CHINA METAL INTERNATIONAL HOLDINGS INC. …finance.thestandard.com.hk/upload/comp_report_item/00319/China...to the Shareholders the interim report of China Metal International Holdings

CHINA METAL INTERNATIONAL HOLDINGS INC.� � ! " # $ % & ' (

(Incorporated in the Cayman Islands with limited liability)

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INTERIM REPORT 2005

For identification purposes onlyG

China Metal International Holdings Inc.

Interim Report 2005 01

CHAIRMAN’S STATEMENTOn behalf of the board (the “Board”) of directors (the “Directors”), I am pleased to presentto the Shareholders the interim report of China Metal International Holdings Inc. (the“Company”) and its subsidiaries (collectively the “Group”) for the six months ended 30June 2005.

SHARE OFFERThe Company was incorporated in the Cayman Islands on 5 August 2004 and wassuccessfully listed on the Main Board of The Stock Exchange of Hong Kong Limited (the“Stock Exchange”) on 31 December 2004 following a successful placing of 175,000,000new shares and public offer of 75,000,000 new shares at an issue price of HK$1.42per share (“Share Offer”). Together with the exercise of the over-allotment option by theunderwriters on 17 January 2005 which a further 37,500,000 shares were issued, theCompany raised approximately US$49.88 million from the Share Offer, net of share issueexpenses.

USE OF PROCEEDS FROM THE COMPANY’S SHARE OFFERThe proceeds from the Share Offer, after deduction of related share issue expenses,amounted to approximately US$49.88 million. The amount of proceeds utilized for investmentof property, plant and equipment is US$9.47 million during the six months ended 30 June2005.

FINANCIAL PERFORMANCEFor the six months ended 30 June 2005, the Group recorded a turnover of approximatelyUS$58.88 million with profit attributable to shareholders of approximately US$11.44million.

INTERIM DIVIDENDThe Directors resolved to pay an interim dividend of US cent 0.25 (equivalent to HK cents1.95) per ordinary share for the six months ended 30 June 2005 payable on 30 September2005 to the shareholders of the Company whose names appear in the Register ofMembers of the Company on 22 September 2005.

CLOSURE OF REGISTER OF MEMBERSThe Register of Members of the Company will be closed from Tuesday, 20 September2005 to Thursday, 22 September 2005, both days inclusive, during which period notransfer of shares will be registered. In order to qualify for the interim dividend, alltransfers of shares accompanied by the relevant share certificates must be lodged with theCompany’s branch share registrar in Hong Kong, Computershare Hong Kong InvestorServices Limited at 46th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai,Hong Kong not later than 4:00 p.m. on Friday, 16 September 2005.


Interim Report 200502

BUSINESS REVIEWThe Group continues to have growth on turnover as well as net profit in the first half of2005. Turnover increased 64% and net profit was up by 69% compared to the sameperiod in 2004. While all three industry sectors for air compressor, automobile andmechanical parts and components showed advancement, automobile parts and componentswas the primary growth driver for the top line and bottom line improvement. The Companybegan shipment of exhaust manifolds and brackets to leading auto maker and Tier 1supplier in North America in June 2004. As the production continues to ramp up, the highvalue added products have significant contributions especially to the profitabili typerformance. In the first half of 2005, the Group has also experienced stabilization ofcost of raw material. While pig iron and scrap steel remained at high level in first quarterof 2005, the material prices adjusted downward during the second quarter of 2005.Gross margin was 30.58% compared to 28.14% for the first half of 2004. The materialprice adjustment is expected to gradually filter into gross margin improvement in thesecond half of 2005. In addition, the Group continues to tighten expense control andoperating margin for the Group was 21.14% compared to 20.90% in the same period of2004. The Group successfully implemented installation of four automatic pouring systemsto the four moulding lines by the end of second quarter of 2005. The auto-pouring systemsare expected to generate cost savings by lowering material waste and improve mouldingline efficiency by raising casting yield. Net margin for the Group was 19.42% comparedto 18.77% in the same period of 2004.

FUTURE PROSPECTS AND APPRECIATIONUpon the successful listing of the Group on the Stock Exchange, the Group accelerates itsexpansion plans in Tianjin and Suzhou. The Group began construction for its secondfoundry and machining facility, CMW (Tianjin) Industry Co., Ltd (“CMWT”) with projectedfoundry capacity of 60,000 tpa. CMWT will focus on casting and machining for theautomobile and mechanical parts and components. The construction of foundry andmachining capacity for CMWT is on schedule. The machinery facility is expected tocomplete for customer certification by the end of 2005 and foundry facility is expected tocomplete installation by the end of first quarter of 2006. The facilities in CMWT areexpected to commence economic production in second quarter of 2006. We continue toadvance our top line booking for the CMWT facility. Demand from North Americaoutsourcing orders continues in strength as many automobile makers and Tier 1 suppliersare subject to pressure of cost savings and financial challenges. With our establishedrelationship with leading North America automobile makers and Tier 1 suppliers, we arewell positioned to meet market competition to win new orders and grow with our customers.In addition, due to increasing demand for the machined air compressor, mechanical and



automobile parts and components from our customers, especially in the People’s Republicof China, the Board has decided to accelerate capacity expansion schedule for machineryfacilities and approved the construction of a new machinery facility in current facilitieslocated in Suzhou CMS Machinery Company Limited (“CMS”). The new machinery facilityis expected to commence production in the fourth quarter of 2005. Hence, the establishmentof a wholly foreign owned enterprise, Suzhou CMB Machinery Co., Ltd., will be pendingfor a later date to focus on high value-added mechanical and automobile parts andcomponents. Upon expansion of the new machinery facility in CMS, the physical spaceavailable for foundry capacity expansion is fully occupied and the original designatedspace for the installation of moulding line, DISA 230 Type B, in CMS will be relocated toa new plant location. The management team continue to evaluate and negotiate for newplant facility.

I would like to take this opportunity to express my sincere appreciation and gratitude to allour fellow directors, management and employees for their contributions to the Group. Ialso thank our business associates, investors, shareholders for their continued support overthe years.

China Metal International Holdings INC.


The Board is pleased to present the unaudited consolidated interim results of the Group forthe six months ended 30 June 2005 together with the comparative figures. The resultshave been reviewed by the Company’s auditors, KPMG, and the Company’s AuditCommittee.

CONSOLIDATED INCOME STATEMENTFOR THE SIX MONTHS ENDED 30 JUNE 2005 – UNAUDITED(Expressed in United States dollars)

Six months ended 30 June2005 2004

Note $’000 $’000

Turnover 4 58,878 36,008

Cost of sales 5 (40,872) (25,874)

Gross profit 18,006 10,134

Other revenue 5 385 77Other net income 5 79 310Selling and distribution costs (3,735) (1,515)Administrative expenses (2,290) (1,482)

Profit from operations 5 12,445 7,524

Finance costs 5 (567) (244)Share of profits less losses

of associate – 11

Profit before taxation 5 11,878 7,291

Income tax 6 (443) (534)

Profit after taxationattributable to equityholders of the Company 15 11,435 6,757

Earnings per shareBasic (cents) 8 1.11 0.90

Interim dividendsper share (cents) 7 0.25 N/A

The notes on pages 9 to 25 form part of this interim financial report.



CONSOLIDATED BALANCE SHEETAT 30 JUNE 2005 – UNAUDITED(Expressed in United States dollars)

At At30 June 31 December

2005 2004Note $’000 $’000

Non-current assetsFixed assets 9 73,109 68,007Lease prepayments 3,558 2,858Construction in progress 6,450 4,906Other financial assets 500 500

83,617 76,271-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Current assetsTrading securities 551 551Inventories 19,199 16,153Trade and other receivables,

deposits and prepayments 10 40,783 73,371Amounts due from related companies 18 – 83Pledged bank deposits 2,167 2,725Cash and cash equivalents 11 50,159 6,947

112,859 99,830-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Current liabilitiesBank loans 13 25,943 30,237Trade and other payables 12 22,574 21,510Amounts due to related companies 18 181 177Current taxation 314 680

49,012 52,604-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net current assets 63,847 47,226-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Total assets less current liabilities 147,464 123,497-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -



CONSOLIDATED BALANCE SHEETAT 30 JUNE 2005 – UNAUDITED (CONTINUED)(Expressed in United States dollars)


2005 2004Note $’000 $’000

Non-current liabilities

Bank loans 13 3,000 3,500-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

NET ASSETS 144,464 119,997

Capital and reservesShare capital 14 1,333 1,285Reserves 15 136,881 118,712

Total equity attributable toequity holders of theCompany 138,214 119,997

Minority interests 15 6,250 –

TOTAL EQUITY 144,464 119,997




CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE SIX MONTHS ENDED 30 JUNE 2005 – UNAUDITED(Expressed in United States dollars)


Note $’000 $’000

Total equity at 1 January 14, 15 119,997 66,728- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net income for the periodrecognised directly in equity:

Exchange differences arisingfrom consolidation 15 10 (10)

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -Net profit for the period

attributable to:

Equity holders of the Company 15 11,435 6,757- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Movements in shareholders’equity arising from capitaltransactions with equityholders:

Capital injection by shareholders 15 – 800Issuance of new shares 14, 15 6,844 –Share issue expenses 15 (72) –

6,772 800-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Movements in shareholders’equity arising from capitalcontributions by minorityshareholders 15 6,250 –

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Total equity at 30 June 144,464 74,275




CONDENSED CONSOLIDATED CASH FLOW STATEMENTFOR THE SIX MONTHS ENDED 30 JUNE 2005 – UNAUDITED(Expressed in United States dollars)


Note $’000 $’000

Cash generated fromoperations 5,658 2,039

Net income tax paid (809) (286)

Net cash from operatingactivities 4,849 1,753

Net cash used in investingactivities (10,820) (8,519)

Net cash generated fromfinancing activities 49,183 7,608

Net increase in cash andcash equivalents 43,212 842

Cash and cash equivalentsat 1 January 11 6,947 9,756

Cash and cash equivalentsat 30 June 11 50,159 10,598




NOTES ON THE UNAUDITED INTERIM FINANCIAL REPORT(Expressed in United States dollars)

1 ReorganisationThe Company was incorporated in the Cayman Islands on 5 August 2004 as an exemptedcompany with limited liability under the Companies Law Cap 22 (Law 3 of 1961, as consolidatedand revised) of the Cayman Islands. Pursuant to a reorganisation (the “Reorganisation”) of theGroup completed on 8 December 2004 to rationalise the group structure in preparation for thepublic listing of the Company’s shares on the Main Board of The Stock Exchange of Hong KongLimited (the “Stock Exchange”), the Company became the holding company of the subsidiariesnow comprising the Group. The shares of the Company were listed on the Stock Exchange on31 December 2004.

Details of the Reorganisation are set out in the prospectus dated 20 December 2004 issued bythe Company (the “Prospectus”).

The Group is regarded as a continuing entity resulting from the Reorganisation and has beenaccounted for on the basis of merger accounting. In accordance with the Statement of StandardAccounting Practice 27 “Accounting for group reconstructions” issued by the Hong Kong Instituteof Certified Public Accountants (“HKICPA”), the unaudited interim financial report of the Groupfor the six months ended 30 June 2005 and for the same period in the corresponding year havebeen prepared on the merger basis as if the Company had always been the holding companyof the Group.

2 Basis of presentationThe interim financial report has been prepared in accordance with the applicable disclosureprovisions of the Rules Governing the Listing of Securities on the Stock Exchange, includingcompliance with Hong Kong Accounting Standard (“HKAS”) 34 “Interim financial reporting”,issued by the HKICPA. It was authorised for issuance on 31 August 2005.

The interim financial report has been prepared in accordance with the same accounting policiesadopted in the 2004 annual financial statements, except for the accounting policy changes thatare expected to be reflected in the 2005 annual financial statements. Details of these changesin accounting policies are set out in note 3.

The preparation of an interim financial report in conformity with HKAS 34 requires managementto make judgements, estimates and assumptions that affect the application of policies andreported amounts of assets and liabilities, income and expenses on a year to date basis. Actualresults may differ from these estimates.

The interim financial report contains condensed consolidated financial statements and selectedexplanatory notes. The notes include an explanation of events and transactions that are significantto an understanding of the changes in financial position and performance of the Group since the2004 annual financial statements. The condensed consolidated interim financial statements andnotes thereon do not include all of the information required for full set of financial statementsprepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”).



2 Basis of presentation (continued)The interim financial report is unaudited, but have been reviewed by the Audit Committee of theCompany. It has also been reviewed by KPMG in accordance with Statement of AuditingStandards 700 “Engagements to review interim financial reports”, issued by the HKICPA. KPMG’sindependent review report to the Board is included on page 26.

The financial information relating to the financial year ended 31 December 2004 that isincluded in the interim financial report as being previously reported information does not constitutethe Company’s statutory financial statements for that financial year but is derived from thosefinancial statements. Statutory financial statements for the year ended 31 December 2004 areavailable from the Company’s registered office. The auditors have expressed an unqualifiedopinion on those financial statements in their report dated 31 March 2005.

3 Changes in accounting policiesThe HKICPA has issued a number of new and revised HKFRSs, which term collectively includesHKASs and Interpretations, that are effective or available for early adoption for accountingperiods beginning on or after 1 January 2005. The Board has determined the accountingpolicies expected to be adopted in the preparation of the Group’s annual financial statementsfor the year ending 31 December 2005, on the basis of HKFRSs currently in issue.

The HKFRSs that will be effective or are available for voluntary early adoption in the annualfinancial statements for the year ending 31 December 2005 may be affected by the issue ofadditional interpretations or other changes announced by the HKICPA subsequent to the date ofissuance of this interim report. Therefore the policies that will be applied in the Group’s financialstatements for that period cannot be determined with certainty at the date of issuance of theinterim financial report.

The following sets out further information on the changes in accounting policies for the annualaccounting period beginning on 1 January 2005 which have been reflected in the interimfinancial report.

(a) Employee share option scheme (HKFRS 2, Share-based payment)In prior years, no amounts were recognised when employees (which term includes directors)were granted share options over shares in the Company. If the employees chose toexercise the options, the nominal amount of share capital and share premium werecredited only to the extent of the option’s exercise price receivable.

With effect from 1 January 2005, in order to comply with HKFRS 2, the Group recognisesthe fair value of such share options as an expense in the income statement, or as an asset,if the cost qualifies for recognition as an asset under the Group’s accounting policies. Acorresponding increase is recognised in a capital reserve within equity.

Where the employees are required to meet vesting conditions before they become entitledto the options, the Group recognises the fair value of the options granted over the vestingperiod. Otherwise, the Group recognises the fair value in the period in which the optionsare granted.



3 Changes in accounting policies (continued)(a) Employee share option scheme (HKFRS 2, Share-based payment)

(continued)If an employee chooses to exercise options, the related capital reserve is transferred toshare capital and share premium, together with the exercise price. If the options lapseunexercised the related capital reserve is transferred directly to retained earnings.

The new accounting policy is required to be applied retrospectively with comparativesrestated in accordance with HKFRS 2.

The change in policy had no effect on the interim financial report as there were no optionsexisted at 1 January 2004 or granted during the six month periods ended 30 June 2004and 2005.

(b) Minority interests (HKAS 1, Presentation of financial statements andHKAS 27, Consolidated and separate financial statements)In prior years, minority interests at the balance sheet date were presented in the consolidatedbalance sheet separately from liabilities and as a deduction from net assets. Minorityinterests in the income statement for the year were also separately presented in theconsolidated income statement as a deduction before arriving at the profit attributable toshareholders.

With ef fect from 1 January 2005, in order to comply with HKAS 1 and HKAS 27,minority interests at the balance sheet date are presented in the consolidated balancesheet within equity, separately from equity attributable to the equity holders of the Company,and minority interests in the results of the Group for the period are presented on the faceof the consolidated income statement as an allocation of the total profit or loss for theperiod between the minority interests and the equity holders of the Company.

The minority interests in the consolidated balance sheet and statement of changes in equityhave been presented in accordance with HKAS 1.

(c) Leasehold land and buildings held for own use (HKAS 17, Leases)In prior years, leasehold land and buildings held for own use (including premiums foracquiring land use rights paid to the PRC government authorities) were stated at cost lessaccumulated depreciation and impairment losses.

With the adoption of HKAS 17 as from 1 January 2005, the premiums for acquiring landuse rights are reclassified as lease prepayments which are carried at cost and amortisedon a straight-line basis over the land use right period of 20 years. Amortisation charge forthe period is recognised in the consolidated income statement.

As a result of adopting this new policy, the premiums for acquiring land use rights of$3,558,000 as at 30 June 2005 (2004: $2,858,000) have been reclassified from fixedassets as lease prepayments.



3 Changes in accounting policies (continued)(d) Financial instruments (HKAS 39, Financial instruments: Recognition and

measurement)Changes in accounting policies relating to financial instruments are as follows:

(i) In prior years, unlisted investments held on a continuing basis for an identifiablelong-term purpose were classified as investment securities and stated at cost less anyprovision for diminution in value. With effect from 1 January 2005, and in accordancewith HKAS 39, all non-trading investments are classified as available-for-sales securitiesand carried at fair value, except that if investments in equity instruments do not havea quoted market price in an active market and whose fair value cannot be reliablymeasured, the investments are measured at cost less impairment losses.

The change in policy had no effect on the interim financial report as there was noindication of impairment at 1 January 2005 or 30 June 2005.

(ii) All derivative financial instruments entered into by the Group are stated at fair value.Changes in fair value of derivatives held as hedging instruments in a cash flowhedge of committed future transactions are recognised in equity to the extent that thehedge is effective. Any ineffective portion of the changes in fair value of derivativesis recognised in the consolidated income statement. This change is adopted by wayof an adjustment to the opening balance of the hedging reserve.

The adoption of this new accounting policy does not have any opening balanceadjustment and impact on the financial position of the Group as at 30 June 2005.

(iii) With effect from 1 January 2005, the Group recognises and measures its financialassets and financial liabilities other than debt and equity securities (as mentioned in3(d)(i)) in accordance with the requirement of HKAS 39.

The new policy has been adopted prospectively. As a result of this new policy, theGroup’s current assets and current liabilities as at 30 June 2005 increased by$2,730,000.

(e) Foreign currencies (HKAS 21, The effect of changes in foreign exchangerates)Items included in the financial statements of each of the Group’s entities are measuredusing the currency of the primary economic environment in which the entity operates. Theconsolidated financial statements of the Group are presented in United States dollars,which is the Group’s presentation currency.

The results of subsidiaries not reporting in United States dollars are translated into UnitedStates dollars at the average rates of exchange for the reporting period. Exchangedifferences arising from the retranslation of opening foreign currency net investments andexchange differences arising from retranslation of the result for the reporting period fromthe average rate to the exchange rate prevailing at the period-end are accounted for in aseparate foreign exchange reserve.



3 Changes in accounting policies (continued)(e) Foreign currencies (HKAS 21, The effect of changes in foreign exchange

rates) (continued)With effect from 1 January 2005, any goodwill arising on the acquisition of a foreignoperation is expressed in the functional currency and is retranslated at the closing rate ateach balance sheet date. Any resulting exchange dif ference is taken directly to theexchange reserves. In accordance with the transitional provisions in HKAS 21, this newpolicy will be applied to acquisitions occurring on or after 1 January 2005. The changein policy has had no significant impact on the interim financial report for the six monthsended 30 June 2005.

4 Segment reportSegment information is presented in respect of the Group’s business and geographical segments.Business segment information is chosen as the primary reporting format because this is morerelevant to the Group’s internal financial reporting.

(a) Business segmentsThe Group is principally engaged in the manufacture and sale of metal products.Accordingly, no business segment analysis is provided.

(b) Geographical segmentsThe Group’s business is managed on a worldwide basis, but participates in three principaleconomic environments. The People’s Republic of China (other than Hong Kong) (the“PRC”) is a major market for all of the Group’s businesses.

In presenting information on the basis of geographical segments, segment revenue isbased on the geographical location of customers.


$’000 $’000

The PRC 33,798 27,875United States of America 18,607 3,533Japan 5,335 3,448Others 1,138 1,152

58,878 36,008

Most of the assets and liabilities of the Group are located in the PRC. Accordingly, nogeographical segment assets and capital expenditure are provided.



5 Profit before taxationProfit before taxation is arrived at after charging/(crediting):


$’000 $’000

(a) Finance costs:

Interest expense on bank advanceswholly repayable within five years 564 340

Less: amount capitalised intoconstruction in progress (165) (141)

399 199Discounting charges 168 45

567 244

Borrowing costs were capitalised at an annualised rate of 4.29% for the six months ended 30June 2005 (2004: 4.42%).


$’000 $’000

(b) Other items:

Amortisation of land lease premium 32 32Depreciation 3,909 2,653Interest income (374) (23)Loss/(gain) on disposals of fixed assets 72 (9)Gain from trading of foreign

exchange contracts – (45)

6 Income taxSix months ended 30 June

2005 2004$’000 $’000

Current tax – PRC

Tax for the period 742 649(Over)/under-provision in respect

of prior years (269) 8Tax refund (30) (123)

443 534



6 Income tax (continued)The provision for Hong Kong Profits Tax for the period ended 30 June 2005 is calculated at17.5%. No provision for Hong Kong Profits Tax is made for the period as CMP (Hong Kong)Industry Company Limited did not earn any assessable income for Hong Kong Profits Taxpurposes.

Pursuant to the rules and regulations of the Cayman Islands, the Company, CMTS (CaymanIslands) Industry Company Limited and CMW (Cayman Islands) Co., Ltd (“CMW(CI)”) are notsubject to any income tax in the Cayman Islands.

For the period ended 30 June 2005, Tian Jin CMT Industry Company Limited (“CMT”) andCMW (Tianjin) Industry Co., Ltd (“CMWT”) are subject to income tax at the rate of 15%applicable to foreign invested enterprises in Tianjin, the PRC. During the six months ended 30June 2005, CMT was nominated as an “Advanced Technology Enterprise with Foreign Investment”and granted a reduced income tax rate of 10% for the period commencing 1 January 2004 to31 December 2004. In the circumstances, an over-provision of PRC Enterprise Income Tax of$269,000 is recorded for the six months ended 30 June 2005.

Pursuant to the income tax rules and regulations of the PRC, Suzhou CMS Machinery CompanyLimited (“CMS”) is eligible for a 100% relief from PRC Enterprise Income tax for the two yearsfrom their first profit-making year of operations and thereafter, they are subject to PRC EnterpriseIncome Tax at 50% of the standard income tax rate for the following three years. The financialperiod ended 30 June 2005 being the period within the fourth year of CMS following the firstprofit-making year, CMS is subject to PRC Enterprise Income tax at a reduced rate of 7.5% forthe six months ended 30 June 2005.

For the period ended 30 June 2005, Suzhou CMB Machinery Co., Ltd (“Suzhou New Company”)is subject to income tax at the rate of 24% applicable to foreign invested enterprises in Suzhou,the PRC.

The Group was granted a refund of PRC Enterprise Income Tax amounted to $30,000 from theTax Bureau of Tianjin, during the six months ended 30 June 2005 as tax incentives for engagingin manufacturing of automobile parts and components.

For the six months ended 30 June 2004, the Group was granted a refund of PRC EnterpriseIncome Tax amounted to $123,000 from the Tax Bureau of Tianjin following the capitalisationof retained earnings of CMT.



7 Dividends(a) Dividends attributable to the interim period


$’000 $’000

Interim dividend declared and to be paidafter the interim period of $0.25 centsper share (2004: $Nil per share) 2,594 –

The interim dividend has not been recognised as a liability at the balance sheet date.

(b) Dividends attributable to the previous financial year, approved and paidafter the interim period


$’000 $’000

Interim dividend declared and paidafter the interim period – 8,553

The dividend per share and the number of shares ranking for dividend are not presentedabove as such information is not meaningful having regard to the consolidated financialstatements.

8 Earnings per share(a) Basic earnings per share

The calculation of basic earnings per share for the six months ended 30 June 2005 isbased on the profit attributable to equity holders of the Company of $11,435,000 andthe weighted average number of 1,033,978,000 ordinary shares in issue during theperiod. The calculation of basic earnings per share for the six months ended 30 June2004 was based on the profit attributable to equity holders of the Company of $6,757,000and on the 750,000,000 ordinary shares of the Company in issue as at the date of theProspectus, as if the shares were outstanding throughout the six months ended 30 June2004.

(b) Diluted earnings per shareThere were no dilutive potential ordinary shares during the six month periods ended 30June 2004 and 2005 and, therefore, diluted earnings per share are not presented.



9 Fixed assetsDuring the six months ended 30 June 2005, the Group acquired items of plant and machinerywith a cost of $1,062,000 (2004: $337,000) and transferred items from construction inprogress with a cost of $8,405,000 (2004: $17,495,000). Items of plant and machinery witha net book value of $457,000 were disposed of during the six months ended 30 June 2005(2004: $2,000), resulting in a loss on disposal of $72,000 (2004: a gain of $9,000)

10 Trade and other receivables, deposits and prepaymentsIncluded in trade and other receivables are debtors and bills receivable (net of impairmentlosses) with the following ageing analysis:


2005 2004$’000 $’000

Within 3 months 32,238 25,452More than 3 months but less

than 12 months 4,336 1,586More than 1 year but less

than 2 years 679 85More than 2 years but less

than 5 years 27 16

Total debtors and bills receivable,net of impairment loss 37,280 27,139

Over receivables, depositsand prepayments 3,503 46,232

40,783 73,371

The Group generally grants credit periods of 90 days from the date of billing. The Group may,on a case by case basis and after evaluation of the business relationship and credit worthiness,extend the credit period upon customers’ request.

Include in trade receivables are amounts due from related companies of $2,372,000 (2004:$1,841,000), details of which are disclosed in note 18.

Certain trade receivables of the Group approximately $3,859,000 (2004: $Nil) as at 30 June2005 were pledged for bank loans (note 13).



10 Trade and other receivables, deposits and prepayments (continued)Included in debtors and bills receivable were bills discounted to the bank with recourse totalling$2,730,000 as at 30 June 2005.

Included in other receivables as at 31 December 2004 were the net proceeds of $43,859,000receivable from the issuance of shares upon listing of the Company’s shares on the StockExchange, which were received by the Company in January 2005.

11 Cash and cash equivalentsAt At

30 June 31 December2005 2004

$’000 $’000

Cash at bank and in hand 35,053 6,947Deposits with banks maturing

within three months 15,106 –

Cash and cash equivalents in theconsolidated cash flow statement 50,159 6,947

Cash and cash equivalents denominated in:– Hong Kong dollar 31,033 –– United States dollar 10,186 3,514– Renminbi (“RMB”) 8,552 1,529– Other currencies 388 1,904

50,159 6,947

RMB is not a freely convertible currency and the remittance of funds out of the PRC is subject tothe exchange restriction imposed by the PRC government.



12 Trade and other payablesIncluded in trade and other payables are trade payables and bills payable with the followingageing analysis:


2005 2004$’000 $’000

Due within 1 month or on demand 5,695 5,565Due after 1 month but within 3 months 7,641 5,471Due after 3 months but within 6 months 2,142 2,486

Total creditors and bills payable 15,478 13,522Other payables 7,096 7,988

22,574 21,510

Certain bills payable of approximately $4,138,000 (2004: $4,649,000) were secured bypledged deposits of $1,050,000 (2004: $1,610,000).

13 Bank loansThe bank loans are repayable as follows:


2005 2004$’000 $’000

Within 1 year or on demand 25,943 30,237After 1 year but within 2 years 3,000 3,500

28,943 33,737

Representing:Secured bank loans 6,364 5,043Unsecured bank loans 19,849 28,694Proceeds from discounted bills 2,730 –

28,943 33,737

Certain bank loans of approximately $2,505,000 and $3,859,000 (2004: $5,043,000 and$Nil) as at 30 June 2005 were secured by pledged bank deposits and trade receivables (note10), respectively.

Bills receivable were discounted with recourse. The proceeds from discounting are stated in theconsolidated balance sheet as borrowings pledged with the bills receivable (note 10).



14 Share capitalAt 30 June 2005 At 31 December 2004No. of No. ofshares Amount shares Amount

(thousand) $’000 (thousand) $’000

Authorised:

Ordinary shares ofHK$0.01 each 10,000,000 12,853 10,000,000 12,853

Issued:

At 1 January 1,000,000 1,285 – –Issuance of shares pursuant

to the Reorganisation – – 224,411 288Capitalisation issue – – 525,589 676Issuance of shares by

placing and public offer – – 250,000 321Issuance of shares pursuant

to the exercise of theOver-allotment Option 37,500 48 – –

1,037,500 1,333 1,000,000 1,285

In connection with the Placing and Public Offer of the Company’s shares in December 2004,the Company has granted GC Capital (Asia) Limited (“GCC”), the joint bookrunners, an Over-allotment Option for issuing additional Over-allotment shares of not more than 37,500,000ordinary shares of the Company within 30 days after the day of the Prospectus.

On 17 January 2005, GCC exercised the Over-allotment Option in full on behalf of the PlacingUnderwriters (as defined in the Prospectus) at HK$1.42 each. The Over-allotment sharescommenced dealing on the Stock Exchange on 19 January 2005.



15 ReservesAttributable to equity holders of the Company

Statutory ExchangeShare surplus fluctuation Other Retained Minority Total

premium reserve reserve reserve profits Total interests equity$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

At 1 January 2004 2,200 2,737 8 11,200 29,583 45,728 – 45,728Exchange differences arising

from consolidation – – (10) – – (10 ) – (10 )Capital injection by shareholders – – – 800 – 800 – 800Profit for the period – – – – 6,757 6,757 – 6,757Appropriation – 875 – – (875) – – –

At 30 June 2004 2,200 3,612 (2) 12,000 35,465 53,275 – 53,275

At 1 January 2005 42,182 3,612 (6) 34,920 38,004 118,712 – 118,712Exchange differences arising

from consolidation – – 10 – – 10 – 10Issuance of shares pursuant to

the Over-allotment Option 6,796 – – – – 6,796 – 6,796Share issue expenses (72) – – – – (72) – (72)Profit for the period – – – – 11,435 11,435 – 11,435Share of net assets to

minority shareholders – – – – – – 6,250 6,250

At 30 June 2005 48,906 3,612 4 34,920 49,439 136,881 6,250 143,131

Pursuant to the incorporation of CMW(CI), which had a paid-up capital of $25,000,000,minority shareholders have contributed a total of $6,250,000, representing a 25% equityinterest of CMW(CI) and its wholly owned subsidiary, CMWT. As at 30 June 2005, bothCMW(CI) and CMWT had not commenced commercial operations.

16 Capital commitments outstanding not provided for in the interim financialreport


2005 2004$’000 $’000

Contracted for 18,632 36,827Authorised but not contracted for 13,287 1,427

31,919 38,254



17 Contingent assets and liabilities(a) Foreign currency contracts

The notional amounts of the Group’s foreign currency contracts are as follows:


2005 2004$’000 $’000

Foreign currency contracts – 2,000

(b) Contingent liabilitiesThe Group had contingent liabilities as follows:


2005 2004$’000 $’000

Bills discounted with banks(with recourse) – 1,921

18 Material related party transactionsDuring the period ended 30 June 2005, transactions with the following parties are consideredas related party transactions.

Name of party Relationship

Taiwan Asahi Bearing Co., Ltd (“Asahi”) Shareholder of the Company

China Metal Products Company Limited (“CMP”) Shareholder of the Company

Dairitsu Industry Company Limited (“Dairitsu”) Shareholder of the Company

China Metal Japan Company Limited (“CMJ”) Affiliated Company

China Metal Automotive International Affiliated CompanyCo., Limited (“CMAI”)

Fuzhou Xin Mi Mechanical and Electrical Affiliated CompanyProducts Co., Ltd (“Fuzhou Xin Mi”)

Yanmar Diesel Engine Co., Ltd. (“Yanmar”) Related Company



18 Material related party transactions (continued)(a) Recurring transactions

Particulars of significant transactions between the Group and one of the above relatedparties during the period are as follows:


$’000 $’000

Sales of goods to– Asahi 135 294– Fuzhou Xin Mi 822 455– Yanmar 4,442 1,540

5,399 2,289

Commission to– CMAI 272 1– CMJ 228 27

500 28

Reimbursement of expenses to– CMAI 1,452 –– CMP 49 33

1,501 33

Included in the reimbursement of expenses to CMP is the Group’s share of contributions toretirement schemes of certain eligible employees in Taiwan of $23,000 (2004: $6,000)for the six months ended 30 June 2005. The schemes are administered by CMP. Based onan agreement between the Group and CMP, CMP is responsible for the retirement liabilityof these employees. The Group is not obliged to incur any liability beyond the contribution.

(b) Non-recurring transactionsSix months ended 30 June

2005 2004$’000 $’000

Purchases of goods from CMP 60 173

Certain bank loans of approximately $7,360,000 as at 30 June 2004 were guaranteedby CMP and/or Mr Ho Ming-Shiann, Chairman of the Company and/or secured by aUSD promissory note drawn by Mr Ho. The above guarantees and security were releasedprior to the listing of the Company.



18 Material related party transactions (continued)(c) Amounts due from related companies


2005 2004$’000 $’000

Trade– Asahi 89 162– Fuzhou Xin Mi 587 427– Yanmar 1,696 1,252

2,372 1,841-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Non-trade– CMAI – 83

-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

2,372 1,924

All the other amounts due from related companies are unsecured, interest-free and areexpected to be recovered within one year. There was no provision made against theseamounts as at 30 June 2005.

(d) Amounts due to related companiesAt At

30 June 31 December2005 2004

$’000 $’000

CMAI 83 –CMJ 27 41CMP – 65Dairitsu 71 71

181 177

These amounts are unsecured, interest-free and are expected to be repaid within one year.

19 Comparative figuresCertain comparative figures in the consolidated balance sheet have been reclassified as a resultof a change in accounting policies in leasehold land and buildings held for own use underHKAS 17 “Leases”, details of which are set out in note 3(c).



20 Possible impacts of amendments, new standards and interpretations issuedbut not yet effective for the annual accounting period ending 31 December2005Up to the date of issue of this interim financial report, the HKICPA has issued the followingamendments, new standards and interpretations which are not yet effective for the accountingperiod ending 31 December 2005:

Effective foraccounting periods

beginning on or after

HK(IFRIC) 4, Determining whether an arrangementcontains a lease 1 January 2006

Amendments to HKAS 19, Employee benefits– Actuarial Gains and Losses, Group Plansand Disclosures 1 January 2006

The above amendments, new standards and interpretations have not been applied in this interimfinancial report because the directors expect that the Group will not early apply them whenpreparing the Group’s annual financial statements for the year ending 31 December 2005.

The Group is in the process of making an assessment of the impact of these amendments, newstandard and interpretations in the period of initial application and has so far concluded thatthe adoption of them is unlikely to have a significant impact on the Group’s results of operationsand financial position.



INDEPENDENT REVIEW REPORT TO THE BOARD OF DIRECTORS OFCHINA METAL INTERNATIONAL HOLDINGS INC.

IntroductionWe have been instructed by the Company to review the interim financial report set out onpages 4 to 25.

Respective responsibilities of directors and auditorsThe Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limitedrequire the preparation of an interim financial report to be in compliance with the relevantprovisions thereof and Hong Kong Accounting Standard 34 “Interim financial reporting”issued by the Hong Kong Institute of Certified Public Accountants. The interim financialreport is the responsibility of, and has been approved by, the directors.

It is our responsibility to form an independent conclusion, based on our review, on theinterim financial report and to report our conclusion solely to you, as a body, in accordancewith our agreed terms of engagement, and for no other purpose. We do not assumeresponsibility towards or accept liability to any other person for the contents of this report.

Review work performedWe conducted our review in accordance with Statement of Auditing Standards 700“Engagements to review interim financial reports”, issued by the Hong Kong Institute ofCertified Public Accountants. A review consists principally of making enquiries of groupmanagement and applying analytical procedures to the interim financial report and basedthereon, assessing whether the accounting policies and presentation have been consistentlyapplied unless otherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It is substantially less inscope than an audit and therefore provides a lower level of assurance than an audit.Accordingly we do not express an audit opinion on the interim financial report.

Review conclusionOn the basis of our review, which does not constitute an audit, we are not aware of anymaterial modifications that should be made to the interim financial report for the six monthsended 30 June 2005.

KPMGCertified Public Accountants

Hong Kong, 31 August 2005



MANAGEMENT DISCUSSION AND ANALYSISFinancial reviewThe Group’s recorded turnover and profit attributable to shareholders for the six monthsended 30 June 2005 amounted to US$58.88 million and US$11.44 million, demonstratinganother evident growth as compared to the same period in 2004 as a result of overalladvancement in the Group’s three industry sectors. Compared to the same period in2004, revenues from air compressor parts and components grew 18%; revenues fromautomobile parts and components increased by 455%; and revenues from mechanicalsector were up by 41%. The new shipment to leading auto maker and Tier 1 supplier inNorth America initiated in June 2004 on automobile parts and component sector continuesto ramp up in production volume and was the primary driver of the outstanding revenuegrowth.

Gross profit for the six months ended 30 June 2005 amounted to approximately US$18.01million, representing a gross profit margin of approximately 30.58%.

Liquidity and financial resourcesOn 31 December 2004, the Company successfully listed its shares on the Main Board ofThe Stock Exchange of Hong Kong Limited (the “Stock Exchange”) through a placing of175,000,000 shares and public offer of 75,000,000 new shares at an issue price ofHK$1.42 per share (“Share Offer”). Together with the exercise of the over-allotment optionby the underwriters on 17 January 2005 which a further 37,500,000 shares were issued,the Company raised approximately US$49.88 million, net of share issue expenses.

As at 30 June 2005, the Group had outstanding borrowings amounted to US$28.94million with approximately US$25.94 million repayable within one year, approximatelyUS$3.0 million repayable after 1 year but within 2 years. Borrowing costs capitalized atan annualized rate of 4.29% for the six months ended 30 June 2005 (2004: 4.42%). TheGroup’s cash and bank balances totaled US$50.16 million (excluding pledged bankdeposits) of which denominated in HK$, US$, Renminbi and other currencies are US$31.03million, US$10.19 million, US$8.55 million and US$388 thousand, respectively. Renminbiis not a freely convertible currency and the remittance of funds out of the PRC is subject tothe exchange restriction imposed by the PRC government. The Group’s current ratio is at2.30 times and the gearing ratio (a ratio of total bank loans to total assets) is 14.73%.Upon receiving fund raised through the Share Offer, the Group continues to be in a netcash position.



Capital StructureSave as the issue of 37,500,000 shares under the exercise of the over-allotment optionby the underwriters, there was no change in the capital structure of the Company for thesix months ended 30 June 2005.

Significant investmentAs at 30 June 2005, the Group held investment securities in unlisted securities outsideHong Kong at cost of approximately US$500 thousand. The position in investment securitiesremains unchanged for long term investment purpose in these equity securities. As at 30June 2005, the Group held investment in various listed securities and mutual funds outsideHong Kong with market value of approximately US$551 thousand.

Material acquisition and disposals of subsidiariesDuring the period under review, the Group set up a joint venture, CMW (Cayman Islands)Co., Ltd. in the Cayman Islands (“CMW(CI)”). CMW(CI) has a paid-up share capital ofUS$25 million, where minority shareholders have contributed a total of US$6.25 million,representing a 25% equity interest of CMW(CI) and its wholly owned subsidiary, CMW(Tianjin) Industry Co., Ltd. (“CMWT”), which will focus primary on casting and machiningparts and components for automobile and mechanical applications. Up to 30 June 2005,both CMW(CI) and CMWT have not commenced commercial operations. CMWT isexpected to launch commercial production in first half of 2006 with 60,000 tpa plannedcapacity.

Segmental informationDetails of segmental information of the Group as at 30 June 2005 are set out in note 4 tothe unaudited interim financial statements.

Employee benefitsFor the six months ended 30 June 2005, average number of employees was 2,778 andthe Group’s staff costs (excluding Directors’ fees and emoluments) amounted to US$4.17million. The remuneration policy of the Company is reviewed annually and is in line withthe prevailing market practice.



The employees of the Company’s subsidiaries in the PRC are members of a state-managedsocial welfare scheme operated by the local government of the PRC. Under the scheme,the Group provides retirement, medical, employment injury, unemployment and maternitybenefits to its employees in the PRC in accordance with the relevant PRC rules andregulations. The Group is required to contribute a specified percentage of their payrollcosts to the social welfare scheme to fund the benefits. The only obligation of the Groupwith respect to the social welfare scheme is to make the specified contributions.

The Directors and all members of the senior management of the Group, being non-PRCcitizens, are not entitled to the state-managed social welfare scheme operated by the localgovernment in the PRC. However, the Directors and the senior management of the Group,being non-PRC citizens, have been provided a defined-benefit retirement scheme which isadministrated by China Metal Products Company Limited (“CMP”) in Taiwan during theperiod under review. During the period up to 30 June 2005, the Group reimbursedUS$23 thousand to CMP as the Group’s share of contribution to such retirement scheme.

Charges on group assetsAt 30 June 2005, the Group pledged its bank deposits amounting to US$2.17 million(2004: US$2.73 million) to secure bank deposits, bills payable and bank guarantee ofthe Group.

On the other hand, bills receivable totalling US$2.73 million were discounted to the bankwith recourse as at 30 June 2005.

Future plans for material investments or capital assetsThe Group expects to continue expanding capacity for foundry and machining in Tianjinand Suzhou. In Tianjin, the Group received Certificate of Approval for establishment of awholly owned foreign enterprise, CMWT, will focus on casting and machining of automobileand mechanical parts and component. The facility began construction on 24 February2005 and the construction is on schedule. The machinery facility is expected to completefor customer certification by the end of 2005 and the construction progress of the foundryfacility is expected to be completed in the first quarter of 2006. CMWT is expected tocommence mass production in the second half of 2006 adding 60,000 tpa foundrycapacity to the Group. In Suzhou, in order to accelerate machinery capacity expansion,the Directors have approved to construct a new machining facility in the CMS premise tomeet increasing demand from customers on value-added services to the cast parts andcomponents for air compressor and mechanical applications. The decision will advancethe availability of machining capacity expansion to the fourth quarter of 2005. As aresult, the Directors postpone the construction of Suzhou New Company to a later datethat will be dedicated for machining of mechanical and automobile parts and components.As the machining facility will occupy the last available spaces, the original plannedmoulding line expansion for DISA 230 Type B in CMS will be relocated to a new plantfacility.



Foreign currency exposureMost of the sales made to overseas customers are denominated in United States dollars.As the Group focuses on developing an international customer base and its export salesare expected to grow, the Group may be exposed to higher currency risk in relation tosales denominated in United States dollars, Euros and other currencies and the profitabilityof the Group may be affected by significant currency rates fluctuation.

The government of the PRC has changed its foreign exchange policy and the ChinaCentral Bank had confirmed that the US dollars, Euro, Japanese Yen and won of theRepublic of Korea constitute the basket of the currencies that will act as a reference for theRenminbi exchange rate. A portion of the Group’s Renminbi revenue or profit must beconverted into other currencies to meet foreign currency obligations such as the paymentof dividends, if declared, acquisition of plant and equipment, and settlements of bankborrowings.

The Group continues to adopt a prudent policy regarding foreign exchange risk exposure.During the period under review, majority of business are conducted in Renminbi, USdollars, and Euro. For revenues denominated in US dollars and Euro, the Group continuesto expose to currency fluctuation risk. Majority of the Group’s operating costs and expensesare denominated in Renminbi, the appreciation of Renminbi will incur negative impact tothe Group. However, as the Group’s plant and equipment investments are mostly paid inUS$ or Euro. The appreciation of Renminbi is expected to have favorable impact to theGroup. Overall, the Directors believe that unless there is a significant appreciation inRenminbi, the Group is not expected the above foreign exchange exposure to havematerial adverse impact on the Group in the foreseeable future.

Contingent LiabilitiesAs at 30 June 2005, no contingent liabilities were noted by the Directors.

SHARE OPTION SCHEMEThe Company adopted a share option scheme (the “Scheme”) on 8 December 2004. Thepurpose of the Scheme is to enable the Board to grant options to selected eligibleparticipants (as defined in the prospectus of the Company dated 20 December 2004 (the“Prospectus”)), to motivate them and to optimize their performance and efficiency for thebenefit of the Group, and attract and retain or otherwise maintain on-going businessrelationship with the eligible participants whose contributions are or will be beneficial tothe long-term growth of the Group.

Details of the Scheme are set out in the Prospectus.

No share option was granted by the Company since its adoption.



DIRECTORS’ INTEREST IN SHARESAt 30 June 2005, the interest or short positions of the directors or chief executives in theshares, underlying shares and debentures of the Company or any associated corporation(within the meaning of the Securities and Futures Ordinance (“SFO”) which were notifiedto the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of theSFO (including interests or short positions which they are taken or deemed to have undersuch provision of the SFO), or which were required, pursuant to section 352 of the SFO,to be entered in the register referred to therein, or which were required, pursuant to theModel Code for Securities Transactions by Directors of Listed Issuers (“Model Code”), areset out below:

1. Aggregate long position in the shares and underlying shares of theCompany

Percentage ofNumber of the Company’s

Name of Type of ordinary issued sharedirector interest shares held capital

Mr. Ho Ming-Shiann Beneficial interest 6,024,923 0.60%

Mr. Tsao Ming-Hong Beneficial interest 6,373,766 0.63%

Family interest (Note i) 1,566,386 0.16%

Mr. Guu Herng-Chang Beneficial interest 8,537,083 0.85%

Mr. Wu Cheng-Tao Beneficial interest 8,081,435 0.81%

Family interest (Note ii) 783,193 0.08%

Mr. Wong Tin Yau, Beneficial interest 1,000,000 0.10%Kelvin

Notes:

(i) Pursuant to section 316 of the SFO, Mr. Tsao Ming-Hong is deemed to be interested in1,566,386 shares held by his spouse, Ms. Lin Hsiu Man.

(ii) Pursuant to section 316 of the SFO, Mr. Wu Cheng-Tao is deemed to be interested in783,193 shares held by his spouse, Ms. Ho Pei-Lin.



2. Aggregate short position in the shares, underlying shares anddebentures of the Company and its associated corporationsSave as disclosed above, none of the Directors or chief executive of the Companynor their associates, had any interest in long position or short position in the shares,underlying shares or debentures of the Company or its associated corporation.

At no time during the period was the Company, its subsidiaries or its associatedcompanies a party to any arrangement to enable the Directors (including their spouseand children under 18 years of age) to acquire benefits by an acquisition of sharesor underlying shares, or debentures of, the Company or its associated corporation.

SUBSTANTIAL SHAREHOLDERSAt 30 June 2005, the interests or short positions of every person, other than a Director orchief executive of the Company, in the shares and underlying shares of the Company asrecorded in the register required to be kept under section 336 of the SFO, are set outbelow:

1. Aggregate long position in the shares and underlying shares of theCompany

Percentage ofNumber of the Company’s

Name of Type of ordinary issued shareshareholder interest shares held capital

United Elite Agents Beneficial 432,394,034 41.68%Limited (“UEA”) interestNote (i)

China Metal Products Controlled 432,394,034 41.68%Company Limited corporation(“CMP”) Note (ii)

CMP (Cayman Islands) Controlled 432,394,034 41.68%Industry Company corporationLimited (“CMP(CI)”)Note (iii)



Notes:

(i) UEA is beneficially owned as to 58.07% by CMP and 41.93% by CMP(CI).

(ii) CMP is a company incorporated in Taiwan whose shares are listed on the Taiwan Stock

Exchange Corporation.

(iii) CMP(CI) is wholly-owned by CMP.

2. Aggregate shor t pos i t ion in the shares and under ly ingshares of the CompanyAt 30 June 2005, the Company is not notified of any short positions being held byany substantial shareholders in the shares or underlying shares of the Company.

PURCHASE, REDEMPTION OR SALE OF LISTED SECURITIES OF THECOMPANYNeither the Company nor its subsidiary purchased, redeemed or sold any of the Company’slisted securities during the six months ended 30 June 2005.

CODE OF CONDUCT REGARDING SECURITIES TRANSACTIONS BYDIRECTORSDuring the six months ended 30 June 2005, the Company complied with the code ofconduct regarding securities transactions by Directors on terms no less exacting than therequired standard of dealings set out in Model Code in Appendix 10 to the Listing Rules.Having made specific enquiry of all Directors, all Directors confirmed that they havecomplied with the required standard of dealings and its code of conduct regardingsecurities transactions by Directors.



CODE ON CORPORATE GOVERNANCE PRACTICESThe Company was in compliance with the code provisions set out in the Code onCorporate Governance Practices (“Code”) in Appendix 14 to the Listing Rules effective on1 January 2005, except for the following:

AUDIT COMMITTEEThe Company established an audit committee (the “Audit Committee”) on 8 December2004 with written terms of reference in compliance with the Code of Best Practice as setout in the then Appendix 14 to the Listing Rules. The primary duties of the Audit Committeeare to review and supervise the financial reporting process and internal control system ofthe Group. The Audit Committee comprises three independent non-executive Directors, Mr.Wong Tin Yau, Kelvin, Mrs. Chiu Lin Mei-Yu and Mr. Hsu Shan-Ko. The 2005 unauditedinterim results have been reviewed by the Audit Committee.

On behalf of the BoardChina Metal International Holdings Inc.

Ho Ming-ShiannChairman

Hong Kong, 31 August 2005

Deviation from the Code

RelevantCode

provisions

1. According to the exist ingArticles of Association of theCompany (“Articles”), at eachannual general meeting one-third of the Directors, or, iftheir number is not 3 or amultiple of 3, then the nearestto but not exceeding one-third, shall retire from officeby rotation provided that noDirector holding of fice asChairman or Vice Chairmanor the of fice of ManagingDirector or Joint ManagingDirector shall be subject toretirement by rotation.

Remedial steps to be takento comply with the Code

A.4.2 A resolution will be proposed at thenex t gene ra l mee t i ng o f t heCompany to seek the approval ofthe shareholders of the Company toamend the Ar t ic les so that a l lDirectors appointed to fill a casualvacancy shou ld be subjec t toelection by the shareholders of theCompany at the first general meetingafter their appointment and everyDirector, including those appointedfor a specific term, should be subjectto retirement by rotation at least onceevery three years.

Documents

CHINA METAL INTERNATIONAL HOLDINGS INC. …finance.thestandard.com.hk/upload/comp_report_item/00319/China...to the Shareholders the interim report of China Metal International Holdings