宁通信B(200468)宁通信Ｂ2004年年度报告（英文版）

Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report (Based on IFRS) Important Note The Board of Directors and Directors of the Company hereby confirm that there are no factitious record, misleading statements or material omission in the information carried in this report, and collectively and individually accepts full responsibility for the truthfulness, accuracy and completeness of the whole contents. The Company’s Legal Representative Li Weide, General Manager Sun Liang, and Associate Chief Accountant Shi Lian hereby confirm that the financial report in this report is truthful and complete. This report is prepared both in Chinese and in English. In case of any inconsistency between the two versions, the Chinese version should prevail. -1- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report Contents I. Company Profile ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 3 II. Financial & Operating Highlights ┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 3 III. Share Capital Variation & Shareholders Introduction ┄┄┄┄┄┄ 5 IV. Directors, Supervisors, Senior Management & Employees┄┄┄┄ 7 V. Corporate Governance Structure┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 13 VI. Highlights of Shareholders General Meetings ┄┄┄┄┄┄┄┄┄ 15 VII. Report of the Board of Directors ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 15 VIII. Report of the Supervisory Committee ┄┄┄┄┄┄┄┄┄┄┄┄ 23 IX. Significant Events ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 25 X. Financial Report ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 27 XI. Documents for Inspection ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 28 Attached Financial Statement and notes ┄┄┄┄┄┄┄┄┄┄┄ 29 -2- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report I. Company Profile 1. Company’s Legal Chinese Name: 南京普天通信股份有限公司 Company’s Legal English Name: Nanjing Putian Telecommunications Co., Ltd. 2. Legal Representative: Mr. Li Weide 3. Secretary of the Board of Directors: Mr. Xiao Zhaokai Address: No. 1 Putian Road, Qinhuai District Nanjing Telephone: 86-25-52418518-2278,86-25-52409954 Fax: 86-25-52409954 Email Address: xzk@postel.com.cn Securities Affairs Representative: Mr. Shi Lian Address: No. 1 Putian Road, Qinhuai District Nanjing Telephone: 86-25-52418518-2258 Facsimile: 86-25-52409954 Email Address: sl@postel.com.cn 4. Registered Address: No. 58 Qinhuai Road, Jiangning Economics and Technology Development Zone, Nanjing, Jiangsu Province PRC Business Address: No. 1 Putian Road, Qinhuai District Nanjing Postal Code: 210012 Web Site: www.postel.com.cn Email Address: securities@postel.com.cn 5. Appointed Newspaper for Company Information Disclosure: Securities Times & Hong Kong Ta Kung Pao Appointed Web Site for Annual Report Publication: www.cninfo.com.cn Annual Report Prepared At: Financial & Securities Department 6. Listing and Trading Place of Company stock: Shenzhen Stock Exchange Stock Abbreviation: Ning Tong Xin B Stock Code: 200468 7. Latest Registration Date: 28 May, 1999 Registered At: State Administration For Industry and Commerce Legal person operating license Qi Gu Su Zong Zi No. 000225 registration code: Taxation Registration Code: 320121134878054 Appointed Auditor: Price WaterHouseCoopers Zhong Tian CPAs Co., Ltd. Auditor’s Business Address: 11th Floor Price WaterHouseCoopers Center, 202, Hubin Road, Shanghai II.Financial & Operating Highlights 1. Financial data for 2004(RMB’000) Profit Before Taxation -34,885 Net Profit -27,461 Profit After Deducting Non-recurrent profit/loss -28,618 Gross profit 157,712 Profit for Other Businesses 7,807 -3- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report Operating Profit -7,819 Subsidy Receipt 0 Net Cash Generated from Operating Activities 16,109 Increase of Cash and Cash Equivalent 24,874 Note 1:Deducted non-recurrent profit/losses are: Losses from disposal of long-term investments -55 Net income from disposal of fixed assets, project in progress, intangible assets and other long-term assets 50 Concluded in other operating income 4,596 Concluded in other operating expenses -3,434 Income tax 0 Total 1,157 Note2: Explanation of discrepancy as audited under CAS and IFRS (RMB’000) Net assets at Net loss for 2004 31 December 2004 Per PRC accounts (47,845) 337,568 Adjustments for IFRS accounts: Negative goodwill generated from acquisition of subsidiaries 8,103 2,380 Remeasurement of financial assets and financial liabilities in accordance with IAS 39 12,281 - Per IFRS accounts (27,461) 339,948 2. Main financial data for the recent 3 years: Financial Indicators 2004 2003 2002 Turnover(RMB’000 yuan) 851,292 818,647 625,872 Net Profit(RMB’000 yuan) -27,461 12,068 -55,213 Total Assets(RMB’000 yuan) 948,276 1,026,102 963,925 Shareholder’s Equity(excluding minor 339,948 366,365 352,120 shareholder’s equity) (RMB’000 yuan) Earnings Per Share(yuan) -0.128 0.056 -0.257 Net Assets Per Share(yuan) 1.581 1.704 1.638 Net Cash Per Share Generated from 0.075 0.250 0.401 Operating Activities(yuan) Return On Net Assets(%) -8.08% 3.29% -15.68% Note 1: The share capital of the Company kept unchanged from the end of the reporting period to the day when this report is published. Note2: Attached Profit Form Profit for Return On Net Equity（%） Earnings Per Share reporting period Fully diluted Weighted average Fully diluted Weighted average Gross profit 46.39% 44.72% 0.7335 0.7335 Operating profit -2.30% -2.22% -0.0364 -0.0364 Net profit -8.08% -7.79% -0.1277 -0.1277 Net profit after -8.42% -8.12% -0.1331 -0.1331 deducting Non-recurrent -4- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report profit/losses 3. Changes on Shareholders’ Equity during the reporting period (RMB’000) Capital Statutory and Statutory Exchange Share accumula discretionary welfare Translation Other Retained Shareholder’s Item capital tion fund accumulation fund reserve reserves earnings equity in total fund At 215,000 167,664 15,216 9,640 -14 115 -41,256 366,365 year-beginning Increase 1,153 935 414 -27,461 -24,959 Decrease 109 1,349 1,458 At year-end 215,000 168,817 16,151 10,054 -123 115 -70,066 339,948 Increase of capital accumulation fund was due to share of waived debts of an associate company, i.e., share of capital surplus recognized by an associate due to debts by its investors, and other reasons. Increase of statutory and discretionary accumulation fund as well as statutory welfare fund resulted from profit appropriation of subsidiaries. Decrease of retained earnings resulted from the Company’s net losses for the year. III. Share Capital Variation & Shareholders Introduction 1. Share Capital Variation (1)Change of the shares of the Company Changes in the period Year-beginni Placed Bonus Shares transferred Sub Year-end ng other shares shares from capital shares -total Un-listed shares 1.Promoter 115,000,000 115,000,000 shares Including: State-owned 115,000,000 115,000,000 shares Domestic legal person shares Foreign legal person shares Other 2.Placement legal person shares 3.Employee’s shares 4.Preference shares and other Un-listed shares 115,000,000 115,000,000 in total -5- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report Listed shares 1. RMB ordinary shares 2.Domestically-li 100,000,000 100,000,000 sted foreign shares 3.Overseas listed foreign shares 4.Other Listed shares in 100,000,000 100,000,000 total Total shares 215,000,000 215,000,000 (2)Stock issuing and listing in the last three years The Company did not issue shares in the last three years ended by 2004. 2. Shareholders introduction (1) As at 31st December 2004, the Company had 18518 shareholders, including 1 state-owned legal person shareholder and 18517 B- shareholders. (2) Top ten shareholders and top at year-end Shareholder Shares held +/-Shares Mortgaged or Order Shareholder proportion in the year type at year-end frozen shares China Putian Unlisted 115,000,000 53.49% 0 1 0 Corporation state-owned Share 2 Wang Xuanxuan Circulating B-share 1,242,368 0.58% 175,500 Unknown THE MTBJ LTD AS 638,588 0.30% TRUSTEE FOR UFJ 3 PARTNERS Circulating B-share Unknown Unknown MAINLAND CHINA FUND 4 Cai Weiguang Circulating B-share 460,000 0.21% Unknown Unknown 5 Lin Xiaoyan Circulating B-share 410,542 0.19% 211,342 Unknown 6 Aileen Yue Circulating B-share 410,400 0.19% Unknown Unknown 7 Li Yi Circulating B-share 351,837 0.16% 0 Unknown 8 Xu Bingnan Circulating B-share 327,000 0.15% 47,000 Unknown 9 Ye Zhuanyou Circulating B-share 322,900 0.15% 0 Unknown 10 Wong Lai Circulating B-share 308,600 0.14% 0 Unknown 11 Zhang Zhimei Circulating B-share 285,600 0.13% 135,600 Unknown Note: The shareholders from No. 2 to No. 11 were the top ten shareholders of the Company’s circulating shares. Among the top ten shareholders, China Putian Corporation isn’t a related party to the others. It’s not known by the Company whether there are related parties among the other shareholders The Company does not know whether there are related parties among the top ten shareholders of circulating shares. (3) Introduction of the holding company: -6- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report Company name: China Putian Corporation Company type: state-owned sole enterprise Legal representative: Xing Wei Date of Corporation: 1980 Scale of business: develop and manufacture various communications equipment such as large-scale digital program-controlled switchboard, GSM and CDMA mobile telecommunication equipment and mobile phone, IP serial products, micro-wave telecommunication equipment, optical telecommunication equipment, optical and electric telecommunication cable, communication power supply, distribution equipment, IC phone, multi-media computer terminal, fax machine, postal mechanic and so on; engage in contract for international and domestic telecommunication project, engage in technical and economic business such as cooperation, technology introduction, import and export of relevant products. It was originally named ”China Posts and Telecommunications Industry Corporation” under the Ministry of Posts and Telecommunications and the Ministry of Information Industry. At the end of 1998 it became a large-scale enterprise directly subordinate to the central government. During the reporting period the holding company kept unchanged. The ultimate shareholder of China Putian Corporations is State-owned Assets Supervision and Administration Commission of the State Council(“SASAC”). The relationship between the Company and its ultimate shareholder is as follows: SASAC 100% China Putian Corporation 53.49% Nanjing Putian Telecommunications Co Ltd IV. Directors, Supervisors, Senior Management & Employees 1. Directors, supervisors and senior management (1) Profile Whether shares receive term of shares held at name sex age Position held at payment in office year-beginning year-end the Company -7- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report Huang Jun 2003 Zhiqin Male 43 Chairman of BOD -Jan 2005 0 0 No Vice Chairman of Jun 2003 Li Weide Male 57 BOD, General -Jun 2006 0 0 Yes Manager Jun 2003 Cao Bin Male 48 Director -Jun 2006 0 0 No Jiang Director, Assistant Jun 2003 Haishan Male 49 General Manager -Jun 2006 0 0 Yes Wang Jun 2003 Lili Female 54 Director -Jun 2006 0 0 No Wu Jun 2003 Xiaohua Male 34 Director -Jun 2006 0 0 No Shi Independent Jun 2003 Jianjun Male 49 Director -Jun 2006 0 0 Yes Yang Independent Jun 2003 Zhen Male 42 Director -Jun 2006 0 0 Yes Yu Independent Jun 2003 Honglia Male 50 Director -Jun 2006 0 0 Yes ng Chairman of the Wang Jun 2003 Jiaqiang Male 54 Supervisory -Jun 2006 0 0 No Committee Jiang Jun 2003 Kun Male 36 Supervisor -Jun 2006 0 0 No Shi Jun 2003 Xinhua Male 54 Supervisor -Jun 2006 0 0 Yes Sun Assistant General Jun 2003 Qiang Male 47 Manager -Jun 2006 0 0 Yes Jiang Assistant General Jun 2003 Hanbin Male 42 Manager -Jun 2006 0 0 Yes Liu Assistant General Jun 2003 Chuanxi Male 50 Manager -Jun 2006 0 0 Yes Yuan Assistant General Jun 2003 Yong Male 41 Manager -Jun 2006 0 0 Yes Zou Assistant General Jun 2003 Dezhon Male 44 Manager -Jun 2006 0 0 Yes g Xiao Jun 2003 Zhaokai Male 39 Secretary of BOD -Jun 2006 0 0 Yes Note: this chapter discloses the condition of the directors, supervisors and senior management by the end of 2004. From the beginning of 2004 to the day when this report is disclosed, there have been some changes: in January 2005, as approved by the BOD, Mr. Huang Zhiqin resigned from the post of director, and Mr. Li Weide was elected chairman of the BOD; Mr. Li Weide no longer acted as general manager, and Mr. Sun Liang was appointed as general manager(see the announcement of the 16th Meeting of the Third BOD published on the Securities Times and Ta Kung Pao on 11 January 2005). (2) Directors and supervisors working for the Company’s shareholders Name Company Position Office Term Huang Zhiqin China Putian Vice President Since Dec 2001 Cao Bin China Putian Deputy Dean of Putian Institute of Technology Since Mar 2004 Wu Xiaohua China Putian Assistant General Manager of Strategy & Since Jul 2003 Development Department Wang Lili China Putian Associate Senior Researcher of Technology & Since Dec 2001 Quality Department Wang Jiaqiang China Putian General Manager of Financial Department Since Nov 2001 -8- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report Jiang Kun China Putian Assistant General Manager of Capital Since Jun 2003 Administration Department (3) Directors, supervisors and senior management who work for other entities: Relationship with Name Company Position the Company Controlled by the Putian Eastern Communications same President Corporation controlling-shareh Hang older Zhiqin Controlled by the Wuhan Zhouji Telecommunications same President Power Supply Corporation controlling-shareh older Nanjing Putian Changle Subsidiary Telecommunications Equipment President Company Ltd. Nanjing Bada Telecommunications Subsidiary President Equipment Company Ltd. Nanjing Putian Network Company Subsidiary President Ltd. Nanjing Putian Smart-building Subsidiary President Company Ltd. Nanjing Nanfang Subsidiary Li Weide President Telecommunications Company Ltd. Nanjing Postel Wongzhi Subsidiary President Telecommunications Company Ltd. Nanjing Mennekes Electric Appliance Joint venture Vice President Company Ltd. Nanjing Golden Huali Electronics Associated President Company Ltd. company Nanjing Putian Shiye Company Ltd. Subsidiary President Putian Telecommunications (H.K.) Subsidiary President Co., Ltd. Controlled by the Chongqing Putain same Cao Bin Telecommunications Equipment Director controlling-shareh Company Ltd. older Controlled by the Wu same Beijing Capitel Co., Ltd. Director Xiaohua controlling-shareh older Putian Eastern Communications Controlled by the Chairman of Corporation same Supervisory controlling-shareh Committee Wang older Jiaqiang Eastern Communications Co., Ltd. Controlled by the Supervisor same controlling-shareh older Controlled by the Jiang Chongqing Telecommunications same Director Kun Equipment Company Ltd. controlling-shareh older Shi Nanjing University Vice president -9- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report Jianjun Sinopec Yangzi Petrochemical Co., Independent Ltd Director Independent Maanshan Iron & Steel Co., Ltd Director Jiangsu Changjiang Electronics Technology Independent Co., Ltd. Director Chairman of China High-Tec Group Co., Ltd. Supervisory Committee Yan Nanjing University of Posts & Vice president Zhen Telecommunications Finance Department of Nanjing Audit Associate University professor Jiangsu Dongda Science Technology Independent Yu Park Co., Ltd. supervisor Honglia Shenzhen Shekou Zijin Electron Co., senior financial ng Ltd. advisor Independent CEC Corecast Corporation Limited Director Jiang Subsidiary Nanjing Putian Shiye Company Ltd. Director Haishan Sun Nanjing Putian Zhongyou Associated Supervisor Qiang Telecommunications Company Ltd. company Nanjing Bada Telecommunications Subsidiary Director Equipment Company Ltd. Nanjing Putian Hongyan Electric Subsidiary President Appliances Company Ltd. Putian Telecommunications ( H.K.) Subsidiary Director Jiang Company Ltd. Hanbin Nanjing Putian Zhongyou Associated Director Telecommunications Company Ltd. company Nanjing Tailitong Associated Director Telecommunications Company Ltd. company Hangzhou Hongyan Electric Associated Director Appliances Company Ltd. company Nanjing Putian Changle Subsidiary Telecommunications Equipment Director Company Ltd. Yuan Nanjing Postel Wongzhi Subsidiary Director Yong Telecommunications Company Ltd. Nanjing Dongda Wideband Associated Independent Telecommunications Technology company Director Company Ltd. Nanjing Putian Network Company Subsidiary Director Ltd. Zou Nanjing Putian Smart-building Subsidiary Dezhon Director Company Ltd. g Nanjing Nanfang Subsidiary Director Telecommunications Company Ltd. Nanjing Putian Changle Subsidiary Telecommunications Equipment Director Xiao Company Ltd. Zhaokai Nanjing Putian Hongyan Electric Subsidiary Director Appliances Company Ltd. Nanjing Putian Shiye Company Ltd. Subsidiary Director -10- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report (4) Main working experience of directors, supervisors and senior management(by the end of 2004) Directors： Mr. Hang Zhiqin：aged 43, a university graduate, senior engineer, started to work in 1983. He use to be the former Deputy Dean and Dean of China Posts and Telecommunications Industry Beijing Telecommunications Engineering R & D Institute, Assistant to President and concurrently Director of R & D Center of China Putian Corporation, Chairman of the Company’s Second BOD. He is now Vice President of China Putian Corporation and Chairman of the Company’s Third BOD. Mr. Li Weide: aged 57, a university graduate, senior economist, a member of the Chinese People’s Political Consultative Conference representing Nanjing City. He joined the Company in 1967, and used to be the factory director and concurrently secretary of the Party committee, Vice Chairman of the Company’s First and Second BOD and concurrently General Manager. He is now Vice Chairman of the Company’s Third BOD and concurrently General Manager. Mr. Cao Bin: aged 48, a post graduate, senior economist, joined the Company in 1977. He was a member of the Company’s First BOD, Assistant General Manager and concurrently Chief Engineer, and a member of the Second BOD. In 2001 he joined China Putian Corporation and is now Deputy Dean of Putian Institute of Technology and a member of the Company’s Third BOD. Mr. Jiang Haishan: aged 49, a post graduate, senior economist, joined the Company in 1985. He used t work as the head of Enterprise Administration Office, Assistant to Factory Director, and a member of the Company’s First and Second BOD and Assistant General Manager, and is now a member of the Third BOD and concurrently Assistant General Manager. Ms. Wang Lili, aged 54, a college graduate, senior engineer, started to work in 1968. She used to work as Deputy Marketing Manager, Deputy Technology Manager and Deputy Manager of Technology Development Department of China Putian Corporation, and a member of the Company’s Second BOD. She is now an associate senior researcher of China Putian Corporation and concurrently a member of the Company’s Third BOD. Mr. Wu Xiaohua, aged 34, a post graduate, economist, started to work in 1991. He used to work as a secretary of General Manager Office and Assistant to General Manager of Strategy & Development Department of China Putian Corporation, and is now Assistant General Manger of Strategy & Development Department of China Putian Corporation, and concurrently a member of the Company’s Third BOD. Mr. Shi Jianjun, aged 49, doctor’s degree, joined Nanjing University in 1985. He was a professor of Business Institute of Nanjing University, Vice President of China Education & Accounting Association and Vice President of China Statistics Association. He is now Vice President of Nanjing University, and works as an independent director of the Company’s Third BOD. Mr. Yang Zhen, aged 42, doctor’s degree, started to work in 1983, Deputy to the 10th National People’s Congress. He was a lecturer and then Deputy Dean of Information Project Department of Nanjing University of Posts and Telecommunications, and is now Vice President of the university and works as an independent Director of the Company’s Third BOD. Mr. Yu Hongliang, aged 50, a university graduate, associate professor, CPA, joined Nanjing Audit University in 1985. He is now an associate professor of Financial Department of the university and works as an independent director of the Company’s Third BOD. Supervisors： Mr. Wang Jiaqiang, aged 54, a university graduate, senior accountant, joined the posts and telecommunications industry in 1977. He used to be the supervisor of the Finance Section of Beijing Stamp Factory, vice financial manager of China Putian Corporation, a member of the Company’s First BOD and Chairman of the Company’s Second Supervisory Committee. He is now the financial manager of China Putian -11- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report Corporation and Chairman of the Company’s Third Supervisory Committee. Mr. Jiang Kun, aged 36, a university graduate, in-service post graduate, senior economist, started to work in 1991. He worked as a secretary of General Manager Office, and deputy head of Investment & Development Section of China Putian Corporation, and a member of the Company’s Second Supervisory Committee. He is now deputy manager of Assets Administration Department of China Putian Corporation, Director of Chongqing Putian Telecommunications Equipment Company Ltd., and concurrently a member of the Company’s Third Supervisory Committee. Mr. Shi Xinhua, aged 54, a university graduate, senior political administrator, joined the Company in 1994. He was security section chief, personnel manager, vice secretary of the Party Committee, a member of the First BOD, and Staff Supervisor of the Second Supervisory Committee, and is now Staff Supervisor of the Company’s Third Supervisory Committee, and concurrently Chairman of the Worker’s Union. Senior Management: Mr. Li Weide: see the section of Director Mr. Jiang Haishan: see the section of Director Mr. Sun Qiang, aged 47, a university graduate, senior political administrator, joined the Company in 1978. He used to work as the supervisor of the Factory Office, assistant to the factory director, deputy secretary of the Party Committee, a member of the Second Supervisory Committee and concurrently Chairman of the Worker’s Union. He is now Assistant General Manager of the Company. Mr. Jiang Hanbin, aged 42, a university graduate, graduated from Nanjing Posts and Telecommunications Institute in 1983, senior engineer. He used to be the chief engineer and general manager of Wiring Department, Assistant to General Manager of the Company. He is now Assistant General Manager of the Company. Mr. Liu Chanxi, aged 50, a post graduate, senior engineer, started to work in 1970. He used to act as the chief engineer, vice marketing manager, marketing manager, general manager assistant as well as a member of the second BOD and concurrently Assistant General Manager of the Company. He is now Assistant General Manager of the Company. Mr. Yuan Yong, aged 41, a post graduate, started to work in 1984. he used to work as the vice general manager and then general manager of the Wireless Department, and assistant to general manager of the Company. He is now Assistant General Manager of the Company. Mr. Zou Dezhong, aged 44, a university graduate, senior engineer, started to work in 1979, and used to be the associate chief engineer, general manager of Wiring Department and Assistant to General Manager of the Company. He is now Assistant General Manager of the Company. Mr. Xiao Zhaokai, aged 39, senior engineer, joined to Company in 1988. He used to be vice head of the workshop, supervisor of the factory office, general manger of Investment Management Department, sectary of the first and second BOD. He is now sectary of the third BOD. (5) Annual remuneration ① In 2004, the directors(except independent directors) and supervisors were not paid by the Company. Those directors or supervisors who held the administrative positions in the Company received remuneration according to their administrative posts. The senior management’s remuneration, which is proposed by the Remuneration & Assessment Committee of the BOD and is finally decided by the BOD, was made up of three parts including fundamental remuneration, post remuneration and performance remuneration. The BOD evaluated the senior management’s performance in light of operating results and accordingly determine their remuneration. Independent directors received allowance from the Company as approved by the shareholder’s general meeting. ② In 2004, a total of RMB1,253,260 was paid to the nine persons including the directors, -12- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report supervisors and senior management who received remuneration from the Company, including RMB310,488 to the two executive directors and RMB517,983 to the three senior managements with highest remuneration. ③ There were nine persons receiving remuneration from the Company among the directors, supervisors and senior management, including one person with an annual remuneration below RMB100,000, six persons between RMB100,000 to RMB150,000 and two persons over RMB150,000. ④ The independent directors each received an allowance of RMB30,000 (before-tax) in 2004. ⑤ The directors and supervisors who do not receive remuneration from the Company are: Mr. Hang Zhiqin, Mr. Cao Bin, Mr. Wu Xiaohua, Ms. Wang Lili, Mr. Wang Jiaqiang, Mr. Jiang Kun. They all receive remuneration from the Company’s controlling shareholder, China Putian Corporation. (6) Appointment and resignation of the directors, supervisors and senior management in the reporting period As approved by the Tenth Meeting of the Third BOD on 9 May 2004, Mr. Wang Pengfei no longer took the position as Assistant General Manager due to job transfer. 2. Employees of the Company At the end of 2004, the Company had 1,861 employees. A breakdown by job duties of the employees is as follows: Technology 296 Production 591 Sales 365 Services 227 Administration 245 Other 137 A breakdown by educational level is as follows: University degree and above 328 Technical secondary school 179 College 502 High school and below 852 The Company had 625 retired employees, whose expenses were mainly borne by the social security fund. V. Corporate Governance Structure 1. Present state of the Company’s governance The Company continued to perfect its legal person governance structure to standardize its operation in accordance with the requirements of the PRC Company Law, Securities Law and China Securities Regulatory Commission (CSRC) during the reporting period. During the reporting period, the BOD approved the Rules on Related Transactions and Rules on Investor Relation Management, and revised the Articles of Association to regulate its actions in providing guaranties for other parties. In general, the Company’s governance structure was inconformity with the demands of the Rules on Listed Company’s Governance. 2. Independent directors’ working performance The three independent directors of Company could perform their duties in accordance -13- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report with the Articles of Association. They attended the board meetings held in the reporting period and carefully examined all the proposals. They paid great attention to the Company’s operating and financial condition and participated actively in the Company’s policy-making. They presented independent opinions on relevant affairs. What they have done was very helpful for the BOD to make right decisions and for the Company to enhance its management level and to standardize its operation. They both played their role as independent directors and safeguarded the shareholders’ interests. (1) Particulars of independent directors’ attendance in the board meetings during the reporting period: Number of Attendance Attendance Name board Absence Note in person by proxy meetings Be away on official Shi Jianjun 10 9 1 business Yan Zhen 10 9 1 Be in hospital Yu Be away on official 10 9 1 Hongliang business (2) objections raised by independent directors against certain issues of the Company During the reporting period, the independent directors did not raise objections against any issues of the Company. 3. “Five Separates” with the holding company (1) Personnel: The Company established independent laboring and salary management system. All of the senior management receive remuneration from the Company. (2) Assets: The assets of the Company are clearly separated with the holding company on ownership, subject to no impropriation or interferences from the latter. (3) Finance: The Company has established independent financial department and financial control policies. The control company did not interfere the Company on using its own fund. (4) Organization: The Company has an all-round system of internal organizations such as the Board of Directors and Supervisory Committee, who can all perform their duties independently. (5) Business: The Company does its business independent on its ultimate controlling and related companies. 4. Establishment and implementation of assessment and incentive system for the senior management The BOD passed the plan of the remuneration and assessment method for senior management in the reporting period. According to the plan, the senior management’s annual remuneration was made up of three parts including basic remuneration, post remuneration and performance remuneration, among which the first two parts will be paid monthly and the last part will be paid in installments after the senior management were assessed by the BOD according to the Company’s operating results and their individual performances. . -14- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report VI. Highlights of Shareholders General Meeting In the reporting period the Company held the 2003 Shareholders General Meetings. The 8th Meeting of the Third BOD decided to hold the meeting, and published the meeting notice on the Securities Times and Ta Kung Pao on 13th April 2004. On 28 May 2004, the Company’s 2003 Shareholders General Meeting was held in the Company’s boardroom at No. 1 Putian Road, Qinhuai District, Nanjing. One state-owned legal person shareholder, representing 115,000,000 shares, and one B-shareholder proxies, representing 321,900 shares, were present at the meeting, representing a total of 115,321,900 shares, or 53.64% of the Company’s share capitals. The meeting was presided by Chairman of the BOD, Mr. Huang Zhiqin, and passed the following proposals, including: (1) 2003 Work Report of the Board of Directors (2) 2003 Work Report of the Supervisory Committee (3) 2003 Work Report of General Manager (4) 2003 Financial Report (5) 2003 Profit Distribution Plan: no dividends shall be declared and no capital accumulation fund shall be transferred into share capital for 2003. (6) 2003 Annual Report of the Company (7) Revising the Company’s Articles of Association. The announcement of the meeting was published on Securities Times and Ta Kung Pao on 29 May 2004. VII. Report of the Board of Directors 1. the Company’s operating position in the reporting period (1) analysis of the overall operating condition of the Company during the reporting period During the reporting period, the Company was confronted with the government’s economic macro-control policy, rise of raw material prices and the telecom operators’ reduction in their investment in fixed assets. Despite of that, the Company achieved fair operating results by concerted efforts of the whole staff under the leadership of the BOD. The revenue was reported RMB 851,292 thousand for the year, 3.99 percent up from last year. However, under the influences of market competition and rise of prices of raw material, the cost of products became higher while gross margin was lower than that of last year, and with some subsidiaries reporting losses for the year, and the Company increasing assets impairment provision, the Company reported loss of RMB27,461 for the fiscal year of 2004. （2） Main business of the Company 1) Introduction of main business The Company is mainly engaged in manufacture, sales and after sales services of data communications products, wiring communications products, wireless -15- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report communications products, distribution frame products as well as multi-media computers and relevant products. 2) Composition of turn over( RMB’000) The Company realized turn over of RMB851,292 thousand and gross profit of RMB157,712 thousand for the fiscal year of 2004, the composition is as follows: By industry: Industry Sales Cost Telecommunications 699,720 570,173 Electric appliances 127,009 103,920 By products: Product Sales Cost Distribution frame 255,163 181,421 Network products 335,775 285,770 Electric products 127,009 103,920 Wireless products 108,782 102,983 By region: Region Sales Cost North China 282,347 237,652 East China 270,492 214,461 Other regions 298,454 239,233 (3) Operating results of main subsidiaries and associated companies in 2004 (Yuan) ① Main subsidiaries the Compa Registered Subsidiary Main business capital Total assets Revenue Net profit ny’s equity Nanjing Manufacture and Nanfang 99.458 sales of data Telecommunicat 34,205,148 134,813,887 190,463,821 -13,631,268 % communication ions Company equipment Ltd. Nanjing Putian Manufacture and Smart-building 81.934 sales of intelligent 12,000,000 69,905,739 102,512,663 4,989,794 Technology % building system Company Beijing Pi-com Network electronic Telecommunicat products, digital 51% $500,000 52,253,906 34,411,843 -15,086,788 ions Equipment transmission Ltd. system Nanjing Putian Electric Hongyan appliances, Electric 51.2% $1,930,000 73,541,178 100,484,011 -3,324,686 telecommunicatio Appliance n parts Company -16- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report Nanjing Putian Manufacture and Network sales of software Company Ltd. of 91.16 telecommunicatio 1,000,000 9,732,852 6,277,923 -245,218 % ns, network and electronic equipment Nanjing Putian Manufacture and Changle sales of Telecommunicat 50.7% 5,000,000 16,176,051 19,532,350 1,298,151 telecommunicatio ions Equipment n equipment Company Ltd. ② Associated companies which contributing more than 10 percent of the Company’s net profit. Equity owned Investment Registered Company by the Main business Net profit Income to the capital Company Company Nanjing Postel Wong Zhi Manufacture and 90,000,000 Telecommunications 34% sales of CDMA -24,365,024 -8,284,108 ($10,900,000) Co., Ltd mobile phone Note: Nanjing Postel Wong Zhi Telecommunications Co., Ltd was consolidated into the group by equity method in 2004. (4) Main suppliers and customers In 2004, the Company’s purchase from the top five suppliers amounted to RMB 272,324 thousand, accounting for about 42.31 percent of the total purchase, and sales to the top five customers amounted to RMB 100,144 thousand, accounting for about 11.76 percent of the total revenue. (5) Difficulty in operation In 2004, faced with the severe market condition, the Company vigorously adopted different measures to raise operating results. It strengthened the integration of resources. It speeded up the pace of developing various products and reform in corporate mechanism and corporate system. Moreover, the Company invited public bidding in the purchase of raw materials and components to control the costs; it enhanced product volume to maintain the original market share when selling prices was reduced; it further strengthened the overall budget management, trying to reduce expenses to offset the losses incurred from the gross margin reduction. 2. Investment in reporting period (1) Use of proceeds from share issuing The Company did not raise any proceeds by issuing shares in the reporting period or use proceeds raised in previous periods. (2) Other investment in report period ① As approved by the 14th meeting of the Third BOD on 10 November 2004, Nanjing Putian Smart-building Company Ltd., one of the Company’s controlled subsidiaries, -17- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report reinvested RMB 1.03 million in Nanjing Nanfang Telecommunications Company, the Company’s fully-owned subsidiary, increasing its registered capital from 33.17 million Yuan to RMB 34.2 million. After the reinvestment, the Company will hold 97% equity of Nanfang Telecommunications Company while Nanjing Smart-building Company will hold 3%, with an investment of RMB 33.17 million and RMB1.03 million respectively, and Nanjing Nanfang Telecommunications Company was renamed as Nanjing Nanfang Telecommunications Company Ltd. ② on 22 September 2004, the 12th Meeting of the Third BOD approved the resolution of setting up a joint venture with the U.S. P-COM Corporation. The joint venture, which will be specialized in micro wave products, will have a registered capital of $ 3.50 million, with $ 2.45 million invested by the Company and $ 1.05 million by P-COM Corporation, holding 70% and 30% equity respectively. The joint venture had not been set up by the end of the reporting period. 3. Analysis on financial position and operating results (RMB’000) Increas Item 2004 2003 e/decre +/-(%) Main reason of increase/decrease ase Total assets 948,276 1,026,102 -77,826 -7.58% Net loss for the year, and decrease of loans Shareholder’ 339,948 366,365 -26,417 -7.21% Net loss for the year s equity Increase of 24,874 29,187 -4,313 -14.78% Increase of cash outflows due to cash and reduction in bank loans cash equivalents Gross profit 157,712 181,984 -24,272 -13.34% Rise of prices of raw materials, and reduction of gross margin Subsidy 0 1,091 -1,091 -100.00 No such income for the year receipt % Net profit -27,461 12,068 -39,529 -327.55 Decrease of revenue, investment income, % and non-operating income, and increase of administrative expenses 4. Work plan for next year (1) deepen the reform in corporate system and mechanism, strengthen capital management, and optimize assets structure and industry structure (2) strengthen market exploration and construction of marketing network, and work hard to raise market share (3) readjust industry structure, strengthen product-based operation, work earnestly in all the links from the development, manufacture, sales to after-sale services of self-developed products, vigorously meet the competitions, attach importance on the strategy and development of competitive industries basic industry, application industry and (4)Work hard to foster new profitable products, accelerate the speed of developing new technology and new products to enhance the core competitiveness of the Company. (5)Further strengthen fundamental management. (6)Strengthen the construction of corporate culture and promote the comprehensive quality of the staff. 5. Routine work of the Board of Directors Meetings and resolutions of BOD during the reporting period Ten board meetings were held during the reporting period. -18- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report 1) On 12 January 2004, the Company held the 6th Meeting of the Third BOD, which considered and approved the Rules on Investor Relationship Management and Rules on Related Transactions Manament. 2) On 31 March 2004, the Company held the 7th Meeting of the Third BOD, which considered and approved the following proposals: A. closing one of the Company’s subsidiaries, Nanjing Putian Computer Company Ltd. B. the proposal of purchasing 1.18% equity of Hangzhou Hongyan Electric Appliances Company Ltd. for RMB 360,200 from China Putian Corporation. C. the proposal of buying 1.7% equity of Nanjing Putian Changle Telecommunications Equipment Company Ltd. for RMB 85,000 from one of its individual shareholders. 3) On 9 April 2004, the Company held the 8th Meeting of the Third BOD, which considered and approved the following proposals: A. 2003 Work Report of the Board of Directors B. 2003 Work Report of General Manager C. 2003 Financial Report D. 2003 profit distribution preplan: no dividends shall be declared and no capital accumulation fund shall be transferred into share capital for 2003. E. 2003 Annual Report and the summary of the report F. the proposal of revising the Company’s Articles of Association G. the proposal of holding the 2003 Shareholders General Meeting Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 13 April 2004. 4) On 22 April 2004, the Company held the 9th Meeting of the Third BOD, which considered and approved the following proposals: A. the 2004 First Quarterly Report of the Company B. the proposal of providing guarantees for the Company’s affiliated enterprises 5) On 9 May 2004, the Company held the 10th Meeting of the Third BOD, which considered and approved the proposal that Mr. Wang Pengfei would no longer take the position as Assistant General Manager of the Company. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 12 May 2004. 6) On 13 August 2004, the Company held the 11th Meeting of the Third BOD, which considered and approved the following proposals: A. General Manager’s work report for the first half year of 2004 B. the Company’s financial report for the first half year of 2004 C. 2004 Semi-annual Report of the Company and the summary of the report D. the proposal of senior management’s remuneration and evaluation program E. the proposal of transferring 49% equity of Xishan Ptuian Network Company Ltd. -19- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 17 August 2004. 7) On 22 September 2004, the Company held the 12th Meeting of the Third BOD, which considered and approved the proposal of investing $2.45 million in setting up a joint venture with the US P-COM Corporation. 8) On 21 October 2004, the Company held the 13th Meeting of the Third BOD, which considered and approved the following proposals: A. the Company’s 2004 Third-Quarterly Report B. the proposal of modifying the price of buying the equity of Hangzhou Hongyan Electric Appliances Company Ltd. to RMB 223,600. 9) On 10 November 2004, the Company held the 14th Meeting of the Third BOD, which considered and approved the following proposals: A. the proposal of buying a 33% stake of Nanjing Postel Wongzhi Telecommunications Company Ltd. from Toshiba Corporation and Toshiba China Co., Ltd. B. the proposal of re-adjusting the share structure of the Company’s fully owned subsidiary, Nanjing Nanfang Company. 10) On 21 December 2004, the Company held the 15th Meeting of the Third BOD, which considered and approved the proposal of restructuring Nanjing Bada Telecommunications Company Ltd. as a limited-liability company. 6. Profit distribution preplan for the year The Company realized net profit of RMB–27,461 thousand for 2004. Plus the accumulated losses by last year, it had accumulated losses of RMB70,066 thousand by the end of 2004. According to this fact, the Board of Directors advised that no dividends be declared for 2004, and that no capital accumulation fund be transferred into share capital. 7. Specific illustration on funds occupation by the controlling shareholder and other related parties To the Board of Directors of Nanjing Putian Telecommunications Co., Ltd. PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd. (“we”) have accepted the appointment to audit the consolidated and the parent company’s balance sheet of the Company and its subsidiaries as at 31 December 2004 and the related consolidated and the parent company’s income and cash flow statements for the year then ended. Our audit was conducted in accordance with China Certified Public Accountants’ Independent Auditing Standards. Unqualified report of the auditors ( PwC ZT Shen Zi (2005) No. 1141) has been issued on 15 April 2005. According to Circular on Certain Issues Relating to Fund Transfer Between Listed Company and Their Related Parties and Guarantees Provided by Listed Companies ( Zheng Jian Fa [2003] No. 56) jointly issued by the China Securities Regulatory -20- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report Commission and the State-owned Assets Supervision and Administration Commission, the Company has prepared the accompanying statement on funds occupation by its controlling shareholder and other related parties for the year ended 31 December 2004(“ the statement”). It’s the Company’s responsibility for the fair presentation (accuracy, legality and completeness) of the statement. We have agreed the information on the statement to the accounting records examined during annual audit of the year 2004 and the audited financial statements with no inconsistencies in all material respects have been noted. Except for the audit procedures performed on related party transactions during the annual audit of the year 2004, no additional audit procedures have been performed on the information of the statement. For better understanding of the capital occupation by the controlling shareholder and other related parties of the Company, the accompanying statement should be read together with the audited consolidated financial statement. This specific illustration is only for the disclosure purpose of the capital occupation of the controlling shareholder and other related parties of the Company, and should not be used for any other purposes. Appendix: The statement on funds occupation by the controlling shareholder and other related parties of Nanjing Putian Telecommunication Co., Ltd. Pricewaterhouse Coopers Zhong Tian CPAs Co., Ltd. 15 April 2005 -21- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report The statement on funds occupation by the controlling shareholder and other related parties of Nanjing Putian Tele Company Relationship with Date of Cumulative total in Cu Name of entity Stock code abbreviation the Company Date of end beginning Accounting title Ending balance Beginning balance debit cre Ningtongxin Nanjing Nanfang other 25,297,664 24,285,712 2,712,425 200468 Subsidiary 2004-12-31 2004-1-1 B Telecommunications Company Ltd. receivables 23,606,000 24,000,000 33,606,000 Ningtongxin Nanjing Bada Telecommunications other 200468 Subsidiary 2004-12-31 2004-1-1 B Equipment Company Ltd. receivables -30,299,152 -31,971,548 278,341,804 Shanghai huaning Ningtongxin other 200468 Telecommunications Subsidiary 2004-12-31 2004-1-1 B receivables Developmemt Ltd. 0 -525,000 706,674 Ningtongxin Nanjing Golden Huali Electronics other 0 1,037,394 352,832 200468 Subsidiary 2004-12-31 2004-1-1 B Ltd. receivables 2,612,340 5,300,000 0 Ningtongxin Nanjing Putian Shiye Company other 200468 Subsidiary 2004-12-31 2004-1-1 B Ltd. receivables 3,788,503 4,760,955 2,663,083 Ningtongxin Nanjing Putian Computer Industry other 200468 Subsidiary 2004-12-31 2004-1-1 B Company Ltd. receivables 0 -7,848,475 8,077,773 Ningtongxin Najing Putian Smart-building other 11,933,554 10,880,393 46,299,633 200468 Subsidiary 2004-12-31 2004-1-1 B Technology Company Ltd. receivables 3,000,000 3,000,000 4,000,666 Ningtongxin Beijing Picom Telecommunications other 200468 Subsidiary 2004-12-31 2004-1-1 B Equipment Company Ltd. receivables 54,096,453 54,760,889 15,693,665 Ningtongxin Putian Telecommunications (H.K.) other 0 1,084,224 70,008 200468 Subsidiary 2004-12-31 2004-1-1 B Company Ltd. receivables 13,593,790 14,464,468 0 Ningtongxin Nanjing Putian Hongyan Electric other 20,022,047 -4,800,197 37,940,080 200468 Subsidiary 2004-12-31 2004-1-1 B Appliance Company Ltd. receivables 10,000,000 10,000,000 7,000,000 Ningtongxin Nanjing Putian Network Company other 1,120,353 4,326,282 1,295,892 200468 Subsidiary 2004-12-31 2004-1-1 B Ltd. receivables 500,000 3,500,000 0 Nanjing Putian Changle Ningtongxin other 200468 Telecommunications Equipment Subsidiary 2004-12-31 2004-1-1 B receivables Company Ltd. -6,563,482 -7,936,939 30,398,745 Ningtongxin Xishan Putian Information Network Associated other 200468 2004-12-31 2004-1-1 B Company Ltd. company receivables 2,000,000 5,000,000 0 Ningtongxin Nanjing Menneks Electric other 1,760,497 1,434,440 7,934,168 200468 Subsidiary 2004-12-31 2004-1-1 B Appliance Ltd. receivables 0 0 5,000,000 Ningtongxin Nanjing Yuhua Electroplating Associated other 200468 2004-12-31 2004-1-1 B Factory company receivables -673,219 -894,085 3,529,003 Ningtongxin Nanjing Postel Wongzhi other 200468 Subsidiary 2004-12-31 2004-1-1 B Telecommunications Company Ltd. receivables 0 0 207,567 -22- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report 8. Special explanation and independent opinion presented by the Independent Directors on guarantee offered by the Company to other parties at the end of and in the reporting period. we checked Nanjing Putian Telecommunications Co., Ltd. in respect of offering guaranties for other parties during 2004 and hereby give our opinions as follows: 1. During the reporting period, the Company did not offer guaranty for the controlling shareholder, any other related parties with its share-holding below 50%, any non-legal-person entities, or any individuals. 2. During the reporting period the Company provided guaranties only for the consolidated subsidiaries with accumulated amount of RMB62 million and ending balance of RMB49 million, accounting for 14.52% of the Company’s net assets. 3. during the reporting period the Company offered guaranty for the following subsidiaries whose asset liability ratio was higher than 70%: Subsidiaries Term Amount(Yuan) Nanjing Putian Hongyan Electric 2.24.2004-8.24.2004 3,000,000 Appliance Company Nanjing Putian Hongyan Electric 5.24.2004-11.24.2004 4,000,000 Appliance Company Nanjng Nanfang 2004.2.10-2004.7.2 3,500,000 Telecommunications Company Total amount 10,500,000 The above guaranty which violated the relevant regulations was conducted in the first half yea and was extended term guaranty provided for the Company’s subsidiaries in normal operation. By the end of the year, the above guaranty has been relieved from responsibility. According to our examination, there were no such guarantees in violation of the regulations in the next half year, and the Company has required its subsidiaries to provide it with a counter-guaranty when it provided guaranties for them. Independent Director: Shi Jianjun, Yan Zhen, Yu Hongliang 15 April 2005 VIII. Report of Supervisory Committee 1. Meetings of the Supervisory Committee during the reporting period The Supervisory Committee held four meetings in the reporting period: (1) On 9 April 2004, the Company held the 4th Meeting of the Third Supervisory Committee, which considered and approved the 2003 work report of the Supervisory Committee, the Company’s 2003 financial report and 2004 financial budget as well as the Company’s 2003 annual report and summary . Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 13 April 2004. (2) On 23 April 2004， the Company held the 5th Meeting of the Third Supervisory Committee, which considered and approved the Company’s First Quarterly Report of 2004. -23- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report (3) On 13 August 2004, the Company held the 6th Meeting of the Third Supervisory Committee, which considered and approved the Company’s 2004 Semi-annual Report and Summary. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 17 August 2004. (4) On 21 October 2004, the Company held the 7th Meeting of the Third BOD, which considered and passed the Company’s 2004 Third Quarterly Report. 2. Independent opinion presented by the Supervisory Committee (1) The Company’s performance in abiding by the laws in operation The Supervisory Committee inspected and supervised the Company’s decision-making procedures, internal management rules and actions of the directors and senior management in performing duties. The Supervisory Committee believe that the Company was in conformity with the relevant laws, regulations and the Company’s internal management rules in its operations, and underwent legal procedures in decision-making. No acts of the directors and senior management were observed violating the laws, regulations and the Company’s Articles of the Association or contrary to the interest of the Company. (2) The Company’s financial position: The Supervisory Committee carefully inspected the financial rules and financial situation of the Company. Upon the Company’s inappropriate actions in providing guaranty to other parties, the Supervisory Committee remind the BOD and the management to strictly abide by the Articles of Association and the Company’s Rule on Guaranty and regulate its actions of providing guaranty to the subsidiaries. the Supervisory Committee remind the BOD and the management to pay great attention to the quality of the assets, and adopt vigorous measures in the disposal of the inventories or collecting of trade receivables on which provision for impairment has been calculated, to reduce virtual losses on the Company. Meanwhile, the Company should try to avoid or reduce the increase of bad assets. The Supervisory Committee believe that the 2004 Accounting Statement gives a true view of the Company’s financial position and operating results in the reporting period, and the Auditor’s Report as well as the related judgement presented by Price WaterHouseCoopers Zhong Tian CPAs Co., Ltd. is objective and fair. (3) The Company’s transaction in purchasing and selling assets The Company’s transactions in purchasing and selling assets in the reporting period were in line with the principle of sustainable long-term development and were executed at fair prices. No insider deals, actions harmful to certain shareholders’ interest, or loss of the Company’s assets were found. (3) The Company’s related transactions: -24- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report The Company’s related transactions in the year were executed at market price by regulated procedures according to relevant rules and by normal commercial terms under the rule of fair trade. No actions of harming the interest of the Company were observed by the Supervisory Committee after inspection. IX. Significant Events 1. The Company was not engaged in any lawsuit or arbitration of material importance during the reporting period. 2. Matters related to purchasing assets, selling assets or merging during the reporting period 1）As approved by the 14th meeting of the Third BOD on 10 November 2004, the Company bought a 33% stake in Nanjing Postel Wong Zhi Telecommunications Co., Ltd. from Toshiba Corporation and Toshiba China Co., for RMB 10.48 million. After the transfer, the Company’s equity in Nanjing Postel Wongs Co., Ltd. was increased from 34% to 67%. 2）As approved by the 7th meeting of the Third BOD on 31 March 2004, the Company bought a 1.7% stake in Nanjing Putian Changle Telecommunications Equipment Company Limited. After the transfer, the Company’s equity in Nanjing Putian Changle Telecommunications Equipment Company Limited was increased from 49% to 50.7%. As a result of the above transactions, Nanjing Postel Wong Zhi Telecommunications Co., Ltd. and Nanjing Putian Changle Telecommunications Equipment Company Limited became the controlled subsidiaries of the Company. The above transactions will not affect the continuity of the Company’s operation and the stability of the management. Both the property right of the assets involved and the liabilities or right of credit have been transferred. 3）As approved by the 13th meeting of the Third BOD on 21 October 2004, the Company will purchase a 1.18% stake of Hangzhou Hongyan Electric Appliances Company Ltd. from China Putian Corporation. After the transaction the Company will hold a 1.18% stake in Hangzhou Hongyan Electric Appliances Company Ltd. At present the relevant procedures related to the transactions are being gone through at the commercial administration department. 4）As approved by the 7rd meeting of the Third BOD on 31 March 2004, the Company closed Nanjing Putian Computer Industry Company Limited, one of the subsidiaries during the reporting period. All the work concerning the liquidation of the subsidiary has been finished. -25- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report 3. Material related transactions: (1) Material related transactions: As approved by the First Extempore Shareholders General Meeting of 2003, the Company purchased PHS phones of RMB 54,556,192 from Shenzhen Putianlingyun Electronic Ltd., which is a related party of the Company as also controlled by China Putian Corporation. The transaction was executed at market price and is estimated to be continued in 2005. (2) Other related transactions: see Notes to the Financial Statements. 4. Material contracts (1) During the reporting period the Company did not trust, contract or lease assets to other companies or from other companies. (2) Guarantee offering: during the reporting period the Company offered guarantee for the following subsidiaries (yuan) Name Amount Starting ending Term Type Nanjing Putian Smart-building 4,000,000 2004-5-25 2005-5-25 1 year Joint liabilities Technology Ltd. Nanjing Putian Smart-building 500,000 2004-5-25 2004-8-25 90 days Joint liabilities Technology Ltd. Nanjing Putian Hongyan Electric 3,000,000 2004-2-24 2004-8-24 Six months Joint liabilities Appliance Company Nanjing Putian Hongyan Electric 4,000,000 2004-5-24 2004-11-24 Six months Joint liabilities Appliance Company Nanjing Putian Hongyan Electric 3,000,000 2004-8-13 2005-2-13 Six months Joint liabilities Appliance Company Nanjing Putian Hongyan Electric 1,000,000 2004-11-9 2005-5-9 Six months Joint liabilities Appliance Company Nanjing Putian Hongyan Electric 5,000,000 2004-11-25 2005-5-25 Six months Joint liabilities Appliance Company Nanjing Nanfang 3,500,000 2004-2-10 2004-7-2 Six months Joint liabilities Telecommunications Company Nanjing Nanfang 10,000,000 2004-7-27 2005-7-23 1 year Joint liabilities Telecommunications Company Nanjing Nanfang 10,000,000 2004-8-20 2005-2-27 Six months Joint liabilities Telecommunications Company Nanjing Nanfang 10,000,000 2004-10-19 2005-4-18 Six months Joint liabilities Telecommunications Company Nanjing Mennekes Electric 2,000,000 2004-5-25 2004-12-25 Six months Joint liabilities Appliance Ltd. Nanjing Mennekes Electric 2,000,000 2004-12-17 2005-12-17 1 year Joint liabilities Appliance Ltd. Nanjing Mennekes Electric 2,000,000 2004-2-27 2005-2-27 1 year Joint liabilities Appliance Ltd. Nanjing Mennekes Electric 2,000,000 2004-11-3 2005-11-3 1 year Joint liabilities Appliance Ltd. Note: during the reporting period the debts which was guaranteed by the Company were all repaid on time. (3) The Company made no entrust investment during the reporting period. -26- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report 5. Commitment of the Company or shareholders holding over 5 percent of the share capital During the reporting period, the Company or shareholders holding more than 5 percent of the share capital did not make any commitment. 6. Appointment of Public Accountant The Company continued to appoint Price WaterHouseCoopers Zhong Tian CPAs Co., Ltd. as the domestic and foreign auditor. Payment to the auditors: (unit: yuan) 2004 2003 Auditor Audit expense Other expense Audit expense Other expense Domestic auditor 350,000 0 300,000 0 Overseas auditor 750,000 0 700,000 0 Note: (1) Expense for business trip was borne by the auditors themselves. (2)The auditors provided no other services charging fees except audit services for the Company. 7. The Company, the Board of Directors or the directors were not punished by the securities regulatory departments during the reporting period. X. Financial Report 1. Auditor’s report The Company’s 2004 Financial Statements were audited and issued a report with unqualified opinion by Price WaterHouseCoopers Zhong Tian CPAs Co., Ltd. REPORT OF THE AUDITORS PwC ZT Shen Zi 2005/SH-060/LC/SZB TO THE SHAREHOLDERS OF NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. We have audited the accompanying consolidated balance sheet of Nanjing Putian Telecommunications Co., Ltd. (the “Company”) and its subsidiaries (the “Group”) as of 31 December 2004 and the related consolidated income and cash flow statements and changes in shareholders’ equity for the year then ended. These financial statements set out on pages 2 to 31 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accompanying consolidated financial statements give a true and fair view the financial position of the Group as of 31 December 2004, and of the results of its -27- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report operations and cash flows, and changes in equity for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Zhong Tian CPAs Limited Company 15 April 2005 2. Financial statements(attached) 3. Notes to the financial statements (attached) XI. Documents for Inspection 1. Original text of accounting statements signed and sealed by legal person representative, financial controller and accountant officer. 2. Original text of Auditor’s Report signed and sealed by Certified Public Accountant with public accountant’s seals on. 3. Original texts of all the files and announcements published on the newspapers appointed by China Securities Regulatory Commission during the reporting period. Nanjing Putian Telecommunications Co., Ltd. 19 April 2005 -28- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Notes 2004 2003 Sales 3 851,292 818,647 Cost of sales 3 (693,580) (636,663) Gross profit 157,712 181,984 Other operating income 11,241 8,611 Distribution costs (71,546) (79,417) Administrative expenses (101,792) (79,033) Other operating expenses (3,434) (1,515) Operating profit (loss) 4 (7,819) 30,630 Finance costs, net 6 (18,174) (20,235) Loss on disposal of subsidiaries 8 (55) (812) Profit from sales of long-term investments - 4,795 Share of loss before tax of associated companies 14 (8,837) (456) Profit (loss) before tax (34,885) 13,922 Tax 9 (2,194) (2,141) Profit (loss) before minority interests (37,079) 11,781 Minority interests 10 9,618 287 Net profit (loss) for the year (27,461) 12,068 Earnings (loss) per share 11 Rmb(0.13) Rmb 0.06 -29- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2004 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) 31 Notes December 31 December 2004 2003 ASSETS Non-current assets Property, plant and equipment 12 130,702 111,149 Construction in progress 3,198 2,753 Land use rights 13 34,410 35,271 Investments in associated companies and available-for-sale investments 14 7,583 35,345 Intangible assets 15 9,844 14,063 185,737 198,581 Current assets Inventories 16 162,462 206,094 Receivables and prepayments 17 399,743 397,122 Trading investments 363 - Cash and bank balances 18 199,971 224,305 762,539 827,521 Total assets 948,276 1,026,102 -30- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2004 (continued) (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Notes 31 31 2004 2003 EQUITY AND LIABILITIES Capital and reserves Share capital 19 215,000 215,000 Reserves 20 124,948 151,365 339,948 366,365 Minority interests 10 29,601 15,820 Non-current liabilities Long-term bank loan 21 35,000 35,000 Employee housing benefits payable 15,069 17,918 Other non-current liabilities 2,529 1,670 52,598 54,588 Current liabilities Trade and other payables 22 259,006 287,499 Current tax liabilities 1,123 1,029 Dividend payable - 801 Short-term bank loans 23 266,000 300,000 526,129 589,329 Total liabilities 578,727 643,917 Total equity and liabilities 948,276 1,026,102 On 15 April 2005, the Company’s Board of Directors authorised these financial statements for issue. Director Director -31- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Year ended 31 December 2003 Statutory and discretionary Statutory Exchange Capital surplus public translation Other Accumulate Surplus reserve fund welfare fund reserve reserves losse Balance at 1 January 2003 165,531 16,331 10,253 (58) 115 (55,05 Exchange translation difference - - - 44 - Net profit for the year - - - - - 12,06 Profit appropriation of subsidiaries - 616 308 - - (92 Disposal of subsidiaries - (1,731) (921) - - 2,65 Share of waived debts of an associate (1) 1,843 - - - - Others 290 - - - -       Balance at 31 December 2003 167,664 15,216 9,640 (14) 115 (41,25       1) It represents share of capital surplus recognized by an associate due to waiver of debts by its investor. -32- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2004 (continued) (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Year ended 31 December 2004 Statutory and discretionary Statutory Exchange Capital surplus public translation Other Accumulated surplus reserve fund welfare fund reserve reserves losses res Balance at 1 January 2004 167,664 15,216 9,640 (14) 115 (41,256) 15 Exchange translation difference - - - (109) - - Net profit for the year - - - - - (27,461) (2 Profit appropriation of subsidiaries - 935 414 - - (1,349) Share of waived debts of an associate(1) 423 - - - - - Others 730 - - - - -        Balance at 31 December 2004 168,817 16,151 10,054 (123) 115 (70,066) 12        (1) It represents share of capital surplus recognized by an associate due to waiver of debts by its investor -33- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) 2004 2003 CASH FLOWS FROM OPERATING ACTIVITIES Net profit (loss) (27,461) 12,068 Adjustments for: Tax 2,194 2,141 Minority interests (9,618) (287) Depreciation 15,088 18,202 Impairment (Reversal of impairment) of property, plant and equipment 256 (529) Impairment (Reversal of impairment) of receivables 4,403 (2,858) Provision of slow moving inventories 27,194 14,130 Amortization of land use rights and intangible assets 6,425 6,888 Interest expense 20,554 21,840 Interest income (3,392) (2,416) Loss of associated companies 8,837 456 Negative goodwill (8,103) - Profit on sale of investments - (4,795) Profit on disposal of property, plant and equipment and intangible assets (43) (6,867) Loss on disposal of subsidiaries 55 812 36,389 58,785 Decrease (increase) in inventories 27,277 (42,426) Decrease (increase) in receivables and prepayments (3,917) 20,761 Increase (decrease) in trade and other payables (20,508) 37,719 Cash generated from operations 39,241 74,839 Net interest paid (17,162) (19,424) Tax paid (5,970) (1,602) Net cash generated from operating activities 16,109 53,813 -34- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. CONSOLIDATED CASH FLOW STATEMENT (continued) FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) 2004 2003 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of property, plant and equipment 695 11,389 Purchase of property, plant and equipment, intangible assets and payments on construction projects (11,610) (20,213) Investments in associated companies - (13,663) Purchase of trading investments (363) - Purchase of subsidiaries, net of cash receipts 8,795 - Disposal of subsidiaries, net of cash disposed (41) (63) Cash from sale of subsidiaries of the Company - 11,754 Investment in a subsidiary company (75) (900) Dividends from investments in associated companies 790 461 Decrease (increase) in bank deposits with maturity over 3 months 49,208 (16,264) Net cash generated from (used in) investing activities 47,399 (27,499) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of non-current liabilities (6,511) (7,843) Proceeds from bank loans 381,000 269,500 Repayment of bank loans (415,000) (259,000) Capital contributed by minority shareholders 3,165 1,138 Dividend paid to minority shareholders (1,288) (922) Net cash generated from (used in) financing activities (38,634) 2,873 Increase in cash and cash equivalents 24,874 29,187 Cash and cash equivalents at beginning of year 175,097 145,909 Cash and cash equivalents at end of year 199,971 175,096 -35- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) 1 CORPORATE INFORMATION Nanjing Putian Telecommunications Co., Ltd. (the “Company”) was established in May 1997 in the People’s Republic of China (the “PRC”). The principal activities of the Company and its subsidiaries (the “Group”) are the manufacture and marketing of telecommunication equipment, electric appliances and other related accessories in the PRC. Particulars of the Company's principal subsidiaries, joint ventures and associated companies are shown in note 26. All the operating assets and substantially all the sales of the Group are based in the PRC. China Putian Information Industry Corporation, which holds the Company’s 115,000,000 state-owned shares, or 53.49% of the Company’s total share capital, is regarded as the Company’s ultimate holding company (the “Ultimate Holding Company”). 2 PRINCIPAL ACCOUNTING POLICIES (a) Basis of preparation The consolidated financial statements have been prepared based on the management accounts of the Company, its subsidiaries, joint ventures and associated companies. Those management accounts are prepared in accordance with PRC accounting standards, which differ in certain respects from International Financial Reporting Standards (“IFRS”). These financial statements have incorporated adjustments made to the management accounts in order to conform with IFRS. The consolidated financial statements have been prepared under the historical cost convention. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. In preparation of the financial statements for the year ended 31 December 2004 , the Group early adopted the IFRS 3 Business Combination, IAS 36 (revised 2004) Impairment of Assets and IAS 38 (revised 2004) Intangible Assets since 1 January 2004 These early adoptions have no significant impact on 2003 financial statements. (b) Group accounting (1) Subsidiaries Subsidiaries are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with those adopted by the Group. The purchase method of accounting is used to account for the acquisition of subsidiaries -36- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. (1) Associated companies Investments in associated companies are accounted for by the equity method of accounting. Under this method the Company’s share of the post-acquisition profits or losses of associated companies is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Associated companies are entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealised gains on transactions between the Group and its associated companies are eliminated to the extent of the Group’s interest in the associated companies; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When the Group’s share of losses in an associated company equals or exceeds its interest in the associated company, the Group does not recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associated company. (2) Joint ventures The Group’s interests in jointly controlled entities are accounted for by proportionate consolidation. The Group combines its share of the joint ventures’ individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in the Group’s financial statements. The Group recognises the portion of gains or losses on the sale of assets by the Group to the joint venture that it is attributable to the other venturers. The Group does not recognise its share of profits or losses from the joint venture that result from the purchase of assets by the Group from the joint venture until it resells the assets to an independent party. However, if a loss on the transaction provides evidence of a reduction in the net realisable value of current assets or an impairment loss, the loss is recognised immediately. (c) Foreign currency translation (1) Reporting currency The Company uses the Renminbi (“Rmb”) as reporting currency. The consolidated financial statements of the Group are presented in Renminbi thousand. (2) Transactions and balances Foreign currency transactions are translated into Rmb using the exchange rates stipulated by the People’s Bank of China prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Renminbi at the exchange rates stipulated by the People’s Bank of China at the balance sheet date. Exchange differences arising from these translations are recognised in the income statement. (3) Foreign entities Income statements and cash flows of foreign entities are translated into the Group’s reporting currency at average exchange rates for the year and their balance sheets are -37- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report translated at the exchange rates ruling on 31 December. Exchange differences arising from the net investment in foreign entities are taken to shareholders’ equity. When a foreign entity is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale. (d) Investment The Group classified its investments in debt and equity securities into the following categories: trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets; for the purpose of these financial statements short term is defined as 3 months. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date which are classified as current assets; during the period the Group did not hold any investments in this category. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; and are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading and available-for-sale investments are subsequently carried at fair value. Held-to-maturity investments are carried at amortised cost using the effective yield method. Realised and unrealised gains and losses arising from changes in the fair value of trading investments are included in the income statement in the period in which they arise. Unrealised gain and losses arising from changes in the fair value of securities classified as available-for-sale are recognised in equity. The fair value of investments are based on quoted bid prices or amounts derived from cash flow models. Fair values for unlisted equity securities are estimated using applicable price/earnings or price/cash flow ratios refined to reflect the specific circumstances of the issuer. Equity securities for which fair values cannot be measured reliably are recognised at cost less impairment. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities. (e) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment loss. Depreciation is calculated on the straight-line method to write off the cost of each asset to their residual values over their estimated useful lives as follows: Buildings 15 - 35 years Plant and machinery 10 - 15 years Furniture, fixtures and office equipment 4 - 11 years Motor vehicles 6 - 8 years When the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposal of property, plant and equipment are determined by comparing proceeds with carrying amount and are included in operating profit. Interest costs on borrowings to finance the construction of property, plant and equipment -38- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. (f) Construction in progress Construction in progress represents capital assets under construction or being installed and is stated at cost. Cost comprises cost of equipment, construction costs and other direct costs including interest expense arising from borrowings to finance the projects during the construction period. On completion of construction, the cost is transferred to property, plant and equipment. (g) Land use rights Land use rights are stated at cost less amortization. Amortization is calculated on the straight line method to write off the cost of land use rights over their use period. (h) Intangible assets Intangible assets refer to software expenditures and proprietary technologies. Software expenditures represent the cost of software rights. They are stated at cost and amortized on the straight-line basis over their use period from the date they are put into use. Proprietary technologies are initially recorded at cost. Proprietary technologies are amortized on the straight-line basis over their useful lives. (i) Impairment of assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). (j) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. (k) Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all -39- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report amounts due according to the original terms of receivables. (l) Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term highly liquid investments. (m) Borrowings Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings. (n) Pension costs The Group participates in a government defined contribution retirement scheme. Under the scheme, retirement benefits of existing and retired employees are guaranteed by the local Unified Retirement Fund and the Group has no further obligations beyond the annual contributions. The Group's contributions are charged to the income statement in the period to which they relate. (o) Deferred income taxes PRC income tax is provided for based on the assessable profits computed in accordance with PRC tax regulations and tax rates applicable to the Group. Deferred income tax is provided, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted tax rates are used to determine deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. (p) Revenue recognition Revenue comprises the invoiced value for the sale of goods and services net of value-added tax, rebates and discounts, and after eliminating sales within the Group. Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Revenue from rendering of services is based on the stage of completion determined by reference to services performed to date as a percentage of total services to be performed. Other revenues earned by the Group are recognised on the following bases: • Interest income - on an effective yield basis. • Subsidy income - when the right to receive payment is approved by the government. (q) Dividends Dividends are recorded in the Group’s financial statements in the period in which they are approved by the Group’s shareholders. (r) Financial instruments Financial instruments carried in the balance sheet include cash and bank balances, -40- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report investments in associated companies, receivables and prepayments, payables and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. -41- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report 3 SALES AND COST OF SALES Sales and cost of sales include the following: Self manufactured Purchased Self telecommunication telecommunication manufactured and and electronics Sub-contracting electrical products electrical products products services 2004 Sales 425,274 319,068 96,574 2,327 Cost of sales (315,176) (293,247) (77,891) (3,013)      Gross profit 110,098 25,821 18,683 (686)      2003 Sales 405,282 322,226 81,858 2,480 Cost of sales (279,857) (285,213) (63,141) (2,307)      Gross profit 125,425 37,013 18,717 173      The Group is organized into one main business segment, telecommunication and related products. Accord information is presented. All assets and operations of the Group are located in the PRC, which is considered as one geographic locat similar risks and returns. Accordingly, no geographical segment information is presented. -42- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report 4 OPERATING PROFIT (LOSS) The following items have been included in arriving at operating profit (loss): 2004 2003 Depreciation on property, plant and equipment 15,088 18,202 Gain on disposal of property, plant and equipment 43 6,867 Staff costs 71,189 69,175 Impairment (Reversal of impairment) of receivables 4,403 (2,858) Provision of slow moving inventories 27,194 14,130 Impairment of property, plant and equipment 256 - Amortization of land use rights 861 944 Amortization of intangible assets 5,564 5,944 Repairs and maintenance expenditures on property, plant and equipment 1,374 1,085 Research and development expenditures 8,404 9,709 Operating lease rentals payable – property 1,795 2,599 Subsidy income - (1,091) Negative goodwill (8,103) - 5 STAFF COSTS 2004 2003 Employees’ wages and salaries 54,157 50,636 Pension costs 9,865 11,150 Directors’ remuneration 400 257 Medical insurance and others 6,767 7,132 71,189 69,175 Average number of persons employed by the Group during the year 1,732 1,747 6 FINANCE COSTS, NET 2004 2003 Interest expense on bank loans 20,554 21,840 Interest income (3,392) (2,416) Others 1,012 811 18,174 20,235 7 ACQUISITION OF SUBSIDIRIARIES (1) In 2004, the Company purchased 33% share capital of Nanjing Putian Wangzhi Telecommunication Co., Ltd. (“Wangzhi”) from Toshiba Corp. and Toshiba (China) Co., Ltd., and increased its shareholdings in Wangzhi to 67%. The related assets and liabilities of Wangzhi as well as the cash flow on acquisition were as follows: Total consideration 10,480 -43- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report Fair value of net assets acquired 16,058 Negative goodwill (5,578) The assets and liabilities arising from the acquisition are as follows: Fair value Cash and bank balances 15,333 Property, plant and equipment 20,610 Intangible assets 518 Inventories 2,618 Current tax assets 10,115 Receivables 23 Payables (557) Net assets 48,660 Percentage of shares purchased 33% Net assets acquired 16,058 Total cash consideration 10,480 Less: Cash receipts generated from acquisition (15,333 ) Net cash inflow on acquisition 4,853 (2) The Company purchased 1.7% of the share capital of Nanjing Putian Changle Telecommunication Co., Ltd. (“Changle”) from a shareholder and increased its shareholdings to 50.7%. The related assets liabilities of Changle as well as the cash flow on acquisition were as follows: Total consideration 85 Fair value of net assets acquired 160 Negative goodwill (75) The assets and liabilities arising from the acquisition are as follows: Fair value Cash and bank balances 3,518 Property, plant and equipment 2,791 Intangible assets 911 Inventories 5,348 Receivables 2,483 Payables (5,612) Net assets 9,439 Percentage of shares purchased 1.7% Net assets acquired 160 -44- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report Cash consideration 85 Less: Cash receipts generated from acquisition (4,027) Net cash inflow on acquisition 3,942 8 DISPOSAL OF A SUBSIDIRIARY In October 2004, Nanjing Putian Computer Company (“Computer”), a 99.5% owned subsidiary of the Group, was liquidated. Accordingly Putian Computer was no longer consolidated into the Group since the date of its liquidation. a) The related assets and liabilities of Putian Computer at the date of liquidation were as follows: Assets Cash 127 Other receivables 7,989 Property, plant and equipment 75 8,191 Liabilities Account payables (284) Welfare payables (36) Tax recoverable 353 Other payables (94) (61) Net assets at the date of liquidation 8,130 b) Disposal loss The Company’s share of net assets received on liquidation was Rmb 8,089,098. Income on liquidation 8,034 Share of net assets 8,089 Net loss from disposal on liquidation (55) c) Net cash outflow on disposal Cash received on liquidation 86 Cash and bank balances at the date of liquidation (127) Net cash outflow on disposal 41 9 TAX 2004 2003 -45- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report Current tax 2,194 2,141 Deferred tax - - Share of tax of associated companies (note 14) - - 2,194 2,141 The Company and its subsidiaries and joint ventures are subject to the following income tax rates in 2004 and 2003: 2004 2003 The Company (a) 15% 15% Nanjing Nanfang Telecommunications Company Limited (a) 15% 15% Nanjing Bada Telecommunications Co., Ltd. 33% 33% Shanghai Huaning Telecommunications Development Ltd. (b) 15% 15% Nanjing Golden Huali Electronics Ltd. (c) - - Nanjing Putian Shiye Company Ltd. 33% 33% Nanjing Putian Computer Company Ltd. 33% 33% Nanjing Mennekes Electric Appliance Ltd. (d) 15% 15% Nanjing Putian Smart-building Technology Ltd. (a) 15% 15% Putian Telecommunications (H.K.) Co., Ltd. (e) 17.5% 17.5% Beijing Picom Telecommunications Equipment Ltd. (c) - - Nanjing Putian Hongyan Electric Appliance Company (f) 12% 12% Nanjing Putian Computer Technology Company Ltd. 33% 33% Nanjing Putian Network Company Ltd. (c) - - Nanjing Putian Telecommunications Shiye Company Ltd. 33% 33% Nanjing Putian Changle Telecommunication Co., Ltd. 33% 33% (a) The Company, Nanjing Nanfang Telecommunications Company Limited and Nanjing Putian Smart-building Technology Ltd. are qualified as high technology enterprises established in Nanjing Jiangning National Hi-technology Development Zone. In accordance with relevant regulations, they are subject to income tax at a reduced rate of 15%. (b) Shanghai Huaning Telecommunications Development Ltd. (“Huaning”) is established in the Shanghai Pudong Area. In accordance with the relevant regulations, Huaning is subject to income tax at a reduced rate of 15%. (c) Nanjing Golden Huali Electronics Ltd., Beijng Picom Telecommunications Equipment Ltd. and Nanjing Putian Network Company Ltd. have not provided any income tax since they have no taxable income for the year 2004. (d) According to tax response from Nanjing GuoShui(2003) JianZi No.33, Nanjing Mennekes Electric Appliance Ltd. was entitled to high technology enterprise by the national tax bureau of Nanjing’s JiangNing district in 2003, from which the enterprise income tax will be 15% and local income tax is exempted. (e) In accordance with the Hong Kong tax law, Putian Telecommunications (H.K.) Co., Ltd., a subsidiary established in Hong Kong on 1 December 2000, is subject to income tax at 17.5%. (f) Nanjing Putian Hongyan Electric Appliance Company is a joint venture company established in the old urban district of economic and technological development area whose current corporate income tax is 24%. It is entitled to full exemption from income tax for the first two years starting from the first profit-making year (after utilising all tax losses brought forward) and a 50% reduction in the income tax rate for the three years thereafter. 2001 is the first profit-making year. 2004 is the second year of 50% tax exemption. Therefore, corporate income tax was provided at a rate -46- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report of 12%. Actual tax expenses differs from the theoretical amount that would arise using the tax rate of the Company as follows: 2004 2003 Profit (loss) before tax (27,461) 13,922 Tax calculated at a tax rate of 15% (4,119) 2,088 Previous year’s tax overpaid (770) (863) Utilization of subsidiaries’ tax losses - (1,587) Temporary differences which could be deductible in future years 5,029 1,611 Income and expense items which are not taxable or deductible for income tax purposes 1,593 652 Effect of different tax rates for certain subsidiaries, joint ventures and associated companies 461 240 Tax expenses 2,194 2,141 Deferred tax assets are recognised to the extent that realisation of the related tax benefit through future taxable income is probable. For the year ended 31 December 2004, the deductible temporary differences to carry forward against future taxable income for the group is Rmb 86,807,000 (2003: Rmb 55,899,000) . The Group did not accounted for the deferred tax assets due to the uncertainty of taxable profit generated in the foreseeable future. The Group does not have other significant unprovided deferred tax. 10 MINORITY INTERESTS 2004 2003 At beginning of year 15,820 17,457 Additions 24,728 5,102 Disposals (41) (5,070) Share of net loss of subsidiaries (9,618) (287) Dividend paid (1,288) (1,382) At end of year 29,601 15,820 11 EARNINGS (LOSS) PER SHARE Earnings (loss) per share is calculated by dividing net profit (loss) for the year by the 215,000,000 shares in issue during the year. 12 PROPERTY, PLANT AND EQUIPMENT Furniture, fixtures Plant and and office Motor Buildings machinery equipment vehicles Total Cost -47- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report At 1 January 2003 107,522 80,029 46,343 11,331 245,225 Additions in 2003 4,663 14,475 4,839 1,144 25,121 Disposals in 2003 (7,061) (6,992) (3,456) (1,910) (19,419) At 1 January 2004 105,124 87,512 47,726 10,565 250,927 Additions from acquisition of subsidiaries 4,023 24,168 4,946 148 33,285 Other additions in 2004 5,072 2,260 2,935 767 11,034 Disposals in 2004 - (737) (4,420) (598) (5,755) At 31 December 2004 114,219 113,203 51,187 10,882 289,491 Accumulated depreciation At 1 January 2003 33,144 56,820 30,320 8,357 128,641 Charge for 2003 3,780 7,524 5,856 1,042 18,202 Disposals in 2003 (2,702) (5,615) (2,493) (1,656) (12,466) At 1 January 2004 34,222 58,729 33,683 7,743 134,377 Additions from acquisition of subsidiaries 808 5,833 1,942 111 8,694 Charge for 2004 4,241 4,386 5,493 968 15,088 Disposals in 2004 - (668) (4,006) (353) (5,027) At 31 December 2004 39,271 68,280 37,112 8,469 153,132 Impairment charge At 1 January 2003 2,382 1,642 1,884 22 5,930 Reversal for 2003 - (529) - - (529) At 1 January 2004 2,382 1,113 1,884 22 5,401 Charge for 2004 - 256 - - 256 At 31 December 2004 2,382 1,369 1,884 22 5,657 Net book value At 31 December 2004 72,566 43,554 12,191 2,391 130,702 At 31 December 2003 68,520 27,670 12,159 2,800 111,149 13 LAND USE RIGHTS 2004 2003 Cost At beginning of year 40,824 40,168 Additions - 656 At end of year 40,824 40,824 Accumulated amortization At beginning of year 5,553 4,609 Amortization for the year 861 944 -48- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report At end of year 6,414 5,553 Net book value 34,410 35,271 Amortization of Rmb 861 thousand (2003: Rmb 944 thousand) is included in administrative expenses. 14 INVESTMENTS IN ASSOCIATED COMPANIES AND AVAILABLE-FOR-SALES INVESTMENTS 2004 2003 Investment in associated companies (a) 2,803 30,565 Available-for-sales investments (b) 4,780 4,780 7,583 35,345 (a) Investment in associated companies 2004 2003 At beginning of year 30,565 15,682 Share of net loss before tax of associated companies (8,837) (456) Share of tax - - Investments (disposals) during the year (18,135) 15,800 Receipt of dividends (790) (461) At end of year 2,803 30,565 Details of the associated companies are elaborated in note 26. (b) Available-for sales investments Available-for-sale investments do not have quoted market prices in active markets and whose fair values cannot be reliably measured. As a result, these investments are carried at cost. At the balance sheet date, the Group performed an impairment review for the available-for-sale investments. There were no impairment on available-for-sale investments in 2003 and 2004. Available-for-sale investments are classified as non-current assets, unless they are expected to be realized within twelve months of the balance sheet date or unless they will need to be sold to raise operating capital. 15 INTANGIBLE ASSETS 2004 2003 Cost At beginning of year 31,333 30,351 Additions 311 989 Additions from acquisition of subsidiaries 1,738 - Transfer out - (7) -49- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report At end of year 33,382 31,333 Accumulated amortization At beginning of year 17,270 11,333 Additions 5,564 5,944 Additions from acquisition of subsidiaries 704 - Transfer out - (7) At end of year 23,538 17,270 Net book value 9,844 14,063 Amortization of Rmb 5,564 thousand (2003: Rmb 5,944 thousand) is included in administrative expenses. 16 INVENTORIES 31 December 31 December 2004 2003 Raw materials - at cost 39,634 27,533 - at net realizable value 1,544 1,585 Work in progress - at cost 16,253 18,097 - at net realizable value 1,023 - Finished goods - at cost 100163 132,361 - at net realizable value 3,845 26,518 162,462 206,094 17 RECEIVABLES AND PREPAYMENTS 31 December 31 December 2004 2003 Trade receivables 386,951 383,050 Other receivables 26,659 20,001 Less: Provision for impairment (26,208) (26,411) Trade and other receivables, net 387,402 376,640 Prepayments 6,205 8,638 Receivables from and prepayments to related parties (note 27 (c)) 6,136 11,844 399,743 397,122 18 CASH AND BANK BALANCES -50- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report 31 December 31 December 2004 2003 Cash at bank and in hand 199,971 175,096 Bank deposits - 49,209 199,971 224,305 For the purpose of the cash flow statement, cash and cash equivalents comprise cash at bank and in hand. 19 SHARE CAPITAL 31 December 31 December 2004 2003 Registered, issued and fully paid shares of Rmb 1 each: State-owned shares, not listed 115,000 115,000 Domestically-listed foreign shares (B shares) 100,000 100,000 215,000 215,000 20 RESERVES (a) Capital surplus Transactions of the following nature are recorded in the capital surplus: (1) Share premium arising on the issue of shares at prices in excess of their par value; (2) Donations received; (3) Surplus arising from the revaluation of assets; and (4) Any other items required by the PRC regulations to be so treated. Amounts in the capital surplus can be utilised to offset prior years’ losses or for increase of share capital. (b) Statutory surplus reserve fund and statutory public welfare fund Statutory reserves include both the statutory surplus reserve fund and the statutory public welfare fund. PRC Company Law requires a company to appropriate 10% of its profit for the year computed in accordance with the PRC accounting regulations (after offsetting prior years’ losses) to the statutory surplus reserve fund. When the balance of such fund reaches 50% of the company’s registered share capital, any further appropriation is optional. The statutory surplus reserve fund can be utilised to offset prior years’ losses or for issue of bonus shares. However, the fund shall be maintained at a minimum of 25% of registered share capital after any such issue. PRC Company Law also requires a company to appropriate between 5% to 10% of its profit for the year computed in accordance with the PRC accounting regulations (after offsetting prior years’ losses) to the statutory public welfare fund. The fund shall be utilised for the collective benefit of the workforce, including the provision of staff quarters. No other distribution shall be made from the fund other than upon -51- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report liquidation of the company. During the year ended 31 December 2004, Rmb 934,147 and Rmb 415,056 had been appropriated by subsidiaries to the statutory surplus reserve fund and statutory public welfare fund respectively. (c) Discretionary surplus reserve fund and dividend The Board of Directors recommends that no appropriation to the discretionary surplus reserve fund and no dividend be made for 2004. The above recommendations are subject to approval by the shareholders in the Company’s Annual General Meeting to be held in 2005. 21 LONG-TERM BANK LOAN Long-term bank loan represents an unsecured loan borrowed from China Construction Bank and will be due on 4 February 2007. The long-term bank loan is guaranteed by the Ultimate Holding Company. 2004 2003 (a) Weighted average effective interest rates at 31 December 5.76% 5.76% (b) The carrying amount of the long-term bank loan approximates its fair value. The fair value is based on discounted cash flows using a discount rate based upon the borrowing rate which was available to the Group for bank borrowings with similar terms at the balance sheet date. 22 TRADE AND OTHER PAYABLES 31 December 31 December 2004 2003 Trade payables 241,482 250,535 Customer deposits 5,664 12,066 Accrued expenses 224 374 Other payables 11,636 16,587 259,006 279,562 Payables to related parties (Note 27(c)) - 7,937 259,006 287,499 23 SHORT-TERM BANK LOANS All the short-term loan represents the unsecured loan. The interest of unsecured credit bank loans is charged on the outstanding balances at rates ranging from 4.536% to 6.37% (2003: 4.779% to 6.37%) per annum. 24 FINANCIAL INSTRUMENTS (a) Credit risk -52- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report The Group have no significant concentration of credit risk. The carrying amounts of accounts receivable included in the balance sheet represent the Group's maximum exposure to credit risk in relation to its financial assets. No other financial assets carry a significant exposure to credit risk. (b) Foreign exchange risk The Group operates in the PRC and has no significant exposure to any specific foreign currency. (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash, other liquid assets and the ability to close out market positions. The Group maintains flexibility in funding by keeping the current bank borrowings available. (d) Interest rate risk The Group has no significant interest-bearing assets, as such its income and operating cash flows are substantially independent of changes in market interest rates. Interest rates on bank loans are disclosed in notes 21 and 23. (e) Fair value The carrying amounts of the following financial assets and financial liabilities approximate their fair values: bank balances and cash, trading investments, trade receivables and payables, prepayments and other receivables and payables, short-term borrowings. 25 CAPITAL COMMITMENTS As at 31 December 2004, capital expenditure in respect of property, plant and equipment approved but not contracted for amounted to Rmb 15,938,000 (2003: Rmb 15,560,000). 26 PRINCIPAL SUBSIDIARIES, JOINT VENTURES AND ASSOCIATED COMPANIES The Company’s subsidiaries, joint ventures and associated companies, all of which are established in the PRC, are as follows: Name of company Group’s equity interest Principal activities 2004 2003 % % Subsidiaries: Nanjing Nanfang 99.458 100 Manufacture and sale of data Telecommunications Company Limited communication equipment Nanjing Bada 60 60 Manufacture and sale of Telecommunications Co., Ltd. telecommunication equipment Shanghai Huaning 87.8 87.8 Export agency business Telecommunications Development Ltd. Nanjing Golden Huali 60 60 Manufacture and sale of lights, Electronics Ltd. electronic products and accessories -53- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report Nanjing Putian Shiye Company Ltd. 100 100 Hotel and catering Nanjing Putian Computer 99.5 99.5 Design, manufacture and sale Company Ltd. of computer products Nanjing Putian Smart-building 81.93 81.93 Manufacture and sale of smart Technology Ltd. building system Putian Telecommunications (H.K.) 90 90 Export and import of Co., Ltd. telecommunications equipment Beijing Picom Telecommunications 51 51 Manufacture and sale of data Equipment Ltd. communication equipment Nanjing Putian Hongyan Electric 51.2 51.2 Manufacture and sale of Appliance Company electrical products and telecommunication equipment Nanjing Putian Computer Technology 87.0 86.6 Sale of computer and Company Ltd. communication equipment Nanjing Putian Network Company Ltd. 91.16 89 Manufacture and sale of network equipment Nanjing Putian Telecommunications 45 45 Sales and installation of Shiye Company Ltd. (Note a) electronic and telecommunication equipment Nanjing Putian Wangzhi 67 34 Design and production of Telecommunications Co.,Ltd. CDMA and 3G products Nanjing Putian Changle 50.7 49 Manufacture and sale of Telecommunications Equipment Co., Ltd. telecommunication equipment Joint ventures: Nanjing Mennekes 50 50 Manufacture and sale of Electric Appliance Ltd. switches Associated companies: Xishan Putian Information 49 49 Provision of data and Network Co., Ltd. voice transmission services Nanjing Zhongyou 30 30 Manufacture and sale of Telecommunications Company Ltd. telecommunication equipment and electrical accessories Note a The Group has an interest of more than one half of the voting rights of Nanjing Putian Telecommunications Shiye Company Ltd. and therefore has the control over its financial and operating policies. Accordingly, Nanjing Putian Telecommunications Shiye Company Ltd was consolidated in the Group’s financial statements for the year ended 31 December 2003 and 2004 27 RELATED PARTY TRANSACTIONS (a) Pricing Policies The Group’s pricing policies on products sold to related parties / goods purchased from related parties are based on market prices. (b) The following transactions were carried out with related parties: -54- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report 2004 2003 Sale of goods to Nanjing Zhongyou Telecommunications Co., Ltd. 2,658 3,401 Purchase of goods from a subsidiary of Ultimate Holding Company 54,556 130,793 Purchase of goods from Nanjing Putian Changle Telecommunications Equipment Co., Ltd. 13,092 39,368 Sales of raw materials to Nanjing Putian Wangzhi Telecommunications Co.,Ltd - 61,229 Sales of raw materials to Nanjing Putian Changle Telecommunications Equipment Co., Ltd. 2,084 38,801 (c) Balances with related parties 31 December 31 December 2004 2003 Receivables from Xishan Putian Information Network Co., Ltd. 2,000 5,000 Receivables from Nanjing Zhongyou Telecommunications Ltd. 4,114 4,890 Prepayment to a subsidiary of Ultimate Holding Company 22 1,954 6,136 11,844 31 December 31 December 2004 2003 Payables to Nanjing Putian Wangzhi Telecommunications Co.,Ltd - 7,937 The above balances are unsecured, interest free and have no fixed terms of repayment. 28 COMPARATIVES Certain comparative figures have been reclassified to conform with changes in presentation in the current year. NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. RECONCILIATION OF NET PROFIT AND NET ASSETS BETWEEN PRC ACCOUNTS AND IFRS ACCOUNTS (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Net assets at Net loss for 2004 31 December 2004 Per PRC accounts (47,845) 337,568 Adjustments for IFRS accounts: -55- Nanjing Putian Telecommunications Co., Ltd. 2004 Annual Report Negative goodwill generated from acquisition of subsidiaries 8,103 2,380 Remeasurement of financial assets and financial liabilities in accordance with IAS 39 12,281 - Per IFRS accounts (27,461) 339,948 -56-