09:58 DENWAY MOTORS<00203> - Announcement (5) Information on the Company The principal activity of the Company is investment holding. The principal activities of the Group, mainly through Guangzhou Denway, include the manufacturing, assembly and trading of motor vehicles, the manufacturing of motor vehicle related electrical equipment and parts in the PRC and the manufacturing and trading of audio equipment in Hong Kong. Prior to Completion, the Company owns 95% of the equity interest in Guangzhou Denway. Information on Smartstate The principal activity of Smartstate is investment holding and its paid-up capital amounted to HK$7.8 (US$1). The sole asset and liability held by Smartstate are the original investment cost in the Guangzhou Denway Interests and the Shareholder's Loan granted by City Achieve. The net tangible assets value of Smartstate is HK$7.8 (US$1). Information on Guangzhou Denway The principal assets held by Guangzhou Denway, through GAC, are the 50% interests in Guangzhou Honda, 51% interests in Guangzhou Honda No.1 Sales and 95% interests in Guangzhou Automobile Trading. Immediately prior to Completion, the composition of the board of directors of Guangzhou Denway (the `Guangzhou Denway Board') comprises five directors, four directors are nominated by the Company and one of whom shall be the chairman of the Guangzhou Denway Board, one director is nominated by Smartstate upon the direction of China Lounge who shall also be the deputy chairman of the Guangzhou Denway Board. The composition of the Guangzhou Denway Board shall remain unchanged after Completion save for the director to be nominated by Smartstate shall, after Completion, be nominated upon the direction of the Company. Upon Completion, Guangzhou Denway will become a wholly-owned subsidiary of the Company. Automobile manufacturing business The automobile manufacturing business of Guangzhou Denway is principally operated through Guangzhou Honda. Guangzhou Honda is a Sino-foreign equity joint venture company established in Guangzhou under laws of the PRC on 1 July 1998 for a term of 30 years in which each of GAC and Honda Motor Co., Limited has a 50% equity interests. GAC is a wholly-owned subsidiary of Guangzhou Denway. Guangzhou Honda is engaged in the development, manufacture, sale and after-sale service of automobiles and their spare parts and accessories. Guangzhou Honda's principal products include Accord series (sedan), Odyssey series (7-seat multifunctional vehicle) and Fit series compact car. At present, Guangzhou Honda employs more than 4,200 staff members and the size of its production facilities reaches 540,000 sq. m. It has strong technical development capability such as R&D center, emission lab and advanced workshops such as punching, welding assembly, painting assembly and general assembly and synthetic resin. Since the first production of the Accord series in 1999, volumes have grown at a compound annual growth rate of approximately 85%. The profitability has increased three-fold. During 2003, Guangzhou Honda had produced and sold 117,158 units and 117,048 units of vehicles respectively, representing an increase of approximately 98% over that of the previous year. The 2003 net profit increased to HK$3,578 million from HK$2,362 million, representing a year on year growth of approximately 52%. In the first six months of 2004, Guangzhou Honda sold about 80,145 units of vehicles which represented an increase of approximately 66% as compared with the number of vehicles sold during the corresponding period in last year. Guangzhou Honda has already completed second phase of its capacity expansion from 120,000 units per annum to 240,000 units per annum (with two working shifts) in late June 2004. The second plant of Guangzhou Honda is expected to gradually ramp up its production capacity to 360,000 units per annum in the second half of 2006. Automobile trading business The automobile trading business of Guangzhou Denway is principally operated through two companies, namely, Guangzhou Honda No. 1 Sales and Guangzhou Automobile Trading. Guangzhou Honda No.1 Sales is principally engaged in the sales of Guangzhou Honda brand automobiles and parts and the provision of related after-sales services. Guangzhou Honda No.1 Sales is one of the franchisees of Guangzhou Honda in the PRC and is capable of delivering the `four-in-one' services, namely car-sales, after-sale services, spare parts supply and information feedback. Guangzhou Automobile Trading is principally engaged in the trading of automobiles in the PRC, including brands such as Dongnan, Futian, Changfeng, etc. Guangzhou Automobile Trading also engaged in the trading of car components in the PRC and the related sales were increased steadily. Set out below is the unaudited consolidated financial information of Guangzhou Denway prepared in accordance with accounting principles generally accepted in Hong Kong. (Unaudited) approximately HK$ million For the For the 6 For the 12 year ended months months 31 ended 30 ended 30