Shares for subscription by the public in Hong Kong on and subject to the terms andconditions of this prospectus and the Application Forms at the Offer Price. Subject to the ListingCommittee of the Hong Kong Stock Exchange granting listing of, and permission to deal in, the sharesin issue and to be issued as mentioned herein, and to certain other conditions set out in the Hong KongUnderwriting Agreement (including the Global Coordinator (on behalf of the Underwriters) and usagreeing to the Offer Price), the Hong Kong Underwriters have agreed severally and not jointly tosubscribe or procure subscribers for their respective applicable proportions of the Hong Kong OfferShares which are being offered but are not taken up under the Hong Kong Public Offering on andsubject to the terms and conditions of this prospectus, the Application Forms and the Hong KongUnderwriting Agreement.

The Hong Kong Underwriting Agreement is conditional upon and subject to the InternationalPurchase Agreement having been signed and becoming unconditional.

Grounds for termination

The Global Coordinator (on behalf of itself and the Hong Kong Underwriters) may terminate theHong Kong Underwriting Agreement with immediate effect by written notice to our Company at any timeat or prior to 8:00 a.m. on the Listing Date if:

(a) there develops, occurs, exists or comes into force:

(i) any change or development involving a prospective change or development, or any event orseries of events resulting in or representing a change or development, or prospective changeor development, in local, national, regional or international financial, political, military,industrial, economic, currency market, fiscal or regulatory or market conditions (including,without limitation, conditions in stock and bond markets, money and foreign exchangemarkets and inter-bank markets, a change in the system under which the value of the HongKong currency is linked to that of the currency of the United States or a devaluation of theHong Kong dollar or the Renminbi against any foreign currencies) in or affecting Hong Kong,the PRC, the United States, Canada, the United Kingdom or Japan; or

(ii) any new law or regulation or any change in existing law or regulation, or any change in theinterpretation or application thereof by any court or other competent authority in or affectingHong Kong, the PRC, the United States, Canada, the United Kingdom or Japan; or

(iii) any event or series of events in the nature of force majeure (including, without limitation, actsof government, strikes, lock-outs, fire, explosion, flooding, civil commotion, acts of war, actsof terrorism (whether or not responsibility has been claimed), acts of God, accident orinterruption or delay in transportation) in or affecting Hong Kong, the PRC, the United States,Canada, the United Kingdom or Japan; or

229

UNDERWRITING

(iv) any local, national, regional or international outbreak or escalation of hostilities (whether ornot war is or has been declared) or other state of emergency or calamity or crisis in oraffecting Hong Kong, the PRC, the United States, Canada, the United Kingdom or Japan; or

(v) (A) any suspension or limitation on trading in shares or securities generally on the HongKong Stock Exchange, the New York Stock Exchange, the Nasdaq National Market, theTokyo Stock Exchange or the London Stock Exchange or (B) a general moratorium oncommercial banking activities in New York, London, Japan, Hong Kong or the PRC, declaredby the relevant authorities, or a material disruption in commercial banking activities or foreignexchange trading or securities settlement or clearance services in or affecting Hong Kong,the PRC, the United States, Canada, the United Kingdom or Japan; or

(vi) any change or prospective change in taxation or exchange controls, currency exchangerates or foreign investment regulations in Hong Kong, the PRC, the United States, Canada,the United Kingdom or Japan; or

(vii) any material litigation or claim being threatened or instigated against our Company or any ofits subsidiaries or COFCO (HK),

and which, in any such case and in the sole opinion of the Global Coordinator (for itself and onbehalf of the other Hong Kong Underwriters),

(A) is or will be or is likely to be materially adverse to, or materially and prejudicially affect,the business or financial or trading position or prospects of our Company or itssubsidiaries as a whole; or

(B) has or will have or is likely to have a material adverse effect on the success of theGlobal Offering and/or make it impracticable or inadvisable for any material part of theHong Kong Underwriting Agreement, the Hong Kong Public Offer or the GlobalOffering to be performed or implemented as envisaged; or

(C) makes or will or is likely to make it impracticable to proceed with the Hong Kong PublicOffer and/or the Global Offering or the delivery of the Offer Shares on the terms and inthe manner contemplated by this prospectus; or

(b) there has come to the notice of the Global Coordinator or any of the Hong Kong Underwriters afterthe date of the Hong Kong Underwriting Agreement:

(i) that any statement contained in this prospectus, the Application Forms, the formal noticeand any announcements in the agreed form issued by our Company in connection with theHong Kong Public Offering (including any supplement or amendment thereto) was or hasbecome untrue, incorrect or misleading in any material respect; or

(ii) any matter has arisen or has been discovered which would, had it arisen immediately beforethe date of this prospectus, not having been disclosed in this prospectus, constitute amaterial omission therefrom; or

(iii) any of the representations, warranties and undertakings given by our Company or COFCO(HK) in the Hong Kong Underwriting Agreement is (or would when repeated be) untrue,incorrect or misleading in any material respect; or

(iv) any event, act or omission which gives or is likely to give rise to any liability of our Company,COFCO (HK) or any other indemnifying party pursuant to the indemnities given by themunder the Hong Kong Underwriting Agreement; or

(v) any material breach of any of the obligations of our Company, COFCO (HK) or any otherindemnifying party under the Hong Kong Underwriting Agreement; or

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UNDERWRITING

(vi) any material adverse change or prospective material adverse change in the business,properties, results of operations or in the financial or trading position or prospects of ourCompany and its subsidiaries as a whole.

Undertakings

Pursuant to Rule 10.08 of the Hong Kong Listing Rules, except pursuant to the Global Offering orany issue of shares or securities in compliance with Rules 10.08(1) to (4) of the Hong Kong ListingRules, our Company will not, at any time within six months from the Listing Date, issue any shares orother securities convertible into equity securities of our Company or enter into any agreement orarrangement to issue such shares or securities (whether or not such issue of shares or securities will becompleted within six months from the Listing Date).

We have undertaken to each of the Global Coordinator and the Hong Kong Underwriters pursuantto the Hong Kong Underwriting Agreement that at any time after the date of the Hong Kong UnderwritingAgreement up to and including the date falling 180 days after the Listing Date, we will not without theGlobal Coordinator’s prior written consent (subject to the requirements set out in the Hong Kong ListingRules) (i) offer, pledge, issue, sell, contract to issue or sell, sell any option or contract to purchase,purchase any option or contract to sell, grant or agree to grant any option, right or warrant to purchaseor subscribe for, lend or otherwise transfer or dispose of, either directly or indirectly, or repurchase, anyof our share capital or any securities convertible into or exercisable or exchangeable for or thatrepresent the right to receive such share capital or (ii) enter into any swap or other arrangement thattransfers to another, in whole or in part, any of the economic consequences of ownership of such sharecapital, whether any of the foregoing transactions is to be settled by delivery of share capital or suchother securities, in cash or otherwise, provided that the foregoing restrictions shall not apply to the issueof shares by us pursuant to the Global Offering (including pursuant to the Over-allotment Option) andthe Share Option Scheme.

COFCO (HK) has agreed to procure us to comply with such undertaking.

Further, COFCO (HK) has, pursuant to Rule 10.07(1) of the Hong Kong Listing Rules and the HongKong Underwriting Agreement, undertaken to each of us, the Global Coordinator, the Hong KongUnderwriters and the Hong Kong Stock Exchange that it will not, and will procure that none of itsassociates or companies controlled by it or any nominee or trustee holding in trust for it will, without theprior written consent of the Hong Kong Stock Exchange:

(i) in the period commencing on the date of this prospectus and ending on the date which is sixmonths from the Listing Date, dispose of, or enter into any agreement to dispose of or otherwisecreate any options, rights, interests or encumbrances in respect of, any of our shares in respect ofwhich it is shown by this prospectus to be the beneficial owner; and

(ii) during the period of six months commencing on the date on which the period referred to aboveexpires, dispose of, or enter into any agreement to dispose of or otherwise create any options,rights, interests or encumbrances in respect of, any of the shares referred to in the immediatelypreceding paragraph (i) if, immediately following such disposal or upon the exercise orenforcement of such options, rights, interests or encumbrances, it would cease to be a controllingshareholder of our Company, except pursuant to any of the following: (a) the Global Offering;(b) the Over-allotment Option; (c) the Stock Borrowing Agreement; (d) a pledge or a charge assecurity for a bona fide commercial loan in favor of an authorized institution (as defined in theHong Kong Banking Ordinance); or (e) any other circumstances as permitted by the Hong KongListing Rules.

COFCO (HK) has also undertaken to each of us, the Global Coordinator, the Hong KongUnderwriters and the Hong Kong Stock Exchange that it will not without the Global Coordinator’s priorwritten consent (subject to the requirements set out in the Hong Kong Listing Rules) at any time after thedate of Hong Kong Underwriting Agreement up to and including the date falling 180 days after the

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UNDERWRITING

Listing Date (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase anyoption or contract to sell, grant or agree to grant any option, right or warrant to purchase or subscribefor, lend or otherwise transfer or dispose of, either directly or indirectly, any of the share capital of ourCompany or any securities convertible into or exercisable or exchangeable for or that represent the rightto receive such share capital or (ii) enter into any swap or other arrangement that transfers to another, inwhole or in part, any of the economic consequences of ownership of the share capital of our Company,whether any of the foregoing transactions is to be settled by delivery of share capital or such othersecurities, in cash or otherwise.

COFCO (HK) has further undertaken to each of us, the Global Coordinator and the Hong KongUnderwriters that at any time during the period of 12 months after the date on which dealings in theshares commence on the Hong Kong Stock Exchange, (i) it will, if it pledges or charges any shares orother securities of our Company in respect of which it is the beneficial owner, immediately inform ourCompany, the Sponsor and the Hong Kong Stock Exchange of any such pledges or charges and thenumber of shares or other securities of the Company so pledged or charged, and (ii) it will, if it receivesany indication, either verbal or written, from any such pledgee or chargee of shares or other securities ofour Company that such shares or other securities of our Company will be disposed of, immediatelyinform us, the Sponsor and the Hong Kong Stock Exchange of any such indication.

We will also, as soon as we have been informed of the above matters (if any) by COFCO (HK),inform the Hong Kong Stock Exchange and disclose such matters as soon as possible by way of a pressnotice published in the newspapers, if required under the Hong Kong Listing Rules. COFCO (HK) hasundertaken to procure us to comply with such undertaking.

Our Company and COFCO (HK) have agreed to indemnify the Global Coordinator and the HongKong Underwriters for certain losses which they may suffer, including losses arising from theirperformance of their obligations under the Hong Kong Underwriting Agreement and any breach by anyof us or COFCO (HK) of the Hong Kong Underwriting Agreement.

Hong Kong Underwriters’ interest in our Company

Save as disclosed in this prospectus and save for its obligations under the Hong Kong UnderwritingAgreement, none of the Hong Kong Underwriters has any shareholding interests in our Company or anyother member of our Company or any right (whether legally enforceable or not) to subscribe for or tonominate persons to subscribe for securities in our Company or any member of our Group.

International Offering

In connection with the International Offering, it is expected that we and COFCO (HK) will enter intothe International Purchase Agreement with the Global Coordinator, the Joint Bookrunners and theInternational Purchasers on the Price Determination Date. Under the International PurchaseAgreement, the International Purchasers would, subject to certain conditions, severally and not jointly,agree to procure subscribers to subscribe for or purchasers to purchase, or failing which to subscribe foror purchase themselves, their respective applicable proportions of the International Offer Shares beingoffered pursuant to the International Offering which are not taken up under the International Offering.

A1A 15(3)(d)

A1A 15(2)(i)

A1A 15(3)(c)

We will grant to the International Purchasers the Over-allotment Option, exercisable by the GlobalCoordinator on behalf of the International Purchasers during the 30-day period after the last day forlodging applications under the Hong Kong Public Offering to require us to issue up to an aggregate of104,677,000 additional shares, representing in aggregate approximately 15% of the new shares initiallyavailable under the Global Offering.

A1A 13

Total Commission and Expenses

Assuming an offer price of HK$3.41 per share (being the midpoint of the indicative offer price rangeof HK$3.10 to HK$3.72 per share), the aggregate commissions and fees, together with Hong Kong

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UNDERWRITING

Stock Exchange listing fees, SFC transaction levy, Hong Kong Stock Exchange trading fee, legal andother professional fees and printing and other expenses relating to the Global Offering, are estimated toamount in aggregate to approximately HK$133.1 million (assuming the Over-Allotment Option is notexercised). Such commissions, fees and expenses are payable by us.

3rd Sch (14)The Hong Kong Underwriters will receive an underwriting commission of 2.5% on the Offer Price ofthe Hong Kong Offer Shares initially offered under the Hong Kong Public Offering, out of which they willpay any sub-underwriting commission. In addition, our Company may, in our sole discretion, pay theGlobal Coordinator an additional incentive fee. For unsubscribed Hong Kong Offer Shares reallocated tothe International Offering, we will pay an underwriting commission at the rate applicable to theInternational Offering and such commission will be paid to the Global Coordinator and the relevantInternational Purchasers (but not the Hong Kong Underwriters).

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PRICING AND ALLOCATION

Offer price range

A1A 15(2)(c)The Offer Price will be not more than HK$3.72 per Offer Share and is expected to be not less thanHK$3.10 per Offer Share, unless otherwise announced not later than the morning of the last day forlodging applications under the Hong Kong Public Offering, as explained below. Prospective investorsshould be aware that the Offer Price to be determined on the Price Determination Date may be, but isnot expected to be, lower than the indicative offer price range stated in this prospectus.

A1A 15(2)(d)

Price payable on application

Applicants for Hong Kong Offer Shares under the Hong Kong Public Offering are required to pay, onapplication, the maximum Offer Price of HK$3.72 for each Hong Kong Offer Share. If the Offer Price isless than HK$3.72, appropriate refund payments (including the brokerage, SFC transaction levy and theHong Kong Stock Exchange trading fee attributable to the surplus application monies, without anyinterest) will be made to successful applications. See the section headed ‘‘Further Terms andConditions of the Hong Kong Public Offering — 8. Refund of Application Monies’’.

Determining the Offer Price

The International Purchasers are soliciting from prospective investors indications of interest inacquiring our shares in the International Offering. Prospective investors will be required to specify thenumber of shares under the International Offering they would be prepared to acquire either at differentprices or at a particular price. This process, known as ‘‘book-building’’, is expected to continue up to,and to cease on or around Thursday, March 15, 2007.

The Offer Price is expected to be fixed by agreement between the Joint Bookrunners (on behalf ofthe Underwriters) and us, on the Price Determination Date, when market demand for the Offer Shareswill be determined. The Price Determination Date is expected to be on or around Thursday,March 15, 2007 and in any event, no later than, Monday, March 19, 2007.

If, for any reason, we and the Joint Bookrunners (on behalf of the Underwriters) are unableto reach agreement on the Offer Price on or before Monday, March 19, 2007, the Global Offeringwill not proceed and will lapse.

I-E Note 12Reduction in indicative offer price range and/or number of Offer Shares

If, based on the level of interest expressed by prospective institutional, professional and otherinvestors during the book-building process, the Joint Bookrunners (on behalf of the Underwriters andwith our consent) consider it appropriate, the indicative offer price range and/or the number of OfferShares may be reduced below those stated in this prospectus at any time prior to the morning of the lastday for lodging applications under the Hong Kong Public Offering.

In such a case, we will, as soon as practicable following the decision to make any such reduction,and in any event not later than the morning of the last day for lodging applications under the Hong KongPublic Offering, cause to be published in the South China Morning Post (in English) and Hong KongEconomic Journal (in Chinese) notice of the reduction in the indicative offer price range and/or numberof Offer Shares. Such notice will also include confirmation or revision, as appropriate, of the workingcapital statement, the offering statistics as currently set out in the section headed ‘‘Summary’’ and anyother financial information which may change as a result of such reduction. The Offer Price, if agreedupon, will be fixed within such revised offer price range. In the absence of any such notice, the OfferPrice shall under no circumstances be set outside the offer price range indicated in this prospectus.

Before submitting applications for Hong Kong Offer Shares, applicants should have regardto the possibility that any announcement of a reduction in the indicative offer price range and/ornumber of Offer Shares may not be made until the last day for lodging applications under the

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Hong Kong Public Offering. Applicants under the Hong Kong Public Offering should note that inno circumstances can applications be withdrawn once submitted, even if the indicative offerprice range and/or number of Offer Shares is so reduced.

Allocation

I.E Note 5The shares to be offered in the Hong Kong Public Offering and the International Offering may, incertain circumstances, be reallocated as between these offerings at the discretion of the JointBookrunners.

Allocation of our shares pursuant to the International Offering will be determined by the JointBookrunners and will be based on a number of factors including the level and timing of demand, totalsize of the relevant investor’s invested assets or equity assets in the relevant sector and whether or not itis expected that the relevant investor is likely to buy further, and/or hold or sell shares after the listing ofour shares on the Hong Kong Stock Exchange. Such allocation may be made to professional,institutional and/or corporate investors and is intended to result in a distribution of our shares on a basiswhich would lead to the establishment of a stable shareholder base to the benefit of our Company andour shareholders as a whole.

Allocation of shares to investors under the Hong Kong Public Offering will be based solely on thelevel of valid applications received under the Hong Kong Public Offering. The basis of allocation mayvary, depending on the number of Hong Kong Offer Shares validly applied for by applicants, but will bemade strictly on a pro-rata basis, although the allocation of Hong Kong Offer Shares could, whereappropriate, consist of balloting, which would mean that some applicants may receive a higherallocation than others who have applied for the same number of Hong Kong Offer Shares, and thoseapplicants who are not successful in the ballot may not receive any Hong Kong Offer Shares.

Announcement of Offer Price and basis of allocations

PN18 (4-4)

I.E Note 13

The Offer Price, level of applications in the Hong Kong Public Offering, an indication of the level ofinterest in the International Offering, the number of Sale Shares to be offered under the Offer for Sale,and the basis of allocations of the Hong Kong Offer Shares are expected to be announced on Tuesday,March 20, 2007 in the South China Morning Post (in English) and the Hong Kong Economic Journal (inChinese).

CONDITIONS OF THE HONG KONG PUBLIC OFFERING

Acceptance of all applications for the Offer Shares pursuant to the Hong Kong Public Offering willbe conditional on:

( the Listing Committee of the Hong Kong Stock Exchange granting listing of, and permission todeal in, (i) the shares of the Company in issue; (ii) the shares of our Company to be issuedpursuant to the Global Offering (including the additional shares which may be made availablepursuant to the exercise of the Over-allotment Option); and (iii) the shares of the Company tobe issued pursuant to the exercise of any options that may be granted under the Share OptionScheme;

( the Offer Price having been duly agreed between us and the Global Coordinator (on behalf ofthe Hong Kong Underwriters);

( the execution and delivery of the International Purchase Agreement on or around the PriceDetermination Date; and

( the obligations of the Underwriters under each of the Hong Kong Underwriting Agreement andthe International Purchase Agreement having become unconditional and not having beenterminated in accordance with the terms of the respective agreements,

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in each case on or before the dates and times specified in such agreements (unless and to the extentsuch conditions are waived on or before such dates and times) and in any event not later thanApril 7, 2007.

The consummation of each of the Hong Kong Public Offering and the International Offering isconditional upon, among other things, the other becoming unconditional and not having beenterminated in accordance with its terms.

If the above conditions are not fulfilled or waived, prior to the dates and times specified, the GlobalOffering will lapse and the Hong Kong Stock Exchange will be notified immediately. Notice of the lapseof the Hong Kong Public Offering will be caused to be published by us in the South China Morning Post(in English) and the Hong Kong Economic Journal (in Chinese) on the next day following such lapse. Insuch eventuality, all application monies will be returned, without interest, on the terms set out in thesection headed ‘‘Further Terms and Conditions of the Hong Kong Public Offering — 8. Refund ofApplication Monies’’. In the meantime, the application monies will be held in separate bank account(s)with the receiving bankers or other bank(s) in Hong Kong licensed under the Hong Kong BankingOrdinance.

Share certificates for the Offer Shares are expected to be issued on Tuesday, March 20, 2007but will only become valid certificates of title at 8:00 a.m. on Wednesday, March 21, 2007,provided that (i) the Global Offering has become unconditional in all respects and (ii) the right oftermination as described in the section headed ‘‘Underwriting — Underwriting Arrangementsand Expenses — Hong Kong Public Offering — Grounds for Termination’’ has not beenexercised.

THE DISTRIBUTION AND REDISTRIBUTION

Under the terms, and depending on the satisfaction of the conditions, of the Distribution, theDistribution may result in: (i) our existing shares being listed on the Hong Kong Stock Exchange by wayof introduction, and (ii) if the Global Offering becomes unconditional and is not terminated, the HongKong Public Offering and the International Offering (including the Offer for Sale). The material terms ofthe Distribution and the Redistribution are summarized below.

The Distribution

On February 8, 2007, the board of directors of COFCO International conditionally declared aspecial dividend, or the Distribution, to Qualifying COFCO International Shareholders, being registeredholders of COFCO International shares whose names appeared on the register of members of COFCOInternational at 4:00 p.m. on the Distribution Record Date. The Distribution will be satisfied wholly byway of distribution in specie to such Qualifying COFCO International Shareholders shares of ourCompany in proportion to their shareholdings in COFCO International as at the Distribution RecordDate of an aggregate of 2,791,383,356 shares, constituting the entire issued share capital of ourCompany as at the date of this prospectus. Qualifying COFCO International Shareholders will receiveone share of our Company for every COFCO International Share held.

The Distribution is conditional upon:

( the Listing Committee of the Hong Kong Stock Exchange granting the approval for the listing byway of introduction of, and permission to deal in, the shares of our Company in issue as at thedate of this prospectus, being 2,791,383,356 shares in aggregate; and

( the completion of the Spin-off.

As the Global Offering may or may not proceed, the Spin-off is not conditional on the GlobalOffering. If the Global Offering does not proceed, the Spin-off may still proceed and the special dividendmay become unconditional and the Listing will be effected by way of introduction. The decision toproceed with the Global Offering will be made by the Directors, following the international roadshow and

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book-building process. See the paragraph above headed ‘‘Pricing and Allocation — Determining theOffer Price’’. The decision will be subject to a number of factors, including among others, prevailingmarket conditions and demand for our shares. The Underwriters of the Global Offering will also havecertain termination rights as described in the section headed ‘‘Underwriting’’.

Overseas Shareholders, if any, would be entitled to the Distribution but would not receive theshares; instead, they would receive a cash amount equal to the net proceeds of the sale of their sharesby COFCO International on their behalf either in the Global Offering (if it proceeds) at the Offer Price oron the first day of trading of the shares (if the Global Offering does not proceed) at the prevailing marketprice. As at the Distribution Record Date, there were no shareholders in COFCO International fallingwithin the definition of Overseas Shareholders.

We will despatch share certificates to Qualifying COFCO International Shareholders other thanthose who validly elected to transfer their entitlements to shares to COFCO (HK) under the Distributionfor cash on Wednesday, March 21, 2007.

The Redistribution

Qualifying COFCO International Shareholders have been given an option to elect (the ‘‘Election’’)to receive a cash alternative and receive a de facto cash alternative for the scrip dividend they receive.The Election was granted by COFCO (HK) to Qualifying COFCO International Shareholders to transferthe entitlements to shares they would receive under the Distribution to COFCO (HK) in exchange forcash. A Qualifying COFCO International Shareholder who validly made the Election will receive a cashpayment (the ‘‘Cash Payment’’) of an amount determined on the basis of the number of shares whichthe relevant Qualifying COFCO International Shareholder transferred to COFCO (HK) and the OfferPrice, less any underwriting commissions, stamp duties and other applicable charges.

COFCO (HK) will finance the Cash Payments by selling the shares subject to the Election in theOffer for Sale, which will be part of the International Offering. COFCO (HK), the controlling shareholderof our Company, will not be selling any of the shares it receives under the Distribution and will not retainany of the Sale Shares.

The Redistribution is conditional upon:

( the completion of the Distribution and Spin-off;

( the completion of the Global Offering; and

( the return of a valid form of election by the relevant Qualifying COFCO InternationalShareholder.

The Offer for Sale and Backstop Mechanism

In order to provide a mechanism to regulate the number of Sale Shares in the event of largenumber of Qualifying COFCO International Shareholder making the Election, COFCO (HK) put in placea ‘‘backstop’’ mechanism (the ‘‘Backstop Mechanism’’). Under the Backstop Mechanism, if GoldmanSachs (Asia) L.L.C. and BOCI Asia Limited, as underwriters of the Sale Shares under the Offer for Sale,had determined (based on investors’ feedback during the book-building process and after consultationwith COFCO (HK)) that there was an excessive take-up of the Election (resulting in an excessive supplyof Sale Shares in the Global Offering), COFCO (HK) would have retained such number of Sale Sharesas determined between Goldman Sachs (Asia) L.L.C., BOCI Asia Limited and COFCO (HK) as wasdesirable in the market conditions. The number of shares owned by COFCO (HK) and its associatesafter taking into account the Sale Shares COFCO (HK) may have retained under the BackstopMechanism and shares that COFCO (HK) and its associates would have received under the Distributionwould not, in any event, when aggregated with any of our shares that may be held by any of ourconnected persons (as defined in the Hong Kong Listing Rules), exceed 75% of the issued share capitalof the Company as enlarged by the new shares to be issued under the Global Offering (excluding

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shares to be issued pursuant to the exercise of the Over-allotment Option). Following the results of theElection, all shares subject to the Election, being 163,065,545 shares, are being sold in the InternationalOffering and none will be retained by COFCO (HK).

The Offer for Sale comprises the offer by COFCO (HK) of an aggregate of 163,065,545 SaleShares for sale to investors under the International Offering and is underwritten by Goldman Sachs(Asia) L.L.C. and BOCI Asia Limited. The Sale Shares will represent approximately 4.7% of theenlarged issued share capital of our Company immediately following completion of the Global Offering,assuming that the Over-allotment Option is not exercised. The Offer for Sale is part of the InternationalOffering and is subject to the same conditions as those mentioned in the section headed ‘‘Conditions ofthe Hong Kong Public Offering’’ above. The net proceeds from the Offer for Sale after deduction of theapplicable transaction levy and taxes (including stamp duty), if any, will be applied towards the CashPayment by COFCO (HK) to Qualifying COFCO International Shareholders who validly made theElection under the Distribution.

PN18 (4.1)

LR 8)13 A(1),(2)

THE HONG KONG PUBLIC OFFERING

A1A 15(1)

A1A 15(2)(a)

A1A 15(2)(b)

PN18 (3.1)

We are initially offering 86,092,000 Hong Kong Offer Shares at the Offer Price, representingapproximately 10% of the Offer Shares initially available under the Global Offering, for subscription bythe public in Hong Kong. The total number of Hong Kong Offer Shares available under the Hong KongPublic Offering will initially be divided equally into two pools for allocation purposes as follows:

( Pool A: The Offer Shares in Pool A will be allocated on an equitable basis to applicants whohave applied for Offer Shares with a total subscription amount (excluding brokerage, SFCtransaction levy and the Hong Kong Stock Exchange trading fee) of HK$5 million or less; and

( Pool B: The Offer Shares in Pool B will be allocated on an equitable basis to applicants whohave applied for Offer Shares with a total subscription amount (excluding brokerage, SFCtransaction levy and the Hong Kong Stock Exchange trading fee) of more than HK$5 millionand up to the value of Pool B.

PN18 (3.1), (4.5)Applicants should be aware that applications in Pool A and Pool B are likely to receive differentallocation ratios. If Hong Kong Offer Shares in one pool (but not both pools) are under-subscribed, thesurplus Hong Kong Offer Shares will be transferred to the other pool to satisfy demand in that other pooland be allocated accordingly.

Applicants can only receive an allocation of Hong Kong Offer Shares from either Pool A or Pool Bbut not from both pools. Multiple or suspected multiple applications and any application for more than43,046,000 Hong Kong Offer Shares will be rejected.

PN18 (4.2)The allocation of the Offer Shares between the Hong Kong Public Offering and the InternationalOffering is subject to the following adjustments:

( If the number of the Offer Shares validly applied for under the Hong Kong Public Offeringrepresents 15 times or more but less than 50 times the number of the Offer Shares initiallyavailable for subscription under the Hong Kong Public Offering, then Offer Shares will bereallocated to the Hong Kong Public Offering from the International Offering, so that the totalnumber of the Offer Shares available under the Hong Kong Public Offering will be 258,274,000Offer Shares, representing approximately 30% of the Offer Shares initially available under theGlobal Offering;

( If the number of the Offer Shares validly applied for under the Hong Kong Public Offeringrepresents 50 times or more but less than 100 times the number of the Offer Shares initiallyavailable for subscription under the Hong Kong Public Offering, then the number of OfferShares to be reallocated to the Hong Kong Public Offering from the International Offering willbe increased so that the total number of the Offer Shares available under the Hong Kong

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Public Offering will be 344,366,000 Offer Shares, representing approximately 40% of the OfferShares initially available under the Global Offering; and

( If the number of the Offer Shares validly applied for under the Hong Kong Public Offeringrepresents 100 times or more the number of the Offer Shares initially available for subscriptionunder the Hong Kong Public Offering, then the number of Offer Shares to be reallocated to theHong Kong Public Offering from the International Offering will be increased, so that the totalnumber of the Offer Shares available under the Hong Kong Public Offering will be430,456,000 Offer Shares, representing 50% of the Offer Shares initially available under theGlobal Offering.

If the Hong Kong Public Offering is not fully subscribed, the Joint Bookrunners has the authority toreallocate all or any unsubscribed Hong Kong Offer Shares to the International Offering.

Each applicant under the Hong Kong Public Offering will be required to give an undertaking andconfirmation in the Application Form submitted by him or her that he or she and any person(s) for whosebenefit he or she is making the application have not indicated an interest for or taken up and will notindicate an interest for or take up any International Offer Shares, and such applicant’s application will berejected if the said undertaking and/or confirmation is breached and/or untrue.

Our Company, our Directors and the Hong Kong Underwriters will take reasonable steps to identifyand reject applicants under the Hong Kong Public Offering from investors who have received shares inthe International Offering, and to identify and reject indications of interest in the International Offeringfrom investors who have received shares in the Hong Kong Public Offering.

I.E Note 7The Global Coordinator (on behalf of the Underwriters) may require any investor who has beenoffered shares under the International Offering, and who has made an application under the Hong KongPublic Offering to provide sufficient information to the Global Coordinator so as to allow it to identify therelevant applications under the Hong Kong Public Offering and to ensure that it is excluded from anyapplication for shares under the Hong Kong Public Offering.

References in this prospectus to applications, Application Forms, application monies or to theprocedure for application relate solely to the Hong Kong Public Offering.

PN18(4.1)THE INTERNATIONAL OFFERING

A1A 15(1)

A1A 15(2)(b)

A1A 15(2)(a)

The International Offering will consist of initially 774,819,545 shares, comprising 611,754,000 newshares to be offered by us and 163,065,545 existing shares to be offered by COFCO (HK) under theOffer for Sale: (a) in the US to Qualified Institutional Buyers (as such term is defined in Rule 144A underthe US Securities Act), and (b) outside of the US to non-US Persons (within the meaning ofRegulation S under the US Securities Act) in reliance on Regulation S under the US Securities Act,including to professional and institutional investors in Hong Kong. We are expected to grant to theInternational Purchasers the Over-allotment Option, exercisable by the Global Coordinator on behalf ofthe International Purchasers during the 30-day period from the last day for lodging applications underthe Hong Kong Public Offering, to require us to issue up to an aggregate of 104,677,000 additionalshares, representing in aggregate approximately 15% of the new Offer Shares initially available underthe Global Offering. These shares will be issued or sold at the same price per share under theInternational Offering.

CORPORATE INVESTOR

We entered into a placing agreement with Mitsubishi Corporation, a third party which isindependent of us, and the Joint Bookrunners on February 24, 2007, pursuant to which MitsubishiCorporation agreed to acquire through the Joint Bookrunners, as part of the International Offering, suchnumber of Offer Shares as may be purchased with an amount in Hong Kong dollars which is equivalentto 7.9 billion Japanese yen at the mean rate of telegraphic transfer sold and telegraphic transfer boughtfor Japanese yen against Hong Kong dollars to be quoted by Tokyo-Mitsubishi UFJ. Ltd. on the day

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following the Price Determination Date of the Offer Price, rounded down to the nearest whole board lotof 1,000 shares (excluding brokerage of 1%, SFC transaction levy of 0.004% and Hong Kong StockExchange trading fee of 0.005%).

Based on the exchange rate of 15.49:1 between Japanese yen and Hong Kong dollars as quotedby Tokyo-Mitsubishi UFJ. Ltd. on the Latest Practicable Date, the total number of shares that MitsubishiCorporation would subscribe for would be 164,518,000 shares by assuming an Offer Price of HK$3.10(being the lowest end of the indicative offer price range set out in this prospectus), or137,098,000 shares by assuming an Offer Price of HK$3.72 (being the highest end of the indicative offerprice range set out in this prospectus), representing approximately 4.72% and 3.93% respectively of theshares outstanding upon completion of the Global Offering (assuming the Over-allotment Option is notexercised).

The placing agreement is conditional upon the Underwriting Agreements becoming unconditionaland having not been terminated pursuant to their respective terms. Mitsubishi Corporation agreed thatwithout our and the Joint Bookrunners’ prior written consent, it will not, whether directly or indirectly, atany time during the period of six months following the Listing Date, dispose of any of the shares itpurchased pursuant to the placing agreement and any shares or other securities of our Company whichare derived therefrom pursuant to any right issue, capitalisation issue or other form of capitalreorganization. Mitsubishi Corporation further agreed that save with our prior written consent, theaggregate holding of Mitsubishi Corporation and its associates in the total issued share capital of ourCompany shall be less than 10% at any time during the 12-month period following the Listing Date.

Incorporated in Japan in 1950, Mitsubishi Corporation is involved in a broad and diverse range ofbusiness, including domestic and overseas transactions of products in the fields of energy, metals,machinery, chemicals and living-essentials. Mitsubishi Corporation also provides diverse types ofbusiness services in the areas of information, financing and logistics, while investing in businessprojects on a global scale.

SHARES WILL BE ELIGIBLE FOR CCASS

A1A 14(2)All necessary arrangements have been made enabling the shares to be admitted into the CentralClearing and Settlement System, or CCASS, established and operated by the Hong Kong SecuritiesClearing Company Limited, or HKSCC. If the Hong Kong Stock Exchange grants the listing of, andpermission to deal in, the shares and our Company complies with the stock admission requirements ofHKSCC, the shares will be accepted as eligible securities by HKSCC for deposit, clearance andsettlement in CCASS with effect from the date of commencement of dealings in the shares on the HongKong Stock Exchange or any other date HKSCC chooses. Settlement of transactions betweenparticipants of the Hong Kong Stock Exchange is required to take place in CCASS on the secondbusiness day after any trading day. All activities under CCASS are subject to the General Rules ofCCASS and CCASS Operational Procedures in effect from time to time.

DEALING ARRANGEMENTS

A1A 22Assuming that the Hong Kong Public Offering becomes unconditional at or before 8:00 a.m. onWednesday, March 21, 2007, it is expected that dealings in our shares on the Hong Kong StockExchange will commence at 9:30 a.m. on Wednesday, March 21, 2007. Our shares will be traded inboard lots of 1,000 shares.

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HOW TO APPLY FOR HONG KONG OFFER SHARES

1. WHO CAN APPLY FOR THE HONG KONG OFFER SHARES

You can apply for Hong Kong Offer Shares if you or any person(s) for whose benefit you areapplying are an individual, and:

( are 18 years of age or older;

( have a Hong Kong address; and

( is not a US Person.

If the applicant is a firm, the application must be in the names of the individual members, not thefirm’s name. If the applicant is a body corporate, the Application Form must be signed by a dulyauthorized officer, who must state his or her representative capacity.

If an application is made by a person duly authorized under a valid power of attorney, the GlobalCoordinator (or their respective agents or nominees) may accept it at their discretion, and subject to anyconditions they think fit, including production of evidence of the authority of the attorney.

The number of joint applicants may not exceed four.

We and the Global Coordinator, in its capacity as our agent, will have full discretion to reject oraccept any application, in full or in part, without assigning any reason.

If you are an existing shareholder of the Company (including persons who will be receiving sharespursuant to the Distribution) and you are not a nominee shareholder, you may not apply for shares if thenumber of shares applied for, together with the shares you and your associates (as defined in the HongKong Listing Rules) already own in the Company and will own in the company from the shares to betransferred pursuant to the Distribution, will in aggregate amount to 10 per cent or more of the sharecapital of the Company or otherwise result in you becoming a connected person (as defined in the HongKong Listing Rules) of the Company immediately upon the completion of the Global Offering.

PN18 (4-5)You should also note that you may apply for shares under the Hong Kong Public Offering or indicatean interest for shares under the International Offering, but may not do both.

2. METHODS OF APPLYING FOR THE HONG KONG OFFER SHARES

There are three ways to make an application for the Hong Kong Offer Shares:

( You may apply for the Hong Kong Offer Shares by using a white Application Form. Use awhite Application Form if you want the shares issued in your own name;

( You may apply for the Hong Kong Offer Shares by using a yellow Application Form. Use ayellow Application Form if you want the shares issued in the name of HKSCC Nominees anddeposited directly into CCASS for credit to your CCASS Investor Participant stock account oryour designated CCASS Participant’s stock account; or

( Instead of using a yellow Application Form, you may give electronic application instructionsto HKSCC to cause HKSCC Nominees to apply for the Hong Kong Offer Shares on yourbehalf.

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3. WHERE TO COLLECT THE PROSPECTUS AND APPLICATION FORMS

You can collect a white Application Form and a prospectus from:

( Any participant of the Hong Kong Stock Exchange

( Goldman Sachs (Asia) L.L.C.68th Floor, Cheung Kong Center2 Queen’s Road CentralHong Kong

( BOCI Asia Limited26th FloorBank of China Tower1 Garden RoadHong Kong

( ICEA Capital Limited26th Floor, ICBC Tower3 Garden RoadCentralHong Kong

( DBS Asia Capital Limited22nd Floor The Center99 Queen’s Road CentralHong Kong

( or any of the following branches of Bank of China (Hong Kong) Limited:

Branch Name Address

Hong Kong Island Bank of China Tower Branch 3/F, 1 Garden Road, Central

North Point (Kiu Fai Mansion) 413-415 King’s Road, NorthBranch Point

Taikoo Shing Branch G 1006-7, Hoi Sing Mansion,Taikoo Shing

Kowloon TST - Humphrey’s Avenue 4-4A Humphrey’s Avenue, TsimBranch Sha Tsui

Whampoa Garden Branch Shop G8B, Site 1, WhampoaGarden, Hung Hom

Mong Kok (President 608 Nathan Road, Mong KokCommercial Centre) Branch

Kwun Tong Branch 20-24 Yue Man Square, KwunTong

Diamond Hill Branch G107, Plaza Hollywood,Diamond Hill

New Territories Shatin - Lucky Plaza Branch Lucky Plaza, Wang Pok Street,Shatin

Tseung Kwan O – East Point Shop 101, East Point City,City Branch Tseung Kwan O

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( or any of the following branches of Standard Chartered Bank (Hong Kong) Limited:

Branch Name Address

Hong Kong Island 88 Des Voeux Road Branch 88 Des Voeux Road Central,Central

Central Branch Shop No. 16, G/F and LowerG/F, New World Tower,16-18 Queen’s Road Central,Central

Leighton Centre Branch Shop 12-16, UG/F, LeightonCentre, 77 Leighton Road,Causeway Bay

Quarry Bay Branch G/F, Westlands Gardens,1027 King’s Road, Quarry Bay

Kowloon Mongkok Branch Shop B, G/F, 1/F & 2/F,617-623 Nathan Road,Mongkok

Cheung Sha Wan Branch 828 Cheung Sha Wan Road,Cheung Sha Wan

Kwun Tong Branch 1A Yue Man Square, KwunTong

New Territories Metroplaza Branch Shop Nos. 186-188, Level 1,Metroplaza, 223 Hing FongRoad, Kwai Chung

Yuen Long Branch 140, Yuen Long Main Road,Yuen Long

Tuen Mun Town Plaza Branch Shop No. G047-G052, TuenMun Town Plaza Phase I, TuenMun

( or any of the following branches of Industrial and Commercial Bank of China (Asia)Limited:

Branch Name Address

Hong Kong Island Queen’s Road Central Branch 122-126 Queen’s Road Central,Central

Wanchai Branch 117-123 Hennessy Road,Wanchai

Sheung Wan Branch Shop F, G/F, Kai TakCommercial Building,317-319 Des Voeux RoadCentral, Sheung Wan

Kowloon Prince Edward Branch 777 Nathan Road, Mongkok

New Territories Sha Tsui Road Branch Shop 4, G/F., Chung OnBuilding, 297-313 Sha TsuiRoad, Tsuen Wan

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Prospectuses and Application Forms will be available for collection at the above places during thefollowing times:

Thursday, March 8, 2007 — 9:00 a.m. to 5:00 p.m.Friday, March 9, 2007 — 9:00 a.m. to 5:00 p.m.Saturday, March 10, 2007 — 9:00 a.m. to 1:00 p.m.Monday, March 12, 2007 — 9:00 a.m. to 5:00 p.m.Tuesday, March 13, 2007 — 9:00 a.m. to 12:00 noon.

You can collect a yellow Application Form and a prospectus during normal business hours from9:00 a.m. on Thursday, March 8, 2007 until 12:00 noon on Tuesday, March 13, 2007 from theDepository Counter of HKSCC at 2nd Floor, Vicwood Plaza, 199 Des Voeux Road Central, HongKong.

Your stockbroker may also have Application Forms and this prospectus available.

4. HOW TO APPLY USING A WHITE OR YELLOW APPLICATION FORM

(a) Obtain an Application Form as described in the section headed ‘‘Where to Collect the Prospectusand Application Forms’’, above.

(b) Complete the Application Form in English using blue or black ink, and sign it. There are detailedinstructions on each Application Form. You should read these instructions carefully. If you do notfollow the instructions, your application may be rejected and returned by ordinary post togetherwith the accompanying cheque(s) or banker’s cashier order(s) to you (or the first named applicantin the case of joint applicants) at your own risk at the address stated in the Application Form.

(c) Each Application Form must be accompanied by payment, in the form of either one cheque or onebanker’s cashier order. You should read the detailed instructions set out on the Application Formcarefully, as an application is liable to be rejected if the cheque or banker’s cashier order does notmeet the requirements set out on the Application Form.

(d) Lodge the Application Form in one of the collection boxes by the time and at one of the locations,as respectively referred to in paragraph (a) of the section headed ‘‘6. When May Applications beMade’’ below.

In order for an application made on a yellow Application Form to be valid:

(i) If the application is made through a designated CCASS Participant (other than a CCASS InvestorParticipant):

(A) the designated CCASS Participant or its authorized signatories must sign in the appropriatebox; and

(B) the designated CCASS Participant must endorse the form with its company chop (bearing itscompany name) and insert its participant I.D. in the appropriate box.

(ii) If the application is made by an individual CCASS Investor Participant:

(A) the Application Form must contain the CCASS Investor Participant’s name and Hong Kongidentity card number; and

(B) the CCASS Investor Participant must insert its participant I.D. and sign in the appropriatebox in the Application Form.

(iii) If the application is made by a joint individual CCASS Investor Participant:

(A) the Application Form must contain all joint CCASS Investor Participants’ names and theHong Kong identity card numbers of all joint CCASS Investor Participants; and

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(B) the participant I.D. must be inserted and the authorized signatory(ies) of the CCASSInvestor Participant’s stock account must sign in the appropriate box in the Application Form.

(iv) If the application is made by a corporate CCASS Investor Participant:

(A) the Application Form must contain the CCASS Investor Participant’s name and Hong Kongbusiness registration number; and

(B) the participant I.D. and company chop (bearing its company name) endorsed by itsauthorized signatory(ies) must be inserted in the appropriate box in the Application Form.

Signature(s), number of signatories and form of chop, where appropriate, on each yellowApplication Form should match the records kept by HKSCC. Incorrect or incomplete details of theCCASS Participant or the omission or inadequacy of authorized signatory(ies) (if applicable), participantI.D. or other similar matters may render the application invalid.

5. APPLYING BY GIVING ELECTRONIC APPLICATION INSTRUCTIONS TO HKSCC

(a) General

CCASS Participants may give electronic application instructions to HKSCC to apply for the HongKong Offer Shares and to arrange payment of the monies due on application and payment of refunds.This will be in accordance with their participant agreements with HKSCC and the General Rules ofCCASS and the CCASS Operational Procedures.

If you are a CCASS Investor Participant, you may give electronic application instructions throughthe CCASS Phone System by calling 2979 7888 or through the CCASS Internet System(https://ip.ccass.com) (using the procedures contained in HKSCC’s ‘‘An Operating Guide for InvestorParticipants’’ in effect from time to time).

HKSCC can also input electronic application instructions for you if you go to:

Hong Kong Securities Clearing Company LimitedCustomer Service Centre

2/F Vicwood Plaza199 Des Voeux Road Central

Hong Kong

and complete an input request form.

If you are not a CCASS Investor Participant, you may instruct your broker or custodian who is aCCASS Broker Participant or a CCASS Custodian Participant to give electronic application instructionsvia CCASS terminals to apply for the Hong Kong Offer Shares on your behalf. You are deemed to haveauthorized HKSCC and/or HKSCC Nominees to transfer the details of your application, whethersubmitted by you or through your broker or custodian, to our Company, the Global Coordinator and ourregistrar.

(b) Minimum Subscription Amount and Permitted Multiples

You may give electronic application instructions in respect of a minimum of 1,000 Hong Kong OfferShares. Each electronic application instruction in respect of more than 1,000 Hong Kong Offer Sharesmust be in one of the numbers or multiples set out in the table in the Application Forms.

(c) Warning

The subscription of the Hong Kong Offer Shares by giving electronic application instructions toHKSCC is only a facility provided to CCASS Participants. Our Company, the Directors, the GlobalCoordinator and the Underwriters take no responsibility for the application and provide no assurancethat any CCASS Participant will be allotted any Hong Kong Offer Shares.

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To ensure that CCASS Investor Participants can give their electronic application instructions toHKSCC through the CCASS phone system or the CCASS internet system, CCASS InvestorParticipants are advised not to wait until the last minute to input their electronic application instructions.In the event that CCASS Investor Participants have problems connecting to the CCASS phone systemor the CCASS internet system to submit their electronic application instructions, they should either:

(i) submit a white or yellow Application Form; or

(ii) go to HKSCC’s Customer Service Centre to complete an input request form for electronicapplication instructions before 12:00 noon on Tuesday, March 13, 2007, or such later time asdescribed under the section headed ‘‘6. When May Applications be Made — (d) Effect of BadWeather Conditions on the Opening of the Application Lists’’, below.

6. WHEN MAY APPLICATIONS BE MADE

(a) Applications on White or Yellow Application Forms

Your completed white or yellow Application Form, together with payment attached, should bedeposited in the special collection boxes provided at any of the branches of Bank of China (Hong Kong)Limited, Standard Chartered Bank (Hong Kong) Limited and Industrial and Commercial Bank of China(Asia) Limited listed under the section headed ‘‘Where to Collect the Prospectus and ApplicationForms’’ above at the following times:

Thursday, March 8, 2007 — 9:00 a.m. to 5:00 p.m.Friday, March 9, 2007 — 9:00 a.m. to 5:00 p.m.Saturday, March 10, 2007 — 9:00 a.m. to 1:00 p.m.Monday, March 12, 2007 — 9:00 a.m. to 5:00 p.m.Tuesday, March 13, 2007 — 9:00 a.m. to 12:00 noon.

Completed white or yellow Application Forms, together with payment attached, must be lodged by12 noon on Tuesday, March 13, 2007, or, if the application lists are not open on that day, then by thetime and date stated in the paragraph headed ‘‘Effect of Bad Weather Conditions on the Opening of theApplication Lists’’ below.

(b) Electronic Application Instructions to HKSCC via CCASS

CCASS Broker/Custodian Participants should input electronic application instructions at thefollowing times on the following dates:

Thursday, March 8, 2007 — 9:00 a.m. to 8:30 p.m.Friday, March 9, 2007 — 8:00 a.m. to 8:30 p.m.

Saturday, March 10, 2007 — 8:00 a.m. to 1:00 p.m.Monday, March 12, 2007 — 8:00 a.m. to 8:30 p.m.Tuesday, March 13, 2007 — 8:00 a.m. to 12:00 noon.

The above times are subject to change as HKSCC may determine from time to time with pronotification to CCASS Broker/Custodian Participants.

CCASS Investor Participants can input electronic application instructions from 9:00 a.m. onThursday, March 8, 2007 until 12:00 noon on Tuesday, March 13, 2007 (24 hours daily, except the lastapplication day).

The latest time for inputting electronic application instructions will be 12:00 noon on Tuesday,March 13, 2007, the last application day, or if the application lists are not open on that day, by the timeand date stated in the paragraph headed ‘‘Effect of Bad Weather Conditions on the Opening of theApplication Lists’’ below.

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(c) Application Lists

3rd Sch(8)The application lists will be open from 11:45 a.m. to 12:00 noon on Tuesday, March 13, 2007,except as provided in the paragraph headed ‘‘Effect of Bad Weather Conditions on the Opening of theApplication Lists’’ below.

Applicants should note that cheques or banker’s cashier orders will not be presented for paymentbefore the closing of the application lists but may be presented at any time thereafter.

(d) Effect of Bad Weather Conditions on the Opening of the Application Lists

The application lists will not open if there is:

( a tropical cyclone warning signal number 8 or above, or

( a ‘‘black’’ rainstorm warning

in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Tuesday, March 13, 2007.Instead they will open between 11:45 a.m. and 12:00 noon on the next business day which does nothave either of those warnings in Hong Kong in force at any time between 9:00 a.m. and 12:00 noon. Forthis purpose, ‘‘business day’’ means a day that is not a Saturday, Sunday or a public holiday in HongKong.

7. HOW MANY APPLICATIONS MAY BE MADE

PN18(4.6)Multiple applications or suspected multiple applications are liable to be rejected.

You may make more than one application for the Hong Kong Offer Shares if and only if youare a nominee, in which case you may make an application as a nominee by (i) giving electronicapplication instructions to HKSCC (if you are a CCASS Participant) and; (ii) lodging more than oneApplication Form in your own name if each application is made on behalf of different beneficial owners.In the box on the Application Form marked ‘‘For nominees’’ you must include:

( an account number; or

( some other identification code

for each beneficial owner. If you do not include this information, the application will be treated as beingmade for your benefit.

Otherwise, multiple applications are not allowed.

If you have made an application by giving electronic application instructions to HKSCC and youare suspected of having made multiple applications or if more than one application is made for yourbenefit, the number of Hong Kong Offer Shares applied for by HKSCC Nominees will be automaticallyreduced by the number of Hong Kong Offer Shares in respect of which you have given such instructionsand/or in respect of which such instructions have been given for your benefit. Any electronic applicationinstructions to make an application for the Hong Kong Offer Shares given by you or for your benefit toHKSCC shall be deemed to be an actual application for the purpose of considering whether multipleapplications have been made. No application for any other number of Hong Kong Offer Shares will beconsidered and any such application is liable to be rejected.

For further information, please see the section headed ‘‘Further Terms and Conditions of the HongKong Public Offering — Multiple Applications’’.

8. HOW MUCH ARE THE HONG KONG OFFER SHARES

The maximum offer price is HK$3.72 per share. You must also pay brokerage of 1%, SFCtransaction levy of 0.004%, and Hong Kong Stock Exchange trading fee of 0.005%. This means that for

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every board lot of 1,000 shares you will pay HK$3,757.54. The Application Forms have tables showingthe exact amount payable for multiples of shares up to 43,046,000 shares.

If the Offer Price as finally determined is less than HK$3.72 per share, appropriate refundpayments (including the brokerage, SFC transaction levy and Hong Kong Stock Exchange trading feeattributable to the surplus application monies) will be made to successful applicants, without interest.Details of the procedure for refund are set out below in the section headed ‘‘Publication of Results,Despatch/Collection of Share Certificates and Refunds of Application Monies’’.

If your application is successful, brokerage is paid to participants of the Hong Kong Stock Exchange(or the Hong Kong Stock Exchange, as the case may be), the Hong Kong Stock Exchange trading fee ispaid to the Hong Kong Stock Exchange, and the SFC transaction levy is paid to the SFC.

9. PUBLICATION OF RESULTS, DESPATCH/COLLECTION OF SHARE CERTIFICATES ANDREFUNDS OF APPLICATION MONIES

A1A 15(2)(k)We expect to announce the basis of allotment, the results of applications and the Hong Kongidentity card/passport/Hong Kong business registration numbers of successful applicants under theHong Kong Public Offering on Tuesday, March 20, 2007 in the South China Morning Post (in English)and the Hong Kong Economic Journal (in Chinese).

Refund cheques for surplus application monies (if any) under white or yellow Application Formsand share certificates for successful applicants under white Application Forms are expected to beposted and/or available for collection (as the case may be) on or around Tuesday, March 20, 2007.

Share certificates will only become valid certificates of title at 8:00 a.m. on Wednesday,March 21, 2007 provided that the Hong Kong Public Offering has become unconditional in allrespects and the right of termination described in the section entitled ‘‘Underwriting —Underwriting Arrangements and Expenses — Hong Kong Public Offering — Grounds forTermination’’ has not been exercised.

For further information on arrangements for the dispatch/ collection of share certificates andrefunds of application monies, please refer to the section headed ‘‘Further Terms and Conditions of theHong Kong Public Offering — 8. Refund of Application Monies’’.

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FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING

1. GENERAL

(a) If you apply for Hong Kong Offer Shares in the Hong Kong Public Offering, you will be agreeingwith our Company and the Global Coordinator (for itself and on behalf of the Hong KongUnderwriters) as set out below.

(b) If you give electronic application instructions to HKSCC via CCASS to cause HKSCC Nominees toapply for Hong Kong Offer Shares on your behalf, you will have authorized HKSCC Nominees toapply on the terms and conditions set out below, as supplemented and amended by the terms andconditions applicable to the relevant application method.

(c) In this section, references to ‘‘you’’, ‘‘applicants’’, ‘‘joint applicants’’ and other like references shall,if the context so permits, include references to both nominees and principals on whose behalfHKSCC Nominees is applying for Hong Kong Offer Shares, and references to the making of anapplication shall, if the context so permits, include references to making applications electronicallyby giving instructions to HKSCC.

(d) Applicants should read this prospectus carefully, including the terms and conditions set out hereinand in the Application Forms or imposed by HKSCC prior to making any application for Hong KongOffer Shares.

2. OFFER TO PURCHASE THE HONG KONG OFFER SHARES

(a) You offer to purchase from us at the Offer Price the number of the Hong Kong Offer Sharesindicated in your Application Form (or any smaller number in respect of which your application isaccepted) on the terms and conditions set out in this prospectus and the relevant ApplicationForm.

(b) For applicants using Application Forms, a refund cheque in respect of the surplus applicationmonies (if any) representing the Hong Kong Offer Shares applied for but not allocated to you andrepresenting the difference (if any) between the final Offer Price and the maximum Offer Price(including brokerage, the SFC transaction levy and the Hong Kong Stock Exchange trading feeattributable thereto), is expected to be sent to you at you own risk to the address stated on yourApplication Form on or before Tuesday, March 20, 2007.

Details of the procedure for refunds relating to each of the Hong Kong Public Offering methods arecontained below in the paragraphs headed ‘‘7. If your Application for the Hong Kong Offer Sharesis Successful (in Whole or in Part)’’, ‘‘8. Refund of Application Monies’’ and ‘‘9. AdditionalInformation for Applicants Applying by Giving Electronic Application Instructions to HKSCC’’ in thissection.

(c) Any application may be rejected in whole or in part.

(d) Applicants under the Hong Kong Public Offering should note that in no circumstances (save forthose provided under section 40 of the Hong Kong Companies Ordinance) can applications bewithdrawn once submitted. For the avoidance of doubt, our Company and all other parties involvedin the preparation of this prospectus acknowledge that each CCASS Participant who gives, orcauses to give, electronic application instructions to HKSCC via CCASS is a person who maybe entitled to compensation under section 40 of the Hong Kong Companies Ordinance.

3. ACCEPTANCE OF YOUR OFFER

(a) The Hong Kong Offer Shares will be allocated after the application lists close. We expect toannounce the final number of Hong Kong Offer Shares, the level of applications under the HongKong Public Offering and the basis of allocations of the Hong Kong Offer Shares in the SouthChina Morning Post (in English) and the Hong Kong Economic Journal (in Chinese) on Tuesday,March 20, 2007.

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(b) The results of allocations of the Hong Kong Offer Shares under the Hong Kong Public Offering,including the Hong Kong identity card numbers, passport numbers or Hong Kong businessregistration numbers (where applicable) of successful applicants and the number of Hong KongOffer Shares successfully applied for, will be made available on Tuesday, March 20, 2007 in themanner described in the section headed ‘‘How to Apply for Hong Kong Offer Shares —9. Publication of Results, Despatch/Collection of Share Certificates and Refunds of ApplicationMonies’’.

(c) We may accept your offer to purchase (if your application is received, valid, processed and notrejected) by announcing the basis of allocations and/or making available the results of allocationspublicly.

(d) If we accept your offer to purchase (in whole or in part), there will be a binding contract underwhich you will be required to purchase the Hong Kong Offer Shares in respect of which your offerhas been accepted if the conditions of the Global Offering are satisfied or the Global Offering isnot otherwise terminated. Further details are contained in the section headed ‘‘Structure of theGlobal Offering’’.

(e) You will not be entitled to exercise any remedy of rescission for innocent misrepresentation at anytime after acceptance of your application. This does not affect any other right you may have.

4. EFFECT OF MAKING ANY APPLICATION

(a) By completing and submitting any Application Form you:

( instruct and authorize our Company and/or the Global Coordinator (or their respectiveagents or nominees) to execute any transfer forms, contract notes or other documents onyour behalf and to do on your behalf all other things necessary to effect the registration of anyHong Kong Offer Shares allocated to you in your name(s) or the name of HKSCC Nominees,as the case may be, as required by our Articles of Association and otherwise to give effect tothe arrangements described in this prospectus and the relevant Application Form;

( undertake to sign all documents and to do all things necessary to enable you or HKSCCNominees, as the case may be, to be registered as the holder of the Hong Kong Offer Sharesallocated to you, and as required by our Articles of Association;

( represent, warrant and undertake that you understand that the shares have not been andwill not be registered under the US Securities Act and you are outside the United States whencompleting the Application Form and are not a United States person (as defined inRegulation S under the US Securities Act);

( confirm that you have received a copy of this prospectus and have only relied on theinformation and representations contained in this prospectus in making your application, andwill not rely on any other information or representation save as set out in any supplement tothis prospectus;

( agree (without prejudice to any other rights which you may have) that once your applicationhas been accepted, you may not rescind it because of an innocent misrepresentation and youmay not revoke it other than as provided in this prospectus;

( (if the application is made for your own benefit) warrant that the application is the onlyapplication which will be made for your benefit on a white or yellow Application Form or bygiving electronic application instructions to HKSCC;

( (if you are an agent for another person) warrant that the application is the only applicationwhich will be made for the benefit of that other person on a white or yellow Application Formor by giving electronic application instructions to HKSCC, and that you are duly authorized

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to sign the Application Form or to give electronic application instructions as that otherperson’s agent;

( undertake and confirm that you (if the application is made for your benefit) or the person(s)for whose benefit you have made the application have not applied for or taken up or indicatedan interest in or received or been placed or allocated (including conditionally and/orprovisionally) and will not apply for or take up or indicate any interest in any International OfferShares, nor otherwise participate in the International Offering;

( warrant the truth and accuracy of the information contained in your application;

( agree that your application, any acceptance of it and the resulting contract will be governedby and construed in accordance with the laws of Hong Kong;

( undertake and agree to accept the shares applied for, or any lesser number allocated to youunder the application;

( authorize our Company to place your name(s) or the name of HKSCC Nominees, as thecase may be, on our register of members as the holder(s) of any Hong Kong Offer Sharesallocated to you, and our Company and/or our agents to send any share certificate(s) (whereapplicable) and/or any refund cheque (where applicable) to you or (in case of joint applicants)the first-named applicant in the Application Form by ordinary post at your own risk to theaddress stated on your Application Form (except if you have applied for 1,000,000 Hong KongOffer Shares or more and have indicated in your Application Form your wish to collect yourrefund cheque and share certificates (where applicable) in person);

( agree that the processing of your application, including the despatch of refund cheque(s) (ifany), may be done by any of the Company’s receiving bankers and is not restricted to thebank at which your Application Form is lodged;

( understand that these declarations and representations will be relied upon by our Companyand the Global Coordinator in deciding whether or not to allocate any Hong Kong OfferShares in response to your application and that you may be prosecuted if you make a falsedeclaration;

( if the laws of any place outside Hong Kong are applicable to your application, you agree andwarrant that you have complied with all such laws and none of our Company, the GlobalCoordinator and the Underwriters nor any of their respective officers or advisers will infringeany laws outside Hong Kong as a result of the acceptance of your offer to purchase, or anyactions arising from your rights and obligations under the terms and conditions contained inthis prospectus;

( agree with the Company, for itself and for the benefit of each shareholder of the Company(and so that the Company will be deemed by its acceptance in whole or in part of theapplication to have agreed, for itself and on behalf of each shareholder of the Company) (andif applicable, with each CCASS Participant giving electronic application instructions) toobserve and comply with the Hong Kong Companies Ordinance and the Articles ofAssociation;

( agree that our Company, the Global Coordinator, the Underwriters and any of their respectivedirectors, officers, employees, agents or advisors and any other parties involved in the GlobalOffering are liable only for the information and representations contained in this prospectusand any supplement to this prospectus;

( agree to disclose to our Company, our registrar, receiving bankers, the Global Coordinatorand their respective advisors and agents any personal data or other information which theyrequire about you or the person(s) for whose benefit you have made the application; and

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( authorize the Company to enter into a contract on behalf of you with each Director and officerof the Company whereby such Directors and officers undertake to observe and comply withtheir obligations to shareholders stipulated in the Articles of Association.

(b) If you apply for the Hong Kong Offer Shares using a yellow Application Form, in addition to theconfirmations and agreements referred to in (a) above, you (and if you are joint applicants, each ofyou jointly and severally) agree that:

( any Hong Kong Offer Shares allocated to you shall be registered in the name of HKSCCNominees and deposited directly into CCASS operated by HKSCC for credit to your CCASSInvestor Participant stock account or the stock account of your designated CCASS Participantin accordance with your election on the Application Form;

( each of HKSCC and HKSCC Nominees reserves the right (1) not to accept any or part ofsuch allotted Hong Kong Offer Shares issued in the name of HKSCC Nominees or not toaccept such allotted Hong Kong Offer Shares for deposit into CCASS; (2) to cause suchallotted Hong Kong Offer Shares to be withdrawn from CCASS and transferred into yourname at your own risk and costs; and (3) to cause such allotted Hong Kong Offer Shares tobe issued in your name (or, if you are a joint applicant, to the first-named applicant) and insuch a case, to post the share certificates for such allotted Hong Kong Offer Shares at yourown risk to the address on your Application Form by ordinary post or to make available thesame for your collection;

( each of HKSCC and HKSCC Nominees may adjust the number of allotted Hong Kong OfferShares issued in the name of HKSCC Nominees;

( neither HKSCC nor HKSCC Nominees shall have any liability for the information andrepresentations not so contained in this prospectus and the Application Form; and

( neither HKSCC nor HKSCC Nominees shall be liable to you in any way.

(c) In addition, by giving electronic application instructions to HKSCC or instructing your broker orcustodian who is a CCASS Broker Participant or a CCASS Custodian Participant to give suchinstructions to HKSCC, you (and if you are joint applicants, each of you jointly and severally) aredeemed to have done the following things. Neither HKSCC nor HKSCC Nominees shall be liableto our Company or any other person in respect of the things mentioned below:

( instructed and authorized HKSCC to cause HKSCC Nominees (acting as nominee for therelevant CCASS Participants) to apply for the Hong Kong Offer Shares on your behalf;

( instructed and authorized HKSCC to arrange payment of the maximum Offer Price,brokerage, SFC transaction levy and Hong Kong Stock Exchange trading fee by debiting yourdesignated bank account and, in the case of a wholly or partially unsuccessful applicationand/or if the Offer Price is less than the Offer Price per share initially paid on application,refund of the application monies, in each case including brokerage, SFC transaction levy andHong Kong Stock Exchange trading fee, by crediting your designated bank account; and

( (where a white Application Form is signed by HKSCC Nominees on behalf of persons whohave given electronic application instructions to apply for the Hong Kong Offer Shares) inaddition to the confirmations and agreements set out in paragraph (a), above, instructed andauthorized HKSCC to cause HKSCC Nominees to do on your behalf all the things which ithas stated to do on your behalf in the white Application Form, and the following:

— agree that the Hong Kong Offer Shares to be allocated shall be issued in the name ofHKSCC Nominees and deposited directly into CCASS for the credit of the stock accountof the CCASS Participant who has inputted electronic application instructions on yourbehalf or your CCASS Investor Participant stock account;

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— undertake and agree to accept the Hong Kong Offer Shares in respect of which youhave given electronic application instructions or any lesser number;

— (if the electronic application instructions are given for your own benefit) declare thatonly one set of electronic application instructions has been given for your benefit;

— (if you are an agent for another person) declare that you have only given one set ofelectronic application instructions for the benefit of that other person and that you areduly authorized to give those instructions as that other person’s agent;

— understand that the above declaration will be relied upon by our Company, theDirectors and the Global Coordinator in deciding whether or not to make any allotmentof Hong Kong Offer Shares in respect of the electronic application instructions given byyou and that you may be prosecuted if you make a false declaration;

— authorize our Company to place the name of HKSCC Nominees on the register ofmembers of our Company as the holder of the Hong Kong Offer Shares allotted inrespect of your electronic application instructions and to send share certificate(s) and/orrefund monies in accordance with the arrangements separately agreed between ourCompany and HKSCC;

— confirm that you have read the terms and conditions and application procedures set outin this prospectus and agree to be bound by them;

— confirm that you have only relied on the information and representations in thisprospectus in giving your electronic application instructions or instructing your broker orcustodian to give electronic application instructions on your behalf;

— agree (without prejudice to any other rights which that person may have) that once theapplication of HKSCC Nominees has been accepted, the application cannot berescinded for innocent misrepresentation;

— agree that any application made by HKSCC Nominees on behalf of you pursuant toelectronic applications given by you is irrevocable on or before Thursday, April 12, 2007,such agreement to take effect as a collateral contract with our Company and to becomebinding when you give the instructions and such collateral contract to be inconsideration of our Company agreeing that we will not offer any Hong Kong OfferShares to any person before Thursday, April 12, 2007, except by means of one of theprocedures referred to in this prospectus. However, HKSCC Nominees may revoke theapplication on or before Thursday, April 12, 2007 if a person responsible for thisprospectus under section 40 of the Hong Kong Companies Ordinance gives a publicnotice under that section which excludes or limits the responsibility of that person forthis prospectus;

— agree that once the application of HKSCC Nominees is accepted, neither thatapplication nor your electronic application instructions can be revoked, and thatacceptance of that application will be evidenced by the announcement of the results ofthe Hong Kong Public Offering published by our Company;

— agree to the arrangements, undertakings and warranties specified in the participantagreement between you and HKSCC, read with the General Rules of CCASS and theCCASS Operational Procedures, in respect of the giving of electronic applicationinstructions relating to Hong Kong Offer Shares.

(d) Our Company, the Global Coordinator, the Underwriters and their respective directors and anyother parties involved in the Global Offering are entitled to rely on any warranty, representation ordeclaration made by you in your application.

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(e) All the warranties, representations, declarations and obligations expressed to be made, given orassumed by or imposed on the joint applicants shall be deemed to have been made, given orassumed by or imposed on the applicants jointly and severally.

PN18(4.6)5. MULTIPLE APPLICATIONS

(a) It will be a term and condition of all applications that by completing and delivering an ApplicationForm, you:

( (if the application is made for your own benefit) warrant that the application is the onlyapplication which will be made for your benefit on a white or yellow Application Form or bygiving electronic application instructions to HKSCC;

( (if you are an agent for another person) warrant that reasonable enquiries have been made ofthat other person that the application is the only application which will be made for the benefitof that other person on a white or yellow Application Form or by giving electronicapplication instructions to HKSCC and that you are duly authorized to sign the ApplicationForm as that other person’s agent.

(b) Except where you are a nominee and provide the information required to be provided in yourapplication, all of your applications will be rejected as multiple applications if you, or you and yourjoint applicant(s) together:

( make more than one application (whether individually or jointly) on a white or yellowApplication Form or by giving electronic application instructions to HKSCC;

( both apply (whether individually or jointly) on one white Application Form and one yellowApplication Form or on one white or yellow Application Form and give electronic instructionsto HKSCC;

( apply on one white or yellow Application Form (whether individually or jointly) or by givingelectronic application instructions to HKSCC for more than 50% of the shares initiallybeing offered for public subscription under the Hong Kong Public Offering, as moreparticularly described in the section headed ‘‘Structure of the Global Offering — The HongKong Public Offering’’; or

( have applied for or taken up, or indicated an interest for, or have been or will be placed(including conditionally and/or provisionally) International Offer Shares.

(c) All of your applications will also be rejected as multiple applications if more than one application ismade for your benefit (including the part of the application made by HKSCC Nominees acting onelectronic application instructions). If an application is made by an unlisted company and

( the only business of that company is dealing in securities; and

( you exercise statutory control over that company,

then the application will be treated as being for your benefit.

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For these purposes:

‘‘Unlisted company’’ means a company with no equity securities listed on the Hong KongStock Exchange.

‘‘Statutory control’’ means you:

— control the composition of the board of directors of a company; or

— control more than half of the voting power of a company; or

— hold more than half of the issued share capital of a company (notcounting any part of it which carries no right to participate beyonda specified amount in a distribution of either profits or capital).

6. CIRCUMSTANCES IN WHICH YOU WILL NOT BE ALLOTTED HONG KONG OFFER SHARES

You should note the following situations in which the Hong Kong Offer Shares will not be allotted toyou or your application is liable to be rejected:

(a) If your application is revoked:

By completing and submitting an Application Form you agree that you cannot revoke yourapplication or the application made by HKSCC Nominees on your behalf cannot be revoked on or beforeThursday, April 12, 2007. This agreement will take effect as a collateral contract with our Company, andwill become binding when you lodge your Application Form or submit your electronic applicationinstructions to HKSCC. This collateral contract will be in consideration of our Company agreeing that wewill not offer any Hong Kong Offer Shares to any person on or before Thursday, April 12, 2007 except bymeans of one of the procedures referred to in this prospectus.

You may only revoke your application on or before Thursday, April 12, 2007 if a person responsiblefor this prospectus under section 40 of the Hong Kong Companies Ordinance gives a public noticeunder that section which excludes or limits the responsibility of that person for this prospectus.

If any supplement to the prospectus is issued, applicant(s) who have already submitted anapplication may or may not (depending on the information contained in the supplement) be notified thatthey can withdraw their applications. If applicant(s) have not been so notified, or if applicant(s) havebeen notified but have not withdrawn their applications in accordance with the procedure to be notified,all applications that have been submitted remain valid and may be accepted. Subject to the above, anapplication once made is irrevocable and applicants shall be deemed to have applied on the basis of theprospectus as supplemented.

If your application or the application made by HKSCC on your behalf has been accepted, it cannotbe revoked. For this purpose, acceptance of applications which are not rejected will be constituted bynotification in the press of the results of allocation, and where such basis of allocation is subject tocertain conditions or provides for allocation by ballot, such acceptance will be subject to the satisfactionof such conditions or results of the ballot respectively.

(b) If our Company, the Global Coordinator or their respective agents exercise theirdiscretion to reject your application:

We and the Global Coordinator (as agent for our Company), or their respective agents andnominees, have full discretion to reject or accept any application, or to accept only part of anyapplication, without having to give any reason.

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(c) If the allotment of Hong Kong Offer Shares is void:

The allotment of Hong Kong Offer Shares to you or to HKSCC Nominees (if you give electronicapplication instructions or apply by a yellow Application Form) will be void if the Listing Committee ofthe Hong Kong Stock Exchange does not grant permission to list the shares either:

( within three weeks from the closing of the application lists; or

( within a longer period of up to six weeks if the Listing Committee of the Hong Kong StockExchange notifies our Company of that longer period within three weeks of the closing of theapplication lists.

(d) If:

( you make multiple applications or suspected multiple applications;

( you or the person for whose benefit you apply have applied for or taken up, or indicated aninterest for, or have been or will be placed or allocated (including conditionally and/orprovisionally) International Offer Shares. By filling in any of the Application Forms or givingelectronic instructions to HKSCC, you agree not to apply for International Offer Shares.Reasonable steps will be taken to identify and reject applications in the Hong Kong PublicOffering from investors who have received International Offer Shares, and to identify and rejectindications of interest in the International Offering from investors who have received HongKong Offer Shares;

( you apply for more than 50% of the Hong Kong Offer Shares initially being offered;

( your payment is not made correctly or you pay by cheque or banker’s cashier order and thecheque or banker’s cashier order is dishonored upon its first presentation;

( your Application Form is not completed correctly and in accordance with the instructions;

( our Company believes that by accepting your application, this would violate the applicablesecurities or other laws, rules or regulations of the jurisdiction in which your application iscompleted and/or signed;

( either of the Underwriting Agreements does not become unconditional; or

( either of the Underwriting Agreements is terminated in accordance with their respective terms.

A1A 15(2)(g)7. IF YOUR APPLICATION FOR HONG KONG OFFER SHARES IS SUCCESSFUL (IN WHOLEOR IN PART)

No temporary document of title will be issued in respect of the shares.

No receipt will be issued for sums paid on application.

Share certificates will only become valid certificates of title at 8:00 a.m. on Wednesday,March 21, 2007 provided that the Hong Kong Public Offering has become unconditional in allrespects and the right of termination described in the section headed ‘‘Underwriting —Underwriting Arrangements and Expenses — Hong Kong Public Offering — Grounds forTermination’’ has not been exercised.

(a) If you apply using a white Application Form:

If you apply for 1,000,000 Hong Kong Offer Shares or more on a white Application Form and haveindicated your intention in your Application Form to collect your share certificate(s) and/or refundcheque (where applicable) from Progressive Registration Limited and have provided all informationrequired by your Application Form, you may collect it/them in person from Progressive RegistrationLimited at 26/F Tesbury Centre, 28 Queen’s Road East, Wan Chai, Hong Kong from 9:00 a.m. to

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1:00 p.m. on Tuesday, March 20, 2007 or such other date as notified by our Company in thenewspapers as the date of dispatch/collection of share certificates/refund cheques.

If you are an individual who opts for personal collection, you must not authorize any other person tomake collection on your behalf. If you are a corporate applicant which opts for personal collection, youmust attend by your authorized representative bearing a letter of authorization from your corporationstamped with your corporation’s chop. Both individuals and authorized representatives (if applicable)must produce, at the time of collection, evidence of identity acceptable to Progressive RegistrationLimited.

If you do not collect your refund cheque(s) (where applicable) and/or share certificate(s) (whereapplicable) personally within the time specified for collection, they will be sent to the address asspecified in your Application Form promptly thereafter by ordinary post and at your own risk.

If you apply for less than 1,000,000 Hong Kong Offer Shares or if you apply for 1,000,000 HongKong Offer Shares or more but have not indicated on your Application Form that you will collect yourrefund cheque(s) and/or share certificate(s) (where applicable) in person, your refund cheque(s) and/orshare certificate(s) (where applicable) will be sent to the address on your Application Form on Tuesday,March 20, 2007, by ordinary post and at your own risk.

(b) If you apply using a yellow Application Form:

If you apply for Hong Kong Offer Shares using a yellow Application Form and your application iswholly or partially successful, your share certificate(s) will be issued in the name of HKSCC Nomineesand deposited into CCASS for credit to your CCASS Investor Participant stock account or the stockaccount of your designated CCASS Participant as instructed by you in your Application Form at theclose of business on Tuesday, March 20, 2007, or under contingent situation, on any other date as shallbe determined by HKSCC or HKSCC Nominees.

If you are applying through a designated CCASS Participant (other than a CCASS InvestorParticipant) on a yellow Application Form for Hong Kong Offer Shares credited to the stock account ofyour designated CCASS Participant (other than a CCASS Investor Participant), you can check thenumber of Hong Kong Offer Shares allocated to you with that CCASS Participant.

If you are applying as a CCASS Investor Participant, our Company expects to publish the results ofCCASS Investor Participants’ applications together with the results of the Hong Kong Public Offering inthe newspapers on Tuesday, March 20, 2007. You should check the announcement published by ourCompany and report any discrepancies to HKSCC before 5:00 p.m. on Tuesday, March 20, 2007 orsuch other date as shall be determined by HKSCC or HKSCC Nominees. Immediately after the credit ofthe Hong Kong Offer Shares to your stock account, you can check your new account balance via theCCASS phone system and the CCASS internet system (under the procedures contained in HKSCC’s‘‘An Operating Guide for Investor Participants’’ in effect from time to time). HKSCC will also makeavailable to you an activity statement showing the number of Hong Kong Offer Shares credited to yourstock account.

If you apply for 1,000,000 Hong Kong Offer Shares or more and you have elected on your yellowApplication Form to collect your refund cheque (where applicable) in person, please follow the sameprocedure, as those for white Application Form applicants as described above. If you have applied for1,000,000 Hong Kong Offer Shares or above and have not indicated on your Application Form that youwill collect your refund cheque (if any) in person, or if you have applied for less than 1,000,000 HongKong Offer Shares, your refund cheque (if any) will be sent to the address on your Application Form onthe date of despatch, which is expected to be on Tuesday, March 20, 2007, by ordinary post and at yourown risk.

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8. REFUND OF APPLICATION MONIES

Your application monies, or the appropriate portion thereof, together with the related brokerage of1%, SFC transaction levy of 0.004%, and Hong Kong Stock Exchange trading fee of 0.005%, will berefunded if:

( your application is rejected, not accepted or accepted in part only or if you do not receive anyHong Kong Offer Shares for any of the reasons set out above in the section headed‘‘6. Circumstances in Which You Will Not Be Allotted Hong Kong Offer Shares’’;

( the offer price as finally determined is less than the offer price of HK$3.72 per share (excludingbrokerage, SFC transaction levy and Hong Kong Stock Exchange trading fee thereon) initiallypaid on application;

( the conditions of the Hong Kong Public Offering are not fulfilled in accordance with the sectionheaded ‘‘Structure of the Global Offering — Conditions of the Hong Kong Public Offering’’; or

( any application is revoked or any allotment pursuant thereto has become void.

No interest will be paid thereon. All interest accrued on such monies will be retained for our benefit.

In a contingency situation involving a substantial over-subscription, at the discretion of ourCompany and the Global Coordinator, cheques for applications for certain small denominations of HongKong Offer Shares (apart from successful applications) may not be cleared.

Refund of your application monies (if any) will be made on Tuesday, March 20, 2007 in accordancewith the various arrangements as described herein. It is intended that special efforts will be made toavoid any undue delay in refunding application monies where appropriate. All refunds will be made by acheque crossed ‘‘Account Payee Only’’ made out to you, or if you are joint applicants, to the first namedapplicant. Part of your Hong Kong identity card number or passport number, or, if you are jointapplicants, part of the Hong Kong identity card number or passport number of the first-named applicant,provided by you may be printed on your refund cheque, if any. Such data will also be transferred to athird party for refund purposes. Your banker may require verification of your Hong Kong identity cardnumber or passport number before encashment of your refund cheque. Inaccurate completion of yourHong Kong identity card number or passport number may lead to delay in encashment of or mayinvalidate your refund cheque.

9. ADDITIONAL INFORMATION FOR APPLICANTS APPLYING BY GIVING ELECTRONICAPPLICATION INSTRUCTIONS TO HKSCC

(a) Allocation of Hong Kong Offer Shares

For the purposes of allocating Hong Kong Offer Shares, HKSCC Nominees will not be treated as anapplicant. Instead, each CCASS Participant who gives electronic application instructions or each personfor whose benefit each such instructions is given will be treated as an applicant.

A1A 15(2)(g)(b) Deposit of share certificates into CCASS and refund of application monies

( No temporary document of title will be issued. No receipt will be issued for application moniesreceived.

( If your application is wholly or partially successful, your share certificate(s) will be issued in thename of HKSCC Nominees and deposited into CCASS for the credit of the stock account ofthe CCASS Participant which you have instructed to give electronic application instructions onyour behalf or your CCASS Investor Participant stock account at the close of business onTuesday, March 20, 2007, or, in the event of a contingency, on any other date as shall bedetermined by HKSCC or HKSCC Nominees Limited.

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( Our Company expects to publish the application results of CCASS Participants (and where theCCASS Participant is a broker or custodian, our Company will include information relating tothe relevant beneficial owner), your Hong Kong identity card/passport number or otheridentification code (Hong Kong business registration number for corporations) and the basis ofallotment of the Hong Kong Public Offering in the newspapers on Tuesday, March 20, 2007.You should check the announcement published by our Company and report any discrepanciesto HKSCC before 5:00 p.m. on Tuesday, March 20, 2007 or such other date as shall bedetermined by HKSCC or HKSCC Nominees.

( If you have instructed your broker or custodian to give electronic application instructions onyour behalf, you can also check the number of Hong Kong Offer Shares allotted to you and theamount of refund monies (if any) payable to you with that broker or custodian.

( If you have applied as a CCASS Investor Participant, you can also check the number of HongKong Offer Shares allotted to you and the amount of refund monies (if any) payable to you viathe CCASS phone system and the CCASS internet system (under the procedures contained inHKSCC’s ‘‘An Operating Guide for Investor Participants’’ in effect from time to time) onTuesday, March 20, 2007. HKSCC will also make available to you an activity statementshowing the number of Hong Kong Offer Shares credited to your CCASS Investor Participantstock account and the amount of refund monies (if any) credited to your designated bankaccount.

( Refund of your application monies (if any) in respect of wholly and partially unsuccessfulapplications and/or difference between the offer price and the offer price per share initially paidon application, in each case including brokerage of 1%, SFC transaction levy of 0.004% andHong Kong Stock Exchange trading fee of 0.005%, will be credited to your designated bankaccount or the designated bank account of your broker or custodian on Tuesday,March 20, 2007. No interest will be paid thereon.

10. PERSONAL DATA

The main provisions of the Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of HongKong) (the ‘‘PDP Ordinance’’) came into effect in Hong Kong on December 20, 1996. This PersonalInformation Collection Statement informs the applicant for and holder of our shares of the policies andpractices of our Company and our share registrar in relation to personal data and the PDP Ordinance.

(a) Reasons for the collection of your personal data

From time to time it is necessary for applicants for securities or registered holders of securities tosupply their latest correct personal data to our Company and our share registrar when applying forsecurities or transferring securities into or out of their names or in procuring the services of the shareregistrar. Failure to supply the requested data may result in your application for securities being rejectedor in delay or inability of our Company or the share registrar to effect transfers or otherwise render theirservices. It may also prevent or delay registration or transfer of the Hong Kong Offer Shares which youhave successfully applied for and/or the dispatch of share certificate(s), and/or refund cheque(s) towhich you are entitled.

It is important that holders of securities inform us and our share registrar immediately of anyinaccuracies in the personal data supplied.

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(b) Purposes

The personal data of the applicants and the holders of securities may be used, held and/or stored(by whatever means) for the following purposes:

( processing of your application and refund cheque, where applicable, and verification ofcompliance with the terms and application procedures set out in the Application Forms and thisprospectus and announcing results of allocations of the Hong Kong Offer Shares;

( enabling compliance with all applicable laws and regulations in Hong Kong and elsewhere;

( registering new issues or transfers into or out of the name of holders of securities including,where applicable, in the name of HKSCC Nominees;

( maintaining or updating the register of holders of securities of our Company;

( conducting or assisting the conduct of signature verifications, any other verification orexchange of information;

( establishing benefit entitlements of holders of securities of our Company, such as dividends,rights issues and bonus issues;

( distributing communications from our Company and our subsidiaries;

( compiling statistical information and shareholder profiles;

( making disclosures as required by laws, rules or regulations;

( disclosing relevant information to facilitate claims on entitlements; and

( any other incidental or associated purposes relating to the above and/or to enable ourCompany and our share registrar to discharge our obligations to holders of securities and/orregulators and/or other purpose to which the holders of securities may from time to time agree.

(c) Transfer of personal data

Personal data held by our Company and our share registrar relating to the applicants and theholders of securities will be kept confidential but our Company and our share registrar, to the extentnecessary for achieving the above purposes or any of them, may make such enquiries as they considernecessary to confirm the accuracy of the personal data and in particular, they may disclose, obtain,transfer (whether within or outside Hong Kong) the personal data of the applicants and the holders ofsecurities to, from or with any and all of the following persons and entities:

( our Company or our appointed agents such as financial advisers and receiving bankers;

( HKSCC and HKSCC Nominees, who will use the personal data for the purposes of operatingCCASS (in cases where the applicants have requested for the Hong Kong Offer Shares to bedeposited into CCASS);

( any agents, contractors or third-party service providers who offer administrative,telecommunications, computer, payment or other services to our Company and/or our shareregistrar in connection with the operation of their business;

( the Hong Kong Stock Exchange, the SFC and any other statutory, regulatory or governmentbodies;

( any other persons or institutions with which the applicants or the holders of securities have orpropose to have dealings, such as their bankers, solicitors, accountants or stockbrokers.

By signing an Application Form or by giving electronic application instructions to HKSCC, you agreeto all of the above.

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(d) Access to and correction of personal data

The PDP Ordinance provides the holders of securities with rights to ascertain whether ourCompany or our share registrar holds their personal data, to obtain a copy of that data, and to correctany data that is inaccurate.

In accordance with the PDP Ordinance, our Company and our share registrar have the right tocharge a reasonable fee for the processing of any data access request. All requests for access to dataor correction of data or for information regarding policies and practices and kinds of data held should beaddressed to us, at our registered address disclosed in the section headed ‘‘Corporate Information’’ oras notified from time to time in accordance with applicable law, for the attention of the companysecretary, or our share registrar for the attention of the privacy compliance officer.

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APPENDIX I ACCOUNTANTS’ REPORT OF OUR COMPANY

A1A 4

A1A 9(3)

LR 8.05

A1A 37

3rd Sch(31)

A1A 9(3)

The following is the text of a report, prepared for inclusion in this prospectus, received from thereporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong.

18th FloorTwo International Finance Centre8 Finance Street, CentralHong Kong

8 March 2007

The DirectorsChina Agri-Industries Holdings LimitedGoldman Sachs (Asia) L.L.C.

Dear Sirs,

A1A9(3)

We set out below our report on the combined financial information relating to China Agri-IndustriesHoldings Limited (the ‘‘Company’’) and its subsidiaries (hereinafter collectively referred to as the‘‘Group’’) for each of the three years ended 31 December 2003, 2004 and 2005, and the nine monthsended 30 September 2006 (the ‘‘Relevant Periods’’) and the nine months ended 30 September 2005(the ‘‘30 September 2005 Financial Information’’), prepared on the basis set out in Section 1 below, forinclusion in the prospectus of the Company dated 8 March 2007 (the ‘‘Prospectus’’).

The Company was incorporated in Hong Kong with limited liability on 18 November 2006. Theprincipal activity of the Company is investment holding. The Group is principally engaged in the oilseedprocessing, wheat processing, production and sale of brewing materials, processing and trading of rice,and production and sale of biofuel and biochemicals. Pursuant to the group restructuring as detailed inthe section headed ‘‘Corporate Reorganization’’ in Appendix VII to the Prospectus (the‘‘Reorganization’’), the Company became the holding company of the Group on 10 January 2007.

All companies now comprising the Group have adopted 31 December as their financial year enddate.

A1A 29(1),(2)3rd Sch(29)

At the date of this report, the Company had direct or indirect interests in the following principalsubsidiaries and associates, all of which are private companies (or, if incorporated/registered outsideHong Kong, have substantially similar characteristics to a private company incorporated in Hong Kong),and the particulars of which are set out below:

PercentagePlace and date of Nominal value of equityincorporation/ of issued and attributableregistration and paid-up share/ to the Principal

Name operations registered capital Company activities

Subsidiaries:

China Agri-Industries Limited(1) ********** Bermuda Ordinary 100 Investment holding23 August 2006 HK$269,238,336

Full Extent Group Limited(1) ************* British Virgin Ordinary 100 Investment holdingIslands (‘‘BVI’’)/ US$3Hong Kong26 April 2006

COFCO Oils & Fats Holdings Limited BVI/Hong Kong Ordinary 100 Investment holding(‘‘COFCO Oils & Fats’’)(1) ************* 31 October 2000 US$2

COFCO (BVI) No. 1 Limited BVI/Hong Kong Ordinary 100 Investment holding(‘‘COFCO No. 1’’)(1) ****************** 30 August 2000 US$2

Techbo Limited (‘‘Techbo’’)(1) ************ BVI/Hong Kong Ordinary 100 Investment holding12 October 2005 US$1

I-1




COFCO TTC (Beijing) Foods Co., Ltd. The People’s US$5,450,000 51 Production and sale*(1) ********* Republic of China of wheat products

(the ‘‘PRC’’)14 December 2005

Shenyang Dongda Grains Oils & The PRC RMB55,000,000 66.9 Production and saleFoodstuffs Industries Co., Ltd. 14 July 1993 of wheat products

*(2) *******

Puyang COFCO Flour Industry Co., Ltd. The PRC RMB35,000,000 80 Production and sale*(3)*************** 15 October 2002 of wheat products

Shandong COFCO Lude Foods Co., Ltd The PRC RMB43,533,000 55 Production and sale*(4) *************** 15 March 2002 of wheat products

Shenyang Xiangxue Flour Limited Liability The PRC RMB80,350,000 69.3 Production and saleCompany (‘‘Xiangxue’’) 15 June 1994 of wheat products

*(5) ***********

COFCO Industry (Qinhuangdao) The PRC US$17,340,000 100 Production and salePangthai Co., Ltd. 20 April 1992 of wheat products

**(6)*******

COFCO Jiangxi Rice Processing Limited The PRC RMB60,200,000 83.47 Processing and**(7) ************** 31 July 2001 trading of rice

COFCO Malt (Jiangyin) Co., Ltd. The PRC US$15,000,000 100 Production and sale**(8) ************ 10 October 2003 of brewing materials

Dalian COFCO Malt Co., Ltd. The PRC US$30,000,000 100 Production and sale**(9) ************** 29 September 2001 of brewing materials

Shanghai COFCO Brewing Materials The PRC RMB1,000,000 100 Production and saleCo., Ltd (‘‘Shanghai Malt’’) 1 August 2001 of brewing materials

**(10) *********

COFCO Bio-Chemical Energy The PRC US$6,000,000 100 Production(Yushu) Co., Ltd. 25 April 2006 and sale of biofuel

**(1)********* and biochemicals

COFCO Bio-Chemical Energy The PRC US$11,000,000 100 Production(Gongzhuling) Co., Ltd. 21 April 2006 and sale of biofuel

**(1)******* and biochemicals

Guangxi COFCO Bio-Energy Co., Ltd. The PRC US$100,000,000 100 Production**(1) ******** 21 April 2006 and sale of biofuel

and biochemicals

COFCO Bio-Chemical Energy (Hengshui) The PRC RMB230,000,000 88 ProductionCo., Ltd. 7 July 2006 and sale of biofuel

*(1) ********* and biochemicals

China Resources (Heilongjiang) Alcohol The PRC RMB380,000,000 100 Production andCo., Ltd. (‘‘Heilongjiang Alcohol’’) 18 February 1998 sale of biofuel and

**(11) *********** biochemicals

China Resources Winery (Heilongjiang) The PRC RMB5,000,000 65 Wine breweryCo., Ltd. (‘‘Heilongjiang Winery’’) 17 May 2002

***(12)***********

COFCO ADM Oils & Grains Industries The PRC US$12,800,000 70 Production(Heze) Co., Ltd. 12 June 2003 and sale

**(13) ** of edible oils

COFCO International (Beijing) Co., Ltd. The PRC RMB60,000,000 100 Trading of rice,**(14) ************ 31 May 2001 cereals, oils

feedstuffs, fruits,vegetables andaquatic products

I-2




COFCO Xiangrui Oils & Grains Industries The PRC US$7,500,000 100 Production(Jingmen) Co., Ltd. 18 August 2004 and sale of

**(15) **** edible oils

Eastbay Oils & Fats Industries The PRC RMB51,700,000 89.36 Processing and(Guangzhou) Co., Ltd. 16 March 1995 refining of edible

**(16)******** oils and fats

East Ocean Oils & Grains Industries The PRC US$98,000,000 54 Production and(Zhangjiagang) Co., Ltd. 5 June 1993 sale of edible oils,

**(17)****** and trading ofsoybeans andrapeseeds

Yellowsea Oils & Grains Industries The PRC US$47,773,776 72.94 Production(Shandong) Co., Ltd. 10 August 1992 and sale

**(18)******** of edible oils

Xiamen Haijia Flour Mills Co., Ltd. The PRC RMB71,325,000 60 Manufacture*(19) ************** 29 April 1994 of wheat

products

Zhengzhou Haijia Food Co., Ltd. The PRC RMB30,000,000 55 Manufacture*(20) ************** 31 December 1993 of wheat

products

Associates:

Great Ocean Oil and Grain Industries The PRC US$44,500,000 40 Soybean oil(Fang Cheng Gang) Co., Ltd. 8 August 2000 extraction,

*(21) ****** refining andpackaging, andproduction ofsoybean meal

Laiyang Luhua Fragrant Peanut Oil The PRC US$19,219,300 24 Production andCo., Ltd. 27 October 1993 sale of peanut oil

*(22) ********

Northsea Oils & Grains Industries The PRC US$51,557,000 50.44 Production and(Tianjin) Co., Ltd. 8 April 1992 sale of edible oils

*(23) ********

Lassiter Limited(24) ********************* Samoa/Hong Kong US$100 49 Investment holding@18 November 1999

Shenzhen Nantian Oilmills Co., Ltd. The PRC RMB10,000,000 20 Oilseed processing(‘‘Shenzhen Nantian’’) 19 April 1993

*(25) **********

Jilin Fuel Ethanol Co. Ltd. The PRC RMB1,200,000,000 20 Production*(26) ********** 19 September 2001 and sale of biofuel

and biochemicals

Except for China Agri-Industries Limited, which is directly held by the Company, all companies are indirectly held by the Company.

The above associates are held through wholly-owned subsidiaries of the Company

* Sino-foreign equity joint ventures

** Wholly foreign-owned enterprises

*** Limited company established in the PRC

@ Lassiter Limited has a 61.7% equity interest in Shenzhen Southseas Grains Industries Ltd., a sino-foreign equity jointventure registered in the PRC, the principal activity of which is the production and sale of edible oils in Mainland China.

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(1) No statutory financial statements have been prepared for these companies since their incorporation/registration. For thepurpose of this report, we have performed independent audits of these companies for the Relevant Periods, or review theirtransactions since their date of incorporation/registration.

(2) The statutory financial statements for the three years ended 31 December 2005 were audited by Liaoning Lianghua CertifiedPublic Accountants Co., Ltd., Certified Public Accountants in the PRC.

(3) The statutory financial statements for each of the three years ended 31 December 2003, 2004 and 2005 were audited byHenan Shengda Certified Public Accountants Co., Ltd., Henan Zhongxing Certified Public Accountants Firm Co., Ltd. andHenan Huaxia Certified Public Accountants Limited Company, respectively, Certified Public Accountants in the PRC.

(4) The statutory financial statements for the three years ended 31 December 2005 were audited by Dezhou Dexin CertifiedPublic Accountants Ltd., Certified Public Accountants in the PRC.

(5) The statutory financial statements for the year ended 31 December 2003 and for the two years ended 31 December 2005were audited by Shenyang Shenglong Certified Public Accountants Co., Ltd. and Liaoning Lianghua Certified PublicAccountants Co., Ltd., respectively, Certified Public Accountants in the PRC.

(6) The statutory financial statements for the three years ended 31 December 2005 were audited by Tianzhi-Zixin CertifiedPublic Accountants Co., Ltd., Certified Public Accountants in the PRC.

(7) The statutory financial statements for the three years ended 31 December 2005 were audited by Jiang Xi De Long DongSheng Certified Public Accountants Co., Ltd., Certified Public Accountants in the PRC.

(8) No statutory financial statements were prepared for the period from 10 October 2003 (date of registration) to 31 December2003. The statutory financial statements for the two years ended 31 December 2005 were audited by Jiangyin DaqiaoCertified Public Accountants Co., Ltd., Certified Public Accountants in the PRC.

(9) The statutory financial statements for the two years ended 31 December 2004 and for the year ended 31 December 2005were audited by and , respectively, Certified Public Accountantsin the PRC.

(10) The statutory financial statements for the three years ended 31 December 2005 were audited by Tianzhi-Zixin CertifiedPublic Accountants Co., Ltd., Certified Public Accountants in the PRC.

(11) The statutory financial statements for the three years ended 31 December 2005 were audited by Deloitte Touche TohmatsuCPA Ltd., Certified Public Accountants in the PRC.

(12) No statutory financial statements were prepared for the year ended 31 December 2003. The statutory financial statementsfor the two years ended 31 December 2005 were audited by Harbin Gongli Certified Public Accountants Co. Ltd., CertifiedPublic Accountants in the PRC.

(13) The statutory financial statements for each of the three years ended 31 December 2003, 2004 and 2005 were audited byShandong Hongcheng Certified Public Accountants Co., Ltd., Heze Weixin Certified Public Accountants and BeijingZhongtianfu Certified Public Accountants, respectively, Certified Public Accountants in the PRC.

(14) The statutory financial statements for the two years ended 31 December 2004 and for the year ended 31 December 2005were audited by and Beijing Zhongtianfu Certified Public Accountants, respectively,Certified Public Accountants in the PRC.

(15) No statutory financial statements were prepared for the period from 18 August 2004 (date of registration) to 31 December2004. The statutory financial statements for the year ended 31 December 2005 were audited by Hubei The Round CertifiedPublic Accountants Co., Ltd., Certified Public Accountants in the PRC.

(16) The statutory financial statements for the year ended 31 December 2003 and for the two years ended 31 December 2005were audited by Guangzhou Huatian Certified Public Accountants and Guangzhou Zengxin Certified Public AccountantsCo., Ltd., respectively, Certified Public Accountants in the PRC.

(17) The statutory financial statements for the two years ended 31 December 2004 and for the year ended 31 December 2005were audited by , and Beijing Zhongtianfu Certified Public Accountants, respectively,Certified Public Accountants in the PRC.

(18) The statutory financial statements for the year ended 31 December 2003 and for the two years ended 31 December 2005were audited by Rizhao Dayang Certified Public Accountants Ltd. and Rizhao Tianjian United Public Accountants,respectively, Certified Public Accountants in the PRC.

(19) The statutory financial statements for the three years ended 31 December 2005 were audited by Amoy Lihui CPA Co., Ltd.,Certified Public Accountants in the PRC.

(20) The statutory financial statements for the three years ended 31 December 2005 were audited by Henan Zhongxing CertifiedPublic Accountants Co., Ltd., Certified Public Accountants in the PRC.

(21) The statutory financial statements for the two years ended 31 December 2004 and for the year ended 31 December 2005were audited by and Su Zhou Qinye Union Certified Public Accountants, respectively,Certified Public Accountants in the PRC.

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(22) The statutory financial statements for the two years ended 31 December 2004 and for the year ended 31 December 2005were audited by Shandong Yantai Qian Ju Certified Public Accountants and Beijing Tianyuanquan Certified PublicAccountants, respectively, Certified Public Accountants in the PRC.

(23) The statutory financial statements for the three years ended 31 December 2005 were audited by Tianjin Wuzhou CertifiedPublic Accountants, Certified Public Accountants in the PRC.

(24) The financial statements for the year ended 31 December 2003 and for the two years ended 31 December 2005 wereaudited by PricewaterhouseCoopers and W. S. Wong & Co, respectively, Certified Public Accountants in Hong Kong.

(25) The statutory financial statements for each of the three years ended 31 December 2003, 2004 and 2005 were audited byPriceWaterhouseCoopers Zhong Tian Certified Public Accountants Limited Company, Shenzhen Dahua TianchengCertified Public Accountants and BDO Shenzhen Dahua Tiancheng Certified Public Accountants, respectively, CertifiedPublic Accountants in the PRC.

(26) The statutory financial statements for the year ended 31 December 2004 were audited by Zhonghongxin Jianyuan CertifiedPublic Accountants Firm, Certified Public Accountants in the PRC. The statutory financial statements for the year ended31 December 2003 and for the year ended 31 December 2005 were audited by Zhongkehua Certified Public AccountantsFirm, Certified Public Accountants in the PRC.

For the purpose of the Reorganization, the directors of the Company have prepared the combinedfinancial statements of the Group for the Relevant Periods in accordance with Hong Kong FinancialReporting Standards issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’).We have audited the combined financial statements in accordance with Hong Kong Standards onAuditing (‘‘HKSAs’’) issued by the HKICPA.

3rd Sch (42)

For the purpose of this report, we have examined the audited combined financial statements of allcompanies now comprising the Group for the Relevant Periods (the ‘‘Financial Information’’) and havecarried out such procedures as we considered necessary in accordance with the AuditingGuideline 3.340 ‘‘Prospectuses and the Reporting Accountant’’ issued by the HKICPA. No adjustmentswere considered necessary to restate the audited combined financial statements of the Group.

For the purpose of this report, we have performed a review of the 30 September 2005 FinancialInformation, which includes the combined income statement, combined statement of changes in equityand combined cash flow statement of the Group for the nine months ended 30 September 2005, forwhich the directors of the Company are responsible, in accordance with Statement of Auditing Standard700 ‘‘Engagements to Review Interim Financial Reports’’ issued by the HKICPA. A review consistsprincipally of making enquiries of management and applying analytical procedures to the 30 September2005 Financial Information and based thereon, assessing whether the accounting policies andpresentation have been consistently applied unless otherwise disclosed. A review excludes auditprocedures such as tests of controls and verification of assets and liabilities and transactions. It issubstantially less in scope and provides a lower level of assurance than an audit, and accordingly, wedo not express an audit opinion on the 30 September 2005 Financial Information.

The Financial Information, which includes the combined income statements, combined statementsof changes in equity and combined cash flow statements of the Group for the Relevant Periods, thecombined balance sheets of the Group as at 31 December 2003, 2004 and 2005 and 30 September2006, together with the notes thereto as set out in this report, have been prepared based on the auditedcombined financial statements of all companies now comprising the Group for the Relevant Periods andare presented on the basis set out in Section 1 below.

The directors of the Company are responsible for preparing the Financial Information and the30 September 2005 Financial Information which give a true and fair view. In preparing the FinancialInformation and the 30 September 2005 Financial Information which give a true and fair view, it isfundamental that appropriate accounting policies are selected and applied consistently. It is ourresponsibility to form an independent opinion and a review conclusion, based on our examination andreview, on the Financial Information and the 30 September 2005 Financial Information, and to report ouropinion and review conclusion, respectively, to you.

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A1A 35In our opinion, on the basis of presentation set out in Section 1 below, the Financial Information, forthe purpose of this report, gives a true and fair view of the combined results and combined cash flows ofthe Group for the Relevant Periods and of the combined balance sheets of the Group as at31 December 2003, 2004 and 2005 and 30 September 2006.

On the basis of our review which does not constitute an audit, we are not aware of any materialmodifications that should be made to the 30 September 2005 Financial Information.

1. BASIS OF PRESENTATION

The Financial Information set out below has been prepared on the principles of merger accountingin accordance with the Accounting Guideline 5 ‘‘Merger Accounting for Common Control Combinations’’issued by the HKICPA, as if the Reorganization had been completed as at the beginning of the RelevantPeriods because the Company’s acquisitions of the companies now comprising the Group should beregarded as a business combination under common control as the Company and all companies nowcomprising the Group are ultimately controlled by China National Cereals, Oils & Foodstuffs Corporation(‘‘COFCO’’), the ultimate holding company of the Company and all companies now comprising theGroup, before and after the Reorganization, except for the subsidiaries acquired during the RelevantPeriods which are accounted for using the purchase method of accounting.

The combined income statements, combined cash flow statements and combined statements ofchanges in equity of the Group for the Relevant Periods set out below include the results and cash flowsof all companies now comprising the Group, as if the current structure had been in existence throughoutthe Relevant Periods, or since their respective date of acquisition, incorporation or establishment, wherethis is a shorter period. The combined balance sheets of the Group as at 31 December 2003, 2004 and2005 and as at 30 September 2006 have been prepared to present the state of affairs of the Group as ifthe current structure had been in existence and in accordance with the respective equity interestsand/or the power to exercise control over the individual companies attributable to the existingshareholders as at the respective dates.

2. NET CURRENT LIABILITIES

The Group had combined net current liabilities of HK$715,458,000 at 30 September 2006. Thedirectors of the Company consider that it is appropriate to prepare the Financial Information on a goingconcern basis because: (i) as set out in Section 10 below, upon the completion of the Reorganization,the amounts due to a fellow subsidiary, COFCO International Limited, has been capitalised as equity ofthe Company. The amount due to this fellow subsidiary as at 30 September 2006 classified as currentliabilities was HK$780,195,000; and (ii) the directors of the Company do not anticipate that any of theexisting loan lenders would tighten nor withdraw the credit facilities granted to the Group in theforeseeable future.

3. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information, which are based on the audited financial statements, or whereappropriate, the management accounts of the companies now comprising the Group, have beenprepared in accordance with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) (which alsoinclude Hong Kong Accounting Standards (‘‘HKASs’’) and Interpretations) issued by the HKICPA andaccounting principles generally accepted in Hong Kong. They have been prepared under the historicalcost convention, except for derivative financial instruments and investments, which have beenmeasured at fair value. The Financial Information are presented in Hong Kong dollars and all values arerounded to the nearest thousand (HK$’000) except when otherwise indicated.

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The HKICPA has issued a number of new and revised HKFRSs, which are generally effective foraccounting periods beginning on or after 1 January 2005. For the purpose of presenting the FinancialInformation, the Group has early adopted the new HKFRSs throughout the Relevant Periods as follows:

HKAS 1 Presentation of Financial StatementsHKAS 2 InventoriesHKAS 7 Cash Flow StatementsHKAS 8 Accounting Policies, Changes in Accounting Estimates and

ErrorsHKAS 10 Events after the Balance Sheet DateHKAS 12 Income TaxesHKAS 14 Segment ReportingHKAS 16 Property, Plant and EquipmentHKAS 17 LeasesHKAS 18 RevenueHKAS 19 Employee BenefitsHKAS 20 Accounting for Government Grants and Disclosure of

Government AssistanceHKAS 21 The Effects of Changes in Foreign Exchange RatesHKAS 21 Amendment Net Investment in a Foreign OperationHKAS 23 Borrowing CostsHKAS 24 Related Party DisclosuresHKAS 27 Consolidated and Separate Financial StatementsHKAS 28 Investments in AssociatesHKAS 31 Interests in Joint VenturesHKAS 32 Financial Instruments: Disclosure and PresentationHKAS 33 Earnings per ShareHKAS 36 Impairment of AssetsHKAS 37 Provisions, Contingent Liabilities and Contingent AssetsHKAS 38 Intangible AssetsHKAS 39 Financial Instruments: Recognition and MeasurementHKAS 39 Amendment Transition and Initial Recognition of Financial Assets and

Financial LiabilitiesHKAS 39 and HKFRS 4 Financial Guarantee Contracts

AmendmentsHKFRS 1 First-time Adoption of Hong Kong Financial Reporting

StandardsHKFRS 3 Business CombinationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease

The Group has not applied the following new and revised HKFRSs, that have been issued but arenot yet effective, in the Financial Information:

HKAS 1 Amendment Capital DisclosuresHKFRS 7 Financial Instruments: DisclosuresHK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 ‘‘Financial

Reporting in Hyperinflationary Economies’’HK(IFRIC)-Int 8 Scope of HKFRS 2HK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 10 Interim Financial Reporting and ImpairmentHK(IFRIC)-Int 11 HKFRS 2 — Group and Treasury Share Transactions

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HKAS 1 Amendment shall be applied for accounting periods beginning on or after 1 January 2007.The revised standard will affect the disclosures about qualitative information about the Group’sobjective, policies and processes for managing capital; quantitative data about what the Companyregards as capital; and compliance with any capital requirements and the consequences of any non-compliance.

HKFRS 7 shall be applied for accounting periods beginning on or after 1 January 2007. Thestandard requires disclosures that enable users of the financial statements to evaluate the significanceof the Group’s financial instruments and the nature and extent of risks arising from those financialinstruments and also incorporates many of the disclosure requirements of HKAS 32.

HK(IFRIC)-Int 8 applies to transactions under the scope of HKFRS 2 when the identifiableconsideration received (or to be received) by the entity, including cash and the fair value of identifiablenon-cash consideration (if any), appears to be less than the fair value of the equity instruments grantedor liability incurred. The interpretation states that typically this circumstance indicates that otherconsideration (i.e., unidentifiable goods or services) has been (or will be) received. The entity shallmeasure the unidentifiable goods or services received (or to be received) as the difference between thefair value of the share-based payment and the fair value of any identifiable goods or services received(or to be received), at grant date. However, for cash-settled transactions, the liability shall beremeasured at each reporting date until it is settled. This interpretation shall be applied for accountingperiods beginning on or after 1 May 2006.

HK(IFRIC)-Int 7, HK(IFRIC)-Int 9, HK(IFRIC)-Int 10 and HK(IFRIC)-Int 11 shall be applied foraccounting periods beginning on or after 1 March 2006, 1 June 2006, 1 November 2006 and 1 March2007, respectively.

The Group is in the process of making assessment of the impact of these new and revised HKFRSsupon initial application. So far, it has concluded that while the adoption of the HKAS 1 Amendment andHKFRS 7 may result in new or amended disclosures, these new and revised HKFRSs are unlikely tohave a significant impact on the Group’s results of operations and financial position.

The significant accounting policies adopted by the Group in arriving at the Financial Information setout in this report, which conform with HKFRSs and accounting principles generally accepted in HongKong, are set out below:

Basis of combination

The Financial Information includes the financial statements of the Company and its subsidiaries forthe Relevant Periods. Except for the results of the subsidiaries which were acquired during the RelevantPeriods, which are accounted for using purchase method of accounting from its effective date ofacquisition, being the date on which the Group obtained control, the results of the companiescomprising the Group were presented on a merger accounting basis as described in Section 1 above.

Purchase method of accounting involves allocating the cost of the business combinations to the fairvalue of the identifiable assets acquired, and liabilities and contingent liabilities assumed at the date ofacquisition. The cost of the acquisition is measured at the aggregate of the fair value of the assets givenand liabilities incurred or assumed at the date of exchange, plus costs directly attributable to theacquisition.

All significant intercompany transactions and balances within the Group are eliminated oncombination.

Minority interests represent the interests of outside shareholders not held by the Group in theresults and net assets of the Company’s subsidiaries. Acquisitions of minority interests are accountedfor using the parent entity extension method whereby the difference between the consideration and thebook value of the share of the net assets acquired is recognised as goodwill or as gain in the incomestatement.

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Subsidiaries

A subsidiary is an entity in which the Company, directly or indirectly, controls more than half of itsvoting power or issued share capital or controls the composition of its board of directors; or over whichthe Company has a contractual right to exercise a dominant influence with respect to that entity’sfinancial and operating policies.

Joint ventures

A joint venture is an entity set up by contractual arrangement, whereby the Group and other partiesundertake an economic activity. The joint venture operates as a separate entity in which the Group andthe other parties have an interest.

The joint venture agreement between the venturers stipulates the capital contributions of the jointventure parties, the duration of the joint venture entity and the basis on which the assets are to berealised upon its dissolution. The profits and losses from the joint venture’s operations and anydistributions of surplus assets are shared by the venturers, either in proportion to their respective capitalcontributions, or in accordance with the terms of the joint venture agreement.

A joint venture is treated as:

(a) a subsidiary, if the Group, directly or indirectly, controls more than half of its voting power orissued share capital or controls the composition of its board of directors; or over which theGroup has a contractual right to exercise a dominant influence with respect to the joint venture’sfinancial and operating policies; or

(b) an associate, if the Group does not have unilateral or joint control, but holds, directly orindirectly, generally not less than 20% of the joint venture’s registered capital and is in aposition to exercise significant influence over the joint venture.

Associates

An associate is an entity, not being a subsidiary, in which the Group has a long term interest ofgenerally not less than 20% of the equity voting rights and over which it is in a position to exercisesignificant influence.

The Group’s share of the post-acquisition results and reserves of associates is included in thecombined income statement and combined reserves, respectively. The Group’s interests in associatesare stated in the combined balance sheet at the Group’s share of net assets under the equity method ofaccounting, less any impairment losses. Goodwill arising from the acquisition of associates is includedas part of the Group’s interests in associates.

Goodwill

Goodwill arising on the acquisition of subsidiaries and associates represents the excess of the costof the business combination over the Group’s interest in the net fair values of the acquirees’ identifiableassets acquired, and liabilities and contingent liabilities assumed as at the date of acquisition.

Goodwill arising on acquisition is recognised in the combined balance sheet as an asset, initiallymeasured at cost and subsequently at cost less any accumulated impairment losses.

The carrying amount of goodwill is reviewed for impairment annually or more frequently if events orchanges in circumstances indicate that the carrying value may be impaired.

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For the purpose of impairment testing, goodwill acquired in a business combination is, from theacquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generatingunits, that are expected to benefit from the synergies of the combination, irrespective of whether otherassets or liabilities of the Group are assigned to those units or groups of units. Each unit or group ofunits to which the goodwill is so allocated:

( represents the lowest level within the Group at which the goodwill is monitored for internalmanagement purposes; and

( is not larger than a segment based on either the Group’s primary or the Group’s secondaryreporting format determined in accordance with HKAS 14 ‘‘Segment Reporting’’.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (groupof cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss isrecognised.

Where goodwill forms part of a cash-generating unit (group of cash-generating units) and part ofthe operation within that unit is disposed of, the goodwill associated with the operation disposed of isincluded in the carrying amount of the operation when determining the gain or loss on disposal of theoperation. Goodwill disposed of in this circumstance is measured based on the relative values of theoperation disposed of and the portion of the cash-generating unit retained.

An impairment loss recognised for goodwill is not reversed in a subsequent period.

Impairment of non-financial assets other than goodwill

Where an indication of impairment exists, or when annual impairment testing for an asset isrequired (other than inventories, deferred tax assets, financial assets and goodwill), the asset’srecoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of theasset’s or cash-generating unit’s value in use and its fair value less costs to sell, and is determined foran individual asset, unless the asset does not generate cash inflows that are largely independent ofthose from other assets or groups of assets, in which case, the recoverable amount is determined forthe cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverableamount. In assessing value in use, the estimated future cash flows are discounted to their present valueusing a pre-tax discount rate that reflects current market assessments of the time value of money andthe risks specific to the asset. An impairment loss is charged to the income statement in the period inwhich it arises.

An assessment is made at each reporting date as to whether there is any indication that previouslyrecognised impairment losses may no longer exist or may have decreased. If such indication exists, therecoverable amount is estimated. A previously recognised impairment loss of an asset other thangoodwill and certain financial assets is reversed only if there has been a change in the estimates usedto determine the recoverable amount of that asset, however not to an amount higher than the carryingamount that would have been determined (net of any depreciation/amortisation), had no impairmentloss been recognised for the asset in prior periods. A reversal of such impairment loss is credited to theincome statement in the period in which it arises.

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Related parties

A party is considered to be related to the Group if:

(a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlled by,or is under common control with, the Group; (ii) has an interest in the Group that gives itsignificant influence over the Group; or (iii) has joint control over the Group;

(b) the party is an associate;

(c) the party is a member of the key management personnel of the Group or its holdingcompanies;

(d) the party is a close member of the family of any individual referred to in (a) or (c); or

(e) the party is an entity that is controlled, jointly-controlled or significantly influenced by or forwhich significant voting power in such entity resides with, directly or indirectly, any individualreferred to in (c) or (d).

Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost lessaccumulated depreciation and any impairment losses. The cost of an item of property, plant andequipment comprises its purchase price and any directly attributable costs of bringing the asset to itsworking condition and location for its intended use. Expenditure incurred after items of property, plantand equipment have been put into operation, such as repairs and maintenance, is normally charged tothe income statement in the period in which it is incurred. In situations where it can be clearlydemonstrated that the expenditure has resulted in an increase in the future economic benefits expectedto be obtained from the use of an item of property, plant and equipment, and where the cost of the itemcan be measured reliably, the expenditure is capitalised as an additional cost of that asset, or as areplacement.

Depreciation is calculated on the straight-line basis to write off the cost of each item of property,plant and equipment to its residual value over its estimated useful life. The principal annual rates usedfor this purpose are as follows:

Buildings ********************************************************************* 3% to 9.5%Plant, machinery and equipment ************************************************ 4.5% to 20%

Residual values, useful lives and the depreciation method are reviewed, and adjusted ifappropriate, at each balance sheet date.

An item of property, plant and equipment is derecognised upon disposal or when no futureeconomic benefits are expected from its use or disposal. Any gain or loss on disposal or retirementrecognised in the income statement in the period the asset is derecognised is the difference betweenthe net sales proceeds and the carrying amount of the relevant asset.

Construction in progress is stated at cost less any impairment losses, and is not depreciated. Costcomprises direct costs of construction and capitalised borrowing costs on related borrowed funds duringthe period of construction. Construction in progress is reclassified to the appropriate category ofproperty, plant and equipment when completed and ready for use.

Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessorare accounted for as operating leases. Where the Group is the lessee, rentals payable under theoperating leases are charged to the income statement on the straight-line basis over the lease terms.

Prepaid land premiums under operating leases are initially stated at cost and subsequentlyrecognised on the straight-line basis over the lease terms.

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Investments and other financial assets

Financial assets in the scope of HKAS 39 are classified as investments at fair value through profit orloss, loans and receivables, or available-for-sale financial assets, as appropriate. When financial assetsare recognised initially, they are measured at fair value, plus, in the case of investments not at fair valuethrough profit or loss, directly attributable transaction costs. The Group determines the classification ofits financial assets after initial recognition and, where allowed and appropriate, re-evaluates thisdesignation at the balance sheet date.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, thedate that the Group commits to purchase or sell the asset. Regular way purchases or sales arepurchases or sales of financial assets that require delivery of assets within the period generallyestablished by regulation or convention in the marketplace.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading. Financialassets are classified as held for trading if they are acquired for the purpose of sale in the near term.Derivatives are also classified as held for trading unless they are designated as effective hedginginstruments. Gains or losses on investments held for trading are recognised in the income statement.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments thatare not quoted in an active market. Such assets are subsequently carried at amortised cost using theeffective interest method. Amortised cost is calculated taking into account any discount or premium onacquisition and includes fees that are an integral part of the effective interest rate and transaction costs.Gains and losses are recognised in the income statement when the loans and receivables arederecognised or impaired, as well as through the amortisation process.


Available-for-sale financial assets are non-derivative financial assets in unlisted equity investmentand debt securities that are designated as available-for-sale or are not classified in any of the other twocategories. After initial recognition, available-for-sale financial assets are measured at fair value, withgains or losses recognised as a separate component of equity until the investment is derecognised oruntil the investment is determined to be impaired, at which time the cumulative gain or loss previouslyreported in equity is included in the income statement.

When the fair value of unlisted equity investment cannot be reliably measured because (a) thevariability in the range of reasonable fair value estimates is significant for that investment or (b) theprobabilities of the various estimates within the range cannot be reasonably assessed and used inestimating fair value, such investment is stated at cost less any impairment losses.

Fair value

The fair value of investments that are actively traded in organised financial markets is determinedby reference to quoted market bid prices at the close of business at the balance sheet date. Forinvestments where there is no active market, fair value is determined using valuation techniques. Suchtechniques include using recent arm’s length market transactions; reference to the current market valueof another instrument which is substantially the same; a discounted cash flow analysis; and optionpricing models.


The Group assesses at each balance sheet date whether there is any objective evidence that afinancial asset or a group of financial assets is impaired.

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The Group first assesses whether objective evidence of impairment exists individually for financialassets that are individually significant, and individually or collectively for financial assets that are notindividually significant. If it is determined that no objective evidence of impairment exists for anindividually assessed financial asset, whether significant or not, the asset is included in a group offinancial assets with similar credit risk characteristics and that group is collectively assessed forimpairment. Assets that are individually assessed for impairment and for which an impairment loss is orcontinues to be recognised are not included in a collective assessment of impairment.


In relation to accounts and other receivables, a provision for impairment is made when there isobjective evidence (such as the probability of insolvency or significant financial difficulties of the debtor)that the Group will not be able to collect all of the amounts due under the original terms of an invoice.The carrying amount of the receivables is reduced through the use of an allowance account. Impaireddebts are derecognised when they are assessed as uncollectible.


If an available-for-sale asset is impaired, an amount comprising the difference between its cost (netof any principal payment and amortisation) and its current fair value, less any impairment loss previouslyrecognised in the income statement, is transferred from equity to the income statement. Impairmentlosses on equity instruments classified as available-for-sale are not reversed through the incomestatement.

Impairment losses on debt instruments are reversed through the income statement, if the increasein fair value of the instrument can be objectively related to an event, occurring after the impairment losswas recognised in the income statement.


A financial asset (or, where applicable, a part of a financial asset or part of a group of similarfinancial assets) is derecognised where:

( the rights to receive cash flows from the asset have expired;

( the Group retains the rights to receive cash flows from the asset, but has assumed anobligation to pay them in full without material delay to a third party under a ‘‘pass-through’’arrangement; or

( the Group has transferred its rights to receive cash flows from the asset and either (a) hastransferred substantially all the risks and rewards of the asset, or (b) has neither transferrednor retained substantially all the risks and rewards of the asset, but has transferred control ofthe asset.

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Where the Group has transferred its rights to receive cash flows from an asset and has neithertransferred nor retained substantially all the risks and rewards of the asset nor transferred control of theasset, the asset is recognised to the extent of the Group’s continuing involvement in the asset.Continuing involvement that takes the form of a guarantee over the transferred asset is measured at thelower of the original carrying amount of the asset and the maximum amount of consideration that theGroup could be required to repay.

Where continuing involvement takes the form of a written and/or purchased option (including acash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuinginvolvement is the amount of the transferred asset that the Group may repurchase, except in the case ofa written put option (including a cash-settled option or similar provision) on an asset measured at fairvalue, where the extent of the Group’s continuing involvement is limited to the lower of the fair value ofthe transferred asset and the option exercise price.

Derivative financial instruments

The Group uses derivative financial instruments such as commodity future contracts to hedge itsrisks associated with price fluctuations in future purchases or sales of the related commodities. Suchderivative financial instruments are initially recognised at fair value on the date on which a derivativecontract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assetswhen the fair value is positive and as liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedgeaccounting are taken directly to the income statement.

The fair value of commodity future contracts is calculated by reference to current commodity pricesfor contracts with similar maturity profiles.


A financial liability is derecognised when the obligation under the liability is discharged or cancelledor expires.

When an existing financial liability is replaced by another from the same lender on substantiallydifferent terms, or the terms of an existing liability are substantially modified, such an exchange ormodification is treated as a derecognition of the original liability and a recognition of a new liability, andthe difference between the respective carrying amounts is recognised in the income statement.

Financial liabilities at amortised cost (including interest-bearing loans and borrowings)

Financial liabilities including accounts and other payables, amounts due to group companies andinterest-bearing loans and borrowings are initially stated at fair value less directly attributabletransaction costs and are subsequently measured at amortised cost, using the effective interest methodunless the effect of discounting would be immaterial, in which case they are stated at cost.

Gains and losses are recognised in the income statement when the liabilities are derecognised aswell as through the amortisation process.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on theweighted average basis and, in the case of work in progress and finished goods, comprises directmaterials, direct labour and an appropriate proportion of overheads. Net realisable value is based onestimated selling prices less any estimated costs to be incurred to completion and disposal.

I-14


Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result ofa past event and it is probable that a future outflow of resources will be required to settle the obligation,provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the presentvalue at the balance sheet date of the future expenditures expected to be required to settle theobligation. The increase in the discounted present value amount arising from the passage of time isincluded in finance costs in the income statement.

Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the income statement,or in equity if it relates to items that are recognised in the same or a different period directly in equity.

Current tax assets and liabilities for the current and prior periods are measured at the amountexpected to be recovered from or paid to the taxation authorities.

Deferred tax is provided, using the liability method, on all temporary differences at the balancesheet date between the tax bases of assets and liabilities and their carrying amounts for financialreporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

( where the deferred tax liability arises from goodwill or the initial recognition of an asset orliability and, at the time of the transaction, affects neither the accounting profit nor taxable profitor loss; and

( in respect of taxable temporary differences associated with investments in subsidiaries andassociates, where the timing of the reversal of the temporary differences can be controlled andit is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carryforward of unusedtax credits and unused tax losses, to the extent that it is probable that taxable profit will be availableagainst which the deductible temporary differences, and the carryforward of unused tax credits andunused tax losses can be utilised, except:

( where the deferred tax asset relating to the deductible temporary differences arises from theinitial recognition of an asset or liability and, at the time of the transaction, affects neither theaccounting profit nor taxable profit or loss; and

( in respect of deductible temporary differences associated with investments in subsidiaries andassociates, deferred tax assets are only recognised to the extent that it is probable that thetemporary differences will reverse in the foreseeable future and taxable profit will be availableagainst which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced tothe extent that it is no longer probable that sufficient taxable profit will be available to allow all or part ofthe deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets arereassessed at each balance sheet date and are recognised to the extent that it is probable that sufficienttaxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to theperiod when the asset is realised or the liability is settled, based on tax rates (and tax laws) that havebeen enacted or substantively enacted at the balance sheet date.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to setoff current tax assets against current tax liabilities and the deferred taxes relate to the same taxableentity and the same taxation authority.

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Government grants

Government grants are recognised at their fair value where there is reasonable assurance that thegrant will be received and all attaching conditions will be complied with. When the grant relates to anexpense item, it is recognised as income over the periods necessary to match the grant on a systematicbasis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value iscredited to a deferred income account and is released to the income statement over the expected usefullife of the relevant asset by equal annual instalments.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group andwhen the revenue can be measured reliably, on the following bases:

(a) from the sale of goods, when the significant risks and rewards of ownership have beentransferred to the buyer, provided that the Group maintains neither managerial involvement tothe degree usually associated with ownership, nor effective control over the goods sold;

(b) rental income, in the period in which the assets are leased and on the straight-line basis overthe lease terms;

(c) agency commission, on an accrual basis;

(d) from the rendering of services, in the period in which the services are rendered;

(e) interest income, on an accrual basis using the effective interest method by applying the ratethat discounts the estimated future cash receipts through the expected life of the financialinstrument to the net carrying amount of the financial asset;

(f) compensation income, when the right to receive payment is established;

(g) proceeds from the sale of investments, on the transaction dates when the relevant contractnotes are exchanged; and

(h) tax refunds, when the acknowledgement of refunds from the tax bureau is received.

Dividends

Final dividends proposed by the directors are classified as a separate allocation of retained profitswithin the equity section of the balance sheet, until they have been approved by the shareholders in ageneral meeting. When these dividends are approved by the shareholders and declared, they arerecognised as a liability.

Interim dividends are simultaneously proposed and declared because the Company’smemorandum and articles of association grant the directors the authority to declare interim dividends.Consequently, interim dividends are recognised immediately as a liability when they are proposed anddeclared.

Foreign currencies

The Financial Information is presented in Hong Kong dollars, which is the Company’s functionaland presentation currency. Each entity in the Group determines its own functional currency and itemsincluded in the financial statements of each entity are measured using that functional currency. Foreigncurrency transactions are initially recorded using the functional currency rates ruling at the date oftransactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheetdate are retranslated at the functional currency rates of exchange ruling at the balance sheet date. Alldifferences are taken to the income statement. Non-monetary items that are measured in terms ofhistorical cost in a foreign currency are translated using the exchange rates at the dates of the initialtransactions. Non-monetary items measured at fair value in a foreign currency are translated using theexchange rates at the date when the fair value was determined.

I-16


The functional currencies of certain overseas subsidiaries and associates are currencies other thanthe Hong Kong dollar. As at the balance sheet date, the assets and liabilities of these entities aretranslated into the presentation currency of the Company at the exchange rates ruling at the balancesheet date and, their income statements are translated into Hong Kong dollars at the weighted averageexchange rates for the period. The resulting exchange differences are included in the exchangefluctuation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equityrelating to that particular foreign operation is recognised in the income statement.

For the purpose of the combined cash flow statement, the cash flows of overseas subsidiaries aretranslated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequentlyrecurring cash flows of overseas subsidiaries which arise throughout the period are translated into HongKong dollars at the weighted average exchange rates for the period.

Employee benefits

Retirement benefits schemes

A1A 33(4)(a), (b)The employees of the Group’s subsidiaries which operate in Mainland China are required toparticipate in the central pension scheme which is operated by the relevant authorities of the provincesor the local municipal governments in Mainland China in which the Group’s subsidiaries are located.The Group contributes to these schemes in respect of its employees in Mainland China and such costsare charged to the income statement as incurred.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifyingassets, i.e., assets that necessarily take a substantial period of time to get ready for their intended useor sale, are capitalised as part of the cost of those assets. The capitalisation of such borrowing costsceases when the assets are substantially ready for their intended use. Investment income earned on thetemporary investment of specific borrowings pending their expenditure on qualifying assets is deductedfrom the borrowing costs capitalised.

Cash and cash equivalents

For the purpose of the combined cash flow statement, cash and cash equivalents comprise cash onhand and demand deposits, and short term highly liquid investments which are readily convertible intoknown amounts of cash and which are subject to an insignificant risk of changes in value, and have ashort maturity of generally within three months when acquired, and form an integral part of the Group’scash management.

For the purpose of the combined balance sheet, cash and cash equivalents comprise cash on handand at banks, including term deposits, and assets similar in nature to cash, which are not restricted asto use.

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4. SIGNIFICANT ACCOUNTING ESTIMATES

Estimation uncertainty

3rd Sch (42)The key assumptions concerning the future and other key sources of estimation uncertainty at thebalance sheet date, that have a significant risk of causing a material adjustment to the carrying amountsof assets and liabilities within the next financial year, are discussed below.

Impairment of receivables

Impairment of receivables is made based on an assessment of the recoverability of accounts andother receivables and the timing of their recovery. The identification of impairment of receivablesrequires management judgment and estimation. Where the actual outcome or expectation in future isdifferent from the original estimates, such differences will impact the carrying value of accountsreceivable and other receivables and the amount of impairment/write-back of impairment in the periodsin which such estimates have been changed. Impairment of receivables of HK$1,505,000, write-back ofimpairment of receivables of HK$3,000, impairment of receivables of HK$1,138,000 and write-back ofimpairment of receivables of HK$556,000 were recognised in the combined income statements for theyears ended 31 December 2003, 2004 and 2005, and for the nine months ended 30 September 2006,respectively. The aggregate carrying amount of accounts and bills receivable and other receivables wasHK$1,523,608,000, HK$1,328,504,000, HK$1,544,767,000 and HK$1,780,330,000 as at 31 December2003, 2004, 2005 and 30 September 2006, respectively.

Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires anestimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimatingthe value in use requires the Group to make an estimate of the expected future cash flows from thecash-generating unit and also to choose a suitable discount rate in order to calculate the present valueof those cash flows. The carrying amount of goodwill was HK$243,172,000, HK$246,355,000,HK$246,355,000 and HK$584,806,000 as at 31 December 2003, 2004, 2005 and 30 September 2006,respectively. More details are set out in Section 6(c).

I-18


5. COMBINED INCOME STATEMENTS

The following is a summary of the combined results of the Group for the Relevant Periods and thenine months ended 30 September 2005 prepared on the basis set out in Section 1 above:

Nine months endedYear ended 31 December 30 September

Notes 2003 2004 2005 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000(Unaudited)

REVENUE ******** (a) 12,529,181 16,050,070 16,300,431 12,080,719 13,837,154

Cost of sales ****** (11,793,230) (15,307,266) (15,310,862) (11,339,817) (12,726,069)

Gross profit******** 735,951 742,804 989,569 740,902 1,111,085

Other income andgains *********** (a) 97,405 83,433 174,434 135,786 360,405

Selling anddistribution costs (309,095) (350,732) (534,826) (385,335) (472,866)

Administrativeexpenses******** (164,605) (177,057) (213,960) (160,699) (246,297)

Other expenses **** (4,965) (5,215) (3,941) (322) (3,755)

Finance costs****** (c) (69,987) (104,347) (139,176) (97,872) (159,555)

Share of profits andlosses ofassociates******* 101,946 17,581 82,172 42,362 124,977

PROFIT BEFORETAX ************ (b) 386,650 206,467 354,272 274,822 713,994

Tax *************** (f) (46,194) (47,532) (70,917) (61,801) (111,602)

PROFIT FOR THEYEAR/PERIOD ** 340,456 158,935 283,355 213,021 602,392

ATTRIBUTABLE TO:

Equity holders ofthe Company ** 247,248 130,724 254,879 224,482 506,676

Minority interests 93,208 28,211 28,476 (11,461) 95,716

340,456 158,935 283,355 213,021 602,392

DIVIDENDS ******* (g) 9,721 96,459 144,000 116,000 4,552

EARNINGS PERSHAREATTRIBUTABLETO ORDINARYEQUITYHOLDERS OFTHE COMPANY** (h)

Basic

— For profit forthe year/period ******* 8.9HK cents 4.7HK cents 9.1HK cents 8.0HK cents 18.2HK cents

I-19


Notes:

(a) Revenue, other income and gains

Revenue, which is also the Group’s turnover, represents the net invoiced value of goods sold,after allowances for returns and trade discounts, during the Relevant Periods and for the ninemonths ended 30 September 2005.

An analysis of other income and gains is as follows:

Year ended Nine months ended31 December 30 September

2003 2004 2005 2005 2006


Other income

Agency commission ******************* 9,449 11,315 13,182 3,805 18,982

Bank interest income****************** 4,322 5,320 15,182 4,524 15,368

Interest income from fellow subsidiaries 2,383 4,638 1,642 1,393 396

Government grants******************** 17,390 6,768 6,945 1,609 134,071

Compensation income***************** — — — — 56,607

Rental of containers******************* 3,169 16,846 8,102 4,040 5,442

Tax refund *************************** 84 — — — 20,146

Others******************************* 10,806 12,605 10,554 5,332 15,901

47,603 57,492 55,607 20,703 266,913

Gains

Gain on disposal of by-products and scrap items ************************ 49,802 23,638 47,433 47,099 58,824

Gain on disposal of an available-for-saleinvestment ************************* — 89 — — —

Gain on partial disposal of an interest ina subsidiary ************************ — — 8,218 8,218 —

Gain on foreign exchange************** — 2,214 63,176 59,766 34,668

49,802 25,941 118,827 115,083 93,492

97,405 83,433 174,434 135,786 360,405

* Various government grants have been received for investments in certain provinces in Mainland China for generatingrevenue in foreign currencies and for the sale of certain government subsidised products, which are available forindustries or locations in which the Company’s subsidiaries operate. In addition, pursuant to relevant notices issued bythe Finance Bureau in the PRC for fuel ethanol producers, Heilongjiang Alcohol is entitled to a financial subsidy basedon a fixed amount per metric ton of fuel ethanol produced and sold until end of 2008. An amount of HK$131,114,000 inrelation to such subsidy has been included in the government grants for the nine months ended 30 September 2006.There are no unfulfilled conditions or contingencies relating to these grants.

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(b) Profit before tax

The Group’s profit before tax is determined after charging/(crediting):


Notes 2003 2004 2005 2005 2006


Cost of inventoriessold ************ 11,834,380 15,333,396 15,385,172 11,432,822 12,812,100

Provision/(write-back of provision)againstinventories ****** 4,701 (16,432) 2,563 — —

Realised fair valuegains ofderivativeinstrumenttransactions notqualifying ashedges ********* (44,554) (10,063) (65,491) (77,515) (97,315)

Unrealised fairvaluelosses/(gains) ofderivativeinstrumenttransactions notqualifying ashedges ********* (1,297) 365 (11,382) (15,490) 11,284

Cost of sales ****** 11,793,230 15,307,266 15,310,862 11,339,817 12,726,069

Auditors’remuneration **** 385 446 650 122 432

Depreciation ****** Section 6(a) 157,830 186,617 216,107 162,866 231,389

Minimum leasepayments underoperating leasesin respect ofland, buildingsand steel barrels 8,520 8,386 14,538 9,559 15,636

Recognition ofprepaid landpremiums ******* Section 6(b) 4,733 4,875 5,923 4,269 5,976

Employee benefitsexpenses(excludingdirectors’remuneration):

Wages andsalaries******* 120,420 136,557 158,430 124,443 169,539

A1A 33(4)(c)Pension scheme

contributions ** 9,154 9,966 13,331 6,508 11,968

129,574 146,523 171,761 130,951 181,507

I-21



Notes 2003 2004 2005 2005 2006


Foreign exchangedifferences, net ** 2,399 (2,214) (63,176) (59,766) (34,668)

Impairment/(write-back ofimpairment) ofreceivables****** 1,505 (3) 1,138 — (556)

Loss on disposal ofitems of property,plant andequipment ****** 781 5,173 594 271 1,782

Impairment of itemsof property, plantand equipment ** Section 6(a) — 45 — — —

Loss on additionalcontribution to anexistingsubsidiary******* Section 7 — — 2,121 — —

Loss on disposal ofa subsidiary***** Section 8(c) — — — — 2,241

(c) Finance costs


2003 2004 2005 2005 2006


Interest on:

Bank loans wholly repayable within fiveyears ***************************** 39,798 70,605 91,537 69,774 107,092

Loans from the ultimate holdingcompany, immediate holdingcompany and a fellow subsidiary **** 30,189 33,742 47,639 28,098 52,463

69,987 104,347 139,176 97,872 159,555

I-22


(d) Directors’ remuneration

Directors’ remuneration for the Relevant Periods and for the nine months ended 30 September2005, disclosed pursuant to the Hong Kong Listing Rules, is as follows:


2003 2004 2005 2005 2006


A1A 33(2)(a)

A1A 33(2)(b)

A1A 33(2)(c)

Fees ******************************** — — — — —

Other emoluments:

Salaries, allowances and benefits inkind ***************************** — — — — 323

Pension scheme contributions ******** — — — — 14

— — — — 337

A1A 33(2)g

Directors’ remuneration for the nine months ended 30 September 2006 representedremuneration paid to Mr. Yue Guojun, an executive director of the Company. No remuneration waspaid to other directors during the Relevant Periods. There was no arrangement under which adirector waived or agreed to waive any remuneration during the Relevant Periods.

(e) Five highest paid individuals

The five highest paid individuals for the nine months ended 30 September 2006 included onedirector. The details of the remuneration of the remaining non-director, highest paid individuals inthe Group during the Relevant Periods and for the nine months ended 30 September 2005 are asfollows:


2003 2004 2005 2005 2006


A1A 33(3)(a)

A1A 33(3)(c)

A1A 33(3)(b)

Salaries, allowances and benefits in kind ** 864 973 1,723 218 564

Discretionary bonuses******************* 484 1,836 1,685 1,842 1,000

Pension scheme contributions************ 59 47 65 58 56

1,407 2,856 3,473 2,118 1,620

The number of non-director, highest paid individuals whose remuneration fell within thefollowing band is as follows:

Number of individualsYear ended Nine months ended

31 December 30 September2003 2004 2005 2005 2006

(Unaudited)

Nil to HK$1,000,000 ******************************* 5 5 5 5 4

I-23


(f) Tax

No provision for Hong Kong profits tax has been made as the Group did not generate anyassessable profits arising in Hong Kong during the Relevant Periods. Taxes on profits assessableelsewhere have been calculated at the rates of tax prevailing in the locations in which the Groupoperates, based on existing legislation, interpretations and practices in respect thereof.


2003 2004 2005 2005 2006HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(Unaudited)

Current— Mainland China ******************* 43,637 46,539 68,650 60,806 104,383

Overprovision/(underprovision) in prioryears******************************* 3,775 (149) — — —

Deferred (Section 6(l))****************** (1,218) 1,142 2,267 995 7,219

Tax charge for the year/period*********** 46,194 47,532 70,917 61,801 111,602

A reconciliation of the tax expense applicable to profit before tax using the statutory rates forthe locations in which the Company and its subsidiaries are domiciled to the tax expense at theeffective tax rates, and a reconciliation of the applicable rates (i.e., the statutory tax rates) to theeffective tax rates, are as follows:

Year ended 31 December 2003

Hong Kong Mainland China Total

HK$’000 % HK$’000 % HK$’000 %

Profit before tax ********************** 993 385,657 386,650

Tax at the statutory tax rate************ 174 17.5 127,267 33.0 127,441 33.0Lower tax rate for specific provinces or

local authority* ********************* — — (35,413) (9.2) (35,413) (9.2)Profit not subject to tax, due to

concessions** ********************** — — (14,350) (3.7) (14,350) (3.7)Profits and losses attributable to

associates ************************* (202) (20.3) (33,261) (8.6) (33,463) (8.6)Adjustments in respect of current tax of

previous periods******************** — — 3,775 1.0 3,775 1.0Income not subject to tax************** (198) (19.9) (7,013) (1.8) (7,211) (1.9)Expenses not deductible for tax ******** 226 22.7 6,438 1.7 6,664 1.7Tax losses utilised from previous periods — — (5,841) (1.5) (5,841) (1.5)Tax losses not recognised ************* — — 4,420 1.1 4,420 1.1Others******************************* — — 172 — 172 —

Tax charge at the Group’s effective rate — — 46,194 12.0 46,194 11.9

I-24




HK$’000 % HK$’000 % HK$’000 %

Profit before tax ********************** 993 205,474 206,467

Tax at the statutory tax rate************ 174 17.5 67,806 33.0 67,980 32.9Lower tax rate for specific provinces or


concessions** ********************** — — (644) (0.3) (644) (0.3)Profits and losses attributable to

associates ************************* — — (5,802) (2.8) (5,802) (2.8)Adjustments in respect of current tax of

previous periods******************** — — (149) (0.1) (149) (0.1)Income not subject to tax************** (198) (19.9) (516) (0.3) (714) (0.3)Expenses not deductible for tax ******** 13 1.3 3,605 1.8 3,618 1.8Tax losses utilised from previous periods — — (5,963) (2.9) (5,963) (2.9)Tax losses not recognised ************* 11 1.1 5,190 2.5 5,201 2.5Others******************************* — — (155) (0.1) (155) (0.1)




HK$’000 % HK$’000 % HK$’000 %

Profit before tax ********************** 9,306 344,966 354,272

Tax at the statutory tax rate************ 1,629 17.5 113,839 33.0 115,468 32.6Lower tax rate for specific provinces or


concessions** ********************** — — (3,882) (1.1) (3,882) (1.1)Profits and losses attributable to

associates ************************* — — (27,117) (7.9) (27,117) (7.6)Income not subject to tax************** (1,660) (17.8) (2,883) (0.8) (4,543) (1.3)Expenses not deductible for tax ******** 11 0.1 6,790 2.0 6,801 1.9Tax losses utilised from previous periods — — (10,627) (3.1) (10,627) (3.0)Tax losses not recognised ************* 20 0.2 13,619 3.9 13,639 3.8Others******************************* — — 95 — 95 —


I-25


Nine months ended 30 September 2005


HK$’000 % HK$’000 % HK$’000 %(Unaudited) (Unaudited) (Unaudited)

Profit before tax ************************* 8,621 266,201 274,822

Tax at the statutory tax rate ************** 1,509 17.5 87,846 33.0 89,355 32.5

Lower tax rate for specific provinces orlocal authority* ************************ — — (9,495) (3.6) (9,495) (3.5)

Profit not subject to tax, due toconcessions*************************** — — (2,071) (0.8) (2,071) (0.7)

Profits and losses attributable to associates — — (13,969) (5.2) (13,969) (5.1)

Income not subject to tax **************** (1,514) (17.5) (10,399) (3.9) (11,913) (4.3)

Expenses not deductible for tax *********** 3 — 9,832 3.7 9,835 3.6

Tax losses utilised from previous periods*** — — (10,888) (4.1) (10,888) (4.0)

Tax losses not recognised**************** 2 — 10,945 4.1 10,947 4.0

Tax charge at the Group’s effective rate**** — — 61,801 23.2 61,801 22.5

Nine months ended 30 September 2006


HK$’000 % HK$’000 % HK$’000 %

Profit before tax ************************* 1,279 712,715 713,994

Tax at the statutory tax rate ************** 224 17.5 235,196 33.0 235,420 33.0

Lower tax rate for specific provinces orlocal authority* ************************ — — (47,581) (6.7) (47,581) (6.7)

Profit not subject to tax, due toconcessions*************************** — — (28,450) (4.0) (28,450) (4.0)

Profits and losses attributable to associates — — (40,509) (5.7) (40,509) (5.7)

Income not subject to tax **************** (248) (19.4) (18,844) (2.6) (19,092) (2.7)

Expenses not deductible for tax *********** 22 1.7 9,983 1.4 10,005 1.4

Tax losses utilised from previous periods*** — — (13,203) (1.9) (13,203) (1.8)

Tax losses not recognised**************** 2 0.2 15,010 2.1 15,012 2.1

Tax charge at the Group’s effective rate**** — — 111,602 15.6 111,602 15.6

* Under the PRC income tax laws, enterprises are subject to corporate income tax (‘‘CIT’’) at rate of 33%. However,certain of the Group’s subsidiaries are operating in specific development zones in Mainland China, and the relevantauthorities have granted these subsidiaries preferential CIT rates ranging from 15% to 30%.

** In addition to preferential CIT rates granted to the Group’s certain subsidiaries in Mainland China, tax holiday was alsogranted by the relevant authorities to these subsidiaries, where CIT is exempted for the first two profitable years of thesubsidiaries and is chargeable at half of the applicable rate for the next subsequent three years.

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(g) Dividends

No dividend has been paid or declared by the Company since its incorporation.

The dividends payable by the companies now comprising the Group to their then shareholdersduring the Relevant Periods were as follows:


2003 2004 2005 2005 2006


Shanghai Malt************************* 4,060 — — — 2,226

COFCO Oils & Fats******************** — 90,798 28,000 — —

COFCO No. 1 ************************* — — 116,000 116,000 —

Shenzhen Nantian ********************* 5,661 5,661 — — 2,326

9,721 96,459 144,000 116,000 4,552

(h) Earnings per share attributable to ordinary equity holders of the Company

The calculation of basic earnings per share for the Relevant Periods and the nine monthsended 30 September 2005 is based on the profit attributable to the equity holders of the Companyfor each of the Relevant Periods and the nine months ended 30 September 2005 and on theassumption that 2,791,383,356 shares, representing the number of the shares of the Companyoutstanding immediately before the Global Offering (as defined on page 13 of the Prospectus) hadbeen in issue throughout the Relevant Periods.

No diluted earnings per share amounts are disclosed as no diluting events existed during theRelevant Periods and the nine months ended 30 September 2005.

I-27


6. COMBINED BALANCE SHEETS

The following is a summary of the combined balance sheets of the Group at the end of each of theRelevant Periods and is prepared on the basis set out in Section 1 above:

AtAt 31 December 30 September

Notes 2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

NON-CURRENT ASSETSProperty, plant and equipment ** (a) 3,065,787 3,406,912 3,773,301 5,096,465Prepaid land premiums********* (b) 204,863 239,844 266,636 338,285Deposits for purchases of items

of plant and equipment ******* — 62,542 107,861 22,167Goodwill ********************** (c) 243,172 246,355 246,355 584,806Interests in associates********** (d) 539,147 506,745 627,706 947,671Available-for-sale investments *** (e) 7,104 2,387 2,387 2,387Deferred tax assets ************ (l) 5,963 4,821 2,616 2,396Total non-current assets ******** 4,066,036 4,469,606 5,026,862 6,994,177

CURRENT ASSETSInventories ******************** (f) 2,333,189 1,445,807 2,489,983 2,881,355Accounts and bills receivable *** (g) 446,139 704,539 751,789 602,224Prepayments, deposits and other

receivables****************** 1,077,469 623,965 792,978 1,178,106Derivative financial instruments** (h) 1,297 932 12,314 1,157Due from fellow subsidiaries **** (q) 132,032 414,776 173,629 467,288Due from related companies **** (q) — 6,007 13,860 7,590Due from the ultimate holding

company******************** (q) 12,453 3,845 7,800 1,134Due from minority shareholders

of subsidiaries*************** (q) 4,712 3,599 — —Tax recoverable**************** 6,001 709 1,212 684Pledged deposits ************** (i) 3,585 1,943 406,286 17,551Cash and cash equivalents ***** (i) 389,857 453,990 523,803 1,032,262Total current assets ************ 4,406,734 3,660,112 5,173,654 6,189,351

CURRENT LIABILITIESAccounts payable ************** (j) 381,346 376,790 511,113 650,369Other payables and accruals **** 793,218 636,858 597,350 842,340Deferred income*************** 1,129 1,129 1,704 1,277Interest-bearing bank and other

borrowings ****************** (k) 2,643,581 2,356,841 3,081,401 4,064,958Due to fellow subsidiaries******* (q) 690,315 760,551 1,244,615 919,635Due to the ultimate holding

company******************** (q) 150,419 176,156 182,524 42Due to related companies ****** (q) 164,967 22,786 537,464 370,004Due to minority shareholders of

subsidiaries ***************** (q) 36,801 4,197 4,274 —Tax payable ******************* 17,494 20,132 5,488 56,184Total current liabilities ********** 4,879,270 4,355,440 6,165,933 6,904,809

NET CURRENT LIABILITIES *** (472,536) (695,328) (992,279) (715,458)

TOTAL ASSETS LESSCURRENT LIABILITIES ****** 3,593,500 3,774,278 4,034,583 6,278,719

I-28



Notes 2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

NON-CURRENT LIABILITIESInterest-bearing bank and other

borrowings ****************** (k) 448,019 435,363 363,473 157,940Due to fellow subsidiaries******* (q) 182,052 182,085 182,117 307,895Due to immediate holding

company******************** (q) 280,315 342,030 460,157 920,668Due to minority shareholders of

subsidiaries ***************** (q) 154,485 101,054 105,628 81,444Deferred income*************** 26,086 28,422 27,478 60,881Deferred tax liabilities ********** (l) — — — 19,336Total non-current liabilities ****** 1,090,957 1,088,954 1,138,853 1,548,164

Net assets ******************** 2,502,543 2,685,324 2,895,730 4,730,555

EQUITYEquity attributable to equity

holders of the CompanyIssued capital ***************** (m) 1,604,380 1,604,380 1,604,380 2,697,681Reserves ********************* Section 7 193,032 221,896 387,717 994,723

1,797,412 1,826,276 1,992,097 3,692,404

Minority interests************* Section 7 705,131 859,048 903,633 1,038,151

Total equity ******************* 2,502,543 2,685,324 2,895,730 4,730,555

I-29


Notes:

(a) Property, plant and equipment

Plant,machinery

and ConstructionBuildings equipment in progress Total

HK$’000 HK$’000 HK$’000 HK$’000

31 December 2003At 1 January 2003:

Cost******************************** 1,117,487 1,800,709 157,741 3,075,937Accumulated depreciation and

impairment************************ (169,454) (550,275) — (719,729)

Net carrying amount ***************** 948,033 1,250,434 157,741 2,356,208

At 1 January 2003, net of accumulateddepreciation and impairment ********** 948,033 1,250,434 157,741 2,356,208

Additions****************************** 40,686 99,672 738,759 879,117Disposals ***************************** (5,681) (5,675) (352) (11,708)Depreciation provided during the year

(Section 5(b)) *********************** (43,148) (114,682) — (157,830)Transfers****************************** 289,539 327,215 (616,754) —

At 31 December 2003, net ofaccumulated depreciation andimpairment************************** 1,229,429 1,556,964 279,394 3,065,787

At 31 December 2003:Cost******************************** 1,441,430 2,216,444 279,394 3,937,268Accumulated depreciation and

impairment************************ (212,001) (659,480) — (871,481)

Net carrying amount ***************** 1,229,429 1,556,964 279,394 3,065,787

31 December 2004At 1 January 2004, net of accumulated

depreciation and impairment ********** 1,229,429 1,556,964 279,394 3,065,787Acquisition of a subsidiary

(Section 8(b)(i))********************** 25,111 28,442 6,160 59,713Additions****************************** 16,985 64,623 402,230 483,838Disposals ***************************** (4,242) (11,237) (285) (15,764)Impairment (Section 5(b))*************** — (45) — (45)Depreciation provided during the year

(Section 5(b)) *********************** (45,981) (140,636) — (186,617)Transfers****************************** 130,821 122,621 (253,442) —

At 31 December 2004, net ofaccumulated depreciation andimpairment************************** 1,352,123 1,620,732 434,057 3,406,912


impairment************************ (264,108) (818,783) — (1,082,891)


I-30


Plant,machinery


HK$’000 HK$’000 HK$’000 HK$’000


depreciation and impairment ********** 1,352,123 1,620,732 434,057 3,406,912Additions****************************** 1,876 89,285 513,432 604,593Disposals ***************************** (46,191) (41,520) (35) (87,746)Depreciation provided during the year

(Section 5(b)) *********************** (55,966) (160,141) — (216,107)Transfers****************************** 299,575 341,957 (641,532) —Exchange realignment****************** 26,976 32,228 6,445 65,649

At 31 December 2005, net of accumulateddepreciation and impairment*********** 1,578,393 1,882,541 312,367 3,773,301


impairment************************ (306,513) (972,725) — (1,279,238)


30 September 2006At 1 January 2006, net of accumulated

depreciation and impairment ********** 1,578,393 1,882,541 312,367 3,773,301Acquisition of subsidiaries

(Section 8(b)(ii)) ********************* 150,882 431,280 31,761 613,923Additions****************************** 11,483 127,157 688,730 827,370Disposals ***************************** (696) (8,879) (830) (10,405)Depreciation provided during the period

(Section 5(b)) *********************** (48,027) (183,362) — (231,389)Transfers****************************** 144,827 27,971 (172,798) —Exchange realignment****************** 47,098 58,366 18,201 123,665

At 30 September 2006, net ofaccumulated depreciation andimpairment************************** 1,883,960 2,335,074 877,431 5,096,465

At 30 September 2006:Cost******************************** 2,246,430 3,506,130 877,431 6,629,991Accumulated depreciation and

impairment************************ (362,470) (1,171,056) — (1,533,526)


All of the Group’s buildings are held under medium term leases in Mainland China.

Certain of the Group’s property, plant and equipment with a net book value of approximatelyHK$162,365,000, HK$110,740,000, HK$677,610,000 and HK$824,185,000 were pledged tosecure banking facilities granted to the Group as at 31 December 2003, 2004, 2005 and30 September 2006, respectively (note (k)).

Certificates of ownership in respect of certain buildings of the Group in Mainland China withaggregate net book value of HK$34,574,000, HK$36,204,000, HK$36,006,000 and HK$35,842,000as at 31 December 2003, 2004, 2005 and 30 September 2006, respectively, had not been issuedby the relevant PRC authorities. The directors anticipate that these certificates will be issued in thenear future.

I-31


(b) Prepaid land premiums

31 December 30 September

2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

Carrying amount at beginning of year/period**** 209,603 209,427 244,832 272,628Acquisitions of subsidiaries (Section 8(b)) ****** — 11,623 — 39,338Additions *********************************** 4,557 28,657 28,985 31,913Recognised during the year/period

(Section 5(b)) ***************************** (4,733) (4,875) (5,923) (5,976)Exchange realignment *********************** — — 4,734 8,535

Carrying amount at end of year/period ********* 209,427 244,832 272,628 346,438Current portion included in prepayments,

deposits and other receivables ************** (4,564) (4,988) (5,992) (8,153)

Non-current portion ************************** 204,863 239,844 266,636 338,285

The leasehold land is held under medium term leases in Mainland China.

Certain of the Group’s land use rights with a net book value of approximately HK$35,620,000,HK$11,423,000, HK$41,068,000 and HK$39,514,000 were pledged to secure bank loans grantedto the Group as at 31 December 2003, 2004, 2005 and 30 September 2006, respectively (note (k)).

Certificates of land use rights in respect of certain land of the Group in Mainland China withaggregate net book value of HK$6,248,000, HK$6,093,000, HK$6,047,000 and HK$6,086,000 asat 31 December 2003, 2004, 2005 and 30 September 2006, respectively, had not been issued bythe relevant PRC authorities. The directors anticipate that these certificates will be issued in thenear future.

(c) Goodwill


2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

Carrying amount at beginning of year/period**** 243,172 243,172 246,355 246,355Acquisitions of subsidiaries (Section 8(b)) ****** — 3,183 — 338,451

Carrying amount at end of year/period ********* 243,172 246,355 246,355 584,806

Impairment testing of goodwill

Goodwill acquired through business combinations has been allocated to the following cash-generating units, which are reportable segments, for impairment testing:

( Oilseed processing cash-generating unit;

( Rice processing and trading cash-generating unit; and

( Biofuel and biochemicals cash-generating unit.

The recoverable amounts of oilseed processing cash-generating unit is determined based on avalue in use calculation using cash flow projections based on financial budgets covering a one-yearperiod approved by senior management.

The recoverable amount of rice processing and trading cash-generating unit is determinedbased on a value in use calculation using cash flow projections based on financial budgets coveringa one-year period approved by senior management.

I-32


The recoverable amount of biofuel and biochemicals cash-generating unit is determined basedon a value in use calculation using cash flow projections based on financial budgets covering afive-year period approved by senior management. The discount rate applied to the cash flowprojection is 12%.

The carrying amount of goodwill allocated to each of the cash-generating units is as follows:


2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

Oilseed processing ************************** 116,124 116,124 116,124 116,124Rice processing and trading ****************** 127,048 127,048 127,048 127,048Biofuel and biochemicals ********************* — — — 338,451Others ************************************* — 3,183 3,183 3,183

243,172 246,355 246,355 584,806

Key assumptions were used in the value in use calculation of the cash-generating units for31 December 2003, 2004, 2005 and 30 September 2006. The following describes each keyassumption on which management has based its cash flow projections to undertake impairmenttesting of goodwill.

Budgeted gross margins — The basis used to determine the value assigned to the budgetedgross margins is the average gross margins achieved in the year immediately before the budgetedyear, increased for expected efficiency improvements and expected market development.

Discount rates — The discount rates used are before tax and reflect specific risks relating tothe relevant units.

Raw materials price inflation — The basis used to determine the value assigned to rawmaterials price inflation is the forecast price indices during the budget year for countries from whereraw materials are sourced. The values assigned to key assumptions are consistent with externalinformation sources.

(d) Interests in associates


2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

Share of net assets************************** 324,598 328,718 414,940 802,272Goodwill on acquisition*********************** 16,642 16,642 16,642 28,356

341,240 345,360 431,582 830,628

Due from/(to) associates ********************* 39,605 6,041 40,348 (35,616)Loans to associates ************************* 158,302 155,344 155,776 152,659

197,907 161,385 196,124 117,043

539,147 506,745 627,706 947,671

The balances with associates are unsecured, interest-free and have no fixed terms ofrepayment. The carrying amounts of these balances approximate to their fair values.

The loans to associates are capital in nature. The balances are unsecured, interest-free andhave no fixed terms of repayment. The carrying amounts of these loans approximate to their fairvalues.

I-33


The amount of goodwill arising from the acquisition of an associate during the RelevantPeriods is as follows:


2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

Carrying amount at beginning of year/period ****** 16,642 16,642 16,642 16,642Acquisition of an associate ********************** — — — 11,714

Carrying amount at end of year/period************ 16,642 16,642 16,642 28,356

Impairment testing of goodwill

Goodwill acquired through business combinations has been allocated to the following cash-generating units, which are reportable segments, for impairment testing:

( Oilseed processing cash-generating unit; and

( Biofuel and biochemicals cash-generating unit.

The carrying amounts of goodwill allocated to each of the cash-generating units are as follows:


2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

Oilseed processing ***************************** 16,642 16,642 16,642 16,642Biofuel and biochemicals************************ — — — 11,714

16,642 16,642 16,642 28,356

Details of the basis of determination of recoverable amounts and key assumptions used in thevalue in use calculation for the above cash-generating units are set out in note (c) above.

The following table illustrates the summarised financial information of the Group’s associatesextracted from their financial statements, or where appropriate, management accounts:


2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

Assets ***************************** 3,529,744 5,285,535 5,138,934 5,587,644Liabilities *************************** 2,461,924 4,079,276 3,659,187 2,826,684Revenue *************************** 7,065,830 9,393,134 10,968,162 6,850,758Profit for the year/period ************* 313,254 69,458 290,668 345,246

(e) Available-for-sale investments

At 31 December At 30 September

2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

Unlisted debt investment outside HongKong, at fair value***************** 4,717 — — —

Unlisted equity investment outsideHong Kong, at cost**************** 2,387 2,387 2,387 2,387

7,104 2,387 2,387 2,387

I-34


(f) Inventories

At 31 December At 30 September

2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

Raw materials ********************** 1,114,961 492,366 1,406,419 1,797,431Work in progress******************** 165,870 90,109 143,726 93,246Finished goods ********************* 1,052,358 863,332 939,838 990,678

2,333,189 1,445,807 2,489,983 2,881,355

(g) Accounts and bills receivable

The Group’s trading terms with its customers are mainly on credit, except for new customers,where payment in advance is normally required. The credit period is generally for 30 to 90 days.Each customer has a maximum credit limit. The Group seeks to maintain strict control over itsoutstanding receivables to minimise credit risk. Overdue balances are reviewed regularly by seniormanagement. In view of the aforementioned and the fact that the Group’s accounts receivablerelate to a large number of diversified customers, there is no significant concentration of credit risk.Accounts receivable are non-interest-bearing.

An aged analysis of the accounts and bills receivable at each of the balance sheet dates is asfollows:


2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

Outstanding balances with ages:

Within 3 months ************************** 444,270 699,487 731,826 595,661

3 to 12 months *************************** 3,041 6,526 19,513 5,659

1 to 2 years ****************************** 1,590 1,859 5,590 2,213

Over 2 years ***************************** 3,751 2,774 38 1,627

452,652 710,646 756,967 605,160

Less: Impairment *************************** (6,513) (6,107) (5,178) (2,936)

446,139 704,539 751,789 602,224

The carrying amounts of accounts and bills payable approximate to their fair values.

(h) Derivative financial instruments


2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

Commodity futures contracts ***************** 1,297 932 12,314 1,157

The Group has entered into various commodity futures contracts to manage its price exposurein future purchases or sales of soybean, soybean meal and corn which did not meet the criteria forhedge accounting. Gains in fair value of non-hedging derivative financial instruments ofHK$45,851,000, HK$9,698,000, HK$76,873,000, HK$93,005,000 and HK$86,031,000 werecredited to the combined income statements during the years ended 31 December 2003, 2004 and2005 and nine months ended 30 September 2005 and 2006, respectively.

I-35


(i) Cash and cash equivalents and pledged deposits


2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

Cash and bank balances ******************** 386,467 453,990 502,027 769,245

Time deposits ****************************** 6,975 1,943 428,062 280,568

393,442 455,933 930,089 1,049,813

Less: Time deposits pledged for short termbank loans (note (k)) ********************** (3,585) (1,943) (406,286) (17,551)

Cash and cash equivalents ****************** 389,857 453,990 523,803 1,032,262

Substantially all of the cash and cash equivalents are denominated in Renminbi (‘‘RMB’’) andare deposited with several state-owned banks in Mainland China in the ordinary course ofbusiness. RMB is not freely convertible into other currencies. However, under Mainland China’sForeign Exchange Control Regulations and Administration of Settlement, Sale and Payment ofForeign Exchange Regulations, the Group is permitted to exchange RMB for other currenciesthrough banks authorised to conduct foreign exchange business.

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short termtime deposits are made for varying periods of between one day and three months depending on theimmediate cash requirements of the Group, and earn interest at the respective short term timedeposit rates. The carrying amounts of the cash and cash equivalents and the pledged depositsapproximate to their fair values.

(j) Accounts payable

An aged analysis of the accounts payable at each of the balance sheet dates is as follows:


2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

Outstanding balances with ages:

Within 3 months*************************** 376,016 375,390 503,035 636,608

3 to 12 months**************************** 2,142 158 7,095 9,809

1 to 2 years******************************* 2,681 1,242 194 1,075

Over 2 years****************************** 507 — 789 2,877

381,346 376,790 511,113 650,369

The accounts payable are non-interest-bearing and are normally settled on 90-day terms. Thecarrying amounts of the accounts payable approximate to their fair values.

I-36


(k) Interest-bearing bank and other borrowings

AtEffectiveAt 31 December 30 Septemberinterest

rate (%) Maturity 2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

CurrentBank loans – unsecured ***** 4.86 - 7.01 2006 - 2007 2,262,392 1,996,349 1,103,430 2,114,251Bank loans – secured ******* 4.86 - 7.56 2006 - 2007 54,905 67,075 517,698 684,292Other loans – unsecured***** 4.70 - 6.02 2006 - 2007 326,284 293,417 1,460,273 1,266,415

2,643,581 2,356,841 3,081,401 4,064,958

Non-currentBank loans – secured ******* 21,698 — — —Other loans – unsecured***** 5.18 - 5.85 2007 - 2009 426,321 435,363 363,473 157,940

448,019 435,363 363,473 157,940

3,091,600 2,792,204 3,444,874 4,222,898

Analysed into:Bank loans repayable:

Within one year or on demand ****************** 2,317,297 2,063,424 1,621,128 2,798,543In the third to fifth years, inclusive *************** 21,698 — — —

2,338,995 2,063,424 1,621,128 2,798,543

Other loans repayable:Within one year or on demand ****************** 326,284 293,417 1,460,273 1,266,415In the second year ***************************** 103,774 94,340 212,110 5,016In the third to fifth years, inclusive *************** 322,547 341,023 151,363 152,924

752,605 728,780 1,823,746 1,424,355

3,091,600 2,792,204 3,444,874 4,222,898

Certain of the Group’s bank loans are secured by:

(i) a charge over certain property, plant and equipment of the Group with a net book value ofapproximately HK$162,365,000, HK$110,740,000, HK$677,610,000 andHK$824,185,000 as at 31 December 2003, 2004, 2005 and 30 September 2006,respectively (note (a));

(ii) a charge over certain land use rights of the Group with a net book value of approximatelyHK$35,620,000, HK$11,423,000, HK$41,068,000 and HK$39,514,000 as at31 December 2003, 2004, 2005 and 30 September 2006, respectively (note (b)); and

(iii) the pledge of certain of the Group’s time deposits amounting to HK$3,585,000,HK$1,943,000, HK$406,286,000 and HK$17,551,000 as at 31 December 2003, 2004,2005 and 30 September 2006, respectively (note (i)).

In addition, the ultimate holding company and an associate of the Group had guaranteedcertain of the Group’s unsecured bank loans up to HK$50,131,000, HK$13,031,000,HK$47,569,000 and nil balance as at 31 December 2003, 2004, 2005 and 30 September 2006,respectively. Subsequent to 30 September 2006, the guarantee granted by the ultimate holdingcompany have been released.

I-37


Details of other loans are analysed as follows:


2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

Loans from:

The ultimate holding company ************ 18,868 30,452 279,605 —

The immediate holding company ********** 416,887 322,546 — —

A fellow subsidiary*********************** 303,732 363,207 1,533,325 1,424,355

Employees****************************** 13,118 12,575 10,816 —

752,605 728,780 1,823,746 1,424,355

The other loans bear interest at fixed rates ranging from 2.38% to 5.31%, 2.308% to 5.58%,2.5% to 5.58% and 4.70% to 6.02% per annum as at 31 December 2003, 2004, 2005 and30 September 2006, respectively. The loans from a fellow subsidiary of HK$303,732,000,HK$363,207,000, HK$572,709,000, and HK$839,542,000 as at 31 December 2003, 2004, 2005and 30 September 2006, respectively, are guaranteed by the Group’s ultimate holding company.

The carrying amounts of the Group’s bank and other loans approximate to their fair values.

Other interest rate information:At 31 December At 30 September

2003 2004 2005 2006Fixed Floating Fixed Floating Fixed Floating Fixed Floatingrate rate rate rate rate rate rate rate

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Bank loans – unsecured ******* 2,090,611 171,781 1,654,752 341,597 1,103,430 — 2,114,251 —

Bank loans – secured********** 76,603 — 67,075 — 517,698 — 684,292 —

Other loans – unsecured ******* 752,605 — 728,780 — 1,823,746 — 1,424,355 —

(l) Deferred tax

The movements in deferred tax liabilities and assets during the Relevant Periods are asfollows:

Deferred tax liabilities

Acceleratedtax Deferred

depreciation income Others Total

HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2006 ****************************** — — — —

Acquisition of subsidiaries (Section 8(b)(ii))********* 10,221 1,142 666 12,029

Deferred tax charged to the income statementduring the period (Section 5(f)) ***************** 3,052 2,599 1,284 6,935

Exchange realignment *************************** 265 70 37 372

At 30 September 2006*************************** 13,538 3,811 1,987 19,336

I-38


Deferred tax assets

Provisionagainst Impairment of

inventories receivables Others Total

HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2003 *************************** (152) (2,073) (2,520) (4,745)

Deferred tax charged/(credited) to the incomestatement during the year (Section 5(f)) ****** (1,224) (68) 74 (1,218)

At 31 December 2003 and at 1 January 2004 *** (1,376) (2,141) (2,446) (5,963)

Deferred tax charged to the income statementduring the year (Section 5(f)) **************** 1,056 12 74 1,142

At 31 December 2004 and at 1 January 2005 *** (320) (2,129) (2,372) (4,821)

Deferred tax charged to the income statementduring the year (Section 5(f)) **************** 82 2,049 136 2,267

Exchange realignment ************************ (5) (15) (42) (62)

At 31 December 2005 and at 1 January 2006 *** (243) (95) (2,278) (2,616)

Deferred tax charged to the income statementduring the period (Section 5(f)) ************** 245 — 39 284

Exchange realignment ************************ (2) (4) (58) (64)

At 30 September 2006 *********************** — (99) (2,297) (2,396)

The Group has tax losses arising in Mainland China of HK$119,752,000, HK$112,187,000,HK$115,219,000 and HK$131,231,000 as at 31 December 2003, 2004, 2005 and 30 September2006, respectively, that are available for offsetting against future taxable profits to a maximumperiod of five years of the companies in which the losses arose. Deferred tax assets have not beenrecognised in respect of these losses as they have arisen in subsidiaries that have been loss-making for some time.

At each of the balance sheet dates during the Relevant Periods, there was no significantunrecognised deferred tax liability for taxes that would be payable on the unremitted earnings ofcertain of the Group’s subsidiaries or associates as the Group has no liability to additional taxshould such amounts be remitted.

There are no income tax consequences attaching to the payment of dividends by the Companyto its shareholders.

(m) Issued capital

For the purpose of this report, the issued capital of the Group as at 31 December 2003, 2004and 2005 and 30 September 2006 represented the aggregate amount of the nominal value of theshare capital and paid-in capital of all companies now comprising the Group.

I-39


(n) Operating lease arrangements

As lessee

The Group leases certain of its office properties and steel barrels under operating leasearrangements. Leases for office properties are negotiated for terms ranging from one to fifteenyears and those for steel barrels for terms ranging from one to eleven years.

At the balance sheet dates, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:


2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

Within one year ******************************** 4,285 9,928 11,306 16,517In the second to fifth years, inclusive ************* 10,016 8,107 12,898 15,949After five years********************************* 4,099 2,401 1,004 2,966

18,400 20,436 25,208 35,432

(o) Capital commitments


2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

Capital commitments in respect of property, plantand equipment:Authorised, but not contracted for ************ — — 236,111 273,302Contracted, but not provided for ************** 98,798 70,937 163,422 885,624

98,798 70,937 399,533 1,158,926

(p) Other commitments

Commitments under futures contracts:


2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

Sales of soybean meal************************ 140,251 97,972 80,119 46,176Sales of soybean***************************** — — 127,134 —Purchase of soybean meal ******************** 81,349 1,026 — 23,256

Other than disclosed above, the Group did not have any significant commitments or contingentliabilities as at each of the balance sheet dates.

I-40


(q) Related party disclosures

(i) Related party transactions:

Apart from the transactions and balances disclosed under note (k) above, the Group hadthe following transactions with related parties during the Relevant Periods and for the ninemonths ended 30 September 2005:


Notes 2003 2004 2005 2005 2006


Transactions with fellowsubsidiaries:

Sales of goods* *** (a) 298,639 384,206 376,327 41,363 513,472Purchases of

goods* ********* (a) 164,139 270,938 93,613 27,011 25,649Operating lease

rental paid* ***** (a) 4,056 4,235 4,263 3,185 3,828Interest expense* ** (b) 7,428 10,953 32,489 15,928 37,012Interest income* *** (d) 2,383 4,638 1,642 1,393 396Commission paid* (a) 21,894 6,641 11,701 837 4,616

Transactions withultimate holdingcompany:

Sales of goods* *** (a) 16,081 — — — —Purchase of goods* (a) 45,284 100,581 1,738 — —Management fee

paid* *********** (a) 7,736 7,547 7,217 5,676 5,523Interest expense* ** (b) 415 443 434 432 15,451

Transactions withimmediate holdingcompany:

Interest expense*** (b) 22,346 22,346 14,716 11,738 —Transactions with

associates:Sales of goods* *** (a) 164,206 122,157 94,534 74,344 72,910Purchases of

goods* ********* (a) 40,246 20,858 2,611 2,270 50,890Purchases of steel

barrels********** (a) — 12,512 44,187 38,077 22,322Processing fee

expenses ******* (a) 6,637 39,893 15,911 9,274 12,620Reimbursement of

advertisingexpense* ******* (c) 6,330 3,773 4,485 — 3,324

Transactions withrelated companies:#

Sales of goods* *** (a) 7,003 4,353 67,023 1,650 7,319Purchases of

goods*## ******* (a) 5,317,547 5,909,312 6,937,323 5,675,933 5,313,071

I-41



Notes 2003 2004 2005 2005 2006


Transactions withminority shareholdersof subsidiaries:

Sales of goods* *** (a) 64 126 159 56 —Purchases of

goods* ********* (a) 198,795 186,693 218,879 178,606 52,655Operating lease

rental paid ****** (a) — 651 804 800 —Consultancy fee

paid ************ (a) — — 321 — —

* These are continuing transactions.

# Related companies are companies under significant influence by the Group’s ultimate holding company.

## Included purchases of goods from Grand Ocean International Trading Limited of HK$5,289,051,000,HK$5,863,428,000, HK$6,910,555,000, HK$5,633,684,000 and HK$5,277,432,000 for the years ended31 December 2003, 2004, 2005 and the nine months ended 30 September 2005 and 2006, respectively.

Notes:

(a) These transactions were carried out with reference to the prevailing market prices or,where no market prices were available, at cost plus a percentage of profit mark-up.

(b) The interest expense arose from the loans from the ultimate holding company, theimmediate holding company and a fellow subsidiary. Further details of the loans fromthe ultimate holding company, immediate holding company and a fellow subsidiaryare set out in note (k) above.

(c) The reimbursement of advertising expense was calculated with reference to theactual advertising expense.

(d) The interest income arose from the deposits placed with a fellow subsidiary of theGroup, which is a non-banking finance company regulated by the People’s Bank ofChina (the ‘‘PBOC’’) and the China Banking Regulatory Commission in the PRC, andits deposit rates are set by the PBOC which is applicable to all financial institutions.The interest rates offered by the fellow subsidiary are the same as the ratespromulgated by the PBOC which are applicable to account deposits with banks of thePRC or finance companies and at rates of 0.72%, 0.72%, 0.72% to 2.25%, and0.72% to 2.25% per annum as at 31 December 2003, 2004, 2005 and 30 September2006, respectively. The deposits placed with the fellow subsidiary by the Groupamounted to HK$58,551,000, HK$345,082,000, HK$21,325,000 andHK$296,638,000 as at 31 December 2003, 2004, 2005 and 30 September 2006,respectively.

In the opinion of the directors of the company, the above related party transactions werecarried out on normal commercial terms and in the ordinary course of the Group’s business.

(ii) Transactions with a related party

Pursuant to certain license agreements entered into between the Group and a fellowsubsidiary, Grand Silver Services Limited, the Group has been granted the exclusive rights touse certain trademarks for its edible oils, soybean meal and related products business. Thelicense fees during the Relevant Periods and the nine months ended 30 September 2005 werewaived by the related party.

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(iii) Outstanding balances with related parties

Except for (1) the loans with aggregate amounts of HK$739,487,000, HK$716,205,000,HK$1,812,930,000 and HK$1,424,355,000 from the ultimate holding company, the immediateholding company and a fellow subsidiary as at 31 December 2003, 2004, 2005 and30 September 2006, respectively, the terms of which are detailed in note (k) above; (2) thedeposits placed with the fellow subsidiary by the Group amounted to HK$58,551,000,HK$345,082,000, HK$21,325,000 and HK$296,638,000 as at 31 December 2003, 2004, 2005and 30 September 2006, respectively, the terms of which are detailed in note (q)(i)(d) above;(3) amount due to a fellow subsidiary of HK$614,629,000, HK$752,528,000, HK$842,555,000and HK$799,211,000 as at 31 December 2003, 2004, 2005 and 30 September 2006,respectively, which are financing in nature; (4) amounts due to fellow subsidiaries ofHK$182,052,000, HK$182,085,000, HK$182,117,000 and HK$307,895,000 as at31 December 2003, 2004, 2005 and 30 September 2006, respectively, which are financing innature and are not repayable from within one year from each of the respective balance sheetdates during the Relevant Periods; (5) the amounts due to immediate holding company ofHK$280,315,000, HK$342,030,000, HK$460,157,000 and HK$920,668,000 as at31 December 2003, 2004, 2005 and 30 September 2006, respectively, which are financing innature and are not repayable within one year from each of the respective balance sheet datesduring the Relevant Periods; and (6) the amounts due to minority shareholders of subsidiariesof HK$154,485,000, HK$101,054,000, HK$105,628,000 and HK$81,444,000 as at31 December 2003, 2004, 2005 and 30 September 2006, respectively, which are financing innature and are not repayable within one year from each of the respective balance sheet datesduring the Relevant Periods, the remaining balances with the holding companies, fellowsubsidiaries, related companies and minority shareholders of the Group’s subsidiaries areunsecured, interest-free and have no fixed terms of repayment, and are arising from theGroup’s normal course of business, which represented sales and purchases of goods. Thecarrying amounts of balances with related parties approximate to their fair values.

Subsequent to 30 September 2006, the deposits placed with a fellow subsidiary, andamounts due to fellow subsidiaries, immediate holding company and minority shareholderswhich are financing in nature, were fully withdrawn and fully repaid by the Group, respectively.

(iv) Compensation of key management personnel of the Group


2003 2004 2005 2005 2006


Salaries, allowances and benefits inkind ***************************** 535 661 1,090 551 887

Pension scheme contributions******** 20 20 32 42 70Total compensation paid to key

management personnel *********** 555 681 1,122 593 957

Further details of directors’ emoluments are included in Section 5(d).

(v) Indemnity given by COFCO (Hong Kong) Limited

The Group’s immediate holding company, COFCO (Hong Kong) Limited, undertakes toindemnify the Group from and against all claims, liabilities losses, costs and expenses whichthe Group may suffer or incur in connection with any underpayment, non-payment or latepayment of social insurances and housing fund contributions, for the Group’s subsidiariesestablished in Mainland China.

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(vi) Transactions of other state-owned enterprises

The Group operates in an economic environment predominated by enterprises directly orindirectly owned or controlled by the PRC government through its numerous authorities,affiliates or other organisations (collectively ‘‘State-owned Enterprises’’). During the RelevantPeriods, the Group had transactions with State-owned Enterprises including, but not limited to,sales of and purchases of processed foodstuffs and raw materials. The directors consider thattransactions with other State-owned Enterprises are activities in the ordinary course of theGroup’s business, at terms that are consistently applied to all customers, and that the dealingsof the Group have not been significantly or unduly affected by the fact that the Group and theother State-owned Enterprises are ultimately controlled or owned by the PRC government. TheGroup has also established pricing policies for products and services, and such policies do notdepend on whether or not the customers are State-owned Enterprises. Having due regard tothe substance of the relationships, the directors are of the opinion that none of thesetransactions are material related party transactions that require separate disclosure.

(r) Financial risk management objectives and policies

The Group’s principal financial instruments, other than derivatives, comprise bank and otherinterest-bearing loans, and cash and short term deposits. The main purpose of these financialinstruments is to raise finance for the Group’s operations. The Group has various other financialassets and liabilities such as accounts and other receivable, accounts and other payables, and duefrom/to group companies which arise directly from its operations.

The main risks arising from the Group’s financial instruments are cash flow interest rate risk,foreign currency risk, credit risk, liquidity risk and market price risk associated with pricefluctuations in future purchases and/or sales of the related commodities. The Group’s overall riskmanagement programme focuses on minimising potential adverse effects of these risks which havematerial impact on the Group’s financial performance and have used certain derivative financialinstruments to hedge against these risks.

The Group enters into derivative transactions, in futures contracts of soybean, soybean mealand corn. The purpose of entering into these futures contracts is to manage the market price riskarising from the Group’s oilseed processing operation. The accounting policies in relation toderivatives are set out in Section 3.

Cash flow interest rate risk

The Group’s income and operating cash flows are substantially independent of changes inmarket interest rates. The effective interest rates and terms of repayment of bank loans and otherloans of the Group are disclosed in note (k). The Group has not used any derivative to hedge itsexposure to cash flow interest rate risk.

Foreign currency risk

The Group mainly operates in Mainland China with most of the Group’s monetary assets,liabilities and transactions principally denominated in RMB and United States dollars. Foreigncurrency risk arises from future commercial transactions from operations, borrowings and netinvestments of operations, which are denominated in currencies other than functional currency ofthe Group, is considered minimal.

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Credit risk

The Group has no significant concentrations of credit risk. The carrying amount of theaccounts receivable represents the Group’s maximum exposure to credit risk in relation to itsfinancial assets. The Group has a policy in place to ensure that sales are made to customers withan appropriate credit history.

Liquidity risk

The Group’s policy is to maintain sufficient cash and cash equivalents and have availablefunding through bank and other borrowings to meet its working capital requirements.

Market price risk

The raw material costs and product selling prices of the Group’s oilseed processing operationare substantially correlated to the prices of future commodities markets. Market price risk arisesfrom the price fluctuations of raw material cost and product selling price during the delivery,production and storage processes. To minimise the Group’s market price risk exposure, the Groupenters into futures contracts of soybean, soybean meal and corn.

I-45


7. COMBINED STATEMENTS OF CHANGES IN EQUITY

The movements in the owners’ equity of the Group for the Relevant Periods and the nine monthsended 30 September 2005, prepared on the basis set out in Section 1 above, are as follows:

Attributable to equity holders of the Company

ExchangeIssued Capital Reserve fluctuation Retained Minority Total

Notes capital reserve funds* reserve profits Total interests equity


At 1 January 2003******** 1,440,580 (92) 24,271 (16,433) (53,096) 1,395,230 611,735 2,006,965Exchange realignment and

total income andexpense for the yearrecognised directly inequity ***************** — — — 855 — 855 — 855

Profit for the year********* — — — — 247,248 247,248 93,208 340,456

Total income and expensefor the year ************ — — — 855 247,248 248,103 93,208 341,311

Transfer from retainedprofits ***************** — — 12,696 — (12,696) — — —

Contributions fromimmediate holdingcompany ************** 163,800 — — — — 163,800 — 163,800

Contributions from minorityshareholders*********** — — — — — — 188 188

Dividends paid *********** Section 5(g) — — — — (9,721) (9,721) — (9,721)

At 31 December 2003 andat 1 January 2004 ****** 1,604,380 (92) 36,967 (15,578) 171,735 1,797,412 705,131 2,502,543

Exchange realignment andtotal income andexpense for the yearrecognised directly inequity ***************** — — — (5,401) — (5,401) — (5,401)


Total income and expensefor the year ************ — — — (5,401) 130,724 125,323 28,211 153,534


Contributions from minorityshareholders*********** — — — — — — 106,029 106,029

Acquisition of a subsidiary Section 8(b)(i) — — — — — — 19,677 19,677Dividends paid *********** Section 5(g) — — — — (96,459) (96,459) — (96,459)

At 31 December 2004 andat 1 January 2005 ****** 1,604,380 (92) 78,020 (20,979) 164,947 1,826,276 859,048 2,685,324

Exchange realignment andtotal income andexpense for the yearrecognised directly inequity ***************** — — — 54,942 — 54,942 15,249 70,191


Total income and expensefor the year ************ — — — 54,942 254,879 309,821 43,725 353,546


Partial disposal of aninterest in a subsidiary ** — — — — — — 6,182 6,182

Additional contribution toan existing subsidiary *** Section 5(b) — — — — — — 2,121 2,121

Dividends paid to minorityshareholders*********** — — — — — — (7,443) (7,443)


At 31 December 2005 **** 1,604,380 (92) 79,972 33,963 273,874 1,992,097 903,633 2,895,730

I-46


Attributable to equity holders of the Company

ExchangeIssued Capital Reserve fluctuation Retained Minority Total

Notes capital reserve funds* reserve profits Total interests equity


At 1 January 2006******** 1,604,380 (92) 79,972 33,963 273,874 1,992,097 903,633 2,895,730Exchange realignment and

total income andexpense for the periodrecognised directly inequity ***************** — — — 104,882 — 104,882 26,084 130,966

Profit for the period ******* — — — — 506,676 506,676 95,716 602,392

Total income and expensefor the period ********** — — 104,882 506,676 611,558 121,800 733,358


Contribution fromimmediate holdingcompany ************** 1,093,301 — — — — 1,093,301 — 1,093,301

Contribution from aminority shareholder **** 24,833 24,833

Acquisition of subsidiaries Section 8(b)(ii) — — — — — — 4,729 4,729Disposal of a subsidiary*** Section 8(c) — — — — — — (722) (722)Acquisition of minority

interests*************** — — — — — — (4,016) (4,016)Dividends paid to minority

shareholders*********** — — — — — — (12,106) (12,106)Dividends paid *********** Section 5(g) — — — — (4,552) (4,552) — (4,552)

At 30 September 2006 **** 2,697,681 (92) 125,840 138,845 730,130 3,692,404 1,038,151 4,730,555

(Unaudited)At 1 January 2005******** 1,604,380 (92) 78,020 (20,979) 164,947 1,826,276 859,048 2,685,324Exchange realignment and

total income andexpense for the periodrecognised directly inequity ***************** — — — 60,117 — 60,117 14,328 74,445

Profit for the period ******* — — — — 224,482 224,482 (11,461) 213,021

Total income and expensefor the period ********** — — — 60,117 224,482 284,599 2,867 287,466

Transfer from retainedprofits ***************** — — 5 — (5) — — —

Contributions from minorityshareholders*********** — — — — — — 6,182 6,182


At 30 September 2005 **** 1,604,380 (92) 78,025 39,138 273,424 1,994,875 868,097 2,862,972

* Pursuant to the relevant laws and regulations in the PRC for Sino-foreign joint venture enterprises, a portion of the profits ofcertain of the Company’s subsidiaries and associates in Mainland China has been transferred to reserve funds which arerestricted as to use.

I-47


8. COMBINED CASH FLOW STATEMENTS

The combined cash flow statements of the Group for the Relevant Periods and the nine monthsended 30 September 2005 prepared on the basis set out in Section 1 above, are as follows:


Notes 2003 2004 2005 2005 2006


CASH FLOWS FROMOPERATING ACTIVITIES

Profit before tax ************* 386,650 206,467 354,272 274,822 713,994Adjustments for:

Finance costs ************* Section 5(c) 69,987 104,347 139,176 97,872 159,555Provision/(write-back of

provision) againstinventories ************** Section 5(b) 4,701 (16,432) 2,563 — —

Impairment/(write-back ofimpairment) of receivables Section 5(b) 1,505 (3) 1,138 — (556)

Depreciation ************** Section 5(b) 157,830 186,617 216,107 162,866 231,389Loss on disposal of items

of property, plant andequipment ************** Section 5(b) 781 5,173 594 271 1,782

Loss on disposal of asubsidiary*************** Section 5(b) — — — — 2,241

Impairment of items ofproperty, plant andequipment ************** Section 5(b) — 45 — — —

Recognition of prepaid landpremiums *************** Section 6(b) 4,733 4,875 5,923 4,269 5,976

Share of profits and lossesof associates ************ (101,946) (17,581) (82,172) (42,362) (124,977)

Interest income ************ Section 5(a) (6,705) (9,958) (16,824) (5,917) (15,764)Unrealised fair value losses/

(gains) of derivativeinstrument transactionsnot qualifying as hedges** Section 5(b) (1,297) 365 (11,382) (15,490) 11,284

Gain on partial disposal ofan interest in a subsidiary Section 5(a) — — (8,218) (8,218) —

Gain on disposal of anavailable-for-saleinvestment ************** Section 5(a) — (89) — — —

Loss on additionalcontribution to an existingsubsidiary*************** Section 5(b) — — 2,121 — —

Government grants********* Section 5(a) (17,390) (6,768) (6,945) (1,609) (134,071)Compensation income****** Section 5(a) — — — — (56,607)

498,849 457,058 596,353 466,504 794,246

I-48



2003 2004 2005 2005 2006


Decrease/(increase) ininventories **************** (835,380) 924,388 (986,379) (730,589) (130,227)

Decrease/(increase) inaccounts and bills receivable (102,669) (249,882) (18,975) 215,995 269,788

Decrease/(increase) inprepayments, deposits andother receivables ********** (548,997) 454,933 (141,960) (84,551) (291,051)

Decrease/(increase) in duefrom fellow subsidiaries***** 22,987 (282,744) 258,463 237,696 (270,492)

Decrease/(increase) in duefrom associates************ 76,295 33,564 (34,055) 23,170 69,621

Decrease/(increase) in duefrom related companies***** 81,807 (6,007) (7,602) (3,004) 6,639

Decrease/(increase) in duefrom the ultimate holdingcompany****************** (11,896) 8,608 (3,794) 3,908 6,874

Decrease in due fromimmediate holding company 849 — — — —

Decrease/(increase) in duefrom minority shareholdersof subsidiaries************* (2,244) 1,113 3,749 47 —

Increase/(decrease) inaccounts payable ********** 162,259 (17,323) 118,593 399,583 100,410

Increase/(decrease) in otherpayables and accruals****** 86,752 (259,912) (31,075) 9,301 223,720

Increase/(decrease) in due tofellow subsidiaries ********* 138,080 (172,613) 218,285 359,610 (325,996)

Increase/(decrease) in due torelated companies ********* 136,578 (142,181) 513,727 176,529 (181,771)

Increase/(decrease) in due tothe ultimate holdingcompany****************** 43,864 25,737 (986) 27,575 (187,342)

Decrease in due to immediateholding company ********** (8,046) — (14,279) — —

Increase/(decrease) in due tominority shareholders ofsubsidiaries *************** 3,224 (32,604) 77 34,912 (4,794)

Government grants received ** 11,870 4,683 654 — 131,374Cash generated from/(used in)

operations **************** (245,818) 746,818 470,796 1,136,686 210,999Interest received ************* 6,705 9,958 16,824 5,917 15,764Interest paid***************** (69,987) (104,347) (139,176) (97,872) (159,555)Mainland China tax paid ****** (43,903) (38,460) (83,797) (73,510) (51,175)Net cash inflow/(outflow) from

operating activities ********* (353,003) 613,969 264,647 971,221 16,033

I-49



Notes 2003 2004 2005 2005 2006


CASH FLOWS FROMINVESTING ACTIVITIES

Decrease/(increase) in pledgeddeposits ****************** (610) 1,642 (404,262) (5,251) 399,553

Repayment from/(advances to)associates **************** 7,181 2,958 (432) (203) 2,788

Acquisitions of subsidiaries *** (b) — 3,349 — — 240,141Disposal of a subsidiary ****** (c) — — — — (4,518)Dividends from associates **** 2,292 2,940 3,042 — —Proceeds from disposal of

items of property, plant andequipment **************** 10,927 10,591 23,759 7,876 7,035

Proceed from sale of/(purchase of) an available-for-sale investment ********* (4,717) 4,806 — — —

Purchases of items ofproperty, plant andequipment **************** (879,117) (546,380) (649,912) (394,917) (741,676)

Additions to prepaid landpremiums ***************** (4,557) (28,657) (28,985) (28,537) (31,913)

Government grants received ** 11,088 4,421 5,922 1,645 24,678Compensation received******* — 88,678 28,372 — 2,950Net cash outflow from

investing activities********** (857,513) (455,652) (1,022,496) (419,387) (100,962)CASH FLOWS FROM

FINANCING ACTIVITIESIncrease/(decrease) in due to

fellow subsidiaries ********* (14,036) 137,932 90,059 63,637 (43,326)Increase in due to immediate

holding company ********** 87,488 38,052 132,527 109,919 460,511Increase/(decrease) in due to

minority shareholders ofsubsidiaries *************** (9) (53,431) 355 4,061 (24,184)

New bank loans ************* 6,527,145 7,154,876 7,270,940 5,971,151 4,963,815New other loans ************* 383,779 498,966 1,544,442 1,279,621 1,700,177Repayments of bank loans**** (5,850,210) (7,453,277) (7,750,982) (6,472,355) (4,322,268)Repayments of other loans *** (80,634) (522,791) (456,670) (444,212) (2,284,216)Capital contribution from

minority shareholders ofsubsidiaries *************** 188 106,029 — — 24,833

Contribution from immediateholding company ********** — — — — 96,618

Acquisition of minority interests — — — — (4,016)Dividends paid ************** (4,060) — — — (2,226)Dividends paid to minority

shareholders of subsidiaries — — (7,443) — (12,106)Net cash inflow/(outflow) from

financing activities ********* 1,049,651 (93,644) 823,228 511,822 553,612

I-50



Notes 2003 2004 2005 2005 2006


NET INCREASE/(DECREASE)IN CASH AND CASHEQUIVALENTS ************ (160,865) 64,673 65,379 1,063,656 468,683

Cash and cash equivalents atbeginning of year/period **** 549,829 389,857 453,990 453,990 523,803

Effect of foreign exchange ratechanges, net ************** 893 (540) 4,434 33,189 39,776

CASH AND CASHEQUIVALENTS AT END OFYEAR/PERIOD ************ 389,857 453,990 523,803 1,550,835 1,032,262

ANALYSIS OF BALANCES OFCASH AND CASHEQUIVALENTS

Cash and bank balances ***** Section 6(i) 386,467 453,990 502,027 585,381 769,245Non-pledged time deposits

with original maturity of lessthan three months whenacquired ****************** 3,390 — 21,776 965,454 263,017

389,857 453,990 523,803 1,550,835 1,032,262

Notes:

(a) Major non-cash transactions

(i) During the year ended 31 December 2003, an amount of HK$163,800,000 capitalcontribution was made to the Group by its immediate holding company and was settledthrough the current account with the Group’s immediate holding company.

(ii) During the year ended 31 December 2004, the Group acquired a subsidiary with a totalconsideration of HK$23,663,000, which was settled by the Group’s immediate holdingcompany on behalf of the Group. Further details of the acquisition of the subsidiary are setout in note (b) below.

(iii) During the year ended 31 December 2003, the Group injected an additional capital ofHK$19,561,000 to an associate. The amount was settled by the Group’s loans to theassociate.

(iv) During the year ended 31 December 2005, the Group disposed of a 20% interest in asubsidiary to an independent third party with a total consideration of HK$14,400,000,which was received by the Group’s immediate holding company.

(v) Pursuant to a mandatory resettlement arrangement, a piece of land on which factorypremises of the Group are situated was reclaimed by local authority (‘‘ResettlementArrangement’’) and compensations were received by the Group. During the year ended31 December 2005, the Group disposed of its property, plant and equipment with a netbook value of HK$63,393,000 pursuant to the Resettlement Arrangement. The amountwas settled against compensation received. Compensation of HK$88,678,000,HK$28,372,000 and HK$2,950,000 was received for the year ended 31 December 2004and 2005 and the nine months ended 30 September 2006, respectively, of whichHK$56,607,000 was recognised as compensation income in the combined incomestatement for the nine months ended 30 September 2006.

I-51


(vi) During the nine months ended 30 September 2006, the Group acquired a 20% interest inan associate with a total consideration of HK$254,106,000, which was settled by theGroup’s immediate holding company on behalf of the Group.

(vii) During the nine months ended 30 September 2006, the Group acquired a 100% interest ina subsidiary with a total consideration of HK$742,578,000, which was settled by theGroup’s immediate holding company on behalf of the Group.

(b) Business combinations

(i) Acquisition of Xiangxue

On 21 July 2004, the Group acquired a 55% interest in Xiangxue from an independentthird party. Xiangxue is engaged in the manufacturing of flour products.

The fair values of the identifiable assets and liabilities of Xiangxue as at the date ofacquisition and the corresponding carrying amounts immediately before the acquisition wereas follows:

Fair valuerecognised on Carrying

acquisition amount

HK$’000 HK$’000

Property, plant and equipment (Section 6(a)) ******************* 59,713 59,713Prepaid land premiums (Section 6(b))************************** 11,623 11,623Inventories************************************************** 20,574 20,574Accounts receivable ***************************************** 8,515 8,515Prepayments, deposits and other receivables ******************* 1,005 1,005Cash and cash equivalents *********************************** 3,349 3,349Interest-bearing bank borrowings ****************************** (22,830) (22,830)Accounts payable******************************************** (12,767) (12,767)Other payables and accruals********************************** (14,874) (14,874)Due to fellow subsidiaries ************************************ (14,151) (14,151)Minority interests (Section 7)********************************** (19,677) (19,677)

20,480 20,480

Goodwill on acquisition (Section 6(c))************************** 3,183

23,663

Satisfied by:An amount due to immediate holding company *************** 23,663

An analysis of the inflow of cash and cash equivalents in respect of the acquisition of thesubsidiary is as follows:

HK$’000

Cash and bank balances acquired and net inflow of cash and cash equivalent inrespect of the acquisition of the subsidiary ********************************** 3,349

During the year ended 31 December 2004, Xiangxue generated revenue and net loss ofHK$292,438,000 and HK$1,043,000, respectively. Since the acquisition of Xiangxue,Xiangxue contributed HK$155,514,000 to the Group’s revenue and loss of HK$413,000 to thecombined profit for the year ended 31 December 2004.

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(ii) Acquisition of Techbo

On 27 January 2006, the Group acquired a 100% interest in Techbo, which has 100% and65% interests in Heilongjiang Alcohol and Heilongjiang Winery, respectively, from anindependent third party. Heilongjiang Alcohol is engaged in the production and sale of biofueland biochemical products and Heilongjiang Winery is engaged in wine brewery.

The fair values of the identifiable assets and liabilities of Techbo and its subsidiaries(collectively the ‘‘Techbo Group’’) as at the date of acquisition and the corresponding carryingamounts immediately before the acquisition were as follows:

Fair valuerecognised on Carrying

acquisition amount

HK$’000 HK$’000

Property, plant and equipment (Section 6(a)) ****************** 613,923 594,536Prepaid land premiums (Section 6(b)) ************************ 39,338 31,691Inventories************************************************* 194,844 194,844Accounts and bills receivable ******************************** 99,649 99,649Prepayments, deposits and other receivables****************** 74,223 74,223Tax recoverable ******************************************** 2,054 2,054Cash and cash equivalents ********************************** 240,141 240,141Interest-bearing bank and other borrowings ******************* (615,029) (615,029)Accounts payable ****************************************** (25,236) (25,236)Due to a minority shareholder of a subsidiary ***************** (520) (520)Other payables and accruals ******************************** (65,747) (65,747)Deferred income ******************************************* (10,995) (10,995)Due to fellow subsidiaries *********************************** (125,760) (125,760)Deferred tax liabilities (Section 6(l))*************************** (12,029) (12,029)Minority interests (Section 7) ******************************** (4,729) (2,578)

404,127 379,244

Goodwill on acquisition (Section 6(c))************************* 338,451

742,578

Satisfied by:An amount due to immediate holding company ************** 742,578

An analysis of the inflow of cash and cash equivalents in respect of the acquisition of thesubsidiaries is as follows:

HK$’000

Cash and bank balances acquired and net inflow of cash and cash equivalent inrespect of the acquisition of the subsidiaries ******************************** 240,141

During the nine months ended 30 September 2006, Techbo Group generated revenue andnet profit of HK$1,035,738,000 and HK$160,868,000, respectively. Since the acquisition ofTechbo Group, Techbo Group contributed HK$922,229,000 to the Group’s revenue andHK$145,001,000 to the Group’s combined profit for the nine months ended 30 September2006.

I-53


(c) Disposal of a subsidiary

For the nine months ended 30 September 2006:

Net assets disposed of: HK$’000

Property, plant and equipment *************************************************** 1,588Cash and bank balances ******************************************************** 4,518Prepayments, deposits and other receivables ************************************** 3,422Amount due from associates***************************************************** 7,417Due from fellow subsidiaries ***************************************************** 11,219Tax recoverable **************************************************************** 70Other payables and accruals***************************************************** (6,727)Minority interests *************************************************************** (722)

20,785Loss on disposal of a subsidiary (Section 5(b)) ************************************ (2,241)

18,544

Satisfied by:Amount due from a fellow subsidiary ******************************************* 18,544

An analysis of the net outflow of cash and cash equivalents in respect of the disposal of asubsidiary is as follows:

Cash and bank balances disposed of and net outflow of cash and cash equivalents inrespect of the disposal of a subsidiary****************************************** (4,518)

The results of the subsidiary disposed of in the nine months ended 30 September 2006 had nosignificant impact on the Group’s combined turnover or profit after tax for that period.

I-54


9. SEGMENT INFORMATION

A1A 33(1)

3rd Sch(27)

Segment information is presented by way of the Group’s primary segment reporting basis, bybusiness segment. In determining the Group’s geographical segments, revenues are attributed to thesegments based on the location of the customers, and assets are attributed to the segments based onthe location of the assets. No further geographical segment information is presented as over 90% of theGroup’s revenue is derived from customers based in Mainland China, and all of the Group’s assets arelocated in Mainland China.

The Group’s operating business are structured and managed separately, according to the nature oftheir operations and the products and services they provide. Each of the Group’s business segmentsrepresents a strategic business unit that offers products and services which are subject to risks andreturns that are different from those of the other business segments. Details of the business segmentsare summarised as follows:

(a) the oilseed processing segment engages in the extraction, refining and trading of edible oilsand related businesses;

(b) the brewing materials segment engages in the processing of malt;

(c) the rice processing and trading segment engages in the processing and trading of rice;

(d) the wheat processing segment engages in the production of flour products and relatedbusinesses;

(e) the biofuel and biochemical segment engages in the production and sale of bio-ethanol andrelated products;

(f) the consumer-pack edible oil segment engages in the distribution of retail package cookingoil; and

(g) the trading of non-rice foodstuffs segment engages in the trading of food commodities, animalfeedstock, and agricultural and aquatic products.

I-55


A1A 33(1)

3rd Sch(27)

The following tables present revenue, profit and certain asset, liability and expenditure informationfor the Group’s business segments for the Relevant Periods.

Rice Consumer- Trading ofYear ended Oilseed Brewing processing Wheat Biofuel and pack non-rice31 December 2003 processing materials and trading processing biochemical edible oil foodstuffs Eliminations Combined

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Segment revenue:Sales to external

customers ****** 7,875,807 573,625 1,237,893 1,029,996 — 1,288,493 523,367 — 12,529,181Intersegment sales 1,124,658 — — — — — — (1,124,658) —Other revenue **** 65,564 3,620 10,720 3,557 — 222 7,017 — 90,700

Segment results *** 255,810 (3,335) 36,563 20,158 — 29,071 9,719 — 347,986

Interest income ***** 6,705Finance costs******* (69,987)Share of profits and

losses ofassociates******** 97,964 — — 3,982 — — — — 101,946

Profit before tax***** 386,650Tax **************** (46,194)

Profit for the year *** 340,456

Assets andliabilities

Segment assets***** 4,850,081 791,954 645,725 633,370 — 244,635 639,288 (276,836) 7,528,217Interests in

associates******** 484,428 — — 55,185 — (466) — — 539,147Unallocated assets ** 405,406

Total assets ******** 8,472,770

Segment liabilities *** 1,466,577 235,614 476,312 579,229 — 224,391 155,846 (276,836) 2,861,133Unallocated liabilities 3,109,094

Total liabilities******* 5,970,227

Other segmentinformation:Depreciation ****** 105,411 29,274 204 21,502 — 1,098 341 — 157,830Capital expenditure 713,578 2,795 139,000 25,284 — 2,113 904 — 883,674

I-56





customers ***** 9,821,460 798,735 1,027,741 1,545,296 — 1,835,643 1,021,195 — 16,050,070Intersegment

sales********** 1,658,322 — — — — — — (1,658,322) —Other revenue *** 56,915 2,286 5,862 3,669 — 138 4,605 — 73,475

Segment results*** 95,727 17,135 74,369 26,994 — 28,389 40,661 — 283,275

Interest income **** 9,958Finance costs****** (104,347)Share of profits and

losses ofassociates******* 14,969 — — 2,612 — — — — 17,581

Profit before tax **** 206,467Tax *************** (47,532)

Profit for the year*** 158,935


Segment assets**** 4,413,616 714,088 634,418 835,383 — 274,207 558,913 (269,115) 7,161,510Interests in

associates******* 453,506 — — 49,978 — 3,261 — — 506,745Unallocated assets 461,463

Total assets******** 8,129,718

Segment liabilities ** 1,194,530 254,302 334,672 701,716 — 261,817 154,136 (269,115) 2,632,058Unallocated

liabilities********* 2,812,336

Total liabilities****** 5,444,394

Other segmentinformation:Depreciation ***** 131,749 29,721 3,238 20,504 — 1,279 126 — 186,617Impairment losses

recognised **** — — — 45 — — — — 45Capital

expenditure **** 333,143 18,680 70,007 89,405 — 966 294 — 512,495

I-57





customers ***** 9,971,610 865,058 1,314,343 1,662,160 — 1,898,994 588,266 — 16,300,431Intersegment sales 1,696,382 — — — — — — (1,696,382) —Other revenue**** 127,493 39 1,718 9,420 — 16 10,706 — 149,392

Segment results *** 141,110 46,112 117,843 22,760 — 12,546 47,984 — 388,355

Interest income***** 16,824Unallocated gain**** 8,218Loss on additional

contribution to anexisting subsidiary (2,121)

Finance costs ****** (139,176)Share of profits and

losses ofassociates ******* 81,152 — — 1,020 — — — — 82,172


Profit for the year *** 283,355


Segment assets **** 5,708,010 874,724 874,524 807,873 — 274,020 497,578 (397,836) 8,638,893Interests in

associates ******* 569,831 — — 49,690 — 8,185 — — 627,706Unallocated assets** 933,917

Total assets ******** 10,200,516

Segment liabilities ** 2,158,806 445,473 474,542 687,449 — 213,778 272,212 (397,836) 3,854,424Unallocated liabilities 3,450,362

Total liabilities 7,304,786

Other segmentinformation:Depreciation ***** 158,141 29,897 9,507 16,946 — 955 661 — 216,107Capital

expenditure **** 381,663 137,386 34,869 76,212 — 2,426 1,022 — 633,578

I-58


Rice Consumer- Trading ofNine months ended Oilseed Brewing processing Wheat Biofuel and pack non-rice30 September 2005 processing materials and trading processing biochemical edible oil foodstuffs Eliminations Combined

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)


customers ***** 7,347,574 696,627 925,773 1,244,041 — 1,408,024 458,680 — 12,080,719Intersegment sales 1,268,308 — — — — — — (1,268,308) —Other revenue**** 111,957 (409) 1,275 3,628 — 12 5,188 — 121,651

Segment results *** 92,631 40,950 125,885 9,367 — (222) 47,586 — 316,197

Interest income***** 5,917Unallocated gain**** 8,218Finance costs ****** (97,872)Share of profits and

losses ofassociates ******* 43,398 — — (1,036) — — — — 42,362


Profit for the period 213,021

I-59


Rice Consumer- Trading ofNine months ended Oilseed Brewing processing Wheat Biofuel and pack non-rice30 September 2006 processing materials and trading processing biochemical edible oil foodstuffs Eliminations Combined


Segmentrevenue:Sales to

externalcustomers *** 8,007,410 707,805 1,203,797 1,233,193 922,229 1,347,233 415,487 — 13,837,154

Intersegmentsales******** 1,195,836 — — — — — — (1,195,836) —

Other revenue** 110,687 (36) (2,462) 60,949 152,151 323 23,029 — 344,641

Segment results 270,453 58,392 112,124 59,220 185,391 12,009 37,460 — 735,049

Interest income*** 15,764Finance costs **** (159,555)Loss on disposal

of a subsidiary (2,241)Share of profits

and losses ofassociates ***** 108,155 — — 2,308 14,514 — — — 124,977

Profit before tax ** 713,994Tax ************* (111,602)

Profit for theperiod ********* 602,392


Segment assets ** 5,878,307 1,098,946 1,070,977 890,868 2,091,790 287,350 481,101 (616,375) 11,182,964Interests in

associates ***** 623,931 — — 49,842 273,898 — — — 947,671Unallocated

assets********* 1,052,893

Total assets****** 13,183,528

Segment liabilities 2,027,959 467,959 474,000 675,938 710,358 281,901 132,815 (616,375) 4,154,555Unallocated

liabilities ******* 4,298,418

Total liabilities 8,452,973

Other segmentinformation:Depreciation *** 132,750 22,876 9,456 19,837 44,867 670 933 — 231,389Capital

expenditure ** 141,242 111,952 921 50,644 551,862 2,580 82 — 859,283

Intersegment sales were carried out with reference to the prevailing market prices or, where nomarket prices were available, at cost plus a percentage of profit mark-up.

I-60


10. POST BALANCE SHEET EVENTS

(a) Pursuant to the Reorganization, China Agri-Industries Limited (‘‘China Agri’’), a subsidiary of theCompany, entered into a sale and purchase agreement and a master sale and purchase agreement on8 October 2006 with its holding companies, where China Agri acquired (1) all companies nowcomprising the Group from its holding companies; and (2) the amounts due to immediate holdingcompany and fellow subsidiaries in the books of the companies now comprising the Group in anaggregate amount of HK$2,103,195,000. The consideration was settled by the issue of2,691,383,356 China Agri’s ordinary shares in aggregate to COFCO International Limited (‘‘COFCOInternational’’), the then immediate holding company of China Agri. The Reorganization was completedon 31 December 2006.

On 10 January 2007, the Company entered into a share swap agreement with COFCO Internationalwhere the Company acquired from COFCO International 2,692,383,356 ordinary shares in China Agri,representing the entire issued capital of China Agri, which was settled by the issue and allotment of2,791,383,346 ordinary shares of the Company to COFCO International credited as fully paid. Upon thecompletion of the transaction on 10 January 2007, the Company became the holding company of allcompanies now comprising the Group.

(b) As at 30 September 2006, the Group recorded loans due to a fellow subsidiary of HK$1,424,355,000, ofwhich HK$1,266,415,000 was classified as current portion. Subsequent to 30 September 2006, inNovember 2006, the current portion of these loans were either repaid or renewed to terms which arenon-current at the date of the renewal. In addition, in February 2007, all of the loans due to a fellowsubsidiary were fully repaid.

(c) Pursuant to the Reorganization, the Group will not continue the consumer-pack edible oil and trading ofnon-rice foodstuffs businesses, which will be transferred to COFCO International from 1 January 2007,at nil consideration and in form of dividend distribution of HK$357,506,000 with reference to the carryingamount of net assets of the non-rice foodstuffs business, respectively. No significant gain or loss wasresulted from the discontinuation of the consumer-pack edible oil business.

11. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Group, the Company or any of its subsidiaries have beenprepared in respect of any periods subsequent to 30 September 2006.

Yours faithfully,

Ernst & YoungCertified Public AccountantsHong Kong

I-61

APPENDIX IIA ACCOUNTANTS’ REPORT OF TECHBO GROUP



8 March 2007


Dear Sirs,

We set out below our report on the consolidated financial information relating to Techbo Limited(‘‘Techbo’’) and its subsidiaries (hereinafter collectively referred to as the ‘‘Techbo Group’’) for each ofthe three years ended 31 December 2003, 2004 and 2005, and the nine months ended 30 September2006 (the ‘‘Relevant Periods’’) and the nine months ended 30 September 2005 (the ‘‘30 September2005 Financial Information’’), prepared on the basis set out in Section 1 below, for inclusion in theprospectus of China Agri-Industries Holdings Limited (the ‘‘Company’’) dated 8 March 2007 (the‘‘Prospectus’’) in connection with the acquisition of the Techbo Group by the Company during theRelevant Periods.

Techbo was incorporated in the British Virgin Islands with limited liability on 12 October 2005. Theprincipal activity of Techbo is investment holding. During the Relevant Periods, the Techbo Group wasengaged in the production and sale of biofuel and biochemicals, and wine brewery in Mainland China.Techbo had not carried on any business, save for the acquisitions of interests in all companies nowcomprising the Techbo Group on 12 December 2005, since its incorporation.

All companies in the Techbo Group have adopted 31 December as their financial year end date.

Techbo was incorporated on 12 October 2005 by the then owner of China Resources (Heilongjiang)Alcohol Co., Ltd. (‘‘Heilongjiang Alcohol’’) for the purpose of acting as the holding company of the87.55% equity interest in Heilongjiang Alcohol to effect the sale of the 87.55% equity interest inHeilongjiang Alcohol to COFCO (BVI) Limited, a wholly-owned subsidiary of China National Cereals,Oils & Foodstuffs Corporation (‘‘COFCO’’). COFCO is the ultimate holding company of both COFCO(BVI) Limited and the Company. Upon the completion of the above sale on 27 January 2006, Techboacquired the remaining 12.45% equity interest in Heilongjiang Alcohol from COFCO (BVI) Limited at nilconsideration.

Pursuant to the group reorganisation as detailed in the section headed ‘‘Corporate Reorganization’’in Appendix VII to the Prospectus (the ‘‘Reorganization’’), COFCO (BVI) Limited disposed of the 100%equity interest in Techbo to the Company.

As at the date of this report, Techbo had direct and indirect interests in the following subsidiaries:Percentage of

Place and date of equityregistration and Registered attributable to

Name operations capital Techbo Principal activityDirect Indirect

China Resources The People’s Republic of RMB380,000,000 100 — Production and sale of(Heilongjiang) Alcohol China (The ‘‘PRC’’) biofuel and biochemicalsCo., Ltd. (‘‘Heilongjiang 18 February 1998Alcohol’’) ***************

China Resources Winery The PRC RMB5,000,000 — 65 Wine brewery(Heilongjiang) Co., Ltd. 17 May 2002(‘‘Heilongjiang Winery’’) **

IIA-1


No statutory financial statements have been prepared for Techbo since its incorporation. We have,however, reviewed its transactions since the date of its incorporation.

The statutory financial statements of the following companies comprising the Techbo Group wereaudited by the following firms:Name of company Financial period Auditors

Heilongjiang Alcohol ********** For the year ended 31 Deloitte Touche Tohmatsu CPADecember 2003 Ltd.

For the two years ended Deloitte Touche Tohmatsu CPA31 December 2005 Ltd., Beijing Branch

Heilongjiang Winery* ********* For the two years ended 31 Harbin Gongli Certified PublicDecember 2005 Accountants Co. Ltd.

* No statutory financial statements have been prepared for Heilongjiang Winery for the year ended 31 December 2003.

The statutory audited financial statements of Heilongjiang Alcohol and Heilongjiang Winery wereprepared in accordance with the relevant accounting principles and financial regulations applicable tocompanies established in the PRC. For the purpose of this report, we have, however, undertakenindependent audits of the financial statements of these companies established in the PRC for each ofthe Relevant Periods in accordance with Hong Kong Standards on Auditing (‘‘HKSAs’’) issued by theHong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’).

For the purpose of this report, the directors of Techbo have prepared the consolidated financialinformation, which includes the consolidated income statements, consolidated statements of changes inequity and consolidated cash flow statements of the Techbo Group for the Relevant Periods, andconsolidated balance sheets of the Techbo Group as at the end of each Relevant Periods (the‘‘Financial Information’’) in accordance with Hong Kong Financial Reporting Standards issued by theHKICPA.

For the purpose of this report, we have examined the audited financial statements, or whereappropriate, management accounts of all companies comprising the Techbo Group for the RelevantPeriods in accordance with HKSAs and have carried out such additional procedures as we considerednecessary in accordance with the Auditing Guideline 3.340 ‘‘Prospectuses and the ReportingAccountant’’ issued by the HKICPA. No adjustments were considered necessary to restate the auditedfinancial statements or where appropriate, management accounts, of all companies comprising theTechbo Group.

For the purpose of this report, we have performed a review of the 30 September 2005 FinancialInformation, which includes the consolidated income statement, consolidated statement of changes inequity and consolidated cash flow statement of the Techbo Group for the nine months ended30 September 2005, for which the directors of Techbo are responsible, in accordance with Statement ofAuditing Standard 700 ‘‘Engagements to Review Interim Financial Reports’’ issued by the HKICPA. Areview consists principally of making enquiries of management and applying analytical procedures tothe 30 September 2005 Financial Information and based thereon, assessing whether the accountingpolicies and presentation have been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets and liabilities and transactions. It issubstantially less in scope and provides a lower level of assurance than an audit, and accordingly, wedo not express an audit opinion on the 30 September 2005 Financial Information.

IIA-2


The Financial Information, which includes the consolidated income statements, consolidatedstatements of changes in equity and consolidated cash flow statements of the Techbo Group for theRelevant Periods, the consolidated balance sheets of the Techbo Group as at 31 December 2003, 2004and 2005 and 30 September 2006, together with the notes thereto as set out in this report, have beenprepared based on the audited financial statements, or where appropriate, management accounts, of allcompanies comprising the Techbo Group for the Relevant Periods and are presented on the basis setout in Section 1 below.

The directors of the respective companies of the Techbo Group are responsible for the preparationof the financial statements, or where appropriate, management accounts which give a true and fair view.The directors of Techbo are also responsible for the preparation of the Financial Information and the30 September 2005 Financial Information. In preparing the Financial Information and the 30 September2005 Financial Information which give a true and fair view, it is fundamental that appropriate accountingpolicies are selected and applied consistently. It is our responsibility to form an independent opinion anda review conclusion, based on our examination and review, on the Financial Information and the30 September 2005 Financial Information, and to report our opinion and review conclusion,respectively, to you.

In our opinion, on the basis of presentation set out in Section 1 below, the Financial Information, forthe purpose of this report, gives a true and fair view of the consolidated results and consolidated cashflows of the Techbo Group for the Relevant Periods and of the state of affairs of the Techbo Group as at31 December 2003, 2004 and 2005 and 30 September 2006 and of Techbo as at 31 December 2005and 30 September 2006.



The Financial Information set out below has been prepared based on the principles of mergeraccounting in accordance with Accounting Guideline 5 ‘‘Merger Accounting for Common ControlCombinations’’ issued by the HKICPA, as if the transfer of the 87.55% equity interest in HeilongjiangAlcohol from its then owner to Techbo had been completed as at the beginning of the Relevant Periodsbecause such acquisition should be regarded as a business combination under common control asTechbo and Heilongjiang Alcohol were all ultimately controlled by the then owner of Techbo andHeilongjiang Alcohol, before and after the above transfer.

The consolidated income statements, consolidated cash flow statements and consolidatedstatements of changes in equity of the Techbo Group for the Relevant Periods set out below include theresults and cash flows of all companies now comprising the Techbo Group, as if the current structurehad been in existence throughout the Relevant Periods, or since their respective dates of acquisition,incorporation or establishment, where this is the shorter period. The consolidated balance sheets of theTechbo Group as at 31 December 2003, 2004 and 2005 and as at 30 September 2006 have beenprepared to present the state of affairs of the Techbo Group as if the current structure had been inexistence and in accordance with the respective equity interests and/or the power to exercise controlover the individual companies attributable to the existing shareholders as at the respective dates.


The Financial Information, which is based on the audited financial statements, or whereappropriate, the management accounts of the companies comprising the Techbo Group, has beenprepared in accordance with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) (which alsoinclude Hong Kong Accounting Standards (‘‘HKASs’’) and Interpretations) issued by the HKICPA andaccounting principles generally accepted in Hong Kong. It has been prepared under the historical costconvention. The Financial Information is presented in Renminbi (‘‘RMB’’) and all values are rounded tothe nearest thousand (RMB’000) except when otherwise indicated.

IIA-3


The HKICPA has issued a number of new and revised HKFRSs, which are generally effective foraccounting periods beginning on or after 1 January 2005. For the purpose of preparing and presentingthe Financial Information, the Techbo Group has early adopted the new HKFRSs that are applicable tothe Techbo Group as follows:

HKAS 1 Presentation of Financial StatementsHKAS 2 InventoriesHKAS 7 Cash Flow StatementsHKAS 8 Accounting Policies, Changes in Accounting

Estimates and ErrorsHKAS 10 Events after the Balance Sheet DateHKAS 12 Income TaxesHKAS 14 Segment ReportingHKAS 16 Property, Plant and EquipmentHKAS 17 LeasesHKAS 18 RevenueHKAS 19 Employee BenefitsHKAS 20 Accounting for Government Grants and

Disclosure of Government AssistanceHKAS 21 The Effects of Changes in Foreign Exchange

RatesHKAS 23 Borrowing CostsHKAS 24 Related Party DisclosuresHKAS 27 Consolidated and Separate Financial StatementsHKAS 32 Financial Instruments: Disclosure and

PresentationHKAS 36 Impairment of AssetsHKAS 37 Provisions, Contingent Liabilities and Contingent

AssetsHKAS 38 Intangible AssetsHKAS 39 Financial Instruments: Recognition and

MeasurementHKAS 39 Amendment Transition and Initial Recognition of Financial

Assets and Financial LiabilitiesHKAS 39 and HKFRS 4 Amendments Financial Guarantee ContractsHKFRS 1 First-time Adoption of Hong Kong Financial

Reporting StandardsHKFRS 3 Business CombinationsHK(IFRIC)-Int 4 Determining whether an Arrangement contains a

Lease

IIA-4


The Techbo Group has not applied the following new and revised HKFRSs, that have been issuedbut are not yet effective, in the Financial Information:

HKAS 1 Amendment Capital DisclosuresHKFRS 7 Financial Instruments: DisclosuresHK(IFRIC)-Int 7 Applying the Restatement Approach under

HKAS 29 ‘‘Financial Reporting inHyperinflationary Economies’’

HK(IFRIC)-Int 8 Scope of HKFRS 2HK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 10 Interim Financial Reporting and ImpairmentHK(IFRIC)-Int 11 HKFRS 2 — Group and Treasury Share

Transactions

HKAS 1 Amendment shall be applied for accounting periods beginning on or after 1 January 2007.The revised standard will affect the disclosures about qualitative information about the Techbo Group’sobjective, policies and processes for managing capital; quantitative data about what Techbo regards ascapital; and compliance with any capital requirements and the consequences of any non-compliance.

HKFRS 7 shall be applied for accounting periods beginning on or after 1 January 2007. Thestandard requires disclosures that enable users of the financial statements to evaluate the significanceof the Techbo Group’s financial instruments and the nature and extent of risks arising from thosefinancial instruments and also incorporates many of the disclosure requirements of HKAS 32.


HK(IFRIC)-Int 7, HK(IFRIC)-Int 9, HK(IFRIC)-Int 10 and HK(IFRIC)-Int 11 shall be applied foraccounting periods beginning on or after 1 March 2006, 1 June 2006, 1 November 2006 and 1 March2007, respectively.

The Techbo Group is in the process of making assessment of the impact of these new and revisedHKFRSs upon initial application. So far, it has concluded that while the adoption of the HKAS 1Amendment and HKFRS 7 may result in new or amended disclosures, these new and revised HKFRSsare unlikely to have a significant impact on the Techbo Group’s results of operations and financialposition.

The significant accounting policies adopted by the Techbo Group in arriving at the FinancialInformation set out in this report, which conform with HKFRSs and accounting principles generallyaccepted in Hong Kong, are set out below:

Basis of consolidation

The Financial Information includes the financial statements of Techbo and its subsidiaries for theRelevant Periods. The results of the companies comprising the Techbo Group were presented on thebasis as described in Section 1 above.

All significant intercompany transactions and balances within the Techbo Group are eliminated onconsolidation.

IIA-5


Minority interests represent the interests of outside shareholders not held by the Techbo Group inthe results and net assets of Techbo’s subsidiaries. Acquisitions of minority interests are accounted forusing the parent entity extension method whereby the difference between the consideration and thebook value of the share of the net assets acquired is recognised as goodwill or as gain in the incomestatement.

Subsidiaries

A subsidiary is an entity whose financial and operating policies Techbo controls, directly orindirectly, so as to obtain benefits from its activities.

Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset isrequired (other than inventories, deferred tax assets and financial assets), the asset’s recoverableamount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell, and is determined for an individualasset, unless the asset does not generate cash inflows that are largely independent of those from otherassets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.


An assessment is made at each reporting date as to whether there is any indication that previouslyrecognised impairment losses may no longer exist or may have decreased. If such indication exists, therecoverable amount is estimated. A previously recognised impairment loss of an asset other thancertain financial assets is reversed only if there has been a change in the estimates used to determinethe recoverable amount of that asset, however not to an amount higher than the carrying amount thatwould have been determined (net of any depreciation/amortisation), had no impairment loss beenrecognised for the asset in prior periods. A reversal of such impairment loss is credited to the incomestatement in the period in which it arises.

Related parties

A party is considered to be related to the Techbo Group if:

(a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlled by,or is under common control with, the Techbo Group or; (ii) has an interest in the Techbo Groupthat gives it significant influence over the Techbo Group;

(b) the party is a member of the key management personnel of the Techbo Group or its holdingcompanies;

(c) the party is a close member of the family of any individual referred to in (a) or (b); or

(d) the party is an entity that is controlled, jointly-controlled or significantly influenced by or forwhich significant voting power in such entity resides with, directly or indirectly, any individualreferred to in (b) or (c).

IIA-6





Buildings ******************************************************************** 3.6% to 4%Plant, machinery and equipment *********************************************** 4.5% to 18%



Construction in progress is stated at cost less any impairment losses, and is not depreciated. Costcomprises direct costs of construction incurred during the period of construction. Construction inprogress is reclassified to the appropriate category of property, plant and equipment when completedand ready for use.

Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessorare accounted for as operating leases. Where the Techbo Group is the lessee, rentals payable under theoperating leases are charged to the income statement on the straight-line basis over the lease terms.



Financial assets in the scope of HKAS 39 are classified as investments at fair value through profit orloss, loans and receivables, or available-for-sale financial assets, as appropriate. When financial assetsare recognised initially, they are measured at fair value, plus, in the case of investments not at fair valuethrough profit or loss, directly attributable transaction costs. The Techbo Group determines theclassification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet date.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, thedate that the Techbo Group commits to purchase or sell the asset. Regular way purchases or sales arepurchases or sales of financial assets that require delivery of assets within the period generallyestablished by regulation or convention in the marketplace.

IIA-7





The Techbo Group assesses at each balance sheet date whether there is any objective evidencethat a financial asset or a group of financial assets is impaired.



The Techbo Group first assesses whether objective evidence of impairment exists individually forfinancial assets that are individually significant, and individually or collectively for financial assets thatare not individually significant. If it is determined that no objective evidence of impairment exists for anindividually assessed financial asset, whether significant or not, the asset is included in a group offinancial assets with similar credit risk characteristics and that group is collectively assessed forimpairment. Assets that are individually assessed for impairment and for which an impairment loss is orcontinues to be recognised are not included in a collective assessment of impairment.


In relation to accounts and other receivables, a provision for impairment is made when there isobjective evidence (such as the probability of insolvency or significant financial difficulties of the debtor)that the Group will not be able to collect all of the amounts due under the original terms of an invoice.The carrying amount of the receivables is reduced through the use of an allowance account. Impaireddebts are derecognised when they are assessed as uncollectible.

IIA-8





( the Techbo Group retains the rights to receive cash flows from the asset, but has assumed anobligation to pay them in full without material delay to a third party under a ‘‘pass-through’’arrangement; or

( the Techbo Group has transferred its rights to receive cash flows from the asset and either(a) has transferred substantially all the risks and rewards of the asset, or (b) has neithertransferred nor retained substantially all the risks and rewards of the asset, but has transferredcontrol of the asset.

Where the Techbo Group has transferred its rights to receive cash flows from an asset and hasneither transferred nor retained substantially all the risks and rewards of the asset nor transferredcontrol of the asset, the asset is recognised to the extent of the Techbo Group’s continuing involvementin the asset. Continuing involvement that takes the form of a guarantee over the transferred asset ismeasured at the lower of the original carrying amount of the asset and the maximum amount ofconsideration that the Techbo Group could be required to repay.

Where continuing involvement takes the form of a written and/or purchased option (including acash-settled option or similar provision) on the transferred asset, the extent of the Techbo Group’scontinuing involvement is the amount of the transferred asset that the Techbo Group may repurchase,except in the case of a written put option (including a cash-settled option or similar provision) on anasset measured at fair value, where the extent of the Techbo Group’s continuing involvement is limitedto the lower of the fair value of the transferred asset and the option exercise price.






Gains and losses are recognised in the income statement when the liabilities are derecognised aswell as through the amortisation process.

IIA-9


Inventories


Provisions



Income tax




Deferred tax liabilities are recognised for all taxable temporary differences, except:( where the deferred tax liability arises from the initial recognition of an asset or liability and, at

the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and( in respect of taxable temporary differences associated with an investment in a subsidiary,

where the timing of the reversal of the temporary differences can be controlled and it isprobable that the temporary differences will not reverse in the foreseeable future.



( in respect of deductible temporary differences associated with an investment in a subsidiary,deferred tax assets are only recognised to the extent that it is probable that the temporarydifferences will reverse in the foreseeable future and taxable profit will be available againstwhich the temporary differences can be utilised.



IIA-10



Government grants


Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Techbo Groupand when the revenue can be measured reliably, on the following bases:

(a) from the sale of goods, when the significant risks and rewards of ownership have beentransferred to the buyer, provided that the Techbo Group maintains neither managerialinvolvement to the degree usually associated with ownership, nor effective control over thegoods sold;

(b) interest income, on an accrual basis using the effective interest method by applying the ratethat discounts the estimated future cash receipts through the expected life of the financialinstrument to the net carrying amount of the financial asset; and

(c) tax refunds, when the acknowledgement of refunds from the tax bureau has been received.

Foreign currencies

The Financial Information is presented in Renminbi, which is Techbo’s functional and presentationcurrency. Each entity in the Techbo Group determines its own functional currency and items included inthe financial statements of each entity are measured using that functional currency. Foreign currencytransactions are initially recorded using the functional currency rates ruling at the date of transactions.Monetary assets and liabilities denominated in foreign currencies at the balance sheet date areretranslated at the functional currency rates of exchange ruling at the balance sheet date. All differencesare taken to the income statement. Non-monetary items that are measured in terms of historical cost ina foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates atthe date when the fair value was determined.

Employee benefits

The employees of the Techbo Group which operate in Mainland China are required to participate inthe central pension scheme which is operated by the relevant authorities of the provinces or the localmunicipal governments in Mainland China in which the Techbo Group is located. The Techbo Groupcontributes to the scheme in respect of its employees in Mainland China and such costs are charged tothe income statement as incurred.


For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cashon hand and demand deposits, and short term highly liquid investments which are readily convertibleinto known amounts of cash and which are subject to an insignificant risk of changes in value, and havea short maturity of generally within three months when acquired, less bank overdrafts which arerepayable on demand and form an integral part of the Techbo Group’s cash management.

For the purpose of the balance sheet, cash and cash equivalents comprise cash on hand and atbanks, including term deposits, and assets similar in nature to cash, which are not restricted as to use.

IIA-11




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


Impairment of receivables is made based on an assessment of the recoverability of accounts andother receivables and the timing of their recovery. The identification of impairment of receivablesrequires management’s judgement and estimation. Where the actual outcome or expectation in future isdifferent from the original estimates, such differences will impact the carrying value of accountsreceivable and other receivables and the amount of impairment/write-back of impairment in the periodsin which such estimates have been changed. Write-back of impairment of receivables of RMB796,000,impairment of receivables of RMB11,842,000, impairment of receivables of RMB331,000, write-back ofimpairment of receivables of RMB98,000 and write-back of impairment of receivables of RMB462,000were recognised in the consolidated income statements for the years ended 31 December 2003, 2004,2005 and the nine months ended 30 September 2005 and 2006, respectively. The aggregate carryingamounts of accounts and bills receivable, prepayments, deposits and other receivables wereRMB111,251,000, RMB180,015,000, RMB263,655,000 and RMB173,719,000 as at 31 December2003, 2004, 2005 and 30 September 2006, respectively.

Impairment of property, plant and equipment

The carrying value of property, plant and equipment is reviewed for impairment when events orchanges in circumstances indicate the carrying value may not be recoverable in accordance with theaccounting policies as disclosed in the relevant parts in Section 2 of the Financial Information. Therecoverable amount of the property, plant and equipment is the greater of the fair value less costs to selland value in use, the calculations of which involve estimates. Impairment amounts of property, plant andequipment of RMB1,229,000, RMB1,268,000, RMB1,658,000 and RMB1,658,000 were recognised inthe consolidated income statements for the years ended 31 December 2003, 2004, 2005 and the ninemonths ended 30 September 2005, respectively. The carrying amounts of property, plant andequipment were RMB640,382,000, RMB618,467,000, RMB588,818,000 and RMB833,904,000 as at31 December 2003, 2004, 2005 and 30 September 2006, respectively.

IIA-12


4. CONSOLIDATED INCOME STATEMENTS

The following is a summary of the consolidated results of the Techbo Group for the RelevantPeriods and the nine months ended 30 September 2005 prepared on the basis set out in Section 1above:


Notes 2003 2004 2005 2005 2006RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

(Unaudited)

REVENUE************** (a) 1,022,329 1,595,655 1,361,406 993,782 1,068,880Cost of sales************ (b) (810,582) (1,399,122) (1,183,875) (864,496) (888,171)

Gross profit ************* 211,747 196,533 177,531 129,286 180,709Government grants ****** (c) 11,839 77,804 222,984 166,138 151,174Other income and gains** (a) 3,536 5,925 16,857 10,069 36,454Selling and distribution

costs***************** (89,943) (108,038) (96,400) (70,759) (75,658)Administrative expenses** (42,616) (66,248) (70,742) (51,319) (55,501)Write-back of impairment

of/(impairment of)receivables *********** 796 (11,842) (331) 98 462

Other expenses ********* (2,041) (2,761) (2,850) (2,292) (812)Finance costs *********** (d) (17,079) (42,960) (38,224) (28,168) (26,346)

PROFIT BEFORE TAX *** (b) 76,239 48,413 208,825 153,053 210,482Tax ******************** (g) 285 (565) (32,963) (22,437) (30,413)

PROFIT FOR THEYEAR/PERIOD******** 76,524 47,848 175,862 130,616 180,069

ATTRIBUTABLE TO:Equity holders of

Techbo ************* 66,891 41,822 153,810 114,171 177,937Minority interests ****** 9,633 6,026 22,052 16,445 2,132

76,524 47,848 175,862 130,616 180,069

IIA-13


Notes:


Revenue, which is also the Techbo Group’s turnover, represents the net invoiced value ofgoods sold, after allowances for returns and trade discounts, during the Relevant Periods and forthe nine months ended 30 September 2005.

An analysis of other income and gains is as follows:Year ended Nine months ended


RMB’000 RMB’000 RMB’000 RMB’000 RMB’000(Unaudited)

Other incomeBank interest income ****************** 176 23 1,988 968 954Interest income from a fellow subsidiary — — — — 500Tax refunds * ************************* 670 3,203 13,012 8,467 21,003Others******************************* 1,100 331 188 7 92

1,946 3,557 15,188 9,442 22,549

GainsGain on acquisition of additional interest

in an existing subsidiary (Section 7(iv)) — — — — 10,123Gain on disposal of by-products and

scrap items ************************ 1,589 1,778 198 627 386Gain on foreign exchange, net********** 1 590 1,471 — 3,396

1,590 2,368 1,669 627 13,905

3,536 5,925 16,857 10,069 36,454

* Pursuant to the relevant notices issued by the Finance Bureau in the PRC for fuel ethanolproducers, Techbo Group is entitled to a refund of all value-added taxes paid for its sale of fuelethanol. There are no unfulfilled conditions or contingencies relating to these tax refunds.

IIA-14



The Techbo Group’s profit before tax is determined after charging/(crediting):Nine months ended

Year ended 31 December 30 SeptemberNotes 2003 2004 2005 2005 2006


Cost of inventoriessold ************** 810,582 1,398,053 1,184,889 863,427 888,171

Provision/(write-backof provision) againstinventories ******** — 1,069 ( 1,014) 1,069 —

Cost of sales ******** 810,582 1,399,122 1,183,875 864,496 888,171

Auditors’ remuneration 423 447 452 — —Depreciation ********* Section 5(a) 30,396 62,457 63,830 48,305 50,854Minimum lease

payments underoperating leases inrespect of land,buildings and steelbarrels ************ 37,109 20,601 12,160 11,643 5,978

Recognition of prepaidland premiums ***** Section 5(b) 260 840 963 721 719

Employee benefitsexpense (excludingdirectors’remuneration):Wages and salaries 20,982 21,652 27,363 20,158 23,047Pension scheme

contributions***** 2,406 2,936 3,702 2,731 3,197

23,388 24,588 31,065 22,889 26,244

Loss on disposal ofitems of property,plant and equipment 812 1,494 1,191 603 447

Impairment of items ofproperty, plant andequipment********* Section 5(a) 1,229 1,268 1,658 1,658 —

(c) Government grants

Pursuant to relevant notices issued by the Finance Bureau in the PRC for fuel ethanolproducers, Techbo Group is entitled to a financial subsidy based on a fixed amount per metric ton offuel ethanol produced and sold. The financial subsidy per metric ton of fuel ethanol produced andsold for the three years ended 31 December 2005 and the nine months ended 30 September 2005and 2006 were RMB1,628, RMB1,883, RMB1,628, RMB1,628 and RMB1,373, respectively. Inaddition, various government grants have been received for the Techbo Group’s investments inHeilongjiang province. There are no unfulfilled conditions or contingencies relating to thesegovernment grants.

IIA-15


(d) Finance costsYear ended Nine months ended



Interest on:Bank loans wholly repayable within five

years ****************************** 17,079 33,779 28,107 20,927 20,529Loan from a then shareholder ********** — 9,181 10,117 7,241 538Loan from a fellow subsidiary ********** — — — — 5,279

17,079 42,960 38,224 28,168 26,346

(e) Directors’ remuneration

No directors’ remuneration was paid during the Relevant Periods and the nine months ended30 September 2005. There was no arrangement under which a director waived or agreed to waiveany remuneration during the Relevant Periods.

(f) Five highest paid individuals

The details of the remuneration of the five non-director, highest paid individuals in the TechboGroup during the Relevant Periods and for the nine months ended 30 September 2005 are asfollows:


2003 2004 2005 2005 2006RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

(Unaudited)

Salaries, allowances and benefits in kind 1,250 1,284 1,522 1,109 1,577Discretionary bonuses ***************** 676 680 — — —Pension scheme contributions ********** 1 1 6 4 2

1,927 1,965 1,528 1,113 1,579


Number of individualsYear ended Nine months ended


(Unaudited)

Nil to RMB1,000,000 ******************************* 5 5 5 5 5

IIA-16


(g) Tax

No provision for Hong Kong profits tax has been made as the Techbo Group did not generateany assessable profits arising in Hong Kong during the Relevant Periods and for the nine monthsended 30 September 2005. Taxes on profits assessable in Mainland China have been calculated atthe rates of tax prevailing in locations in which the Techbo Group operates, based on existinglegislation, interpretations and practices in respect thereof.



(Unaudited)

Current— Mainland China****************** — 4,204 1,063 3,254 38,842

Overprovision in prior years ************ — — — (3)Deferred (Section 5(i))***************** (285) (3,639) 31,900 19,183 (8,426)

Tax charge/(credit) for the year/period *** (285) 565 32,963 22,437 30,413

A reconciliation of the tax expense applicable to profit before tax using the statutory rate forMainland China in which Techbo and its subsidiaries are domiciled to the tax expense at theeffective tax rate, and a reconciliation of the applicable rate (i.e., the statutory tax rate) to theeffective tax rate, are as follows:

Year ended 31 December Nine months ended 30 September2003 2004 2005 2005 2006

RMB’000 % RMB’000 % RMB’000 % RMB’000 % RMB’000 %(Unaudited)

Profit before tax ************ 76,239 48,413 208,825 153,053 210,482

Tax at the statutory tax rate** 25,159 33.0 15,976 33.0 68,912 33.0 50,507 33.0 69,459 33.0Lower tax rate for specific

provinces or localauthority* **************** (2,287) (3.0) (1,452) (3.0) (6,252) (3.0) (4,592) (3.0) (5,910) (2.8)

Profits not subject to tax, dueto concessions** ********* (23,375) (30.7) (15,119) (31.2) (31,325) (15.0) (23,027) (15.0) (29,551) (14.0)

Expenses not deductible fortax********************** 363 0.5 3,041 6.3 2,305 1.1 1,307 0.8 1,405 0.6

Income not subject to tax**** — — — — (148) (0.1) — — (4,461) (2.1)Adjustment in respect of

current tax of previousperiods ****************** — — — — — — — — (3) —

Others ******************** (145) (0.2) (1,881) (3.9) (529) (0.2) (1,758) (1.1) (526) (0.2)

Tax charge/(credit) at theTechbo Group’s effectiverate ********************* (285) (0.4) 565 1.2 32,963 15.8 22,437 14.7 30,413 14.5

* Under the PRC income tax laws, enterprises are subject to corporate income tax (‘‘CIT’’) at rate of 33%. However, theTechbo Group is operating in specific development zones in Mainland China, and the relevant authorities have grantedthe Techbo Group a preferential CIT rate of 30%.

** In addition to a preferential CIT rate granted to the Techbo Group, tax holiday was also granted by the relevantauthorities to the Techbo Group, where CIT is exempted for the first two profitable years of the subsidiaries and ischargeable at half of the applicable rate for the next subsequent three years.

IIA-17


(h) Dividend

No dividend has been paid or declared by Techbo during the Relevant Periods.

(i) Earnings per share

No earnings per share amount is presented as it is not considered to be meaningful.

IIA-18


5. BALANCE SHEETS

The following is a summary of the consolidated balance sheets of the Techbo Group at the end ofeach of the Relevant Periods and is prepared on the basis set out in Section 1 above; and the balancesheets of Techbo as at 31 December 2005 and 30 September 2006:

Techbo GroupAt

At 31 December 30 SeptemberNotes 2003 2004 2005 2006

RMB’000 RMB’000 RMB’000 RMB’000

NON-CURRENT ASSETSProperty, plant and equipment******* (a) 640,382 618,467 588,818 833,904Prepaid land premiums ************* (b) 27,422 32,880 31,917 31,198Deferred tax assets **************** (i) 285 3,924 — —

Total non-current assets ************ 668,089 655,271 620,735 865,102

CURRENT ASSETSInventories ************************ (d) 105,781 101,259 181,286 126,329Accounts and bills receivable ******** (e) 89,308 142,917 99,744 73,369Prepayments, deposits and other

receivables ********************** 21,943 37,098 163,911 100,350Due from then fellow subsidiaries **** (l) 18,616 1,175 1,192 —Due from a fellow subsidiary ******** (l) — — — 231,066Tax recoverable ******************** — 2,447 20,554 —Pledged deposits ****************** (f) — 2,980 1,162 5,365Cash and cash equivalents********** (f) 21,987 63,095 193,524 22,699

Total current assets **************** 257,635 350,971 661,373 559,178

CURRENT LIABILITIESAccounts payable ****************** (g) 21,368 31,366 39,037 32,956Other payables and accruals ******** 38,866 52,697 57,417 71,765Deferred income ******************* — 50 83 83Due to then fellow subsidiaries ****** (l) 89 450 610 —Tax payable *********************** — — — 8,782Interest-bearing bank and other

borrowings ********************** (h) 686,491 496,153 636,470 435,351

Total current liabilities*************** 746,814 580,716 733,617 548,937

NET CURRENTASSETS/(LIABILITIES) *********** (489,179) (229,745) (72,244) 10,241

TOTAL ASSETS LESS CURRENTLIABILITIES ********************* 178,910 425,526 548,491 875,343

IIA-19



Notes 2003 2004 2005 2006RMB’000 RMB’000 RMB’000 RMB’000

NON-CURRENT LIABILITIESInterest-bearing bank and other

borrowings ********************** (h) — 198,668 — 148,614Due to a then shareholder ********** (l) 22,825 22,825 130,916 —Due to a fellow subsidiary*********** (l) — — — 127,537Deferred income ******************* 1,500 1,600 11,304 31,401Deferred tax liabilities*************** (i) — — 27,976 19,550

Total non-current liabilities*********** 24,325 223,093 170,196 327,102

Net assets ************************ 154,585 202,433 378,295 548,241

EQUITYEquity attributable to equity

holders of TechboIssued capital********************** Section 6 — — — —Reserves ************************* Section 6 117,010 158,832 312,642 545,579

117,010 158,832 312,642 545,579Minority interests ***************** Section 6 37,575 43,601 65,653 2,662

Total equity************************ 154,585 202,433 378,295 548,241

IIA-20


TechboAt At

31 December 30 SeptemberNotes 2005 2006

RMB’000 RMB’000

NON-CURRENT ASSETInvestment in a subsidiary ****************************** (c) 131,325 186,325

CURRENT ASSETCash at bank ***************************************** (f) 15 —

TOTAL ASSETS *************************************** 131,340 186,325

NON-CURRENT LIABILITIESAmount due to a then shareholder*********************** (l) 130,916 —Amount due to a fellow subsidiary *********************** (l) — 127,537

TOTAL NON-CURRENT LIABILITIES ******************** 130,916 127,537

Net assets ******************************************** 424 58,788

EQUITYIssued capital ***************************************** Section 6 — —Retained profits *************************************** Section 6 424 58,788

424 58,788

IIA-21


Notes:


Techbo GroupPlant,

machineryand Construction

Buildings equipment in progress TotalRMB’000 RMB’000 RMB’000 RMB’000


Cost *********************************** 8,475 35,649 2,425 46,549Accumulated depreciation and impairment** (65) (1,639) — (1,704)

Net carrying amount ********************* 8,410 34,010 2,425 44,845

At 1 January 2003, net of accumulateddepreciation and impairment ************** 8,410 34,010 2,425 44,845

Additions ********************************* 125,611 479,085 23,488 628,184Disposals ********************************* — (1,022) — (1,022)Impairment (Section 4(b)) ****************** — (1,229) — (1,229)Depreciation provided during the year

(Section 4(b)) *************************** (2,177) (28,219) — (30,396)Transfers ********************************* 2,207 20,788 (22,995) —

At 31 December 2003, net of accumulateddepreciation and impairment ************** 134,051 503,413 2,918 640,382

At 31 December 2003:Cost *********************************** 136,293 534,168 2,918 673,379Accumulated depreciation and impairment** (2,242) (30,755) — (32,997)



depreciation and impairment ************** 134,051 503,413 2,918 640,382Additions ********************************* 12,070 7,517 25,504 45,091Disposals ********************************* — (3,281) — (3,281)Impairment (Section 4(b)) ****************** (99) (1,169) — (1,268)Depreciation provided during the year





IIA-22


Plant,machinery

and ConstructionBuildings equipment in progress TotalRMB’000 RMB’000 RMB’000 RMB’000


depreciation and impairment ************** 142,198 474,299 1,970 618,467Additions ********************************* 88 12,993 23,973 37,054Disposals ********************************* (98) (1,117) — (1,215)Impairment (Section 4(b)) ****************** — (1,658) — (1,658)Depreciation provided during the year

(Section 4(b)) *************************** (6,505) (57,325) — (63,830)Transfers ********************************* 107 12,132 (12,239) —





depreciation and impairment ************** 135,790 439,324 13,704 588,818Additions ********************************* 110 75,713 220,995 296,818Disposals ********************************* (8) (870) — (878)Depreciation provided during the period


At 30 September 2006, net of accumulateddepreciation and impairment ************** 132,007 481,132 220,765 833,904

At 30 September 2006:Cost *********************************** 152,819 667,889 220,765 1,041,473Accumulated depreciation and impairment** (20,812) (186,757) — (207,569)


All of the Techbo Group’s buildings are held under medium term leases in Mainland China.

Certain of the Techbo Group’s property, plant and equipment with a net book value ofapproximately RMB606,049,000, RMB588,551,000, RMB464,298,000 and RMB382,301,000 werepledged to secure bank loans granted to the Techbo Group as at 31 December 2003, 2004, 2005and 30 September 2006, respectively (note (h)).

IIA-23



Techbo Group31 December 30 September

2003 2004 2005 2006RMB’000 RMB’000 RMB’000 RMB’000

Carrying amount at beginning of year/period ***** 61 28,109 33,843 32,880Additions************************************* 28,308 6,574 — —Recognised during the year/period************** ( 260) ( 840) ( 963) ( 719)

Carrying amount at end of year/period ********** 28,109 33,843 32,880 32,161Current portion included in prepayments, deposits

and other receivables************************ ( 687) ( 963) ( 963) ( 963)

Non-current portion *************************** 27,422 32,880 31,917 31,198

The leasehold land is held under a medium term lease in Mainland China.

(c) Investment in a subsidiary

TechboAt At

31 December 30 September2005 2006

RMB’000 RMB’000

Unlisted investment, at cost ************************************ 131,325 186,325

(d) Inventories

Techbo GroupAt 31 December At 30 September

2003 2004 2005 2006RMB’000 RMB’000 RMB’000 RMB’000

Raw materials **************************** 73,019 62,443 141,714 57,168Work in progress************************** 6,034 5,996 6,918 6,901Finished goods *************************** 26,728 32,820 32,654 62,260

105,781 101,259 181,286 126,329

(e) Accounts and bills receivable

The Techbo Group’s trading terms with its customers are mainly on credit for creditworthycustomers, whereas for other customers, settlement by bank bills or payment in advance isnormally required. The credit period is generally for 30 to 90 days. Each customer has a maximumcredit limit. The Techbo Group seeks to maintain strict control over its outstanding receivables tominimise credit risk. Overdue balances are reviewed regularly by senior management. Accountsreceivable are non-interest-bearing.

IIA-24


An aged analysis of the accounts and bills receivable at each of the balance sheet dates is asfollows:

Techbo GroupAt

At 31 December 30 September2003 2004 2005 2006

RMB’000 RMB’000 RMB’000 RMB’000

Outstanding balances with ages:Within 3 months *************************** 88,679 143,259 100,145 72,9393 to 12 months **************************** 1,522 64 10 3441 to 2 years ******************************* — 645 219 3Over 2 years ****************************** — — 132 383

90,201 143,968 100,506 73,669Less: Impairment **************************** (893) (1,051) (762) (300)

89,308 142,917 99,744 73,369

The carrying amounts of accounts and bills receivable approximate to their fair values.

(f) Cash and cash equivalents and pledged deposits

Techbo GroupAt


RMB’000 RMB’000 RMB’000 RMB’000

Cash and bank balances ********************** 21,987 63,095 193,524 22,699Time deposits******************************** — 2,980 1,162 5,365

21,987 66,075 194,686 28,064Less: Time deposits pledged for general banking

facilities *********************************** — (2,980) (1,162) (5,365)

Cash and cash equivalents ******************** 21,987 63,095 193,524 22,699

TechboAt At

31 December 30 September2005 2006

RMB’000 RMB’000

Cash at bank ************************************************* 15 —

Substantially all of the cash and cash equivalents are denominated in RMB and are depositedwith several state-owned banks in Mainland China in the ordinary course of business. The RMB isnot freely convertible into other currencies, however, under Mainland China’s Foreign ExchangeControl Regulations and Administration of Settlement, Sale and Payment of Foreign ExchangeRegulations, the Techbo Group is permitted to exchange RMB for other currencies through banksauthorised to conduct foreign exchange business.

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short termtime deposits are made for varying periods of between one day and three months depending on theimmediate cash requirements of the Techbo Group, and earn interest at the respective short termtime deposit rates. The carrying amounts of the cash and cash equivalents and the pledgeddeposits approximate to their fair values.

IIA-25


(g) Accounts payable


Techbo GroupAt


RMB’000 RMB’000 RMB’000 RMB’000

Outstanding balances with ages:Within 3 months **************************** 20,988 27,159 34,621 29,2773 to 12 months ***************************** 225 1,062 1,348 1,1691 to 2 years ******************************** 155 3,044 1,165 573Over 2 years ******************************* — 101 1,903 1,937

21,368 31,366 39,037 32,956


(h) Interest-bearing bank and other borrowings

Techbo GroupAt

At 31 December 30 SeptemberEffectiveinterest rate (%) Maturity 2003 2004 2005 2006

RMB’000 RMB’000 RMB’000 RMB’000CurrentBank loans – secured ***************** 5.19 - 5.86 2006 498,165 496,153 488,051 435,351Other loans – unsecured ************** 188,326 — 148,419 —

686,491 496,153 636,470 435,351

Non-currentOther loans – unsecured ************** 5.18 2009 — 198,668 — 148,614

686,491 694,821 636,470 583,965

Analysed into:Bank loans repayable within one year 498,165 496,153 488,051 435,351

Other loans repayable:Within one year or on demand***** 188,326 — 148,419 —In the second year *************** — 198,668 — —In the third to fifth years, inclusive** — — — 148,614

188,326 198,668 148,419 148,614

686,491 694,821 636,470 583,965

The Techbo Group’s bank loans bear interest at fixed rates ranging from 2.974% to 5.841%,2.344% to 5.841%, 5.188% to 5.859%, and 5.188% to 5.859% per annum as at 31 December2003, 2004, 2005 and 30 September 2006, respectively.

The Techbo Group’s bank loans are secured by a charge over certain property, plant andequipment of the Techbo Group with a net book value of approximately RMB606,049,000,RMB588,551,000, RMB464,298,000 and RMB382,301,000 as at 31 December 2003, 2004, 2005and 30 September 2006 (note (a)).

IIA-26


The other loans represent loans from a then shareholder of RMB188,326,000,RMB198,668,000 and RMB148,419,000 as at 31 December 2003, 2004 and 2005 respectively,and loans from a fellow subsidiary of RMB148,614,000 as at 30 September 2006. These balancesbear interest at fixed rates of 5.58%, 4.78%, 4.78% and 5.18% per annum as at 31 December2003, 2004, 2005 and 30 September 2006, respectively.

Subsequent to 30 September 2006, loans from a fellow subsidiary have been fully repaid.

The carrying amounts of the Techbo Group’s bank and other borrowings approximate to theirfair values.

(i) Deferred tax

The movements in deferred tax assets and liabilities during the Relevant Periods are asfollows:

Deferred tax assets/(liabilities)

Techbo GroupAccelerated Impairment

tax of Deferreddepreciation receivables income Others Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Deferred tax credited/(charged) to theincome statement during the year(Section 4(g))******************** — 143 (16) 158 285

At 31 December 2003 and at1 January 2004****************** — 143 (16) 158 285

Deferred tax credited/(charged) to theincome statement during the year(Section 4(g))******************** — 1,758 (350) 2,231 3,639

At 31 December 2004 and at1 January 2005****************** — 1,901 (366) 2,389 3,924

Deferred tax charged to the incomestatement during the year(Section 4(g))******************** (10,228) (1,115) (19,057) (1,500) (31,900)

At 31 December 2005 and at1 January 2006****************** (10,228) 786 (19,423) 889 (27,976)

Deferred tax credited/(charged) to theincome statement during the period(Section 4(g))******************** (3,500) (69) 12,500 (505) 8,426

At 30 September 2006 ************* (13,728) 717 (6,923) 384 (19,550)

At each of the balance sheet dates during the Relevant Periods, there was no significantunrecognised deferred tax liability for taxes that would be payable on the unremitted earnings of theTechbo Group’s subsidiaries as the Techbo Group has no liability to additional tax should suchamounts be remitted.

There are no income tax consequences attaching to the payment of dividends by Techbo to itsshareholders.

IIA-27


(j) Operating lease arrangements

As lessee

The Techbo Group leases certain land and steel barrels under operating lease arrangements.Leases for land are negotiated for terms ranging from two to three years and those for steel barrelsfor terms ranging from one to eleven years.

At the balance sheet dates, the Techbo Group had total future minimum lease payments undernon-cancellable operating leases falling due as follows:

Techbo Group


2003 2004 2005 2006

RMB’000 RMB’000 RMB’000 RMB’000

Within one year******************************* 2,260 10,759 5,998 6,283

In the second to fifth years, inclusive ************ 803 960 4,874 8,453

After five years ******************************* — 770 630 1,350

3,063 12,489 11,502 16,086

(k) Capital commitments

In addition to the operating lease arrangements detailed in note (j) above, the Techbo Grouphad the following capital commitments at each of the balance sheet dates:

Techbo Group


2003 2004 2005 2006

RMB’000 RMB’000 RMB’000 RMB’000

In respect of property, plant and equipment:

Authorised, but not contracted for ************ — — 612,197 257,826

Contracted, but not provided for ************** 6,928 1,700 148,599 242,884

6,928 1,700 760,796 500,710

Other than disclosed above, neither the Techbo Group nor Techbo had any significantcommitments or contingent liabilities as at each of the balance sheet dates.

IIA-28


(l) Related party disclosures

(i) Related party transactions

Apart from the transactions and balances disclosed in Section 1 and note (h) above, theTechbo Group had the following transactions with related parties during the Relevant Periodsand for the nine months ended 30 September 2005:

Techbo Group


Notes 2003 2004 2005 2005 2006


Transactions with a thenshareholder:

Interest expense ****** (a) — 9,181 10,117 7,241 538

Transactions with fellowsubsidiaries:

Interest expense ****** (a) — — — — 5,279

Interest income ******* (b) — — — — 500

Rental expense paid ** (c) — — — — 693

Transactions with thenfellow subsidiaries:

Rental expense paid ** (c) 30,794 — — — —

Sales of goods ******* (c) 1,989 114 180 — 78

Purchases of goods *** (c) 10,904 403 — — —

Purchases of items ofproperty, plant andequipment********** (d) 599,322 12,042 — — —

Acquisition of prepaidland premiums****** (d) 28,308 6,574 — — —

Notes:

(a) The interest expenses arose from loans due to a then shareholder and a fellowsubsidiary, which are unsecured, and bear interest at rates ranging from 4.78% to5.58% per annum. Further details of the loans from a then shareholder and a fellowsubsidiary are set out in note (h) above.

(b) The interest income arose from the deposits placed with a fellow subsidiary of theTechbo Group, which is a non-banking finance company regulated by the People’sBank of China (the ‘‘PBOC’’) and the China Banking Regulatory Commission in thePRC, and its deposit rates are set by the PBOC which are applicable to all financialinstitutions. The interest rates offered by the fellow subsidiary are the same as therates promulgated by the PBOC which were applicable to account deposits with banksof the PRC or finance companies at a rate of 0.7% per annum as at 30 September2006. The deposits placed with the fellow subsidiary by the Techbo Group amountedto RMB230,961,000 as at 30 September 2006. Subsequent to 30 September 2006,the deposits placed with the fellow subsidiary was fully withdrawn by the TechboGroup.

IIA-29


(c) These transactions were carried out with reference to the prevailing market prices or,where no market prices were available, at cost plus a percentage of profit mark-up.

(d) These transactions were carried out with reference to valuations performed byindependent professionally qualified valuers in Mainland China.

In the opinion of the directors, the above related party transactions were conducted in theordinary and usual course of the Techbo Group’s business.

(ii) Outstanding balances with related parties

Except for (1) the loans from a then shareholder of RMB188,326,000, RMB198,668,000and RMB148,419,000 as at 31 December 2003, 2004 and 2005, respectively, the terms ofwhich are set out in note (h); (2) the loans from a fellow subsidiary of RMB148,614,000 as at30 September 2006, the terms of which are set out in note (h); and (3) the deposits placed witha fellow subsidiary of RMB230,961,000 as at 30 September 2006, the terms of which are setout in note (l)(i)(b) above; (4) the amount due to a then shareholder of RMB22,825,000,RMB22,825,000 and RMB130,916,000 as at 31 December 2003, 2004 and 2005, respectively,which were not repayable within one year from each of the respective balance sheet dates; and(5) the amount due to a fellow subsidiary of RMB127,537,000 as at 30 September 2006 whichare not repayable within one year from the balance sheet date, the balances with then fellowsubsidiaries and a fellow subsidiary are unsecured, interest-free and have no fixed terms ofrepayment as at each balance sheet dates during the Relevant Periods.

(iii) Compensation of key management personnel of the Techbo Group

Techbo Group


2003 2004 2005 2005 2006


Salaries, allowances and benefits inkind *************************** 1,066 930 880 660 1,577

Pension scheme contributions ****** 1 1 2 1 2

Total compensation paid to keymanagement personnel********** 1,067 931 882 661 1,579

Further details of directors’ emoluments are included in Section 4(e) of the FinancialInformation.

IIA-30


(iv) Transactions with other state-owned enterprises

The Techbo Group operates in an economic environment predominated by enterprisesdirectly or indirectly owned or controlled by the PRC government through its numerousauthorities, affiliates or other organisations (collectively ‘‘State-owned Enterprises’’). Duringthe Relevant Periods and the nine months ended 30 September 2005, the Techbo Group hadtransactions with State-owned Enterprises including, but not limited to, sales of ethanol andpurchases of raw materials. The directors consider that transactions with other State-ownedEnterprises are activities in the ordinary course of the Techbo Group’s business at terms thatare consistently applied to all customers, and that the dealings of the Techbo Group have notbeen significantly or unduly affected by the fact that the Techbo Group and the other State-owned Enterprises are ultimately controlled or owned by the PRC government. The TechboGroup has also established pricing policies for products and services, and such policies do notdepend on whether or not the customers are State-owned Enterprises. Having due regard tothe substance of the relationships, the directors are of the opinion that none of thesetransactions are material related party transactions that require separate disclosure.

(m) Financial risk management objectives and policies

The Techbo Group’s principal financial instruments comprise bank and other interest-bearingloans, and cash and short term deposits. The main purpose of these financial instruments is toraise finance for the Techbo Group’s operations. The Techbo Group has various other financialassets and liabilities such as accounts and other receivables and accounts and other payables,which arise directly from its operations.

It is, and has been, throughout the Relevant Periods under review, the Techbo Group’s policythat no trading in financial instruments shall be undertaken.

The main risks arising from the Techbo Group’s financial instruments are cash flow interestrate risk, foreign currency risk, credit risk and liquidity risk. The board reviews and agrees policiesfor managing these risks and are summarised below:


The Techbo Group’s income and operating cash flows are substantially independent ofchanges in market interest rates. The effective interest rates and terms of repayment of bank loansand other loans of the Techbo Group are disclosed in note (h). The Techbo Group has not used anyderivative to hedge its exposure to cash flow interest rate risk as all of the Techbo Group’s interest-bearing borrowings are negotiated at fixed rates.


The Techbo Group mainly operates in Mainland China with most of the Techbo Group’smonetary assets, liabilities and transactions principally denominated in RMB. Foreign currency riskarises from future commercial transactions from operations, borrowings and net investments ofoperations, which are denominated in currencies other than the functional currency of the TechboGroup, is considered minimal.

Credit risk

The Techbo Group trades only with recognised and creditworthy third parties. It is the TechboGroup’s policy that all customers who wish to trade on credit terms are subject to credit verificationprocedures. In addition, receivable balances are monitored on an ongoing basis.

Liquidity risk

The Techbo Group’s policy is to maintain sufficient cash and cash equivalents and haveavailable funding through bank and other borrowings to meet its working capital requirements.

IIA-31


6. STATEMENTS OF CHANGES IN EQUITY

The movements in the consolidated statements of changes in equity of the Techbo Group for theRelevant Periods and the nine months ended 30 September 2005, prepared on the basis set out inSection 1 above and the statements of changes in equity of Techbo for the period from 12 October 2005(date of incorporation) to 30 September 2006 are as follows:

Techbo Group

Attributable to equity holders of Techbo

Issued Capital Reserve Retained Minority Totalcapital reserve funds* profits Total interests equity

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2003********* — — — 50,119 50,119 27,942 78,061Profit for the year********** — — — 66,891 66,891 9,633 76,524Transfer from retained

profits ****************** — — 10,966 (10,966) — — —

At 31 December 2003 andat 1 January 2004 ******* — — 10,966 106,044 117,010 37,575 154,585

Profit for the year********** — — — 41,822 41,822 6,026 47,848Transfer from retained

profits ****************** — — 4,264 (4,264) — — —


Issue of share** *********** — — — — — — —Profit for the year********** — — — 153,810 153,810 22,052 175,862Transfer from retained

profits ****************** — — 7,037 (7,037) — — —


Profit for the period ******** — — — 177,937 177,937 2,132 180,069Transfer from retained

profits ****************** — — 18,220 (18,220) — — —Contribution from the

ultimate holding company(Section 7(iv)) *********** — 55,000 — — 55,000 — 55,000

Acquisition of additionalinterest in an existingsubsidiary (Section 7(iv)) — — — — — (65,123) (65,123)

At 30 September 2006 ***** — 55,000 40,487 450,092 545,579 2,662 548,241

(Unaudited)At 1 January 2005********* — — 15,230 143,602 158,832 43,601 202,433Profit for the period ******** — — — 114,171 114,171 16,445 130,616Transfer from retained

profits ****************** — — 7,037 (7,037) — — —

At 30 September 2005 ***** — — 22,267 250,736 273,003 60,046 333,049

* Pursuant to the relevant laws and regulations in the PRC for Sino-foreign joint venture enterprises, a portion of the profits ofthe Techbo Group has been transferred to reserve funds which are restricted as to use.

IIA-32


Techbo

Issued Capital Retainedcapital reserve profits Total

RMB’000 RMB’000 RMB’000 RMB’000

Issue of share** *************************************** — — — —

Profit for the period ************************************ — — 424 424

At 31 December 2005 and at 1 January 2006************* — — 424 424

Profit for the period ************************************ — — 3,364 3,364

Contribution from ultimate holding company (Section 7(iv)) — 55,000 — 55,000

At 30 September 2006 ********************************* — 55,000 3,788 58,788

** Upon incorporation on 12 October 2005, one ordinary share of US$1 was issued by Techbo to its shareholder.

IIA-33


7. CONSOLIDATED CASH FLOW STATEMENTS

The consolidated cash flow statements of the Techbo Group for the Relevant Periods and the ninemonths ended 30 September 2005 prepared on the basis set out in Section 1 above, are as follows:


Notes 2003 2004 2005 2005 2006


CASH FLOWS FROM OPERATINGACTIVITIES

Profit before tax ****************** 76,239 48,413 208,825 153,053 210,482Adjustments for:

Finance costs ****************** Section 4(d) 17,079 42,960 38,224 28,168 26,346Provision/(write-back of provision)

against inventories ************ Section 4(b) — 1,069 (1,014) 1,069 —Impairment of/(write-back of

impairment of) receivables ***** (796) 11,842 331 (98) (462)Depreciation ******************* Section 4(b) 30,396 62,457 63,830 48,305 50,854Impairment of items of property,

plant and equipment ********** Section 4(b) 1,229 1,268 1,658 1,658 —Loss on disposal of items of

property plant and equipment ** Section 4(b) 812 1,494 1,191 603 447Recognition of prepaid land

premiums ******************** Section 4(b) 260 840 963 721 719Interest income ***************** Section 4(a) (176) (23) (1,988) (968) (1,454)Government grants ************* (11,839) (77,804) (222,984) (166,138) (151,174)Gain on acquisition of additional

interest in an existing subsidiary (iv) — — — — (10,123)113,204 92,516 89,036 66,373 125,635

Decrease/(increase) in inventories ** (23,849) 3,453 (79,013) 2,554 54,957Decrease/(increase) in accounts and

bills receivable****************** (22,293) (53,767) 43,437 37,085 26,837Decrease/(increase) in prepayments,

deposits and other receivables *** 18,301 (26,563) (127,408) (94,160) (23,319)Increase in due from then fellow

subsidiaries ******************** (i), (ii) (18,550) (1,175) (17) (17) —Increase in due from a fellow

subsidiary********************** — — — — (231,066)Increase in due from a shareholder — — — — (219)Decrease/(increase) in pledged

deposits *********************** — (2,980) 1,818 (3,813) (4,203)Increase/(decrease) in accounts

payable************************ 5,176 9,998 7,671 (4,003) (6,081)Increase/(decrease) in other

payables and accruals*********** (12,183) 13,831 4,720 26,508 7,169Increase/(decrease) in due to then

fellow subsidiaries ************** (1,509) 361 160 (450) —Government grants received ******* 11,839 77,754 222,901 108,853 239,402Cash generated from operations**** 70,136 113,428 163,305 138,930 189,112Interest received****************** 176 23 1,988 968 1,454Interest paid********************** (17,079) (42,960) (38,224) (28,168) (26,346)Mainland China tax paid*********** (1,815) (6,651) (19,170) (15,349) (9,503)Net cash inflow from operating

activities *********************** 51,418 63,840 107,899 96,381 154,717

IIA-34



Notes 2003 2004 2005 2005 2006


CASH FLOWS FROM INVESTINGACTIVITIES

Proceeds from disposal of items ofproperty, plant and equipment**** 210 1,787 24 — 431

Purchases of items of property,plant and equipment ************ (28,862) (33,049) (37,054) (15,235) (290,787)

Government grants received ******* 900 200 9,820 8,800 20,160Net cash outflow from investing

activities *********************** (27,752) (31,062) (27,210) (6,435) (270,196)

CASH FLOWS FROM FINANCINGACTIVITIES

New other loans ****************** — 10,342 — 7,242 733Repayments of bank loans********* (22,850) (2,012) (8,102) (7,070) (52,700)Repayment of other loans ********* (11,674) — (50,249) — —Advances from a then shareholder** — — 108,091 — —Repayment from a fellow subsidiary — — — — (3,379)Net cash inflow/(outflow)from

financing activities ************** (34,524) 8,330 49,740 172 (55,346)

NET INCREASE/(DECREASE) INCASH AND CASHEQUIVALENTS ***************** (10,858) 41,108 130,429 90,118 (170,825)

Cash and cash equivalents atbeginning of year/period ********* 32,845 21,987 63,095 63,095 193,524

CASH AND CASH EQUIVALENTSAT END OF YEAR/PERIOD****** 21,987 63,095 193,524 153,213 22,699


Cash and bank balances ********** Section 5(f) 21,987 63,095 193,524 153,213 22,699

Note:

Major non-cash transactions

(i) During the year ended 31 December 2003, the Techbo Group acquired property, plant andequipment and land use rights with carrying values of approximately RMB599,322,000 andRMB28,308,000, respectively, from a then fellow subsidiary, of which RMB106,615,000 wassettled against the amount due from the then fellow subsidiary and the remainingRMB521,015,000 was settled by assumption of bank loans of the then fellow subsidiary.

(ii) During the year ended 31 December 2004, the Techbo Group acquired property, plant andequipment and land use rights with carrying values of approximately RMB12,042,000 andRMB6,574,000, respectively, from a then fellow subsidiary, of which the total considerationwas settled against the amount due from the then fellow subsidiary.

(iii) During the nine months ended 30 September 2006, the amount due to a then shareholder ofRMB130,916,000 by the Techbo Group was assigned to a fellow subsidiary of the TechboGroup.

IIA-35


(iv) During the nine months ended 30 September 2006, the Techbo Group acquired from itsultimate holding company the minority interests of a subsidiary with carrying values ofapproximately RMB65,123,000 at nil consideration, resulting in the recognition of a capitalreserve of RMB55,000,000, representing the fair value of the minority interests at the date ofacquisition, and the recognition of a gain on acquisition of additional interest in an existingsubsidiary of RMB10,123,000 (Section 4(a)).


No segment information is presented since over 90% of the Techbo Group’s revenue, results andassets are derived from production and sale of biofuel and biochemicals and over 90% of the TechboGroup’s revenue is derived from customers based in Mainland China.


No audited financial statements of the Techbo Group, Techbo or its subsidiaries have beenprepared in respect of any periods subsequent to 30 September 2006.

Yours faithfully,


IIA-36

APPENDIX IIB ACCOUNTANTS’ REPORT OF HEILONGJIANG ALCOHOL

A1A 9(3)

A1A 9(3)



8 March 2007


Dear Sirs,

A1A 9(3)

We set out below our report on the consolidated financial information relating to China Resources(Heilongjiang) Alcohol Co., Ltd. (‘‘Heilongjiang Alcohol’’) and its subsidiary (hereinafter collectivelyreferred to as the ‘‘Alcohol Group’’) for each of the three years ended 31 December 2003, 2004 and2005, and the nine months ended 30 September 2006 (the ‘‘Relevant Periods’’) and the nine monthsended 30 September 2005 (the ‘‘30 September 2005 Financial Information’’), prepared on the basis setout in Section 1 below, for inclusion in the prospectus of China Agri-Industries Holdings Limited (the‘‘Company’’) dated 8 March 2007 (the ‘‘Prospectus’’) in connection with the acquisition of the AlcoholGroup and its immediate holding company, Techbo Limited, by the Company during the RelevantPeriods.

Heilongjiang Alcohol was established in the People’s Republic of China (the ‘‘PRC’’) with limitedliability on 18 February 1998. The Alcohol Group is principally engaged in the production and sale ofbiofuel and biochemicals, and wine brewery in Mainland China.

All companies in the Alcohol Group have adopted 31 December as their financial year end date.

As at the date of this report, Heilongjiang Alcohol had a direct interest in the following subsidiary:

Percentage ofequity directly

Place and date of attributable toregistration and Registered Heilongjiang Principal

Name operations capital Alcohol activity

China Resources Winery (Heilongjiang) Co., Ltd. The PRC RMB5,000,000 65 Wine brewery(‘‘Heilongjiang Winery’’)************************ 17 May 2002

The statutory financial statements of the following companies comprising the Alcohol Group wereaudited by the following firms:

Name of company Financial period Auditors

Heilongjiang Alcohol*********** For the year ended 31 December 2003 Deloitte Touche Tohmatsu CPA Ltd.

For the two years ended 31 December 2005 Deloitte Touche Tohmatsu CPA Ltd.,Beijing Branch

Heilongjiang Winery* ********** For the two years ended 31 December 2005 Harbin Gongli Certified PublicAccountants Co. Ltd.

* No statutory financial statements have been prepared for Heilongjiang Winery for the year ended 31 December 2003.

IIB-1


The statutory audited financial statements of Heilongjiang Alcohol and Heilongjiang Winery wereprepared in accordance with the relevant accounting principles and financial regulations applicable tocompanies established in the PRC. For the purpose of this report, we have, however, undertakenindependent audits of the financial statements of these companies established in the PRC for each ofthe Relevant Periods in accordance with Hong Kong Standards on Auditing (‘‘HKSAs’’) issued by theHong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’).

For the purpose of this report, the directors of Heilongjiang Alcohol have prepared the consolidatedfinancial statements of Alcohol Group for the Relevant Periods (the ‘‘Financial Information’’) inaccordance with the Hong Kong Financial Reporting Standards issued by the HKICPA. We have auditedthe consolidated financial statements in accordance with HKSAs issued by the HKICPA. Noadjustments were considered necessary to restate the audited consolidated financial statements of theAlcohol Group.

For the purpose of this report, we have examined the audited financial statements of the AlcoholGroup for the Relevant Periods in accordance with HKSAs and have carried out such additionalprocedures as we considered necessary in accordance with the Auditing Guideline 3.340‘‘Prospectuses and the Reporting Accountant’’ issued by the HKICPA.

For the purpose of this report, we have performed a review of the 30 September 2005 FinancialInformation, which includes the consolidated income statement, consolidated statement of changes inequity and consolidated cash flow statement of the Alcohol Group for the nine months ended30 September 2005, for which the directors of Heilongjiang Alcohol are responsible, in accordance withStatement of Auditing Standard 700 ‘‘Engagements to Review Interim Financial Reports’’ issued by theHKICPA. A review consists principally of making enquiries of management and applying analyticalprocedures to the 30 September 2005 Financial Information and based thereon, assessing whether theaccounting policies and presentation have been consistently applied unless otherwise disclosed. Areview excludes audit procedures such as tests of controls and verification of assets and liabilities andtransactions. It is substantially less in scope and provides a lower level of assurance than an audit, andaccordingly, we do not express an audit opinion on the 30 September 2005 Financial Information.

The Financial Information, which includes the consolidated income statements, consolidatedstatements of changes in equity and consolidated cash flow statements of the Alcohol Group for theRelevant Periods, the consolidated balance sheets of the Alcohol Group as at 31 December 2003, 2004and 2005 and 30 September 2006, together with the notes thereto as set out in this report, have beenprepared based on the audited financial statements of the Alcohol Group for the Relevant Periods andare presented on the basis set out in Section 1 below.

The directors of the respective companies of the Alcohol Group are responsible for the preparationof the financial statements which give a true and fair view. The directors of Heilongjiang Alcohol are alsoresponsible for the preparation of the Financial Information and the 30 September 2005 FinancialInformation. In preparing the Financial Information and the 30 September 2005 Financial Informationwhich give a true and fair view, it is fundamental that appropriate accounting policies are selected andapplied consistently. It is our responsibility to form an independent opinion and a review conclusion,based on our examination and review, on the Financial Information and the 30 September 2005Financial Information, and to report our opinion and review conclusion, respectively, to you.

In our opinion, on the basis of presentation set out in Section 1 below, the Financial Information, forthe purpose of this report, gives a true and fair view of the consolidated results and consolidated cashflows of the Alcohol Group for the Relevant Periods and of the consolidated balance sheets of theAlcohol Group as at 31 December 2003, 2004 and 2005 and 30 September 2006.


IIB-2



The Financial Information, which is based on the audited financial statements of the Alcohol Group,has been prepared in accordance with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) (whichalso include Hong Kong Accounting Standards (‘‘HKASs’’) and Interpretations) issued by the HKICPAand accounting principles generally accepted in Hong Kong. It has been prepared under the historicalcost convention. The Financial Information is presented in Renminbi (‘‘RMB’’) and all values arerounded to the nearest thousand (RMB’000) except when otherwise indicated.


The HKICPA has issued a number of new and revised HKFRSs, which are generally effective foraccounting periods beginning on or after 1 January 2005. For the purpose of preparing and presentingthe Financial Information, the Alcohol Group has early adopted the new HKFRSs that are applicable tothe Alcohol Group as follows:

HKAS 1 Presentation of Financial StatementsHKAS 2 InventoriesHKAS 7 Cash Flow StatementsHKAS 8 Accounting Policies, Changes in Accounting Estimates and

ErrorsHKAS 10 Events after the Balance Sheet DateHKAS 12 Income TaxesHKAS 14 Segment ReportingHKAS 16 Property, Plant and EquipmentHKAS 17 LeasesHKAS 18 RevenueHKAS 19 Employee BenefitsHKAS 20 Accounting for Government Grants and Disclosure of

Government AssistanceHKAS 21 The Effects of Changes in Foreign Exchange RatesHKAS 23 Borrowing CostsHKAS 24 Related Party DisclosuresHKAS 27 Consolidated and Separate Financial StatementsHKAS 32 Financial Instruments: Disclosure and PresentationHKAS 36 Impairment of AssetsHKAS 37 Provisions, Contingent Liabilities and Contingent AssetsHKAS 38 Intangible AssetsHKAS 39 Financial Instruments: Recognition and MeasurementHKAS 39 Amendment Transition and Initial Recognition of Financial Assets and

Financial LiabilitiesHKAS 39 and HKFRS 4 Financial Guarantee Contracts

AmendmentsHKFRS 1 First-time Adoption of Hong Kong Financial Reporting

StandardsHKFRS 3 Business CombinationsHK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease

IIB-3


The Alcohol Group has not applied the following new and revised HKFRSs, that have been issuedbut are not yet effective, in the Financial Information:

HKAS 1 Amendment Capital DisclosuresHKFRS 7 Financial Instruments: DisclosuresHK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 ‘‘Financial

Reporting in Hyperinflationary Economies’’HK(IFRIC)-Int 8 Scope of HKFRS 2HK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 10 Interim Financial Reporting and ImpairmentHK(IFRIC)-Int 11 HKFRS 2 — Group and Treasury Share Transactions

HKAS 1 Amendment shall be applied for accounting periods beginning on or after 1 January 2007.The revised standard will affect the disclosures about qualitative information about the Alcohol Group’sobjective, policies and processes for managing capital; quantitative data about what HeilongjiangAlcohol regards as capital; and compliance with any capital requirements and the consequences of anynon-compliance.

HKFRS 7 shall be applied for accounting periods beginning on or after 1 January 2007. Thestandard requires disclosures that enable users of the financial statements to evaluate the significanceof the Alcohol Group’s financial instruments and the nature and extent of risks arising from thosefinancial instruments and also incorporates many of the disclosure requirements of HKAS 32.


HK(IFRIC)-Int 7 and HK(IFRIC)-Int 9, HK(IFRIC)-Int 10 and HK(IFRIC)-Int 11 shall be applied foraccounting periods beginning on or after 1 March 2006, 1 June 2006, 1 November 2006 and 1 March2007, respectively.

The Alcohol Group is in the process of making assessment of the impact of these new and revisedHKFRSs upon initial application. So far, it has concluded that while the adoption of the HKAS 1Amendment and HKFRS 7 may result in new or amended disclosures, these new and revised HKFRSsare unlikely to have a significant impact on the Alcohol Group’s results of operations and financialposition.

The significant accounting policies adopted by the Alcohol Group in arriving at the FinancialInformation set out in this report, which conform with HKFRSs and accounting principles generallyaccepted in Hong Kong, are set out below:

Basis of consolidation

The Financial Information includes the financial statements of Heilongjiang Alcohol and itssubsidiary for the Relevant Periods. The results of the subsidiary are consolidated from the date ofacquisition, being the date on which Heilongjiang Alcohol obtains control, and continue to beconsolidated until the date that such control ceases.

All significant intercompany transactions and balances within the Alcohol Group are eliminated onconsolidation.

IIB-4


Minority interests represent the interests of outside shareholders not held by the Alcohol Group inthe results and net assets of Heilongjiang Alcohol’s subsidiary.

Subsidiary

A subsidiary is an entity whose financial and operating policies Heilongjiang Alcohol controls,directly or indirectly, so as to obtain benefits from its activities.

Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset isrequired (other than inventories, deferred tax assets and financial assets), the asset’s recoverableamount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell, and is determined for an individualasset, unless the asset does not generate cash inflows that are largely independent of those from otherassets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.


An assessment is made at each reporting date as to whether there is any indication that previouslyrecognised impairment losses may no longer exist or may have decreased. If such indication exists, therecoverable amount is estimated. A previously recognised impairment loss of an asset other thancertain financial assets is reversed only if there has been a change in the estimates used to determinethe recoverable amount of that asset, however not to an amount higher than the carrying amount thatwould have been determined (net of any depreciation/amortisation), had no impairment loss beenrecognised for the asset in prior periods. A reversal of such impairment loss is credited to the incomestatement in the period in which it arises.

Related parties

A party is considered to be related to the Alcohol Group if:

(a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlled by,or is under common control with, the Alcohol Group or; (ii) has an interest in the Alcohol Groupthat gives it significant influence over the Alcohol Group;

(b) the party is a member of the key management personnel of the Alcohol Group or its holdingcompanies;

(c) the party is a close member of the family of any individual referred to in (a) or (b); or

(d) the party is an entity that is controlled, jointly-controlled or significantly influenced by or forwhich significant voting power in such entity resides with, directly or indirectly, any individualreferred to in (b) or (c).

IIB-5





Buildings ********************************************************************* 3.6% to 4%Plant, machinery and equipment ************************************************ 4.5% to 18%



Construction in progress is stated at cost less any impairment losses, and is not depreciated. Costcomprises direct costs of construction incurred during the period of construction. Construction inprogress is reclassified to the appropriate category of property, plant and equipment when completedand ready for use.

Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessorare accounted for as operating leases. Where the Alcohol Group is the lessee, rentals payable underthe operating leases are charged to the income statement on the straight-line basis over the leaseterms.



Financial assets in the scope of HKAS 39 are classified as investments at fair value through profit orloss, loans and receivables, or available-for-sale financial assets, as appropriate. When financial assetsare recognised initially, they are measured at fair value, plus, in the case of investments not at fair valuethrough profit or loss, directly attributable transaction costs. The Alcohol Group determines theclassification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet date.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, thedate that the Alcohol Group commits to purchase or sell the asset. Regular way purchases or sales arepurchases or sales of financial assets that require delivery of assets within the period generallyestablished by regulation or convention in the marketplace.

IIB-6





The Alcohol Group assesses at each balance sheet date whether there is any objective evidencethat a financial asset or a group of financial assets is impaired.



The Alcohol Group first assesses whether objective evidence of impairment exists individually forfinancial assets that are individually significant, and individually or collectively for financial assets thatare not individually significant. If it is determined that no objective evidence of impairment exists for anindividually assessed financial asset, whether significant or not, the asset is included in a group offinancial assets with similar credit risk characteristics and that group is collectively assessed forimpairment. Assets that are individually assessed for impairment and for which an impairment loss is orcontinues to be recognised are not included in a collective assessment of impairment.


In relation to accounts and other receivables, a provision for impairment is made when there isobjective evidence (such as the probability of insolvency or significant financial difficulties of the debtor)that the Alcohol Group will not be able to collect all of the amounts due under the original terms of aninvoice. The carrying amount of the receivables is reduced through the use of an allowance account.Impaired debts are derecognised when they are assessed as uncollectible.

IIB-7





( the Alcohol Group retains the rights to receive cash flows from the asset, but has assumed anobligation to pay them in full without material delay to a third party under a ‘‘pass-through’’arrangement; or

( the Alcohol Group has transferred its rights to receive cash flows from the asset and either(a) has transferred substantially all the risks and rewards of the asset, or (b) has neithertransferred nor retained substantially all the risks and rewards of the asset, but has transferredcontrol of the asset.

Where the Alcohol Group has transferred its rights to receive cash flows from an asset and hasneither transferred nor retained substantially all the risks and rewards of the asset nor transferredcontrol of the asset, the asset is recognised to the extent of the Alcohol Group’s continuing involvementin the asset. Continuing involvement that takes the form of a guarantee over the transferred asset ismeasured at the lower of the original carrying amount of the asset and the maximum amount ofconsideration that the Alcohol Group could be required to repay.

Where continuing involvement takes the form of a written and/or purchased option (including acash-settled option or similar provision) on the transferred asset, the extent of the Alcohol Group’scontinuing involvement is the amount of the transferred asset that the Alcohol Group may repurchase,except in the case of a written put option (including a cash-settled option or similar provision) on anasset measured at fair value, where the extent of the Alcohol Group’s continuing involvement is limitedto the lower of the fair value of the transferred asset and the option exercise price.






Gains and losses are recognised in income statement when the liabilities are derecognised as wellas through the amortisation process.

IIB-8


Inventories


Provisions



Income tax




Deferred tax liabilities are recognised for all taxable temporary differences, except:( where the deferred tax liability arises from the initial recognition of an asset or liability and, at

the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and( in respect of taxable temporary differences associated with investment in a subsidiary, where

the timing of the reversal of the temporary differences can be controlled and it is probable thatthe temporary differences will not reverse in the foreseeable future.



( in respect of deductible temporary differences associated with investment in a subsidiary,deferred tax assets are only recognised to the extent that it is probable that the temporarydifferences will reverse in the foreseeable future and taxable profit will be available againstwhich the temporary differences can be utilised.



IIB-9



Government grants


Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Alcohol Groupand when the revenue can be measured reliably, on the following bases:

(a) from the sale of goods, when the significant risks and rewards of ownership have beentransferred to the buyer, provided that the Alcohol Group maintains neither managerialinvolvement to the degree usually associated with ownership, nor effective control over thegoods sold;

(b) interest income, on an accrual basis using the effective interest method by applying the ratethat discounts the estimated future cash receipts through the expected life of the financialinstrument to the net carrying amount of the financial asset; and

(c) tax refunds, when the acknowledgement of refunds from the tax bureau is received.

Foreign currencies

The Financial Information is presented in Renminbi, which is Heilongjiang Alcohol’s functional andpresentation currency. Each entity in the Alcohol Group determines its own functional currency anditems included in the financial statements of each entity are measured using that functional currency.Foreign currency transactions are initially recorded using the functional currency rates ruling at the dateof transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheetdate are retranslated at the functional currency rates of exchange ruling at the balance sheet date. Alldifferences are taken to the income statement. Non-monetary items that are measured in terms ofhistorical cost in a foreign currency are translated using the exchange rates at the dates of the initialtransactions. Non-monetary items measured at fair value in a foreign currency are translated using theexchange rates at the date when the fair value was determined.

Employee benefits

The employees of the Alcohol Group which operate in Mainland China are required to participate inthe central pension scheme which is operated by the relevant authorities of the provinces or the localmunicipal governments in Mainland China in which the Alcohol Group is located. The Alcohol Groupcontributes to these schemes in respect of its employees in Mainland China and such costs are chargedto the income statement as incurred.


For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cashon hand and demand deposits, and short term highly liquid investments which are readily convertibleinto known amounts of cash and which are subject to an insignificant risk of changes in value, and havea short maturity of generally within three months when acquired, less bank overdrafts which arerepayable on demand and form an integral part of the Alcohol Group’s cash management.

For the purpose of the balance sheet, cash and cash equivalents comprise cash on hand and atbanks, including term deposits, and assets similar in nature to cash, which are not restricted as to use.

IIB-10




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


Impairment of receivables is made based on an assessment of the recoverability of accounts andother receivables and the timing of their recovery. The identification of impairment of receivablesrequires management judgement and estimation. Where the actual outcome or expectation in future isdifferent from the original estimates, such differences will impact the carrying value of accountsreceivable and other receivables and the amount of impairment/write-back of impairment in the periodsin which such estimates have been changed. Write-back of impairment of receivables of RMB796,000,impairment of receivables of RMB11,842,000, impairment of receivables of RMB331,000, write-back ofimpairment of receivables of RMB98,000 and write-back of impairment of receivables of RMB462,000were recognised in the consolidated income statements for the years ended 31 December 2003, 2004,2005 and the nine months ended 30 September 2005 and 2006, respectively. The aggregate carryingamounts of accounts and bills receivables, prepayments, deposits and other receivables wereRMB111,251,000, RMB180,015,000, RMB263,655,000 and RMB173,719,000 as at 31 December2003, 2004, 2005 and 30 September 2006, respectively.

Impairment of property, plant and equipment

The carrying value of property, plant and equipment is reviewed for impairment when events orchanges in circumstances indicate the carrying value may not be recoverable in accordance with theaccounting policies as disclosed in the relevant parts in Section 2 of the Financial Information. Therecoverable amount of the property, plant and equipment is the greater of the fair value less costs to selland value in use, the calculations of which involve the use of estimates. Impairment amounts ofproperty, plant and equipment of RMB1,229,000, RMB1,268,000, RMB1,658,000 and RMB1,658,000were recognised in the consolidated income statements for the years ended 31 December 2003, 2004,2005 and the nine months ended 30 September 2005, respectively. The carrying amounts of property,plant and equipment were RMB640,382,000, RMB618,467,000, RMB588,818,000 andRMB833,904,000 as at 31 December 2003, 2004, 2005 and 30 September 2006, respectively.

IIB-11


4. CONSOLIDATED INCOME STATEMENTS

The following is a summary of the consolidated results of the Alcohol Group for the RelevantPeriods and the nine months ended 30 September 2005 prepared on the basis set out in Section 1above:


Notes 2003 2004 2005 2005 2006


REVENUE************** (a) 1,022,329 1,595,655 1,361,406 993,782 1,068,880Cost of sales************ (b) (810,582) (1,399,122) (1,183,875) (864,496) (888,171)

Gross profit ************* 211,747 196,533 177,531 129,286 180,709Government grants ****** (c) 11,839 77,804 222,984 166,138 151,174Other income and gains** (a) 3,536 5,925 16,408 10,069 22,935Selling and distribution

costs***************** (89,943) (108,038) (96,400) (70,759) (75,658)Administrative expenses** (42,616) (66,248) (70,717) (51,319) (55,469)Write-back of impairment/

(impairment) ofreceivables *********** 796 (11,842) (331) 98 462

Other expenses ********* (2,041) (2,761) (2,850) (2,292) (812)Finance costs *********** (d) (17,079) (42,960) (38,224) (28,168) (26,346)

PROFIT BEFORE TAX *** (b) 76,239 48,413 208,401 153,053 196,995Tax ******************** (g) 285 (565) (32,963) (22,437) (30,413)

PROFIT FOR THEYEAR/PERIOD******** 76,524 47,848 175,438 130,616 166,582

ATTRIBUTABLE TO:Equity holders of

Heilongjiang Alcohol 76,403 47,769 175,258 130,407 166,439Minority interests ****** 121 79 180 209 143

76,524 47,848 175,438 130,616 166,582

IIB-12


Notes:


Revenue, which is also the Alcohol Group’s turnover, represents the net invoiced value ofgoods sold, after allowances for returns and trade discounts, during the Relevant Periods and forthe nine months ended 30 September 2005.

An analysis of other income and gains is as follows:


2003 2004 2005 2005 2006


Other incomeBank interest income ****************** 176 23 1,966 968 954Interest income from a fellow subsidiary — — — — 500Tax refunds*************************** 670 3,203 13,012 8,467 21,003Others******************************* 1,100 331 188 7 92

1,946 3,557 15,166 9,442 22,549

GainsGain on disposal of by-products and

scrap items ************************ 1,589 1,778 198 627 386Gain on foreign exchange, net********** 1 590 1,044 — —

1,590 2,368 1,242 627 386

3,536 5,925 16,408 10,069 22,935

* Pursuant to the relevant notices issued by the Finance Bureau of the PRC for fuel ethanol producers, HeilongjiangAlcohol is entitled to a refund of all value-added taxes paid for its sale of fuel ethanol. There are no unfulfilledconditions or contingencies relating to these tax refunds.

IIB-13



The Alcohol Group’s profit before tax is determined after charging/(crediting):


Notes 2003 2004 2005 2005 2006


Cost of inventories sold 810,582 1,398,053 1,184,889 863,427 888,171Provision/(write-back of

provision) againstinventories *********** — 1,069 (1,014) 1,069 —

Cost of sales*********** 810,582 1,399,122 1,183,875 864,496 888,171

Auditors’ remuneration ** 423 447 452 — —Depreciation *********** Section 5(a) 30,396 62,457 63,830 48,305 50,854Minimum lease payments

under operating leasesin respect of land,buildings and steelbarrels*************** 37,109 20,601 12,160 11,643 5,978

Recognition of prepaidland premiums ******* Section 5(b) 260 840 963 721 719

Employee benefitsexpense (excludingdirectors’remuneration):Wages and salaries *** 20,982 21,652 27,363 20,158 23,047Pension scheme

contributions ******* 2,406 2,936 3,702 2,731 3,197

23,388 24,588 31,065 22,889 26,244

Loss on disposal of itemsof property, plant andequipment *********** 812 1,494 1,191 603 447

Impairment of items ofproperty, plant andequipment *********** Section 5(a) 1,229 1,268 1,658 1,658 —

(c) Government grants

Pursuant to relevant notices issued by the Finance Bureau of the PRC for fuel ethanolproducers, Heilongjiang Alcohol is entitled to a financial subsidy based on a fixed amount permetric ton of fuel ethanol produced and sold. The financial subsidy per metric ton of fuel ethanolproduced and sold for the three years ended 31 December 2005 and the nine months ended30 September 2005 and 2006 were RMB1,628, RMB1,883, RMB1,628 RMB1,628 and RMB1,373,respectively. In addition, various government grants have been received for Heilongjiang Alcohol’sinvestments in Heilongjiang province. There are no unfulfilled conditions or contingencies relatingto these government grants.

IIB-14


(d) Finance costsNine months ended

Year ended 31 December 30 September

2003 2004 2005 2005 2006


Interest on:Bank loans wholly repayable within five

years ****************************** 17,079 33,779 28,107 20,927 20,529Loans from a then shareholder ********* — 9,181 10,117 7,241 538Loans from a fellow subsidiary ********* — — — — 5,279

17,079 42,960 38,224 28,168 26,346

(e) Directors’ remuneration

Directors’ remuneration for the Relevant Periods and for the nine months ended 30 September2005, disclosed pursuant to the Rules Governing the Listing of Securities on The Stock Exchangeof Hong Kong Limited, is as follows:



(Unaudited)

Fees ******************************** — — — — —Other emoluments:

Salaries, allowances and benefits inkind ***************************** 770 804 532 375 1,577

Discretionary bonuses *************** 280 — — — —Pension scheme contributions ******** 1 1 2 1 2

1,051 805 534 376 1,579

There was no arrangement under which a director waived or agreed to waive any remunerationduring the Relevant Periods. All of the directors’ remuneration fell within the band ‘‘Nil toRMB1,000,000’’.

(f) Five highest paid individuals

The five highest paid individuals for the years ended 31 December 2003, 2004, 2005 and thenine months ended 30 September 2005 and 2006 included three, three, one, one and five directors,respectively. The details of the remuneration of the remaining non-director, highest paid individualsin the Alcohol Group during the Relevant Periods and for the nine months ended 30 September2005 are as follows:



(Unaudited)

Salaries, allowances and benefits in kind 480 480 990 734 —Discretionary bonuses ***************** 396 680 — — —Pension scheme contributions ********** — — 4 3 —

876 1,160 994 737 —

IIB-15



Number of Individuals


2003 2004 2005 2005 2006

(Unaudited)

Nil to RMB1,000,000 ************************* 2 2 4 4 —

(g) Tax

No provision for Hong Kong profits tax has been made as the Alcohol Group did not generateany assessable profits arising in Hong Kong during the Relevant Periods and for the nine monthsended 30 September 2005. Taxes on profits assessable in Mainland China have been calculated atthe rates of tax prevailing in locations in which the Alcohol Group operates, based on existinglegislation, interpretations and practices in respect thereof.


2003 2004 2005 2005 2006


Current— Mainland China ****************** — 4,204 1,063 3,254 38,842

Overprovision in prior years ************ — — — (3)Deferred (Section 5(h)) **************** (285) (3,639) 31,900 19,183 (8,426)

Tax charge/(credit) for the year/period *** (285) 565 32,963 22,437 30,413

A reconciliation of the tax expense applicable to profit before tax using the statutory rate forMainland China in which Heilongjiang Alcohol and its subsidiary are domiciled to the tax expense atthe effective tax rate, and a reconciliation of the applicable rate (i.e., the statutory tax rate) to theeffective tax rate, are as follows:

Year ended 31 December Nine months ended 30 September

2003 2004 2005 2005 2006

RMB’000 % RMB’000 % RMB’000 % RMB’000 % RMB’000 %(Unaudited)

Profit before tax ********** 76,239 48,413 208,401 153,053 196,995

Tax at the statutory tax rate 25,159 33.0 15,976 33.0 68,772 33.0 50,507 33.0 65,008 33.0Lower tax rate for specific

provinces or localauthority* ************** (2,287) (3.0) (1,452) (3.0) (6,252) (3.0) (4,592) (3.0) (5,910) (3.0)

Profits not subject to tax,due to concessions****** (23,375) (30.7) (15,119) (31.2) (31,325) (15.0) (23,027) (15.0) (29,551) (15.0)

Expenses not deductible fortax ******************** 363 0.5 3,041 6.3 2,297 1.1 1,307 0.8 1,395 0.7

Adjustment in respect ofcurrent tax of previousperiods **************** — — — — — — — — (3) —

Others******************* (145) (0.2) (1,881) (3.9) (529) (0.3) (1,758) (1.1) (526) (0.3)

Tax charge/(credit) at theAlcohol Group’s effectiverate ******************* (285) (0.4) 565 1.2 32,963 15.8 22,437 14.7 30,413 15.4

IIB-16


* Under the PRC income tax laws, enterprises are subject to corporate income tax (‘‘CIT’’) at a rate of 33%. However,the Alcohol Group is operating in specific development zones in Mainland China, and the relevant authorities havegranted the Alcohol Group a preferential CIT rate of 30%.

** In addition to the preferential CIT rate granted to the Alcohol Group, tax holiday was also granted by the relevantauthorities to the Alcohol Group, where CIT is exempted for the first two profitable years of the Group and ischargeable at half of the applicable rate for the next subsequent three years.

(h) Dividend

No dividend has been paid or declared by Heilongjiang Alcohol during the Relevant Periods.

(i) Earnings per share

No earnings per share amount is presented as it is not considered to be meaningful.

IIB-17


5. CONSOLIDATED BALANCE SHEETS

The following is a summary of the consolidated balance sheets of the Alcohol Group at the end ofeach of the Relevant Periods and is prepared on the basis set out in Section 1 above:


Notes 2003 2004 2005 2006

RMB’000 RMB’000 RMB’000 RMB’000

NON-CURRENT ASSETSProperty, plant and equipment *********** (a) 640,382 618,467 588,818 833,904Prepaid land premiums****************** (b) 27,422 32,880 31,917 31,198Deferred tax assets ********************* (h) 285 3,924 — —

Total non-current assets ***************** 668,089 655,271 620,735 865,102

CURRENT ASSETSInventories ***************************** (c) 105,781 101,259 181,286 126,329Accounts and bills receivables *********** (d) 89,308 142,917 99,744 73,369Prepayments, deposits and other

receivables*************************** 21,943 37,098 163,911 100,350Due from then fellow subsidiaries********* (k) 18,616 1,175 1,192 —Due from a fellow subsidiary ************* (k) — — — 231,066Tax recoverable************************* — 2,447 20,554 —Cash and cash equivalents ************** (e) 21,987 63,095 193,509 22,699Pledged deposits *********************** (e) — 2,980 1,162 5,365

Total current assets ********************* 257,635 350,971 661,358 559,178

CURRENT LIABILITIESAccounts payable *********************** (f) 21,368 31,366 39,037 32,956Other payables and accruals ************* 38,866 52,697 57,417 71,765Deferred income************************ — 50 83 83Due to then fellow subsidiaries *********** (k) 89 450 610 —Tax payable **************************** — — — 8,782Interest-bearing bank and other borrowings (g) 686,491 496,153 636,470 435,351

Total current liabilities ******************* 746,814 580,716 733,617 548,937

NET CURRENT ASSETS/(LIABILITIES)*** (489,179) (229,745) (72,259) 10,241

TOTAL ASSETS LESS CURRENTLIABILITIES************************** 178,910 425,526 548,476 875,343

NON-CURRENT LIABILITIESInterest-bearing bank and other borrowings (g) — 198,668 — 148,614Deferred income************************ 1,500 1,600 11,304 31,401Deferred tax liabilities ******************* (h) — — 27,976 19,550

Total non-current liabilities *************** 1,500 200,268 39,280 199,565

Net assets ***************************** 177,410 225,258 509,196 675,778

EQUITYEquity attributable to equity holders of

Heilongjiang AlcoholPaid-in capital ************************** Section 6 41,500 41,500 150,000 150,000Reserves ****************************** Section 6 133,650 181,419 356,677 523,116

175,150 222,919 506,677 673,116Minority interests********************** Section 6 2,260 2,339 2,519 2,662

Total equity **************************** 177,410 225,258 509,196 675,778

IIB-18


Notes:


Plant,machinery


RMB’000 RMB’000 RMB’000 RMB’000


Cost *********************************** 8,475 35,649 2,425 46,549Accumulated depreciation and impairment (65) (1,639) — (1,704)


At 1 January 2003, net of accumulateddepreciation and impairment************** 8,410 34,010 2,425 44,845

Additions ********************************* 125,611 479,085 23,488 628,184Disposals********************************* — (1,022) — (1,022)Impairment (Section 4(b)) ****************** — (1,229) — (1,229)Depreciation provided during the year


At 31 December 2003, net of accumulateddepreciation and impairment************** 134,051 503,413 2,918 640,382

At 31 December 2003:Cost *********************************** 136,293 534,168 2,918 673,379Accumulated depreciation and impairment (2,242) (30,755) — (32,997)



depreciation and impairment************** 134,051 503,413 2,918 640,382Additions ********************************* 12,070 7,517 25,504 45,091Disposals********************************* — (3,281) — (3,281)Impairment (Section 4(b)) ****************** (99) (1,169) — (1,268)Depreciation provided during the year





IIB-19


Plant,machinery


RMB’000 RMB’000 RMB’000 RMB’000


depreciation and impairment************** 142,198 474,299 1,970 618,467Additions ********************************* 88 12,993 23,973 37,054Disposals********************************* (98) (1,117) — (1,215)Impairment (Section 4(b)) ****************** — (1,658) — (1,658)Depreciation provided during the year






depreciation and impairment************** 135,790 439,324 13,704 588,818Additions ********************************* 110 75,713 220,995 296,818Disposals********************************* (8) (870) — (878)Depreciation provided during the period


At 30 September 2006, net of accumulateddepreciation and impairment************** 132,007 481,132 220,765 833,904

At 30 September 2006:Cost *********************************** 152,819 667,889 220,765 1,041,473Accumulated depreciation and impairment (20,812) (186,757) — (207,569)


All of the Alcohol Group’s buildings are held under medium term leases in Mainland China.

Certain of the Alcohol Group’s property, plant and equipment with a net book value ofapproximately RMB606,049,000, RMB588,551,000, RMB464,298,000 and RMB382,301,000 werepledged to secure bank loans granted to the Alcohol Group as at 31 December 2003, 2004, 2005and 30 September 2006, respectively (note (g)).

IIB-20




2003 2004 2005 2006

RMB’000 RMB’000 RMB’000 RMB’000

Carrying amount at beginning of year/period ***** 61 28,109 33,843 32,880Additions************************************* 28,308 6,574 — —Recognised during the year/period************** (260) (840) (963) (719)

Carrying amount at end of year/period ********** 28,109 33,843 32,880 32,161Current portion included in prepayments, deposits

and other receivables************************ (687) (963) (963) (963)

Non-current portion *************************** 27,422 32,880 31,917 31,198

The leasehold land is held under a medium term lease in Mainland China.

(c) Inventories


2003 2004 2005 2006

RMB’000 RMB’000 RMB’000 RMB’000

Raw materials******************************* 73,019 62,443 141,714 57,168Work in progress **************************** 6,034 5,996 6,918 6,901Finished goods****************************** 26,728 32,820 32,654 62,260

105,781 101,259 181,286 126,329

(d) Accounts and bills receivables

The Alcohol Group’s trading terms with its customers are mainly on credit for creditworthycustomers, whereas for other customers, settlement by bank bills or payment in advance isnormally required. The credit period is generally for 30 to 90 days. Each customer has a maximumcredit limit. The Alcohol Group seeks to maintain strict control over its outstanding receivables tominimise credit risk. Overdue balances are reviewed regularly by senior management. Accountsreceivable are non-interest-bearing.

An aged analysis of the accounts and bills receivables at each of the balance sheet dates is asfollows:


2003 2004 2005 2006

RMB’000 RMB’000 RMB’000 RMB’000

Outstanding balances with ages:Within 3 months *************************** 88,679 143,259 100,145 72,9393 to 12 months **************************** 1,522 64 10 3441 to 2 years ******************************* — 645 219 3Over 2 years ****************************** — — 132 383

90,201 143,968 100,506 73,669Less: Impairment **************************** (893) (1,051) (762) (300)

89,308 142,917 99,744 73,369

The carrying amounts of accounts and bills receivables approximate to their fair values.

IIB-21


(e) Cash and cash equivalents and pledged deposits


2003 2004 2005 2006

RMB’000 RMB’000 RMB’000 RMB’000

Cash and bank balances ********************* 21,987 63,095 193,509 22,699Time deposits ******************************* — 2,980 1,162 5,365

21,987 66,075 194,671 28,064Less: Time deposits pledged for general banking

facilities *********************************** — (2,980) (1,162) (5,365)

Cash and cash equivalents ******************* 21,987 63,095 193,509 22,699

Substantially all of the cash and cash equivalents are denominated in RMB and are depositedwith several state-owned banks in Mainland China in the ordinary course of business. The RMB isnot freely convertible into other currencies, however, under Mainland China’s Foreign ExchangeControl Regulations and Administration of Settlement, Sale and Payment of Foreign ExchangeRegulations, the Alcohol Group is permitted to exchange RMB for other currencies through banksauthorised to conduct foreign exchange business.

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short termtime deposits are made for varying periods of between one day and three months depending on theimmediate cash requirements of the Alcohol Group, and earn interest at the respective short termtime deposit rates. The carrying amounts of the cash and cash equivalents and the pledgeddeposits approximate to their fair values.

(f) Accounts payable



2003 2004 2005 2006

RMB’000 RMB’000 RMB’000 RMB’000

Outstanding balances with ages:Within 3 months **************************** 20,988 27,159 34,621 29,2773 to 12 months ***************************** 225 1,062 1,348 1,1691 to 2 years ******************************** 155 3,044 1,165 573Over 2 years ******************************* — 101 1,903 1,937

21,368 31,366 39,037 32,956


IIB-22


(g) Interest-bearing bank and other borrowings

AtEffectiveAt 31 December 30 Septemberinterest

rate (%) Maturity 2003 2004 2005 2006

RMB’000 RMB’000 RMB’000 RMB’000

Current

Bank loans – secured***************** 5.19 - 5.86 June 2007 498,165 496,153 488,051 435,351

Other loans – unsecured ************** 188,326 — 148,419 —

686,491 496,153 636,470 435,351

Non-current

Other loans – unsecured ************** 5.18 2009 — 198,668 — 148,614

686,491 694,821 636,470 583,965

Analysed into:

Bank loans repayable within one year ** 498,165 496,153 488,051 435,351

Other loans repayable:

Within one year or on demand ***** 188,326 — 148,419 —

In the second year**************** — 198,668 — —

In the third to fifth years, inclusive *** — — — 148,614

188,326 198,668 148,419 148,614

686,491 694,821 636,470 583,965

The Alcohol Group’s bank loans bear interest at fixed rates ranging from 2.974% to 5.841%,2.344% to 5.841%, 5.188% to 5.859%, and 5.188% to 5.859% per annum as at 31 December2003, 2004, 2005 and 30 September 2006, respectively.

The Alcohol Group’s bank loans are secured by a charge over certain property, plant andequipment of the Alcohol Group with a net book value of approximately RMB606,049,000,RMB588,551,000, RMB464,298,000 and RMB382,301,000 as at 31 December 2003, 2004, 2005and 30 September 2006 (note (a)).

The other loans represent loans from a then shareholder of RMB188,326,000,RMB198,668,000 and RMB148,419,000 as at 31 December 2003, 2004 and 2005 respectively,and loans from a fellow subsidiary of RMB148,614,000 as at 30 September 2006. These balancesbear interest at fixed rates of 5.58%, 4.78%, 4.78% and 5.18% per annum as at 31 December2003, 2004, 2005 and 30 September 2006, respectively.

Subsequent to 30 September 2006, loans from a fellow subsidiary have been fully repaid.

The carrying amounts of the Alcohol Group’s bank and other borrowings approximate to theirfair values.

IIB-23


(h) Deferred tax

The movements in deferred tax assets and liabilities during the Relevant Periods are asfollows:

Deferred tax assets/(liabilities)

Accelerated Impairmenttax of Deferred

depreciation receivables income Others Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Deferred tax credited/(charged) to theincome statement during the year(Section 4(g)) ******************** — 143 (16) 158 285

At 31 December 2003 and at1 January 2004 ****************** — 143 (16) 158 285

Deferred tax credited/(charged) to theincome statement during the year(Section 4(g)) ******************** — 1,758 (350) 2,231 3,639

At 31 December 2004 and at1 January 2005 ****************** — 1,901 (366) 2,389 3,924

Deferred tax charged to the incomestatement during the year(Section 4(g)) ******************** (10,228) (1,115) (19,057) (1,500) (31,900)

At 31 December 2005 and at1 January 2006 ****************** (10,228) 786 (19,423) 889 (27,976)

Deferred tax credited/(charged) to theincome statement during the period(Section 4(g)) ******************** (3,500) (69) 12,500 (505) 8,426

At 30 September 2006************** (13,728) 717 (6,923) 384 (19,550)

At each of the balance sheet dates during the Relevant Periods, there was no significantunrecognised deferred tax liability for taxes that would be payable on the unremitted earnings of theAlcohol Group’s subsidiary as the Alcohol Group has no liability to additional tax should suchamounts be remitted.

There are no income tax consequences attaching to the payment of dividends by HeilongjiangAlcohol to its shareholders.

IIB-24


(i) Operating lease arrangements

As lessee

The Alcohol Group leases certain land and steel barrels under operating lease arrangements.Leases for land are negotiated for terms ranging from two to three years and those for steel barrelsfor terms ranging from one to eleven years.

At the balance sheet dates, the Alcohol Group had total future minimum lease payments undernon-cancellable operating leases falling due as follows:


2003 2004 2005 2006

RMB’000 RMB’000 RMB’000 RMB’000

Within one year*************************** 2,260 10,759 5,998 6,283In the second to fifth years, inclusive ******** 803 960 4,874 8,453After five years *************************** — 770 630 1,350

3,063 12,489 11,502 16,086

(j) Capital commitments

In addition to the operating lease arrangements detailed in note (i) above, the Alcohol Grouphad the following capital commitments at each of the balance sheet dates:


2003 2004 2005 2006

RMB’000 RMB’000 RMB’000 RMB’000

In respect of property, plant and equipment:Authorised, but not contracted for ************ — — 612,197 257,826Contracted, but not provided for ************** 6,928 1,700 148,599 242,884

6,928 1,700 760,796 500,710

Other than disclosed above, neither the Alcohol Group nor Heilongjiang Alcohol had anysignificant commitments or contingent liabilities as at each of the balance sheet dates.

IIB-25


(k) Related party disclosures

(i) Related party transactions

Apart from the transactions and balances disclosed in note (g) above, the Alcohol Grouphad the following transactions with related parties during the Relevant Periods and for the ninemonths ended 30 September 2005:


Notes 2003 2004 2005 2005 2006


Transaction with a thenshareholder:Interest expense ******* (a) — 9,181 10,117 7,241 538

Transactions with fellowsubsidiaries:Interest expense ******* (a) — — — — 5,279Interest income ******** (b) — — — — 500Rental expense paid *** (c) — — — — 693

Transactions with thenfellow subsidiaries:Rental expense paid *** (c) 30,794 — — — —Sales of goods ******** (c) 1,989 114 180 — 78Purchases of goods **** (c) 10,904 403 — — —Purchases of items of

property, plant andequipment*********** (d) 599,322 12,042 — — —

Acquisition of prepaidland premiums******* (d) 28,308 6,574 — — —

Notes:

(a) The interest expenses arose from loans due to a then shareholder and a fellowsubsidiary, which are unsecured, and bear interest at rates ranging from 4.78% to5.58% per annum. Further details of the loans from a then shareholder and a fellowsubsidiary are set out in note (g) above.

(b) The interest income arose from the deposits placed with a fellow subsidiary of theAlcohol Group, which is a non-banking finance company regulated by the People’sBank of China (the ‘‘PBOC’’) and the China Banking Regulatory Commission in thePRC, and its deposit rates are set by the PBOC which are applicable to all financialinstitutions. The interest rates offered by the fellow subsidiary are the same as therates promulgated by the PBOC which were applicable to account deposits withbanks of the PRC or finance companies at a rate of 0.7% per annum as at30 September 2006. The deposits placed with the fellow subsidiary by the AlcoholGroup amounted to RMB230,961,000 as at 30 September 2006.

(c) These transactions were carried out with reference to the prevailing market prices or,where no market prices were available, at cost plus a percentage of profit mark-up.

(d) These transactions were carried out with reference to valuations performed byindependent professionally qualified valuers in Mainland China.

In the opinion of the directors, the above related party transactions were conducted in theordinary and usual course of the Alcohol Group’s business.

IIB-26


(ii) Outstanding balances with related parties

Except for (1) the loans from a then shareholder of RMB188,326,000, RMB198,668,000and RMB148,419,000 as at 31 December 2003, 2004 and 2005, respectively, the terms ofwhich are set out in note (g); (2) the loans from a fellow subsidiary of RMB148,614,000 as at30 September 2006, the terms of which are set out in note (g); and (3) the deposits placed witha fellow subsidiary of RMB230,961,000 as at 30 September 2006, the terms of which are setout in note (k)(i)(b) above, the balances with then fellow subsidiaries are unsecured, interest-free and have no fixed terms of repayment as at each balance sheet dates during the RelevantPeriods.

Subsequent to 30 September 2006, the deposits placed with a fellow subsidiary were fullywithdrawn by the Alcohol Group.

(iii) Compensation of key management personnel of the Alcohol Group


2003 2004 2005 2005 2006


Salaries, allowances and benefits inkind *************************** 1,066 930 880 660 1,577

Pension scheme contributions ****** 1 1 2 1 2

Total compensation paid to keymanagement personnel********** 1,067 931 882 661 1,579

Further details of directors’ emoluments are included in Section 4(e) of the FinancialInformation.

(iv) Transactions with other state-owned enterprises

The Alcohol Group operates in an economic environment predominated by enterprisesdirectly or indirectly owned or controlled by the PRC government through its numerousauthorities, affiliates or other organisations (collectively ‘‘State-owned Enterprises’’). Duringthe Relevant Periods and the nine months ended 30 September 2005, the Alcohol Group hadtransactions with State-owned Enterprises including, but not limited to, sales of ethanol andpurchases of raw materials. The directors consider that transactions with other State-ownedEnterprises are activities in the ordinary course of the Alcohol Group’s business, at terms thatare consistently applied to all customers, and that the dealings of the Alcohol Group have notbeen significantly or unduly affected by the fact that the Alcohol Group and the other State-owned Enterprises are ultimately controlled or owned by the PRC government. The AlcoholGroup has also established pricing policies for products and services, and such policies do notdepend on whether or not the customers are State-owned Enterprises. Having due regard tothe substance of the relationships, the directors are of the opinion that none of thesetransactions are material related party transactions that require separate disclosure.

(l) Financial risk management objectives and policies

The Alcohol Group’s principal financial instruments comprise bank and other interest-bearingloans, and cash and short term deposits. The main purpose of these financial instruments is toraise finance for the Alcohol Group’s operations. The Alcohol Group has various other financialassets and liabilities such as accounts and other receivables and accounts and other payables,which arise directly from its operations.

It is, and has been, throughout the Relevant Periods under review, the Alcohol Group’s policythat no trading in financial instruments shall be undertaken.

IIB-27


The main risks arising from the Alcohol Group’s financial instruments are cash flow interestrate risk, foreign currency risk, credit risk and liquidity risk. The board reviews and agrees policiesfor managing these risks and are summarised below:


The Alcohol Group’s income and operating cash flows are substantially independent ofchanges in market interest rates. The effective interest rates and terms of repayment of bank loansand other loans of the Alcohol Group are disclosed in note (g). The Alcohol Group has not used anyderivative to hedge its exposure to cash flow interest rate risk as all of the Alcohol Group’s interest-bearing borrowings are negotiated at fixed rates.


The Alcohol Group mainly operates in Mainland China with most of the Alcohol Group’smonetary assets, liabilities and transactions principally denominated in RMB. Foreign currency riskarises from future commercial transactions from operations, borrowings and net investments ofoperations, which are denominated in currencies other than the functional currency of the AlcoholGroup, is considered minimal.

Credit risk

The Alcohol Group trades only with recognised and creditworthy third parties. It is the AlcoholGroup’s policy that all customers who wish to trade on credit terms are subject to credit verificationprocedures. In addition, receivable balances are monitored on an ongoing basis.

Liquidity risk

The Alcohol Group’s policy is to maintain sufficient cash and cash equivalents and haveavailable funding through bank and other borrowings to meet its working capital requirements.

IIB-28


6. COMBINED STATEMENTS OF CHANGES IN EQUITY

The movements in the owners’ equity of the Alcohol Group for the Relevant Periods and the ninemonths ended 30 September 2005, prepared on the basis set out in Section 1 above, are as follows:

Attributable to equity holders ofHeilongjiang Alcohol

Paid-in Reserve Retained Minority Totalcapital funds* profits Total interests equity

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2003*************** 41,500 — 57,247 98,747 2,139 100,886Profit for the year**************** — — 76,403 76,403 121 76,524Transfer from retained profits ***** — 12,525 (12,525) — — —At 31 December 2003 and at

1 January 2004 *************** 41,500 12,525 121,125 175,150 2,260 177,410Profit for the year**************** — — 47,769 47,769 79 47,848Transfer from retained profits ***** — 4,869 (4,869) — — —At 31 December 2004 and at

1 January 2005 *************** 41,500 17,394 164,025 222,919 2,339 225,258Profit for the year**************** — — 175,258 175,258 180 175,438Transfer from retained profits ***** — 8,039 (8,039) — — —Capital contribution from

immediate holding company **** 108,500 — — 108,500 — 108,500At 31 December 2005 and at

1 January 2006 *************** 150,000 25,433 331,244 506,677 2,519 509,196Profit for the period ************** — — 166,439 166,439 143 166,582Transfer from retained profits ***** — 18,220 (18,220) — — —At 30 September 2006 *********** 150,000 43,653 479,463 673,116 2,662 675,778

(Unaudited)At 1 January 2005*************** 41,500 17,394 164,025 222,919 2,339 225,258Profit for the period ************** — — 130,407 130,407 209 130,616Transfer from retained profits ***** — 8,039 (8,039) — — —At 30 September 2005 *********** 41,500 25,433 286,393 353,326 2,548 355,874

* Pursuant to the relevant laws and regulations of the PRC for Sino-foreign joint venture enterprises, a portion of the profits ofthe Alcohol Group has been transferred to reserve funds which are restricted as to use.

IIB-29


7. CONSOLIDATED CASH FLOW STATEMENTS

The consolidated cash flow statements of the Alcohol Group for the Relevant Periods and the ninemonths ended 30 September 2005 prepared on the basis set out in Section 1 above, are as follows:


Notes 2003 2004 2005 2005 2006


CASH FLOWS FROMOPERATING ACTIVITIES

Profit before tax*************** 76,239 48,413 208,401 153,053 196,995Adjustments for:

Finance costs ************** Section 4(d) 17,079 42,960 38,224 28,168 26,346Provision/(write-back of

provision) againstinventories *************** Section 4(b) — 1,069 (1,014) 1,069 —

Impairment/(write-back ofimpairment) of receivables (796) 11,842 331 (98) (462)

Depreciation**************** Section 4(b) 30,396 62,457 63,830 48,305 50,854Impairment of items of

property, plant andequipment**************** Section 4(b) 1,229 1,268 1,658 1,658 —

Loss on disposal of items ofproperty plant andequipment**************** Section 4(b) 812 1,494 1,191 603 447

Recognition of prepaid landpremiums **************** Section 4(b) 260 840 963 721 719

Interest income ************* Section 4(a) (176) (23) (1,966) (968) (1,454)Government grants********** (11,839) (77,804) (222,984) (166,138) (151,174)

113,204 92,516 88,634 66,373 122,271Decrease/(increase) in

inventories ***************** (23,849) 3,453 (79,013) 2,554 54,957Decrease/(increase) in accounts

and bills receivable********** (22,293) (53,767) 43,437 37,085 26,837Decrease/(increase) in

prepayments, deposits andother receivables************ 18,301 (26,563) (127,408) (94,160) (23,538)

Increase in due from then fellowsubsidiaries **************** (i), (ii) (18,550) (1,175) (17) (17) —

Increase in due from a fellowsubsidiary ****************** — — — — (231,066)

Decrease/(increase) in pledgeddeposits ******************* — (2,980) 1,818 (3,813) (4,203)

Increase/(decrease) in accountspayable ******************** 5,176 9,998 7,671 (4,003) (6,081)

Increase/(decrease) in otherpayables and accruals ******* (12,183) 13,831 4,720 26,508 7,169

Increase/(decrease) in due tothen fellow subsidiaries ****** (1,509) 361 160 (450) —

Government grants received**** 11,839 77,754 222,901 108,853 239,402

Cash generated from operations 70,136 113,428 162,903 138,930 185,748Interest received ************** 176 23 1,966 968 1,454Interest paid****************** (17,079) (42,960) (38,224) (28,168) (26,346)Mainland China tax paid ******* (1,815) (6,651) (19,170) (15,349) (9,503)

Net cash inflow from operatingactivities ******************* 51,418 63,840 107,475 96,381 151,353

IIB-30



Notes 2003 2004 2005 2005 2006


CASH FLOWS FROMINVESTING ACTIVITIES

Proceeds from disposal of itemsof property, plant andequipment****************** 210 1,787 24 — 431

Purchases of items of property,plant and equipment ******** (28,862) (33,049) (37,054) (15,235) (290,787)

Government grants received**** 900 200 9,820 8,800 20,160

Net cash outflow from investingactivities******************** (27,752) (31,062) (27,210) (6,435) (270,196)

CASH FLOWS FROMFINANCING ACTIVITIES

New other loans ************** — 10,342 — 7,242 733Repayments of bank loans ***** (22,850) (2,012) (8,102) (7,070) (52,700)Repayment of other loans****** (11,674) — (50,249) — —Capital contribution from the

immediate holding company** — — 108,500 — —

Net cash inflow/(outflow) fromfinancing activities*********** (34,524) 8,330 50,149 172 (51,967)

NET INCREASE/(DECREASE)IN CASH AND CASHEQUIVALENTS ************* (10,858) 41,108 130,414 90,118 (170,810)

Cash and cash equivalents atbeginning of year/period ***** 32,845 21,987 63,095 63,095 193,509

CASH AND CASHEQUIVALENTS AT END OFYEAR/PERIOD ************* 21,987 63,095 193,509 153,213 22,699


Cash and bank balances ****** Section 5(e) 21,987 63,095 193,509 153,213 22,699

Note:

Major non-cash transactions

(i) During the year ended 31 December 2003, the Alcohol Group acquired property, plant andequipment and land use rights with carrying values of approximately RMB599,322,000 andRMB28,308,000, respectively, from a then fellow subsidiary, of which RMB106,615,000 wassettled against the amount due from the then fellow subsidiary and the remainingRMB521,015,000 was settled by assumption of bank loans of the then fellow subsidiary.

(ii) During the year ended 31 December 2004, the Alcohol Group acquired property, plant andequipment and land use rights with carrying values of approximately RMB12,042,000 andRMB6,574,000, respectively, from a then fellow subsidiary, of which the total consideration wassettled against the amount due from the then fellow subsidiary.

IIB-31



No segment information is presented since over 90% of the Alcohol Group’s revenue, results andassets are derived from production and sale of biofuel and biochemicals and over 90% of the AlcoholGroup’s revenue is derived from customers based in Mainland China.


No audited financial statements of the Alcohol Group, Heilongjiang Alcohol or its subsidiary havebeen prepared in respect of any periods subsequent to 30 September 2006.

Yours faithfully,


IIB-32

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION

For illustrative purpose only, the pro forma financial information prepared in accordance withRule 4.29 of the Hong Kong Listing Rules is set out herein to provide investors with further informationabout (i) how the Global Offering might have affected the net tangible assets of the Group aftercompletion of the Global Offering; and (ii) how the Global Offering might have affected the estimatedearnings per share of the Group for the year ended 31 December 2006 as if the Global Offering hadtaken place on January 1, 2006. Although reasonable care has been exercised in preparing the saidinformation, prospective investors who read the information should bear in mind that these figures areinherently subject to adjustments and may not give a complete picture of the Group’s financial resultsand positions of the financial periods concerns.

A. UNAUDITED PRO FORMA ADJUSTED NET TANGIBLE ASSETS

The unaudited pro forma information has been prepared, on the basis of the notes set out below, toillustrate how the Global Offering might have affected the net tangible assets attributable to equityholders of the Company had it occurred as of September 30, 2006. It has been prepared for illustrativepurpose only and, because of its nature, may not give a true picture of the financial position of theGroup.

Audited CombinedNet Tangible Assets Unaudited Unaudited Pro

Attributable to Pro Forma FormaEquity Holders of Estimated Net Adjusted Net Adjusted Net

the Company as of Loan Proceeds from the Tangible Tangible AssetsSeptember 30, 2006 Capitalisation Global Offering Assets per Share

HK$’000(1) HK$’000(2) HK$’000(3) HK$’000 HK$(4)

Based on an Offer Price ofHK$3.10 per share ************ 3,079,242 2,103,195 2,035,657 7,218,094 2.07

Based on an Offer Price ofHK$3.72 per share ************ 3,079,242 2,103,195 2,457,505 7,639,942 2.19

(1) The audited combined net tangible assets attributable to equity holders of the Company as of September 30, 2006 is arrivedat after deducting goodwill (including goodwill in interests in associates) of HK$613,162,000 from the audited combined netassets of the Group attributable to equity holders of the Company of HK$3,692,404,000 as of September 30, 2006.

(2) Details of the loan capitalisation are set out in Section 10(a) of the accountants’ report of the Company in Appendix I of theProspectus.

(3) The adjustment to the pro forma statement of net assets reflects the estimated proceeds from the Global Offering, net ofrelated expenses, to be received by the Company. The estimated proceeds from the Global Offering assumes an Offer Priceof HK$3.10/HK$3.72 per share, being the low end/high end of the stated indicative offer price range.

(4) The number of shares is based on a total of 3,489,229,356 shares issued and outstanding during the entire year, adjustedas if the Global Offering had occurred at September 30, 2006, excluding any shares that might be issued under the Over-allotment Option as described in the section headed ‘‘Information About This Prospectus and The Global Offering’’.

(5) Our property interests as of September 30, 2006 have been valued by Savills Valuation and Professional Services Limited,an independent property valuer, and the relevant property valuation report is set out in Appendix V ‘‘Property Valuation’’.The above adjustment does not take into account the surplus arising from the revaluation of our property interestsamounting to HK$344.4 million. The revaluation surplus will not be incorporated in our financial statements for the yearended December 31, 2006. If the valuation surplus was recorded in our financial statements, our depreciation expense forthe year ended December 31, 2006 would be increased by approximately HK$21.5 million.

III-1


B. UNAUDITED PRO FORMA ESTIMATED EARNINGS PER SHARE FOR THE YEAR ENDEDDECEMBER 31, 2006

The unaudited pro forma estimated earnings per share has been prepared, on the basis of thenotes set out below, to illustrate how the Global Offering might have affected the Group’s estimatedearnings per share for the year ended December 31, 2006 had it occurred as of January 1, 2006. It hasbeen prepared for illustrative purpose only and, because of its nature, may not give an accurate pictureof the financial results of the Group.

Estimate forYear Ended

December 31, 2006

Estimated combined profit attributable to equity holders of the Company(1) ****** HK$622.0 millionUnaudited pro forma estimated earnings per share(2) ************************* 17.83 HK cents

Notes:

(1) The estimated combined profit attributable to equity holders of the Company for the year ended December 31, 2006 isextracted from the profit estimate as set out in the subsection headed ‘‘Profit Estimate’’ under the section headed ‘‘FinancialInformation’’. The bases on which the above profit estimate for the year ended December 31, 2006 has been prepared aresummarized in Appendix IV — ‘‘Profit Estimate’’. The estimate of the combined profit attributable to equity holders of theCompany for the year ended December 31, 2006 prepared by the Directors is based on the audited combined results of theGroup for the nine months ended September 30, 2006, and an estimate of the combined results of the Group for theremaining three months ended December 31, 2006. The estimate has been prepared on the basis of the accounting policiesconsistent in all material respects with those currently adopted by the Group as summarized in Appendix I — ‘‘Accountants’Report of Our Company’’.

(2) The calculation of the unaudited pro forma estimated earnings per share is based on the estimated combined profitattributable to equity holders of the Company for the year ended December 31, 2006 and a total of 3,489,229,356 sharesissued and outstanding during the entire year as if the Global Offering had occurred at January 1, 2006. This calculationassumes that the Over-allotment Option will not be exercised.

III-2


A1A 9(3)

C. COMFORT LETTER ON UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the text of a report from Ernst & Young, the reporting accountants of the Company,in respect of the unaudited pro forma adjusted net tangible assets and the unaudited pro formaestimated earnings per share for the year ended December 31, 2006.


8 March 2007

The DirectorsChina Agri-Industries Holdings Limited

A1A 9(3)

We report on the unaudited pro forma adjusted net tangible assets and unaudited pro formaestimated earnings per share (the ‘‘Pro Forma Financial Information’’) of China Agri-Industries HoldingsLimited (the ‘‘Company’’) and its subsidiaries (hereinafter collectively referred to as the ‘‘Group’’), whichhas been prepared by the directors for illustrative purpose only, to provide information about how theglobal offering of 697,846,000 shares of HK$0.1 each of the Company might have affected the relevantfinancial information presented, for inclusion in Section (A) and (B) of Appendix III to the prospectus ofthe Company dated 8 March 2007 (the ‘‘Prospectus’’).

Responsibilities of Directors of the Company and Reporting Accountants

It is the responsibility solely of the directors of the Company to prepare the Pro Forma FinancialInformation in accordance with paragraph 29 of chapter 4 of the Rules Governing the Listing ofSecurities on The Stock Exchange of Hong Kong Limited (the ‘‘Listing Rules’’) and with reference toAccounting Guideline 7 ‘‘Preparation of Pro Forma Financial Information for Inclusion in InvestmentCirculars’’ issued by the Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’).

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

Basis of Opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment CircularReporting Engagements 300 ‘‘Accountants Reports on Pro Forma Financial Information in InvestmentCirculars’’ issued by the HKICPA. Our work, consisted primarily of comparing the unadjusted financialinformation with source documents, considering the evidence supporting the adjustments, anddiscussing the Pro Forma Financial Information with the directors of the Company. This engagement didnot involve independent examination of any of the underlying financial information.

3rd Sch(42)

We planned and performed our work so as to obtain the information and explanations weconsidered necessary in order to provide us with sufficient evidence to give reasonable assurance thatthe Pro Forma Financial Information has been properly compiled by the directors of the Company on thebasis stated, that such basis is consistent with the accounting policies of the Group and that theadjustments are appropriate for the purposes of the Pro Forma Financial Information as disclosedpursuant to paragraph 29(1) of chapter 4 of the Listing Rules.

Our work has not been carried out in accordance with the auditing standards or other standardsand practices generally accepted in the United States of America or auditing standards of the Public

III-3


Company Accounting Oversight Board (United States) and accordingly should not be relied upon as if ithas been carried out in accordance with those standards.

The Pro Forma Financial Information is for illustrative purposes only, based on judgments andassumptions of the directors of the Company, and, because of its hypothetical nature, it does notprovide any assurance or indication that any event will take place in future and may not be indicative of:

( the financial position of the Group as at 30 September 2006 or any future date; or

( the estimated earnings per share of the Group for the year ended 31 December 2006 or anyfuture periods.

Opinion

In our opinion:

(a) the Pro Forma Financial Information has been properly compiled by the directors of theCompany on the basis stated;

(b) such basis is consistent with the accounting policies of the Group; and

(c) the adjustments are appropriate for the purposes of the Pro Forma Financial Information asdisclosed pursuant to paragraph 29(1) of chapter 4 of the Listing Rules.

Yours faithfully,


III-4

LR11.17

LR11.18APPENDIX IV PROFIT ESTIMATE

A1A 34(2)The estimated combined profit attributable to the equity holders of the Company for the financialyear ended December 31, 2006 is set out in the section headed ‘‘Financial Information — ProfitEstimate’’ in this prospectus.

(A) BASES

Our Directors have prepared the estimate of our combined profit attributable to the equity holdersfor the financial year ended December 31, 2006 based on our audited combined results for the ninemonths ended September 30, 2006, and an estimate of our combined results for the remaining threemonths ended December 31, 2006.

The profit estimate has been prepared on the basis of accounting policies consistent in all materialrespects with those currently adopted by us as summarized in the accountants’ report, the text of whichis set forth in Appendix I to this prospectus.

IV-1

APPENDIX IV PROFIT ESTIMATE

(B) LETTERS

Set out below are the text of the letters received by the Directors from Ernst & Young and from theSponsor in connection with the profit estimate of the Group for the year ended December 31, 2006 andprepared for the purpose of inclusion in this prospectus.


8 March 2007


Dear Sirs,

We have reviewed the accounting policies and calculations adopted in arriving at the estimate ofthe combined profit attributable to equity holders of China Agri-Industries Holdings Limited (the‘‘Company’’) in respect of the Company and its subsidiaries (hereafter collectively referred to as the‘‘Group’’) for the year ended 31 December 2006 (the ‘‘Profit Estimate’’) for which you as directors of theCompany (the ‘‘Directors’’) are solely responsible, as set out in the subsection headed ‘‘Profit Estimate’’under the section headed ‘‘Financial Information’’ in the prospectus of the Company dated 8 March2007 (the ‘‘Prospectus’’). The Profit Estimate has been prepared by the Directors based on the auditedcombined results of the Group for the nine months ended 30 September 2006, and an estimate of thecombined results of the Group for the remaining three months ended 31 December 2006.

In our opinion, the Profit Estimate, so far as the accounting policies and calculations are concerned,has been properly compiled in accordance with the bases adopted by the Directors as set out inAppendix IV to the Prospectus, and is presented on a basis consistent in all material respects with theaccounting policies adopted by the Group as set out in our accountants’ report dated 8 March 2007, thetext of which is set out in Appendix I of the Prospectus.

Yours faithfully,


IV-2

APPENDIX IV PROFIT ESTIMATE

March 8, 2007

The DirectorsChina Agri-Industries Holdings Limited

Dear Sirs,

We refer to the estimate (the ‘‘Profit Estimate’’) of the combined profit attributable to the equityholders of China Agri-Industries Holdings Limited (the ‘‘Company’’) and its subsidiaries (the ‘‘Group’’) forthe year ended December 31, 2006.

The Profit Estimate, for which the Directors are solely responsible, has been prepared by thembased on (i) the audited combined results of the Group for the nine months ended September 30, 2006and (ii) an estimate of the combined results of the Group for the remaining three months endedDecember 31, 2006 We have discussed with you the bases upon which the Profit Estimate has beenmade.

We have also considered the letter dated March 8, 2007 addressed to you and us from Ernst &Young regarding the accounting policies and calculations upon which the Profit Estimate has beenmade.

On the basis of the information comprising the Profit Estimate and on the bases of the accountingpolicies and calculations adopted by you and reviewed by Ernst & Young, we are of the opinion that theProfit Estimate, for which you as the Directors of the Company are solely responsible, has been madeafter due and careful enquiry.

Yours faithfully,

For and on behalf ofGoldman Sachs (Asia) L.L.C.

Name: Ian LeeTitle: Executive Director

IV-3

APPENDIX V PROPERTY VALUATION

A1A 39

A1A 9(3)

3rd Sch (34),(36),(46

The following is the text of a letter, summary of values and valuation certificates, prepared forinclusion in this prospectus, received from Savills Valuation and Professional Services Limited, anindependent valuer, in connection with their valuations as of 31 December 2006 of the property interestsof the Group.

A1A 9(3)

The Directors T: (852) 2801 6100China Agri-Industries Holdings Limited F: (852) 2501 559033rd FloorTop Glory Tower 23/F Two Exchange Square262 Gloucester Road Central, Hong KongCauseway BayHong Kong EA LICENCE: C-023750

savills.com

8 March 2007 A1A 9(3)

Dear Sirs

In accordance with your instructions for us to value the property interests held by China Agri-Industries Holdings Limited (the ‘‘Company’’) and its subsidiaries (hereinafter together referred to as the‘‘Group’’) in the People’s Republic of China (‘‘the PRC’’), we confirm that we have carried outinspections, made relevant enquiries and searches and obtained such further information as weconsider necessary for the purpose of providing you with our opinion of the market value of the propertyinterests as at 31 December 2006.

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

The market value is the best price reasonably obtainable in the market by the seller and the mostadvantageous price reasonably obtainable in the market by the buyer. This estimate specificallyexcludes an estimated price inflated or deflated by special terms or circumstances such as atypicalfinancing, sale and leaseback arrangements, special considerations or concessions granted by anyoneassociated with the sale, or any element of special value. The market value of a property is alsoestimated without regard to costs of sale and purchase, and without offset for any associated taxes.

We have valued portion of the properties in Group 1 by using ‘‘Direct Comparison Approach’’whenever market comparable transactions are available and assumed sale of the property interests withthe benefit of vacant possession. However, for the rest of the properties in Group 1, due to the fact thatspecific uses for those properties have been restricted, there are no readily identifiable marketcomparables, and the buildings and structures of these properties cannot be valued on the basis ofdirect comparison. They have therefore been valued on the basis of their depreciated replacement cost.We would define ‘‘depreciated replacement cost’’ for these purposes to be our opinion of the land valuein its existing use and an estimate of the new replacement costs of the buildings, including fees andfinance charges, from which deductions are then made to allow for age, condition and functionalobsolescence. The depreciated replacement cost approach generally provides the most reliableindication of value for property in the absence of a known market based on comparable sales.

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The properties in Group 2, which are under construction, have been valued on the basis of‘‘Depreciated Replacement Cost’’ with regard to their prevailing cost level and status of construction asat date of valuation, and we have also assumed that all consents, approvals and licenses from therelevant Government authorities for these developments will be granted without any onerous conditionsor undue delay which might affect their values.

The properties in Group 3 which are leased by the Group have no commercial value due to theprohibition against assignment, sub-letting or lack of substantial profit rent.

We have been provided with copies of extracts of title documents relating to the properties.However, we have not inspected the original documents to verify the ownership or to verify anyamendments, which may not appear on the copies handed to us. In the course of our valuation, we haverelied to a very considerable extent on the information given by the Company and its legal advisers onPRC laws, Commerce & Finance Law Offices, regarding the titles and other legal matters relating to theproperties, and have accepted advice given to us on matters such as planning approvals or statutorynotices, easements, tenure, leases, particulars of occupancy, construction costs incurred, identificationof the property, site and floor areas and all other relevant matters. Dimensions, measurements andareas included in the valuation certificate are based on information contained in the documentsprovided to us by the Company and are therefore only approximations. We have not been able to carryout on-site measurements to verify the correctness of the site and floor areas of the properties. We haveassumed that the site and floor areas shown on the documents handed to us are correct.

We have inspected the exterior, and where possible, the interior of the properties. However, nostructural survey has been made, but in the course of our inspection, we did not note any seriousdefects. We are not, however, able to report that the properties are free from rot, infestation or any otherstructural defects. No tests were carried out on any of the services.

We have not carried out investigations on site in respect of the properties in Group 2 to determinethe suitability of the ground conditions and the services, etc for future development. Our valuation isprepared on the assumption that these aspects are satisfactory and that no extraordinary expenses ordelays will be incurred during the construction period.

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

In preparing our valuation report, we have complied with the requirements contained within theprovisions of the HKIS Valuation Standards on Properties (First Edition 2005) published by the HongKong Institute of Surveyors; Chapter 5, Practice Notes 12 and 16 of the Rules Governing the Listing ofSecurities on The Stock Exchange of Hong Kong Limited except for those in respect of Rules 5.01,5.06(1) and 5.06(3), paragraph 3(a) of Practice Note 16. Wavier applications were being made to theStock Exchange in respect of the aforesaid specific sections of the rules and relevant requirements inthe announcement.

Unless otherwise stated, all monetary amounts stated are in Renminbi.

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Our summary of values and valuation certificates are attached herewith.

Yours faithfullyFor and on behalf ofSavills Valuation and Professional Services LimitedCharles C K ChanMSc FRICS FHKIS MCIArb RPS(GP)Managing Director

Note: Charles C K Chan, Chartered Estate Surveyor, MSc, FRICS, FHKIS, MCIArb, RPS(GP), hasabout 17 years’ experience in the valuation of properties in the PRC.

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SUMMARY OF VALUES

Market Valuein Existing State

as at 31 December 2006No. Property RMB

Group 1 — Completed property interests in the PRC1. Property held by Dalian COFCO Malt Co., Ltd. ( ) in

Liaoning Province, PRC 261,400,0002. Properties held by COFCO Jiangxi Rice Processing Limited

( ) in Jiangxi Province, PRC 127,000,0003. Property held by China Resources (Heilongjiang) Alcohol Co., Ltd.

( ) in Heilongjiang Province, PRC 269,200,0004. Property held by China Resources Winery (Heilongjiang) Co., Ltd.

( ) in Heilongjiang Province, PRC 10,100,0005. Property held by COFCO Industry (Qinhuangdao) Pangthai Co., Ltd.

( ) in Hebei Province, PRC 89,500,0006. Property held by Puyang COFCO Flour Industry Co., Ltd.

( ) in Henan Province, PRC 34,400,0007. Property held by Shandong COFCO Lude Foods Co., Ltd.

( ) in Shandong Province, PRC 32,100,0008. Properties held by East Ocean Oils & Grains Industries

(Zhangjiagang) Co., Ltd. ( ) in JiangsuProvince, PRC 1,136,100,000

9. Properties held by Yellowsea Oils & Grains Industries (Shandong) Co.,Ltd. ( ) in Jiangsu Province, PRC 143,500,000

10. Properties held by COFCO ADM Oils and Grains Industries (Heze)Co., Ltd. ( ) in Shandong Province, PRC 169,800,000

11. Property held by Eastbay Oils & Fats Industries (Guangzhou) Co., Ltd.( ) in Guangdong Province, PRC 62,400,000

12. Property held by COFCO Xiangrui Oils & Grains Industries (Jingmen)Co., Ltd. ( ) in Hubei Province, PRC 158,000,000

13. Property held by Zhengzhou Haijia Food Co., Ltd.( ) in Henan Province, PRC No commercial value

14. Properties held by Xiamen Haijia Flour Mills Co., Ltd.( ) in Zhengzhou, PRC 1,040,000

Sub-total: 2,494,540,000

Group 2 — Property interests under development in the PRC15. Property held by COFCO Bio-Chemical Energy (Yushu) Co., Ltd.

( ) under development in Jilin Province, PRC 101,200,00016. Property held by Shenyang Xiangxue Flour Limited Liability Company

( ) under development in Shenyang, PRC 118,000,00017. Property held by COFCO Malt (Jiangyin) Co., Ltd.

( ) in Jiangsu Province, PRC 243,700,000

Sub-total: 462,900,000

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Market Valuein Existing State

as at 31 December 2006No. Property RMB

Group 3 — Rented property interests in the PRC18. Properties rented by Shanghai COFCO Brewing Materials Co., Ltd.

( ) in Shanghai, PRC No commercial value19. Properties rented by China Resources (Heilongjiang) Alcohol Co., Ltd.

( ) in Heilongjiang Province, PRC No commercial value20. Properties rented by East Ocean Oils & Grains Industries

(Zhangjiagang) Co., Ltd. ( ) in JiangsuProvince, PRC No commercial value

21. Properties rented by Eastbay Oils & Fats Industries (Guangzhou) Co.,Ltd. ( ) in Guangdong Province, PRC No commercial value

22. Properties rented by COFCO Xiangrui Oils & Grains Industries(Jingmen) Co., Ltd. ( ) in Hubei Province,PRC No commercial value

23. Properties rented by COFCO Industry (Qinhuangdao) Pangthai Co.,Ltd. ( ) in Hebei Province, PRC No commercial value

24. Property rented by COFCO International (Beijing) Co., Ltd( ) in Beijing, PRC No commercial value

Sub-total: NilGrand Total: 2,957,440,000

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VALUATION CERTIFICATE

Group 1 — Completed property interests in the PRCMarket Value in Existing

State as atProperty Description and Tenure Particulars of Occupancy 31 December 2006

1. Property held by Dalian The property comprises The buildings of the RMB261,400,000COFCO Malt Co., Ltd. an industrial complex property are currently( ) in erected on two parcels of occupied for office,Liaoning Province, PRC land with a total site area production and ancillary

of approximately uses.162,869.02 sq m(1,753,122 sq ft).

The industrial complexcomprises 21 workshop,warehouse and ancillarybuildings with a totalgross floor area ofapproximately 33,279.39sq m (358,219 sq ft) andvarious structurescompleted in 1998 to1999.

The land use rights ofthe two parcels of land ofthe property are grantedfor respective termscommencing on 28 May1996 and 8 December1997 and expiring on 27May 2046 and 7December 2047 forindustrial uses.

Notes:

(1) According to two Land Use Rights Certificates 082 (Pu Guo Yong (1996) Zi Di No. 082)and 215 (Pu Guo Yong (1997) Zi Di No. 215), the land use rights of the land of theproperty are granted to Dalian COFCO Malt Co., Ltd. for respective terms commencing on 28 May 1996 and8 December 1997 and expiring on 27 May 2046 and 7 December 2047 for industrial uses.

(2) According to 18 Realty Title Certificates, the building ownership of the buildings of the property with a totalgross floor area of 33,279.39 sq m is held by Dalian COFCO Malt Co., Ltd.

(3) We have been provided with legal opinion on the title to the property issued by the Group’s PRC legaladvisers, which contains, inter alia, the following information:-

(i) Dalian COFCO Malt Co., Ltd. has acquired the land use rights of the property and is entitled to transfer,lease, mortgage or dispose of the land use rights by other means.

(ii) Dalian COFCO Malt Co., Ltd. has obtained the building ownership of the buildings of the property andis entitled to transfer, lease, mortgage or dispose of the buildings by other means.

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VALUATION CERTIFICATEMarket Value inExisting State

as atProperty Description and Tenure Particulars of Occupancy 31 December 2006

2. Properties held by The properties comprise The properties are RMB127,000,000COFCO Jiangxi Rice three industrial complexes currently occupied forProcessing Limited erected on three parcels of production and office uses.( ) in land with a total site areaJiangxi Province, PRC of approximately

209,657.78 sq m(2,256,756 sq ft).

The three industrialcomplexes comprises 15workshop, office,warehouse and ancillarybuildings with a total grossfloor area of approximately63,743.55 sq m (686,136sq ft) and various ancillarystructures completed in2003 to 2005.

The land use rights of theproperties are granted forrespective terms forindustrial and compositeuses respectively. (Pleaserefer to note (1) fordetails.)

Notes:

(1) According to the following three Land Use Rights Certificates, the land use rights of three parcels of land ofthe properties are granted to COFCO Jiangxi Rice Processing Limited.

Site areaCertificate No. (sq m) Uses Land use term

169,010 Industrial 9 October 2001 toHuai Guo Yong (2001) Zi No. 251 18 September 2051

31,000 Industrial 9 October 2001 toHuai Guo Yong (2001) Zi No. 252 18 September 2051

9,647.78 Industrial 18 March 2003 toHuai Guo Yong (2003) Zi No. 038 20 January 2053

(2) According to 15 Realty Title Certificates 08643 to 08657 (Fang Quan Zheng Jin Fang Zi DiNos. 08643 to 08657), the building ownership of the buildings of the properties with a total gross floor area of63,743.55 sq m is held by COFCO Jiangxi Rice Processing Limited.

(3) We have been provided with legal opinion on the title to the properties issued by the Group’s PRC legaladvisers, which contains, inter alia, the following information:-

(i) COFCO Jiangxi Rice Processing Limited has acquired the land use rights of the properties and isentitled to transfer, lease, mortgage or dispose of the land use rights by other means.

(ii) COFCO Jiangxi Rice Processing Limited has obtained the building ownership of the buildings of theproperties and is entitled to transfer, lease, mortgage or dispose of the buildings by other means.

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VALUATION CERTIFICATEMarket Value inExisting State

as atProperty Description and Tenure Particulars of Occupancy 31 December 2006

3. Property held by China The property comprises an The buildings of the RMB269,200,000Resources (Heilongjiang) industrial complex erected property are currentlyAlcohol Co., Ltd. on three parcels of land occupied for office,( ) in with a total site area of production and ancillaryHeilongjiang Province, approximately 772,390.00 uses.PRC sq m (8,314,006 sq ft).

The industrial complexcomprises 129 workshop,warehouse and ancillarybuildings with a total grossfloor area of approximately123,102.69 sq m(1,325,077 sq ft) andvarious structurescompleted in 1993 to 2004and 23 buildings with atotal gross floor area ofapproximately43,433.88 sq m(467,522 sq ft) underconstruction and will becompleted in 2007.

The land use rights of thetwo parcels of land of theproperty with a total sitearea of approximately449,009.00 sq m aregranted for respectiveterms expiring on 21 April2040 for industrial uses.

Notes:(1) According to two Land Use Rights Certificates 078 (Zhao Guo Yong (2003 Cheng) Zi Di

No. 078) and 0128 (Zhao Guo Yong (2004 Cheng) Zi Di No. 0128), the land use rights oftwo parcels of land of the property are granted to China Resources (Heilongjiang) Alcohol Co., Ltd. forrespective terms commencing on 31 October 2003 and 10 September 2004 and expiring on 21 April 2040and 21 April 2040 for industrial uses.

(2) According to a Land Use Rights Certificate 144 (Zhao Guo Yong (2006 Cheng) Di No. 144),the land use rights of a parcel of land of the property with a site area of 323,381 sq m are granted to ChinaResources (Heilongjiang) Alcohol Co., Ltd. for a term expiring on 7 August 2040 for industrial uses.

(3) According to 130 Realty Title Certificates, the building ownership of the property with a total gross floor areaof 123,102.69 sq m is held by China Resources (Heilongjiang) Alcohol Co., Ltd.

(4) We have been provided with legal opinion on the title to the property issued by the Group’s PRC legaladvisers, which contains, inter alia, the following information:-(i) China Resources (Heilongjiang) Alcohol Co., Ltd. has acquired the land use rights of three parcels of

land of the property with a total site area of 772,390 sq m and is entitled to transfer, lease, mortgage ordispose of the land use rights by other means.

(ii) China Resources (Heilongjiang) Alcohol Co., Ltd. has obtained the building ownership of the buildingsof the property and is entitled to transfer, lease, mortgage or dispose of the buildings by other means.

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VALUATION CERTIFICATEMarket Value in

Existing State as atProperty Description and Tenure Particulars of Occupancy 31 December 2006

4. Property held by China The property comprises an The buildings of the RMB10,100,000Resources Winery industrial complex erected property are currently(Heilongjiang) Co., Ltd. on a parcel of land with a occupied for office,( ) in site area of approximately production and ancillaryHeilongjiang Province, PRC 26,501.88 sq m uses.

(285,266 sq ft).The industrial complexcomprises 22 workshop,warehouse and ancillarybuildings with a total grossfloor area of approximately15,488.25 sq m (166,716sq ft) and variousstructures completed in1977 to 2002.

The land use rights of theproperty are granted for aterm commencing on25 September 2003 andexpiring on 24 September2043 for industrial uses.

Notes:

(1) According to a Land Use Rights Certificate 067 (Zhao Guo Yong (2003 Cheng) Zi DiNo. 067), the land use rights of the land of the property are granted to Heilongjiang China Resources WineryCo., Ltd. for a term commencing on 25 September 2003 and expiring on 24 September 2043 for industrialuses.

(2) According to 22 Realty Title Certificates, the building ownership of the property with a total gross floor area of15,488.25 sq m is held by China Resources Winery (Heilongjiang) Co., Ltd.

(3) We have been provided with legal opinion on the title to the property issued by the Group’s PRC legaladvisers, which contains, inter alia, the following information: -

(i) China Resources Winery (Heilongjiang) Co., Ltd. has acquired the land use rights of the property andis entitled to transfer, lease, mortgage or dispose of the land use rights by other means.

(ii) China Resources Winery (Heilongjiang) Co., Ltd. has obtained the building ownership of the buildingsof the property and is entitled to transfer, lease, mortgage or dispose of the buildings by other means.

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Market Value inExisting State as at

Property Description and Tenure Particulars of Occupancy 31 December 2006

5. Property held by COFCO The property comprises an The industrial complex is RMB89,500,000Industry (Qinhuangdao) industrial complex erected currently occupied forPangthai Co., Ltd. on a parcel of land with a production, warehouse and( ) site area of approximately ancillary uses.in Hebei Province, PRC 180,009.00 sq m

(1,937,617 sq ft).

The industrial complexcomprises 16 workshop,warehouse and ancillarybuildings with a total grossfloor area of approximately71,380.95 sq m(768,345 sq ft) completedin 1995 and 2005.

The land use rights of theindustrial complex aregranted for a termcommencing on13 September 1993 andexpiring on 12 May 2043for industrial uses.

Notes:(1) According to a Land Use Rights Certificate 031 (Qin Ji Guo Yong (1993) Zi Di No. 031),

the land use rights of the industrial complex are granted to COFCO Industry (Qinhuangdao) Pangthai Co.,Ltd. for a term commencing on 13 September 1993 and expiring on 12 May 2043 for industrial uses.

(2) According to a Realty Title Certificate 20005186 (Qin Shan Kai Fang Zi Di No. 20005186), thebuilding ownership of the buildings of the property with a total gross floor area of 71,380.95 sq m is held byCOFCO Industry (Qinhuangdao) Pangthai Co., Ltd.

(3) We have been provided with legal opinion on the title to the property issued by the Group’s PRC legaladvisers, which contains, inter alia, the following information: -(i) COFCO Industry (Qinhuangdao) Pangthai Co., Ltd. has acquired the land use rights of the property

and is entitled to transfer, lease, mortgage or dispose of the land use rights by other means.(ii) COFCO Industry (Qinhuangdao) Pangthai Co., Ltd. has obtained the building ownership of the

buildings of the property and is entitled to transfer, lease, mortgage or dispose of the buildings byother means.

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6. Property held by The property comprises an The industrial complex is RMB34,400,000Puyang COFCO Flour industrial complex erected on currently occupied forIndustry Co., Ltd. two parcels of land with a production uses.( ) total site area ofin Henan Province, The approximatelyPRC 58,712.79 sq m

(631,984 sq ft).

The industrial complexcomprises 24 workshop,warehouse and ancillarybuildings with a total grossfloor area of approximately19,931.68 sq m(214,545 sq ft) and variousstructures completed in 1991and 1998.

The land use rights of theproperty are granted for aterm commencing on6 December 2002 andexpiring on 6 December 2052for industrial and commercialuses.

Notes:(1) According to a Land Use Rights Certificate 0234 (Pu Yang Shi Guo Yong (02) Zi Di

No. 0234), the land use rights of the industrial complex are granted to Puyang COFCO Flour Industry Co.,Ltd. for a term commencing on 6 December 2002 and expiring on 6 December 2052 for industrial andcommercial uses.

(2) According to five Realty Title Certificates 2003-00441 , 2003-00446 , 2003-00590 , 2003-00591 and 2003-00592 (Pu Fang Quan Zhen Zi Di Nos. 2003-00441, 2003-00446, 2003-00590, 2003-00591 and 2003-00592), the building ownership of the buildings of the property with a total gross floor areaof 19,931.68 sq m is held by Puyang COFCO Flour Industry Co., Ltd.

(3) We have been provided with legal opinion on the title to the property issued by the Group’s PRC legaladvisers, which contains, inter alia, the following information: -(i) Puyang COFCO Flour Industry Co., Ltd. has acquired the land use rights of the property and is

entitled to transfer, lease, mortgage or dispose of the land use rights by other means.(ii) Puyang COFCO Flour Industry Co., Ltd. has obtained the building ownership of the buildings of the

property and is entitled to transfer, lease, mortgage or dispose of the buildings by other means.

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7. Property held by The property comprises The property is currently RMB32,100,000Shandong COFCO Lude an industrial complex occupied for office,Foods Co., Ltd. erected on a parcel of production and ancillary( ) land with a site area of uses.in Shandong Province, approximatelyPRC 36,354.40 sq m

(391,319 sq ft).The industrial complexcomprises 26 workshop,warehouse and ancillarybuildings with a totalgross floor area ofapproximately18,951.61 sq m(203,995 sq ft) andvarious structurescompleted in 1982 to2006.The land use rights of theproperty are granted for aterm commencing on2 April 2002 and expiringon 28 December 2048 forindustrial uses.

Notes:(1) According to a Land Use Rights Certificate 044 (De Guo Yong (2002) Zi Di No. 044), the

land use rights of the property are granted to Shandong COFCO Lude Foods Co., Ltd. for a term commencingon 2 April 2002 and expiring on 28 December 2048 for industrial uses.

(3) We have been provided with legal opinion on the title to the property issued by the Group’s PRC legaladvisers, which contains, inter alia, the following information:-(i) Shandong COFCO Lude Foods Co., Ltd. has acquired the land use rights of the property and is entitled

to transfer, lease, mortgage or dispose of the land use rights by other means.(ii) Shandong COFCO Lude Foods Co., Ltd. has not obtained the relevant Building Ownership Certificate of

nine buildings of the property with a total gross floor area of 2,552.74 sq m. After Shandong COFCOLude Foods Co., Ltd. has obtained the relevant Building Ownership Certificate, it is entitled to transfer,lease, mortgage or dispose of the buildings by other means.

(iii) Shandong COFCO Lude Foods Co., Ltd. has obtained the relevant Building Ownership Certificates ofthe remaining 17 buildings of the property with a total gross floor area of 16,398.87 sq m. ShandongCOFCO Lude Foods Co., Ltd. is entitled to transfer, lease, mortgage or dispose of the buildings by othermeans.

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8. Properties held by East The properties comprise six The properties are RMB1,136,100,000Ocean Oils & Grains industrial complexes erected currently occupied forIndustries (Zhangjiagang) on eight parcels of land with production, warehouse,Co., Ltd. a total site area of office and ancillary( ) approximately 809,502.60 sq uses.in Jiangsu, PRC m (8,713,486 sq ft) and

various office and residentialbuildings and units.

The properties comprises 61workshop, office, canteen,warehouse and ancillarybuildings with a total grossfloor area of approximately208,907.25 sq m(2,248,678 sq ft) andvarious ancillary structurescompleted in 1995 to 2006.

The land use rights of theproperties are granted forrespective terms forindustrial and compositeuses respectively.

Notes:

(1) According to the following eight Land Use Rights Certificates, the land use rights of eight parcels of land of theproperties are granted to East Ocean Oils & Grains Industries (Zhangjiagang) Co., Ltd.


(2006)38035 84,293.75 Industrial 16 May 2001 toZhang Guo Yong (2006)38035 15 May 2051

(2006)38036 31,262.70 Industrial 10 March 2004 toZhang Guo Yong (2006)38036 9 March 2054

(2006)38037 302,786.85 Industrial 31 January 2005 toZhang Guo Yong (2006)38037 30 January 2055

(2006)38046 90,937.80 Industrial 29 December 2000 toZhang Guo Yong (2006)38046 27 January 2051

(2006)38060 178,096.80 Industrial 28 September 1993Zhang Guo Yong (2006)38060 to 28 August 2043

(2006)38061 90,933.50 Industrial 29 December 2000 toZhang Guo Yong (2006)38061 27 January 2051

(2006)38062 16,441.00 Industrial 31 December 1996 toZhang Guo Yong (2006)38062 30 November 2046

(2006) 101-165 14,750.20 Industrial 5 May 2003 toShan Guo Yong (2006)101-165 5 May 2053

(2) The properties include a building with a gross floor area of approximately 547 sq m is erected upon a parcel ofland with a site area of approximately 2,142 sq m. and the land is subject to a lease for a term expiring on1 July 2012. As advised, this building and land are used by the Company’s Huangshi production facility. As

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East Ocean Oils & Grains Industries (Zhangjiagang) Co., Ltd. has not acquired the land use rights of the land,we have, therefore, ascribed no commercial value to this building and land.


(i) East Ocean Oils & Grains Industries (Zhangjiagang) Co., Ltd. has acquired the land use rights of eightparcels of land of the properties with a total site area of 809,502.60 sq m and is entitled to transfer,lease, mortgage or dispose of the land use rights by other means.

(ii) Saved for a building with a gross floor area of 547 sq m, East Ocean Oils & Grains Industries(Zhangjiagang) Co., Ltd. has obtained the building ownership of the buildings of the properties and isentitled to transfer, lease, mortgage or dispose of the buildings by other means.

(iii) East Ocean Oils & Grains Industries (Zhangjiagang) Co., Ltd. has obtained the relevant BuildingCertificates of 12 buildings of the properties with a gross floor area of 3,451.10 sq m but the relevantLand Use Rights Certificates have not been issued. These buildings are commodity housing purchasedby the Group and the Group has fully paid the considerations. There is no legal impediment for EastOcean Oils & Grains Industries (Zhangjiagang) Co., Ltd. to acquire the relevant Land Use RightsCertificates. After East Ocean Oils & Grains Industries (Zhangjiagang) Co., Ltd. has obtained therelevant Land Use Rights Certificates, it is entitled to transfer, lease, mortgage or dispose of thebuildings by other means.

(iv) East Ocean Oils & Grains Industries (Zhangjiagang) Co., Ltd. has not obtained the relevant BuildingCertificate of the building of the properties with a gross floor area of 547 sq m, which is erected uponthe land without proper land titles. There may have difficulty to obtain the relevant building ownership forthe building.

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9. Properties held by Yellowsea The properties comprise The properties are RMB143,500,000Oils & Grains Industries various industrial buildings currently occupied for(Shandong) Co., Ltd. erected on four parcels of production, office,( ) land with a total site area dormitory and otherin Jiangsu Province, PRC of approximately ancillary uses.

163,326.60 sq m(1,758,048 sq ft) andvarious residential andcanteen units.

The industrial buildings ofthe properties comprise 37workshop, office,warehouse and ancillarybuildings with a total grossfloor area of approximately44,558.97 sq m (479,633sq ft) and various ancillarystructures completed in1992 to 2006.

The properties alsocomprise seven residentialand canteen units with atotal gross floor area ofapproximately 11,813.17sq m (127,157 sq ft)completed in 1998 and2005.

The land use rights of theproperties are granted forrespective terms forindustrial uses. (Pleaserefer to note (1) fordetails.)

Notes:(1) According to the following four Land Use Rights Certificates, the land use rights of four parcels of land of the

properties are granted to Yellowsea Oils & Grains Industries (Shandong) Co., Ltd.Site area

Certificate No. (sq m) Uses Land use term

037 Ri Lan Guo Yong (1999) Zi No. 037 13,622.00 Industrial 23 November 1999 to

28 December 2038 005

Ri Lan Guo Yong (2001) Zi No. 005 84,300.00 Industrial 14 February 2001 to26 January 2050

45 Ri Lan Guo Yong (2004) Zi No. 45 43,820.60 Industrial 16 July 2003 to 30

July 2052581

Ri Lan Guo Yong (2003) Zi No. 581 21,584.00 Industrial 1 June 2004 to 20May 2054

(2) According to eight Realty Title Certificates, the building ownership of the buildings of the properties with atotal gross floor area of 56,372.14 sq m is held by Yellowsea Oils & Grains Industries (Shandong) Co., Ltd.

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(i) Yellowsea Oils & Grains Industries (Shandong) Co., Ltd. has acquired the land use rights of four parcelsof land of the properties and is entitled to transfer, lease, mortgage or dispose of the land use rights byother means.

(ii) Yellowsea Oils & Grains Industries (Shandong) Co., Ltd. has obtained the relevant Building OwnershipCertificates of 37 buildings of the properties with a total gross floor area of 44,558.97 sq m which areerected on the land with Land Use Rights Certificates. Yellowsea Oils & Grains Industries (Shandong)Co., Ltd. is entitled to transfer, lease, mortgage or dispose of the buildings by other means.

(iii) Yellowsea Oils & Grains Industries (Shandong) Co., Ltd. has obtained the relevant Building OwnershipCertificates for the remaining 7 buildings of the properties, but the relevant Land Use Rights Certificateshave not been issued. These buildings are commodity housing purchased by the Group and the Grouphas fully paid the considerations. There is no legal impediment for Yellowsea Oils & Grains Industries(Shandong) Co., Ltd. to acquire the relevant Land Use Rights Certificates. After Yellowsea Oils & GrainsIndustries (Shandong) Co., Ltd. has obtained the Land Use Rights Certificates, it is entitled to transfer,lease, mortgage or dispose of the buildings by other means.

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Market Value inDescription and Particulars of Existing State as at

Property Tenure Occupancy 31 December 2006

10. Properties held by COFCO ADM Oils The properties The properties are RMB169,800,000& Grains Industries (Heze) Co., Ltd. comprise an currently occupied for( ) in industrial complex office, production,Shandong Province, PRC erected on a parcel dormitory and ancillary

of land with a site uses.area ofapproximately265,841.00 sq m(2,861,513 sq ft)and three residentialunits.

The industrialcomplex comprises27 workshop, officeand ancillarybuildings with a totalgross floor area ofapproximately64,326.73 sq m(692,413 sq ft) andvarious structurescompleted in 2004.The three residentialunits have a totalgross floor area ofapproximately294.09 sq m (3,166sq ft) completed in2005.

The land use rightsof the industrialcomplex of theproperty are grantedfor a termcommencing on 8August 2003 andexpiring on 8 August2053 for industrialuses.

Notes:

(1) According to a Land Use Rights Certificate (He Guo Yong (2004) Zi Di No. 13402), theland use rights of the industrial complex of the property are granted to COFCO ADM Oils & Grains Industries(Heze) Co., Ltd. for a term commencing on 8 August 2003 and expiring on 8 August 2053 for industrial uses.

(2) According to nine Realty Title Certificates 031561 , 031562 , 031563 , 031564 , 031565 ,031566 , 037670 , 037671 and 037672 (Lu He Shi Zi Di Nos. 031561, 031562, 031563, 031564,031565, 031566, 037670, 037671 and 037672), the building ownership of the properties with a total grossfloor area of 64,620.82 sq m is held by COFCO ADM Oils & Grains Industries (Heze) Co., Ltd.

V-17



(i) COFCO ADM Oils & Grains Industries (Heze) Co., Ltd. has acquired the land use rights of theproperties with a total site area of 265,841 sq m and is entitled to transfer, lease, mortgage or dispose ofthe land use rights by other means.

(ii) COFCO ADM Oils & Grains Industries (Heze) Co., Ltd. has obtained the building ownership of thebuildings of the properties and is entitled to transfer, lease, mortgage or dispose of the buildings byother means.

V-18





11. Property held by Eastbay The property comprises The property is currently RMB62,400,000Oils & Fats an industrial complex occupied for office,Industries (Guangzhou) erected on two parcels of production and ancillaryCo., Ltd. land with a total site area uses.( ) of approximatelyin Guangdong Province, 47,753.00 sq mThe PRC (514,013 sq ft).

The industrial complexcomprises seven workshop,office and ancillarybuildings with a total grossfloor area of approximately11,263.92 sq m(121,245 sq ft) and variousstructures completed in1997 to 2003.

The land use rights of thetwo parcels of land of theproperty are granted forrespective terms expiringin September 2046 andNovember 2045 forindustrial uses.

Notes:

(1) According to two Land Use Rights Certificates 010 (Zeng Guo Yong (1996) Zi Di TeNo. 010) and 00027459 (Zeng Guo Yong (1988) Zi Di Te No. 00027459), the land userights of two parcels of land of the property are granted to Eastbay Oils & Fats Industries (Guangzhou) Co.,Ltd. for respective terms commencing from September 1996 and November 1995 and expiring in September2046 and November 2045 for industrial uses.

(2) According to four Realty Title Certificates 1643403 , 1643404 , 1643405 and 40214777 (Yue Fang Zi Di Nos.1643403, 1643404, 1643405 and 40214777), the building ownership of the propertywith a total gross floor area of 11,263.92 sq m is held by Eastbay Oils & Fats Industries (Guangzhou) Co.,Ltd.


(i) Eastbay Oils & Fats Industries (Guangzhou) Co., Ltd. has acquired the land use rights of the lands ofthe property and is entitled to transfer, lease, mortgage or dispose of the land use rights by othermeans.

(ii) Eastbay Oils & Fats Industries (Guangzhou) Co., Ltd. has not obtained the relevant BuildingOwnership Certificates of two buildings of the property with a total gross floor area of 3,707 sq m.After Eastbay Oils & Fats Industries (Guangzhou) Co., Ltd. has obtained the relevant BuildingOwnership Certificate, it is entitled to transfer, lease, mortgage or dispose of the buildings by othermeans.

(iii) Eastbay Oils & Fats Industries (Guangzhou) Co., Ltd. has obtained the relevant Building OwnershipCertificates of the remaining five buildings of the property with a total gross floor area of 7,756.92 sqm. Eastbay Oils & Fats Industries (Guangzhou) Co., Ltd. is entitled to transfer, lease, mortgage ordispose of the buildings by other means.

V-19





12. Properties held by COFCO The properties comprise The properties are RMB158,000,000Xiangrui Oils & Grains Industries 22 production, office, currently occupied for(Jingmen) Co., Ltd. warehouse and ancillary production and ancillary( ) in buildings with a total uses.Hubei Province, PRC gross floor area of

approximately34,214.15 sq m(368,281 sq ft) andvarious structureserected on three parcelsof land with a total sitearea of approximately235,120.30 sq m(2,530,835 sq ft).

The land use rights ofthe properties aregranted for variousterms of 50 years forindustrial and compositeuses respectively.(Please refer to note (1)for details.)

Notes:(1) According to the following three Land Use Rights Certificates, the land use rights of the land of the properties

are granted to COFCO Xiangrui Oils & Grains Industries (Jingmen) Co., Ltd.


2000-651-1-1-1 136,333.70 Industrial 11 January 2005 toZhong Guo Yong (2005) Di No. 2000-651-1-1-1 11 January 2055

2005-97-1 33,229.30 Industrial 6 July 2005 toZhong Guo Yong (2005) Di No. 2005-97-1 6 July 2055

2003-105-4 65,557.30 Industrial 24 April 2006 toZhong Guo Yong (2006) Di No. 2003-105-4 24 April 2056

(2) According to two Realty Title Certificates 00500622 (Chong Fang Quan Zhen Ying ZhongDi No. 00500622) and 00600324 (Chong Fang Quan Zhen Ying Zhong Di No. 00600324),the building ownership of the buildings of the properties with a total gross floor area of 34,214.15 sq m is heldby COFCO Xiangrui Oils & Grains Industries (Jingmen) Co., Ltd.

(3) We have been provided with legal opinion on the title to the properties issued by the Group’s PRC legaladvisers, which contains, inter alia, the following information:-(i) COFCO Xiangrui Oils & Grains Industries (Jingmen) Co., Ltd. has acquired the land use rights of the

properties with a total site area of 235,120.30 sq m and is entitled to transfer, lease, mortgage ordispose of the land use rights by other means.

(ii) COFCO Xiangrui Oils & Grains Industries (Jingmen) Co., Ltd. has obtained the building ownership ofthe buildings of the properties and is entitled to transfer, lease, mortgage or dispose of the buildingsby other means.

V-20




13. Property held by The property comprises The property is currently No commercial valueZhengzhou Haijia Food an industrial complex occupied for production,Co., Ltd. erected on a parcel of warehouse, dormitory( ) land with a site area of and ancillary uses.in Henan Province, PRC approximately

48,400 sq m(520,978 sq ft) and aresidential unit of aresidential building.

The industrial complexcomprises 29 workshop,warehouse, canteen andancillary buildings with atotal gross floor area ofapproximately41,949.95 sq m(451,549 sq ft) andvarious ancillarystructures completed in1984 to 2004. Theresidential unit has agross floor area ofapproximately 169.97 sqm (1,830 sq ft)completed in 2004.

The land use rights ofthe industrial complex ofthe property areallocated for industrialuses.

Notes:


(i) Zhengzhou Haijia Food Co., Ltd. has not obtained the relevant Land Use Rights Certificate.

(ii) Zhengzhou Haijia Food Co., Ltd. has not obtained the relevant Building Ownership Certificates of thebuildings of the property with a gross floor area of 41,949.95 sq m, which are erected upon the landwithout proper land title. The above stated buildings may have difficulty to obtain the relevant BuildingOwnership Certificate.

(iii) Zhengzhou Haijia Food Co., Ltd. is entitled to use the land of the property legally, however, ZhengzhouHaijia Food Co., Ltd. is not entitled to transfer, lease or mortgage the land use rights of the propertybefore Zhengzhou Haijia Food Co., Ltd. has entered into relevant Land Grant Contract, paid the landpremium and acquired the land use rights of the property.

(iv) As advised by the Company, the procedures for grant of the land use rights of the property are underprocessing. Under the PRC laws, there is no restriction for the Company to apply for the grant of landuse rights. As the approval from the land administrative authority has not yet been obtained, there isuncertainty for the Company to complete the procedures.

(2) The replacement cost of the buildings and structures of the industrial complex with a total gross floor area ofapproximately 41,949,95 sq m as at the date of valuation is RMB28,500,000 which is not included in thevaluation.

V-21



Existing State asat

31 DecemberProperty Description and Tenure Particulars of Occupancy 2006

14. Properties held by The properties comprise an The properties are RMB1,040,000Xiamen Haijia Flour industrial complex erected on a currently occupied for (Please refer toMills Co., Ltd. parcel of land with a site area of production and note 1)( ) in approximately 29,257.80 sq m dormitory uses.Zhengzhou, (314,931 sq ft) and two residentialThe PRC units of two residential buildings.

The industrial complex comprises19 workshop, warehouse, canteenand ancillary buildings with a totalgross floor area of approximately21,384.51 sq m (230,183 sq ft)and various ancillary structurescompleted in 1988 to 2005. Thetwo residential units have a totalgross floor area of approximately209.67 sq m (2,257 sq ft)completed in 1995 and 1999.

The land use rights of theindustrial complex of theproperties are allocated forindustrial uses.

Notes:

(1) The replacement cost of the buildings and structures of the industrial complex with a total gross floor area ofapproximately 21,384.51 sq m as at the date of valuation is RMB19,900,000 which is not included in thevaluation.


(i) Xiamen Haijia Flour Mills Co., Ltd. has acquired the land use rights and building ownership of aresidential unit of the properties with a site area of 29.68 sq m and a gross floor area of 100.26 sq m.Xiamen Haijia Flour Mills Co., Ltd is entitled to freely transfer, lease, mortgage or dispose of this unit byother means.

(ii) Xiamen Haijia Flour Mills Co., Ltd, purchased a residential unit with a gross floor area of 109.41 sq mand has fully settled the consideration, there is no legal impediment for Xiamen Haijia Flour Mills Co.,Ltd. to apply for the Building Ownership Certificate and the Land Use Rights Certificate of theresidential unit. Upon acquired the relevant Building Ownership Certificate and Land Use RightsCertificate, Xiamen Haijia Flour Mills Co., Ltd. is entitled to freely transfer, lease, mortgage or disposeof this unit by other means.

(iii) Xiamen Haijia Flour Mills Co., Ltd. has not obtained the relevant Building Ownership Certificate of thebuildings of the industrial complex of the properties with a total gross floor area of 21,384.51 sq m,which are erected upon the land without Land Use Rights Certificate. Xiamen Haijia Flour Mills Co., Ltd.may have difficulty in obtaining the relevant Building Ownership Certificate for the said buildings.

(iv) As advised by the Company, the procedures for grant of the land use rights of the remaining portion ofthe industrial complex of the properties are under processing. Under the PRC laws, there is norestriction for the Company to apply for the grant of land use rights. As the approval from the landadministrative authority has not yet been obtained, there is uncertainty for the Company to completethe procedures.

V-22



Group 2 — Property interests under development in the PRCMarket Value in


15. Property held by COFCO The property comprises The property is currently RMB101,200,000Bio-Chemical Energy an industrial project under under development.(Yushu) Co., Ltd. construction on a parcel of( ) land with a site area ofunder development approximately 320,000.00in Jilin, PRC sq m (3,444,480 sq ft).

Upon completion, theproperty will have9 workshop, warehouseand ancillary buildings witha total gross floor area ofapproximately 58,044.33sq m (624,789 sq ft). Theproperty is scheduled tobe completed in 2006.

The land use rights of theproperty are granted for aterm of 50 yearscommencing in 2006 forindustrial uses.

Notes:

(1) As advised, the relevant Land Use Rights Certificate is under application and the land use rights of theproperty are granted to COFCO Bio-chemical Energy (Yushu) Co., Ltd. for a term of 50 years commencing in2006 for industrial uses.

(2) As advised, the outstanding construction costs to complete the property as at the date of valuation is aboutRMB6,190,000.

(3) The capital value when completed of the property as at 31 December 2006 is RMB122,400,000.

(4) We have been provided with legal opinion on the title to the property issued by the Group’s PRC legaladvisers, which contains, inter alia, the following information:

(i) COFCO Bio-Chemical Energy (Yushu) Co., Ltd. has entered into a Land Grant Contract with therelevant authority for the land of the property. Upon fully settled the land premium, there is no legalimpediment for COFCO Bio-Chemical Energy (Yushu) Co., Ltd. to acquire the relevant Land Use RightsCertificates. After COFCO Bio-Chemical Energy (Yushu) Co., Ltd. has obtained the relevant Land UseRights Certificates, it is entitled to transfer, lease, mortgage or dispose of the lands by other means.

(ii) COFCO Bio-Chemical Energy (Yushu) Co., Ltd. has obtained the relevant Planning Permit forConstruction Land, Planning Permit for Construction Works and Construction Works CommencementPermit for buildings of the property which is under development. There is no legal impediment forCOFCO Bio-Chemical Energy (Yushu) Co., Ltd. to develop the property.

V-23


VALUATION CERTIFICATEMarket Value in Existing


16. Property held by The property comprises The property is currently RMB118,000,000Shenyang Xiangxue Flour an industrial project under development.Limited Liability Company under construction on( ) three parcels of landunder development in with a total site area ofShenyang, PRC approximately

133,333.00 sq m(1,435,196 sq ft). Uponcompletion, the propertywill have 11 workshop,dormitory, warehouseand ancillary buildingswith a total gross floorarea of approximately66,560.00 sq m (716,452sq ft). The property isscheduled to becompleted in 2006.

The land use rights ofthe property are grantedfor respective termscommencing on 14November 2005 andexpiring on 8 June 2054for industrial uses.

Notes:

(1) According to three Land Use Rights Certificates 47 , 48 and 49 (Shen Nong KaiGuo Yong (2005 Zi) Di Nos. 47, 48 and 49), the land use rights of the property are granted to ShenyangXiangxue Flour Limited Liability Company, for respective terms commencing on 14 November 2005 andexpiring on 8 June 2054 for industrial uses.

(2) According to the information provided, the outstanding construction costs to complete the property as at thedate of valuation is about RMB4,700,000.

(3) The capital value when completed of the property as at 31 December 2006 is RMB118,000,000.


(i) Shenyang Xiangxue Flour Limited Liability Company has acquired the land use rights of the propertywith a total site area of 133,333 sq m and is entitled to transfer, lease, mortgage or dispose of the landuse rights by other means.

(ii) Shenyang Xiangxue Flour Limited Liability Company has obtained the relevant Planning Permit forConstruction Land, Planning Permit for Construction Works and Construction Works CommencementPermit for buildings of the property which is under development. There is no legal impediment forShenyang Xiangxue Flour Limited Liability Company to develop the property.

V-24


VALUATION CERTIFICATEMarket Value in Existing


17. Property held by COFCO The property comprises The property is currently RMB243,700,000Malt (Jiangyin) Co., Ltd. an industrial complex under development.( ) in under construction on aJiangsu Province, PRC parcel of land with a site

area of approximately151,910.00 sq m(1,635,159 sq ft).

Upon completion, theindustrial complex willhave 13 buildings andstructures with a totalgross floor area ofapproximately 69,877.08sq m (752,157 sq ft). Thebuildings are scheduledto be completed in 2007.

The land use rights of theproperty are granted for aterm commencing fromNovember 2004 andexpiring in October 2054for industrial uses.

Notes:

(1) According to the information provided, the outstanding construction cost to complete the property as at thedate of valuation is about RMB36,970,000.

(2) According to a Land Use Rights Certificate 013006 (Cheng Tu Guo Yong (2004) DiNo. 013006), the land use rights of the land of the property are granted to COFCO Malt (Jiangyin) Co., Ltd.for a term commencing from November 2004 and expiring in October 2054 for industrial uses.


(i) COFCO Malt (Jiangyin) Co., Ltd. has acquired the land use rights of the property and is entitled totransfer, lease, mortgage or dispose of the land use rights by other means.

(ii) COFCO Malt (Jiangyin) Co., Ltd. has obtained the relevant Planning Permit for Construction Land,Planning Permit for Construction Works and Construction Works Commencement Permit for thebuildings of the property which are under development. There is no legal impediment for COFCO Malt(Jiangyin) Co., Ltd. to develop the property.

V-25



Group 3 — Rented Property interests in the PRCMarket Value

Description and in Existing State as atProperty Tenancy Particulars Particulars of Occupancy 31 December 2006

18. Properties rented by The properties comprise The properties are No commercial valueShanghai COFCO two office and currently occupied forBrewing Materials Co., commercial units with a office, retail outlets andLtd. total gross floor area of warehouse uses.( ) approximately 302.47 sqin Shanghai, m (3,256 sq ft) completedPRC in 1985.

The properties aresubject to varioustenancy agreements ofrespective terms withmajority term of one yearand the latest expiry datein April 2008. The totalcurrent monthly rental ofthe properties is aboutRMB 228,800.

Note:

We have been provided with legal opinion on the title to the properties issued by the Group’s PRC legal advisers,which contains, inter alia, the following information:-

(i) The tenancy agreements are valid, binding and enforceable under the PRC laws.

(ii) The lessors of the properties have obtained the title documents of the properties and the tenancyagreements have been registered.

V-26



Description and Existing State as atProperty Tenancy Particulars Particulars of Occupancy 31 December 2006

19. Properties rented by The properties comprise The properties are No commercial valueChina Resources three office and currently occupied for(Heilongjiang) Alcohol warehouse buildings and office and warehouseCo., Ltd. units with a total gross uses.( ) in floor area ofHeilongjiang Province, approximatelyPRC 7,607.30 sq m

(81,885 sq ft) completedin 1996.

The properties aresubject to varioustenancy agreements ofrespective terms withmajority term of five yearsand the latest expiry datein November 2010. Thetotal current annual rentalof the properties is aboutRMB2,785,000.

Note:We have been provided with legal opinion on the title to the properties issued by the Group’s PRC legal advisers,which contains, inter alia, the following information:-

(i) The tenancy agreements are valid, binding and enforceable under the PRC laws.(ii) The lessor of one of the properties with a gross floor area of approximately 886.00 sq m has obtained

the title documents of the properties. All of the three tenancy agreements have been registered.(iii) The Company confirmed that the Company has carried out investigation, inspected the relevant

certificate or acquired the guarantee from the lessors to believe that the lessors have the legal title ofthe properties or the right to lease the properties to the Company.

V-27




20. Properties rented by East The properties comprise The properties are No commercial valueOcean Oils & Grains 35 office, commercial currently occupied forIndustries (Zhangjiagang) and warehouse office, retail outlets andCo., Ltd. buildings and units with warehouse uses.( ) a total gross floor areain Jiangsu Province, PRC of approximately

28,576.69 sq m(307,599 sq ft)completed in 1990’s and2000’s.

The properties aresubject to varioustenancy agreements ofrespective terms withmajority term of oneyear and the latestexpiry date in July 2012.The total currentmonthly rental of theproperties is aboutRMB3,208,000.

Note:



(ii) The title documents of the properties have not been provided and the tenancy agreements have notbeen registered.

(iii) The Company confirmed that the Company has carried out investigation, inspected the relevantcertificate or acquired the guarantee from the lessors to believe that the lessors have the legal title of theproperties or the right to lease the properties to the Company.

(iv) Under the PRC laws, the validity of the tenancy agreements and the right of the Group to use theproperties will not be affected although the tenancy agreements have not been registered. As a lessee,the Group is not subject to any administrative punishment for the un-registration of the tenancyagreements.

V-28




21. Properties rented by Eastbay The properties The properties are No commercial valueOils & Fats Industries comprise 18 office and currently occupied for(Guangzhou) Co., Ltd. residential buildings office and dormitory( ) and units with a total uses.in Guangdong, PRC gross floor area of

approximately3,745.57 sq (40,317sq ft) completed in1990’s and 2000’s.

The properties aresubject to varioustenancy agreements ofrespective terms withmajority term of oneyear and the latestexpiry date in June2007. The total currentannual rental of theproperties is aboutRMB580,068.

Note:

We have been provided with legal opinion on the title to the properties issued by the Group’s PRC legal advisers,which contains, inter alia, the following information:



(iii) The Company confirmed that the Company has carried out investigation, inspected the relevantcertificate or acquired the guarantee from the lessors to believe that the lessors have the legal title ofthe properties or the right to lease the properties to the Company.


V-29




22. Properties rented by COFCO The properties The properties are No commercial valueXiangrui Oils & Grains Industries comprise three currently occupied for(Jingmen) Co., Ltd. dormitory buildings dormitory uses.( ) in and units with a totalHubei Province, PRC gross floor area of

approximately1,140.00 sq m (12,271sq ft) completed in1999 to 2003.

The properties aresubject to varioustenancy agreements ofrespective terms withmajority term of oneyear and the latestexpiry date in April2007. The total currentannual rental of theproperties is aboutRMB128,500.

Note:






V-30




23. Properties rented by COFCO The properties The properties are No commercial valueIndustry (Qinhuangdao) comprise 12 currently occupied forPangthai Co., Ltd. warehouse buildings dormitory uses.( ) in and units with a totalHebei Province, PRC gross floor area of

approximately3,395.00 sq m (36,544sq ft) completed in1980.

The properties aresubject to varioustenancy agreements ofrespective terms withmajority term of oneyear and the latestexpiry date inDecember 2006. Thetotal current annualrental of the propertiesis about RMB393,300.

Note:






V-31




24. Property rented by COFCO The property The property is No commercial valueInternational (Beijing) Co., Ltd comprises various currently occupied for( ) in office units with a total office and dormitoryBeijing, PRC gross floor area of uses.

approximately1,229.82 sq m (13,238sq ft) completed in1996.

The property is subjectto a tenancyagreement for a termof one year with theexpiry date in January2007. The annualrental of the propertyis aboutRMB5,834,500.

Note:

We have been provided with legal opinion on the title to the property issued by the Group’s PRC legal advisers,which contains, inter alia, the following information:-

(i) The tenancy agreement is valid, binding and enforceable under the PRC laws.(ii) The lessor of the property has obtained the title documents of the property and the tenancy agreement

has been registered.

V-32

APPENDIX VI SUMMARY OF OURARTICLES OF ASSOCIATION

The existing Articles of Association were adopted on January 12, 2007 which were furtheramended on February 28, 2007. The following is a summary of certain provisions of the Articles ofAssociation. A copy of the Articles of Association is available for inspection at the address specified inthe section headed ‘‘Documents available for Inspection’’ in Appendix VIII to this prospectus.

A1A 7(6)CHANGES IN CAPITAL

The Company may exercise any powers conferred or permitted by the Hong Kong CompaniesOrdinance or any other ordinance from time to time to purchase or otherwise acquire its own shares andwarrants (including any redeemable shares) or to give, directly or indirectly, by means of a loan,guarantee, the provision of security or otherwise, financial assistance for the purpose of or in connectionwith a purchase or other acquisition made or to be made by any person of any shares or warrants in theCompany and should the Company purchase or otherwise acquire its own shares or warrants, neitherthe Company nor the Board shall be required to select the shares or warrants to be purchased orotherwise acquired rateably or in any other particular manner as between the holders of shares orwarrants of the same class or as between them and the holders of shares or warrants of any other classor in accordance with the rights as to dividends or capital conferred by any class of shares, provided thatin the case of purchases of redeemable shares, (a) purchases not made through the market or bytender shall be limited to a maximum price and (b) if purchases are by tender, tenders shall be availableto all shareholders alike and provided further that any such purchase or other acquisition or financialassistance shall only be made or given in accordance with any relevant rules or regulations issued bythe Hong Kong Stock Exchange or the Securities and Futures Commission (the ‘‘SFC’’) from time totime.

The Company may, from time to time, by ordinary resolution increase its authorised share capitalby such sum divided into shares of such amounts as the resolution shall prescribe.

The Company may, from time to time, by ordinary resolution:

(a) sub-divide its shares or any of them into shares of smaller amount than is fixed by theMemorandum of Association and that the resolution whereby any share is subdivided maydetermine that as between the holders of the shares resulting from such sub-division, one ormore of the shares may, as compared with the others, have any preference or advantage;

(b) divide its shares into several classes and attach thereto respectively any preferential, deferred,qualified or special rights, privileges or conditions;

(c) consolidate and divide its share capital or any part thereof into shares of larger amount than itsexisting shares;

(d) cancel any shares which at the date of the passing of the resolution have not been taken oragreed to be taken by any person and diminish the amount of its authorised share capital bythe amount of the shares so cancelled; or

(e) make provision for the issue and allotment of shares which do not carry any voting rights.

Save as provided by the Hong Kong Companies Ordinance or the Articles of Association to thecontrary, all unissued shares shall be at the disposal of the Directors who may offer, allot, grant optionsover or otherwise deal with or dispose of the same to such persons and upon such terms as they shallconsider fit, provided that no shares of any class shall be issued at a discount to their nominal valueexcept in accordance with the provisions of the Hong Kong Companies Ordinance.

The Company may by special resolution reduce its share capital and any capital redemptionreserve fund, any share premium account in any manner allowed by law.

VI-1


A1A 25(3)MODIFICATION OF RIGHTS

If, at any time, the Company’s share capital is divided into different classes of shares, all or any ofthe special rights attached to any class of shares (unless otherwise provided for by the terms of issue ofthe shares of that class) may, subject to the provisions of the Hong Kong Companies Ordinance, bevaried, either while the Company is a going concern or during or in contemplation of a winding-up eitherwith the consent in writing of the holders of three-fourths of the issued shares of that class or with thesanction of a special resolution passed at a separate meeting of the holders of shares of that class. Allthe provisions contained in the Articles of Association relating to general meetings shall mutatismutandis apply to every such meeting but so that the quorum thereof shall be not less than two personsholding or representing by proxy one-third in nominal value of the issued shares of the class, and thatany holder of shares of that class present in person or by proxy may demand a poll.

A1A 13A

A1A 7(8)TRANSFERS OF SHARES

All transfers of shares must be effected by an instrument of transfer in writing and in any usual formor in a form prescribed by the Hong Kong Stock Exchange or in any other form which the Directors mayapprove and shall be executed under hand or, if the transferor or transferee is a clearing house or itsnominee(s), the instrument of transfer shall be executed by hand or by machine imprinted signature or inwriting in the usual common form or in such other form as the Board may approve by such manner ofexecution as the Board may approve from time to time. The instrument of transfer must be executed byor on behalf of the transferor and by or on behalf of the transferee. The transferor shall be deemed toremain the holder of the shares concerned until the name of the transferee is entered in the Company’sregister of members in respect thereof. Nothing in the Articles of Association shall preclude theDirectors from recognising a renunciation of the allotment or provisional allotment of any share by theallottee in favor of some other person.

The Board may, at any time in their absolute discretion and without assigning any reason therefore,decline to register any transfer of any share (not being a fully paid up share).

The Board may also decline to register any transfer unless:

(a) the instrument of transfer is lodged at the Company’s registered office or at such other place asthe Directors may appoint;

(b) the instrument of transfer is in respect of only one class of shares;

(c) in the case of a transfer to joint holders, the number of transferees does not exceed four;

(d) the shares concerned are free of any lien in favor of the Company;

(e) the instrument of transfer is properly stamped;

(f) such other conditions as the Board may from time to time impose for the purpose of guardingagainst losses arising from forgery are satisfied;

(g) a fee not exceeding the maximum fee prescribed or permitted from time to time by the HongKong Stock Exchange is paid to the Company in respect thereof; and

(h) the instrument of transfer is accompanied by the certificate of the shares to which it relates,and such other evidence as the Board may reasonably require to show the right of thetransferor to make the transfer.

If the Board refuses to register a transfer they will, within ten Business Days after the date on whichthe transfer was lodged with the Company, send to the transferor and transferee notice of the refusal.

No transfer may be made to a minor (under the age of 18) or to a person of unsound mind or underother legal disability.

VI-2


VOTING AT GENERAL MEETINGS

A1A 25(1)Subject to any rights or restrictions attached to any shares, at a general meeting every shareholderwho is present in person (or in the case of a shareholder being a corporation, by its duly authorisedrepresentative) or by proxy is entitled, on a show of hands, to one vote only and, on a poll, to one votefor every fully paid-up share of which he is the holder. Votes may be given either personally or by proxy.A shareholder entitled to more than one vote on a poll need not use all his votes or cast all the votes heuses in the same way. In the case of an equality of votes at any general meeting, whether on a show ofhands or on a poll, the chairman of the meeting is entitled to a second or casting vote.

A shareholder, being a clearing house (or its nominee), may authorise such person or persons as itthinks fit to act as its proxy or proxies or representative or representatives at any general meeting ofshareholders or at any meeting of any class of shareholders, provided that, if more than one person isso authorised, the instrument of proxy or authorisation shall specify the number and class of shares inrespect of which each such person is so authorised. A person so authorised is entitled to exercise thesame powers on behalf of the clearing house (or its nominee) which he represents as that clearinghouse (or its nominee) could exercise as if such person were an individual shareholder and, on a showof hands, each such person is entitled to a separate vote notwithstanding any contrary provisionprovided by the Articles of Association.

3rd Sch (5)QUALIFICATION OF DIRECTORS

A1A 7(4)

A1A 7(5)

A Director is not required to hold any qualification shares. No person is required to vacate office orbe ineligible for re-election or re-appointment as a Director, and no person is ineligible for appointmentas a Director, by reason only of his having attained any particular age.

3rd Sch (22)BORROWING POWERS

A1A 7(3)The Board may exercise all the powers of the Company to raise or borrow money and to mortgageor charge all or any part of its undertaking, property and uncalled capital. The Board may issuedebentures, debenture stock, bonds and other securities, whether outright or as collateral security forany debt, liability or obligation of the Company or of any third party.

FEES OF DIRECTORS

A1A 7(2)The Directors are entitled to receive by way of remuneration for their services such sum as theremuneration committee established by the Board with a majority of the members being independentnon-executive Directors determine, which (unless otherwise directed by the resolution by which it isvoted) is to be divided amongst the Directors in such proportions and in such manner as the Board mayagree, or failing agreement, equally, except that in such event any Director holding office for less thanthe whole of the relevant period in respect of which the remuneration is paid shall only rank in suchdivision in proportion to the time during such period for which he has held office. The foregoing shall notapply to a Director who holds any salaried employment or office in the Company except in the case ofsums paid in respect of Directors’ fees.

The Directors are also entitled to be repaid their reasonable travelling, hotel and other expensesproperly incurred by them in connection with their attendance at meetings of the Board, committeemeetings or general meetings or otherwise in connection with the discharge of their duties as Directors.

The remuneration committee, may award special remuneration (by way of bonus, commission,participation in profits or otherwise as the Directors may determine) to any Director who performsservices which, in the opinion of the remuneration committee, goes beyond the scope of the ordinaryduties of a Director.

VI-3


DIRECTORS’ INTERESTS

No Director or intended Director is disqualified by his office from contracting with the Company, noris any contract or arrangement entered into by or on behalf of the Company in which any Director is inany way interested be liable to be avoided, nor is any Director so contracting or being so interested beliable to account to the Company for any profit realised by any such contract or arrangement by reasonof such Director holding that office or of any fiduciary relationship thereby established, provided thatsuch Director shall disclose the nature of his interest in any contract or arrangement in which he isinterested as required by and subject to the provisions of the Hong Kong Companies Ordinance.

A1A 7(1)A Director may not vote nor be counted in the quorum on any resolution of the Board in respect ofany contract or arrangement or matter in which he or any of his associate(s) has, directly or indirectly, amaterial interest (other than an interest in shares, debentures or other securities of, or otherwise in orthrough, the Company), but this prohibition does not apply to any of the following matters:

(a) any contract or arrangement for the giving of any guarantee, security or indemnity to theDirector or his associate(s) in respect of money lent to, or obligations incurred by him or any ofthem at the request of or for the benefit of, the Company or any of its subsidiaries;

(b) any contract or arrangement for the giving of any guarantee, security or indemnity to a thirdparty in respect of an obligation of the Company or any of its subsidiaries for which the Directoror his associate(s) has himself/themselves assumed responsibility in whole or in part andwhether alone or jointly under a guarantee or indemnity or by the giving of security;

(c) any proposal concerning an offer of shares or debentures or other securities of or by theCompany or any other company which the Company may promote or be interested in forsubscription or purchase where the Director or his associate(s) is /are or is/are intending tobecome interested as a participant in the underwriting or sub-underwriting of the offer;

(d) any contract or arrangement in which the Director or his associate(s) is /are interested in thesame manner as other holders of shares or debentures or other securities of the Company byvirtue only of his/their interest in those shares or debentures or other securities;

(e) any proposal concerning any other company in which the Director or his associate(s) is /areinterested only, whether directly or indirectly, as an officer, executive or shareholder or in whichthe Director or his associate(s) is /are beneficially interested in shares of that company, otherthan a company in which the Director together with any of his associates are in aggregate theholders of or beneficially interested in 5% or more of the issued shares of any class of suchcompany (or of any other company through which his interest or that of his associates isderived) or of the voting rights attaching to such issued shares;

(f) any proposal or arrangement concerning the benefit of the employees of the Company or anyof its subsidiaries, including the adoption, modification or operation of a pension fund orretirement, death or disability benefit scheme, which relates to the Directors, his associatesand employees of the Company or any of its subsidiaries and does not accord to any Directoror his associate(s) as such any privilege or advantage not generally accorded to theemployees to whom such arrangement relates; and

(g) any proposal or arrangement concerning the adoption, modification or operation of anyemployees’ share scheme or any share incentive or share option scheme for the benefit of theemployees of the Company or any of its subsidiaries under which the Director or hisassociate(s) may benefit.

VI-4


Notwithstanding the above, the entering into any transaction between the Company or any of itssubsidiaries, on the one part, and COFCO and/or any of its associates (as defined in the Hong KongListing Rules), on the other, including the exercise of any option or pre-emptive right under any currentnon-competition deed between COFCO, COFCO (HK) and the Company, shall be considered andvoted on solely by the independent non-executive Directors and decided by simple majority vote of theindependent non-executive Directors. In addition, Directors who hold positions in COFCO or itssubsidiaries (other than the Group) will not be counted in the quorum, will abstain from voting on suchmatters and will absent themselves from Board meetings when such matters are discussed unlessexpressly requested to attend by a majority of the independent non-executive Directors.

A Director may continue to be or become a director or other officer of, or otherwise interested in,any company promoted by the Company or in which the Company may be interested, and shall not beliable to account to the Company for any remuneration or other benefit received by him as a director orother officer or from his interest in such other company. The Board may exercise the voting powersconferred by the shares in any other company held or owned by the Company or exercisable by them asdirectors of such other company in such manner as the Board thinks fit (including the exercise thereof infavor of any resolution appointing themselves or any of them directors, managing directors, jointmanaging directors, deputy managing directors, executive directors, chief executive officers, managersor other officers of such company) and any Director may vote in favor of the exercise of such votingrights in the manner aforesaid notwithstanding that he may be, or be about to be, appointed a director,managing director, joint managing director, deputy managing director, executive director, chief executiveofficer, manager or other officer of such a company, and that as such he is or may become interested inthe exercise of such voting rights in the manner aforesaid. A Director or his firm may not act as theauditors of the Company.

DIVIDENDS

Subject to the Hong Kong Companies Ordinance, the Company in general meeting may declaredividends in any currency to be paid to the members but no dividend shall be declared in excess of theamount recommended by the Board. The Company in general meeting may also make a distribution toits members out of contributed surplus (as ascertained in accordance with the Hong Kong CompaniesOrdinance). No dividend shall be paid or distribution made out of contributed surplus if to do so wouldrender the Company unable to pay its liabilities as they become due or the realizable value of its assetswould thereby become less than the aggregate of its liabilities and its issued share capital and sharepremium account.

Except in so far as the rights attaching to, or the terms of issue of, any share may otherwiseprovide, (i) all dividends shall be declared and paid according to the amounts paid up on the shares inrespect whereof the dividend is paid but no amount paid up on a share in advance of calls shall for thispurpose be treated as paid up on the share and (ii) all dividends shall be apportioned and paid pro rataaccording to the amount paid up on the shares during any portion or portions of the period in respect ofwhich the dividend is paid. The Directors may deduct from any dividend or other monies payable to amember by the Company on or in respect of any shares all sums of money (if any) presently payable byhim to the Company on account of calls or otherwise.

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Whenever the Board or the Company in general meeting has resolved that a dividend be paid ordeclared on the share capital of the Company, the Board may further resolve either (a) that suchdividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up,provided that the shareholders entitled thereto will be entitled to elect to receive such dividend (or partthereof) in cash in lieu of such allotment, or (b) that shareholders entitled to such dividend will beentitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or suchpart of the dividend as the Board may think fit. The Company may also upon the recommendation of theBoard by an ordinary resolution resolve in respect of any one particular dividend of the Company that itmay be satisfied wholly in the form of allotment of shares credited as fully paid up without offering anyright to shareholders to elect to receive such dividend in cash in lieu of such allotment.

Whenever the Board or the Company in general meeting has resolved that a dividend be paid ordeclared the Board may further resolve that such dividend be satisfied wholly or part by the distributionof specific assets of any kind.

A1A 7(7)All dividends or bonuses unclaimed for one year after having been declared may be invested orotherwise made use of by the Board for the benefit of the Company until claimed and the Company shallnot be constituted a trustee in respect thereof. All dividends or bonuses unclaimed for six years afterhaving been declared may be forfeited by the Board and shall revert to the Company.

INDEMNITY

Each of the Directors or other officer or auditors of the Company shall be indemnified out of theassets of the Company against all liabilities incurred by him in defending any proceedings, whether civilor criminal, in which judgment is given in his favor or in which he is acquitted or in connection with anyapplication in which relief from liability is granted to him by the court.

Subject to the provisions of the Hong Kong Companies Ordinance, the Directors may exercise allthe powers of the Company to purchase and maintain insurance for the benefit of a person who is adirector, alternate director, manager, secretary or officer of the Company or the auditors of theCompany for the purpose of indemnifying such persons and keeping them indemnified against liabilityfor negligence, default, breach of duty or breach of trust or other liability which may lawfully be insuredagainst by the Company and any liability which may be incurred by him in defending any proceedings,whether civil or criminal, taken against him for any negligence, default, breach of duty or breach of trust(including fraud) of which he may be guilty in relation to the Company or a related company.

VI-6

APPENDIX VII STATUTORY AND GENERAL INFORMATION

A. FURTHER INFORMATION ABOUT OUR COMPANY

1. Incorporation of our Company

19.05(2)(a)

(2)(b)

A1A5

Our Company was established in Hong Kong under the Hong Kong Companies Ordinance withlimited liability on November 18, 2006. Our registered office is at 33rd Floor, Top Glory Tower, 262Gloucester Road, Causeway Bay, Hong Kong. A summary of provisions of our Articles of Association isset out in Appendix VI to this prospectus.

2. Changes in share capital of our Company

A1A 26(1),(2)As at the date of incorporation of our Company, our authorized share capital wasHK$10,000.00 divided into 10,000 shares with a nominal value of HK$1.00 each. On December 28,2006, one share of HK$1.00 in the capital of our Company was issued to COFCO International, creditedas fully paid.

Pursuant to the written resolutions of the sole shareholder of our Company dated December 29,2006, the authorized share capital of our Company was increased from HK$10,000.00 toHK$400,000,000.00 on December 29, 2006 by the creation of an additional 3,999,900,000 shares.Meanwhile, the existing share with a nominal value of HK$1.00 each was divided into 10 shares with anominal value of HK$0.10 each. Our Company, on January 10, 2007, further allotted and issued a totalof 2,791,383,346 shares, credited as fully paid and ranking pari passu in all respects with the existingissued and unissued shares, to COFCO International in accordance with the terms of the Share SwapAgreement. The aforesaid allotment and issue of 2,791,383,346 shares by our Company was theconsideration for our purchase of the entire issued share capital of China Agri, as more particularlydescribed in the paragraph headed ‘‘Reorganization’’ in the section headed ‘‘Our History andReorganization’’ of this prospectus.

3. Written resolutions of the sole shareholder of our Company passed on January 12, 2007,February 12, 2007 and February 28, 2007

By written resolutions of the sole shareholder of our Company passed on January 12, 2007,February 12, 2007 and February 28, 2007:

(a) conditional on the same conditions as stated in the sub-section headed ‘‘Conditions of theHong Kong Public Offering’’ in the section headed ‘‘Structure of the Global Offering’’ of thisprospectus, the Global Offering (including the grant of the Over-allotment Option) wasapproved and the Directors were authorized to allot and issue the Offer Shares pursuantthereto;

(b) our Company approved and adopted our Articles of Association on January 12, 2007, asfurther amended on February 28, 2007;

(c) conditional on the same conditions as stated in the sub-section headed ‘‘Conditions of theHong Kong Public Offering’’ in the section headed ‘‘Structure of the Global Offering’’ of thisprospectus, and conditional further on: (i) the Listing Committee of the Hong Kong StockExchange granting approval of the listing of and permission to deal in the shares which may fallto be issued pursuant to the exercise of options granted under the Share Option Scheme;(ii) the Share Option Scheme being approved and adopted for our Company by theshareholders of COFCO International in its general meeting; (iii) dealings of the sharescommencing on the Hong Kong Stock Exchange; and (iv) if necessary, China State-ownedAssets Supervision and Administration Commission granting its approval for adopting theShare Option Scheme, the rules of the Share Option Scheme were approved and adopted andthe Directors were authorized to grant options to subscribe for shares thereunder and to allot,issue and deal with shares pursuant to the exercise of options granted thereunder;

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(d) conditional on the same conditions as stated in the sub-section headed ‘‘Conditions of theHong Kong Public Offering’’ in the section headed ‘‘Structure of the Global Offering’’ of thisprospectus, our Company was authorized to grant to the International Purchasers the Over-allotment Option exercisable by the Global Coordinator (on behalf of the InternationalPurchasers) within 30 days after the last day for lodging applications under the Hong KongPublic Offering to require our Company to issue up to an aggregate of 104,677,000 additionalshares;

(e) conditional on the same conditions as stated in the sub-section headed ‘‘Conditions of theHong Kong Public Offering’’ in the section headed ‘‘Structure of the Global Offering’’ of thisprospectus, the Directors were granted a general unconditional mandate to allot, issue anddeal with shares with an aggregate nominal value of not more than the aggregate of (i) 20% ofthe aggregate nominal value of the share capital of our Company in issue immediatelyfollowing completion of the Global Offering (such share capital shall exclude shares to beissued pursuant to the exercise of the Over-allotment Option (if any)); and (ii) the aggregatenominal value of the share capital of our Company repurchased by our Company pursuant tothe authority granted to the Directors as referred to in paragraph (f) below; such mandate willexpire at the conclusion of the next annual general meeting of our Company or at the end ofthe period within which the next annual general meeting of our Company is required to be heldunder the Articles of Association of our Company or any applicable laws in Hong Kong or thepassing of an ordinary resolution by shareholders of our Company revoking or varying theauthority given to the Directors, whichever first occurs. This mandate does not cover shares tobe allotted, issued or dealt with under a rights issue, scrip dividend scheme or similararrangement, or upon the exercise of subscription rights granted under the Share OptionScheme;

(f) conditional on the same conditions as stated in the sub-section headed ‘‘Conditions of theHong Kong Public Offering’’ in the section headed ‘‘Structure of the Global Offering’’ of thisprospectus, the Directors were granted a general unconditional mandate (the ‘‘RepurchaseMandate’’) to exercise all powers of our Company to repurchase shares of our Company withan aggregate nominal value not exceeding 10% of the aggregate nominal value of the sharecapital of our Company in issue immediately following completion of the Global Offering (suchshare capital shall exclude shares to be issued pursuant to the exercise of the Over-allotmentOption (if any)); such mandate will expire at the conclusion of the next annual general meetingof our Company or at the end of the period within which the next annual general meeting of ourCompany is required to be held under the Articles of Association of our Company or anyapplicable laws in Hong Kong or the passing of an ordinary resolution by shareholders of ourCompany revoking or varying the authority given to the Directors, whichever first occurs. Thismandate only relates to repurchase made on the Hong Kong Stock Exchange or on any otherstock exchange on which the shares may be listed (and which is recognized by the SFC andthe Hong Kong Stock Exchange for that purpose); and

(g) the general unconditional mandate mentioned in paragraph (e) above was extended by theaddition to the aggregate nominal value of the share capital of our Company which may beallotted or agreed conditionally or unconditionally to be allotted by the Directors pursuant tosuch general mandate of an amount representing the aggregate nominal value of the sharecapital of our Company repurchased by us pursuant to the mandate to repurchase sharesreferred to in paragraph (f) above.

4. Corporate reorganization

In preparation for the listing of our shares on the Hong Kong Stock Exchange, the companiescomprising the Group underwent the Reorganization to rationalize the Group’s structure and ourCompany became the holding company of the Agri-industrial Business.

VII-2


Major steps of the Reorganization involved the following:

(a) on August 23, 2006, China Agri was incorporated in Bermuda with COFCO International as itssole shareholder;

(b) on October 8, 2006, China Agri and COFCO International entered into the Sale and PurchaseAgreement in relation to the acquisition by China Agri from COFCO International of thefollowing:

(i) two ordinary shares of par value US$1.00 each of COFCO Oils & Fats Holdings Limitedthen held by COFCO International representing 100% of the issued capital of COFCOOils & Fats Holdings Limited;

(ii) one ordinary share of par value US$1.00 each of Conomer Investments Limited thenheld beneficially by COFCO International representing 100% of the issued capital ofConomer Investments Limited;

(iii) one ordinary share of par value US$1.00 each of Sunny World Limited then heldbeneficially by COFCO International representing 100% of the issued capital of SunnyWorld Limited;

(iv) two ordinary shares of par value US$1.00 each of COFCO (BVI) No. 1 Limited then heldbeneficially by COFCO International representing 100% of the issued capital of COFCO(BVI) No. 1 Limited; and

(v) shareholders’ loans amounting to HK$780,195,198.88,

settled by the issue and allotment by China Agri of 1,016,670,752 China Agri shares toCOFCO International credited as fully paid;

(c) on October 8, 2006, China Agri, COFCO International, COFCO and COFCO (HK) entered intothe Master Sale and Purchase Agreement in relation to China Agri’s acquisition from COFCO(HK) of the following:

(i) three ordinary shares of par value US$1.00 each of Full Extent Group Limited then heldby COFCO (HK) representing 100% of the issued capital of Full Extent Group Limited;and

(ii) shareholders’ loans amounting to HK$1,323.0 million,

and in relation to COFCO International’s acquisition from COFCO (HK) of the following:

(iii) three ordinary shares of par value US$1.00 each of Jumbo Team Group Limited thenheld by COFCO (HK) representing 100% of the issued capital of Jumbo Team GroupLimited; and

(iv) shareholders’ loans amounting to HK$453.4 million,

settled by the issue and allotment by China Agri of 1,674,712,604 China Agri shares toCOFCO International credited as fully paid and the issue and allotment by COFCOInternational of 879,739,382 COFCO International Shares to COFCO (HK) credited as fullypaid and the disposal by COFCO International to COFCO (HK) of the following:

(i) 10,000 ordinary shares of par value HK$0.10 each of Seabase International (B.V.I.)Limited then held beneficially by COFCO International representing 100% of the issuedcapital of Seabase International (B.V.I.) Limited;

(ii) two ordinary shares of par value US$1.00 each of COFCO (BVI) No. 99 Limited then heldbeneficially by COFCO International representing 100% of the issued capital of COFCO(BVI) No. 99 Limited;

VII-3


(iii) one ordinary share of par value US$1.00 each of First Reward Limited then held byCOFCO International representing 100% of the issued capital of First Reward Limited;

A1A 5(d) on November 18, 2006, our Company was incorporated in Hong Kong with an authorizedshare capital of HK$10,000.00 divided into 10,000 shares with a nominal value of HK$1.00each and on December 28, 2006, one share of our Company was issued to COFCOInternational credited as fully paid;

(e) on December 29, 2006, the authorized share capital of our Company was increased fromHK$10,000.00 to HK$400,000,000.00 by the creation of an additional 3,999,900,000 shares ofHK$0.10 each and each of the then existing share with a nominal value of HK$1.00 each wasdivided into 10 shares with a nominal value of HK$0.10 each; and

(f) on January 10, 2007, our Company and COFCO International entered into the Share SwapAgreement in relation to our Company’s acquisition from COFCO International of all the2,692,383,356 shares of China Agri then in issue, the consideration was settled by the issueand allotment by our Company of 2,791,383,346 shares to COFCO International credited asfully paid. Upon completion of the Share Swap Agreement on January 10, 2007, China Agribecame a wholly owned subsidiary of Our Company.

5. Changes in share capital of subsidiaries

The principal subsidiaries (as defined under the Hong Kong Listing Rules) of our Company arethose companies which are listed in the accountants’ report set out in Appendix I to this prospectus.

The following alterations in the share capital of the subsidiaries of our Company have taken placewithin the two years immediately preceding the date of this prospectus:

(1) on February 28, 2005, the registered capital of COFCO ADM Oils & Grains Industries (Heze)Co., Ltd. was increased from US$12.80 million to US$22.40 million;

(2) on July 4, 2005, the registered capital of East Ocean Oils & Grains Industries (Zhangjiagang)Co., Ltd. was increased from US$98 million to US$113 million;

(3) on August 26, 2005, the registered capital of Yellowsea Oils & Grains Industries (Shandong)Co., Ltd. was increased from US$22.77 million to US$47.77 million;

(4) on December 28, 2005, the registered capital of Shenyang Xiangxue Flour Limited LiabilityCompany was increased from RMB50.35 million to RMB80.35 million;

(5) on April 20, 2006, the registered capital of China Resources (Heilongjiang) Alcohol Co., Ltd.was increased from RMB4.15 million to RMB150 million, on October 23, 2006, the registeredcapital of China Resources (Heilongjiang) Alcohol Co., Ltd. was increased fromRMB150 million to RMB380 million;

(6) on March 30, 2006, the registered capital of Eastbay Oils & Fats Industries (Guangzhou)Co., Ltd. was decreased from RMB55 million to RMB51.70 million; and

(7) on December 12, 2006, the authorized share capital of China Agri was increased fromHK$100,000.00 to HK$400,000,000.00.

Save as disclosed in this prospectus and except as referred to in the paragraph headed‘‘Reorganization’’ in the section headed ‘‘Our History and Reorganization’’, there has been no alterationin the registered capital or the authorized share capital (as the case may be) of any of the subsidiaries ofour Company within the two years immediately preceding the date of this prospectus.

VII-4


6. Repurchase by our Company of its own securities

This section includes information required by the Hong Kong Stock Exchange to be included in thisprospectus concerning the repurchase by our Company of its own securities.

(a) Provisions of the Hong Kong Listing Rules

The Hong Kong Listing Rules permit companies with a primary listing on the Hong Kong StockExchange to repurchase their securities on the Hong Kong Stock Exchange subject to certainrestrictions, the more important of which are summarised below:

(i) Shareholders’ approval

All proposed repurchases of securities (which must be fully paid up in the case of shares) by acompany with a primary listing on the Hong Kong Stock Exchange must be approved in advance by anordinary resolution of the shareholders, either by way of general mandate or by specific approval of aparticular transaction.

10.06(1)(a)(iii)Pursuant to a written resolution passed by the sole shareholder of our Company on January 12,2007, the Repurchase Mandate was conditionally given to the Directors.

(ii) Source of funds

Repurchases must be funded out of funds legally available for that purpose in accordance with ourCompany’s Articles of Association and the Companies Ordinance. A listed company may notrepurchase its own securities on the Hong Kong Stock Exchange for a consideration other than cash orfor settlement otherwise than in accordance with the trading rules of the Hong Kong Stock Exchange.

Any repurchases by our Company may be made out of capital paid up on the shares to berepurchased, funds of our Company which would otherwise be available for dividend or distribution orout of an issue of new shares made for the purpose of the repurchase and, in the case of any premiumpayable on the repurchase, out of the funds of our Company which would otherwise be available fordividend or distribution or out of the share premium account of our Company.

(iii) Trading restrictions

10.06(1)(b)(i)Pursuant to a written resolution passed by the sole shareholder of our Company on January 12,2007, the Repurchase Mandate was conditionally given to the Directors. The total number of shareswhich our Company may repurchase on the Hong Kong Stock Exchange is the number of sharesrepresenting up to a maximum of 10% of the aggregate number of the share in issue immediatelyfollowing completion of the Global Offering (such share capital shall exclude shares to be issuedpursuant to the exercise of the Over-allotment Option (if any)).

(b) Reasons for repurchases

10.06(1)(b)(ii)The Directors believe that it is in the best interests of our Company and its shareholders for theDirectors to have general authority from the shareholders to enable our Company to repurchase sharesin the market. Such repurchases may, depending on market conditions and funding arrangements at thetime, enhance the net value of our Company, its assets and/or earnings per share and will only be madewhere the Directors believe that such repurchases will benefit our Company and its shareholders.

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(c) Funding of repurchases

10.06(1)(b)(iii) &

(iv)

In repurchasing the shares, our Company may only apply funds legally available for such purposein accordance with its Memorandum of Association and Articles of Association and the applicable lawsof Hong Kong. The Directors do not propose to exercise the Repurchase Mandate to such extent aswould, in the circumstances, have a material adverse effect on the working capital requirements of ourCompany or the gearing levels which in the opinion of the Directors are from time to time appropriate toour Company. However, there might be a material adverse effect on the working capital requirement ofour Company or the gearing level (as compared with the position disclosed in the audited financialstatements of our Company set out in this prospectus) in the event that the Repurchase Mandate isexercised in full.

(d) General

10.06(1)(b)(v),

(vi),(vii) &

(ix)

None of the Directors nor, to the best of their knowledge having made all reasonable enquiries, anyof their associates (as defined in the Hong Kong Listing Rules) currently intends to sell shares to ourCompany or its subsidiaries. The Directors have undertaken to the Hong Kong Stock Exchange that, sofar as the same may be applicable, they will exercise the Repurchase Mandate in accordance with theMemorandum of Association and Articles of Association of our Company, the Hong Kong Listing Rulesand the applicable laws of Hong Kong. If, as a result of a securities repurchase, a shareholder’sproportionate interest in the voting rights of our Company is increased, such increase will be treated asan acquisition for the purpose of the Hong Kong Code on Takeovers and Mergers (the ‘‘TakeoversCode’’). Accordingly, a shareholder or a group of shareholders acting in concert could obtain orconsolidate control of our Company and become obliged to make a mandatory offer under Rule 26 ofthe Takeovers Code. Save as aforesaid, the Directors are not aware of any consequences which wouldarise under the Takeovers Code as a consequence of any repurchases pursuant to the exercise in full ofthe Repurchase Mandate. No connected person (as defined in the Hong Kong Listing Rules) hasnotified our Company that he has a present intention to sell shares to our Company, or has undertakennot to do so, if the Repurchase Mandate is exercised.

B. FURTHER INFORMATION ABOUT THE BUSINESS

1. Summary of material contracts

A1A 52The following contracts (not being contracts in the ordinary course of business) have been enteredinto by members of the Group within the two years immediately preceding the date of this prospectusand are or may be material:

3rdSch(17)(a) the Sale and Purchase Agreement dated October 8, 2006 between China Agri and COFCOInternational as referred to under ‘‘Our History and Reorganization — Reorganization’’ of thisprospectus;

(b) the Master Sale and Purchase Agreement dated October 8, 2006 among China Agri, COFCO(HK), COFCO and COFCO International as referred to under ‘‘Our History andReorganization — Reorganization’’ of this prospectus;

(c) the Tax Deed dated October 8, 2006 executed by COFCO and COFCO (HK) in favor of ChinaAgri as referred to under ‘‘Connected Transactions’’ of this prospectus;

(d) the Non-competition Deed dated February 16, 2007 executed by COFCO and COFCO (HK) infavor of our Company as referred to under ‘‘Relationship with COFCO and COFCOInternational — Non-competition’’ of this prospectus;

(e) the Mutual Supply Agreement dated December 8, 2006 and its supplemental agreement datedJanuary 12, 2007 between China Agri and COFCO as referred to under ‘‘ConnectedTransactions’’ of this prospectus;

VII-6


(f) the Properties Leasing Agreement dated January 4, 2006 between Beijing COFCO PlazaDevelopment Co., Ltd. and COFCO Beijing and the Properties Leasing Agreement datedMarch 6, 2006 between Beijing COFCO Plaza Development Co., Ltd. and Heilongjiang Alcoholas referred to under ‘‘Connected Transactions’’ of this prospectus;

(g) the Rice Import and Export Agency Agreement dated December 29, 2006 between COFCOBeijing and COFCO as referred to under ‘‘Connected Transactions’’ of this prospectus;

(h) five Supplementary and Amendment Agreements dated September 30, 2006 as referred tounder ‘‘Connected Transactions’’ of this prospectus, three of which were entered into betweenGrand Silver Services Limited and East Ocean Oils & Grains Industries (Zhangjiagang) Co.,Ltd., one of which was entered into between Grand Silver Services Limited and Eastbay Oils &Fats Industries (Guangzhou) Co., Ltd., and one of which was entered into among Grand SilverServices Limited, Grand Silver Holdings Limited, Yellowsea Oils & Grains Industries(Shandong) Co., Ltd., Northsea Oils & Grains Industries (Tianjin) Co., Ltd., East Ocean Oils &Grains Industries (Zhangjiagang) Co., Ltd. and Great Ocean Oil & Grain Industries (FangCheng Gang) Co., Ltd.;

(i) the Supply and Packaging Agreement dated October 8, 2006 and its supplemental agreementdated January 12, 2007 between COFCO Foods and China Agri, as referred to under‘‘Connected Transactions’’ of this prospectus;

(j) the Trademarks License Agreement dated October 8, 2006 and its supplemental agreementdated January 12, 2007 between COFCO Foods and China Agri as referred to under‘‘Connected Transactions’’ of this prospectus;

(k) the Oil-related Mutual Supply Agreement dated December 8, 2006 and its supplementalagreement dated January 12, 2007 between Wilmar and China Agri as referred to under‘‘Connected Transactions’’ of this prospectus;

(l) the Lude Wheat Purchase Agreement dated December 8, 2006 and its supplementalagreement dated January 12, 2007 between Shandong Dezhou Grains & Oils GroupCorporation and Shandong COFCO Lude Foods Co., Ltd. as referred to under ‘‘ConnectedTransactions’’ of this prospectus;

(m) the Xiangxue Wheat Purchase Agreement dated December 8, 2006 and its supplementalagreement dated January 12, 2007 between Shenyang No. 2 Grains Storage Depot andShenyang Xiangxue Flour Limited Liability Company as referred to under ‘‘ConnectedTransactions’’ of this prospectus;

(n) the Share Swap Agreement dated January 10, 2007 between COFCO International and theCompany as referred to under ‘‘Our History and Reorganization — Reorganization’’ of thisprospectus;

(o) the Letter of Undertaking executed by COFCO in favor of the Company dated February 14,2007 as referred to under ‘‘Business — Property’’ of this prospectus;

(p) the Placing Agreement dated February 24, 2007 among Mitsubishi Corporation, GoldmanSachs (Asia) L.L.C., BOCI Asia Limited and the Company as referred to under ‘‘Structure ofthe Global Offering’’ of this prospectus; and

(q) the Hong Kong Underwriting Agreement dated March 7, 2007 among COFCO (HK), GoldmanSachs (Asia) L.L.C., BOCI Asia Limited, the Hong Kong Underwriters and the Company asreferred to under ‘‘Underwriting’’ of this prospectus.

VII-7


A1A28(4)2. Intellectual property rights of the Group

(a) Trademarks

As at the Latest Practicable Date, the Group has obtained registration or license of the followingtrademarks and service marks in the PRC:

Place of RegistrationTrademark Registered Owner registration Class Number Effective Period

East Ocean Oils & PRC 31 1502755 07/01/2001-Grains Industries 06/01/20111(Zhangjiagang)

Co., Ltd.

Yellowsea Oils & PRC 31 3430697 14/03/2004-2 Grains Industries 13/03/2014

(Shandong) Co., Ltd.

Yellowsea Oils & PRC 31 3212766 28/06/2003-3 Grains Industries 27/06/2013

(Shandong) Co., Ltd.

COFCO Industry PRC 30 3523442 07/10/2004-4 (Qinhuangdao) 06/10/2014

Pangthai Co., Ltd.


Pangthai Co., Ltd.


Pangthai Co., Ltd.


Pangthai Co., Ltd.


Pangthai Co., Ltd.


Pangthai Co., Ltd.


Pangthai Co., Ltd.


Pangthai Co., Ltd.


Pangthai Co., Ltd.

VII-8



Shenyang Dongda PRC 30 789024 7/11/2005-13 Grains Oils & 6/11/2015

Foodstuffs IndustriesCo., Ltd.

Shandong COFCO PRC 30 3007194 21/01/2003-14 Lude Foods 20/01/2013

Co., Ltd.


Co., Ltd.


Co., Ltd.

China Resources PRC 33 1534716 07/03/2001-17 Winery 06/03/2011

(Heilongjiang)Co., Ltd.















VII-9



China Resources PRC 33 1139056 28/12/1997-25 (Heilongjiang) 27/12/2007

Alcohol Co., Ltd.

Shenyang Xiangxue PRC 30 696139 07/07/2004-26 Flour Limited 06/07/2014

Liability


Liability

Shenyang Xiangxue PRC 30 966109 21/03/1997-*28 Flour Limited 20/03/2007

Liability


Liability


Liability


Liability


Liability


Liability


Liability


Liability

Zhengzhou Haijia PRC 30 864982 21/08/2006-36 Food Co., Ltd. 20/08/2016



VII-10





Grand Silver PRC 29 690278 21/05/2004-41 Services Limited 20/05/2014






*Note: We are currently applying for an extension for trademarks 28.

(b) Domain names

As at the Latest Practicable Date, the Group has registered the following domain names:

Registered Place of Registration RegistrationDomain name Owner registration number date

www.cofcorice.cn COFCO Jiangxi Rice PRC CEDOMAIN0001 02/08/2004Processing Limited 1063

www.cofcorice.com COFCO Jiangxi Rice PRC CEDOMAIN0001 02/08/2004Processing Limited 1064

(c) Patents

As at the Latest Practicable Date, the Group has obtained registrations of the following patents inthe PRC:

Place of Registration Date ofPatent Registered Owner registration Class Number Application

Packing Paper (Fine Puyang COFCO PRC Exterior Design ZL 033580839 29/08/2003Dried Noodles) Flour Industry

Co. Ltd.

VII-11


Place of Registration Date ofPatent Registered Owner registration Class Number Application

Adhesive-bonded COFCO Industry PRC Utility Model ZL 97 2 21/03/1997Fabric Packing (Qinhuangdao) 12743.7Bag Pangthai Co., Ltd.

Flour Packing COFCO Industry PRC Exterior Design ZL 2004 3 02/06/2004Bag (A) (Qinhuangdao) 0059722.1

Pangthai Co., Ltd.

Flour Packing COFCO Industry PRC Exterior Design ZL 2004 3 02/06/2004Bag (B) (Qinhuangdao) 0059721.7

Pangthai Co., Ltd.

Flour Packing COFCO Industry PRC Exterior Design ZL 2004 3 02/06/2004Bag (C) (Qinhuangdao) 0059720.2

Pangthai Co., Ltd.

Flour Packing COFCO Industry PRC Exterior Design ZL 2004 3 02/06/2004Bag (D) (Qinhuangdao) 0059719.X

Pangthai Co., Ltd.

Flour Packing COFCO Industry PRC Exterior Design ZL 2004 3 02/06/2004Bag (E) (Qinhuangdao) 0059718.5

Pangthai Co., Ltd.

Flour Packing COFCO Industry PRC Exterior Design ZL 2004 3 02/06/2004Bag (F) (Qinhuangdao) 0059717.0

Pangthai Co., Ltd.

Flour Packing COFCO Industry PRC Exterior Design ZL 2004 3 02/06/2004Bag (G) (Qinhuangdao) 0059716.6

Pangthai Co., Ltd.

Save as mentioned above, there are no registered intellectual property rights which are or may bematerial in relation to the Group’s business and which are beneficially owned by the Group.

(d) Logo

We have been authorized by COFCO to use the logo appearing on the cover page of thisprospectus.

C. FURTHER INFORMATION ABOUT DIRECTORS, MANAGEMENT AND EXPERTS

1. Interests of Directors in the share capital of our Company and its associated corporations

A1A 45(1)(a)

A1A 45(1)(b)

A1A 45(1)(c)

Immediately following completion of the Global Offering, none of our Directors will have any interestand/or short positions in the shares, underlying shares and debentures of our Company or any of itsassociated corporations (within the meaning of Part XV of the Hong Kong Securities and FuturesOrdinance) which will be required to be notified to our Company and the Hong Kong Stock Exchangepursuant to Divisions 7 and 8 of Part XV of the Hong Kong Securities and Futures Ordinance (includinginterests or short positions which they were deemed to have under such provisions of the Hong KongSecurities and Futures Ordinance) or which will be required, pursuant to section 352 of the Hong KongSecurities and Futures Ordinance, to be entered in the register referred to therein, or which will berequired, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in theHong Kong Listing Rules, once the shares are listed.

VII-12


2. Particulars of service agreements

A1A 46(1)Each of the executive Directors has entered into a service agreement with the Group. Particulars ofthese agreements are set out below:

Each service agreement is for an initial period of three years commencing on February 16, 2007,and will continue thereafter unless and until terminated by either party by serving not less than threemonths’ prior written notice or three months’ salary in lieu of such notice.

The following table sets out the annual salary range of the executive Directors:

Range of annual salary No. of directors

HK$1,800,000 — HK$2,600,000 ************************************************ oneHK$1,500,000 — HK$1,800,000 ************************************************ two

A1A 66(2),

(3)

The aggregate annual salary of the three executive Directors will not exceed HK$6,200,000.Moreover, each of the executive Directors, for each completed year of service, may be awarded with amanagement bonus (if any) of such amount as may be determined by the remuneration committee at itssole discretion by reference to criteria as the remuneration committee may determine as appropriatefrom time to time. The relevant executive Director may not vote on any resolution of the Directorsregarding the amount of the management bonus (if any) payable to him.

Save as disclosed above, none of the Directors has or is proposed to have a service agreementwith our Company or any of its subsidiaries (other than contracts expiring or determinable by theemployer within one year without payment of compensation other than the statutory compensation).

3. Agency fees or commissions received

3rd Sch(14)

A1A 13

Save as disclosed in this prospectus, no commissions, discounts, brokerages or other specialterms have been granted in connection with the issue or sale of any capital of our Company or any of itssubsidiaries within the two years ended on the date of this prospectus.

4. Disclaimers

Save as disclosed in this prospectus:

(a) without taking into account of the shares which may be taken up under the Global Offering,none of our Directors knows of any person (not being a Director or chief executive of ourCompany) who will, immediately following completion of the Global Offering, have an interestor short position in the shares or underlying shares of our Company which would fall to bedisclosed to us under the provisions of Divisions 2 and 3 of Part XV of the Hong KongSecurities and Futures Ordinance or be interested, directly or indirectly, in 10% or more of thenominal value of any class of share capital carrying rights to vote in all circumstances atgeneral meetings of any member of us;

(b) none of our Directors or chief executive has any interest or short position in the shares,underlying shares or debentures of our Company or any of our associated corporation (withinthe meaning of the Hong Kong Securities and Futures Ordinance) which will have to be notifiedto us and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the HongKong Securities and Futures Ordinance of which will be required, pursuant to section 352 ofthe Hong Kong Securities and Future Ordinance, to be entered in the register referred totherein, or which will be required to be notified to us and the Hong Kong Stock Exchangepursuant to the Model Code for Securities Transactions by Directors of Listed Issuers once theshares are listed;

VII-13


3rd Sch(19)

A1A 47(1)

(c) none of the Directors or the experts named in the paragraph headed ‘‘Consents andqualifications of the experts’’ below has been interested in the promotion of, or has any director indirect interest in any assets acquired or disposed of by or leased to, any member of theGroup within the two years immediately preceding the date of this prospectus, or which areproposed to be acquired or disposed of by or leased to any member of the Group nor will anyDirector apply for Offer Shares either in his or her own name or in the name of a nominee;

A1A 47(2)(d) no Director is materially interested in any contract or arrangement subsisting at the date of thisprospectus which is significant in relation to the business of the Group taken as a whole; and

A1A 9(1)(e) none of the experts named in the paragraph headed ‘‘Consents and qualifications of theexperts’’ below has any shareholding in any company in the Group or the right (whether legallyenforceable or not) to subscribe for or to nominate persons to subscribe for securities in anycompany in the Group.

A1A 44D. SHARE OPTION SCHEME

3rd Sch(10)

LR17.02(1)(b)

The following is a summary of the principal terms of the Share Option Scheme conditionallyapproved and adopted by a written resolution of the sole shareholder of our Company on January 12,2007. The terms of the Share Option Scheme are in accordance with the provisions of Chapter 17 of theHong Kong Listing Rules.

For the purposes of this summary, unless the context otherwise requires or specifies, the followingterms have the meanings set out below:

‘‘Employee(s)’’ (1) any executive or non-executive director(s) of any member ofthe Group, (2) any senior executive(s), key technical staff,professional staff, manager(s), any employees of any memberof the Group, (3) any other individual(s) as may be decided bythe Board, and ‘‘employment’’ shall be interpreted accordingly;

‘‘Grantee(s)’’ person(s) who are offered or granted Options pursuant to theShare Option Scheme;

‘‘Option(s)’’ option(s) to subscribe for shares that may be granted pursuantto the Share Option Scheme; and

‘‘Participant(s)’’ (1) any executive or non-executive director(s) of any members ofthe Group (or person(s) proposed to be appointed as suchprovided that the offer to such proposed appointee(s) shall beconditional upon the proposed appointment taking effect),(2) any senior executive(s), key technical staff, professionalstaff, manager(s), employee(s) of any member(s) of the Group(or person(s) proposed to be appointed as such provided thatthe offer to such proposed appointee(s) shall be conditionalupon the proposed appointment taking effect), or (3) any otherindividuals as may be proposed by the Board. For the avoidanceof any doubt, Participant(s) do not include independent non-executive directors of our Company.

(a) Purpose

17.03(1)The purpose of the Share Option Scheme is to attract, retain and motivate senior managementpersonnel and key employees of the Group, and provide the Participants with an opportunity to acquireproprietary interests in our Company and to encourage the Participants to work towards enhancing thevalue of our Company and shares for the benefit of our Company and its shareholders as a whole.

VII-14


(b) Who may join

17.03(2)Subject to the terms of the Share Option Scheme, the Board shall be entitled at any time within10 years from the adoption date of the Share Option Scheme to make an offer to any Participant of theShare Option Scheme to subscribe for such number of shares at the subscription price, after whichperiod no further Options will be granted but in all other respects the provisions of the Share OptionScheme shall remain in full force and effect.

(c) Acceptance of an offer of Options

An offer shall be made to a Participant by letter in such form as the Board may from time to timedetermine specifying the number of shares under the Option and the option period in respect of whichthe offer is made and requiring the Participant to undertake to hold the Option on the terms on which it isto be granted and to be bound by the provisions of the Share Option Scheme.

An offer shall be deemed to have been accepted and the Option to which the offer relates shall bedeemed to have been granted when the duplicate letter comprising acceptance of the offer duly signedby the Grantee within 28 days with the number of shares in respect of which the offer is accepted clearlystated therein together with the payment of HK$1.00 by consideration for the grant of the Option.

Any offer may be accepted or deemed to have been accepted in respect of less than the number ofshares for which it is offered provided that it is accepted in respect of a board lot for dealing in shares onthe Hong Kong Stock Exchange or an integral multiple thereof. To the extent that the offer is notaccepted within 28 days in the manner indicated above, it will be deemed to have been irrevocablydeclined.

(d) Maximum number of shares

17.03(3)The maximum number of shares which may be issued upon exercise of all Options to be grantedunder the Share Option Scheme and under any other share options schemes of our Company (if any)are in aggregate equal to 10% of the total number of shares in issue on the date on which dealings inthe shares commence on the Hong Kong Stock Exchange (the ‘‘Scheme Mandate Limit’’).

For the avoidance of any doubt, Options lapsed in accordance with the terms of the Share OptionScheme and under any other share option schemes shall not be counted for the purpose of calculatingthe above-mentioned maximum number of shares. The Scheme Mandate Limit may be renewed at anytime, subject to the shareholders’ approval. However, the Scheme Mandate Limit as renewed shall notexceed 10% of the number of shares in issue as at the date of the relevant approval. Options alreadygranted under the Share Option Scheme and under any other share option schemes (including thoseoutstanding, cancelled, lapsed in accordance with the relevant schemes or exercised) shall not becounted for the purpose of calculating the maximum number of shares as renewed.

The overall limit on the number of shares which may be issued upon exercise of all outstandingOptions granted and yet to be exercised under the Share Option Scheme and all other share optionscheme of our Company must not exceed 10% of the number of shares in issue from time to time. NoOptions will be granted under the Share Option Scheme at any time if such grant will result in such limitbeing exceeded.

The total number of shares which may be issued upon exercise of all of the Options that are firstgranted after the Share Option Scheme takes effect shall not in aggregate exceed 1% of the totalnumber of shares in issue at the relevant time.

(e) Maximum number of Options granted to any individual

The number of shares issued and to be issued upon exercise of the Options granted to any Grantee(including both exercised and outstanding Options) in any 12-month period must not exceed 1% of theshares at the relevant time.

VII-15


17.03(4)Where any grant of Options to a substantial shareholder (as defined in the Hong Kong ListingRules) of our Company, or any of their respective associates, would result in the shares issued and tobe issued upon exercise of all Options already granted and to be granted (including Options exercised,cancelled and outstanding) to such person in the 12-month period up to and including the date of suchgrant:

(a) representing in aggregate over 0.1% of the shares in issue; and

(b) having an aggregate value, based on the closing price of the shares as stated in the dailyquotations sheets issued by the Hong Kong Stock Exchange on the date of each grant, inexcess of HK$5 million,

such further grant of Options shall be subject to approval by the shareholders of our Company (voting byway of poll) at a general meeting. All connected persons (as defined in the Hong Kong Listing Rules) ofour Company shall abstain from voting at such general meeting, except that any connected person mayvote against the relevant resolution at the general meeting provided that his intention to do so has beenstated in the circular complying with the relevant requirements under Chapter 17 of the Listing Rules tobe sent to the shareholders of our Company in connection therewith.

Any grant of Options to a Participant, or any of his or her respective associates, who at the date ofgrant holds shares representing more than 5% of the voting rights of our Company shall be subject tothe approval of the shareholders of our Company at a general meeting. All connected persons (asdefined in the Hong Kong Listing Rules) shall abstain from voting at such general meeting, except thatany connected person may vote against the relevant resolution at the general meeting provided that hisintention to do so has been stated in the circular in connection therewith.

(f) Subscription prices

Subject to any adjustment made pursuant to paragraph (q), the subscription price under anyOptions shall be a price determined by the Board and notified to the Grantees and shall be the highestof the following:

17.03(9)(i) the closing price of the shares as stated in the daily quotations sheets issued by the HongKong Stock Exchange on the date of offer;

(ii) the average closing price of the shares as stated in the daily quotations sheets issued by theHong Kong Stock Exchange for the five business days immediately preceding the date ofoffer; or

(iii) the nominal value of a share.

(g) Granting Options to connected persons

17.04Any grant of Options to a director, chief executive officer or substantial shareholder (not includingthe independent non-executive directors) of our Company or his/her respective associates is required tobe approved by the independent non-executive directors of our Company.

(h) Restrictions on the time of granting Options

17.05A grant of Options may not be made after a price sensitive event has occurred or a price sensitivematter has been the subject of a decision until such price sensitive information has been published inthe newspapers. In particular, no Options may be granted during the period commencing one monthimmediately preceding the earlier of:

(i) the date of the board meeting of our Company (as such date to be first notified to the HongKong Stock Exchange in accordance with the Hong Kong Listing Rules) for the approval of ourCompany’s results for any year, half-year, quarterly or other interim period (whether or notrequired under the Hong Kong Listing Rules); and

VII-16


(ii) the deadline for our Company to publish an announcement of the results for any year, half-year, quarterly or other interim period (whether or not required under the Hong Kong ListingRules),

and ending on the date of actual publication of the results announcement.

(i) Rights are personal to Grantee

17.03(10)

17.03(12)

17.03(17)

An Option is personal to the Grantee. No Grantee shall in any way sell, transfer or assign, charge,mortgage, encumber or create any interest in favor of any third party over or in relation to any Option orenter into any agreement to do so. Any breach of the foregoing shall entitle our Company to cancel theOptions granted to the extent not already exercised.

(j) Exercise of Options and period of the Share Option Scheme

17.03(6)The Options granted shall be exercised according to the following, provided that the Options havetaken effect under the Share Option Scheme:

Proportion of the Options whichDate have taken effect

Within two years from the date of grant of the Options ********* 0

Upon and after the second anniversary of the date of grant ofthe Options but no later than the third anniversary of the dateof grant of the Options************************************ 33%

Upon and after the third anniversary of the date of grant of theOptions but no later than the fourth anniversary of the date ofgrant of the Options ************************************** 67%

Upon and after the fourth anniversary of the date of grant of theOptions ************************************************* 100%

The life of each of the Options granted is seven years, subject to the provisions of the Share OptionScheme relating to the early termination of employment. After the expiry of the life of the Optionsgranted, the Options (to the extent not yet exercised) will lapse automatically and become non-exercisable.

17.03(5)

17.03(11)

Save as otherwise specified in the Share Option Scheme, the Share Option Scheme shall remaineffective for a period of ten years from the date on which it takes effect being the date on which dealingsin the shares on the Hong Kong Stock Exchange first commence, after which the Share Option Schemewill cease to be effective, and no further Options shall be granted provided that all other provisionscontained in the Share Option Scheme shall remain effective with regard to the Options granted underthe Share Option Scheme and the exercise of such Options.

(k) Conditions for the exercise of Options

17.03(7)The Board is entitled in its absolute discretion to impose any conditions, restrictions or limitationsupon each grant of Options. The number of the Options which are exercisable shall be conditional uponthe extent to which any conditions imposed, including but not limited to performance targets, by theBoard are satisfied. The rights of interpretation of the conditions, restrictions or limitations are reservedby the Board.

VII-17


(l) Rights on ceasing employment/death

17.03(10)In the event the Grantee ceases to be an Employee for any reason other than on his or her death,or diseases, or injuries or disabilities not attributable to his or her own improper conduct, or retirementfrom the position of the Employee, or transfer of employment upon the decision of his or her employer,or the termination of his or her employment on one or more of the grounds specified in paragraphs (r)(iv) or (vi), the Grantee may exercise the Option up to the entitlement of such Grantee at the date ofcessation (to the extent not already exercised) within a period of three months following the date of suchcessation, which date shall be the last actual working day with our Company or the relevant subsidiarywhether salary is paid in lieu of notice or not.

In the event the Grantee ceases to be an Employee due to his or her diseases, or injuries ordisabilities not attributable to his or her own improper conduct, or retirement from the position of theEmployee, or transfer of employment upon the decision of his or her employer and none of the eventswhich would be a ground for termination of his or her employment under paragraphs (r) (iv) or (vi)arises, the Grantee may exercise the Option up to the entitlement of such Grantee at the date ofcessation (to the extent not already exercised) within a period of six months following the date of suchcessation, which date shall be the last actual working day with our Company or the relevant subsidiarywhether salary is paid in lieu of notice or not.

In the event the Grantee dies before the Option is exercised in full and none of the events whichwould be a ground for termination of his or her employment under paragraphs (r) (iv) or (vi) arises, thepersonal representative(s) of the Grantee shall be entitled within a period of 12 months from the date ofdeath or such longer period as the Board may determine to exercise the Option up to the entitlement ofsuch Grantee at the date of death (to the extent not already exercised).

(m) Rights on takeover of our Company

17.03(10)If a general offer by way of take-over, share repurchase, or similar offer is made to all the holders ofshares (or all such holders other than the offeror and/or any person controlled by the offeror and/or anyperson acting in association or concert with the offeror) with the terms of the offer having been approvedby the holders of not less than nine-tenths in value of the shares comprised in the offer within fourmonths and the offeror thereafter gives a notice pursuant to the Hong Kong Companies Ordinance toacquire the remaining shares, the Grantee (or his or her personal representative(s)) may by notice inwriting to our Company within 21 days of such notice exercise the Option (to the extent not alreadyexercised) to its full extent or to the extent specified in such notice.

(n) Rights on a voluntary liquidation of our Company

17.03(10)Where our Company adopts the resolution of voluntary liquidation, the Grantees (or their legalpersonal representative(s)) may, by notice in writing within 14 days following the resolution, elect to betreated as if they had exercised all or part of the Options (to the extent not already exercised) prior to theresolution, in which case the Grantees may pari passu, the same as other shareholders, be entitled toreceive out of the assets available in the liquidation such sum as he would have received in respect ofthe shares, being the subject of such election, less an amount equal to the subscription price whichwould otherwise have been payable in respect thereof.

(o) Rights on scheme of arrangement between our Company and its shareholders

17.03(10)If a general offer by way of scheme of arrangement is made to all the holders of shares with thescheme having been approved by the necessary number of holders of shares at the requisite meetingsand having been declared unconditional, the Grantee (or his or her personal representative(s)) maythereafter (but before such time as shall be notified by our Company) exercise the Option (to the extentnot already exercised) to its full extent or to the extent specified in such notice.

VII-18


(p) Ranking of shares

The shares to be allotted upon the exercise of an Option will be subject to the Articles ofAssociation of our Company then in force and will rank pari passu with the fully paid shares in issue onthe date of exercise of the Option, including participation in the distribution of dividends and otherrights/interests on or after the date of allotment, save as the dividends or other rights/interestspublicized, proposed or decided prior to the date of exercise of the Option.

(q) Effect of the alteration of the share capital of our Company

17.03(13)In the event of capitalization issue, rights issue, consolidation, subdivision, or reduction of the sharecapital of our Company other than any alteration in the capital structure of our Company as a result ofan issue of shares as consideration in respect of a transaction to which our Company is a party, suchcorresponding alterations (if any) shall be made to:

(i) the number of shares subject to the Options so far as unexercised; and/or

(ii) the subscription price; and/or

(iii) the terms of the Option,

provided that any such alterations shall give a Grantee as much as possible the same proportion of theissued share capital of our Company as that to which he/she is previously entitled, but to the extent notexceeding the proportion before the alteration. No such alterations shall be made to the effect of whichwould be to enable any shares to be issued at any value lower than their nominal value, or theproportion for the subscription of the issued share capital of our Company by the Grantee to beincreased. Any such alterations to be made pursuant to this paragraph shall be subject to, and pursuantto, the requirements of the Hong Kong Listing Rules, where applicable, and the applicable guidelinesissued by the Hong Kong Stock Exchange from time to time.

Our Company’s auditors shall certify in writing to the Board that such alteration is, in their opinion,fair and reasonable.

(r) Lapse of Options

17.03(12)An Option shall lapse automatically and not be exercisable (to the extent not already exercised) onthe earliest of:

(i) the expiry of the Option period;

(ii) the expiry of any of the periods referred to in paragraphs (l) and (n);

(iii) the date of the commencement of the liquidation of our Company (pursuant to the provisionsof the applicable law);

(iv) the date on which the Grantee ceases to be an Employee by reason of termination of his/heremployment on the grounds that he/she has been guilty of misconduct, or has beenconvinced of any criminal offence involving his/her integrity or honesty or (if so determined bythe Board) on any other ground on which an employer would be entitled to terminate his/heremployment or pursuant to any applicable laws or under the Grantee’s service contract withour Company or the relevant subsidiary;

(v) the date of occurrence on the part of the Grantee of any of the following events confirmed bythe Board:

a. material negligence or dereliction of his/her duty;

b. breach of the relevant laws and regulations or the Articles of Association of ourCompany;

VII-19


c. where the Board determines that the Grantee during his/her term of office has incurredlosses to our Company due to accepting/demanding bribes, embezzlement/theft,disclosure of the operational and technological secrets or know-how of our Company,implementation of connected transactions against the interests or reputation of ourCompany and such other behaviours which have material adverse effect on the image ofour Company;

(vi) the date on which the Grantee has become bankrupt or has become insolvent or has madeany arrangement or composition with his/her creditors after which his/her employment isterminated;

(vii) the date on which the Grantee breaches paragraph (i); and

(viii) subject to the relevant courts of Hong Kong not making an order prohibiting the offeror toacquire the remaining shares in the offer, the expiry of the period referred to in paragraph (m).

(s) Alterations to the Share Option Scheme

17.03(18)The Share Option Scheme may be altered in any respect by the resolution of the Board, providedthat such definitions, ‘‘Employee(s)’’ ‘‘Participant(s)’’ and ‘‘Option Period’’ as set out in the Share OptionScheme, the terms and conditions of the Share Option Scheme and the major provisions concerningthe subscription rights shall not be amended to such effect as terms of the rights and obligations of theParticipant(s) and Employee(s) or the future Participant(s) and Employee(s) will be prejudiced, save asapproved by the resolution of general meetings of our Company.

Any amendments to the terms and conditions of the Share Option Scheme which are of a materialnature, or any change to the terms of the Options granted must also, to be effective, be approved by theshareholders at a general meeting, except where the alterations take effect automatically under theexisting terms of the Share Option Scheme.

The amended terms and conditions of the Share Option Scheme shall comply with the relevantrequirements of the laws, regulations and the relevant requirements of the Hong Kong Listing Rules.

(t) Cancellation of Options

17.03(14)Any Options already granted but not exercised may be cancelled by the Board if the Grantee soagrees and new Options may be granted to the Grantee under a share option scheme with availableunissued options.

(u) Termination of the Share Option Scheme

17.03(16)The Share Option Scheme shall terminate upon the expiration of the period of the Share OptionScheme. Our Company may by resolution at a general meeting or the Board may at any time terminatethe operation of the Share Option Scheme and in such event no further Options will be offered, but theprovisions of the Share Option Scheme shall in all other respects remain in full force and effect. Optionswhich are granted during the life of the Share Option Scheme and remain unexpired immediately prior tothe termination of the operation of the Share Option Scheme shall continue to be exercisable inaccordance with their terms of issue after the termination of the Share Option Scheme.

(v) Administration of the Share Option Scheme

The Share Option Scheme shall be subject to the administration of the Board, the resolutions ofwhich shall be final and binding upon all the parties, save as otherwise specified.

VII-20


(w) Conditions

The Share Option Scheme shall take effect subject to the passing of the necessary resolution toadopt the Share Option Scheme by the shareholders at its general meetings and is conditional upon,among other things, (i) the obligations of the underwriting agreements in respect of the Global Offeringbecoming unconditional and not being terminated in accordance with the terms of the respectiveunderwriting agreements or otherwise; (ii) the Listing Committee of the Hong Kong Stock Exchangegranting approval of the listing of, and permission to deal in, any shares issued as detailed in theProspectus, and to be issued pursuant to the exercise of Options under the Share Option Scheme; and(iii) the commencement of dealings in shares on the Hong Kong Stock Exchange.

(x) Financing arrangements

Subject to and to the extent permitted by applicable laws, our Company may, but shall not beobliged to, provide, procure or make arrangements for the financing to Grantees for the purposes ofsatisfying the payment of the subscription price in respect of the exercise of the Options on the part ofthe relevant Grantee.

E. OTHER INFORMATION

1. Estate duty

A1A 10 The Directors have been advised that, based on the applicable laws of Hong Kong and the currentpractice of the relevant Hong Kong regulatory authorities, no material liability for estate duty in HongKong is likely to fall on any member of the Group.

2. Sponsor

A1A 14(1) The Sponsor has made an application on behalf of our Company to the Listing Committee of theHong Kong Stock Exchange for the listing of, and permission to deal in, the shares in issue and to beissued as mentioned in this prospectus, and any shares which may be issued upon the exercise of anyoptions which may be granted under the Share Option Scheme.

3. Litigation

Save for that disclosed in this prospectus, including but not limited to the legal proceedings asreferred to under ‘‘Business’’ on page 121 of this prospectus, as at the Latest Practicable Date, nomember of the Group was engaged in any litigation or arbitration of material importance and no litigationor claim of material importance is known to the Directors to be pending or threatened against anymember of the Group.

A1A 9(2),(3)

S38C

4. Consents and qualifications of the experts

Goldman Sachs (Asia) L.L.C., Ernst & Young, Savills Valuation and Professional Services Limited,Commerce and Finance Law Offices and King & Wood PRC Lawyers have given and have notwithdrawn their respective written consents to the issue of this prospectus with the inclusion of theirrespective reports, valuation, letters, opinions and/or advice (as the case may be) and/or the referencesto their respective names in the form and context in which they are respectively included.

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A1A 9(1)The qualifications of the experts referred to in this prospectus are as follows:

Name Qualifications

Goldman Sachs (Asia) L.L.C. ******** Deemed licensed under the Hong Kong Securities andFutures Ordinance for type 1 (dealing in securities), type 4(advising on securities) and type 6 (advising on corporatefinance) as defined under the Hong Kong Securities andFutures Ordinance

A1A 4Ernst & Young********************** Certified public accountantsSavills Valuation and Professional

Services Limited****************** Independent property valuerCommerce and Finance Law Offices** PRC attorneys-at-lawKing & Wood PRC Lawyers********** PRC attorneys-at-law

3rd Sch(7)(ii)5. Preliminary expenses

3rd Sch(15)

A1A 20(1),(2)

The preliminary expenses of our Company are estimated to be approximately HK$5,600 and arepayable by our Company.

6. Binding effect

This prospectus shall have the effect, if an application is made in pursuance hereof, of rendering allpersons concerned bound by all of the provisions (other than the penal provisions) of Sections 44A and44B of the Hong Kong Companies Ordinance (so far as applicable).

3rd Sch(28)

A1A 15(2)(j)

7. Particulars of the Selling Shareholder

Certain particulars of the Selling Shareholder are set out as follows:

Name: COFCO (Hong Kong) Limited

Registered address: 33rd Floor, Top Glory Tower, 262 Gloucester Road, Causeway Bay, HongKong

Description of business: investment holding

Number of Sale Shares: up to 163,065,545 shares for sale under the Global Offering

8. Compliance Adviser

We appointed BCOM Securities Company Limited as our compliance adviser (the ‘‘ComplianceAdviser’’) upon listing in compliance with Rule 3A.19 of the Hong Kong Listing Rules.

On February 28, 2007, we entered into a compliance adviser’s agreement with the ComplianceAdviser, the material terms of which are as follows:

(a) we appointed the Compliance Adviser as our compliance adviser for the purpose ofRule 3A.19 of the Hong Kong Listing Rules for a period commencing on the Listing Date andending on the date on which we will have complied with Rule 13.46 of the Hong Kong ListingRules in respect of the issuance of our financial results for the first full financial yearcommencing after the Listing Date or until the agreement is terminated, whichever is earlier;

(b) the Compliance Adviser shall provide us with services, including guidance and advice as tocompliance with the requirements under the Hong Kong Listing Rules and other applicablelaws, regulations and codes, and to act as one of our principal channels of communication withthe Hong Kong Stock Exchange;

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(c) we agree to indemnify the Compliance Adviser for certain actions against the ComplianceAdviser and losses incurred by the Compliance Adviser arising out of or in connection with theperformance by the Compliance Adviser of its duties under the agreement, or any materialbreach or alleged breach by us of the provisions of the agreement, or any default or breach bythe Company of any provisions of the Hong Kong Listing Rules and/or applicable laws,regulations, rules, codes and guidelines; and

(d) we may terminate the appointment of any Compliance Adviser if the Compliance Adviser’swork is of an unacceptable standard or if there is a material dispute (which cannot be resolvedwithin 30 days) over fees payable to the Compliance Adviser as permitted by Rule 3A.26 of theHong Kong Listing Rules. The Compliance Adviser may resign or terminate its appointment byservice of three months’ notice to us.

9. Indemnities

The indemnities granted by COFCO Group to the Group include:

(a) an indemnity from COFCO (HK) under the Master Sale and Purchase Agreement to indemnifyus from and against all claims, liabilities, losses, costs and expenses which we may suffer orincur in connection with, among other things,

(i) the settlement of any claim that any of the representations and warranties given byCOFCO (HK) is untrue or misleading or has been breached; and

(ii) any claims by any government entity against any company acquired by us under theMaster Sale and Purchase Agreement, due to or in connection with any underpayment,non-payment or late payment of social insurance and housing fund contributions for any ofits employees;

(b) under the Master Sale and Purchase Agreement, COFCO agreed to indemnify us against alllosses, costs and expenses incurred by us arising from any failure by COFCO (HK) to performand/or observe its obligations under the Master Sale and Purchase Agreement,

(c) COFCO and COFCO (HK) entered into a Tax Deed in connection with the Master Sale andPurchase Agreement pursuant to which they jointly and severally agreed to indemnify usagainst, among other things, all taxes payable by us as a result of our acquisition of the sharesof Full Extent Group Limited (‘‘Full Extent’’) except, among other things,

(i) where specific provision or reserve has been made for the taxes in the unaudited financialreports of any of Full Extent and its subsidiaries; and

(ii) where the taxes arose and related to the ordinary course of trade of any of Full Extent andits subsidiaries; and

(d) COFCO signed a Letter of Undertaking dated February 14, 2007 in our favor under which itagreed to indemnify us for any damages or losses suffered by our Group due to the absence ofbuilding ownership certificates and land use rights certificates in relation to buildings and landcurrently used by our Group for our operations.

10. Miscellaneous

Save as disclosed herein:

3rd Sch (11)

3rd Sch (25)(a) within the two years preceding the date of this prospectus, no share or loan capital of our

Company or of any of its subsidiaries has been issued, agreed to be issued or is proposed tobe issued fully or partly paid either for cash or for a consideration other than cash;

A1A 27(b) no share or loan capital of our Company or any of its subsidiaries is under option or is agreedconditionally or unconditionally to be put under option;

(c) our Company has no founder shares, management shares or deferred shares;

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(d) all necessary arrangements have been made to enable the shares to be admitted into CCASSfor clearing and settlement; and

(e) the Group has no present intention to change the nature of its business in the near future. A1A 30

11. Exemptions from the Hong Kong Companies Ordinance

The English language and Chinese language versions of this prospectus are being publishedseparately, in reliance upon the exemption provided in Section 4 of the Hong Kong CompaniesOrdinance (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice(Chapter 32L of the Laws of Hong Kong).

The Company has applied to the SFC for an exemption from strict compliance with paragraph 34(2)of the Third Schedule to the Hong Kong Companies Ordinance on the grounds that it would be undulyburdensome to include in this prospectus a copy of the full valuation report prepared by Savills Valuationand Professional Services Limited as at 31 December 2006 of the Group’s properties. The exemptionhas been granted by the SFC under Section 38A of the Hong Kong Companies Ordinance, subject tothe following conditions:

(a) the summary valuation report of the Company’s interests in the land and buildings be includedin the prospectus, such report to be prepared based on the full valuation report and in thesame form and manner as set out in Appendix V of the prospectus;

(b) a valuation report in full compliance with all the requirements under paragraph 34, which will beprepared in English only, will be made available for public inspection; and

(c) particulars of this exemption are set out in the prospectus.

In strict compliance with Rule 4.04(1) of the Hong Kong Listing Rules and paragraphs 27 and 31 ofthe Third Schedule to the Hong Kong Companies Ordinance (the ‘‘Relevant Requirements’’), we arerequired to include our financial results for the year ended December 31, 2006 in the Accountants’Reports.

The Company has applied to the SFC and the Hong Kong Stock Exchange for waivers from strictcompliance with the Relevant Requirements on the ground that strict compliance with the RelevantRequirements would be unduly burdensome for us in that there would not have been sufficient time forus to produce and our accountants, Ernst & Young, to audit the financial statements for the year endedDecember 31, 2006 prior to the Global Offering. A certificate of exemption from strict compliance withthe Relevant Requirements under paragraphs 27 and 31 of the Third Schedule to the Hong KongCompanies Ordinance has been granted by the SFC to the Company under section 38A of the HongKong Companies Ordinance. The Hong Kong Stock Exchange has also granted its waiver to theCompany from strict compliance with Rule 4.04(1) of the Hong Kong Listing Rules on condition that theListing Date will be on or before March 31, 2007.

Our Directors consider that all information reasonably necessary for the potential investors to makean informed assessment of our activities and the financial position has been included in this prospectus.

Our Directors confirm that they have performed sufficient due diligence on the Group to ascertainand confirm that, up to the date of this prospectus, there has been no material adverse change in ourfinancial position or prospects since September 30, 2006 and there is no event since September 30,2006 which would materially affect the information shown in the Accountants’ Reports set out inAppendix I, IIA and IIB.

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APPENDIX VIII DOCUMENTS DELIVERED TO THE REGISTRAR OFCOMPANIES AND AVAILABLE FOR INSPECTION

DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES

The documents attached to this prospectus and delivered to the Registrar of Companies in HongKong for registration were:

( copies of the white and yellow Application Forms;

( the written consents referred to in the section headed ‘‘Other Information’’ in Appendix VII —‘‘Statutory and General Information’’;

( details of COFCO (HK), our selling shareholder, including its address and other information asrequired by Section 38D of the Hong Kong Companies Ordinance; and

A1A 53(2)3rd Sch 17

( copies of the material contracts referred to in the section headed ‘‘Further Information aboutthe Business’’ in Appendix VII — ‘‘Statutory and General Information’’.

DOCUMENTS AVAILABLE FOR INSPECTION

A1A 53LR 19.10(6)

Copies of the following documents will be available for inspection at the offices of Herbert Smith,23rd Floor, Gloucester Tower, 15 Queen’s Road Central, Hong Kong during normal business hours up toand including the date which is 14 days from the date of this prospectus:

A1A 53(1)( our Memorandum and Articles of Association;

A1A 53(4)A1A 53(3)

( the Accountants’ Report for our Company prepared by Ernst & Young, the text of which is setout in Appendix I;

A1A 53(3)( the Accountants’ Report for Techbo Group prepared by Ernst & Young, the text of which is setout in Appendix IIA;

A1A 53(3)( the Accountants’ Report for Heilongjiang Alcohol prepared by Ernst & Young, the text of whichis set out in Appendix IIB;

A1A 53(5)A1A 53(3)

( the audited financial statements prepared for the companies comprising the Group for theyears ended December 31, 2003, 2004 and 2005 and the nine months ended September 30,2006;

A1A 53(3)( the letter relating to the unaudited pro forma financial information, the text of which is set out inAppendix III;

A1A 53(3)( the letters relating to the profit estimate, the texts of which are set out in Appendix IV;

A1A 53(3)( the letter dated March 8, 2007 and valuation certificate relating to our property interestsprepared by Savills Valuation and Professional Services Limited, the texts of which are set outin Appendix V — ‘‘Property Valuation’’;

A1A 53(3)( the PRC legal opinions on the Group’s operations and the Group’s PRC properties, both datedMarch 8, 2007 issued by Commerce and Finance Law Offices, our legal advisors on PRC law;

( our Share Option Scheme;

A1A 53(2)3rd Sch (17)

( the material contracts referred to in the subsection headed ‘‘Summary of material contracts’’ inAppendix VII — ‘‘Statutory and General Information’’;

( the written consents referred to in the subsection headed ‘‘Consents and qualifications of theexperts’’ in Appendix VII — ‘‘Statutory and General Information’’; and

A1A 53(2)( the service agreements referred to in the subsection headed ‘‘Particulars of serviceagreements’’ in Appendix VII — ‘‘Statutory and General Information’’.

VIII-1