深赛格(000058)Ｂ2003年年度报告（英文版）

SHENZHEN SEG CO., LTD. 2003 ANNUAL REPORT Important Note: The Board of Directors of Shenzhen SEG Co., Ltd. and its direcectors 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. Chairman of the Board of the Company Mr. Zhang Weimin, General Manager Ms. Zhang Liying and Director of Financial Department Mr. Zhang Changhai hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. This report was prepared in both Chinese and English versions. Should there be any difference in interpretation between the two versions, the Chinese version shall prevail. April 17, 2004 -1- CONTENTS . COMPANY PROFILE------------------------------------------------------------------------------------ . SUMMARY OF FINANCIAL HIGHLIGHT AND BUSINESS HIGHLIGHT--------------- . CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS--- . PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES-------------------------------------------------------------------------------------------- . ADMINISTRATIVE STRUCTURE-------------------------------------------------------------------- . BRIEF OF THE SHAREHOLDERS’ GENERAL MEETING----------------------------------- . REPORT OF BOARD OF DIRECTORS------------------------------------------------------------- . REPORT OF SUPERVISORY COMMITTEE------------------------------------------------------ . SIGNIFICANT EVENTS--------------------------------------------------------------------------------- . FINANCIAL REPORT------------------------------------------------------------------------------------ . DOCUMENTS AVAILABLE FOR REFERENCE-------------------------------------------------- -2- I. COMPANY PROFILE 1. Legal name of the Company In Chinese: 深圳赛格股份有限公司 In English: SHENZHEN SEG CO., LTD. 2. Legal Representative: Mr. Zhang Weimin 3. Secretary of the Board of Directors: Ms. Zheng Dan Contact Address: 31/F, Tower A, Star Plaza, Huaqiang North Road, Futian District, Shenzhen Tel: (86) 755-83747939 Fax: (86) 755-83975237 E-mail: segcl1@segcl.com.cn 4. Registered Address: 31/F, Tower A, Star Plaza, Huaqiang North Road, Futian District, Shenzhen Office Address: 31/F, Tower A, Star Plaza, Huaqiang North Road, Futian District, Shenzhen Post Code: 518028 Company’s Internet Website: http://www.segcl.com.cn E-mail: seggf@segcl.com.cn 5. Newspapers Chosen for Disclosing Information of the Company: China Securities and Ta Kung Pao Internet Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Secretariat of Board of Directors, 31/F, Tower A, Star Plaza, Huaqiang North Road, Futian District, Shenzhen 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: A-share Shen SEG Stock Code: 000058 Short Form of the Stock: B-share Shen SEG-B Stock Code: 200058 7. Other Relevant Information of the Company Initial registration date: July 16, 1996 Registration place: 16/F, Baohua Tech. Bldg., Huaqiang North Road, Futian District, Shenzhen Registration date after change: Jun. 9, 2003 Registration place: 31/F, Tower A, Star Plaza, Huaqiang North Road, Futian District, Shenzhen Registered number of enterprise legal person’s business license: SS Zi N1686 Registered number of taxation: National Revenue: 440301279253776 -3- Local Tax: 440304279253776 Name and address of Certified Public Accountants engaged by the Company: Domestic: Zhongtian Huazheng Certified Public Accountants Address: 13/F, Ai Hua Bldg., Shennan Middle Road, Shenzhen International: Ho and Ho & Company Certified Public Accountants Address: Room 304, Arion Commercial Centre, 2-12 Queen’s Rd. W., Hong Kong II. SUMMARY OF ACCOUNTING HIGHLIGHTS AND BUSINESS HIGHLIGHTS (I) Profit indexes of the Company as of the year 2003 Unit: In RMB Total Profit 228,629,055.44 Net Profit 181,754,546.40 Net profit after deducting non-recurring gains and losses (Note) 79 349 682.75 Profit from main operations 361,752,537.73 Other operating profit 8,113,786.75 Operating profit 94,947 896.56 Investment income 26,301,235.62 Subsidy income - Net non-operating income/expenses 107,379,923.26 Net cash flow arising from operating activities 324,164,868.89 Net increase/decrease in cash and cash equivalents -182,806,379.68 Note: Items of non-recurring gains and losses and the related amounts: Unit: RMB No. Item Amount 1 Switching back of reserve for doubtful debts 6,310,130.05 2 Increase/(decrease) of total profit due to changes in accounting estimation 3 Funds occupation charges received 4 Short-term investment loss -805,077.98 5 Net amount of non-operating income and expenditure 96,953,135.76 6 Other -53,324.63 Total 102,404,863.65 (II) The explanation on the difference in the net profit as calculated based on different accounting standards and system respectively. As audited by Zhongtian Huazheng Certified Public Accountants in accordance with Chinese Independent Auditing Standards, Accounting System for Business Enterprises, Accounting Standards for Business Enterprises and relevant laws and rules, the Company’s net profit as of the year 2003 was RMB 181,755,000; while as audited by Ho and Ho & Company Certified Public Accountants in accordance with the International Independent Auditing Standards and International Financial Reporting Standards (IFRS) and relevant laws and rules, the net profit as of the year -4- 2003 was RMB 151,202,000. The reasons for difference of net profit audited by the different accounting standards and systems: 1. Due to insolvency of Xi’an SEG Electronic Market Co., Ltd., the losses formed by the said company in the report period were worked out in item of unrealized loss on investments when the domestic accounting was disposed, while there existed no the said item in international accounting. Thus, the losses were calculated based on losses of Xi’an Market in this period as the statement was consolidated, and the difference formed was RMB 2,370,000 from this. 2. The difference of RMB 22,659,000 was because the Company withdrew more reserve for doubtful debts in overseas based on International Accounting Standards than domestic accounting disposal. 3. Shenzhen SGE Hitachi Color Display Devices Co., Ltd. (hereinafter referred to as SEG-Hitachi) withdrew less export rebate over the previous year, domestic certified public accountants conducted retroactive disposal, and international certified public accountants took it into the difference of profit as of this period occurred in 2003. Difference of net profit according to the different accounting standards and systems: Unit: RMB’000 Net profit 2003 2002 As reported in the financial statements 181,755 100,818 audited by the PRC auditors IFRS adjustments: - Written off of other assets 5,289 - Share of results of associates 3,640 - Written off of reserve for unrealized loss on (2,370) 27,862 investments (withdraw) - Minority interests (7,543) - Written off of loss on un-deemed disposal of 30,907 a subsidiary - Written off of provision for doubtful debts (22,659) (4,855) - Disposal on property, plant (44,177) and equipment - More withdrew of VAT export rebate (5,524) - Others 9 As adjusted in conformity to IFRS 151,202 111,950 -5- (III) Accounting data and financial indexes over the previous three years at the end of report period 2002 2003 Indexes 2003 Before Before After After adjustment adjustment adjustment adjustment 1. Income from 2,321,697,094.05 2,206,470,817.69 2,206,470,817.69 1,922,248,352.90 1,922,248,352.90 main operations (RMB) 2. Net profit (RMB) 181,754,546.40 100,817,981.43 100,817,981.43 -338,760,825.56 -344,285,215.04 3. Total assets 3,911,243,947.08 3,722,484,305.83 3,699,826,113.90 3,463,241,817.33 3,463,241,817.33 (RMB) 4. Shareholder’s 1,411,668,500.56 1,257,086,782.47 1,228,904,201.06 1,124,261,479.32 1,118,737,089.84 equity (excluding minority interests) (RMB) 5. Earnings per 0.2503 0.1388 0.1388 -0.467 -0.474 share (RMB/share) (Fully diluted) 6. Earnings per 0.2503 0.1388 0.1388 -0.467 -0.474 share (RMB/share) (Weighted average) 7. Earnings per 0.1093 0.1262 0.1262 -0.182 -0.190 share after deducting non-recurring gains and losses (RMB/share) 8. Net assets per 1.944 1.731 1.692 1.548 1.540 share (RMB/share) 9. Net assets per 1.810 1.661 1.473 1.466 share after 1.630 adjustment (RMB/share) 10. Net cash flow 0.446 0.884 0.884 0.397 0.397 per share arising from operating activities (RMB/share) 11. Return on equity 12.875 8.02 8.20 -30.13 -30.77 (%) (Fully diluted) 12. Return on equity 13.772 8.48 8.56 -25.81 -26.13 (%) (Weighted average) 13. Weighted return 6.0123 7.71 7.78 -9.32 -9.64 on equity after deducting non-recurring gains and losses (%) -6- Note: retroactive adjustments on previous net profit are set out as follows: Item Adjustment amount 1. In 2003, Shenzhen Municipal Taxation Organ calculated and cleared VAT withdrew formed by export sales from year 2000 to 2001 of SEG -Hitachi, subsidiary of the Company controlled shares indirectly by the Company. According to situation of calculation and clearing of Taxation Organ, amount of SEG Hitachi’s export rebate receivable in VAT payable as at the end of 2001 was an extra RMB 10,872,588.66 than the clearing amount. In 2003, the Company switched back more withdrawal of export VAT receivable, and adopted retroactive adjustment method to write off the undistributed profit at the begin of year 2002. Due to influence of the said event, in amount at the 5,524,389.48 year-begin in 2003 and 2002 accounting statement of the Company, long-term equity investment of parent company decreased by RMB 5,524,389.48, shareholders’ equity decreased by RMB 5,524,389.48 (undistributed profit decreased by RMB 5,524,389.48); in consolidated statement, tax payable—VAT payable increased by RMB 10,872,588.66, tax payable—income tax payable decreased by RMB 815,444.15, minority interests decreased by RMB 4,532755.03, shareholders’ equity decreased by RMB 5,524,389.48 (undistributed profit decreased by RMB 5,524,389.48). 2. When Beijing Zhongtian Certified Public Accountants reported 2002 consolidated statement, it offset the corresponding reserve for doubtful debts of interior debt receivable of Shenzhen SEG Orient Industrial Development Company (SEG Orient) amounting to RMB 22,658,191.93, but, owing to there existed no interior debt and interior withdrawal of reserve for doubtful debts when the Company transferred the equity of SEG Orient, thus the Company should not make the said accounting treatment. The actual situation is: when SEG Orient transferred equity, the Company exempted the debts of SEG Orient, increased capital reserve of SEG Orient, made up negative net assets of SEG Orient. From this, the Company made up the losses occurred from 22,658,191.93 SEG Orient before Dec. 31, 2001 (due to insolvency of SEG Orient as at Dec. 31, 2001, the losses formed was worked out in item of unrealized loss on investment in consolidated statement). For this, the Company made the correction when the statements as of the year 2003 were consolidated, offset profit distribution reckoned in item of other transfer, so in consolidated statement as of year 2002, reserve for doubtful debts increased by RMB 22,658,191.93, profit distribution item of other transfer decreased by RMB 22,658,191.93, corresponding, shareholders’ equity decreased by RMB 22,658,191.93; in consolidated statement as of year 2003, shareholders’ equity decreased by RMB 22,658,191.93; and did not influence amount of parent company. Total 28,182,581.41 -7- (IV) Supplemental statement of profit in the report period Return on equity and earnings per share calculated according to Regulations on the Information Disclosure of Companies Publicly Issuing Shares (No. 9) released by CSRC: 2003 2002 2001 Return on equity Earnings per share Return on equity Earnings per share Return on equity Earnings per share Items (%) (RMB) (%) (RMB) (%) (RMB) Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted diluted average diluted average diluted average diluted average diluted average diluted average Profit from main operations 25.63 27.41 0.50 0.50 36.13 38.67 0.6256 0.6256 14.80 12.67 0.229 0.229 Operating profit 6.73 7.19 0.13 0.13 8.88 9.50 0.1537 0.1537 -28.08 -24.06 -0.435 -0.435 Net profit 12.88 13.77 0.25 0.25 8.02 8.48 0.1388 0.1388 -30.13 -25.89 -0.467 -0.467 Net profit after deducting non-recurring gains and 5.66 6.01 0.118 0.118 7.29 7.78 0.1262 0.1262 -10.87 -9.32 -0.182 -0.182 losses (V) Particulars about changes in shareholders' equity at the report period Amount at the Increase in Decrease in Amount at Items period-begin the report period the report period the period-end Share capital 726,145,863 ---- ---- 726,145,863 Capital reserve 388,651,779.28 3,379,965.38 392,031,744.66 Statutory surplus reserve 10,081,798.14 18,175,454.64 ---- 10,081,798.14 Statutory public welfare fund 57,818,127.31 9,087,727.32 ---- 66,905,854.63 Discretional surplus reserve ---- ---- ---- ---- Retained profit 61,464,747.44 181,754,546.40 42,521,296.07 200,697,997.77 Less: unrealized loss on investment (15,258,114.11) (2,370,212.28) (15,258,114.11) (2,370,212.28) Total shareholders’ equity 1,228,904,201.06 575,384,749.77 442,559,446.62 1,411,668,500.56 Causes of change: 1. Increase of capital public reserve is because that capital public reserve was adjusted due to price spread of related association of Sehnzhen SEG Samsung Co., Ltd. (hereinafter referred to as SEG Samsung), the affiliated company of the Company calculated based on equity method, corresponding, the Company’s capital public reserve has increased. 2. Increase of surplus public reserve as of year 2003 is because that the Company withdrew 10% net profit as statutory surplus public reserve and 5% net profit as statutory public welfare fund according to profit distribution plan made by the Board of Directors. 3. Causes on change of unrealized loss on investment: long-term equity investment of the subsidiaries that the Company calculated based on equity method and net asset is negative reduced to zero. Increase of this item is because of unrealized loss on investment of Xi’an SEG Electronic Market Co., Ltd., for decrease of this item, please referred to Note II. 41. Profit distribution other transfer into . 4. Explanation on change of retained profit: Increase of retained profit as of year 2003 is because that the Company realized net profit, while decrease of retained profit is because that this item was reduced in withdrawal of two reserves according to net profit distribution preplan as of year 2003 as advised by the Board of Directors. -8- III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS (I) Particulars about changes in share capital 1. Statement of change in shares Statement of change in shares Unit: share Increase/decrease of this time (+, - ) Before the After the Items Rationed Bonus Capitalization of Additional Sub- change Others change share shares public reserve issuance total I. Unlisted shares 1. Sponsor’s shares Including: State-owned share 367,327,898 -129,968,232 237,359,666 Domestic legal person’s shares 44,150,000 +129,968,232 174,118,232 Foreign legal person’s shares Others 2. Raised legal person’s shares 3. Inner employees’ shares 4. Preference shares or others Including: Transferred / allotted shares Total unlisted shares 411,477,898 411,477,898 II. Listed shares 1. RMB ordinary shares 86,626,238 86,626,238 (Including: shares held by 86,630 -51,974 senior executives) +8,900 43,556 2. Domestically listed foreign 228,041,727 228,041,727 shares 3. Overseas listed foreign shares 4. Others Total listed shares 314,667,965 314,667,965 III. Total shares 726,145,863 726,145,863 Explanation on change in structure of shares: (1) The Company received the civil judgment of (2002) YGFZ Zi No. 45-1 (hereinafter referred to as the judgment) faxed by FODAK Group Guangzhou (hereinafter referred to as Guangzhou FODAK) to the Company dated May 28, 2003, which was issued by Guangdong Province Higher People’s Court on May 29, 2003, and Information Report Forms of Holding Shares Held Shareholder issued by Registration Dept. of China Securities Registration and Clearing Co., Ltd. Shenzhen Branch dated May 27, 2003. In the said judgment, the court judged that China Everbright Bank Co, Ltd. Guangzhou Branch (hereinafter referred to as China Everbright Bank Guangzhou Branch) transferred 129,968,232 state-owned legal person’s shares of the Company held by it to Guangzhou FODAK. Meanwhile, showing in Information Report Forms of Holding Shares Held Shareholder, Guangzhou FODAK has fulfilled the equity transfer procedure of the said -9- 129,968,232 state-owned legal person’s share (taking 17.9% of total share capital of the Company. Before this, Guangzhou FODAK didn’t hold share of the Company.) The second largest shareholder of the Company became Guangzhou FODAK from China Everbright Bank Guangzhou Branch. The aforesaid matters on transfer of shares were disclosed in Page 17 of China Securities and Page A12 of Ta Kung Pao dated June 3, 2003. Herein the aforesaid reasons, in the Company’s share structure, item “state-owned share” has decreased by 129,968,232 shares, and item “domestic legal person’s share” has increased by 129,968,232 shares corresponding. (2) Original deputy general manager of the Company Mr. Zhang Wanzhang has left his post approved by the Board of Directors dated Aug. 15, 2002. Ended Feb. 15, 2003, his leaving-term has expired six months, and as approved by China Securities Registration and Clearing Co., Ltd., 51,974 senior executive shares held by him can list for circulation. Mr. Xu Changhui, the Company’s supervisor, additionally held 8,900 shares of the Company in second market during the report period; 34,650 shares of the Company held by Ms. Fan Qing, original supervisor of the Company, were still frozen. By the end of the report period, 43,556 senior executive shares of the Company were still frozen. 2. Issuance and listing of shares Over the previous three years at the end the report year, the Company did not issue shares. (II) About shareholders 1. Total shareholders at the end of the report period Based on shareholder’s beadroll of the Company provided by China Securities Registration and Clearing Co., Ltd. Shenzhen Branch, ended Dec. 31, 2003, the Company had 86,963 shareholders in total, including 57,300 shareholders of A-share and 29,663 shareholders of B-share. 2. Shares held by major shareholders (1) About changes in shares held by shareholders holding over 5% (including 5%) of the total shares Proportion Increase / Amount at Proportion at the decrease in Amount at Name the at the Type of shares Pledged or frozen year-begin the report the year-end year-begin year-end year (+,-) By the end of the report year, 118,500,000 shares State-owned were frozen, including Shenzhen SEG 237,359,666 32.69% 0 237,359,666 32.69% legal person’s 103,500,000 shares were Group Co., Ltd. share pledged and 15,000,000 shares were judicially frozen. By the end of the report Domestic FODAK Group year, state-owned legal 0 0% +129,968,232 129,968,232 17.9% legal person’s Guangzhou person’s shares held by it share were pledged and frozen. - 10 - Note: China Securities Registration and Clearing Co., Ltd., Shenzhen Branch provided the situation of the aforesaid shareholders holding over 5% of the total shares. (2) Ended Dec. 31, 2003, the top ten shareholders of the Company Holding shares No. Shareholders’ name at the year-end Proportion Type of shares (share) 1 Shenzhen SEG Group Co., Ltd. 237,359,666 32.69% State-owned legal person’s shares 2 FODAK Group Guangzhou 129,968,232 17.9% Domestic legal person’s share 3 Shanghai Zhongnan Investment Holdings Co., Ltd. 6,300,000 0.87% Domestic legal person’s share 4 Shanghai Qile Economic and Trading Co., Ltd. 6,000,000 0.83% Domestic legal person’s share 5 Shenzhen Shengyi Industrial Development Co., Ltd. 5,000,000 0.69% Domestic legal person’s share Shanghai Taili Science and Technology 4,000,000 0.55% 6 Domestic legal person’s share Development Co., Ltd. 7 Shanghai Xinyuan Investment Co., Ltd. 3,600,000 0.5% Domestic legal person’s share 8 Qinhuangdao Sanyuan Co., Ltd. 3,100,000 0.43% Domestic legal person’s share 9 Shanghai Wantong Painting and Chemical Co., Ltd. 2,450,000 0.34% Domestic legal person’s share 10 Wuxi Hongyu Department Store 2,000,000 0.30% Domestic legal person’s share Notes 1: The name list of the aforesaid top ten shareholders and situation of holding shares held by them were provided by China Securities Registration and Clearing Co., Ltd. Shenzhen Branch. Note 2: Among the top ten shareholders as listed above, there existed no associated relationship between Shenzhen SEG Group Co., Ltd. (hereinafter referred to as SEG Group) and the other shareholders. The Company consulted the other shareholders by means of the telecommunication, and confirms that there exists no associated relationship among the No. 2, 6 and 8 shareholders and the other shareholders respectively. Except for these, the Company was unknown whether there exists associated relationship among the other shareholders. 3. The first largest shareholder of the Company The first largest shareholder of the Company: Shenzhen SEG Group Co., Ltd. Legal representative: Mr. Sun Yulin Date of foundation: Aug. 23, 1986 Business scope: Production and research of electronic products, electrical home appliances, electronic toys and electronics chemical; undertake various electronic system project. (Import and export business and exclusive dealings commodities were conducted according to the regulation). Raise development funds and invest credit; development of technology, information service and maintenance; high-floor sightseeing, supporting food and drink, marketplace and exhibition of SEG Plaza. Registered capital: RMB 1.355 billion - 11 - The structure of equity: Shenzhen Investment Holding Corporation holds 46.52% equity of SEG Group, China Huarong Asset Management Corporation holds 29.51% equity of SEG Group, China Orient Asset Management Corporation holds 13.98% equity of SEG Group and China Great Wall Asset Management Corporation holds 9.99% equity of SEG Group. 4. The controlling shareholder of the first largest shareholder The controlling shareholder of the first largest shareholder: Shenzhen Investment Holding Corporation Legal representative: Li Heihu Date of foundation: Feb. 10, 1988 Main Business scope: Management and supervision of enterprise’s state assets, financing and property right; to share all kinds of enterprise and turn over investment, to offer credit and assurance; to impose profit after taxation and occupying expenses of assets of state-owned enterprise and the other businesses authorized by municipal government. Registered capital: RMB 2 billion The structure of equity: Shenzhen Municipal People’s Government held its 100% equity. 5. The other legal person’s shareholder of the Company holding over 10% of the total shares Legal person’s shareholder holding over 10% of the total shares: FODAK Group Guangzhou Legal representative: Wang Fuliang Date of foundation: March 18, 1994 Business scope: domestic trading and material supply and marketing business (except for national special operating and special controlling commodity); transportation of vehicle cargo; polytechnic service business; consultation of technology; commodity information consultation service; interior decoration; gardens and virescence; investment with self-funds; self-support and agency of various commodities; import & export business of technology (does not attach export & export commodity list), except for commodities and technology operated limited by the state or imported or exported prohibited by the state; operation of process materials and business of “process raw materials on clients’ demands, assemble parts for the clients and process according to the clients’ samples”; operation of sales each other and carrying trade. Registered capital:REM 213,118,000 5. Ended Dec. 31, 2003, the top ten shareholders of circulation share provided by China Securities Registration and Clearing Co., Ltd. Shenzhen Branch - 12 - Share held at the No. Name Proportion Nature of share year-end (share) 1 TOK YEK SENG 1,576,000 0.3% Domestically listed foreign share (B-share) 2 1,400,000 0.2% Domestically listed foreign share ZHENG SHAO SHENG (B-share) 3 FANG YI JUN 1,310,492 0.18% Domestically listed foreign share (B-share) 4 HOPWAY(H.K.)LIMITED 900,000 0.13% Domestically listed foreign share (B-share) 5 XU JIN LIAN 842,075 0.12% Domestically listed foreign share (B-share) 6 WONG,CHI HO 810,000 0.12% Domestically listed foreign share (B-share) 7 XIE XIONG HUI 800,000 0.12% Domestically listed foreign share (B-share) 8 XIANG QING SONG 800,000 0.12% Domestically listed foreign share (B-share) 9 ZHANG CHAN CI 760,600 0.11% Domestically listed foreign share (B-share) 10 MAXFORM ENTERPRISES 687,395 0.10% Domestically listed foreign share LTD (B-share) The Company was unknown whether there exits associated relationship among the top ten shareholders of circulation share. IV. PARTICULARS ABOUT DIRECTORS, SUPERVISORS AND SENIOR EXECUTIVES AND EMPLOYEES (I) Director, supervisor and senior executives 1. Basic information On Dec. 31, 2003, the Company held the 2nd extraordinary shareholders’ general meeting 2003, and conducted election of the 3rd Board of Directors and 3rd Supervisory Committee and elected the members of the 3rd Board of Directors and 3rd Supervisory Committee. The 3rd Board of Directors of the Company consisted of 9 directors, including three independent directors and six directors, which were elected for a term of three years from the date of election. The 3rd Supervisory Committee of the Company consisted of three supervisors on behalf of shareholder, the other two employee supervisors will be elected in the labor congress (ended the disclosure date of annual report, two - 13 - employee supervisors was un-elected). Number of Number of Increase shares held shares held / No. Name Gender Age Office term Title at the at the decrease year-begin year-end (share) (share) (share) 1 Zhang Weimin Male 52 Dec. 31, 2003- Chairman of the 0 0 0 Dec.31, 2006 Board 2 Guo Hanbiao Male 38 Dec. 31, 2003- Vice Chairman of 0 0 0 Dec.31, 2006 the Board 3 Zhang Liying Female 50 Dec. 31, 2003- Director/ 0 0 0 Dec.31, 2006 General Manager 4 Li Lifu Male 48 Dec. 31, 2003- Director/Deputy 0 0 0 Dec.31, 2006 General Manager 5 Shi Dechun Female 52 Dec. 31, 2003- Director 0 0 0 Dec.31, 2006 6 Li Caimou Female 57 Dec. 31, 2003- Director 0 0 0 Dec.31, 2006 7 Xin Huanping Male 40 Dec. 31, 2003- Independent Director 0 0 0 Dec.31, 2006 8 Su Xijia Male 49 Dec. 31, 2003- Independent Director 0 0 0 Dec.31, 2006 9 Deng Erkang Female 35 Dec. 31, 2003- Independent Director 0 0 0 Dec.31, 2006 10 Wang Li Male 42 Dec. 31, 2003- Supervisor 0 0 0 Dec.31, 2006 11 Xu Changhui Male 55 Dec. 31, 2003- Supervisor 0 8,900 8,900 Dec.31, 2006 12 Yang Bo Male 32 Dec. 31, 2003- Supervisor 0 0 0 Dec.31, 2006 13 Zheng Dan Female 38 Dec. 31, 2003- Deputy General Dec.31, 2006 Manager/Secretary 0 0 0 of the Board * The said office term refer to the office term of directors, supervisors and secretary of the Board. 2. Particulars about position held by directors or supervisors in Shareholding Company (shareholding company of shareholders): Chairman of the Board Mr. Zhang Weimin took the post of Chief Economist of SEG Group from May 2000. Vice Chairman of the Board Mr. Guo Hanbiao took the post of Director and concurrently Vice-president of Guangzhou FODAK from Apr. 2003. Director Ms. Shi Dechun took the post of Director of Auditing Dept. of SEG Group from Apr. 2003. - 14 - Director Ms. Li Caimou took the post of General Manager of Asset Business Center of Guangzhou FODAK from 2003. Supervisor Mr. Wang Li took the post of President of Shenzhen SEG Hi-Tech Investment Co., Ltd. from Jul. 2003. Supervisor Mr. Xu Changhui took the post of Vice Secretary of the League & Party Committee and concurrently Chairman of labor union of SEG Group from Oct. 2000. Supervisor Mr. Yang Bo took the post of CFO of Financial Center of Guangzhou FODAK from June 2002. (II) Annual remuneration 1. The determinate procedure and basis of the recompense: The Company implemented the position wages system. The annual remuneration for senior executives comprises two parts, namely, the wage (the position wage, floating wage and allowance) and the year-end bonus. The wage was decided by the Board of Directors and pay in monthly based on the position function and the position wage rules of the Company; the year-end bonus was decided by the Board of Directors based on the accomplishment of annual operation targets and working tasks laid out in the Shareholders’ General Meeting, which was implemented after approval of the Board of Directors. According to the Articles of Association of the Company, the shareholders’ general meeting determined the salary of directors and supervisors, but at present the Company had not practiced remuneration system for non-independent directors and supervisors except for independent directors. Non-independent directors only draw their position wage from the Company. 2. Particulars about the annual remuneration of directors, supervisors and senior executives in office No. Name Sex Title Notes 1 Zhang Weimin Male Chairman of the Board Drawing salary from SEG Group Drawing salary from Guangzhou 2 Guo Hanbiao Male Vice Chairman of the Board FODAK 3 Zhang Liying Female Director/ General Manager Drawing salary from the Company 4 Li Lifu Male Director/Deputy General Manager Drawing salary from the Company 5 Shi Dechun Female Director Drawing salary from SEG Group Drawing salary from Guangzhou 6 Li Caimou Female Director FODAK Drawing allowance of independent 7 Xin Huanping Male Independent Director director from the Company Drawing allowance of independent 8 Su Xijia Male Independent Director director from the Company Drawing allowance of independent 9 Deng Erkang Female Independent Director director from the Company Drawing salary from Shenzhen SEG 10 Wang Li Male Supervisor Hi-Tech Investment Co., Ltd. 11 Xu Changhui Male Supervisor Drawing salary from SEG Group Drawing salary from Guangzhou 12 Yang Bo Male Supervisor FODAK Deputy General Manager/Secretary Drawing salary from the Company 13 Zheng Dan Female of the Board - 15 - There are 13 directors, supervisors and senior executives in office at present. Of them, 3 persons (excluding independent directors) drew their annual remuneration from the Company with total amounting to RMB 925,000 of annual remuneration. The total amount of annual remuneration of the top two directors drawing the highest payment was RMB 637,000 (note: there are only two directors drew their remuneration from the Company); the total amount of annual remuneration of the top three senior executives drawing the highest payment was RMB 925,000. Two enjoyed the annual remuneration between RMB 250,000 and 300,000, and one enjoyed the annual salary over RMB 300,000 respectively. According to resolution of the 7th Shareholders’ General Meeting, independent directors of the Company drew their allowance in monthly from the Company in term of the standard of annual allowance of RMB 50,000 (tax included) respectively per year. The Company reimbursed the reasonable charges according to the actual situation which independent directors attended the meeting of the Board, shareholders’ general meeting or exercise their functions and powers in accordance with Articles of Association of the Company. (III) Directors, supervisors and senior executives leaving the office and the reason in the report year 1. Directors, supervisors and senior executives leaving the office in the report period No. Name Sex Position Causes Date of Notes To examine and approve by the The term of the position 2nd extraordinary shareholders’ 1 Sun Shengdian Male Director Dec. 31, 2003 has expired general meeting 2003 dated Dec. 31, 2003 The term of the position 2 Chen Degen Male Supervisor Dec. 31, 2003 Ditto has expired The term of the position 3 Fan Qing Female Supervisor Dec. 31, 2003 has expired The term of the position 4 Xu Jiqian Male Supervisor Dec. 31, 2003 has expired During the report year, the Company has not dismiss General Manager, Deputy General Manager, person in charge of financing or Secretary of the Board. 2. Directors, supervisors and senior executives engaged by the Company in the report period No. Name Sex New position Date Note To examine and approve by the 2nd Zhang extraordinary shareholders’ general meeting 1 Male Chairman of the Board Dec. 31, 2003 Weimin 2003 dated Dec. 31, 2003, and elect by the 1st meeting of the 3rd Board of Directors Vice Chairman of the 2 Guo Hanbiao Male Dec. 31, 2003 Ditto Board To examine and approve by the 2nd Director/ General 3 Zhang Liying Female Dec. 31, 2003 extraordinary shareholders’ general meeting Manager 2003 dated Dec. 31, 2003 Director/Deputy 4 Li Lifu Male Dec. 31, 2003 Ditto General Manager - 16 - 5 Shi Dechun Female Director Dec. 31, 2003 Ditto 6 Li Caimou Female Director Dec. 31, 2003 Ditto 7 Xin Huanping Male Independent Director Dec. 31, 2003 Ditto 8 Su Xijia Male Independent Director Dec. 31, 2003 Ditto 9 Deng Erkang Female Independent Director Dec. 31, 2003 Ditto 10 Wang Li Male Supervisor Dec. 31, 2003 Ditto 11 Xu Changhui Male Supervisor Dec. 31, 2003 Ditto 12 Yang Bo Male Supervisor Dec. 31, 2003 Ditto Deputy General To nominate by Chairman of the Board, and 13 Zheng Dan Female Manager/Secretary of Dec. 31, 2003 engage by the 1st meeting of the 3rd Board of the Board Directors dated Dec. 31, 2003 Note: The members of the 3rd Board of Directors and the 3rd Supervisory Committee were elected for a term of three years from the date of election. The office term of secretary of the Board was the same as the office term of 3rd Board of Directors. (IV) About employees (number, profession composing, education background and retirees) At the end of the report period, The Company had totally 4,368 on-the-job employees and 102 retirees. The annuities, hospitalization insurance of the retirees were planed as a whole. The profession composing and education background of the staff are as follows: Profession Production personnel Salespersons Technicians Administrative personnel composing Number 3594 252 249 273 Education Bachelor 3-years regular Polytechnic school Senior high school Doctor Master background degree college graduate graduate graduate or lower Number 3 52 320 505 2289 1199 V. ADMINISTRATIVE STRUCTURE (I) Administration of the Company In the report period, according to demands of the relevant laws and legislations of Company Law, Securities Law and Administration Rules of Listed Companies, the Company keeps on perfecting its administrative structure and standardizing its operation so as to promote its healthy development. In the report year, the Company had modified and improved Articles of Association of Shenzhen SEG Co., Ltd. (“Articles of Association of the Company”) in a further step. At the same time, the Company inspected the administration of every investee company, and made self-scrutiny according to the requirements of SZBF Zi [2003] No.285 about Notification on Printing and Distributing Report on Improving the Standardization Level of Administration and Propelling the Development of Listed Companies. Through self- scrutiny, the Company still needs to improve and standardize in the following aspects: 1.The Company had not established effective, just, transparent and suitable performance evaluating, inspiring and restricting system for directors, supervisors and senior executives. - 17 - Measures to improve: The Board of Directors planed to set up Remuneration and Examination Commission and established evaluating, inspiring and restricting system for directors, supervisors and senior executives. 2. Facing the problems found by Shenzhen Securities Regulatory Office of CSRC in 2002 special inspection on administration of the Company, the Company actively carried out the renovation. The affairs about election of the Board and the Supervisory Committee, which were pointed out in the notification of renovation, have been accomplished at the 2nd Extraordinary Shareholders’ General Meeting of the year 2003 on Dec. 31, 2003; However the Supervisory Committee still lack of two employee supervisors because the Labor Union Representative Meeting still is not held in time. Measures to improve: At present the Company is supervising and urging the relevant department to organize and hold Labor Union Representative Meeting as soon as possible to elect the employee representative supervisors. 3. Dated Dec. 31, 2003, the First Largest Controlling Shareholder, SEG Group still occupies funds of the Company amounting to RMB 129 million. Measures to improve: At present the Company is supervising and urging the SEG group to draw the corresponding renovation measures. 4. SEG Group, the First Largest Controlling Shareholder of the Company, is the state-owned holding company. According to Shenzhen Municipal Administration Measures on State-owned Assets, presently SEG Group executes Shenzhen Municipal “Ownership Representative Report System” in the administration of the Company. 5. The Company hasn’t signed engagement contracts with executives to confirm the rights and obligations of both parties. (II) Performance of Independent Directors: The independent directors of the Company executed their duties according to the law, acquainted themselves with the operation of the Company actively, examined every proposal of meetings seriously, expressed the independent opinions actively and brought the role of the independent director into full play In the report period, the two independent directors of 2nd Board of Directors, namely, Mr. Su Xijia and Mr. Xin Huanping actively attended the Board meeting of the Company carefully read the relevant information provided by the Company, knew the operating situation of the Company actively, seriously examined all proposals, actively expressed the independent opinion and brought the role of the independent director into full play in accordance with the relevant requirements of Articles of Association of the Company and Work Rule of Independent Director. On Dec.31, 2003, Mr. Su Xijia, Mr. Xin Huanping and Mrs. Deng Erkang were elected as the independent directors of the 3rd Board of the Company through the election of 2nd Extraordinary Shareholder’s General Meeting 2003. The aforesaid independent directors began to fulfill the duties of the independent directors from the election date. The independent directors of the 3rd Board of the Company, Mr. Su Xijia, Mr. Xin Huanping and Mrs. Deng Erkang, expressed the independent opinions on the election of Chairman of the Board and Vice Chairman of the Board and engagement of - 18 - Secretary of the Board. (IV) Particulars about the Company’s “Five Separations” from the first largest Shareholder in Respect of Business, Personnel, Assets, Organization and Finance: 1. In respect of business, the Company has integrated business system, keeps independence in operating management, confronts with the market independently during operation, and avoids competition with the Group in same trade. 2. In respect of personnel, the Company’s senior executives including general manager, deputy general manager and secretary of the Board are full time employers in the Company without taking concurrent position in the First Principal Controlling Shareholder’s Company, and receive salary from the Company. The Company has integrated administration system of labor, human affairs and salaries, and maintains independence of its personnel. 3. In respect of assets, the equity of the eight enterprises striped from SEG Group to the Company have been audited and assessed by domestic and overseas Certified Public Accountants, and have also been ratified by Shenzhen municipal and national administrative authority of state owned assets. The controlling shareholder of these eight enterprises was changed from SEG Group to the Company as registered in Administration Bureau of Industrial and Commerce. The Company makes independent registration, establishes independent accounts, and implements business accounting and management independently for the assets so as to keep completeness and independence of these assets. According to the Article No. 5 of Equity Transfer Agreement signed by the Company with SEG Group when the Company was listed, SEG Group agreed to let the Company and its subsidiaries and joint affiliated companies to use the eight trademarks that had been registered in National Trademark Bureau; and SEG Group agreed the Company to use the aforesaid trademarks or similar signs as the Company’s logo during its operation; but the Company didn’t need to pay any fee to SEG Group for using the aforesaid trademarks or signs. 4. In respect of organization, the Company has set up organization and engaged staff fully in accordance with its own demand of management, and its production management department and administrative department are totally independent from the First Principal Controlling shareholder. 5. In respect of finance, as a legal person corporation that independently carries out management, business accounting and assumes sole responsibility for its profits and losses, the Company has independent financial and auditing department, has established independent business accounting system and financial administration system, has independent bank account, pays taxes according to law, and keeps absolute independence in its financial work. (V) Evaluation, Encouragement Mechanism and Relevant Reward System for Senior Executives In respect of evaluation, SEG Group made annual performance evaluation towards senior executives of the Company according to accomplishment of the assigned annual operating plan targets and other targets. Meanwhile, SEG Group and the Company’s Board of Directors encouraged senior executives of the Company based - 19 - on the relevant encouragement system under prerequisite of achievement of annual operating plan targets. However, the rewards have not been realized in the report period. The Company will set up Remuneration and Examination Committee of the Board since 2004, which will study out evaluation, encouragement mechanism and relevant reward system for senior executives. VI. BRIEFINGS ON THE SHAREHOLDERS’ GENERAL MEETING (I) In the report year, the Company held three shareholders’ general meetings, namely, the 1st Extraordinary Shareholders’ General Meeting 2003, the 8th Shareholder’s General Meeting (2002 Annual Shareholder’s General Meeting) and the 2nd Extraordinary Shareholders’ General Meeting 2003. (II) The notification and proposals of the 1st Extraordinary Shareholders’ General Meeting 2003 were published on Page 8 of Securities Times and Page A23 of Ta Kung Pao dated Dec. 3, 2002 and the delayed notice of the meeting was published on Page 20 of China Securities and Page C8 of Ta Kung Pao dated Jan. 8, 2003. The Meeting was held in the large meeting room on 11/F of SEG Group, No. 4 Bldg., SEG Science and Technology Industrial Park, Huaqiang North Road, Shenzhen dated Jan. 22, 2003. There were 8 shareholders and shareholders’ proxies attended the meeting who represented 238,394,792 shares (including 237,420,816 A shares and 973,976 B shares), taking 32.83% of total shares with voting right, which were in line with the relevant regulations of Company Law and the Articles of Association of the Company. The following resolutions were examined and approved item by item by means of registered voting in the Shareholders’ General Meeting: 1. Examined and approved Proposal on Technology Renovation Project of 54cm (21’’) Projection Tube or Display Tube with middle and high resolving power of SEG Hitachi; 2. Examined and approved Proposal on Changing Domestic Auditor of the year 2002; 3. Examined and approved Proposal on Reengaging Ho and Ho & Company Certified Public Accountants as the Company’ overseas auditor in 2002; 4. Examined and approved Proposal on Authorizing the Board to decide the remuneration of the domestic and overseas auditors of the year 2002; 5. Examined and approved Proposal on Amending of Articles of Association of the Company; 6. Examined and approved Proposal on Accounting the Doubtful Debts in Accounts Receivable of the company. The public notice on resolutions of the said Meeting was published on Page 12 of China Securities and Page A21 of Ta Kung Pao dated Jan. 23, 2003. (III) The notification and proposals of the 8th Shareholders’ General Meeting (2002 Annual Shareholders’ General Meeting) of the Company were published on Page 19 of China Securities and Page B4 of Ta Kung Pao dated Apr. 17, 2003. The Meeting was held in the large meeting room on 11/F of SEG Group, No. 4 Bldg., SEG Science and Technology Industrial Park, Huaqiang North Road, Shenzhen dated May 19, 2003. There were 5 shareholders and shareholders’ proxies attended the meeting who - 20 - represented 368,181,248 shares (including 367,329,298 A shares and 851,950 B shares), taking 51% of total shares with voting right, which were in line with the relevant regulations of Company Law and the Articles of Association of the Company. The following resolutions were examined and approved item by item by means of registered voting in the Shareholders’ General Meeting: 1. Examined and approved Business Work Report 2002 of General Manager; 2. Examined and approved Work Report 2002 of the Board of Directors; 3. Examined and approved Work Report 2002 of the Supervisory Committee; 4. Examined and approved 2002 Financial Settlement Report; 5. Examined and approved 2003 Financial Budget Report; 6. Examined and approved 2002 Preplan of Profit Distribution and Converting Capital Public Reserve into Share Capital; 7. Examined and approved 2002 Annual Report and its Summary; 8. Examined and approved Proposal on Amending the Articles of the Association of the Company and Authorizing the Board to Handle Relevant Affairs with respect to Industry and Commerce. The public notice on resolutions of the said Meeting was published on Page 4 of China Securities and Page C2 of Ta Kung Pao dated May 20, 2003. (IV) The notification and proposals of 2nd Extraordinary Shareholders’ General Meeting 2003 of the Company were published on Page 17 of China Securities and Page B5 of Ta Kung Pao dated Nov. 29, 2003. The Meeting was held in the large meeting room on 31/F of the Company, Tower A, Star Plaza, Huaqiang North Road, Shenzhen dated Dec. 31, 2003. There were 5 shareholders and shareholders’ proxies attended the meeting who represented 368,190,275 shares (including 367,337,698 A shares and 852,577 B shares), taking 50.7% of total shares with voting right, which were in line with the relevant regulations of Company Law and the Articles of Association of the Company. The following resolutions were examined and approved item by item by means of registered voting in the Shareholders’ General Meeting: 1. Examined and approved Proposal on Amending the Articles of the Association of the Company 2. Examined and approved the Proposal on Electing the members of the 3rd Board of the Directors According to the regulations of Administration Rules of the Listed Companies and the Articles of the Association, the election of directors of this time will adopt accumulating voting system. Mr. Zhang Weimin was elected as the director of the 3rd Board of the Company; Ms. Zhang Liying was elected as the director of the 3rd Board of the Company; Mr. Li Lifu was elected as the director of the 3rd Board of the Company; Ms. Shi Dechun was elected as the director of the 3rd Board of the Company; Mr. Guo Hanbiao was elected as the director of the 3rd Board of the Company; Ms. Li Caimou was elected as the director of the 3rd Board of the Company; Mr. Su Xijia was elected as the independent director of the 3rd Board of the Company; Mr. Xin Huanping was elected as the independent director of the 3rd Board of the Company; Ms. Deng Erkang was elected - 21 - as the director of the 3rd Board of the Company. After the above election, the 3rd Board of the Company consists of 9 directors, including 3 independent directors and 6 non-independent directors. The office term of the directors is 3 years commencing from the election date. 3. Examined and approved the Proposal on Electing the members of the 3rd Supervisory Committee Mr. Wang Li was elected as the supervisor of the 3rd Supervisory Committee; Mr. Xu Changhui was elected as the supervisor of the 3rd Supervisory Committee; Mr. Yang Bo was elected as the supervisor of the 3rd Supervisory Committee. 4. Examined and approved Proposal on Reengaging Zhongtian Huazheng Certified Public Accountants as the Company’s domestic auditor in 2003 and Paying RMB 300,000 of Auditing Remuneration as of 2003 (excluding travel allowances and boarding expenses during the period of auditing); 5. Examined and approved Proposal on reengaging Ho and Ho & Company Certified Public Accountants as the Company’s overseas auditor in 2003 and Paying RMB 360,000 of Auditing Remuneration as of 2003 (including travel allowances and boarding expenses during the period of auditing); The public notice on resolutions of the said Meeting was published on Page B5 of Ta Kung Pao dated Jan. 1, 2004 and Page 21 of China Securities dated Jan. 2, 2004. (V) Election and changing of directors and supervisors in the report year On Dec.31, 2003, the Company held the 2nd Extraordinary Shareholders’ General Meeting 2003. The members of the 3rd Board of the Company were elected and the three members of the 3rd Supervisory Committee assumed by the shareholder representative were elected. The information of aforesaid matters was disclosed and published on Page B5 of Ta Kung Pao dated Jan.1, 2004 and Page 21 of China Securities dated Jan. 2, 2004 VII. REPORT OF BOARD OF DIRECTORS (I) Discussion and analysis to the operation In 2003, the Company completely pushed management innovation with cost engineering as the main contents and operating innovation with expansion engineering as the main contents. Facing the intense competition in the market, the Company reinforced the operating management, reduced the cost, continued to enhance the product quality and accomplished the operating task in the whole year completely. In the report period, the Company realized sales income and net profit amounting to RMB 2,321.70 million and RMB 181.75 million respectively, an increase of 5.22% and 80.28% respectively over the same period of last year. (II) Operation in the report period 1. Scope of main operations and its operation The Company is mainly engaged in the business of scientific research, production and operation of hi-tech electronic and information products including CPT, electronic system engineering, network engineering and communications etc., operation of industry of information service, operation of electronic market, operation and - 22 - management of real property, bonded warehousing and foreign transportation etc. In the aspect of CPT business, the Company overcame the influence from such adverse factors as SARS epidemic, anti-dumping in America, continuous decrease in sales price of 34’’CPTS, cancellation of preferential policy of local product local sales tax and etc., persisted in the core of consolidating foundation and accelerating development, successfully implemented two projects, namely production expansion and restructure of 34’’ CPT and technical reform of 21’’ CPT, enlarged the production capability, increased the varieties of products, established flexible sales system, deepened the cost engineering and completely realized the annual operating objectives. SEG Electronic Market, operated directly by the Company, expanded its development in the central cities of mainland of China through the mode of innovative operation based on tamping the current management in electronic market. In the report period, the Company launched “Dongguan SEG Electronic Market” and “SEG Electronic Market Shanghai Digital World” in Dongguan through means of franchise operation. (1) Formation of income from main operations and profit from main operations a. Formation of income from main operations and profit from main operations classified according to industries: (Unit: RMB) Industries Income from main Profit from main operations operations 1 Manufacture of CPT 2,035,179,751.04 267,040,299.89 2 Business of foreign transportation and 50,208,273.71 15,075,736.20 bonded warehousing 3 Operation business of electronic market 106,021,855.47 57,743,908.35 4 Business of commerce and trade 102,680,110.34 6,288,780.15 5 Manufacture of products of 27,607,103.49 15,603,313.14 telecommunications Total 2,321,697,094.05 361,752,537.73 b. Formation of income from main operations and profit from main operations classified according to sales areas of products: Sales area of products Income from main operations Profit from main operations 1 Domestic 1,329,296,673.49 228,603,905.79 2 Overseas 992,400,420.56 133,148,631.94 Total 2,321,697,094.05 361,752,537.73 (2) Major products of production and operation and their market shares The business taking over 10% of income from main operations or profit from main operations is CPT business In 2003, the volume of 21’’ CPT and 34’’ CPT continued to increase and the domestic market share of 21’’ CPT and 34’’ CPT ranked the 2nd and the 1st place in the industry respectively. Facing the market situation of marketable 21’’ CPT and unmarketable - 23 - 34’’ CPT at home in 2003, the Company timely adjusted the internal and external structure, where 21’’ CPT mainly met the need of domestic customers and 34’’ CPT was expanded the export volume, so as to settle the conflict between domestic supply and demand, which has continuously kept the position of 1st place in export volume of 21’’ CPT and 1st place in volume of 34’’ CPT at home. (Origin of the information—statistical data from National Association of CPT Industry). Statement of production, sales, export and production and sales rate of CPT of the year of 2003: Variety Output Increase/de Sales Increase/de- Productio Export Increase/de of (in’0000 crease over volume crease over n and volume crease over product pieces) the same (in’0000 the same sales rate (in’0000 the same period of pieces) period of pieces) period of the last year the last year the last year 21’’ CPT 382.47 +18 382.54 +17.73% 100 209.5 -0.3% 34’’ CPT 81.34 +18 72.76 +9.79% 94 31.15 +105.65% sales income, cost of sales and gross profit ratio of major product (CPT) taking over 10% of the total amount of profit from main operations: (Unit: RMB’000) Major products taking over 10% of Sales income Cost of sales Gross profit ratio the total amount of income from main operations or profit from main operations CPT 2,035,179,751.04 1,768,138,951.15 13.12% (3) In the report period, the main operations and its structure of the Company experienced no comparatively great change compared with the end of the previous report period. 2. Operation and achievement of major holding companies and share-holding companies Major holding companies: (1) Sino-foreign joint venture-SEG-Hitachi, whose 54.93% equity is held directly by the Company, is mainly engaged in the design, production and sales of 21’’ and 34’’ CPT with a registered capital of USD 113 million. In the report period this company realized a sales income of RMB 2,035.18 million, an increase of 4.83% over the same period of last year, and realized total profit of RMB 99.46 million. The total assets of this company amounted to RMB 2,395 million at the end of the year of 2003. (2) Shenzhen SEG Storage and Transportation Co., Ltd. (hereinafter referred to as “ SEG Storage and Transportation”), whose 99.59% equity is controlled by the Company, is mainly engaged in the business of foreign transportation and bonded warehousing etc. with a registered capital of RMB 66 million. In 2003, this company realized revenue of RMB 50.21 million, an increase of 17.65% compared with the - 24 - same period of previous year and realized total profit of RMB 7.41 million, an increase of 3.66% compared with the same period of previous year. The total assets of this company amounted to RMB 97.31 million at the end of the year of 2003. Besides, this company was also awarded as non-boat carrier certification promulgated by the State and IS9001 certification from BSI Company at the beginning of year 2003. (3) Shenzhen SEG Bao Hua Electronic Holding Co., Ltd. (hereinafter referred to as “ SEG Bao Hua”), whose 66.58% equity is controlled by the Company, is mainly engaged in the operation and management of real property with a registered capital of RMB 30,808,800. In the report period, this company realized revenue of RMB 25.05 million and realized total profit of RMB 2.36 million. The total assets of this company amounted to RMB 111.11 million at the end of the year of 2003. (4) Shenzhen SEG Network and Information Co., Ltd., whose 52.41% equity is controlled by the Company, is mainly engaged in the technology development of computer system, network system, network service and service of E-commerce etc.. In the report period, this company accomplished income from main operations amounting to RMB 7.05 million and profits amounting to RMB 0.40 million. At the end of 2003, the total assets of this company amounted to RMB 17.49 million. (5) Xi’an SEG Electronic Market Co., Ltd., whose 65% equity is held by the Company, is mainly engaged in the operation and management of electronic accessory market. In the report period, the Company accomplished income from rent amounting to RMB 10.96 million and realized total profit amounting to RMB-900,000. The total assets of this company amounted to RMB 6.49 million at the end of year 2003. (6) Shenzhen SEG Communications Co., Ltd. (hereinafter referred to as “SEG Communications”), whose 95% equity is held by the Company, is mainly engaged in the design, production and installation of communications products with registered capital amounting to RMB 5 million. In the report period, this company realized sales income amounting to RMB 20.55 million and total profit amounting to RMB 0.19 million. The total assets of this company amounted to RMB 34.24 million at the end of year 2003. Major share-holding companies: (7) SEG Samsung, whose 21.37% equity is held by the Company, is a listed company of A share listed in Shenzhen Stock Exchange. This company is mainly engaged in the production and sales of glass shell of CPT with a registered capital of RMB 785.97 million. In 2003 this company produced 8.46 million pieces and 12.61 million pieces of screens and wimbles respectively, an increase of 9% and 13% compared with the corresponding period of the previous year respectively and sold 8.42 million pieces and 12.58 million pieces of screens and wimbles respectively, an increase of 8% and a decrease of 1% compared with the corresponding period of the previous year respectively. The production and sales rate of screens and wimbles was 99.6% and 99.8% respectively and their market share at home was 10% and 15% respectively. In the report period, this company realized a sales income of RMB 992.01 million and total profit of RMB 189.47 million. - 25 - (8)Shenzhen SEG Navigation Science and Technology Holding Co., Ltd.(hereinafter referred to as “ SEG Navigation”), whose 21.137% equity is held by the Company, is mainly engaged in production of GPS products and service business of its operating network. In the report period, this company gained obvious achievements in both aspects of sales of GPS units and construction of GPS service network, realized sales income and total profit amounting to RMB 52.37 million and RMB 4.44 million respectively, an increase of 29.21% and 28.7% respectively. In 2003, “Global Satellite Positioning Mobile Communications System” of this company was listed as material construction project in Shenzhen in the 4th successive year; the project of “Car-carried navigation instrument” was listed as “GPS Industrialized Demonstration Engineering” by State Development Commission. (9) Shanghai SEG Electronic Market Co., Ltd., whose 35% equity is held by the Company, is mainly engaged in the operation and management of electronic accessory market. In the report period, this company accomplished rent income amounting to RMB 15.75 million and realized total profit amounting to RMB 3.12 million. 3. Major suppliers and customers In the report period, the amount of purchase to the top five suppliers of the Company was RMB 792.181 million, taking 53% of the total amount of annual purchase and the amount of sales to the top five customers of the Company was RMB 1,048.739 million, taking 51% of the total amount of sales. 4. Difficulties and problems arising from the operation and solutions The operating achievement of the Company in 2003 increased by a comparatively big margin compared with the previous year, but it also existed some difficulties and problems, which mainly reflected in: the intense competition made all businesses of the Company suffer the pressure of continuous decrease in price completely. Therefore, the Company adopted a series of measures to solve the aforesaid difficulties and problems: Deeply developing the cost engineering so as to offset the losses from the decrease in sales price as possible as much. Tightly following the market, timely adjusting the production rhythm and expanding the productive and sales volume. While expanding the production scale, adopting new concepts and measures to further improve the quality control system in the whole course for the whole staff from operation of quality assurance system of suppliers to materials’ inspection in factories and from product manufacture to service after sales so as to ensure the stability of the product quality. (III) Investment In the report period, the net long-term investment of the Company increased by RMB - 26 - 37.32 million compared with the previous year, an increase of 8.63%. For the name of invested companies, principal operating activities and proportion of equity of the invested companies held by the Company etc., please refer to the Notes V-12 of Accounting Statements. 1. Application of the proceeds raised through share offering in the report period In the report period, the Company raised no proceeds through share offering and there existed no such situation that the application of proceeds raised through share offering before the report period continued to the report period. 2. Important projects invested with proceeds not raised through share offering, the progress and earnings in the report period: (1) The technical renovation project of 54cm (21’’) Color Projection Tube or Display Tube with middle and high resolving power of SEG Hitachi was in smooth progress as scheduled and it has entered into the trial production phase smoothly as scheduled. (2) The reforming project of production expansion of 86cm (34’’) CPT of SEG Hitachi has been accomplished smoothly as scheduled and the production capability of 86cm (34’’) CPT production lines has increased to 1 million pieces per year. (3) On Dec. 5, 2003, SEG Navigation and the Company signed contract on investment increase and shares expansion with Dichain Storage Service (Shenzhen) Co., Ltd.. SEG Navigation issued new shares amounting to 27 million shares at price of RMB 1.35 per share, of which, 6 million shares were subscribed by the Company and the rest 21 million shares were subscribed by Dichain Company. The share capital of SEG Navigation increased from 33 million shares to 60 million shares after the issuance of new shares. The proportion of shares held by the Company increased from 20.25% to 21.137%. Dichain Company took 35% of the equity of SEG Navigation and became its first largest shareholder. The procedures of the investment increase and shares expansion were completed on Jan. 18, 2004. (IV) Analysis to the financial position and operating results 1. Analysis to the financial position and operating results: (Unit: RMB) Items Dec. 31, 2003 Jan. 1, 2003 Increase/decrease (%) Total assets 3,911,243,947.08 3,699,826,113.90 5.71 Short-term loan 410,000,000.00 769,000,000.00 -46.68 Shareholders’ equity 1,411,668,500.56 1,228,904,201.06 14.87 Surplus reserve 95,163,107.41 67,899,925.45 40.15 Retained earnings 200,697,997.77 61,464,747.44 226.53 Items In 2003 In 2002 Increase/decrease (%) Income from main 2,321,697,094.05 2,206,470,817.69 5.22 operations Profit from main 361,752,537.73 391,524,527.07 -7.60 operations - 27 - Operating profit 94,947,896.56 111,609,327.10 -14.93 Investment profit 26,301,235.62 45,222,506.56 -41.84 Net amount of 107,379,923.26 21,325,390.39 403.53 non-operating income and expenditure Income tax 10,003,334.62 23,821,023.90 -58.01 Minority 39,241,386.70 51,522,927.79 -23.84 shareholder’s gains and loses Net profit 181,754,546.40 100,817,981.43 80.28 Retained profit at the 61,464,747.44 -429,009,094.26 -- year-begining Transfer from others -15,258,114.11 Profit available for 227,961,179.73 76,587,444.65 197.65 distribution Net cash flows arising 324,164,868.89 651,830,661.71 50.27 from operating activite Net increase in cash -182,806,379.68 411,628,534.89 - and cash equivalents Reasons of changes: (1) Total assets increased by 5.71% over the end of the last year with main reasons as follows: Increase in sales income made accounts receivable and notes receivable increase. Adjustment to long-term investments under equity method made total assets increase. (2) long-term loan decreased by 46.68% over the last year, which was because that the Company return many loans. (3) Shareholders’ equity increased by 14.87% over the last year, which was mainly because that the profit realized by the Company made this item increase in the year. (4) Surplus reserve increased by 40.15% over the last year, which was mainly because this item has been appropriated 10% surplus reserve according to the profit distribution preplan of the Board of Directors. (5) Retained earnings increased by 226.53% over the end of last year, which was mainly because that the profit realized by the Company made this item increase in the year. (6) Income from main operations increased by 5.71% over the last year, which was because that the Company’s income from CPT, the main product, increased. (7) Profit from main operations decreased by 7.60% over the last year, which was mainly because that the price of CPT, the main product of the Company, decreased. (8) Operating profit decreased by 14.93% over the last year, which was mainly because that the price of CPT, the main product of the Company, decreased. - 28 - (9) Investment profit decreased by 41.84% over the last year with main reason as follow: SEG-HITACH’s share-holding companies HITACH-SEG lost profit this term, which lead to the item decreased greatly under equity method. (10) Net amount of non-operating income and expenditure increased by 403.53% over the last year with main reasons as follows: The Company relieved the loan guarantee provided for SEG Samsung Industrial, which made this item increase by RMB 83.88 million; The transfer-back of impairment loss of fixed assets made this item increase by RMB 24 million. (11) Net profit increased by 80.28% over the last year, which was mainly because that the net amount of non-operating income and expenditure increased by a relatively large margin. (12) income tax decreased 58.01% over the last year, which was mainly because the business profit decrease compare with last year. (13) minority shareholder’s gains and loses decrease 23.84%,which was because that the profit realized by SEG-HITACH was less than last year. (14) Net cash flow from operating activities decreased greatly over the last year, which was mainly due to the increase in accounts receivable and notes receivable of the Company in the period. (15) profit available for distribution increased 197.65%, which was mainly because the profit increase the item. (16) net cash flows arising from operating activities decrease the over the last year ,because the increase of accounts receivable and notes receivable. (17) Net increase in cash and cash equivalents decreased greatly over the last year with main reasons as follows: Cash flow from operating activities decreased by a large margin over the last year; In the period, the Company refunded comparatively large loans. 2. In the report period, the Company had no material assets loss. 3. Explanation of the Board on the Company’s adjustment to retained earnings at the beginning of the year in 2003: (1) In 2003, Shenzhen Taxation Authority conducted exchange clearing to value-added tax to be returned formed from export sales of SEG-Hitachi, a subsidiary indirectly held by the Company, from year 2000 to year 2001. According to the exchange and clearing of taxation authority, the export drawback receivable in the value-added tax payable of SEG Hitachi in 2001 exceeded by RMB 10,872,588.66 over the clearing amount. In the report period, the Company wrote off the value-added tax of export receivable calculated excessively and wrote off the retained earnings at the beginning of 2002 by adopting retroactive adjustment. Affected by the event, in the amount in the beginning of the year in the accounting statements of the Company for year 2003 and year 2002, the parent company’s long-term equity investment decreased by RMB 5,524,389.48 and shareholders’ equity decreased by RMB 5,524,389.48 (The retained earnings decreased by RMB 5,524,389.48); in the consolidated accounting statements, tax payable-value-added tax payable increased by - 29 - RMB 10,872,588.66, tax payable-income tax payable decreased by RMB 815,444.15, minority equity decreased by RMB 4,532,755.03 and shareholders’ equity decreased by RMB 5,524,389.48 (Retained earnings decreased by RMB 5,524,389.48). (2) Beijing Zhongtian Certified Public Accountants wrote off the provision for bad debts amounting to RMB 22,658,191.93 corresponding to the internal credit of Shenzhen SEG Oriental Industrial Development Company (hereinafter referred to as “SEG Oriental”) receivable in the preparation of the consolidated statements of the Company for year 2002. However, since the Company had no internal credit and also had no provision for bad debts appropriated inside in the transfer of equity of SEG Oriental in that year, the accounting disposal should not been conducted; the actual situation that, during the equity transfer of SEG Oriental, the Company exempted the liabilities to this company, increased capital reserve of SEG Oriental and offset the net negative assets of this company, thus the Company could offset the losses of SEG Oriental before Dec. 31, 2001 (Since SEG Oriental became insolvency on Dec. 31, 2001, the losses thus formed were reflected as unconfirmed investment losses in the consolidated statements).Therefore, the Company made correction in the consolidated statements of the year and wrote off and reckoned in profit distribution-other transfer-in items, which made the provision for bad debts in the consolidated statements for 2002 increase by RMB 22,658,191.93, profit distribution-other transfer-in items decrease by RMB 22,658,191.93, the corresponding shareholders’ equity decrease by RMB 22,658,191.93; shareholders’ equity in the consolidated statements for year 2003 decreased by RMB 22,658,191.93, not affecting on the amount in the statements of the parent company. (V) Influence of changes in productive and operative environment, macro-policies and regulations on the Company The cancellation of preferential policy of local product local sales in Shenzhen resulted in the decrease in profits of the Company by RMB 20.57 million. (VI) Business plan for year 2004 In 2004, the Company shall put emphasis on the research and settlement the cultivation, maintenance and improvement of competitive force under the intense competition, slight profit, continuous dispute of international trade, quickening of course of entering into WTO and challenge of living. Seriously researching the industrial development trend of the Company and striving for catching the economic situation and market trend correctly. Starting with such aspects as development and reserve of technical resources, development and reserve of human resources, development and reserve of market resources, development and reserve of capital operating resources and etc. to settle the problems of development tactic and strategy. (1) Reinforcing the technology development and extrusion of new products; - 30 - (2) Reinforcing the innovation and enhancing the additional value of products and additional value of services; (3) Innovating the operating mode of electronic market in proper time for proper need. In the current course of “Channel reform”, giving up “burden”, innovating operating thought, understanding the truth of “Catching the channel is catching the market” and bravely probing to walk out the road of pure and large mall operation. Catching this chance, challenging this reform and catching the change trend and providing services through cooperating with suppliers and large agents in the upper river and cooperating with information network in the lower river so as to construct the channel platform into the compound channel platform with the combination of transaction in the network and outside the network, combination of transaction inside and outside the ground, combination of direct sales and agent sales and combination of transaction and service, which makes SEG Electronic Market “consolidates and reinforces the foundation” and continues to keep the leading position in the evolvement of restructuring the layout and rewriting the domain. (4) Fully exerting the experience in long and good cooperation between the Company and large transnational companies in the world and continuing to expand the deep cooperation with international strategic partners. (VII) Routine work of the Board of Directors 1. Meetings and resolutions of the Board In the report period, the Board of the Company totally held 6 meetings of the Board with the following resolutions formed: (1) The 23rd Meeting of the 2nd Board of Directors was held in the small conference room in 11/F, Building 4, SEG Technology Industrial Park, Huaqiang North Road, Shenzhen on Apr. 14, 2003. 7 directors should be present at the Meeting but actually 4 of them attended the Meeting. Director Sun Shengdian and Director Shi Dechun did not attend the Meeting due to the business reasons and entrusted Director Zhang Weimin to attend the Meeting and exercise the rights on their behalf. Director Li Lifu did not attend the Meeting due to the business reasons and entrusted Director Zhang Liying to attend the Meeting and exercise the rights on his behalf, in compliance with the relevant provisions in Company Law of the P.R.C. and the Articles of Association of the Company. The following resolutions have been formed after serious consideration and show of hands in the Meeting: Business Work Report of General Manager 2002; Work Report of the Board of Directors 2002; Financial Settlement Report 2002; Financial Budget Report 2003; Preplan on Profit Distribution and Converting Capital Reserve into Share Capital 2002; Proposal on Disposing Overdue Fixed Assets of the Company; Proposal on Appropriating Impairment Losses of All Assets of the Company in 2002; Proposal on Changes in Scope of Consolidated Statements for 2002; Proposal on Explanation of the Board on Conducting Retroactive Adjustment to Relevant Financial Data before Year 2001; Proposal on Paying Remuneration for Domestic Auditing of Zhongtian Huazheng Certified Public Accountants in 2002; Proposal on Paying Remuneration - 31 - for Foreign Auditing of Ho and Ho & Company Certified Public Accountants in 2002; Annual Report and its Summary 2002; Proposal on Engaging Jintu Law Firm as the Company’s Legal Adviser in 2003 and Paying its Annual Remuneration amounting to RMB 100,000 and Authorizing General Manager to Sign Corresponding Agreement Documents; Proposal on Amending the Articles of Association of the Company and Requesting the Board to Transact Issues relevant to the Industrial and Commercial Changes Concretely; Proposal on Holding the 8th Shareholders’ General Meeting of the Company. The resolutions of the Meeting were published in Page 19 of China Securities and Page B4 of Ta Kung Pao dated Apr. 17, 2003. (2) The 1st Temporary Meeting of the 2nd Board of Directors for year 2003 was held in the Small Conference Room of SEG Group on Apr. 22, 2003. 7 directors should be present and actually 5 of them attended the Meeting. Director Zhang Weimin did not attend the Meeting due to business reasons and authorized Director Zhang Liying by written form to preside over the Meeting and vote on his behalf; Independent Director Xin Huanping was absent from the Meeting due to some reasons and authorized Independent Director Mr. Su Xijia by written form to attend the Meeting and vote on his behalf, in compliance with the relevant provisions in Company Law of the P.R.C. and the Articles of Association of the Company. Director Zhang Liying presided over the Meeting with the authorization of Chairman of the Board, namely Zhang Weimin, and 5 supervisors of the Company attended the Meeting as nonvoting delegates. The following resolution has been formed after serious consideration and show of hands in the Meeting: the 1st Quarterly Report of the Company for 2003. The resolution of the Meeting was published on Page 18 of China Securities and Page C7 of Ta Kung Pao dated Apr. 25, 2003. (3) The 24th Meeting of the 2nd Board of Directors was held in the Small Conference Room, 11/F, Building 4, SEG Technology Industrial Park, Huaqiang North Road, Shenzhen on Aug. 14, 2003. 7 directors should be present and actually 6 of them attended the Meeting. Director Li Lifu did not attend the Meeting of the Board due to the private affair leave and entrusted Director Zhang Liying to attend the Meeting and exercise the rights as director on his behalf, in compliance with relevant provisions in Company Law and the Articles of Association of the Company. The Meeting was presided over by Chairman of the Board Zhang Weimin and 4 supervisors of the Company attended the Meeting as nonvoting delegates. The following resolution has been formed after serious consideration and show of hands in the Meeting: Semi-annual Report and its Summary 2003 The resolution of the Meeting was published on Page 17 of China Securities and Page C4 of Ta Kung Pao dated Aug. 16, 2003. (4) The 25th Meeting of the 2nd Board of Directors was held in the Small Conference Room, 11/F, Building 4, SEG Technology Industrial Park, Huaqiang North Road, Shenzhen on Oct. 23, 2003. 7 directors should be present and actually 6 of them attended the Meeting. Zhang Weimin, Chairman of the Board, did not attend the - 32 - Board Meeting due to business reasons and authorized Director Sun Shengdian to attend the Meeting and exercise the rights as director on his behalf, in compliance with Company Law of the P.R.C. and the Articles of Association of the Company and other relevant provisions. 4 supervisors of the Company attended the Meeting as nonvoting delegates and the following resolutions have been formed after consideration and show of hands item by item in the Meeting: The 3rd Quarterly Report of the Company for 2003; Proposal on Renewal of Zhongtian Huazheng Certified Public Accountants as the Company’s Domestic Auditor in 2003 and Paying its Auditing Remuneration; Proposal on Renewal of Ho and Ho & Company Certified Public Accountants as the Company’s Foreign Auditor and Paying its Auditing Remuneration and Proposal on Incorporating Chongqing SEG Electronic Market Co., Ltd. The resolutions of the Meeting were published on Page 17 of China Securities and Page A14 of Ta Kung Pao dated Oct. 27, 2003. (5) The 2nd Temporary Meeting of the 2nd Board of Directors was held in Middle Conference Room of the Company, 31/F, Tower A, Stars Plaza, Huaqiang North Road, Shenzhen on Nov. 27, 2003. 7 directors should be present and actually 6 of them attended the Meeting. Director Sun Shengdian did not attend the Meeting due to private affair leave and authorized Zhang Weimin, Chairman of the Board, by written form to attend the Meeting and vote on his behalf. Zhang Weimin, Chairman of the Board, presided over the Meeting, in compliance with the relevant provisions in Company Law of the P.R.C. and the Articles of Association of the Company. 4 supervisors attended the Meeting as nonvoting delegates and the following resolutions have been formed after consideration and show of hands item by item in the Meeting: Proposal on Amending the Articles of Association of the Company; Proposal on Submitting Resolution on Shareholders’ Nominating Candidates of Directors for the 3rd Board of Directors to Shareholders’ General Meeting of the Company for Consideration; Proposal on Submitting Resolution on Shareholders’ Nominating Candidates of Supervisors for the 3rd Supervisory Committee to Shareholders’ General Meeting of the Company for Consideration; Proposal on Holding the 2nd Temporary Shareholders’ General Meeting of the Company. The resolutions of the Meeting were published on Page 17 of China Securities and Page B5 of Ta Kung Pao dated Nov. 29, 2003. (6) The 1st Meeting of the 3rd Board of Directors was held in the Middle Conference Room of the Company, 31/F, Tower A, Stars Plaza, Huaqiang North Road, Shenzhen on Dec. 31, 2003. 9 directors should be present and all of them attended the Meeting, which was presided over by Director Zhang Weimin, in compliance with the relevant provisions in Company Law of the P.R.C. and the Articles of Association of the Company. 2 supervisors of the Company attended the Meeting as nonvoting delegates and the following resolutions have been formed after consideration and show of hands item by item in the Meeting: Electing Director Zhang Weimin as Chairman of the 3rd Board of Directors; Electing - 33 - Director Guo Hanbiao as Vice-chairman of the 3rd Board of Directors; Proposal on Engaging Ms. Zheng Dan as Secretary of the 3rd Board of Directors of the Company; Proposal on Establishing 3 Special Committees of Shenzhen SEG Co., Ltd. The resolutions of the Meeting were published on Page 21 of China Securities dated Jan. 2, 2004 and Page B5 of Ta Kung Pao dated Jan. 1, 2004. 2. Implementation of the Board on resolutions of the Shareholders’ General Meeting (1) In the report period, the Board of the Company could implement all resolutions of the Shareholders’ General Meeting and authorization of the Shareholders’ General Meeting according to laws in a honest and responsible way. (2) The 8th Shareholders’ General Meeting of the Company (Annual Shareholders’ General Meeting 2002) considered and passed Preplan on Profit Distribution and Converting Capital Reserve into Share Capital for 2002 and decided not to distribute profits or convert capital reserve into share capital in 2002. In the report period, the Board did not distribute profits nor convert capital reserve into share capital according to the resolutions of Shareholders’ General Meeting. (VIII) The preplan on profit distribution and converting capital reserve into share capital Audited by Zhongtian Huazheng Certified Public Accountants and Ho and Ho & Company Certified Public Accountants according to Chinese Accounting Standards and International Accounting Standards respectively, the Company’s net profit was RMB 181.76 million and RMB 151.20 million respectively in 2003. According to the relevant provisions in Company Law of the P.R.C. and the Articles of Association of the Company, based on the net profit audited by Zhongtian Huazheng Certified Public Accountants, in 2003, the Company appropriated 10% of the net profit as statutory surplus reserve amounting to RMB 18,175,454.64 and appropriated 5% of the net profit as statutory welfare amounting to RMB 9,087,727.32, adding the retained earnings at the beginning of the year and unconfirmed investment loss formed in the previous years and written off in the year amounting to RMB 15,258,114.11, the profit available for distribution to shareholders was RMB 200,697,997.77. The distributable profit for the shareholders audited by Hong Kong Ho and Ho & Company Certified Public Accountants under international accounting rule is RMB 163,619,000. According to the regulation of taking the lower between Chinese accounting rule and international accounting rule as the most limit amount of distribution, the distributable profit for the shareholders is RMB 163,619,000. It is suggested appropriating dividend fund for distributing cash dividend amounting to RMB 1.12 (including tax) for every ten shares based on the total share capital, namely appropriating bonus dividend amounting to RMB 81,328,336.66 and the left is carried forward into next year. The preplan should be submitted to the Shareholders’ General Meeting of the Company for consideration and approval before its implementation. - 34 - (IX) Explanation on relevant banks’ relieving the Company’s loan guarantee for Shenzhen SEG Samsung Industrial Co., Ltd., making non-recurring gains increase Since the assets of Shenzhen SEG Samsung Industrial Co., Ltd. (hereinafter referred to as “Samsung Industrial”) changed greatly in the period ( it was estimated that the net assets of this company was changed from RMB-561.54 million at the end of the year into RMB 0), the loan guarantee amounting to RMB 83.88 million burdened by the Company in 1997 for supporting Shenzhen SEG Samsung Co., Ltd. (the former Shenzhen SEG Zhongkang Co., Ltd.) to separate from Samsung Industrial (the former Shenzhen SEG Zhongkang Glass Co., Ltd.) and list in the stock market was relieved by the banks due to the improvement of assets position of Samsung Industrial in the period. The predicted loss amounting to RMB 83.88 million appropriated by the Company in 2001 to loan guarantee for Samsung Industrial according to the assets operating position and relevant financial system of Samsung Industrial made the non-recurring gains of the Company increase by RMB 83.88 million in the year due to the release of the said loan guarantee. (X) Special explanation of CPA on the capital occupied by the controlling shareholder and other related parties of the Company: Please refer to the attachment after the “Documents available for reference”. (XI) Special explanation and independent opinion on situation on accumulative and period external guarantees of the Company and performing regulations of ZJF [2003] No. 56 document promulgated by CSRC issued by independent directors of the Company, namely Mr. Su Xijia, Mr. Xin Huanping and Ms. Deng Erkang: In accordance with the requirements of Notification of Several Problem on Standardizing Related Parties’ Funds Current of Listed Companies and External Guarantees of Listed Companies issued by China Securities Regulatory Commission, We verified and checked the internal guarantees of the Company in line with serious and responsible opinion. The explanations of the relevant situation are as follows: 1. Within 2003, the total amount of accumulative external guarantees of the Company occurred was RMB 671,994,500, which all external guarantees were approved and transacted according to legal procedure. Ended Dec. 31, 2003, the balance amount of external guarantees of the Company was RMB 246,994,500, including the balance amount of related guarantees amounted to RMB 245,815,000, and the balance amount of guarantees for shareholding subsidiaries added up to RMB 235,815,000. 2. Ended Dec. 31, 2003, the balance amount of external guarantees consolidated by the Company accounted for 26.32% of net assets of consolidated statement as of year 2003 audited. (the balance amount of external guarantees consolidated by the - 35 - Company included: SEG Hitachi, whose shares were indirectly held by the Company, provided a loan guarantee of RMB 136,000,000 for the Company, the Company calculated according to 54.93%, proportion of shares held indirectly by the Company, and converted into RMB 74,704,800; SEG Store & Transport, whose shares were directly held by the Company, provided a loan guarantee of RMB 50,000,000 for the Company, the Company calculated according to 99.59%, proportion of shares held by directly or indirectly by the Company, and converted into RMB 49,795,000. the total amount of external guarantee provide by the principal of the Company amounted to RMB 246,994,500). 3. Ended Dec. 31, 2003, according to the regulations of ZJF [2003] No. 56 document promulgated by CSRC, the balance amount of external guarantees that are not inconsistent with the regulations amounted to RMB 37,820,000, reducing RMB 95,180,000 compared with RMB 133,000,000 as at the period-begin of year 2003, and the drop proportion was 71.56%. The drop proportion was in compliance with the regulations of ZJF [2003] No. 56 document, which declined 30% at least in every fiscal year. 4. The Company’s 2nd extraordinary meeting of year 2003of the 2nd Board of Directors had amended the relevant article of external guarantee event in the Articles of Association of the Company according to genius of ZJF [2003] No. 56 document promulgated by CSRC; and the said proposal had examined and approved by the 2nd extraordinary shareholders’ general meeting 2003 held dated Dec. 31, 2003. 5. We considered that the decision-making procedure of external guarantees occurred in the year 2003 was legal, reasonable, just and fair, and the Company fulfilled obligation of information disclosure timely. VIII. REPORT OF SUPERVISORY COMMITTEE (I) Work of the Supervisory Committee According to relevant regulation of Company Law and Articles of Association of the Company, the Supervisory Committee of the Company patiently performed its duties. In the report period, the Supervisory Committee of the Company totally held two meetings, attended every meeting of the Board as nonvoting delegate, participated in the discussion of significant decision-making events of the Company and examined the periodical reports of the Company. In the report period, the meetings of the Supervisory Committee are as follows: 1. The 17th meeting of the 2nd Supervisory Committee was held in the small meeting room of 11F, No. 4 Building, SEG Technology Park, Huaqiang North Rd., Shenzhen, on Apr. 14, 2003. Five supervisors should attend the meeting and actually all of them were present. The meeting formed the following resolutions through examination item by item and show of hands: The meeting examined and approved Financial Settlement Report for 2002 of the Company; The meeting examined and approved Financial Budget Report for 2003 of the - 36 - Company; The meeting examined and approved Preplan of Profit Distribution and Transferring of Capital Public Reserve into Share Capital for 2002 of the Company; The meeting examined and approved Work Report of the Supervisory Committee for 2002; The meeting agreed the explanation of the Board of Directors on backward adjustment of relevant financial data of the Company before 2001. The Supervisory Committee believed that the backward adjustment of the financial data was true and there existed no damage of the interest of the Company and the shareholders. The meeting examined and approved Annual Report for 2002 and Summary of the Company. The public notice on the resolution of the meeting was published on Page 19 of China Securities and Page B4 of Ta Kung Pao dated Apr. 17, 2003. 2. The 18th meeting of the 2nd Supervisory Committee was held in the small meeting room of 11F, No. 4 Building, SEG Technology Park, Huaqiang North Rd., Shenzhen, on Aug. 14, 2003. Five supervisors should attend the meeting and actually four of them were present. The meeting formed the following resolutions through examination item by item and show of hands: The meeting examined and approved Semiannual Report for 2003 and Summary of the Company. The public notice on the resolution of the meeting was published on Page 17 of China Securities and Page C4 of Ta Kung Pao dated Aug. 16, 2003. (II) Independent opinion on operation of the Company in 2002 issued by the Supervisory Committee 1. Operation according to Law According to relevant stipulations of national laws, regulations and Articles of Association, the Company has established and improved the legal administrative structure, established a rather perfect internal control system, and well kept away risks of administration and finance; the Company’s decision-making procedures were legitimate. In the report year, the Board of Directors and management team seriously implemented each resolution of the Shareholders’ General Meeting in a diligent and conscientious manner, and didn’t violate laws, regulations and Articles of Association or damage the Company’s interests when performing duties and obligations. 2. Financial inspection The Supervisory Committee made serious and careful inspection on the Company’s financial system and financial status, and believed 2003 financial report could truly reflect the Company’s financial status and business results. Zhongtian Huazheng Certified Public Accountants and Hong Kong Ho and Ho & Company Certified Public Accountants audited 2003 financial report of the Company according to Independent Auditing Standards of Chinese Certified Public Accountant and International Auditing Standards and issued respectively auditor’s reports with non-reservation opinion and non-explanation which truly reflected the Company’s financial status and business results. 3.In the report period, there has no use of raised capital. - 37 - 4. Purchase or sales of assets In the report period, the Company occurred no purchase of assets. The trade price of the assets sold by the Company was reasonable, no inside trading was found, and the transactions hadn’t damaged the rights and interests of shareholders or resulted in runoff of assets. 5.About correlative transactions of the Company The correlative transactions interfered in 2003 by the Company were all in accordance with the principle of equity and fairness as checked by the Supervisory Committee. No inside trading was found, and the transactions hadn’t damaged the interests of the Company as well as rights and interests of other shareholders or resulted in runoff of assets. IX. SIGNIFICANT EVENTS (I) Significant lawsuits and arbitrations Ended as at Dec. 31, 2003, RMB 76,470,000 in the account receivable of the indirect share-controlling company of the Company, Shenzhen SEG Hitachi Color Display Devices Co., Ltd. (hereinafter referred to as SEG Hitachi) has been indicated to People’s Court, among it, RMB 27,030,000 has been judged to recover and provision for doubtful debts amounting to RMB 10,630,000 has been appropriated aiming for the above account receivables. (II) Purchase and sale of assets, consolidation and merge of the Company in the report period 1. In the report period, the Company existed no purchase of assets. 2. In the report period, the Company existed no sale of assets (equity). 3. Assignment of equity of the Company occurring in previous period but lasting in the report period Concerning the event that the Company transferred 28% equity of Shenzhen SEG Dasheng Co., Ltd. (hereinafter referred to as Shen Dasheng) to Xinjiang Hongda Real Estate Development Co., Ltd. (hereinafter referred to as Hongda Company), on Apr. 18, 2003, both parties have finished conducting procedure of changing the owner of 28% equity of Shen Dasheng in register in China Securities Register Settlement Co., Ltd. Shenzhen Branch. After the transfer, the Company still held 4.97% equity of Shenzhen Dasheng. On July 25, 2003, Hongda Company and Guangzhou Borong Investment Co., Ltd. (hereinafter referred to as Borong Company) signed Agreement of Equity Transfer and Hongda Company planned to transfer 28% equity of Shen Dasheng to Borong Company. On Aug. 12, 2003, the Company received the payment for equity transfer amounting to RMB 2 million from Hongda Company and Hongda Company still owed the arrear of equity transfer amounting to RMB 9.7 million to the Company. On Dec. 17, 2003, the report of Borong Company and Hongda Company on transfer - 38 - of 28% equity of Shen Dasheng was published on newspapers. On Dec. 22, 2003, the Company received the arrear of equity transfer amounting to RMB 9.7 million. On Mar. 16, 2004, the procedure of changing the owner of equity in register of Borong Company’s purchasing 40,206,226 shares of legal person shares of Shen Dasheng held by Hongda Company (taking by 28% of the total share capital) has been finished and Borong Company became the principal shareholder of Shen Dasheng. (III) Material related transactions 1. Related transactions concerning purchase/sale of commodities SEG-HITACHI purchased glass shells from SEG Sumsung. SEG-HITACHI: a subsidiary indirectly controlled by the Company by shareholding (54.93%), with registered capital of USD 113 million, the legal representative of Sun Shengdian. The company is mainly engaged in design, production and sales of 21” and 34” CPT. SEG Samsung: The Company is a shareholder of the company by 21.44%. It is a public company listed with Shenzhen Stock Exchange, with the registered capital of RMB 785,970,000, the legal representative of Zhang Weimin. The company is mainly engaged in production and sales of CPT glass shells. Based on the market fairness principle, in the report year, SEG-HITACHI purchased glass shells from SEG Samsung at the fair market price amounting to RMB 13,810,000, taking by 0.5% of the total glass shells purchased in the report year. This related transaction belongs to continuous related transaction and was settled with commercial invoice. 2. In the report period, the Company existed no related transaction of transfer of asset and equity. 3. Issues concerning credit, liabilities and guarantees with the related parties (1) Credit and liability relations with related parties Accounts Related parties Dec. 31, 2003 Reasons/Type Dec. 31, 2002 Reasons/Types Dividend Shenzhen SEG Cash 8,398,094.87 receivable Sumsung Co., Ltd. dividend Shenzhen SEG Other Loan and Plaza Inv. & Dev. -75,374.91 5,479,624.81 receivables interest Co., Ltd. SEG (Hong Kong) Loan and Loan and 2,963,838.61 2,963,838.61 Co., Ltd. interest interest Shenzhen SEG Loan and 129,608,074.70 128,977,756.08 Group Co., Ltd. interest Aroused by Accounts Shenzhen SEG 2,863,574.43 purchase payable Sumsung Co., Ltd. of materials Influence of credit and liability with related parties on the Company: Account receivable of the principal shareholder, SEG Group owned to the Company occupied the Company’s capital and has some influence on the turnover of the Company’s capital and increase of capital cost. Credit and liability with other related companies belongs to normal business and has no significant influence on the operation of the Company. - 39 - (2) Related guarantee Concerning the guarantee issues between the Company and related parties, please read 2.Significant guarantee of (IV) Important contracts and implementation in this chapter. (IV) Important contracts and implementation 1. Material custody, contract and leasing: In the report period, the Company has no significant custody, contract and leasing. 2. Significant guarantees: (1) Guarantee with non-related parties Guarantee completed implementation with non-related parties in the report period. Ended as of the report period , six guarantees between the Company and non-related parties was completed implementation amounting to RMB 84,000,000. On August 11, 2001, through approval by the Board, the Company and Shenzhen Nanguang (Group) Co., Ltd. (hereinafter referred to as “Shenzhen Nanguang”) signed a Mutual Guarantee for Loans with a term of one year with the maximum quota of RMB 130 million which is convertible into HKD and USD. For the detail, please refer to Page 4 of Securities Times and Page C7 of Ta Kung Pao dated August 11, 2001. Unit: RMB’0000 Object of Amount Type of Order Terms of loan Procedure of decision-making guarantee (’0000) guarantee Approved by Annual Shareholders’ Joint 1 Shen nangguang 4000 30,April,2002-30 April ,2003 General Meeting and implemented liabilities detailedly by the Board of Directors RMB Joint 2 Shen Dasheng Feb. 7, 2002-Feb. 6, 2003 Ditto 700 liabilities RMB Joint 3 Shen Dasheng Feb. 10, 2003-Aug. 9, 2003 Ditto 700 liabilities RMB Joint 4 Shen Dasheng Dec. 23, 2002-July 23, 2003 Ditto 1000 liabilities June 28, 2002-Dec. 28, 2002 Pledged as RMB 5 Shen Dasheng (the actual removal date of the equivalent Ditto 1000 guarantee was Jan. 23, 2003) HKD Jan. 23, 2003-July 22, 2003 Pledged as RMB 6 Shen Dasheng equivalent Ditto 1000 HKD End as of the report period ,3 guarantees between the Company and non-related parties was not completed implementation amounting to RMB 11,179,500. Object of Amount Type of Procedure of Order Terms of loan guarantee (’0000) guarantee decision-making Approved by the Board of 1 Wang Lihua RMB94 Sep 5.2003—Sep 5 ,2011 Directors RMB Sep 23.2003- Sep 2 Zhou Wangying Ditto 23.95 23 ,2011 Approved by Annual RMB Joint 3 Shen Dasheng 25,Dec,2003-25,Mar,2004 Shareholders’ General 1000 liabilities Meeting and implemented - 40 - detailedly by the Board of Directors Notes: The said two persons had no related relationships with the Company. Reasons for guaranteeing for Wang Lihua and Zhou Wanying and its influence on the Company: In the course of the Company’s transferring equity of Shendasheng to Xinjiang Hongda Real Estate Development Co., Ltd., in order to clear the capital owed by Shendasheng to the Company in long term, Shendasheng ever commuted partial buildings in “Window of Modern Times” Building to the Company. In order to partially turn the Company’s properties formed due to the said debt payment in kind into cash, after approved by the Board of Directors, the Company has transacted mortgage limit amounting to RMB 20 million by fifty percent in term of eight years in Industrial Bank Co., Ltd. Shenzhen Jiabin Sub-branch and has provided purchase-back guarantee according to the provisions of the bank. Wang Lihua and Zhou Wanying has purchased the said pledged properties respectively through the mortgage limit of the Company after they paid the 50% payment by the first stage in Sept. this year. The Company has provided purchase-back guarantee to the bank for the said two persons accordingly. It was estimated that the said purchase-back guarantee had no risk. The reason of the guarantee for Shen Dasheng and its influence on the Company: the guarantee for RMB 10,000,000 loan formed during the period of relatively controlling equity of Shen Dasheng by the Company. The main reason was to support the normal production and operation of the Company and the guarantee has been provided anti-guarantee by Hongda Company, the principal shareholder of the Company. Meanwhile, the potential principal shareholder of the Company, Borong Company, also provided anti-guarantee for the Company. The anti-guarantee is effective from the date Hongda Company transferred all equity of Shen Dasheng held by it to Borong Company. Because the procedure of changing the owner of the equity in register has been finished on Mar. 16, 2004, it is estimated that there is risk of the guarantee . (2) Guarantee with related parties There are ten guarantees finished performing with related parties in the report period and the accumulated amount related to RMB0.341 billion.: Amount Procedure of Order Object of guarantee Terms of loan Type of guarantee (’0000) decision-making Approved by Annual Shareholders’ General RMB Sep 1 Samsung Industry Joint liabilities Meeting and 5400 27,2002-Sep.27,2003 implemented detailedly by the Board of Directors RMB Dec. 31, 2002-Oct. 2 Samsung Industry Joint liabilities Ditto 3000 31, 2003 RMB Dec. 23, 1999-Dec. 3 SEG-HITACHI Joint liabilities Ditto 10000 23, 2005 4 SEG-HITACHI RMB May 24, 2002-May Joint liabilities Ditto - 41 - 5000 24, 2003 RMB Sep. 10, 2002-Sep. 5 SEG-HITACHI Joint liabilities Ditto 6000 10, 2003 RMB Aug. 8, 2002-Aug. 8, 6 SEG Baohua Joint liabilities Ditto 1000 2003 RMB Dec. 5, 2002-Dec. 5, 7 SEG Storage and Transportation Joint liabilities Ditto 1000 2003 RMB Apr. 29, 2002-Apr. 8 SEG Communications Joint liabilities Ditto 500 29, 2003 RMB Oct. 31, 2002-Aug. 9 SEG Communications Joint liabilities Ditto 1700 31, 2003 RMB May 16, 2003-Feb. SEG Communications Joint liabilities Ditto 500 15, 2004 Ended as of the report period,six guarantees between the Company and related parties was not completed implementation amounting to RMB 235,815,000. Object of Amount Consultative loan Type of Order Procedure of decision-making guarantee (’0000) terms guarantee Approved by Annual Shareholders’ General RMB June 19, 2003- Joint 1 SEG-HITACHI Meeting and implemented 15000 Dec. 19, 2005 liabilities detailedly by the Board of Directors RMB Aug. 30, 2003- Joint 2 SEG-HITACHI Ditto 4800 Aug. 30, 2004 liabilities SEG Storage and RMB Dec. 4, 2003- Joint 3 Ditto Transportation 1000 Dec. 4, 2004 liabilities SEG RMB July 31, 2003- Joint 4 Ditto Communications 1200 July 31, 2004 liabilities July 1, SEG RMB Joint 5 2003-checking and Ditto Communications 527.17 liabilities accepting of project July 25, 2003-promulgating SEG RMB Joint 6 certification of Ditto Communications 1054.33 liabilities pre-checking and pre-accepting Among the above guarantees of the Company for related parties that are not completed: The reason of the guarantee for SEG-HITACHI and its influence on the Company: the guarantee for RMB 0.15 billion loan was to support the technical renovation project of 54cm color tube with middle and high resolving power of SEG Hitachi by the Company; the guarantee of RMB 48 million was bank acceptance bill and was to meet the capital need of production and operation of SEG-HITACHI. It is estimated the loan guarantee for SEG-HITACHI has no risk. The reason of the guarantee for SEG Storage and Transportation and its influence on the Company: the guarantee of RMB 10 million was meet the capital need of production and operation of the company and it is estimated that the guarantee has no risk. The reason of the guarantee for SEG Communication and its influence on the Company: The guarantee for bank loan totally RMB 12 million was caused to support GPS - 42 - project of the company by the Company in 1998. It is estimated that the guarantee has larger risk. RMB 5,271,700 was the performance guarantee that the Company provided for supporting tender project of Shenzhen Metro of the company in 2003. It is estimated that the risk of the guarantee is small. RMB 1054.33 was the guarantee of advance payment that the Company provided for supporting tender project of Shenzhen Metro of the company in 2003. It is estimated that the risk of the guarantee is small. (3) The amount of the guarantee the Company provided for its share-controlling subsidiaries occurred in 2003 was RMB 235,815,000. (4) At the beginning of 2003, in the guarantees of the Company for others, there were three guarantees that were not in accordance with Notification on Problems of Standardizing Current Capital between Listed Companies and Related Parties and Listed Companies’ Guarantee for Others with ZJF[2003] No. 56 promulgated by CSRC on Aug. 28, 2003. Among of them, the guarantee for Samsung Industry was RMB 84 million, the guarantee for SEG Communication was RMB 22 million and the guarantee for Shen Dasheng was RMB 27 million. By the end of 2003, the status of the above guarantee for others: The guarantee for Samsung Industry has been relieved. Among the guarantee for Shen Dasheng, RMB 10 million can not be relieved temporarily. Concerning the guarantee for SEG Communication, the guarantee at the period beginning was RMB 22 million bank loan, in the report period, the company repaid RMB 10 million loan, but because the Company increased the performance guarantee for the underground project of the company, by the end of the report period, the amount of guarantee is RMB 27.82 million. Therefore, ended as of 2003, the total amount of guarantee for others not in accordance with ZJF[2003] No. 56, dropped from RMB 133 million at the period beginning to RMB 37.82 million, an decrease of RMB 95.18 million by 71.56%. The proportion of dropping was suitable for the standard of dropping at least 30% in each accounting year regulated in ZJF[2003] No. 56. (5) By the end of the report period ,the amount of combined guarantee took by 26.32% of net assets for 2003. 3.In the report period, the Company has not entrusted others to manage cash assets. (V) Commitment issues of the shareholders holding over 5% in the report period or lasting in the report period. 1. The Company disclosed SEG Group, the biggest shareholder of the Company, committed to write off RMB 107,557,139.98 owned to the Company in share equity of SEG Samsung on Page 6 of Securities Times and Page A21 of Ta Kung Pao dated Sep.13, 2002. At present, the Company has actively urged and finalized the writing off debts in equity through special persons. 2. The fifth item of Equity Assignment Agreement signed by the Company with SEG - 43 - Group when listing is that SEG Group agreed the Company and the auxiliary companies, joint-venture companies of the Company to use the eight registered trade marks registered in State Trade Mark Bureau by SEG Group at present and agreed the Company to use the aforesaid trade marks and the familiar marks as the sign of the Company and use the aforesaid trade marks and the familiar marks in the process of operation while the Company need not pay any expense to SEG Group on the use of the aforesaid trade marks and signs. In the report period, the commitment was still implemented according to the stipulation. (VI) Engagement and disengagement of Certified Public Accountants As examined and approved by the 2nd Extraordinary Shareholders’ General Meeting of 2003 of the Company held on Dec. 31, 2003, the Company reengaged Zhongtian Huazheng Certified Public Accountants as the domestic auditing institution of the Company of 2003 and reengaged Hong Kong Ho and Ho & Company Certified Public Accountants as the overseas auditing institution of the Company of 2003. By the end of 2003, Zhongtian Huazheng Certified Public Accountants has provided audit service for the Company for consistent two years. By the end of 2003, Hong Kong Ho and Ho & Company Certified Public Accountants has provided audit service for the Company for consistent four years. As examined and approved by the 2nd Extraordinary Shareholders’ General Meeting of 2003 of the Company held on Dec. 31, 2003, the remunerations the Company paid to Certified Public Accountants are as follows: Financing Auditing Certified Public Accountants Note Expense The Company has not undertaken its expense Zhongtian Huazheng Certified Public Accountants RMB 300,000 of business and lodging during the period of auditing. Including the expense Hong Kong Ho and Ho & Company Certified Public of business and RMB 360,000 Accountants lodging during the period of auditing. (VII) In the report year, there existed no such event resulted in inspection, administrative punishment or circulating notice of criticism from China Securities Regulatory Commission or public blame from the Stock Exchange against the Company, the Board of Directors or any directors. (VIII) Other important events CSRC Shenyang Securities Regulation Office made a circling check of the Company from Nov. 20, 2003 to Nov. 28, 2003. On Feb. 6, 2004, the Company received Notification on Requirement of Rectifying and Reforming of Shenzhen SEG Co., Ltd. in Regulated Term (hereinafter referred to as the Nofication) with SZBFZ[2004] No. 14 of Shenzhen Regulation Office and immediately organized all directors, - 44 - supervisors and senior executives of the Company to patiently made research and discussion aiming for relevant problems stated in the Notification compared with Company Law, Securities Law and Rule for Stock Listed with Shenzhen Stock Exchange, Notification of Problems of Listed Companies’ Guarantee for Others and relevant regulation of Articles of Association of the Company and made measures of rectifying and reforming item by item. X. FINANCIAL REPORT SHENZHEN SEG CO., LIMITED REPORT AND FINANCIAL STATEMENTS YEAR ENDED 31ST DECEMBER, 2003 REPORT OF THE AUDITORS To the Shareholders of B shares of Shenzhen SEG Co., Limited (Incorporated in the People’s Republic of China with limited liability) We have audited the financial statements on pages 2 to 30. The preparation on these financial statements is the responsibility of the Group’s management. It is our responsibility to form and independent opinion, based on our audit, on those financial statements and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. 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 financial statements are free from 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 the management, as well as evaluating the overall presentation of the financial statements. We - 45 - believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements give a true and fair view of the state of affairs of the Group as at 31st December, 2003 and of the profit and cash flows for the year then ended and have been prepared in accordance with International Financial Reporting Standards. Ho and Ho & Company Certified Public Accountants Hong Kong 14th April, 2004 SHENZHEN SEG CO., LIMITED REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 CONTENTS Report of the auditors Consolidated income statement Consolidated balance sheet Consolidated statement of changes in equity Consolidated cash flow statement Notes to the accounts - 46 - CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER, 2003 NOTES 2003 2002 RMB’000 RMB’000 Revenue 4 2,321,697 2,206,471 Cost of sales (1,970,817) (1,814,946) Gross profit 350,880 391,525 Other operating income 6 20,614 64,525 Decrease in impairment loss on property, plant and equipment 24,000 - Distribution costs (71,138) (63,654) Administrative expenses (186,307) (205,201) Profit from operations 7 138,049 187,195 Finance costs 8 (56,431) (70,844) Decrease in provision for contingent loss 9 83,881 - Share of results of associates 32,385 51,874 Profit before taxation 197,884 168,225 Taxation 10 (11,974) (26,649) Profit before minority interests 185,910 141,576 Minority interests (34,708) (29,626) Net profit for the year 151,202 111,950 Dividends 11 81,328 - Earnings per share 12 RMB 0.208 RMB 0.154 - 47 - CONSOLIDATED BALANCE SHEET AS AT 31ST DECEMBER, 2003 NOTES 2003 2002 RMB’000 RMB’000 ASSETS Non-current assets Property, plant and equipment 13 1,588,809 1,322,567 Construction in progress 14 4,081 4,438 Interests in associates 16 418,261 382,432 Other investments 17 14,270 16,058 Other assets 37,467 39,719 2,062,888 1,765,214 Current assets Inventories 18 196,517 146,774 Investments in securities 19 6,445 7,473 Accounts receivable, deposits and prepayments 20(c)(ii) 866,725 894,599 Pledged deposits 130,038 88,657 Cash and bank balances 648,631 880,562 1,848,356 2,018,065 Total assets 3,911,244 3,783,279 EQUITY AND LIABILITIES Capital and reserves Share capital 21 726,146 726,146 Reserves 22 685,523 530,941 1,411,669 1,257,087 Minority interests 481,478 447,841 Non-current liabilities Loans 23(a) 226,030 169,826 Current liabilities Loans - due within one year 23(a) 732,667 943,670 Accounts payable, deposits received and accruals 20(c)(iv) 1,051,986 948,391 Tax payable 7,414 16,464 1,792,067 1,908,525 Total equity and liabilities 3,911,244 3,783,279 The financial statements on pages 2 to 30 were approved by the Board of Directors and authorised for issue on 14th April, 2004 and are signed on its behalf by :- Director Director - 48 - CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST DECEMBER, 2003 Reserves Statutory Accumulate Statutory public d Share Capital surplus welfare Exchange profits / Reserve capital reserve reserve fund reserve (losses) sub-total Total RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 Balance at 1st January, 2002 726,146 620,936 222,237 55,961 295 (484,584) 414,845 1,140,991 Net profit for the year - - - - - 111,950 111,950 111,950 Transfer of reserves - (226,189) (191,166) 5,041 - 412,314 - - Provision for unrealised gain on interests in associates - 4,146 - - - - 4,146 4,146 Balance at 31st December, 2002 and 1st January, 2003 726,146 398,893 31,071 61,002 295 39,680 530,941 1,257,087 Net profit for the year - - - - - 151,202 151,202 151,202 Transfer of reserves - - 18,175 9,088 - (27,263) - - Provision for unrealised gain on interests in associates - 3,380 - - - - 3,380 3,380 Balance at 31st December, 2003 726,146 402,273 49,246 70,090 295 163,619 685,523 1,411,669 - 49 - CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER, 2003 NOTE 2003 2002 RMB’000 RMB’000 OPERATING ACTIVITIES Cash generated from operations 24 401,935 716,320 Interest paid (56,431) (70,844) Income tax paid (18,237) (18,789) NET CASH FROM OPERATING ACTIVITIES 327,267 626,687 INVESTING ACTIVITIES Interest received 8,955 12,786 Purchase of property, plant and equipment (121,122) (167,551) Expenditure on construction in progress (258,418) (35,720) Proceeds from disposal of property, plant and equipment 12,880 40,565 Increase in investments in associates (8,100) - Net cash inflow from disposal of a subsidiary 1,147 - Net cash inflow from acquisition of a subsidiary 1,050 - Purchase of other investments (267) (1,950) Proceeds from disposal of other investments 1,950 - Decrease in investments in securities 1,028 24,027 Increase in pledged deposits (41,381) (26,061) NET CASH USED IN INVESTING ACTIVITIES (402,278) (153,904) FINANCING ACTIVITIES Dividend paid to minority shareholders (2,121) - New bank and other loans raised 1,244,500 961,500 Repayment of bank and other loans (1,399,299) (1,022,889) NET CASH USED IN FINANCING ACTIVITIES (156,920) (61,389) (DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS (231,931) 411,394 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 880,562 469,168 ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS AT END OF YEAR Cash and bank balances 648,631 880,562 - 50 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 1. CORPORATE INFORMATION Shenzhen SEG Co., Limited (the “Company”) and its subsidiaries are collectively referred to the “Group”. The Company, which was approved by the Shenzhen Municipal Government, the People’s Republic of China (the “PRC”) on 10th April, 1996, was established in the name of Shenzhen SEG Co., Limited. The Company obtained a business certificate licence on 16th July, 1996. The Company’s shares have been listed and traded on the Shenzhen Stock Exchange since July, 1996. The holding company of the Company is Shenzhen Electronics Group Ltd. (the “SEG Group”), a state-owned enterprise registered in the PRC and under the direct supervision of the Shenzhen Municipal Government. The Company, its subsidiaries (note 15) and its associates (note 16) are engaged primarily in the production and sales of electronic products of which colour cathode tubes are the major product. 2. PRESENTATION OF FINANCIAL STATEMENTS The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). These financial statements are presented in Renminbi (“RMB”) since that is the currency in which the majority of the Group’s transactions are denominated. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared on the historical cost basis except for the investments in securities and other investments which were stated at fair value. The principal accounting policies adopted are set out below :- (a) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (“its subsidiaries”) made up to 31st December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. On acquisition, the assets and liabilities of a subsidiary are measured at their fair value at the date of acquisition. The interest of minority shareholders is stated at the minority's proportion of the fair value of the assets and liabilities recognised. - 51 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of consolidation - Continued The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by other members of the Group. All significant inter-company transactions and balances between group enterprises are eliminated on consolidation. (b) Interests in associates An associate is an enterprise over which the Group is in a position to exercise significant influence, through participation in the decision making on the financial and operating policies of the investee. The results, assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. The carrying amount of such investments is reduced to recognise any impairment in the value of individual investment. Where a group enterprise transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the Group’s interests in the relevant associate, except where unrealised losses provide evidence of an impairment of the asset transferred. (c) Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interests in the fair value of the identifiable assets and liabilities of a subsidiary or an associate at the date of acquisition. Goodwill is recognised as an asset and amortised on a straight-line basis following an assessment of its useful life. Goodwill arising on the acquisition of an associate is included within the carrying amount of the associate. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet. - 52 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (c) Goodwill - Continued Negative goodwill, which represents the excess of the Group’s interests in the fair value of the identifiable assets and liabilities of a subsidiary or an associate acquired over the cost of acquisition, is eliminated proportionately against the fair value of the non-monetary assets acquired. Any amount in excess of the fair value of the non-monetary assets acquired should be amortised over the remaining weighted average useful life of the identifiable acquired depreciable or amortisable assets. On disposal of a subsidiary or an associate, the attributable amount of unamortised goodwill or negative goodwill is included in the determination of the profit or loss on disposal. (d) Property, plant and equipment (i) Investment properties Investment property, which is property held to earn rentals and for capital appreciation, is stated at cost less accumulated depreciation and impairment losses. (ii) Other property, plant and equipment Other property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Expenditure incurred after the asset has been put into operation, such as repairs and maintenance and overhaul costs, is normally charged to the income statement in the year in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is captialised as an additional cost of the asset. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement. - 53 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (d) Property, plant and equipment - Continued Depreciation is calculated to write off the cost of other property, plant and equipment on a straight-line basis over their estimated useful lives as follows :- Leasehold land Over the remaining lease terms Buildings 20 - 40 years Machinery and equipment 5 - 10 years Motor vehicles 5 - 10 years (e) Construction in progress Construction in progress represents properties under construction and equipment purchased prior to installation and is stated at cost. Cost comprises direct costs, attributable overheads and borrowing costs capitalised in accordance with the Group’s accounting policy. No depreciation is provided on construction in progress prior to their completion upon which they will be reclassified into the appropriate categories of property, plant and equipment and depreciation will be provided. (f) Impairment At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the asset to which the asset belongs. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment loss is recognised as expense immediately, unless the relevant asset is land or buildings at a revalued amount , in which case the impairment loss is treated as a revaluation decrease. - 54 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (f) Impairment - Continued Where impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. (g) Other investments Other investments represent unlisted investments held for long-term purposes. Other investments are stated at cost less impairment. (h) Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less estimated costs to completion and costs to be incurred in marketing, selling and distribution. (i) Financial instruments Financial assets and liabilities are recognised on the Group’s balance sheet when the Group has become a party to the contractual provisions of the instrument. (i) Accounts receivable, deposits and prepayments Accounts receivable, deposits and prepayments are stated at cost as reduced by appropriate allowances for estimated irrecoverable amounts. - 55 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (i) Financial instruments - Continued (ii) Investments in securities Investments in securities are recognised on a trade-date basis and are initially measured at cost. At subsequent reporting dates, debt securities that the Group has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost, less any impairment loss recognised to reflect irrecoverable amounts. The annual amortisation of any discount or premium on the acquisition of a held-to-maturity security is aggregated with other investment income receivable over the terms of the instrument so that the revenue recognised in each year represents a constant yield on the investment. Investments other than held-to-maturity debt securities are classified as either held for trading or available-for-sale and are measured at subsequent reporting dates at fair value. Where securities are held for trading purposes, unrealised gains and losses are included in net profit or loss for the year. For available-for-sale investments, unrealised gains and losses are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for the year. (iii) Loans Interest-bearing loans are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the year in which they arise. (iv) Accounts payable, deposits received and accruals Accounts payable, deposits received and accruals are stated at cost. (j) Operating leases Rentals payable under operating leases are charged to the income statement on a straight-line basis over the terms of the relevant lease. - 56 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (k) Foreign currencies Transactions in currencies other than RMB are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are re-translated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the year. (l) Taxation The charge for current taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred taxation is accounted for using the liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the taxable profits nor the accounting profits. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group is able to control the reversal of the timing difference and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax is calculated at the tax rate that are expected to apply to the year when the asset is realised or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax asset and liability is offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax asset and liability on a net basis. - 57 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (m) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the cost of those assets. All other borrowing costs are recognised in net profit or loss in the year in which they are incurred. (n) Retirement benefit costs The Group participates in retirement funds scheme managed by the local social security bureau in accordance with government regulations. The contributions are charged to the income statement as incurred at rates specified in the rules of the scheme. (o) Provisions Provisions are recognised when the Group has a present obligation as a result of a past event which it is probable that it will result in an outflow of economic benefits that can be reasonably estimated. (p) Revenue recognition (i) Sales of goods are recognised when goods are delivered and title has passed. (ii) Rental income is recognised on a straight-line basis over the respective lease terms. (iii) Transportation and warehousing service income and maintenance fee income are recognised over the relevant period in which the services are rendered. (iv) Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable. (v) Income from other investments is accounted for to the extent of dividend income received and receivable during the year. - 58 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 4. REVENUE An analysis of the Group’s revenue is as follows:- 2003 2002 RMB’000 RMB’000 Sales of goods 2,129,910 2,062,837 Rental income 103,108 87,142 Transportation and warehousing service income 50,208 41,938 Others 38,471 14,554 2,321,697 2,206,471 5. BUSINESS AND GEOGRAPHICAL SEGMENTS (a) Business segments Since the Group is mainly engaged in the business of production and sales of colour cathode tubes and related products, the analysis of business segments is not presented. (b) Geographical segments The analysis of the Group’s revenue by geographical market is as follows:- 2003 2002 RMB’000 RMB’000 The PRC 1,329,297 1,318,384 Countries other than the PRC 992,400 888,087 2,321,697 2,206,471 Since the Group’s assets are mainly in the PRC, the analysis of geographical segments is not presented. - 59 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 6. OTHER OPERATING INCOME An analysis of the Group’s other operating income is as follows:- 2003 2002 RMB’000 RMB’000 Interest income 8,955 12,786 Retention of value-added tax (“VAT”) on products manufactured and sold in Shenzhen - 20,575 Gain on disposal of property, plant and equipment 2,389 - Handling fee income 17 88 Reversal of unrecognised loss on investments - 25,367 Penalty imposed on customers for late payments 450 191 Franchise income 2,800 - Exchange gain 551 74 Net profit on sales of raw materials 868 209 Others 4,584 5,235 20,614 64,525 7. PROFIT FROM OPERATIONS Profit from operations has been arrived at after charging:- 2003 2002 RMB’000 RMB’000 Retirement benefit costs (note 31) 12,521 12,174 Loss on disposal of property, plant and equipment 1,919 60,197 Staff costs 163,471 140,296 Depreciation on property, plant and equipment 125,224 120,419 Provision for bad debts 23,071 21,604 Written off of construction in progress - 545 8. FINANCE COSTS 2003 2002 RMB’000 RMB’000 Interest expenses on bank and other loans 56,431 70,844 - 60 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 9. DECREASE IN PROVISION FOR CONTINGENT LOSS The provision for contingent loss in 2001 in respect of the guarantee given to Shenzhen SEG Samsung Enterprises Co., Ltd. (“SEG Samsung”) amounted to RMB83,881,000 was reversed in the current year because the Government had injected additional capital to finance SEG Samsung during the year. All the guarantee related bank loans due by SEG Samsung had been fully repaid during the year. 10. TAXATION 2003 2002 RMB’000 RMB’000 Income tax - the Company and its subsidiaries 9,187 23,821 - associates 2,787 2,828 11,974 26,649 Income tax represents the provision for the PRC income tax charged for the year. Each company of the Group provided income tax on the assessable profits according to the tax rate prevailing in the territories in which they operate. Deferred tax has not been provided for in the financial statements as in the opinion of directors, there are no material timing differences which are expected to crystallise in the foreseeable future. 11. DIVIDENDS 2003 2002 RMB’000 RMB’000 Proposed final dividend – RMB1.12 (2002 : Nil) per 10 shares 81,328 - Subsequent to 31st December, 2003, the directors recommended a final dividend of RMB1.12 per each 10 shares, totalling approximately RMB81,328,000. Pursuant to IFRS 10, the proposed dividends were not reflected as dividend payable as at 31st December, 2003. - 61 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 12. EARNINGS PER SHARE The calculation of basic earnings per share is based on the following data :- 2003 2002 Net profit for the year RMB 151,202,000 RMB 111,950,000 Number of issued shares 726,145,863 726,145,863 The Company has no issued shares with potential dilutive effect. Therefore, no diluted earnings per share are presented. 13. PROPERTY, PLANT AND EQUIPMENT Leasehold Machinery Investment land and and Motor properties buildings equipment vehicles Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 COST At 1st January, 2003 46,658 949,679 1,481,630 45,543 2,523,510 Additions - 97,903 16,072 7,147 121,122 Transfer from construction in progress (Note 14) - - 258,775 - 258,775 Disposals / written off (4,041) (8,863) (9,987) (1,981) (24,872) At 31st December, 2003 42,617 1,038,719 1,746,490 50,709 2,878,535 ACCUMULATED DEPRECIATION AND IMPAIRMENT LOSSES At 1st January, 2003 1,255 163,994 1,012,079 23,615 1,200,943 Charge for the year 1,050 58,814 60,904 4,456 125,224 Decrease in impairment loss - - (24,000) - (24,000) Written back on disposals / written off (632) (1,922) (8,036) (1,851) (12,441) At 31st December, 2003 1,673 220,886 1,040,947 26,220 1,289,726 NET BOOK VALUE At 31st December, 2003 40,944 817,833 705,543 24,489 1,588,809 At 31st December, 2002 45,403 785,685 469,551 21,928 1,322,567 - 62 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 13. PROPERTY, PLANT AND EQUIPMENT - Continued Rental income earned by the Group from its investment properties, all of which are leased out under operating leases, amounted to RMB22,137,000 (2002: RMB21,934,000). Direct operating expenses arising on the investment properties in the year amounted to RMB11,633,000 (2002: RMB12,294,000). In the opinion of the directors, the aggregate carrying value of investment properties approximates to their fair value at the balance sheet date. 14. CONSTRUCTION IN PROGRESS 2003 2002 RMB’000 RMB’000 COST At beginning of year 4,438 28,279 Additions 258,418 35,720 Transfer to property, plant and equipment (Note 13) (258,775) (59,016) Written off - (545) At end of year 4,081 4,438 15. SUBSIDIARIES Details of the Company’s principal subsidiaries at 31st December, 2003 are as follows :- Place of incorporation, Effective registration and rate of Name of subsidiary operation equity held Principal activities Shenzhen SEG Communication PRC 99.81% Manufacture and Co., Ltd. Installation of communication Equipment Shenzhen SEG Store and PRC 99.59% Cargo transportation Transport Enterprise Co., Ltd. and storage Shenzhen Baohua PRC 66.58% Manufacture of Electronic Joint Stock Co., Ltd. electronic consumer products and property investment Shenzhen SEG CNEDC PRC 73.24% Investment holding Color Display Devices Corp. - 63 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 15. SUBSIDIARIES - Continued Place of incorporation, Effective registration and rate of Name of subsidiary operation equity held Principal activities Shenzhen SEG Hitachi Color PRC 54.93% Manufacture of Display Devices Co., Ltd.* colour TV tubes Shenzhen SEG Real PRC 91.79% Investment holding Estate Co., Ltd. Shenzhen SEG Business PRC 99.80% Sales of computers, Machine Co., Ltd. equipment and communication devices Shenzhen SEG Net Information PRC 52.41% Trading of and provision Company Limited of services for electronic and communication products 西安賽格電子巿埸有限公司 PRC 65% Leasing and property management * Indirectly held subsidiary 16. INTERESTS IN ASSOCIATES 2003 2002 RMB’000 RMB’000 Unlisted investments in the PRC Share of net assets 418,261 376,898 Amounts due from associates - 5,534 418,261 382,432 - 64 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 16. INTERESTS IN ASSOCIATES – Continued Details of the Company’s principal associates at 31st December, 2003 are as follows :- Place of Effective incorporation, rate of registration equity Name of associate and operation held Principal activities Shenzhen SEG PRC 21.44% Manufacture and sales of cathode Samsung Glass Co., tubes, glass shells and relevant Ltd. moulds and tools Shenzhen SEG Navigations PRC 35% Development, design and Technology Stock Co., Ltd provision of consultancy services in respect of electronic and communication products 上海賽格電子市場有限公司 PRC 35% Sales of electronic and communication products 深圳日立賽格顯示器有限公司 PRC 16.48% Manufacture of colour TV tubes 深圳巿賽格東方實業有限公司 PRC 20% Import and export trading 17. OTHER INVESTMENTS 2003 2002 RMB’000 RMB’000 Unlisted investments in the PRC, at fair value 14,270 16,058 18. INVENTORIES 2003 2002 RMB’000 RMB’000 Raw materials 126,090 111,099 Consumables 461 179 Work in progress 18,140 19,057 Finished goods 51,679 16,439 Others 147 - 196,517 146,774 At the balance sheet date, raw materials of approximately RMB521,000 (2002: RMB344,000) are stated at net realisable value. All the other inventories are stated at cost. - 65 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 19. INVESTMENTS IN SECURITIES 2003 2002 RMB’000 RMB’000 Listed shares in the PRC, at fair value 6,445 7,473 Investments in securities represent the Group’s investments in listed equity securities. The Group obtains its return on investments by dividend income and trading gains received. The fair value of investments in securities is based on quoted market prices. 20. FINANCIAL INSTRUMENTS Financial assets of the Group include cash and bank balances, pledged deposits, investments in securities, accounts receivable, deposits and prepayments. Financial liabilities of the Group include bank loans, accounts payable, deposits received and accruals. The Group exposes to credit and interest rate risk arising from the normal course of the Group’s business. (a) Credit risk The Group has a credit policy in place and the exposure to credit risk is monitored on an on-going basis. Credit evaluations are performed on all customers requiring credit over a certain amount. (b) Interest rate risk The interest rates and terms of repayment of the bank loans of the Group are disclosed in note (22). (c) Fair value The carrying amounts of significant financial statements and liabilities approximate to their respective fair values at the balance sheet date. (i) Cash and bank balances and pledged deposits Cash and bank balances and pledged deposits represent cash and short-term deposits placed at bank. The carrying amounts of these assets approximate their respective fair values. - 66 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 20. FINANCIAL INSTRUMENTS - Continued (c) Fair value - Continued (ii) Accounts receivable, deposits and prepayments An allowance has been made for estimated irrecoverable amounts of the accounts receivable, deposits and prepayments by reference to past default experience. The directors consider that the carrying amounts of these assets approximate their respective fair value. Amounts receivable, deposits and prepayments included amounts due from holding company, fellow subsidiaries and related companies. The major balances at the balance sheet date are shown in note (32) to the accounts. (iii) Loans The carrying amount of loans approximates its fair value based on the borrowing rates currently available for loans with similar terms and maturity. (iv) Accounts payable, deposits received and accruals Accounts payable, deposits received and accruals are short-term in nature. The carrying amounts of these liabilities approximate their respective fair values. Accounts payable, deposits received and accruals included amounts due to holding company, fellow subsidiaries and related companies. The major balances at the balance sheet date are shown in note (32) to the accounts. 21. SHARE CAPITAL 2003 2002 RMB’000 RMB’000 Registered, issued and fully paid :- 498,104,136 ‘A’ shares of RMB 1 each 498,104 498,104 228,041,727 ‘B’ shares of RMB 1 each 228,042 228,042 726,146 726,146 - 67 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 22. RESERVES Statutory Statutory public Accumulated Capital surplus welfare Exchange profits / reserve reserve fund reserve (losses) Total RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 Balance at 1st January, 2002 620,936 222,237 55,961 295 (484,584) 414,845 Net profit for the year - - - - 111,950 111,950 Transfer of reserves (226,189) (191,166) 5,041 - 412,314 - Provision for unrealised gain on interests in - associates 4,146 - - - 4,146 Balance at 31st December, 2002 and 1st January, 2003 398,893 31,071 61,002 295 39,680 530,941 Net profit for the year - - - - 151,202 151,202 Transfer of reserves - 18,175 9,088 - (27,263) - Provision for unrealised gain on interests in - associates 3,380 - - - 3,380 Balance at 31st December, 2003 402,273 49,246 70,090 295 163,619 685,523 Attributable to :- The Company and subsidiaries 402,273 49,246 70,090 295 (78,475) 443,429 Associates - - - - 242,094 242,094 Balance at 31st December, 2003 402,273 49,246 70,090 295 163,619 685,523 Under the relevant law, regulations and policies in the PRC, the Company is required to make an appropriation of the profit after taxation to the statutory surplus reserve account until the reserve amount has reached 50% of the registered capital of the Company. The Company is also required to make an appropriation to the statutory public welfare fund. Any premium received on the issue of shares (net of issue costs) is treated as capital reserve. The statutory surplus reserve and capital reserve may be applied only for the following purposes:- (i) The statutory surplus reserve may be used to make up losses; and (ii) The reserves may be converted into share capital by the issue of new shares to shareholders in proportion to their existing shareholdings, but when reserves are converted into share capital, the amount remaining in the reserves shall not be less than 25% of the enlarged registered capital. The statutory public welfare fund shall be applied only for the collective welfare of the Company’s employees. Prior to making up the Company’s losses and making the relevant appropriations to the statutory surplus reserve and the statutory public welfare fund, no dividends may be paid. - 68 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 23. LOANS (a) The loans are repayable as follows :- 2003 2002 RMB’000 RMB’000 Bank loans - secured 183,197 198,996 - unsecured 773,000 912,000 Other unsecured loans 2,500 2,500 958,697 1,113,496 Less : Amount shown under current liabilities (732,667) (943,670) Amount shown under non-current liabilities 226,030 169,826 (b) The weighted average interest rates paid were as follows :- 2003 2002 Bank loans - short-term loans 5.07% 5.66% - long-term loans 5.65% 6.14% Other loans 5.60% 5.60% (c) Bank loans of approximately RMB260,000,000 (2002: approximately RMB230,000,000) were guaranteed by independent third parties. - 69 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 24. CASH GENERATED FROM OPERATIONS 2003 2002 RMB’000 RMB’000 Profit from operations 138,049 187,195 Adjustments for :- Depreciation on property, plant and equipment 125,224 120,419 Written off of construction in progress - 545 Interest income (8,955) (12,786) Net (gain) / loss on disposal of property, plant and equipment (470) 60,197 Impairment loss on other investments 105 682 Amortisation on other assets 2,252 2,252 Loss on disposal of interest in a subsidiary 478 - Decrease in impairment loss on property, plant and equipment (24,000) - (Increase) / decrease in inventories (51,527) 15,952 Decrease / (increase) in amounts due from associates 5,534 (29,067) Decrease in accounts receivable, deposits and prepayments 22,638 164,202 Increase in accounts payable, deposits received and accruals 192,607 206,729 Cash generated from operations 401,935 716,320 - 70 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 25. DISPOSAL OF A SUBSIDIARY (a) During the year, the Group disposed of 80% equity interest in a subsidiary – 深圳 巿賽格東方實業有限公司 . The net asset value of the above subsidiary at the date of disposal was as follows :- RMB’000 Property, plant and equipment 21 Inventories 1,784 Cash and bank balances 453 Other current assets 4,952 Other current liabilities (5,132) 2,078 Cash consideration (1,600) Loss on disposal of interest in a subsidiary 478 (b) The net cash inflow from disposal of interest in a subsidiary was as follows :- RMB’000 Cash consideration 1,600 Cash and bank balances being disposed of (453) 1,147 26. ACQUISITION OF A SUBSIDIARY (a) During the year, the Group acquired 65% of the equity interest in 西安賽格子巿場 有限公司. The net asset value of the above subsidiary at the date of acquisition was as follows :- RMB’000 Cash and bank balances 3,000 - 71 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 26. ACQUISITION OF A SUBSIDIARY - Continued (c) The net cash inflow from acquisition of a subsidiary was as follows :- RMB’000 Cash and bank balances 3,000 Cash consideration (1,950) 1,050 27. PLEDGE OF ASSETS At 31st December, 2003, certain of the Group’s properties, machinery and equipments, bank deposits and bills receivable with an aggregate net book value of approximately RMB573,901,000 (2002: approximately RMB 863,813,000) were pledged to secure banking and other facilities granted to the Group. 28. CONTINGENT LIABILITIES At the balance sheet date, the Group had contingent liabilities not provided for in the financial statements as follows :- 2003 2002 RMB’000 RMB’000 (a) The Group had given guarantees to bankers in respect of banking facilities utilised by :- Investee companies - Shenzhen SEG Dasheng Joint Stock Co., Ltd. - 27,000 - Shenzhen SEG Samsung Enterprise Co., Ltd. - 83,881 An independent third party – 深圳南光(集團)股份 有限公司 - 40,000 - 150,881 Provision made for guarantee given for Shenzhen SEG Samsung Enterprise Co., Ltd. - (83,881) - 67,000 - 72 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 29. CAPITAL COMMITMENT At 31st December, 2003, the Group had capital commitment contracted for but not provided for in the financial statements in respect of acquisition of property, plant and equipment totalling approximately RMB3,148,000 (2002: approximately RMB2,114,000). 30. OPERATING LEASE COMMITMENT At the balance sheet date, the Group had outstanding commitments under non-cancellable operating leases, which fall due as follows:- 2003 2002 RMB’000 RMB’000 Within one year 1,360 703 In the second to fifth year inclusive 2,040 762 3,400 1,465 31. RETIREMENT BENEFIT PLANS The employees of the Group are members of a state-managed retirement benefit scheme operated by the PRC government. The subsidiaries are required to contribute a specified percentage of their payroll costs to the retirement benefit scheme to fund the benefits. The only obligations of the Group with respect to the retirement benefit scheme are included in the amount disclosed in note (7) to the accounts for contribution to defined retirement benefit plans. 32. RELATED PARTY TRANSACTIONS The followings are the major related party transactions entered by the Group during the year and the corresponding balances at the balance sheet date:- Name of Company Relationship Nature 2003 2002 RMB’000 RMB’000 Shenzhen Electronic Holding - Payment of guarantee charges - 400 Group Ltd. company - Amount the therefrom 129,608 128,978 深圳市賽格廣場投資 Fellow - Amount due (thereto) / (75) 5,480 發展有限公司 subsidiary therefrom 賽格(香港)公司 Fellow - Amount due therefrom 2,964 2,964 subsidiary - 73 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 32. RELATED PARTY TRANSACTIONS - Continued Name of Company Relationship Nature 2003 2002 RMB’000 RMB’000 Shenzhen SEG Associate - Purchase of raw materials 13,807 10,943 Samsung Glass Co., - Amount due therefrom - 5,534 Ltd. Shenzhen SEG Investee - Guarantee given - 83,881 Samsung Enterprise company Co., Ltd. Shenzhen SEG Investee - Guarantee given 10,000 27,000 Dasheng Joint Stock company - Amount due therefrom 9,000 55,086 Co., Ltd. In the opinion of the directors, the above transactions were undertaken in the normal course of the business and were conducted at prices agreed by each party. - 74 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2003 33. IMPACT OF IFRS ADJUSTMENTS ON NET PROFIT FOR THE YEAR AND NET ASSETS Net profit for the year Net assets 2003 2002 2003 2002 RMB’000 RMB’000 RMB’000 RMB’000 As reported in the financial statements audited by the PRC auditors 181,755 100,818 1,411,669 1,257,087 Adjustments made for prior year by the PRC auditors - Decrease in provision for doubtful debts - - - (22,659) - Over-provision of export VAT refund - - - (5,524) As restated 181,755 100,818 1,411,669 1,228,904 Adjustments to align with IFRS :- - (Increase) / decrease in provision for doubtful debts (22,659) (4,855) - 22,659 - Over-provision of export VAT refund (5,524) - - 5,524 - Reversal of unrecognised (gain) / loss on investments (2,370) 27,862 - - - Decrease in provision for other assets - 5,289 - - - Reversal of loss on deemed disposal of a subsidiary - 30,907 - - - Share of results of associates - 3,640 - - - Written off of property, plant and equipment - (44,177) - - - Reversal of loss on disposal of property, plant and equipment - 9 - - - Minority interests - (7,543) - - As adjusted in conformity to IFRS 151,202 111,950 1,411,669 1,257,087 34. LANGUAGE The report is originally prepared in Chinese. In the event of a conflict between this English translation and the original Chinese version or difference in interpretation between the two versions of the report, the Chinese language report shall prevail. - 75 - XI. DOCUMENTS AVAILABLE FOR REFERENCE (1) Accounting statements carried with the signatures and seals of legal person representative, person in charge of accounting affairs and person in charge of accounting institution. (2) Original of auditor’s report carried with the seal of Certified Public Accountants, the signature and seal of certified public accountants. (3) Originals of documents and manuscripts of public notices disclosed publicly on the newspapers designated by CSRC in the report period. Board of Directors of Shenzhen SEG Co., Ltd. April 14, 2004 - 76 - APPENDIX: Special Auditors’ Report ZTHZ (J) ZSZ [2004] No. 3001 China Securities Regulatory Commission Shenzhen Securities Regulatory Office: To all shareholders of Shenzhen SEG Co., Ltd.: Authorized by Shenzhen SEG Co., Ltd., we have audited the capital occupied by large shareholders and related parties of Shenzhen SEG Co., Ltd. and its controlling subsidiaries (hereinafter referred to as SEG Co.) in 2003 and SEG Co.’s providing guarantees for its large shareholders and enterprises owned by its large shareholders. Our responsibility is to express special auditing opinions on these capital occupations and guarantees provision. Our audit is conducted in accordance with Independent Auditing Standards of Chinese CPA, Circular on Reporting Capital Occupations and Illegal Guarantees of Large Shareholders and Related Parties of Listed Companies released by China Securities Regulatory Commission with SSBH [2003] No. 13 document and Circular on Standardizing Listed Companies’ Capital Current with Related Parties, External Guarantees and Other Several Problems released by China Securities Regulatory Commission with ZJHF [2003] No. 56 document. We have implemented the necessary auditing procedures in our opinion including spot-checking accounting record and etc. during the auditing combining the actual situation of SEG Co.. Since our annual accounting statements are not with inspecting the capital occupation and illegal guarantee of related parties as direct objective and at the same time, due to the intrinsic limit of the auditing test and internal control of the audited company, our audit is unable to assure to discover all capital occupation of large shareholders and related parties and guarantees provision for the controlling shareholder and enterprises owned by the controlling shareholder. Particulars about capital occupation of large shareholders and related parties and guarantees provision for large shareholders and enterprises owned by large shareholders of SEG Co. in 2003 is as follows: I. Summary of related parties The related parties stated in the Special Report only include the shareholders and other related parties of the Company occupying the assets of SEG Co. and the large shareholders and enterprises owned by large shareholders whom SEG Co. provides guarantee for. Names of related parties Relationships with SEG Co. Shenzhen SEG Group Co., Ltd. Large shareholder Shenzhen SEG Square Investment and Subsidiary of the large shareholder Development Co., Ltd. SEG (Hong Kong) Company Subsidiary of the large shareholder - 77 - II. Ended Dec. 31, 2003, the capital occupied by the related parties Accumulatively occupied amount of the year Names of related Beginning Debit Credit Ending-balance Reasons Way of parties balance of the amount amount of the year of occupation year occupation Other receivables RMB RMB RMB RMB Shenzhen SEG 128,977,756.08 630,318.62 - 129,608,074.70 Providing Non-operating Group Co., Ltd. loan occupation Shenzhen SEG 5,479,624.81 - 5,554,999.72 -75,374.91 Paying Non-operating Square Investment and Development expense occupation Co., Ltd. instead SEG (Hong Kong) 2,963,838.61 - - 2,963,838.61 Providing Non-operating Company (Unit:HKD) loan occupation Including, particulars about capital occupation newly increased in the year is as follows: Name of related party Balance of capital occupation Reason of increase newly increased Shenzhen SEG Group Co., RMB 630,318.62 Capital interests receivable Ltd. III. Refunding capital occupied by related parties in 2003 Name of related party Amount of refunding Way of refunding Remarks Shenzhen SEG Square RMB 5,554,999.72 Cash Investment and Development Co., Ltd. IV. SEG Co. does not provide guarantee for its large shareholders and enterprises owned by its large shareholders. V. SEG Co. does not provide entrusted loan for its related parties through banks or non-bank financial institutions. VI. SEG Co. does not authorize its controlling shareholder and other related parties to conduct investing activities. VII. SEG Co. does not open trade acceptance without true trade background for its controlling shareholder and other related parties. - 78 - VIII. SEG Co. does not refund liabilities for its controlling shareholder and other related parties. In our opinion, the said large shareholder and related parties’ occupying capital of SEG Co. and SEG Co.’s providing guarantees for its large shareholder and enterprises owned by its large shareholder were in compliance with the preparation requirements in Circular on Reporting Capital Occupations and Illegal Guarantees of Large Shareholders and Related Parties of Listed Companies released by China Securities Regulatory Commission with SSBH [2003] No. 13 document and Circular on Standardizing Listed Companies’ Capital Current with Related Parties, External Guarantees and Other Several Problems released by China Securities Regulatory Commission with ZJHF [2003] No. 56 document. It is necessary to point out that the said report is a special auditing report conducted in accordance with relevant provisions in Circular on Reporting Capital Occupations and Illegal Guarantees of Large Shareholders and Related Parties of Listed Companies released by China Securities Regulatory Commission with SSBH [2003] No. 13 document and Circular on Standardizing Listed Companies’ Capital Current with Related Parties, External Guarantees and Other Several Problems released by China Securities Regulatory Commission with ZJHF [2003] No. 56 document and based on the relevant materials collected and relevant warranties spot-checked in the course of auditing. The report is unable to be considered as special opinions expressed by us on the whole accounting statements of SEG Co.. For our auditing opinion on accounting statements of SEG Co. in 2003, please refer to ZTHZ (J) SZ [2004] No. 3005 Auditors’ Report presented by us on Mar. 15, 2004. Zhong Tian Hua Zheng CPA Co., Ltd. Chinese CPA Chinese CPA Beijing·China April. 15, 2004 - 79 -