京东方Ａ(000725)京东方Ｂ2003年年度报告（英文版）

BOE TECHNOLOGY GROUP CO., LTD. 2003 ANNUAL REPORT (Overseas Version) Stock Exchange Listed With: Shenzhen Stock Exchange Short Form of the Stock: BOE - B, Stock Code: 200725 Apr. 23, 2004 Important Announcement: Board of Directors and its members of BOE TECHNOLOGY GROUP CO., LTD. (hereinafter referred to as the Company) individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. This report has been editted by two languages, Chinese and English. If there is any different meaning between those two language, please abide the original Chinese meaning. Chairman of the Board and concurrently CEO Mr. Wang Dongsheng, President and concurrently COO Mr. Liang Xinqing, CFO Mr. Wang Yanjun, and Vice CFO and concurrently Secretary of Planning & Financial Dept. Ms. Sun Yun hereby confirm that the Financial Report enclosed the Annual Report is true and complete. Director of the Company, Mr. Xuan Jiansheng, Zhao Caiyong, Wang Hui and Xie Zhi Hua were absent from the Board meeting, Xuan Jiansheng and Zhao Caiyong entrusted Director Mr. Chen Yanshun and Jiang Yukun in writing to exercised the voting right on their behalf. 1 Contents Chapter Ⅰ Company Profile…………………………………………………………3 Chapter Ⅱ Summary of Financial Highlights and Business Highlights……………4 Chapter Ⅲ Changes in Share Capital and Particulars about Shareholders………5 Chapter Ⅳ Directors, Supervisors, Senior Executives and Employees……………9 Chapter Ⅴ Administrative Structure………………………………………………12 Chapter Ⅵ Shareholders’ General Meeting………………………………………14 Chapter Ⅶ Report of the Board of Directors………………………………………16 Chapter Ⅷ Report of the Supervisory Committee………………………………23 Chapter Ⅸ Significant Events………………………………………………………24 Chapter Ⅹ Financial Report………………………………………………………27 Chapter Ⅺ Documents for Reference………………………………………………27 2 CHAPTER I COMPANY PROFILE 1. Legal Name of the Company: In Chinese: 京东方科技集团股份有限公司 In English: BOE TECHNOLOGY GROUP CO., LTD. Abbr. in Chinese: 京东方 Abbr. in English: BOE 2. Legal Representative: Wang Dongsheng 3. Secretary of the Board of Directors: Zhong Huifeng Contact Address: No. 10, Jiuxianqiao Road, Chaoyang District, Beijing Tel: (86)10 - 64366264 Fax: (86)10 – 64366264 E-mail: hfzhong@boe.com.cn 4. Registered Address: No. 10, Jiuxianqiao Road, Chaoyang District, Beijing Office Address: No. 10, Jiuxianqiao Road, Chaoyang District, Beijing Post Code: 100016 The Company’s Internet Web Site: http://www.boe.com.cn E-mail: web.master@boe.com.cn 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times and Ta Kung Pao Internet Web Site for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Secretariat of the Board of Director 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form for A-share: BOE - A, Stock Code for A-share: 000725 Short Form for B-share: BOE - B, Stock Code for B-share: 200725 7. Other Related Information: Initial registration date: April 9, 1993 Initial registration address: No.10, Jiuxianqiao Road, Chaoyang District, Beijing Registrations date after change: June 2,1997; December 25,1997; December 28, 2000; June 18, 2001; December 10, 2001; July 4, 2003 Registration address after change: No.10, Jiuxianqiao Road, Chaoyang District, Beijing Registered number of enterprise legal person’s business license: 100001501259 Registration number of taxation: GSJZ No.110105101101660 DSJZ No. 11010510110166-0 The Name of Certified Public Accountants Company that BOE employs: PricewaterhouseCoopers Zhongtian Certified Public Accountants Office Address: 12th Floor, Rui’an Square, No.333 Huaihai Center Road, Shanghai 1 CHAPTER II. FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS 1. Major accounting data as of the year 2003 (Unit: In RMB’000) Items Amount Profit before tax 519,332 Net profit 411,234 Gross profit of sales 1,727,377 Other operating Income 39,745 Operating profit 665,837 Net cash inflow arising from operating activities： 709,206 Balance in cash and cash equivalents at the year-end 2,051,459 Note: Attend to the difference in financial report between the rules of Chinese accounting system and international accounting system Unit: RMB’000 Net assets Net Profit As reported under PRC GAAP 2,570,869 403,185 Adjustments to conform with IFRS - Difference in the amortisation of goodwill (4,001) (1,333) - Appropriation of staff bonus and welfare - (828) funds - Government grant (3,014) 1,987 - Capitalization of certain development cost 8,676 8,676 - Difference in negative goodwill recognition from (2,171) - acquiring certain shares in a subsidiary - Others (1,279) (453) As reported under IFRS 2,569,080 411,234 2. Major accounting data and financial indexes over the past three years as ended the report period: (Unit: RMB’000) 2 Items 2003 2002 2001 After Before adjustment adjustment Sales income 11,180,106 4,782,587 2,669,543 2,683,798 Net profit 411,234 79,000 22,817 22,817 Total assets 12,040,450 6,779,294 4,034,811 4,034,811 Shareholders’ equity 2,569,080 2,176,390 2,113,010 2,113,010 Unit RMB 000 Earnings per share 0.62 0.12 0.04 0.04 Net assets per share 3.90 3.96 3.84 3.84 Net cash flow per share from operating 1.08 activities 0.35 0.78 0.78 Return on equity (%) 16% 3.63% 1.08% 1.08% Note: Note: ① The said per-share data are calculated on the basis of lately average number of ordinary shares in inssue of 659.4648 million shares at the year-end of 2003,the per share data for 2002 and 2001 were adjusted to reflect the conversion of share premium to ordinary shares with ratio of 10 to 2 in 2003. ② The above data were reported in accordance with the consolidated financial statements. ③ The Company has complitated secondery issuance of 316.4 million B shares on Jan. 16, 2004, therefore, the Company’s total share capital has increased to 975.8648 million shares. Calculated based on total share capital of 975.8648 million shares, the Company’s earnings per share as of year 2003 was RMB 0.42. 3. Changes in shareholders’ equity in the report period (Unit: RMB’000) Ordinary Premium Items Other reserve Retained profit Total share share capital Jan. 1, 2003 549,554 1,150,895 280,767 195,174 2,176,390 Increase of capital reserve - - - - - Dividend distribution as of the year 2002 109,911 -109,911 - - - Profit as of 2003 - - - 411,234 411,234 Translation difference - - -18,554 - -18,544 Allotted surplus reserve as of this year - - 160,943 -160,943 - 3 Dec. 31, 2003 659,465 1,040,895 423,166 445,465 2,569,080 CHAPTER III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS 1. Statement of change in the Company’s shares (ended Dec. 31, 2003) Unit: Share Increase/decrease (+, -) in this time Shares Before the After the Rationed Bonus transferred Additional Sub- change Others change share shares from public issuance total reserves I. Unlisted shares: 1. Sponsors’ shares Including： State-owned shares: 328029000 65605800 65605800 393634800 Domestic legal person’s shares: Foreign legal person’s shares: Others: 2. Raised legal person’s shares: 3575000 715000 715000 4290000 3. Inner employees’ shares: 8450000 1690000 1690000 10140000 4. Preference shares or others: Total listed shares: 340054000 68010800 68010800 408064800 II. Listed shares: 1. RMB ordinary shares 60000000 12000000 12000000 72000000 2. Domestically listed foreign shares 149500000 29900000 29900000 179400000 (B share) 3. Overseas listed foreign shares: 4. Others: Total listed shares: 209500000 41900000 41900000 251400000 III. Total shares: 549554000 659464800 As examined and approved by the shareholders’ general meeting 2002, the Company implemented plan of transferring capital reserve into share capital at the rate of 2 shares for every 10 shares to all shareholders dated June 10, 2003, After transferring capital reserve into share capital, the Company’s total shares has increased to 659,464,800 shares from 549,554,000 shares, and the structure of equity did not change. For details, please refer to Public Notice on Implementation of Transferring Capital Public Reserve into Share Capital for the Year 2002 of BOE Technology Group Co., Ltd. published on Hong Kong Ta Kung Pao, Securities Times, China Securities and Shanghai Securities News dated June 4, 2003. 2. Issuance and Listing of shares Approved by State Council Securities Regulatory Commission with ZWF [1997] No. 32 document, the Company issued and listed 115 million domestically listed foreign shares (B-share) on June 10, 1997 at the issuance price of HK$ 3.08 per share. After issuance of B-share, share capital of the Company has increased to 376.58 million shares from 261.58 million shares. Approved by Beijing Securities Regulatory Commission with JZJH [1997] No. 67 document, the Company implemented profit distribution plan at the rate of 3 bonus shares for every 10 shares with RMB 1.00 in cash as to cumulative undistributed profit by the 4 year 1996. The last trade date of B-share is Nov. 5, 1997, the ex-right or ex-dividend of B-share is Nov. 6, 1997. Total share capital of the Company has increased to 489.554 million shares from 376.58 million shares after the distribution of bonus shares. Approved by China Securities Regulatory Commission with ZJGSZ [2000] No. 197 document, the Company additionally issued 60 million RMB ordinary shares (A-share) on Dec. 19, 2000 at the issuance price of RMB 16.80 per share. After the additional issuance, share capital of the Company has increased to 549.554 million shares from 489.554 million shares. On Jan. 12, 2001, the said 60 million A shares were listed with Shenzhen Stock Exchange for trading. As examined and approved by the shareholders’ general meeting 2002, the Company implemented plan of transferring capital reserve into share capital at the rate of 2 shares for every 10 shares to all shareholders dated June 10, 2003, After transferring capital reserve into share capital, the Company’s total shares has increased to 659,464,800 shares. Issuance of the employees’ shares of the Company, amounting to 6.5 million shares, has been completed in Feb. 1993 with par value RMB 1.00 per share, totaling 6.5 million. Approved by Beijing Securities Regulatory Commission with JZJH [1997] No. 67 document, the Company implemented profit distribution plan at the rate of 3 bonus shares for every 10 shares with RMB 1.00 in cash as to cumulative undistributed profit by the year 1996. After bonus share, the Company’s inner employees’ share has increased to 8.45 million shares from 6.5 million shares. As examined and approved by the shareholders’ general meeting 2002, the Company implemented plan of transferring capital reserve into share capital at the rate of 2 shares for every 10 shares dated Jun. 10, 2003, After transferring capital reserve into share capital, the Company’s inner employees’ share has increased to 10.14 million shares from 8.45 million shares. The said 10.14 million inner employees’ shares were listed for trading dated Jan. 12, 2004. 3. About shareholders (1) Ended Dec. 31, 2003, the Company had totally 51,815 shareholders, including 4 shareholders of legal person’s share, 32,901 shareholders of A-share and 18914 shareholders of B-share. (2) Particulars about the shares held by top ten shareholders by Dec. 31, 2003 Shares held Proportion in Name of shareholder Natural of equity (share) total shares 1 Beijing BOE Investment & Development Co., Ltd. State-owned legal 350,470,800 53.15% person’s shares 2 Beijing Dongdian Industrial Development Company State-owned legal 40,044,000 6.07％ person’s shares 3 Beijing Yixin Microdisplay Technology Development Legal person’s 4,290,000 0.65％ Center shares 4 FF GREATER CHINA FD GT1 24037 3,499,940 0.53％ B-share 5 Beijing CRT General Plant State-owned legal 3,120,000 0.47％ person’s shares 5 6 Yu Long Securities Investment Funds 2,581,395 A-share 0.39％ 7 ABU DHABI INVESTMENT AUTHORITY 2,483,000 0.38％ B-share 8 BEST RELIANCE INVESTMENTS LTD 2,040,400 0.31％ B-share 9 DZ BK INTL SA A/C UNION INVESTMENT LUX 2,000,000 0.30％ SA S/A UNIEM FERNOST B-share 10 NBP/FRUCTILUX SICAV 1,999,730 0.30％ B-share Note: ① In the report period, the Company’s controlling shareholders is still Beijing BOE Investment & Development Co., Ltd.. ② The actual controller of Beijing BOE Investment & Development Co., Ltd., Beijing Dongdian Industrial Development Company and Beijing CRT General Plant is Beijing Electronics Holding Co., Ltd.. For other shareholders, the Company is unknown whether there exists associated relationship. ③ The shares held by Beijing BOE Investment & Development Co., Ltd., Beijing Dongdian Industrial Development Company, Beijing Yixin Microdisplay Technology Development Center and Beijing CRT General Plant were not mortgaged or frozen, and the increase of shares held by them was because the Company implemented plan of transferring capital reserve into share capital at the rate of 2 shares for every 10 shares dated Jun. 10, 2003. (3) Ended Dec. 31, 2003, particulars about shares held by the top ten shareholders of circulation share Name of shareholders Shares held Proportion in Natural of (share) total shares equity 1 FF GREATER CHINA FD GT1 24037 3,499,940 0.53％ B-share 2 YU LONG SECURITIES INVESTMENT FUNDS 2,581,395 0.39％ A-share 3 ABU DHABI INVESTMENT AUTHORITY 2,483,000 0.38％ B-share 4 BEST RELIANCE INVESTMENTS LTD 2,040,400 0.31％ B-share 5 DZ BK INTL SA A/C UNION INVESTMENT LUX SA 2,000,000 0.30％ S/A UNIEM FERNOST B-share 6 NBP/FRUCTILUX SICAV 1,999,730 0.30％ B-share 7 CHINA SOUTHERN (HK) CO., LTD. 1,900,000 0.29％ B-share 8 TOYO SECURITIES ASIA LIMITED-A/C CLIENT. 1,664,580 0.25％ B-share 9 SHANGHAI (HONG KONG) WANGUO SECURITIES 1,654，085 0.25％ B-share 10 JF GREATER CHINA ABSOLUTE RETURN FUND 1,599,985 0.24％ B-share Explanation on associated relationship among the top ten The Company is unknown whether there exists shareholders circulation share or consistent action associated relationship or consistent action. (4) About the controlling shareholders Beijing BOE Investment & Development Co., Ltd. holds 53.15% of the Company’s total shares, therefore is the virtual controlling shareholder of the Company; Beijing Electronics Holding Co., Ltd. holds 56.25% of the total shares of Beijing BOE Investment & Development Co. Ltd. and therefore is the virtual controller of the Company. Beijing Electronics Holding Co., Ltd. is a state-owned holding company under Beijing Municipal 6 Government and is authorized to operate state-owned assets. Beijing BOE Investment & Development Co., Ltd. Legal Representative: Wang Dongsheng Date of Foundation: Oct.15, 1956 Location: No.10 Jiuxianqiao Road,Chaoyang District, Beijing Registered Capital: RMB 680.982 million Business Scope: project investment, manufacture and design of electronic products, communications equipment, computer software & hardware, paper products, industrial gasses, mould and matrix, steam; acquisition and sales of mechanical and electrical equipment, metal products, computer software and hardware and supporting equipment, construction material, general merchandise; technical development, technical consultation, technical service and transfer, undertaking exhibitions and sales Beijing Electronics Holding Co., Ltd. Legal Representative: Bao Yutong Date of Foundation: April 8, 1997 Location: No.12 Jiuxianqiao Road, Chaoyang District, Beijing Registered Capital: RMB 1307.37 million Type: Limited Liability Company (owned and funded solely by the state) Business scope: operation and management of state-owned assets within authorization; Communications equipments, audio & visual products for broadcasting and television; computer and its supporting equipments and the applied products; electronic raw material and components; home electric appliances and electronic products; electronic surveying instruments and meters; mechanical and electric equipments; electronic transportation products and investment in business fields other than electronics and its management; development of real estate, lease and sales of commodity apartments; property management. CHAPTER IV. DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES 1. Directors, supervisors and senior executives (1) General Introduction Shares held Receiving pay Name Sex Age Title Office term Year- Year- from the begin end company? Wang Male 46 Chairman of the Board, Chairman of June 2001-June 2004 6500 7800 Yes Dongsheng the Executive Committee, CEO Jiang Yukun Male 50 Vice Chairman of the Board June 2001-June 2004 3900 4680 No Liang Xinqing Male 51 Executive Director, President and June 2001-June 2004 2600 3120 Yes COO Cui Bingdou Male 54 Executive Director, Executive Oct. 2003- June 2004 0 0 Yes Vice-President Chen Yanshun Male 38 Executive Director, Senior June 2001-June 2004 0 0 Yes Vice-President Sun Jiping Male 45 Executive Director, Senior June 2001-June 2004 0 0 Yes Vice-President 7 Zhao Caiyong Male 56 Director June 2001-June 2004 6500 7800 No Wang Hui Male 48 Director June 2001-June 2004 0 0 No Tai Zhonghe Male 53 Independent Director June 2001-June 2004 0 0 No Xie Zhihua Male 44 Independent Director May 2002- June 2004 0 0 No Zhang Baizhe Male 60 Independent Director Oct. 2003- June 2004 0 0 No Li Zhaojie Male 48 Independent Director Oct. 2003- June 2004 0 0 No Wang Aizhen Female 54 Convener of the Supervisory June 2001-June 2004 1300 1560 No Committee Mu Chengyuan Male 36 Supervisor Sep. 2001-June 2004 650 780 No Yang Anle Male 33 Supervisor June 2001-June 2004 0 0 No Xu Yan Female 52 Employee Supervisor June 2001-June 2004 3900 4680 Yes Cao Hong Male 49 Employee Supervisor Aug. 2003- June 2004 1300 1560 Yes Song Ying Female 46 Senior Vice-President June 2001-June 2004 6500 7800 Yes Ren Jianchang Male 57 Senior Vice-President June 2001-June 2004 0 0 Yes Han Guojian Male 50 Vice-President June 2001-June 2004 2600 3120 Yes Liu Xiaodong Male 39 Vice-President Apr. 2003- June 2004 0 0 Yes Wang Jiaheng Male 35 Vice-President June 2001-June 2004 0 0 Yes Wang Yanjun Male 34 Chief Financial Officer June 2001-June 2004 2600 3120 Yes Zhang Peng Male 39 Chief Tech. Supervisor June 2001-June 2004 0 0 Yes Zhong Huifeng Male 33 Secretary of the Board Apr. 2002- June 2004 0 0 Yes Note: Shares held by directors, supervisors and senior executives are all inner employees’ shares, increase of shares held by them was because the Company implemented plan of transferring capital reserve into share capital at the rate of 2 shares for every 10 shares dated Jun. 10, 2003; the said shares has been frozen after the Company’s inner employees’ shares were listed for trading dated Jan. 12, 2004. (2) Directors and supervisors assuming title in and receiving pay from shareholding companies Title Beijing Dongdian Name Beijing BOE Investment & Development Company Limited Industrial Development Company Jinag Yukun Director, President and Secretary of the Party Committee Zhao Caiyong Director, Standing Vice-President and Chief Financial Officer General Manager Wang Aizhen Supervisor, Vice-Secretary of the Party Committee, Secretary of Discipline Commission and Chairwoman of Labor Union and Vice-President Mu Chengyuan Secretary of the Board and Vice President Yang Anle Manager of Planning and Financial Department Chief Accountant (3) The Conditions of Annual Salary The remuneration and award of the Company’s directors, supervisors and senior executives are determined by the Company according to the evaluation of their performance under the company’s salary and personnel system. The total annual remuneration (including basic wage, various premium, welfare, subsidy, housing allowance and other allowance) of the Company’s present directors, supervisors and senior executives is: RMB 6.135 million Total remuneration of the top three directors: RMB 3.121 million Total allowances for independent directors: Mr. Tai Zhonghe: US$ 10,000 per year Mr. Xie Zhihua: RMB 50,000 per year 8 Mr. Zhang Baizhe & Mr. Li Zhaojie: RMB 12,500 per quarter In the year of 2003, there were 15 directors, supervisors and senior executives receiving payment from the Company, among whom one person enjoyed an annual salary below RMB 100,000, two of them enjoyed between 100,000 and 200,000 and 12 enjoyed over 200,000. (4) Directors, supervisors and senior executives leaving their posts during the report period: ① On Apr. 18, 2003, as approved by the 11th meeting of the 3rd Board of Directors, Mr. Liu Xiaodong was engaged as Vice-president of the Company, while Mr. Gong Xiaoqing no longer took the post of Vice-president of the Company due to work change. ② On Aug. 26, 2003, as approved by Presidium Meeting of Union Labor Employees’ Representative Meeting, Mr. Cao Hong was additionally elected as employee supervisor, reelected Ms. Xu Yan as employee supervisor of the Company. ③ On Aug. 29, 2003, as approved by the 16th meeting of the 3rd Board of Directors, Ms. Song Ying, Mr. Ren Jianchang and Mr. Shidong resigned from the post of Director, and Mr. Cui Bingdou was engaged as Executive Vice-president of the Company. Mr. Cui Bingdou was recommended as candidate of executive director, Mr. Zhang Baizhe and Mr. Li Zhaojie was recommended as candidate of Independent Director of the Company respectively. ④ On Oct. 8, 2003, as approved by the 1st Extraordinary Shareholders’ General Meeting 2003, Mr. Cui Bingdou was elected as Executive Director of the Company, Mr. Zhang Baizhe and Mr. Li Zhaojie was elected as Independent Director of the Company. 2. About employees By the end of the year 2003, the total number of employees in company is 10,443, which incudes 604 for R&D, 1,502 as professional technician, 424 for sales and marketing, 852 for administration, 166 for finance, 6,535 skill workers and 360 for others. Educational background of employees: 36 staff have doctor and post-doctor degrees, 281 staff have master degrees, 1518 staff have bachelor degrees, 945 staff have high-education diploma, 3472 staff have professional certificates and 4,191 have others backgrounds. V. ADMINISTRATIVE STRUCTURE 1. The Company’s current administrative structure Strictly according to the requirements of Company Law, Securities Law, Listed Rules of shares in Shenzhen Stock Exchange, the Articles of the Association, and other regulations of CSRC, the company operated normatively and consummated consistently the relevant rules and regulations. Proceeding from the principle of protecting the interests of the vast number of shareholders, in the report period, the Company made standardized management in strict line with a series of system such as Rules of Procedure of Shareholders’ General Meeting, Work Regulations of Board of Directors, Rules of Procedure of Supervisory Committee 9 Rules of Information Disclosing, Management System on Using of Raised Proceeds and Work Rules of Executive Committee, amended the Articles of Associations of the Company timely, and formed the Management System on Investorship of the Company, which guaranteed the normative operation of the Company in the aspect of system and strengthened the communication and maintenance of investorship. 2. The performance of Independent Director The Company has engaged four independent directors at present, which were the specialists in IT, finance, law and TFT-LTD respectively. During their term, independent directors performed their duties as Independent Director according to the relevant regulations of Guiding Opinions on the Establishment of Independent Director System in Listed Companies, actively expressed independent opinions on the Company’s vital purchasing of assets, related transaction, posts change of directors and senior executives and the other major projects and played an important role in promoting the Company’s strategic decision-making process, and safeguarded the benefits of the mass of medium and small shareholders and the interest of the Company in real earnest. 3. The separation between the Company and the controlling shareholder in dealing with personnel, assets, finance, organization and business The Company’s business activities, personnel, assets, institutions and finance were separated from that of the controlling shareholder. The Company was independent in personnel, finance and organization with complete finance and capability of production and operation. (1) Business activities: The Company is independent from the shareholders and the other controllers in the aspect of business with its independent purchase and sales system. The purchase of raw materials and the sales of products are conducted through its own purchase and sale system. The Company makes independent decision-making, assumes sole responsibility for its profits or losses, with complete and independent business and capability of independent operation. The related transaction of the Company is carried on according to the standards of market principle, and doesn’t do harm to the legal benefit of the Company and the all shareholders. (2) Personnel: The Company is fully independent in its labor, personnel, salary and other matters. The president, vice-presidents, chief financial supervisor, secretary of the Board and other senior executives of the Company are all full-time staff and they do not have any dual duty in shareholding company. (3) Assets: The assets of the Company were independent, complete and the property rights were clear. The Company independently possessed the assets required by its major business activities, such as production system, auxiliary production system, equipment facilities, land using right and intellectual property rights and so on. There was no occupation of the Company’s assets by its controlling shareholder or actual controller. (4) Organization: The Company has set up organizations and institutions independent from its controlling shareholder and actual controller and possessed independent, sound organizations and legal person’s administrative structure. It has never handled business 10 together with its controlling shareholder or its actual controller in the same office. (5) Finance: The Company has set up independent financial departments. The financial personnel were all full-time personnel. The Company has also established standard and independent financial and accounting system and the system of financial administration for its subsidiaries. Meanwhile, the Company has kept archives of its financial administration and prepared relevant management staff. 4. The Standardization of Administration Structure of the Company Examined and approved by the meeting on enlarging the presidium of employee representative of the Company’s labor union (on Aug. 26, 2003), Mr. Cao Hong was supplemented as employee supervisor of the Company and Ms. Xu Yan was reelected as the employee supervisor. At present there were 5 supervisors in the Company including 2 employee supervisors. Examined and approved by 2003 1st Shareholders’ General Meeting (on Oct. 8, 2003) of the Company, Ms. Song Ying, Mr. Ren Jianchang and Mr. Shi Dong were approved to resign the post of Director of the Company; Mr. Cui Bingdou was elected as execution director of the Company; Mr. Zhang Baizhe and Mr. Li Zhaojie were elected as independent directors. There were 12 directors in office including 4 independent directors. The composition of the Board and the Supervisory Committee of the Company accorded with the relevant laws and regulations and the requirements of the Articles of the Association. 5. Selection, Assessment, Encouragement, and Binding Mechanism on the Senior Executives of the Company In the report period, the Company operated normatively strictly according to the requirements of relevant laws and regulations, amended timely the Articles of the Association, and worked out Independent Director System, Working Rules of Auditing Committee of the Board, and Working Rules of Nomination, Salary and Assessment Committee of the Board. The Company implemented engagement system on the senior executives. In the aspect of selecting senior executives, pursuant to the principal of wisdom and concurrently talent, the Company selected all-round key members of good quality and noble moral and high working efficiency. The engagement and disengagement of senior executives of the Board of the Company was based on the working achievements and business capability. The Company applies strict assessment measures of achievement. Based on the nature of the post, in December of each year, the Company decided the annual achievement objective of the next year of senior executives and signed operating objective responsibility letters with senior executives; the assessments for senior administrators will go through according to their responsibilities. Assessments are conducted by monthly inspection, quarterly inspection, half-year and annual assessments, which toughly integrated the salaries and achievements. In the aspect of encouraging on senior executives, the Company strengthened the achievement management, reinforced encouragement mechanism and set up perfect 11 achievements evaluation and encouragement assessment index system. VI. SHAREHOLDERS’ GENERAL MEETING 1. Particulars about notification of Shareholders’ General Meeting On Apr. 22, 2003, the Company published Public Notice of Holding 2002 Shareholders’ General Meeting of BOE Technology Group Co., Ltd. on Hong Kong Ta Kung Pao, Securities Times, China Securities and Shanghai Securities News. On Sep. 2, 2003, the Company published Public Notice of Holding 2003 1st Provisional Shareholders’ General Meeting of BOE Technology Group Co., Ltd. on Hong Kong Ta Kung Pao, Securities Times, China Securities and Shanghai Securities News. On Nov. 22, 2003, the Company published Public Notice of Holding 2003 2nd Provisional Shareholders’ General Meeting of BOE Technology Group Co., Ltd. on Hong Kong Ta Kung Pao, Securities Times, China Securities and Shanghai Securities News. 2. Particulars about convening and holding of Shareholders’ General Meeting On May 30, 2003, 2002 Shareholders’ General Meeting was held in Beijing Guomen Road Hotel. Totally 61 shareholders and shareholder’s proxies attended the meeting, representing 348,204,354 shares, which took 63.36% of the total amount of shares of the Company, including: 3 legal person’s shareholders (proxy), representing 329,004,000 shares; 39 shareholders (proxy) of RMB ordinary share (A share), representing 121,500 shares and 19 shareholders (proxy) of overseas listed foreign capital share (B share), representing 19,078,854 shares. The meeting examined and approved the following proposals: Work Report 2002 of the Board of the Company; Work Report 2002 of the Supervisory Committee of the Company; Financial Settlement Report 2002 of the Company; Profit Distribution Preplan 2002 of the Company; Proposal on Loan and External Guarantee Line of the Company; Proposal on Adjusting Raising Capital Use of Partial Programs, Special Report on Use of Raised Capital of Last Time; Proposal on The Company’s Issuance Additional B-shares and Listing Shares in light of the Requirements; Proposal on Increasing Capital to Issue Additional Domestic Listed Foreign B-shares; Report on Workingness of Raising Capital by way of Increasing Capital to issue Additional Domestic Listed Foreign B-shares; Preplan on Handling Undistributed Profit before Increasing Capital to issue Additional Domestic Listed Foreign B-shares; Preplan on Withdrawing 2002 Encourage Fund of the Company; Proposal on Transferring Share Equity of Beijing BOE Land Co., Ltd. held by the Company and Entrusting Partial Assets of the Company to Beijing BOE Land Co., Ltd. to operate. On Oct. 8, 2003, 2003 1st Provisional Shareholders’ General Meeting was held in Beijing Guomen Road Hotel. Totally 18 shareholders and shareholder’s proxies attended the meeting, representing 400,708,560 shares (valid share), which took 60.76% of the total amount of shares of the Company, including: 3 legal person’s shareholders, representing 394,804,800 shares; 10 shareholders of RMB ordinary share (A share), representing 38,220 shares and 5 shareholders of domestically listed foreign capital share (B share), representing 5,865,540 shares. The meeting examined and approved the following proposals: Proposal on Change of Post of Director of the Board; Proposal on Amending 12 the Articles of Association; Proposal on Assigning Xinke Building; Proposal on Transferring Share Equity of Beijing Panasonic Lighting Co., Ltd. held by the Company. On Dec.12, 2003, 2003 2nd Provisional Shareholders’ General Meeting was held in Beijing Guomen Road Hotel. Totally 52 shareholders and shareholder’s proxies attended the meeting, representing 418,260,063 shares (valid share), which took 63% of the total amount of shares of the Company, including: 3 legal person’s shareholders, representing 394,804,800 shares; 32 shareholders of RMB ordinary share (A share), representing 429,938 shares and 17 shareholders of domestically listed foreign capital share (B share), representing 23,025,325 shares. The meeting examined and approved Proposal on Purchasing Partial Share Equity of Guanjie Technology Co., Ltd.. 3. Particulars about public notice of resolutions of Shareholders’ General Meeting On May 31, 2003, the Company published Public Notice of Resolutions of 2003 Shareholders’ General Meeting of BOE Technology Group Co., Ltd. on Hong Kong Ta Kung Pao, Securities Times, China Securities Times and Shanghai Securities News. On Oct. 9, 2003 the Company published Public Notice of Resolutions of 2003 1st Provisional Shareholders’ General Meeting of BOE Technology Group Co., Ltd. on Hong Kong Ta Kung Pao, Securities Times, China Securities and Shanghai Securities News. On Dec. 23, 2003 the Company published Public Notice of Resolutions of 2003 2nd Provisional Shareholders’ General Meeting of BOE Technology Group Co., Ltd. on Hong Kong Ta Kung Pao, Securities Times, China Securities and Shanghai Securities News. 4. Particulars about election and change of directors and supervisors Examined and approved by the meeting on enlarging the presidium of employee representative of the Company’s labor union (on Aug. 26, 2003), Mr. Cao Hong was supplemented as employee supervisor of the Company and Ms. Xu Yan was reelected as the employee supervisor. Examined and approved by 2003 1st Shareholders’ General Meeting (on Oct. 8, 2003) of the Company, Ms. Song Ying, Mr. Ren Jianchang and Mr. Shi Dong were approved to resign the post of Director of the Company; Mr. Cui Bingdou was elected as execution director of the Company; Mr. Zhang Baizhe and Mr. Li Zhaojie were supplemented as independent directors. CHAPTER VII. REPORT OF THE BOARD OF DIRECTORS 1. Discussion and analysis to operation In the report period, the Company firmly carried out the work policy of “Changing those impossible into possible and creating strong points of individual, department and company”, on the one hand, overcoming the influence of SARS epidemic, fully pushing the industrial development in all causes especially in TFT-LCD cause by catching market 13 chance and gaining relatively good operating achievements; on the other hand, constructing and accomplishing the flat display industrial structure with TFT-LCD cause as the core so as to found a foundation for the future development of the Company. In the report period, the Company has achieved sales in RMB 11.18 billion, correspondingly increased 133.74% over last year. Net profit has reached to RMB 411 million, increased of 420.25 % over the same period of last year. 2. Main operations in report period (1) Scope of main operations and management The Company belonged to electronic information industry, a high-tech enterprise in Technology Park, Electronic City, Zhongguancun, Beijing. The main operations of the Company were focused on display field with main products including: ①The biggest productor of TFT-LCD in China and the 9th strongest in the world; ②Monitor/Panel TV, including CRT monitor, TFT-LCD monitor, PDP monitor, TFT-LCD TV set, PDP TV set. Company is the second biggest producer in the world. ③Small-size panel monitor including, and OEL etc., of which the productive and sales volume of VFD is the biggest in China and 3rd in the world and the productive and sales volume of STN-LCD ranked the 5th all over the world;④The second biggest producer in China for CRT productions by cooperation with Panasonic ⑤Digital products and services: digital mobile products (notebooks, flat computers and digital computers) and IT service (intelligent system and machines and instruments, network computer system and LED display system). ⑥ Precision electronic components and materials, majority of which ranked the top in the world In 2003, the Company realized sales volume amounting to 2.988 million pieces in TFT-LCD, 27.404 million pieces in STN-LCD business, 21.756 million pieces in VFD business, 3.619 million pieces in monitors and realized sales volume amounting to 8.817 million pieces in CRT incorporated with Panasonic. (2) Main products taking over 10% in income or profit from main operations of the Company and their areas ①Formation of income from main operations and cost of main operations classified according to product type (Unit: RMB000) Products Income from Cost of main Gross Increase/decrease Increase/decrease Increase/decrease main operations operations profit in income from in cost of main in gross profit 14 ratio main operations operations over ratio over the last (%) over the last year the last year (%) year (%) (%) Business of monitor terminal 6.27% 20.89% 21.09% -2.49% products 3,145,925 2,948,751 Business of display devices –Thin film 5,673,909 4,561,763 19.61% － － － transistor liquid Business of small-sized 2,006,577 1,713,598 14.61% 15.42% 24.22% -29.25% display device Other businesses 514,365 389,841 24.21% 13.33% 13.19% 0.37% Counteracting -160,670 -161,225 － － － － Others 11,180,106 9,452,729 15.46% 133.77% 128.14% 16.33% ② Formation of income from main operations classified according to areas (Unit: RMB000) Sales Total asset Expense 2003 2002 2003 2002 2003 2002 China main land 4,819,366 2,089,709 6,082,407 5,625,647 331,327 709,568 Korea 1,475,971 506,144 5,282,140 893,756 3,286,213 30,045 Taiwan 1,049,462 - 349,625 - 902 - US 952,761 691,978 43,676 22,348 - - Germany 848,566 545,950 116,014 237,543 - - Other EU countries 498,578 682,676 - - - - Other countries in Asia 337,536 129,832 166,588 - 458 - Other countries 1,197,866 136,298 - - - - 11,180,106 4,782,587 12,040,450 6,779,294 3,618,900 739,613 (3) Main suppliers and customers The Company’s purchase amount from the top five suppliers occupied 39% in total annual purchase amount. The Company’s sales amount to the top five customers occupied 32% in total sales 15 amount. (4) Great changes in profit structure, main operations and structure and explanation on reasons Since the Company entered into the field of TFT-LCD business in Jan. 2003, the business volume of TFT-LCD business reached over 50% in main operations of the Company. BOE-Hydis Technology Co., Ltd., a subsidiary in Korea, was listed into the consolidated scope of the Company. (5) In the report period, there was no great change in profitability capability (gross profit ratio) of main operations of the Company. (6) In the report period, the Company had no any other operating activity impacting material influence on the profit. (7) Problems and difficulties from the operation and their solutions The recovery of global economy and strengthening of Chinese economy effectively stimulated the increase in demand at home and abroad. While LCD industry has brought economic benefits for the Company in an objective way, the Company still faced many challenges in such aspects as very great difference between brand access cause and the Company’s requirements for strategy, relatively slow enhancement in the Company’s management capability compared with the enterprise’s rapid development, demand for capital facing industrial development and how to further optimise the Company’s financial structure etc. Aiming at these problems, the Company would adapt itself to the market through continuing to enlarge the input and adjusting the strategy in proper time, realize the rapid response of management team through implementing engineering of “Thousands of hundred of talents” and adjusting the management structure and realize the multi-channel capital sources through establishing strategic association and making use of overseas capital market. 3. Investment in the report period (1) Use of the increased capitals and results ① In the report period, investment of use of the proceeds raised through previous shares offering continuing to the report period Unit: RMB’0000 Names of investment Committed Planned and Actual amount Total actual Progress of projects committed amount of committed of investment in expenditure projects investment amount of the report ended Dec. 31, investment with period 2003 excessively raised proceeds 16 Innovation project in Not completed development technology of - municipal traffic “All-in-one Card” system in Beijing 10,000 1,712 7,511 Brand access cause Not completed operating project - 11,200 3,702 9,345 Purchase of TFT-LCD Completed business project of Korean Hydis Technology Inc. 13,574.43 13,574.43 13,574.43 ②In the report period, reasons, procedures and disclosures of changes in the projects invested with the raised proceeds Annual Shareholders’ General Meeting 2002 of the Company held on May 30, 2003 considered and passed Proposal on Changing and Adjusting Use of the Raised Proceeds in Partial Projects. The Company ① changed the use of the rest raised proceeds amounting to RMB 10.34 million in “BOE E-commerce project” to supplement the running capital of the Company; ② All of the rest raised proceeds amounting to RMB 910,000 in “Technical reconstruction project of terminal production lines for special computers” accomplished and the rest RMB 1.79 million in “Technical reconstruction project of production lines in mobile computers” was adjusted to supplement the Company’s running capital. For details, please refer to Public Notice on Resolutions of Annual Shareholders’ General Meeting 2002 of BOE Technology Group Co., Ltd. published on Ta Kung Pao, Securities Times, China Securities and Shanghai Securities News dated May 31, 2003. ③Projects’ progress and their earnings Beijing urban traffic “All-in-one card” project: It plans to be invested the raised proceeds amounting to RMB 100 million while RMB 75.11 million has been invested. The engineering construction burdens by the Company has partly been accomplished basically and Beijing urban traffic “All-in-one card” system was put into operation in Line No. 121 in bus and Line No. 13 in metro in Dec. 2003. Brand access cause operating project: It planned to be invested the raised proceeds amounting to RMB 112 million while RMB 93.45 million has been invested and used in the marketing and construction of market channels for digital products with “BOE” brand and IT service. Purchase of TFT-LCD business project of Korean Hydis Technology Inc.: After examined and approved by the 2nd Extraordinary Shareholders’ General Meeting of 2002, the Company changed and adjusted the application of partial raised proceeds of A share additionally issuing in public amounting to RMB 135,744,300 and converted to put into this purchase project. BOE-Hydis Technology Co., Ltd., an affiliated company of the 17 Company, accomplished the acquisition of TFT-LCD business assets in Jan. 2003, thus the TFT-LCD became the main contribution for profit in the report period. (1) Investment with the proceeds not raised through shares offering Unit: RMB’0000 Projects Investment amount in the Accumulative investment Progress of projects report period amount Purchase of 3.49% equity from Completed Hyundai LCD Inc. 556 556 Jointly establishing Beijing BOE Investment amount in the Photoelectric Technology Co., Ltd. 6208 6208 1st phase Purchase of 26.36% equity from Completed Top Victory Technology 111142 111142 Jointly establishing BOE Hyundai Investment amount in the LCD Inc. 620.7 3103.8 2nd phase Reconstruction of VFD production Developed as scheduled lines 10247 24521 Engineering of main body of Developed as scheduled factories 1308 1308 Engineering of clear factories Developed as scheduled 1233 1233 4. Financial position and operating results of the Company (1) Analysis to financial position and operating results (Unit: RMB000) Financial indexes Dec. 31, 2003 Dec. 31, 2002 Increase/decrease margin Total assets 12，040，450 6,779,294 77．6％ Long-term liabilities 2，230，674 3,787,375 77．3％ Current liabilities 6，715，094 357,667 523．67％ In 2003 In 2002 Increase/decrease margin Profit from main operations 1，727，377 635,551 171．79％ Investment earnings 665，837 215,287 209．28％ Shareholders’ equity 411，234 79,000 420．55％ Increase in total assets is due to the annexing subsidiary BOE-Hydis and increase in net profit in the period. Increase in long-term liabilities was due to raising money through the loans in order to hold the stock shares of Top Victory Electronics Co, Ltd. 18 Increase in current liabilities is due to the annexing subsidiary BOE- Hydis Increase in sales gross profit, profits from operations and net profit was due to consolidation of business income from BOE- Hydis, an affiliated subsidiary of the Company. (2) Explanations on changes of ranges of combinations compared with last annual report In the report period, BOE-Hydis and Suzhou BOE CHATANI Co.Ltd have been covered in the range of accounting statement. 5. There was no material change in productive and operating environment and macro-policies and regulations of the Company, impacting material influence on the Company’s financial position and operating results. 6. Routine work of the Board of Directors (1) Meetings and resolutions of the Board of Directors in the report period: On Apr. 18, 2003, the 11th Meeting of the 3rd Board of Directors of the Company was held, where Work Report of the Board of Directors 2002, Financial Settlement Report 2002, Profit Distribution Preplan 2002, Annual Report and its Summary 2002, Proposal on Limit of Loans and External Guarantees, Proposal on the Board’s Authorizing Chairman of the Board to Exercise Duties, Proposal on Change in Post Holding of Partial Senior Executives, Proposal on Committee Composing in Special Committee of the Board of Directors, Proposal on Transferring its Partial Equity of Beijing BOE Mobile Technology Co., Ltd., Proposal on Transferring its Equity of Beijing BOE Land Co., Ltd. and Authorizing Partial Assets of the Company to Beijing BOE Land Co., Ltd. for Operation, Independent Director System, Detailed Rules on Implementation of Auditing Committee of the Board of Directors, Detailed Rules on Implementation of Nominating, Salary and Remuneration and Assessment Committees of the Board of Directors and Proposal on Holding Annual Shareholders’ General Meeting 2002 were considered and passed. On Apr. 28, 2003, the 12th Meeting of the 3rd Board of Directors was held, where the 1st Quarterly Report 2003 of the Company was considered and passed. On May 13, 2003, the 13th Meeting of the 3rd Board of Directors was held, where Proposal on the Company’s Compliance with the Condition for Issuing and Listing of B Shares, Proposal on Increasing Investment to Issue Domestically Listed Foreign Shares (B Shares), Report on Feasibility in Use of the Proceeds Raised Through Issuing of Domestically Listed Foreign Shares (B Shares), Preplan on Disposal of Retained Earnings Before Issuing of Domestically Listed Foreign Shares (B Shares), Preplan on Appropriating Encouragement Funds of the Company for Year 2002 and Examining Opinion on Resolution of the Controlling Shareholder and the Supervisory Committee of the Company on Increasing Consideration Issues in Annual Shareholders’ General Meeting 2002 were considered and passed. On July 22, 2003, the 14th Meeting of the 3rd Board of Directors of the Company was held, where Proposal on Acquiring Partial Equity of Top Victory Technology Co., Ltd. was 19 considered and passed. On Aug. 21, 2003, the 15th Meeting of the 3rd Board of Directors was held, where Semi-annual Report 2003 of the Company, Proposal on Transferring Xingke Building of the Company, Proposal of the Company on Paying the Rest Funds for Purchasing Land Use Right and Proposal of the Company on Transferring its Equity of Beijing Matsushita Lightening Co., Ltd. was considered and passed. On Aug. 29, 2003, the 16th Meeting of 3rd Board of Directors of the Company was held, where Proposal on Change in Post Holding of Directors in the Board and Appointment of Senior Executives, Proposal on Amending Detailed Rules on Implementation of Special Committee in the Board and Adjusting Committeemen Composing of Special Committee and Proposal on Holding the 1st Provisional Shareholders’ General Meeting 2003 were considered and passed. On Oct. 29, 2003, the 17th Meeting of the 3rd Board of Directors of the Company was held, where the 3rd Quarterly Report 2003 of the Company and Management System on Investors’ Relationships of the Company were considered and passed. On Nov. 21, 2003, the 18th Meeting of the 3rd Board of Directors was held, where Proposal of the Company on Holding the 2nd Provisional Shareholders’ General Meeting 2003. (2) Implementation on profit distribution plan in the report period: 1. The profit distribution plan in 2002: Capitalization with capital reserve to all its shareholders at the rate of 2 shares capitalized for every 10 shares based on total share capital amounting to 549,554,000 shares on Dec. 31, 2002. 2. Implementation: The Company published Public Notice on Implementation of Capitalizing Reserve into Share Capital of the Company in 2002 on Ta Kung Pao, Securities Times, China Securities and Shanghai Securities News dated Jun. 4, 2003 and confirmed that the equity registration date for A Shares and B Shares was on Jun. 9, 2003 and the ex-right date was Jun. 10, 2003. After the capitalization, the total share capital of the Company was changed from 549,554,000 shares into 659,464,800 shares. 7. The profit distribution preplan and preplan on capitalizing capital reserve into share capital As audited by PricewaterhouseCoopers Zhongtian CPAs Co., Ltd., the Company realized net profit amounting to RMB403,185,267 in 2003. According to the provisions in the Articles of Association of the Company, after 10% of the net profit being appropriating as statutory reserve amounting to RMB 40,235,748, 5% of the net profit being appropriating as statutory welfare funds amounting to RMB 20,117,874 and 25% of the net profit being appropriating as discretionary surplus reserve amounting to RMB 100,589,369 and after appropriated employee bonus and welfare funds amounting to RMB 827,729 being deducted, plus the accumulative retained earnings in previous years amounting to RMB 192,962, 577, the actual profit available for distribution to shareholders was 20 RMB434,377,061 in 2003. Based on total share capital of the Company amounting to 659,464,800 shares on Dec. 31, 2003, capitalizing 5 additional shares with cash RMB0.10 every 10 shares to all its shareholders. The said distribution preplan should be implemented subject to consideration and approval of Shareholders’ General Meeting. 8. Special explanation and independent opinion of independent directors on the Company’s external guarantees According to Rules on Administration of Listed Companies, Guide Opinion on Establishing Independent Director System in Listed Companies, Circular on Standardizing Listed Companies’ Capital Current with Related Parties, External Guarantees and Other Several Problems the Articles of Association and other relevant regulations (Hereinafter referred to as Circular), we have conducted serious inspection on the Company’s external guarantees in 2003. In our opinion, the Company has conducted clearing and neatening on external guarantees and has stopped contracts as scheduled strictly in compliance with the provisions in Circular and has strengthened the control on external guarantees. Ended the end of the report period, Zhejiang BOE LCD Inc., the controlling subsidiary of the Company, provided guarantee amounting to RMB 3,000,000 to Shaoxing Tongli Tool Co., Ltd. after considered and passed by the Board of Directors. After checking, the Company shall put forward proposal relevant to amending the Articles of Association in Annual Shareholders’ General Meeting according to the provisions in Circular with contents involved in details measures such as examination of external guarantees, limit of external guarantees and anti-guarantees etc.. CHAPTER VIII. REPORT OF THE SUPERVISORY COMMITTEE 1. Meetings of the Supervisory Committee and their resolutions On Apr. 18, 2003, the Company held the 7th meeting of the 3rd Supervisory Committee, which examined and approved Work Report of the Supervisory Committee in 2002, Financial Settlement Report in 2002, Profit Distribution Preplan for 2002, Annual Report 2002 and Summary, Proposal on Adjusting Usage of Raised Capital of Partial Items and Explanation on Usage of the Last Raised Capital. On Apr. 29, 2003, the Company held the 8th meeting of the 3rd Supervisory Committee, which examined and approved the 1st Quarterly Report of 2003 of the Company. On May 12, 2003, the Company held the 9th meeting of the 3rd Supervisory Committee, which examined and approved Proposal on Increasing Examined Items in Annual Shareholders’ General Meeting 2002. On Aug. 21, 2003, the Company held the 10th meeting of the 3rd Supervisory Committee, which examined and approved Semiannual Report 2003 of the Company. On Oct. 29, 2003, the Company held the 10th meeting of the 3rd Supervisory Committee, 21 which examined and approved the 3rd Quarterly Report of 2003 of the Company. 2. Independent opinion of the Supervisory Committee In the report year, the Supervisory Committee supervised over the validity when the directors and senior executives of the Company executed the duties in the Company strictly according to relevant laws, regulations, Articles of Association of the Company and Procedure Rule for the Supervisory Committee, checked relevant financial report of the Company, put forward to new proposal before holding Annual Shareholders’ General Meeting 2002 and specially examined the usage of the raised capital of the Company. Aiming for the work of the Company in this year, the Supervisory Committee expressed the independent opinion as follows: (1) The Board of Directors, directors and other senior executives of the Company carried on the work strictly according to laws, regulations and Articles of Association of the Company and there was no behavior of damaging the interest of the Company and the shareholders. (2) The Company truly and completely issued financial statement strictly according to relevant accounting laws, regulations and rules, standardized the internal control system in a systemic way, established and perfected the financial system of the Company. (3) Taking the maximum of the interest of the shareholders and the Company as springboard, the Company consistently perfected the construction of the Company’s administration structure, actually implemented every resolution of the Shareholders’ General Meeting, did a large amount of work with effect in respect of urging the maximum of the fortune of the shareholders. (4) The related transactions involved by the Company was strictly in accordance with the market rule and obeyed the principle of fairness and justness. There existed no situation of damaging the interest of minority shareholders and the Company made information disclosure for the significant related transactions in time and engaged financial consultant to issue consultant’s opinion and the independent directors also expressed the independent opinion. (5) The appointing and removing of senior executives of the Company was in accordance with relevant laws, regulations and the meet of stratagem development of the Company. (6) The raised capital of the Company was put in strictly according to the promised items and the increase of used items and change of usage of the raised capital all implemented relevant law procedures. (7) The relevant purchase behaviors of significant assets of the Company were made the feasibility research of the items. The Company engaged relevant experts to examine them and implemented relevant procedures of submitting and authorization in compliance with the systemic regulations of external investment and guaranteed the investment was scientific. CHAPTER IX. SIGNIFICANT EVENTS 1. Lawsuits and arbitrations of the Company in the report period 22 The Korean subsidiary of the Company, BOE-Hydis Technology Co., Ltd. received the notification of Sharp Corporation, LG·Philips LCD and Guardian Industries who announced the Company infringed some patent right of them and counterclaimed the use expense. The investigation of the event was still in process and it was difficult to assess the result of potential lawsuit temporarily, so the Company has not appropriated any provision for liabilities caused by the event in the consolidated statement. 2. Purchase of assets in the report period. (1) Brief introduction and progress of purchased assets The Korean subsidiary of the Company, BOE-Hydis Technology Co., Ltd. finished purchase of TFT-LCD business of HYDIS on Jan. 22, 2003. Through this purchase of asset, the Company obtained the comprehensive intellectual property right of TFT-LCD and the global market share and marketing networks of TFT-LCD and it effectively improved the core competition ability of the Company in display product field. According to the development stratagem of display industry of the Company, the Company is actively pushing the construction of TFT-LCD industry base in Beijing. The Company signed Agreement of Equity Trade of Top Victory Technology Co., Ltd. with FIELDS PACIFIC LIMITED (hereinafter referred to as FPL) and Mr. Pan Fangren (the wholly owner of FPL). The Company purchased 26.36% (amounting to 356,033,783 shares) of the issued common shares of Top Victory Technology Co., Ltd. held by FPL as the price of HKD 2.95 per share and the total purchase amount was HKD 1,050,299,659.85. The equity purchase was finished equity transaction before Dec. 31, 2003. (II) Influence of asset purchase on the Company The Company obtained the core technology and global market resource of TFT-LCD by means of purchasing TFT-LCD business abroad and realized the stratagem distribution and industry reorganization of the Company in display industry field through the strategic purchase of equity of Top Victory Technology Co., Ltd.. The flat board display industry with the core of TFT-LCD has become one of the most important businesses of the Company. 3. Significant related transaction In Apr. 2003, the Company signed Equity Transfer Contract with Beijing Electronics Town Co., Ltd. (its controlling shareholder is Beijing Electronics Holding Co., Ltd.), signed Contract of Entrusting Operation with Beijing BOE Land Co., Ltd. (hereinafter referred to as BOE Land). The Company transferred 70% equity of BOE Land as the price of RMB 38.80 million (pricing based on the assessed property price) to Beijing Electronics Town Co., Ltd. and entrusted BOE Land to operate the assets locating in “BOE Digital Rose Garden” and “BOE Small Back-light Project Zone” including the kinetic energy appliances such as water, electronics, gas and heat and construction in progress such as house and land amounting to RMB 241,780,000. In July 2003, the Company signed Contract of Real Estate Trade and Transfer Contract of Affiliated Equipments with BOE Land. The Company transferred land use right, house 23 property right and the affiliated equipments of Xingke Building as the assessed price amounting to RMB 82,699,939.00 to BOE Land. The above transactions are still in process of disposal. 4. Current credit and liabilities and guarantee between the Company and related parties Please refer to “32 Relationship with related parties and transactions” in auditor’s report for the details. 5. Significant contract and implementation (1) In the report period, the Company has no significant guarantee. (2) In the report period, the Company has no assets that were entrusted others to manage. 6. There existed no commitment of the Company and the shareholders holding more than 5% equity in the report period. 7. The domestic and overseas Certified Public Accountants engaged by the Company have no change in the report period. The domestic and overseas Certified Public Accountants engaged by the Company have no change in the report period with the details: The domestic Certified Public Accountants: PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd. The overseas Certified Public Accountants: PricewaterhouseCoopers China Co., Ltd. The above Certified Public Accountants have provided audit service for the Company for six years from the date of initially signing audit business agreement with the Company on Dec. 31, 1997 to now. In the report period, the total amount of the remuneration that the Company paid to the above Certified Public Accountants was RMB 2 million and the travel business expense in the process of proving service was undertaken by by the PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd. 8. Alternation of CPA carried with signature By the end of report period, the service term of CPA carried with signature auditing financial report of the Company falls short of five years and there existed no alternation of CPA carried with signature. 9. In the report period, the Company, the Board of Directors and its directors have neither been checked, given administrative punishment or public criticism by CSRC and nor been publicly condemned by Stock Exchange. 10. Items after the period (1) According to Reply of Beijing Commerce Bureau on Equity Transfer of Beijing·Matsushita Lighting Co., Ltd. as Foreign Enterprise with JSZZ [2004] NO. 16 issued by Beijing Commerce Bureau on Jan. 9, 2004, the Company transferred 30% equity of Beijing·Matsushita Lighting Co., Ltd. held by the Company to Matsushita Electric Industrial Co., Ltd. of Japan and the transfer price was RMB 62,400,000 (on the basis of the assessed value). (2) According to ZJGSZ [2000] NO. 197 of CSRC, the internal employees’ share issued by the Company was listed and circulated since. 12 Jan. 2004. 24 (3) As authorized by CSRC (ZJFXZ [2004] NO.2), the Company issued 316,400,000 shares of B-share to increase capital from Jan. 13, 2004 to Jan. 15, 2004 and the issuance price was HKD 6.32 per share. After deducting relevant issuance expense, the net amount of raised capital from this reissued B share was HKD 1,922,072,431 (converted into RMB 2,048,160,383). On Apr. 16, 2004, the reissued B shares were listed and circulated. (4) On Mar. 30, 2004, the Company held the 1st Provisional Shareholders’ General Meeting in 2004, which examined and approved to list “repaying the bank loan for the payment for purchase of partial equity of Top Victory Technology Co., Ltd. amounting to USD 85 million (about RMB 702.95 million)” and “repaying bank loan of RMB 416.08 million” into the use of the surplus raised capital from this reissued B shares. CHAPTER X. FINANCIAL REPORT I. Accounting statements (refer to the attached statement) II. Appendix of accounting statements (refer to the attachment) CHAPTER XI. DOCUMENTS FOR REFERENCE 1.Accounting statements carried with the personal signatures and seals of legal representative, chief financial supervisor and person in charge of handling accounting affairs; 2. Original of Auditors’ Report carried with the seal of Certified Public Accountants as well as personal signatures and seals of certified public accountants; 3. Originals of all documents and manuscripts of Public Notices/Announcements of the Company disclosed in public on the newspapers designated by CSRC in the report period. Board of Directors of BOE TECHNOLOGY GROUP CO., LTD. April 23, 2004 25 BOE TECHNOLOGY GROUP CO., LTD. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 26 12th Floor, Shui On Plaza 333 Huai Hai Zhong Lu Shanghai 200021 People's Republic of China Telephone +86 (21) 6386 3388 Facsimile +86 (21) 6386 3300 Report of the auditors To the shareholders of BOE Technology Group Co., Ltd. We have audited the accompanying consolidated balance sheet of BOE Technology Group Co., Ltd. (the Company) and its subsidiaries (the Group) as of 31 December 2003 and the related consolidated income and cash flow statements for the year then ended. These financial statements set out on pages 2 to 45 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly in all material respects, the financial position of the Group as of 31 December 2003 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd. 23 April 2004 BOE TECHNOLOGY GROUP CO., LTD. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 Year ended 31 December (all amounts in RMB thousands) Notes 2003 2002 Sales 1 11,180,106 4,782,587 Cost of sales 1 (9,452,729) (4,147,036) Gross profit 1,727,377 635,551 Other operating income 39,745 18,979 Distribution costs (288,021) (160,302) Administrative expenses (792,720) (274,640) Other operating expenses (20,544) (4,301) Profit from operations 2 665,837 215,287 Finance costs - net 3 (235,550) (65,542) Group profit before tax 430,287 149,745 Available-for-sale investments - losses (11,047) (5,761) Share of result of associates before tax 100,092 72,922 Profit before tax 519,332 216,906 Income tax expenses 5 (30,003) (51,356) Group profit before minority interest 489,329 165,550 Minority interests 29 (78,095) (86,550) Net profit 411,234 79,000 Basic earnings per share 6 Rmb0.62 Rmb0.12 The accounting policies on pages 7 to 17 and the notes on pages 18 to 45 form an integral part of these consolidated financial statements. -2- BOE TECHNOLOGY GROUP CO., LTD. CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2003 As at 31 December (all amounts in RMB thousands) Notes 2003 2003 2002 2002 ASSETS Non-current assets Property, plant and equipment 8 4,221,901 1,326,218 Investment Property 9 14,780 17,430 Intangible assets 10 41,438 96,924 Land use rights 11 109,797 100,266 Investments in associates 12 1,901,399 741,841 Available-for-sale investments 13 66,474 93,200 Held-to-maturity investments 173 22 Deferred tax assets 23 10,759 3,753 Other assets 14 125,547 15,664 6,492,268 2,395,318 Current assets Inventories 15 1,248,919 560,402 Receivables and prepayments 16 2,247,804 1,529,348 Cash and cash equivalents 18 2,051,459 2,294,226 5,548,182 4,383,976 Total assets 12,040,450 6,779,294 EQUITY AND LIABILITIES Capital and reserves Ordinary shares 28 659,465 549,554 Share premium 1,040,984 1,150,895 Other reserves 30 423,166 280,767 Retained earnings 445,465 195,174 2,569,080 2,176,390 Minority interests 29 525,602 457,862 Non-current liabilities Borrowings 20 1,766,291 268,804 Deferred tax liabilities 23 8,383 9,523 Post-employment benefit obligations 24 14,643 6,428 Other liabilities 22 441,357 72,912 2,230,674 357,667 Current liabilities Trade and other payables 19 2,426,082 1,481,219 Current tax liabilities 13,530 28,751 Borrowings 20 4,249,483 2,263,875 Provisions 25 25,999 13,530 The accounting policies on pages 7 to 17 and the notes on pages 18 to 45 form an integral part of these consolidated financial statements. -3- 6,715,094 3,787,375 Total liabilities 8,945,768 4,145,042 Total equity and liabilities 12,040,450 6,779,294 The accounting policies on pages 7 to 17 and the notes on pages 18 to 45 form an integral part of these consolidated financial statements. -4- BOE TECHNOLOGY GROUP CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2003 Ordinary Share Retained (all amounts in RMB thousands) Notes shares premium Other reserves earnings Total Balance at 1 January 2002 549,554 1,150,895 235,871 176,690 2,113,010 Addition of capital reserves - - 4,412 - 4,412 Dividends relating to 2001 7 - - - (27,478) (27,478) Net profit - - - 79,000 79,000 Currency translation differences 7,446 - 7,446 Provision of general reserves 30 - - 33,038 (33,038) - Balance at 31 December 2002/ 549,554 1,150,895 280,767 195,174 2,176,390 1 January 2003 Conversion of share premium to ordinary shares 28 109,911 (109,911) - - - Net profit - - - 411,234 411,234 Currency translation differences 30 - - (18,544) - (18,544) Provision of general reserves 30 - - 160,943 (160,943) - Balance at 31 December 2003 659,465 1,040,984 423,166 445,465 2,569,080 The accounting policies on pages 7 to 17 and the notes on pages 18 to 45 form an integral part of these consolidated financial statements. -5- BOE TECHNOLOGY GROUP CO., LTD. CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 Year ended 31 December (all amounts in RMB thousands) Notes 2003 2002 Cash flows from operating activities Net profit 411,234 79,000 Adjustments for: Minority interests 29 78,095 86,550 Tax 5 18,889 47,189 Depreciation 8,9 615,248 136,756 Amortisation 2 23,968 22,091 Impairment charge and write off 2 109,756 28,358 Loss on sale of property, plant and equipment 2 6,475 188 Finance costs 3 211,824 64,644 Share of result before tax of associates 12 (100,092) (72,922) Changes in working capital: Inventories (381,001) (152,479) Trade and other receivables (129,678) (748,400) Pensions and other retirement benefits 8,215 6,428 Payables (183,185) 712,276 Cash generated from operations 689,748 209,679 Interest received 2 39,651 8,629 Tax paid (20,193) (25,669) Net cash from operating activities 709,206 192,639 Cash flows from investing activities Acquisition of subsidiary, net of cash acquired (2,433,235) (526,396) Purchase of property, plant and equipment (643,878) (255,880) Purchase of intangible assets (15,505) (34,170) Purchase of available-for-sale investments (84) (25,171) Purchase of association (1,174,623) (11,443) Disposal of subsidiary, net of cash disposed 1,389 2,704 Proceeds from sale of property, plant and machinery 15,716 179 Dividends received 20,442 3,733 Net cash used in investing activities (4,229,778) (846,444) Cash flows from financing activities Proceeds from convertible bonds - 130,720 Proceeds from minority interest - 134,512 Proceeds from borrowings 8,811,082 3,332,947 Proceeds from other financial activities 104,413 Repayments of borrowings (5,352,148) (1,787,367) Dividends paid to group shareholders (13,434) (42,487) Dividends paid to minority interests (3,864) (7,840) Interest paid (216,241) (80,359) Payment for other financing activities (34,019) (17,795) Net cash from financing activities 3,295,789 1,662,331 Effects of exchange rate changes (17,984) 16,502 Increase/(Decrease) in cash and cash equivalents (242,767) 1,025,028 Cash and cash equivalent at beginning of year 2,294,226 1,207,639 The accounting policies on pages 7 to 17 and the notes on pages 18 to 45 form an integral part of these consolidated financial statements. -6- Cash and cash equivalent at end of year 18 2,051,459 2,232,667 The accounting policies on pages 7 to 17 and the notes on pages 18 to 45 form an integral part of these consolidated financial statements. -7- BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 GENERAL INFORMATION BOE Technology Group Co., Ltd. (the Company) was founded in 1993 in Beijing, the People’s Republic of China (PRC). It was reorganized into a joint stock limited company in 1997 and is registered in Beijing. The Company and its subsidiaries are collectively referred to as the Group. The Group manufactures and sells electronic products, invests in enterprises engaged in the manufacturing of electronic products and provides property management services to properties it owns. The Group has operations in more than five countries and employs over 10,007 employees (2002: 6,386). The parent company of the Group is Beijing Orient Investment and Development Co., Ltd., which is a state-owned enterprise registered in Beijing, PRC. The Company has its primary listing on the Shenzhen Stock Exchange issuing B shares in 1997, with further offerings of A Shares on the Shenzhen Stock Exchange in 2000. -8- BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below: A Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). This basis of accounting differs from that used in the preparation of the Group's statutory financial statements (“PRC statutory financial statements”). The financial statements of the Company and its subsidiaries comprising the Group have been prepared in accordance with the relevant accounting principles and regulations applicable to them. Appropriate adjustments have been made to these financial statements to conform with IFRS. The consolidated financial statements have been prepared under the historical cost convention except those disclosed in the accounting policies below. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current event and actions, actual results ultimately may differ from those estimates. In 2001, the Group adopted IAS 39 Financial Instruments: Recognition and Measurement and IAS 40 Investment Property. The financial effects of adopting these standards were reported in the previous year’s consolidated financial statements. B Group accounting (1) Subsidiaries Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated. The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill. See note F for the accounting policy on goodwill. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated -9- BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 unless cost cannot be recovered. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group. - 10 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 ACCOUNTING POLICIES (continued) B Group accounting (continued) (2) Associates Investments in associates are accounted for by the equity method of accounting. Under this method the company’s share of the post-acquisition profits or losses of associates is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Associates are entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Group’s investment in associates includes goodwill (net of accumulated amortisation) on acquisition. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not to recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates. (3) Joint ventures The Group’s interests in jointly controlled entities are accounted for by proportionate consolidation. The Group combines its share of the joint ventures’ individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in the Group’s financial statements. The Group recognises the portion of gains or losses on the sale of assets by the Group to the joint venture that it is attributable to the other venturers. The Group does not recognise its share of profits or losses from the joint venture that result from the purchase of assets by the Group from the joint venture until it resells the assets to an independent party. However, if a loss on the transaction provides evidence of a reduction in the net realisable value of current assets or an impairment loss, the loss is recognised immediately. C Foreign currency translation (1) Measurement currency Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (“the measurement currency”). The consolidated financial statements are presented in Renminbi, which is the measurement currency of the parent. (2) Transactions and balances Foreign currency transactions are translated into the measurement currency using - 11 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement. Translation differences on debt securities and other monetary financial assets measured at fair value are included in foreign exchange gains and losses. Translation differences on non-monetary items such as equities held for trading are reported as part of the fair value gain or loss. Translation differences on available-for-sale equities are included in the revaluation reserve in equity. - 12 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 ACCOUNTING POLICIES (continued) C Foreign currency translation (continued) (3) Group companies Income statements and cash flows of foreign entities are translated into the Group’s reporting currency at average exchange rates for the year and their balance sheets are translated at the exchange rates ruling on 31 December. Exchange differences arising from the translation of the net investment in foreign entities and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign entity is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. D Property, plant and equipment Property, plant and equipment are stated at historical cost less depreciation. Cost includes its purchase price, including import duties and non-refundable purchase taxes, and any directly attributable costs of bringing the asset to working condition for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price. Cost incurred to construct property, plant and equipment over one year is recorded as construction in progress and transferred to property, plant and equipment when the construction is ready for intended use. Depreciation is calculated on the straight-line method to write off the cost of each asset, to their residual values over their estimated useful life as follows: Buildings 20-40 years Plant and machinery 2-15 years Motor vehicles 2-10 years Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised, during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed. Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. - 13 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 ACCOUNTING POLICIES (continued) E Investment property Investment property, principally comprising office buildings, is held for long-term rental yields and is not occupied by the Group. Investment property is treated as a long-term investment and is stated at historical cost less depreciation and impairment. Depreciation is calculated on the straight-line method to write off the cost of each property, to their residual values over their estimated useful lives ranging from 20 to 40 years. F Intangible assets (1) Goodwill (Negative goodwill) Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share in the net assets of the acquired subsidiary/associated at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investment in associates. Goodwill is amortised using the straight-line method over its estimated useful life, not exceeding 20 years. At each balance sheet date, the Group assesses whether there is any indication of impairments. If such indications exist, an analysis is performed to assess whether the carrying amount of goodwill is fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount. Negative goodwill represents the excess of fair value of the Group’s share of the net assets acquired over cost of acquisition. Negative goodwill is presented in the same balance sheet classifications as goodwill. To the extent that negative goodwill relates to expectations of future losses and expenses that are identified in the Group’s plan for the acquisition and can be measured reliably, but which do not represent identifiable liabilities, that portion of negative goodwill is recognised in the income statement when the future losses and expenses are recognised. Any remaining negative goodwill, not exceeding the fair values of the non-monetary assets acquired, is recognised as income over 10 years which is the remaining weighted-average useful life of the identifiable acquired depreciable/amortisable assets; the portion of negative goodwill in excess of the fair values of the acquired identifiable non-monetary assets is recognised as income immediately. (2) Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and only if the cost can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have been capitalised are amortised from the commencement of the commercial production of the product on a - 14 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 straight-line basis over the period of its expected benefit, not exceeding five years. - 15 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 ACCOUNTING POLICIES (continued) F Intangible assets (continued) (3) Computer software development cost Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with identifiable and unique software products controlled by the Group and have probable economic benefits exceeding the cost beyond one year, are recognised as intangible assets. Direct costs include staff costs of the software development team and an appropriate portion of relevant overheads. Expenditure that enhances or extends the performance of computer software programmes beyond their original specifications is recognised as a capital improvement and added to the original cost of the software. Computer software development costs recognised as assets are amortised using the straight-line method over their useful lives. (4) Technology rights Technology rights are confidential techniques or experience that has been applied to productions or operation. Expenditure on acquired technology rights is capitalised and amortised using the straight-line method over their useful lives, but not exceeding 10 years. (5) Other intangible assets Expenditure on acquired patents, trademarks and licences is capitalised and amortised using the straight-line method over their useful lives, but not exceeding 10 years. Intangible assets are not revalued. G Impairment of long lived assets Property, plant and equipment and other non-current assets, including goodwill and intangible assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows. - 16 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 ACCOUNTING POLICIES (continued) H Investments The Group classified its investments in debt and equity securities into the following categories: trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets; for the purpose of these financial statements short term is defined as 3 months; during the year the Group did not hold any investments in this category. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date which are classified as current assets. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; and are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading and available-for-sale investments are subsequently carried at fair value. Held-to-maturity investments are carried at amortised cost using the effective yield method. Unrealised gain and losses arising from changes in the fair value of securities classified as available-for-sale are recognised in equity. Equity securities for which fair values cannot be measured reliably are recognised at cost less impairment. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities. I Land use rights Land use rights are the rights granted to the Group to develop, use and/or operate on a parcel of land within a pre-approved period of time. Upfront lump sum usage fees prepaid are recorded as land use rights, which are amortised on the straight-line basis over the pre-approved period, normally 50 years. J Leases (1) A Group company is the lessee Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the assets or the lease term. - 17 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 - 18 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 ACCOUNTING POLICIES (continued) J Leases (continued) (1) A Group company is the lessee (continued) Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. (2) A Group company is the lessor Assets leased out under operating leases are included in property, plant and equipment in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term. K Inventories Inventories are stated at the lower of cost or net realisable value. Cost is determined by the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity), but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. L Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. M Loan to employee Loans provided to employees for their welfare such as housing are recognised as loans to employees. Long-term loans are initially recognised at fair value and subsequently carried at amortised cost using the effective yield method. The fair value on initial recognition is based on discounted cash flows using a discount rate based on the borrowing rate which the directors expect would be available to the borrower. - 19 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 N Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less. - 20 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 ACCOUNTING POLICIES (continued) O Share capital (1) Ordinary shares are classified as equity. (2) Incremental external costs directly attributable to the issue of new shares, other than in connection with business combination, are shown in equity as a deduction, net of tax, from the proceeds. Share issue costs incurred directly in connection with a business combination are included in the cost of acquisition. P Borrowings Borrowings are recognised initially at the proceeds is received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings. When convertible bonds are issued by the Group’s subsidiary, the fair value of the convertible bonds is determined using a market interest rate for an equivalent non-convertible bond; this amount is carried as liabilities on the amortised cost basis until extinguished on conversion or maturity of the bonds. Q Deferred income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary difference can be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. R Employee benefits The Group participates in defined contribution employee benefits plans by respective local governments. Under the plans, the Group’s contribution is based on defined percentage of salaries and wages subject to certain salary ceilings. Contributions to the plans are charged to the income statement as incurred. BOE Hydis Technology Co., Ltd. (“BOE-Hydis”) and Hyundai LCD, Inc. (“Hyundai LCD”), subsidiaries of the Company incorporated in the Republic of Korea, provide post-employment benefits to their employees and directors - 21 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 according to the statutory requirement. The subsidiaries’ employees and directors with more than one year of service are entitled to receive a lump-sum payment upon termination of their employment depending on their length of service and rate of pay at the time of termination, regardless of the reason for termination. - 22 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 ACCOUNTING POLICIES (continued) R Employee benefits (continued) The defined benefit plan costs are assessed using the projected unit credit method: the cost of providing benefits is charged to the income statement so as to spread the regular cost over the service lives of employees. The defined benefit obligation is measured at the present value of the estimated future cash outflows using discount rates determined based on high quality fixed interest corporate bonds or Korean government bonds. Actuarial gains and losses are recognised over the average remaining service lives of employees. S Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. (1) Warranty The Group recognises the estimated liability to repair or replace products still under warranty at the balance sheet date. This provision is calculated based on historical data of the level of repairs and replacements. (2) Employee compensated absences entitlement Employee compensated absences entitlement is provided by Hyundai LCD Inc. and BOE-Hydis to their employees. Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave and long-service leave as a result of services rendered by employees up to the balance sheet date. T Government grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs they are intended to compensate. Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as other liabilities and are credited to the income statement on a straight line basis over the expected lives of the related assets. Other government grants are recognized as income upon receipt. - 23 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 ACCOUNTING POLICIES (continued) U Revenue recognition Revenue comprises the invoiced value for the sale of goods and services net of value-added tax, rebates and discounts, and after eliminating sales within the Group. Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Revenue from rendering of services is based on the stage of completion determined by reference to services performed to date as a percentage of total services to be performed. Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. Dividends are recognised when the right to receive payment is established. V Dividends Dividends are recorded in the Group’s financial statements in the period in which they are approved by the Group’s shareholders. W Segment reporting Business segments provide products or services that are subject to risks and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments. X Business combination Business combinations which are acquisitions are accounted for by using the purchase method of accounting. Cost of acquisition is the amount of cash or cash equivalent paid and fair value of the other purchase consideration given by the Company plus any cost directly attributable to the acquisition. All acquired assets and liabilities are initially recognized at fair value. Any excess, at the date of the exchange transaction, of the Company’s interest in the fair values of the identifiable assets and liabilities acquired over the cost of the acquisition, is recognised as negative goodwill and is amortised over the weighed-average useful life of the non-monetary assets acquired or recognised as income when the future losses identified in the acquirer’s plans occur. Y Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. - 24 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 Financial Risk Management (1) Financial risk factors The Group’s activities expose it to a variety of financial risks, including the effects of changes in debt and equity market prices, foreign currency exchange rates and interest rates. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The overall responsibility for the implementation of the Group’s financial risk management policies lies with the Board of Directors. (i) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures primarily with respect to Korean Won (KRW). BOE-Hydis uses forward contracts to buy or sell KRW to hedge their exposure to foreign exchange risk. (ii) Interest rate risk The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group has no significant interest bearing assets. However, the Group has borrowings bearing variable interest rates and does not use interest rate swaps as cash flow hedges of future interest payments. (iii) Credit risk The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history. Derivative counterparties and cash transactions are limited to high credit quality financial institutions. The Group’s historical experience in the collection of accounts receivable falls within the recorded allowances. The carrying amount of receivables and cash represent the Group’s maximum exposure to credit risk. In respect of receivables and cash, the Group has policies in place to ensure that customers and counterparties and banks with whom the Group maintains its cash are of suitable credit standing. (iv) Liquidity risk The Group ensures that it maintains sufficient cash which is available to meet its liquidity requirements. (2) Accounting for derivative financial instruments - 25 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 Derivative financial instruments are initially recognised in the balance sheet at cost and are subsequently remeasured at their fair value. Changes in the fair value of any derivative instruments are recognised immediately in the income statement. (3) Fair value estimation The carrying amounts of the following financial assets and financial liabilities approximate to their fair value at the balance sheet date: cash, notes receivables, trade receivables and payables, other receivables and payables, and borrowings. - 26 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 1 Segment information In 2002, the Group’s risks and rates of return were derived predominantly from the fact that it operated in different countries or geographical areas. Therefore, the geographical segmentation was adopted as primary format. However, in 2003, the Group commenced new business in providing different products and service. And, the Group’s risks and rates of return were affected predominantly by the difference in the business segment. Therefore, business segments are adopted as its primary segment reporting format and geographical segments as its secondary reporting format. For management purposes, the Group is organized on a worldwide basis into three major operating divisions - Cathode Radial Tube (CRT) business, Thin Film Transistor-Liquid Crystal Display (TFT-LCD) business and Digital Product and Service (DPS) business. Other operations include Precision Electronic Components & Materials business and so on. The divisions are the basis on which the Group reports its primary segment information. - 27 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 1 Segment information (continued) Primary reporting format – business segments CRT/LCD TFT -LCD DPS Others 2003 2002 2003 2002 2003 2002 2003 2002 REVENUE External sales 3,145,925 2,602,247 5,520,455 - 2,006,577 1,738,470 507,149 441,870 Inter-segment sales - - 153,454 - 7,216 12,007 (1 Total revenue 3,145,925 2,602,247 5,673,909 2,006,577 1,738,470 514,365 453,877 (1 COST External cost (2,797,211) (2,427,048) (4,558,085) - (1,707,592) (1,375,586) (389,841) (344,402) Inter-segment sales (151,540) (8,059) (3,678) - (6,007) (3,948) 1 Total cost (2,948,751) (2,435,107) (4,561,763) - (1,713,599) (1,379,534) (389,841) (344,402) 1 RESULT Segment result 95,830 90,047 671,294 - 83,535 179,278 (184,822) (54,038) Profit from operations Finance costs – net Available-for-sale investments-gains (11,047) (5,761) Share of results of associates before tax 100,092 72,922 Profit before tax Income tax expense Profit from ordinary activities after tax Extraordinary item Group profit before minority interests Minority interests (78,095) (86,550) Net profit - 28 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 1 Segment information (continued) Primary reporting format – business segments (continued) CRT/LCD TFT -LCD DPs Others 2003 2002 2003 2002 2003 2002 2003 2002 OTHER INFORMATION Segment assets 1,550,768 1,394,784 5,069,685 1,925,246 1,753,516 1,826,933 2,974,946 ( Investment in equity method associates 1,901,399 741,841 Consolidated total assets Segment liabilities 1,044,285 963,500 3,235,061 1,476,926 1,339,361 3,423,761 1,927,974 ( Consolidated total liabilities OTHER SEGMENT ITEMS Capital expenditure 71,615 70,654 3,229,508 - 147,401 427,659 170,376 241,330 Depreciation 28,255 25,838 449,322 - 90,567 85,782 47,104 23,320 Amortisation 9,683 7,626 (5,864) - 4,563 2,214 5,318 4,298 Impairment charge - - 572 - - - 12,333 2,412 - 29 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 1 Segment information (continued) Secondary reporting format – geographical segments Although the Group’s three major business segments are managed on a worldwide basis, they operate in seven main geographical areas. PRC is the home country of the parent company which is also the main operating company. The areas of operation cover all the three activities. The Republic of Korea – sales activities of TFT-LCD and DPS. Taiwan – sales activities of TFT-LCD. Germany – sales activities of DPS and CRT. The United States of America (U.S.A.) –sales activities of TFT-LCD, DPS and CRT. Sales Total assets Capital expenditure 2003 2002 2003 2002 2003 2002 PRC Mainland 4,819,366 2,089,709 6,082,407 5,625,647 331,327 709,568 Republic of Korea 1,475,971 506,144 5,282,140 893,756 3,286,213 30,045 Taiwan 1,049,462 - 349,625 - 902 - U.S.A. 952,761 691,978 43,676 22,348 - - Germany 848,566 545,950 116,014 237,543 - - Other European countries 498,578 682,676 - - - - Other Asian countries areas 337,536 129,832 166,588 - 458 - Other countries 1,197,866 136,298 - - - - 11,180,106 4,782,587 12,040,450 6,779,294 3,618,900 739,613 With the exception of PRC and Republic of Korea, no other individual country or area contributed more the 10% of consolidated sales or assets. Sales are based on the country or area in which the customer is located. Total assets and capital expenditure are where the assets are located. Analysis of sales by category 2003 2002 Sales of goods 11,137,926 4,772,985 Others 42,180 9,602 11,180,106 4,782,587 - 30 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 2 Profit from operations The following items have been included in arriving at profit from operations: 2003 2002 Depreciation on property, plant and equipment (Note 8) - owned assets 604,473 134,247 - owned assets, leased out under operating lease 2,949 - - leased assets under finance lease 7,195 - Impairment of property, plant and equipment (Note 8) 12,333 2,412 Net loss on disposal of property, plant and equipment 6,475 188 Net loss on disposal of intangible assets (Note 10) 12,975 - Amortization of intangible assets - goodwill (included in “Other operating expenses”)(Note 10) 2,585 2,625 - negative goodwill (included in “Administrative expense”) (Note 10) (9,373) - - other intangible assets (included in “Administrative expenses”) (Note 10) 17,496 11,513 Impairment charge and write off for intangible assets (Note 10) 572 - Amortization of leasehold improvement and long-term advance payment 10,269 2,863 Repairs and maintenance expenditure on property, plant and equipment 97,903 6,842 Research and development expenditure 246,745 57,549 Inventory - costs of inventories recognised as expense (included in “Cost of sales”) 7,883,265 3,964,589 - provision for obsolete and slow-moving inventories 51,973 5,153 Receivables and prepayments - impairment charge for bad and doubtful debts 22,191 16,714 - reversal of bad and doubtful debts (6,454) - Government grant (11,451) (7,925) Investment property - rental income (31,475) (22,473) - operating expense 22,270 14,532 Staff costs (Note 4) 740,771 251,048 Impairment of available-for-sale investments (Note 13) 9,711 4,079 Operating lease expense - Amortisation of land use rights (Note 11) 2,991 1,817 - Operating lease expense 14,600 748 Warranty cost (Note 25) 25,402 16,058 Net fair value loss on forward contracts (Note 3, 17) 16,282 - - 31 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 3 Finance costs – net 2003 2002 Interest expense - Bank borrowings 226,996 73,273 - Convertible bonds (Note 21) 10,968 10,569 - Long-term notes payable 12,880 - - Finance lease 631 - Interest income (39,651) (19,198) Net foreign exchange transaction losses 11,109 790 Net fair value loss on forward contracts (Note 17) 16,282 - Net gain on forward contract transactions (6,358) - Others 2,693 108 235,550 65,542 4 Staff costs 2003 2002 Wages and salaries 633,588 212,779 Retirement benefit obligations (Note 24) 37,503 10,970 Social security costs 34,260 - Welfare 35,420 27,299 740,771 251,048 The average number of employees in 2003 was 10,007 (2002: 6,386), of whom 450 (2002: 230) were part-time. 5 Income tax expenses 2003 2002 Current tax 26,977 41,419 Deferred tax (Note 23) (8,088) 5,770 Share of tax of associates (Note 12) 11,114 4,167 30,003 51,356 The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate of the Company is as follows: Profit before tax 519,332 216,906 Tax calculated at a tax rate of 15% (2002: 15%) 77,900 32,536 Effect of different tax rates 81,327 11,623 Income not subject to tax (14,194) (5,218) Expense not deductible for tax purposes 37,915 16,435 Income tax effect of tax exemption (166,272) - Unrecognised deferred tax assets 14,696 - Income tax effect of utilisation of previously unrecognised tax losses of foreign subsidiaries (1,369) (4,020) Tax charge 30,003 51,356 - 32 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 5 Income tax expenses (continued) The Company is subject to a preferential income tax rate of 15% (2002: 15%) as an enterprise with new technology in Beijing New Technology Development Zone. As approved by the tax bureau, some of the Company’s subsidiaries are also subject to preferential income tax rates ranging from zero to 15% (2002: zero to 15%). Except for Hyundai LCD, whose income tax rate is 29.7%, and the above mentioned subsidiaries, other subsidiaries of the Company are subject to an income tax rate of 33%. 6 Basic earnings per share Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. 2003 2002 Net profit attributable to shareholders 411,234 79,000 Weighted average number of ordinary shares in issue (thousands) 659,465 659,465 Basic earnings per share Rmb0.62 Rmb0.12 The weighted average number of ordinary shares in issue in 2002 was adjusted to reflect the conversion of share premium to ordinary shares with a 10 to 2 ratio in 2003. 7 Dividend per share At the Annual General Meeting on 23 April 2004, a dividend in respect of 2003 of Rmb0.01 per share amounting to a total dividend of Rmb9,758,648 is to be proposed to all shareholders (including those shareholders of the B shares issued on 16 January 2004). These financial statements do not reflect the dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in the year ending 31 December 2004. No dividend was declared in respect of 2002, while Rmb27,477,700 was declared in respect of 2001. 8 Property, plant and equipment Plant & Motor Construction Buildings machinery vehicles in Process Total Year ended 31 December 2003 Opening net book amount 464,243 730,897 8,372 122,706 1,326,218 Exchange difference - (1,238) (2) (65) (1,305) Acquisition of business unit (Note 31) 1,072,361 1,939,961 332 50,030 3,062,684 Other additions 17,174 182,110 3,453 306,147 508,884 Disposals (17,731) (7,021) (115) - (24,867) Transfer from CIP 14,525 131,844 461 (146,830) - Other deduction of CIP - - - (22,763) (22,763) Depreciation charge (Note 2) (86,520) (525,362) (2,735) - (614,617) Impairment charge (Note 2) - (12,333) - - (12,333) Closing net book amount 1,464,052 2,438,858 9,766 309,225 4,221,901 At 31 December 2003 Cost after impairment charge 1,575,092 3,258,667 19,743 309,225 5,162,727 Accumulated depreciation (111,040) (819,809) (9,977) - (940,826) - 33 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) Net book amount 1,464,052 2,438,858 9,766 309,225 4,221,901 - 34 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 8 Property, plant and equipment (continued) As of 31 December 2003, buildings with net book amount of Rmb1,153,860,373 (2002: Rmb63,293,792), plant and machinery with net book amount of Rmb1,743,807,696 (2002: Rmb237,008,289), construction in progress with book amount of Rmb18,955,865 (2002: nil) are pledged as collateral for the Group’s current and non-current bank borrowings (Note 20). The Group is in the process of obtaining formal title certificate for the building with net book amount of Rmb17,259,529 (2002: Rmb17,641,798). The Company invested buildings with net book amount of Rmb2,450,098 to BOE Land Co., Ltd. Bank borrowing cost of Rmb1,052,644 arising from financing specifically for the construction of property, plant and equipment was capitalised during the year and are included in “other additions” in the table above. A capitalisation rate of 5.76% (2002: 5.49%) was used representing the borrowing cost of the loan used to finance the projects. The impairment charge of Rmb12,333,333 in 2003 for plant and machinery is related to other business segment. Lease assets, where the Group is a lessee under a finance lease, comprise machinery: 2003 2002 Cost 19,640 - Accumulated depreciation (6,933) - Net book amount 12,707 - Lease assets, where the Group is a lessor under an operating lease, comprise machinery and motor vehicles: 2003 2002 Cost 46,218 - Accumulated depreciation (24,644) - Net book amount 21,574 - 9 Investment property 2003 2002 At beginning of year 17,430 18,122 Depreciation charge (631) (692) Disposal (2,019) - At the end of year 14,780 17,430 Cost 21,436 24,276 Accumulated amortisation (6,656) (6,846) Net book amount 14,780 17,430 Investment property is not measured at fair value as it is not practicable within constraints of timeliness or costs to determine its fair value with sufficient reliability. There is no active market for similar property in the same location and condition and alternative estimates of fair value are not readily available. - 35 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 10 Intangible assets Negative Technology Goodwill Goodwill rights Software Patent Others Total Year ended 31 December 2003 Opening net book amount 47,625 - 48,917 - 369 13 96,924 Additions - (2,171) 37,559 4,624 4,199 5 44,216 Acquisition of business unit (Note 31) - (93,733) - 16,919 2,392 - (74,422) Impairment charge - - - - (572) - (572) Disposal - - (12,975) - - - (12,975) Amortisation charge (Note 2) (2,585) 9,373 (14,934) (2,310) (1,271) (6) (11,733) Closing net book amount 45,040 (86,531) 58,567 19,233 5,117 12 41,438 At 31 December 2003 Cost 51,929 (95,904) 94,284 21,543 6,448 23 78,323 Accumulated amortisation (6,889) 9,373 (35,717) (2,310) (1,331) (11) (36,885) Net book amount 45,040 (86,531) 58,567 19,233 5,117 12 41,438 As of 31 December 2003, technology rights with net book amount of Rmb1,203,072 (2002: nil) are pledged as collateral for Group’s non-current bank borrowings (Note 20). 11 Land use rights 2003 2002 Opening net book amount 100,266 80,250 Additions 17,803 21,833 Amortisation charge (Note 2) (2,991) (1,817) Transfer out (5,281) - Closing net book amount 109,797 100,266 Cost 116,489 103,967 Accumulated amortisation (6,692) (3,701) Net book amount 109,797 100,266 As of 31 December 2003, land use rights, with net book amount of Rmb10,583,053 (2002: nil) and Rmb4,610,000 (2002: Rmb6,189,173), are pledged as collateral for Group’s current and non-current bank borrowings, respectively (Note 20). The Company invested certain land use right with net book value of Rmb5,281,377 to BOE Land Co., Ltd. as investment. - 36 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 12 Investments in associates 2003 2002 At beginning of year 741,841 691,792 Addition 1,111,418 22,459 Disposal or transfer to investments in subsidiaries (20,989) (37,499) Share of results before tax 100,092 72,922 Share of tax of associates (Note 5) (11,114) (4,167) Share of results after tax 88,978 68,755 Dividend received (20,442) (3,600) Other movement 593 (66) At end of year 1,901,399 741,841 Addition in 2003 represents the purchase of 26.36% shares of TPV Technology Limited (“TPV”), a Hong Kong and Singapore listed company incorporated in Bermuda. On 6 August 2003, the Company entered into Share Purchase Agreement with Field Pacific Limited (“FPL”) to acquire 26.36% ordinary shares of TPV for a total consideration of HK$1,050,299,660. Total number of shares acquired is 356,033,783 with a purchase price of HK$2.95 per share. On 20 November 2003, the share certificates of FPL were cancelled and the new share certificate was issued to the Company. According to the approvals from National Development and Innovation Committee, State Administration of Foreign Exchanges Beijing office and the Business Department of P.R.C., and the shareholders of the Company, the share transfer was completed on 30 December 2003. After deducting the interim dividend of HK$8,544,707, which belonged to the Company according to the Share Purchase Agreements, payments with a total amount of HKD 1,041,754,953 were remitted to FPL on or before 17 December 2003. As of 31 December 2003, the net assets of TPV are Rmb2,562,317,339 and the goodwill from the acquisition is Rmb436,048,447. Particulars of associates are set out in Note 33. 13 Available-for-sale investments 2003 2002 At beginning of year 93,200 101,096 Transfer to investment in subsidiaries (25,514) (25,327) Acquisition of subsidiaries - 25,514 Additions 8,499 607 Disposal - (4,611) Impairment loss (Note 2) (9,711) (4,079) At end of year 66,474 93,200 Non-current 66,474 93,200 Available-for-sale investments, comprising primarily investments in unconsolidated subsidiaries and other equity investments, are measured at cost less impairment, as it is not practicable to determine their fair value with sufficient reliability. - 37 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 13 Available-for-sale investments (continued) Transfer to investment in subsidiaries represents investments in Suzhou BOE Chagu Electronics Co., Ltd. and BOE-Hydis, which began their formal operation and have been consolidated by the Group in 2003. As of 31 December 2003, the Group made full impairment provision for its investment in Beijing BOE Digital Technology Co., Ltd., a subsidiary in liquidation period, as its investment cannot be recovered. 14 Other non-current assets 2003 2002 Long-term loans to employees 6,737 1,228 Long-term receivable from sale of investment in associate 15,656 - Long-term restricted cash 34,019 715 Club debentures 20,579 - Leasehold improvement 27,473 12,453 Planned assets in retirement benefit obligation (Note 24) 2,501 - Unregistered patents 8,676 - Others 9,906 1,268 125,547 15,664 The current portion of the above loans and receivables is set out in Note 16. All long term loans and receivables are due within 7 years from the balance sheet date. The carrying value of long-term loans and receivables approximates their fair value, which is based on discounted cash flows using an effective interest rate of 1.0% to 6.54%. The restricted cash is subject to BOE-Hydis' s withdrawal restriction in relation to checking accounts and the interest payment of syndicate loan (Note 20) and long term notes payables (Note 22). 15 Inventories 2003 2002 Raw materials (at cost) 696,120 272,407 Work in progress (at cost) 294,512 174,395 Finished goods (at cost) 310,322 122,934 Provision for obsolete and slow-moving inventories (52,035) (9,334) 1,248,919 560,402 As of 31 December 2003，the inventory amounting to Rmb365,913,708 owned by BOE-Hydis is pledged as collateral for syndicate loan (Note 20). - 38 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 16 Receivables and prepayments 2003 2002 Notes receivable 154,184 83,253 Trade receivables 1,896,521 1,074,284 Less: Provision for impairment of trade receivables (29,449) (15,542) Trade receivables - net 1,867,072 1,058,742 Other receivables 182,373 364,397 Less: Provision for impairment of other receivables (1,441) (10,675) Other receivables - net 180,932 353,722 Short-term receivable from sale of investment in associate 3,263 - Short term loans to employees 4,105 - Prepayments 26,978 28,898 Prepaid expense 11,078 4,733 Forward foreign exchange contracts (Note 17) 192 - 2,247,804 1,529,348 As of 31 December 2003, trade receivables amounting to Rmb114,278,853 (2002: nil) and notes receivable amounting to Rmb34,215,000 (2002: nil) are pledged as collateral for Group’s current bank borrowings (Note 20). 17 Financial instruments 2003 2002 Forward foreign exchange contracts - with positive fair values (Note 16) 192 - - with negative fair values (Note 19) (16,474) - The forward foreign exchange contracts were designated for fair value hedge. The outstanding forward exchange contracts with financial institutions, for selling, are as follows: Contract amount Financial Institution Contract Rate Due date (KRW:USD) US$10,000,000 Woori Bank 1155.48 February 17, 2004 US$10,000,000 Woori Bank 1157.00 March 15, 2004 US$10,000,000 Woori Bank 1159.10 April 16, 2004 US$10,000,000 Woori Bank 1187.75 April 20, 2004 US$10,000,000 Woori Bank 1189.10 May 20, 2004 US$20,000,000 Woori Bank 1221.10 September 30, 2004 US$10,000,000 Woori Bank 1223.90 October 29, 2004 US$10,000,000 Woori Bank 1224.50 November 29, 2004 US$10,000,000 Bank of China 1161.30 May 14, 2004 - 39 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 18 Cash and cash equivalents 2003 2002 Cash at bank and in hand 835,037 763,463 Short term bank deposits 1,216,422 1,530,763 2,051,459 2,294,226 The average effective interest rate on short-term bank deposits was 0.72% (2002:0.99%). Time deposit amounting to Rmb59,019,750, owned by BOE-Hydis and Hyundai LCD, is pledged as collateral for bank borrowings (Note 20). Meanwhile, the two subsidiaries issued certain blank checks and notes to banks as the collateral for current and non-current bank borrowings, amounting to Rmb144,837,804 and Rmb406,785,461, respectively (Note 20). For the purpose of the cash flow statement, the cash and cash equivalents comprise the following: 2003 2002 Cash and bank balances 2,051,459 2,294,226 Less: Restricted deposits for Letter of Credit (6,261) (43,764) Term deposits with original maturity of more than 3 months which cannot be withdraw on demand (14,582) (17,795) Pledged bank deposits (59,020) - 1,971,596 2,232,667 19 Trade and other payables 2003 2002 Trade payables 1,803,654 1,099,598 Notes payable 19,550 20,835 Accrued expenses 142,612 83,264 Advances to suppliers 25,901 16,790 Wages and welfare payables 37,064 25,999 Dividends payable 25,870 30,243 Other payables 340,589 185,230 Other tax liabilities 14,368 5,837 Forward exchange contracts (Note 17) 16,474 - Long term payable within one year - 13,423 2,426,082 1,481,219 20 Borrowings 2003 2002 Current Bank borrowings – secured 763,820 253,683 Bank borrowings – unsecured 3,396,291 1,885,138 Borrowings from joint venture’s other shareholder 4,586 75,173 Discounts on bank acceptance 14,000 - Convertible bonds (Note 21) 70,786 49,881 4,249,483 2,263,875 - 40 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 20 Borrowings (continued) Non-current 2003 2002 Syndicate loan – secured 1,502,162 - Bank borrowings – secured 35,035 - Bank borrowings – unsecured 155,210 181,428 Convertible bonds (Note 21) 51,637 87,376 Finance lease liabilities 20,447 - Others 1,800 - 1,766,291 268,804 Maturity of non-current borrowings (excluding finance lease liabilities): 2003 2002 Due between 1 and 2 years 260,624 197,377 Due between 2 and 5 years 1,485,220 71,427 1,745,844 268,804 Finance lease liabilities – minimum lease payment: 2003 2002 Later than 1 year and not later than 5 years 22,863 - Future financial charge on financial lease (2,416) - Present value of finance lease liabilities 20,477 - As of 31 December 2003, borrowings are from banks and the other shareholder of the Group’s joint venture. The collaterals for secured current and non-current bank borrowings include buildings and machinery (Note 8), land use rights (Note 11), intangible assets (Note 10), restricted cash (Note 18,14 ), inventory (Note 15), trade receivables (Note 16), notes receivable (Note 16), blank checks and blank notes of Hyundai LCD and BOE-Hydis (Note 18). BOE-Hydis entered into a financial covenant agreement and obtained syndicate loan amounting to Rmb1,502,162,039 from Korean Development Bank, Korean Exchange Bank, Woori Bank and Hyundai Marine and Fire Insurance Company. According to the agreement, BOE-Hydis should maintain certain financial ratios before the repayment of syndicate loan and the related interests (Note 27). The share certificate issued by BOE-Hydis to the Company was kept under Industrial and Commercial Bank of China, Seoul Branch’s custody and the percentage of BOE’s shares in BOE-Hydis shall not be lower than 51% at any event until the loan and related interest of BOE-Hydis are repaid. In respect of any of the shares or resulting from a split-up, revision or reclassification of any of the shares, or received in exchange for any of the shares, as a result of a merger, consolidation or otherwise, will be paid or delivered to and retained by Industrial and Commercial Bank of China, Seoul Branch. - 41 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 20 Borrowings (continued) The exposure on the borrowings of the Group to interest rate changes and the periods in which the borrowings are repriced are as follows: 6 months or less more than 6 to 12 more than 1 to 5 Total months years At 31 December, 2003 407,828 - 1,834,347 2,242,175 Current borrowings bear interest at rates ranging from 1.03% to 10% (2002: 5% to 8.5%). Non-current bank borrowings bear interest at rates ranging from 4.10% to 8.09% (2002: 5.49% to 6.03%). 21 Convertible bonds As of 31 December 2003, details of convertible bonds are as follows: No. Coupon Issuance Redemption Conversion Face value rate date date rate (per share) 2003 2002 KRW denominated, non-guaranteed: KRW'000 RMB'000 KRW'000 RMB'000 1st 7% 12/31/2001 12/31/2003 KRW 5,000 - - 6,600,000 46,059 2nd 7% 02/06/2002 02/06/2004 KRW 5,000 2,568,000 17,831 2,568,000 17,921 3rd 7% 02/08/2002 02/08/2004 KRW 5,000 2,200,000 15,276 2,200,000 15,353 4th 7% 04/24/2002 04/24/2004 KRW 5,000 - - 250,000 1,745 5th 7% 12/31/2003 12/31/2004 KRW 5,000 4,800,000 33,330 - - 9,568,000 66,437 11,618,000 81,078 USD denominated, guaranteed: USD RMB'000 USD RMB'000 5th 2% 11/26/2002 11/26/2005 KRW 15,000 5,800,000 48,006 5,800,000 48,008 114,443 129,086 The conversion right for the bonds denominated in KRW can be exercised 3 months after the issuance date, while that for the bonds denominated in USD can be exercised one day after the issuance date. The 4th series bonds have been redeemed before redemption date and the related losses amounting to Rmb20,518 are recognised in current year’s income statement. The convertible bonds are recognised in the balance sheet as follows: 2003 2002 Liability at the beginning of the year 137,257 129,086 Interest expense (Note 3) 10,968 10,569 Interest paid (10,971) - Redemption (14,235) - Net foreign exchange transaction gains (596) (2,398) Liability at end of year 122,423 137,257 Current (Note 20) 70,786 49,881 Non-current (Note 20) 51,637 87,376 - 42 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 122,423 137,257 22 Other non-current liabilities 2003 2002 Long-term notes payable 307,747 - Long-term payable for consignment construction 104,413 - Government grants 17,975 9,520 Payable to holding company (Note 32) - 49,113 Payable for acquiring an associate 8,032 11,672 Other liabilities 3,190 2,607 441,357 72,912 Long-term Notes payable mainly include Long-term Promissory Notes issued by BOE-Hydis when acquiring the TFT-LCD business from Hyundai Display Technology Inc. and accrued interests. The principal and its accrued interests are due within 6 years from the balance sheet date. The movement of long term notes payables is as follows: Initial recognition on 23 January 2003 (Note 31) 323,933 Waiver for the uncollectable trade receivables (29,066) Interest expenses (Note 3) 12,880 At end of year 307,747 According to the Workshop Construction Consignment Agreement and other agreements signed among Beijing BOE Optoelectronics Technology Co., Ltd., the subsidiary of the Company, Beijing Economic-Technological Investment & Development Corporation (‘BETIDC’) and the Company, BETIDC invested Rmb150,000,000 and consigned BOE Optoelectronics Technology Co., Ltd. to construct the 5G TFT-LCD special workshop (“5G workshop”). According to the agreement, BETIDC has the ownership of the 5G workshop, while Optoelectronics Technology Co., Ltd. makes payment on BETIDC’s behalf. As of 31 December 2003, the Company has received consignment construction fund amounting to Rmb150,000,000, of which Rmb45,586,684 was paid for the 5G workshop construction. The remaining balance of Rmb104,413,316 was included in long-term payables. 23 Deferred income taxes Deferred income taxes are calculated in full on temporary differences under the liability method using the effective tax rates of the Company and its subsidiaries. The movement on the deferred income tax account is as follows: 2003 2002 At beginning of year 5,770 - Acquisition of business unit (10) - Income statement charge (Note 5) (8,088) 5,770 Exchange differences (48) - At end of year (2,376) 5,770 - 43 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 23 Deferred income taxes (continued) The movement in deferred tax assets and liabilities (prior to offsetting of balances within the same tax jurisdiction) during the period is as follows: Reserve for research Foreign currency Interest and development exchange gain income Others Total Deferred tax liabilities At 1 January 2003 10,363 2,343 40 - 12,746 Exchange differences (52) (12) - - (64) Income statement charge 191 80 (12) 409 668 At 31 December 2003 10,502 2,411 28 409 13,350 Accrued Over-amo Unapproved for rtised impairment royalty intangible Price Unrealised Deferred tax assets loss fee assets protection income Others Total At 1 January 2003 (874) (2,116) (763) - (1,475) (1,748) (6,976) Exchange differences - - - - 7 9 16 Acquisition of business unit - - - - - (10) (10) Income statement charge (1,274) (1,926) (2,857) (828) 738 (2,609) (8,756) At 31 December 2003 (2,148) (4,042) (3,620) (828) (730) (4,358) (15,726) Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax asset against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following amounts, determined after appropriate offsetting, are shown in the consolidated balance sheet: 2003 2002 Deferred tax assets (10,759) (3,753) Deferred tax liabilities 8,383 9,523 (2,376) 5,770 The amount shown in the balance sheet include the following: 2003 2002 Deferred tax assets to be recovered after more than 12 months (3,620) (763) Deferred tax liabilities to be settled after more than 12 months 9,273 8,823 - 44 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 24 Post-employment benefit obligations The post-employment benefit obligations arise from benefit plans maintained by Hyundai LCD and BOE-Hydis. The amounts recognised in the balance sheet are determined as follows: 2003 2002 Present value of funded obligations 70,680 12,096 Fair value of plan assets (50,878) (7,012) 19,802 5,084 Present value of unfunded obligations 3,051 1,344 Unrecognised actuarial losses (10,711) - Net liability 12,142 6,428 Employee benefit obligation assets and liability are offset when there is a legally enforceable right to use a surplus in one plan to settle obligation under other plan and intends either to settle the obligations on a net basis, or to realise the surplus in one plan and settle its obligation under the other plan simultaneously. The following amount, determined after appropriate offsetting, is shown in the consolidation balance sheet: 2003 2002 Asset in the balance sheet (Note 14) (2,501) - Liability in the balance sheet 14,643 6,428 12,142 6,428 The amounts recognised in the income statement are as follows: 2003 2002 Current service cost 35,277 10,970 Interest cost 2,216 - Expected return on plan assets (450) - Net actuarial losses recognised in year 460 - Current, included in staff cost (Note 4) 37,503 10,970 Movement in the net liability recognised in the balance sheet: 2003 2002 At beginning of year 6,428 - Exchange differences (33) - Liabilities acquired in business acquisition (Note 31) 13,236 4,874 Total expense - as shown above 37,503 10,970 Contributions paid (44,992) (9,416) At end of year 12,142 6,428 - 45 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 24 Post-employment benefit obligations (continued) The principal actuarial assumptions used were as follows: 2003 2002 Discount rate 6.13% 5.76% Expected return on plan assets 6.30% 6.00% Future salary increases 6.75% 6.00% 25 Provisions Compensated Warranty Total absences At 1 January 2003 11,155 2,375 13,530 Exchange differences (1) (12) (13) Liabilities acquired in business acquisition (Note 31) 11,109 - 11,109 Additional provisions (Note 2) 25,402 3,099 28,501 Utilised during the year (23,749) (3,379) (27,128) At 31 December 2003 23,916 2,083 25,999 (1) Warranty The Group gives warranties on certain products and undertakes to repair or replace items that fail to perform satisfactorily. A provision of Rmb23,915,648 has been recognised at the year-end for expected warranty claims based on past experience of the level of repairs and returns. (2) Compensated absences The Group provides for the expected cost of compensated absences based on the amount that the Group expects to pay as a result of the unused entitlement that has accumulated at the balance sheet date. 26 Contingent liabilities (1) Guarantee 2003 2002 - 151,000 Related parties Third parties 3,000 92,000 3,000 243,000 Above balances represent the credit facilities from banks which the Group has guaranteed for other enterprises. - 46 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 26 Contingent liabilities (continued) (2) Potential litigation BOE-Hydis was given notifications from Sharp Corporation, LG⋅Philips LCD and Guardian Industries, alleging infringement of certain patent rights and claiming royalties. The directors are of the opinion that while discovery is still ongoing, it is not possible to assess the outcome of the potential litigation for the time being and no provision for any liability that may result has been made in the consolidated financial statement. 27 Commitments (1) Capital commitments Capital expenditures contracted for at the end of balance sheet date but not recognised in the financial statements are as follows: 2003 2002 Property, plant and equipment 1,099,217 89,111 Equity investment - 1,241,595 Land use right - 8,858 1,099,217 1,339,564 (2) Operating lease commitments BOE-Hydis has entered into an agreement with Hynix Semiconductor Inc. to rent land where manufacturing facilities of the company locate. The contract term is effective from January 22, 2003 to January 21, 2033. The future aggregate minimum lease payments under the non-cancellable operating leases of the land are as follows: 2003 2002 Not later than 1 year 12,704 - Later than 1 year and not later than 5 years 50,817 - Later than 5 years 317,256 - 380,777 - (3) Financial covenant agreement BOE-Hydis has entered into a financial covenant agreement in relation to the syndicated loan agreement under which BOE-Hydis should maintain certain financial ratio and has limitations on fundamental business change such as acquisition of any business or capital stock except for acquisition of normal operation assets. In addition, BOE-Hydis cannot declare dividends, and incur additional liabilities, except for the debt specially allowed by debtors (Note 20). - 47 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 28 Ordinary shares 2003 2002 Number of Number of shares shares (’000) (’000) Domestic non-listed shares of Rmb1 each 408,065 340,054 A shares of Rmb1 each 72,000 60,000 B shares of Rmb1 each 179,400 149,500 659,465 549,554 All shares rank pari passu in all respects. On 9 June 2003, the Company converted share premium with amount of Rmb109,910,800 to ordinary shares with a 10 to 2 ratio, as approved by the 2002 annual shareholders’ meeting. 29 Minority interest 2003 2002 At beginning of year 457,862 252,245 Addition arising from new consolidated subsidiaries 8,389 74,133 Share of net profit of subsidiaries 78,095 86,550 Result of changes in subsidiary’s shares (7,706) 49,187 Translation reserves 561 9,101 Dividends paid (12,925) (9,505) Disposal of subsidiaries (10,032) Others 1,326 6,183 At end of year 525,602 457,862 30 Other reserves Capital General Translation reserves reserves reserve Total Balance at 1 January 2002 558 235,313 - 235,871 Currency translation differences - - - - - amount arising for the year - - 7,446 7,446 Addition of capital reserves 4,412 - - 4,412 General reserves for the year - 33,038 - 33,038 Balance at 31 December 2002/ 4,970 268,351 7,446 280,767 1 January 2003 Currency translation differences - - - - - amount arising for the year - - (18,544) (18,544) General reserves for the year - 160,943 - 160,943 Balance at 31 December 2003 4,970 429,294 (11,098) 423,166 - 48 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) In accordance with the relevant PRC regulations, the Group appropriated 10% and 5% of statutory net profit to the statutory surplus reserve and statutory public welfare reserve. The Company also appropriated 25% of statutory net profit to the discretionary surplus reserve which has been approved by the Board of Directors. 31 Acquisition On 19 November 2002, BOE-Hydis acquired TFT-LCD business from Hynix Semiconductor, Inc. The acquired business is the only operating business unit of BOE-Hydis, contributing revenue of Rmb5,662,703,058 and net profit of Rmb520,098,549 to the Group for current year, and its net assets as of 31 December 2003 is Rmb1,743,018,702. Details of net assets acquired are as follows: Purchase consideration 2,965,940 Fair value of net assets acquired (3,059,673) Negative goodwill (93,733) The assets and liabilities arising form the acquisition are as follows: Cash and cash equivalent 156,159 Property, plant and equipment (Note 8) 3,062,684 Intangible assets (Note 10) 19,312 Other non-current assets 33,317 Inventories 359,490 Trade and other receivables 537,114 Retirement benefit obligation (Note 24) (13,236) Non-current liabilities (20,697) Warrant provision (Note25) (11,109) Trade and other payables (1,151,309) Fair value of net assets acquired 2,971,725 Negative goodwill (Note 10) (93,733) Total purchase consideration 2,877,992 Less: Long-term notes payable (Note 22) (323,933) Less: Cash and cash equivalent acquired (156,159) Cash outflow on acquisition 2,397,900 32 Related party transactions The Company is controlled by Beijing Orient Investment and Development Co., Ltd. (registered in PRC), which owns 53% of the Company’s share. The remaining 47% of the shares are widely held. Beijing Orient Electronic Industry Development Co., Ltd. and Beijing Kinescope Factory are the subsidiaries of Beijing Electronics Holding Co., Ltd.. Beijing Orient Mould Factory is the subsidiary of Beijing Orient Investment and Development Co., Ltd. The relationship between the other related parties except abovementioned companies and the Company is set out in Note 33. - 49 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 32 Related party transactions (continued) (1) Related party transactions In the opinion of directors, the terms of these transactions follow commercial terms and conditions arranged in the ordinary course of the Company’s business. The following transactions were carried out with related parties: 2003 2002 Purchase of goods and services: BOE Land Co., Ltd. 22,853 - Beijing BOE Digital Technology Co., Ltd. 3,167 - Sales of goods and services: Beijing Matsushita Color CRT Co., Ltd. 86,993 85,211 Beijing Orient Mosler Security Technology System Co.,Ltd. 2,949 - 2003 2002 Utility income: Beijing Matsushita Color CRT Co, Ltd. - 8,966 Beijing Nissin Electronics Precision Component Co., Ltd. - 768 Beijing Nittan Electronics Co., Ltd. - 493 Rental income: Beijing Nissin Electronics Precision Component Co., Ltd. 203 1,121 Beijing Nittan Electronics Co., Ltd. 1,555 2,412 Beijing Orient Mould Factory - 992 Beijing Orient Mosler Security Technology System Co., Ltd. 133 399 Rental income: Beijing Star City Real Estate Development Co., Ltd. 600 310 BOE Land Co., Ltd. 356 - Guarantee: Beijing Orient Top Victory Electronics Co., Ltd. 41,740 96,000 (2) Related parties balances Related party receivables and payables are as follows: 2003 2002 Trade receivables due from: Beijing Matsushita Color CRT Co., Ltd. 9,971 17,072 TPV Technology Group 281,430 - Beijing Orient Mosler Security Technology System Co.,Ltd. 2,105 - Notes receivables due from: Beijing Matsushita Color CRT Co., Ltd. 24,096 17,796 Other receivables due from: Beijing Orient Electronic Industry Development Co., Ltd. 1,445 63,305 BOE Land Co., Ltd. 10,494 - TPV Technology Group 15,823 - Beijing Star City Real Estate Development Co., Ltd. 33,400 21,000 - 50 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 32 Related party transactions (continued) (2) Related parties balances (continued) 2003 2002 Other receivables due from (continued): Beijing Orient Investment and Development Co., Ltd. - 7,080 Beijing Orient Mould Factory - 3,342 Beijing BOE Digital Technology Co., Ltd. 5 3,968 Shenzhen Evergreat Industrial Co., Ltd. 374 1,048 Beijing Matsushita Color CRT Co., Ltd. - 958 Trade payables due to: Beijing Oriental Software Co., Ltd. - 1,020 TPV Technology Group 45,242 - BOE Land Co., Ltd. 563 - Other payables due to: BOE Land Co., Ltd. 3,314 - TPV Technology Group 7,689 - Beijing Kinescope Factory - 62,037 Long-term payables within one year due to: Beijing Orient Investment and Development Co., Ltd. - 13,423 Accrued Expense: TPV Technology Group 11,824 - Other non-current liabilities due to: Beijing Orient Investment and Development Co., Ltd. - 49,113 (3) Directors’ remuneration In 2003, the total remuneration of the directors was Rmb3,700,000 (2002: Rmb2,046,000). 33 Subsidiaries and associates Except for BOE Technology Incorporation, which is incorporated in the United States of America with limited liability, Hyundai LCD and BOE-Hydis, which are incorporated in the Republic of Korea with limited liability, the following subsidiaries and associates are all incorporated in the PRC. Subsidiaries Name Equity interest Principal Activities Notes 2003 2002 Beijing BOE Digital Technology 75% 75% Research, development, manufacture (1) Co., Ltd. and sales of digital camera and other digital visual wireless transfer platform Beijing Software and System 100% 100% Research and development of network Integrated Co., Ltd. and telecommunication - 51 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) Beijing Orient Top Victory 45.21% 45.21% Manufacture and sales of color (2) Electronics Co., Ltd computer and moniters 33 Subsidiaries and associates (continued) Subsidiaries (continued) Name Equity interest Principal Activities Notes 2003 2002 Zhejiang BOE Display Technology 60% 60% Research, development, manufacture Co., Ltd. and sales of monitor and related parts Beijing BOE Vacuum Electronics 55% 55% Manufacture and sales of vacuum Co., Ltd. electronic products Shenzhen BOE Intelligence 59.8% 59.8% Development of electronic intelligence Display Technology Co., Ltd. system BOE Technology Incorporation 100% 100% Research, development, manufacture (1) and sales of high technology electronic information products Beijing Orient Heng Tong 100% 100% Lease of commercial facilities Property Centre Beijing BOE Mobile Technology 51% 51% Research, development and Co., Ltd. manufacture of mobile technology products Beijing BOE Optoelectronics 100% - Development, manufacture and sales of Technology Co., Ltd. TFT-LCD products and related services Hyundai LCD, Inc. 48.5% 45% Manufacture and sales of Liquid Crystal (3) Display (“LCD”) devices used in handset and electric goods BOE Hyundai LCD (Beijing) 100% 100% Development, manufacture and sales of Display Technology Co., Ltd. related parts of LCD products Suzhou BOE Chagu Electronics Co., 75% 75% Development, manufacture and sales of Ltd. back-light products and related services BOE-Hydis Technology Co., Ltd. 100% 100% Development, manufacture and sales of TFT-LCD products and related services BOE Semi-conductor Co., Ltd. 63% 63% Manufacture and sales of semi-conductor products BOE Land Co., Ltd. 70% 70% Development of manufacture buildings (1) facilities and lease of commercial facilities (1) As both the assets and operation results do not form a significant part of the Group, they are not consolidated in the financial statements. - 52 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 33 Subsidiaries and associates (continued) Subsidiaries (continued) (2) According to the capital injection agreement, 8.7% of the voting right owned by Multi-Lines Investment Co., Ltd. had been consigned to the Company. Therefore, Beijing Orient Top Victory Electronics Co., Ltd. is consolidated in the financial statements. (3) As the majority of the members of the board of directors are appointed by the Company and according to the articles of association, control rests with the Company. Thus, Hyundai LCD is consolidated in the financial statements. Associates Name Equity interest Principal Activities 2003 2002 Beijing Matsushita Color 30% 30% Manufacture and sales of color picture tubes CRT Co., Ltd. and color display tubes Shenzhen Evergreat 40% 40% Development and manufacture of mechanical Industrial Co., Ltd. integrated products, satellite communication equipment, computer software and automatic instruments Beijing Nittan 40% 40% Manufacture and sales of terminals, Electronics Co., Ltd. connectors and stampers Beijing Nissin Electronics 40% 40% Manufacture and sales of electronics tubes Precision Component and related spare parts Co., Ltd. Beijing Huaxu Jinka Co., 22% 21% Manufacture and sales of IC card, magnetic Ltd. card, laser card and related read-write equipment Beijing Orient Mosler 35% 35% Manufacture and sales of security and Security Technology protection system and products System Co., Ltd. Beijing Matsushita 30% 30% Manufacture and sales of lightings and related Lighting Co., Ltd. products Beijing Oriental Software 30% 30% Design, develop, manufacture of software, Co., Ltd. hardware and computer components; network Integration TPV Technology Limited 26.36% - Manufacture and sales of color computer monitors and LCD products Changchun Lancer - 8.5% Development, design and manufacture of Photoelectron Co., Ltd. photoelectron products - 53 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 34 Interest in joint ventures The Group has a 50% interest in a joint venture, Beijing Asahi Glass Electronics Co., Ltd., which manufactures electronics products. The following amounts represent the Group’s 50% share of the assets and liabilities, sales and results of the joint venture and are included in the consolidated balance sheet and income statement: 2003 2002 Property, plant and equipment 21,413 17,801 Intangible assets 2,690 3,315 Current assets 37,128 38,624 61,231 59,740 Current liabilities (10,981) (11,081) Net assets 50,250 48,659 Sales 46,504 48,631 Profit before tax 10,263 12,167 Income taxes (1,636) (1,819) Profit after tax 8,627 10,348 The Group also has a 51% interest in a jointly controlled venture, Beijing BOE YAMATO Photoelectron Co., Ltd., which manufactures photoelectron product. The following amounts represent the Group’s 51% share of the assets and liabilities, sales and results of the joint venture and are included in the consolidated balance sheet and income statement: 2003 2002 Property, plant and equipment 15,674 17,401 Intangible assets 6,711 4,693 Current assets 4,902 8,651 27,287 30,745 Current liabilities (11,814) (7,402) Net assets 15,473 23,343 Sales 7,225 10,518 Profit before tax (7,870) (1,954) Income taxes - - Profit after tax (7,870) (1,954) There are no contingencies and commitments relating to the Group’s interest in these joint ventures. The average number of employees in these joint ventures in 2003 was 532 (2002: 322). - 54 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 35 Post balance sheet event (1) As approved by China Securities Regulatory Commission (Zheng Jian Fa [2004] No.2), the Company completed its second offering of 316,400,000 B shares on 16 January 2004. The offering price was HKD6.32 per share and the total proceeds received were HKD1,999,648,000. After deducting related issuance cost, the net proceeds were HKD1,922,072,431 (Rmb2,048,160,383), which has been verified by PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd. (PwC Yan Zi [2004] No.20). (2) At the Annual General Meeting on 23 April 2004, it was resolved that the capital reserves with amount of Rmb487,932,400 be converted to ordinary shares with a 10 to 5 ratio. The resolution has to be approved by the shareholders’ meeting scheduled at the end of May 2004. (3) On 9 January 2004, the Company sold all of its 30% shares of Beijing Matsushita Lighting Co., Ltd. to its foreign shareholder for Rmb62,400,000. As of 31 December 2003, the net assets of Beijing Matsushita Lighting Co., Ltd. is Rmb106,675,622. 36 Approval of Financial Statements On 23 April 2004, BOE Technology Group Co. Ltd.’s Board of Directors authorised these financial statements for issue. - 55 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) Net assets Net Profit As reported under PRC GAAP 2,570,869 403,185 Adjustments to conform with IFRS - Difference in the amortisation of goodwill (4,001) (1,333) - Appropriation of staff bonus and welfare - (828) funds - Government grant (3,014) 1,987 - Capitalization of certain development cost 8,676 8,676 - Difference in negative goodwill recognition from (2,171) - acquiring certain shares in a subsidiary - Others (1,279) (453) As reported under IFRS 2,569,080 411,234 - 56 -