10:11 WING ON TRAVEL<01189>& CHINA STRATEGIC<00235>-JA & Resume(5) REASONS FOR THE PLACING AND THE SUBSCRIPTION AND USE OF PROCEEDS CSH is an investment holding company. The CSH Group is principally engaged in manufacturing of batteries and property investment and development business in the PRC. CEL is an investment holding company and is owned as to approximately 55.22% effective equity interest and approximately 88.79% effective voting interest by CSH. CEL is therefore a subsidiary of CSH. The CEL Group has substantial interests in other investment companies, which through their subsidiaries are principally engaged in the manufacturing and marketing of tires in the PRC and other countries aboard and the business of providing package tour, travel and other related services and hotel and leisure-related-business. Wing On Travel is an investment holding company. The Wing On Travel Group is principally engaged in the business of providing package tours, travel and other related services with branches in Hong Kong, Macau, Canada and the United Kingdom, and hotel operation in Hong Kong and the PRC. The audited consolidated net losses (both before and after taxation and extraordinary items and minority interest) of Wing On Travel for the nine months ended 31 December 2002 and the year ended 31 December 2003 and the unaudited consolidated net profit (both before and after taxation and extraordinary items and minority interest) of Wing On Travel for the six months ended 30 June 2004 were as follows: Six months ended Year ended Nine months ended 30 June 2004 31 December 2003 31 December 2002 HK$'000 HK$'000 HK$'000 (unaudited) (audited) (audited) Turnover 814,139 1,416,235 1,323,286 Consolidated net profit/(loss) before taxation and extraordinary items and minority interest 32,868 (373,047 ) (304,153 ) Taxation (charge)/credit (8 ) 2,075 669 Consolidated net profit/(loss) after taxation and extraordinary items and minority interest 32,953 (370,972 ) (302,248 ) Based on the interim report of Wing On Travel for the six months ended 30 June 2004, the unaudited consolidated net asset value and unaudited total assets of Wing On Travel as at 30 June 2004 was approximately HK$325.7 million and HK$2,553.03 million respectively. The Placing Price and the Subscription Price were determined after arm's length negotiations between Wing On Travel, CEL, and the Placing Agent. The boards of Wing On Travel and CSH including their respective independent non-executive directors of Wing On Travel and CSH consider the Placing Price and the Subscription Price to be fair and reasonable. If the issue of the Subscription Shares pursuant to the Second Placing Agreement is completed, CSH will incur a loss of approximately HK$3.9 million resulting from the dilution of interests in Wing On Travel with reference to the unaudited management accounts of CSH as at 30 June 2004. If the issue of the Subscription Shares pursuant to the Second Placing Agreement is not completed, CSH will incur a gain of approximately HK$67.9 million resulting from the sale of 2,340 million Shares under the Second Placing Agreement with reference to unaudited management accounts of CSH as at 30 June 2004. There are no restrictions in relation to the Placing Shares to be placed pursuant to the Second Placing Agreement. The Placing and the Subscription (as a whole) facilitates fund raising by Wing On Travel and would help strengthen its financial position. As CSH has an interest in Wing On Travel through CEL, the directors of CSH including the independent non-executive directors of CSH consider that the proposed Placing and Subscription could in turn help bolster its investment in Wing On Travel through improvement in Wing On Travel's financial position and increase of its capital base, notwithstanding the dilution of CSH's interests in Wing On Travel which the Subscription entails. If the issue of Subscription Shares pursuant to the Second Placing Agreement does not proceed (because the conditions precedent are not fulfilled by the agreed deadline), CSH intends that the net proceeds of the sale of existing Shares pursuant to the Second Placing Agreement (which would amount to approximately HK$65.5 million if all 2,340 million existing Placing Shares were sold under the Second Placing Agreement) to be used by CEL as general working capital. CEL has no specific intended use for such proceeds. Wing On Travel has not made any equity issues in the 12 months precedings the date of this announcement, apart from the issue of HK$260 million Convertible Notes to CEL (as to HK$155 million) and Hutchison International Limited (as to HK$105 million) on 14 June 2004 (which on issue were convertible into 13,000 million conversion shares at the then