Major Shareholder:

• Shanghai Friendship Stock Company (PRC) ¡V 37.46% interest
• Shanghai Industrial Commercial Network ¡V 23.3% interest

The Group is leading retail chain operator in the PRC, the Group operates hypermarkets, supermarkets and convenience stores, a majority of which are operating under Centurmart hypermarkets, Lianhua supermarkets and Lianhua Quik Convenience stores respectively. The Group has positioned itself to cater to the needs of a broad range of consumers by operating in these three retail formats.

Being one of the first supermarket chain operators in the PRC, the Group has established strengths in the operation of retail chain business in Shanghai and its nearby regions, with the aim of maintaining a leading position in the retail industry and expanding its existing market share in the PRC, the Group has developed an extensive network of retail outlets operating principally in eastern, northern and southern PRC. These areas include some of the fastest growing cities in the PRC. As at 31^st December, 2002. The group operates 1884retail outlets of which 11 hypermarkets, 504 supermarkets and 740 convenience stores were directly operated by the Group, while 324 supermarket and 305 convenience stores were operated under the Group's franchise arrangements. Lianhua Retail Outlets are mainly located in shopping commercial and residential areas with high population density and pedestrian flow.

Apart from its investments in Shanghai Carhua, the Group has also invested in a number of companies, with a view of further complementing the Group's princi8apl businesses. These companies are mostly involved in software development, and the retail of bakery and pharmaceutical products in the PRC. The Group also maintains an investment portfolio to utilize the cashflow being generated from its largely cash-based retail bushiness.

The Directors believe that the Group has the following competitive advantages:

• Well recognized brand and effective marketing strategies;
• Extensive retail chain network;
• Three retail formats that cater for the needs of a broad range of consumers with different shopping habits and needs;
• Experienced management;
• Competitive unit prices on products offered;
• Stringent quality control;
• Efficient integrand Information Management System;
• High quality services and highly motivated staff

• Location of stores, rental exposure and renewal of tenancies;
• Shanghai carhua;
• Leased properties in the PRC;
• Shanghai Baillian;
• Ability to expand into new markets;
• Non-inclusion of profit forecast;

The Group plan to continue increasing the number of a its retail outlets to enhance economies of scale and further capitalize on the Group's existing infrastructure. As part of this growth plan, the Directors may consider the possibility of expansion through acquisitions. The Director believe that selective and opportunities acquisition of retail stores of sites will not only allow the Group to further enhance its economies of scale, it will also allow the Group to improve its performance.

The Directors intend to develop a national logistics framework in line with the four key development areas of the Group, namely Eastern China, Northern China, Northern eastern China and Southern China. They plan to set up an appropriate number of distribution centres in the newly developed regions to accommodate the expansion of the Group's retail stores in those areas. The company currently plans to establish new distribution centres in Shanghai, Beijing, Nanjing, Guangzhou, Dailian and Changchun.

The Directors believe that the Group's investment in various management information systems and stock control technology contributes to the success of the Group. The Directors intend to upgrade the existing management information system to enhance its unified, corporate level information system, which supports inter-regional, diversified business and provide in-depth decision-making support. The Directors envisage that the upgrade management information system will have the capability to administer the inter regional network of information systems of all the Group's retail outlets and all levels of management with ease.

The net proceeds from the Placing, after deducting the related expenses, are estimated to amount to approximately HK$511.2 million (based on the offer price HK$3.67 per shares). The Group at present intends to apply the net proceeds as follows: