For the year ended 31st December 1999, turnover of the Group amounted to approximately HK$624,523,000 (1998: HK$559,060,000), and the audited consolidated profit attributable to shareholders amounted to approximately HK$37,867,000 (1998: HK$23,631,000). Earnings per share were 1.6 cents (1998: 1.7 cents).

Since Guangzhou Honda Automobile Company Limited ("Guangzhou Honda") commenced production of its first sedan on 26th March 1999, the company has, starting from June, achieved its production capacity of 60 vehicles per day, and recorded monthly profits since August. In November, the Guangzhou Honda Accord sedan achieved domestic content level of 45.38 per cent, Having been inspected by Honda Motor Co., Ltd. ("Honda Motor"), the quality of the Guangzhou Honda Accord sedan has attained the technological standard and quality standard of Honda Motor, and won the top position in the comprehensive appraisal for all Honda Motor's overseas factories. The annual production and sales targets of 10,000 Guangzhou Honda Accord sedans were exceeded. Both shareholders spent a mere 18 months in the full completion of the State-approved investment and development plan, and passed the acceptance test for national engineering project with an annual production capacity of 30,000 vehicles in February 2000.

In 2000, Guangzhou Honda will revamp and expand certain production processes and facilities, and by adhering to the principle of "revamping, producing and planning at the same time", it will gradually attain the annual production target of 50,000 - 80,000 vehicles. The company plans to set up 80 - 100 "four-in-one" franchisee shops within the year. Before the end of 2000, at least two further car models will be launched for realizing diversification of product varieties to satisfy users' demand. While maintaining steady quality standards of domestic parts, the domestic content level will further be increased to over 50 per cent, yielding higher profits at an annual production target of 30,000 vehicles.

Guangzhou Honda aims to increase the annual production output capacity of the Accord series and its modified models to 80,000 vehicles in 3-5 years time. Concurrently, by fully utilizing its available resources to expand and revamp the existing production facilities, the company plans to spend 5 years to establish and develop economy cars with the target of achieving an annual production capacity of 100,000 - 150,000 vehicles, so that based on the revamp of the existing production plant and facilities, the total annual sedan production capacity can reach 200,000 vehicles in year 2006.

Since the establishment of the enterprise in 1998, shareholders of Guangzhou Honda have been well preparing for China's accession to the WTO by emphasizing on four key aspects of product quality management, cost control, after-sales service and technology innovation. They set their target not just on existing local competitors but also on major international automobile manufacturers for the reason that competition in China sedan market is in effect coming from famous automobile manufacturers around the world.

We estimate that as soon as duties for imported cars are reduced to 25 per cent, not only are we competitive in quality and sales services, but we also have an absolute edge in the product prices over similar models of imported cars. We are confident that the entry of China into the WTO is both a challenge as well as an opportunity for Guangzhou Honda.

Other businesses of the Group include manufacture of coaches, auto spare parts and electronic products, which emphasize internal management, market exploitation and development of new products, and the target set at the beginning of the year has been accomplished, with most of them showing good signs of further development.

Under the full support of its controlling shareholder, the Company will restructure its coach manufacturing business. The Company will seek the possibility of acquiring Guangzhou Automobile's 51 per cent interest in the "Guangzhou Coach Project" joint-ventured with Isuzu Japan and further increase related quality businesses such as automobile sales shops and auto parts manufacturing enterprises over time. In order to reflect the specialties of the business of the Company more precisely, the Company intends to be renamed (Denway Motors Limited ). Such proposal will be submitted to the Annual General Meeting for approval.

Since Guangzhou Automobile became the controlling shareholder of the Company in early 1999, the Company has been concentrating on the better development of automobile business, enhancement of management quality, increasing company transparency, formulating the optimal investment strategy and strengthening of ongoing good relationship with its investors, and the result, among others, was the award of the "Best Small Company in China" by asiamoney in 1999. Since March 2000, the Company has further been included by Morgan Stanley Capital International as a constituent stock of China Free Index. This has helped the Company to better attract the attention of local and overseas investors, and serves as a recognition and encouragement of the steady, organized and pragmatic working style of its management.

The Board of Directors are optimistic on Guangzhou Automobile Industry and we will try hard and hope that we can get good return for shareholders in 2000.

Denway Investment Limited
2000.05.18

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