深赛格(000058)Ｂ2004年年度报告（英文版）

SHENZHEN SEG CO., LTD. ANNUAL REPORT 2004 Important Notice: The Board of Directors of Shenzhen SEG Co., Ltd. and its directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. Chairman of the Board of the Company Mr. Zhang Weimin, Vice General Manager in charge of financial affairs Mr. Li Lifu and Head of Financial Department, Mr. Zhang Changhai hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. This report was prepared in both Chinese and English versions. Should there be any difference in interpretation between the two versions, the Chinese version shall prevail. Audited by domestic Zhongtian Huazheng Certified Public Accountants’ firm and overseas Ho and Ho & Company Certified Public Accountants, the Financial Report of the year 2004 are respectively standard unqualified Auditor’s Report. Apr. 13, 2005 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 CONTENTS Ⅰ. COMPANY PROFILE------------------------------------------------------------------------------------ Ⅱ. SUMMARY OF FINANCIAL HIGHLIGHT AND BUSINESS HIGHLIGHT--------------- Ⅲ. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS--- Ⅳ . PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES-------------------------------------------------------------------------------------------- Ⅴ. ADMINISTRATIVE STRUCTURE-------------------------------------------------------------------- Ⅵ. BRIEF OF THE SHAREHOLDERS’ GENERAL MEETING----------------------------------- Ⅶ. REPORT OF BOARD OF DIRECTORS------------------------------------------------------------- Ⅷ. REPORT OF SUPERVISORY COMMITTEE------------------------------------------------------ Ⅸ. SIGNIFICANT EVENTS--------------------------------------------------------------------------------- Ⅹ. FINANCIAL REPORT------------------------------------------------------------------------------------ Ⅺ. DOCUMENTS AVAILABLE FOR REFERENCE-------------------------------------------------- 2 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 Paraphrases Unless carried in the report, the following abbreviations possess the meanings as follows: Color tube: color cathode ray tube used for color television Display tube: color cathode ray tube used for computer display Glass shell: glass bulb of vacuum display devices GPS: global positioning system 3 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 I. COMPANY PROFILE 1. Legal name of the Company In Chinese: 深圳赛格股份有限公司 In English: SHENZHEN SEG CO., LTD. 2. Legal Representative: Mr. Zhang Weimin 3. Secretary of the Board of Directors: Ms. Zheng Dan Contact Address: 31/F, Tower A, Stars Plaza, Huaqiang North Road, Futian District, Shenzhen Tel: 0755-8374 7939 Fax: 0755-8397 5237 E-mail: segcl1@segcl.com.cn 4. Registered Address: 31/F, Tower A, Stars Plaza, Huaqiang North Road, Futian District, Shenzhen Office Address: 31/F, Tower A, Stars Plaza, Huaqiang North Road, Futian District, Shenzhen Post Code: 518028 Company’s Internet Website: http://www.segcl.com.cn E-mail: seggf@segcl.com.cn 5. Newspapers Chosen for 2005 Disclosing Information of the Company: China Securities, Securities Times and Ta Kung Pao Internet Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn Internet Website of the Company: http://www.segcl.com.cn The Place Where the Annual Report is Prepared and Placed: Secretariat of Board of Directors, 31/F, Tower A, Stars Plaza, Huaqiang North Road, Futian District, Shenzhen 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: A-share Shen SEG Stock Code: 000058 Short Form of the Stock: B-share Shen SEG-B Stock Code: 200058 7. Other Relevant Information of the Company Initial registration date: July 16, 1996 Registration place: 16/F, Baohua Tech. Bldg., Huaqiang North Road, Futian District, Shenzhen Registration date after change: Jun. 9, 2003 Registration place: 31/F, Tower A, Stars Plaza, Huaqiang North Road, Futian District, Shenzhen Registered number of enterprise legal person’s business license: SS Zi N1686 Registered number of taxation: State Tax: 440301279253776 Local Tax: 440304279253776 4 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 Name and address of Certified Public Accountants engaged by the Company: Domestic: Zhongtian Huazheng Certified Public Accountants Address: 13/F, Ai Hua Bldg., Shennan Middle Road, Shenzhen International: Ho and Ho & Company Certified Public Accountants Address: Room 304, Arion Commercial Centre, 2-12 Queen’s Rd. W., Hong Kong II. SUMMARY OF ACCOUNTING HIGHLIGHTS AND BUSINESS HIGHLIGHTS (I) Profit indexes of the Company as of the year 2004 Unit: In RMB Total Profit 149,642,841.98 Net Profit 101,989,382.04 Net profit after deducting non-recurring gains and losses (Note) 99,112,383.08 Profit from main operations 338,130,249.63 Other operating profit 22,529,060.90 Operating profit 92,190,106.49 Investment income 58,332,851.21 Subsidy income 5,781,900.00 Net non-operating income/expenses -6,662,015.72 Net cash flow arising from operating activities 74,671,775.35 Net increase/decrease in cash and cash equivalents -87,059,763.61 Note: Items of non-recurring gains and losses and the related amounts: Unit: RMB No. Item Amount 1 Switching back of reserve for doubtful debts 611,280.45 2 Increase/(decrease) of total profit due to changes in - accounting estimation 3 Funds occupation charges received - 5 Net non-operating income/expenses -5,440,990.70 6 Subsidy income 3,175,997.67 7 Discount government income 4,530,711.54 Total 2,876,998.96 (II) The explanation on the difference in the net profit and net assets as calculated based on different accounting standards and system respectively. As audited by Zhongtian Huazheng Certified Public Accountants in accordance with Chinese Independent Auditing Standards, Accounting System for Business Enterprises, Accounting Standards for Business Enterprises and relevant laws and rules, the Company’s net profit as of the year 2004 was RMB 101,989,000; while as audited by Ho and Ho & Company Certified Public Accountants in accordance with the International Independent Auditing Standards and International Financial Reporting Standards (IFRS) and relevant laws and rules, the net profit as of the year 2004 was RMB 98,187,000. The reasons for difference of net profit audited by the different accounting standards and systems: 5 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 1. Share of results of associates: increasing profit amounting to RMB 997,000, which difference resulted in the event of Shenzhen SEG Samsung Co., Ltd. (hereinafter referred to as “SEG Samsung ”), which participated shares of the Company in the year, carried out backward adjustment for the year-begin amount within the report period, so as to the domestic accountant made the corresponding backward adjustment according to equity method, while overseas accountant deal with it in this year, so increase the annual profit amounting to RMB 997,000. 2. Previous lease payment withdrew by later supplement for lease contract: the difference resulted in the lease fee of 2000 paid by the Company to Shenzhen SEG Group Co., Ltd. (hereinafter referred to as “SEG Group”), which domestic accountant made backward adjustment and decrease of profit as of the year 2000 according to actual payment year, while the overseas accountant deal with it in this year, so as to decease the annual profit amounting to RMB 12,789,000. 3. Transfer employees’ reward and welfare fund: decreasing the year’s profit of RMB 3,351,000 was mainly due to: Shenzhen SEG HITACHI Color Display Device Company Limited (hereinafter referred to as SEG HITACHI) withdrew the term after tax according to foreign invested enterprise accountant system in this period, while the overseas accountant deal with it in the payment. 4. Gains and losses of minority shareholders: the increasing of this term amounting to RMB 10,817,000 is mainly due to relevant deducting minority shareholders’ gains and losses after decreasing of the foresaid terms. 5. Reason for net assets difference: mainly due to the domestic fixed assets decrease and prepare to convert back so as to change the accounting policy while the overseas accounting policy was unchanged. Difference of net profit and net assets according to the different accounting standards and systems: Unit: RMB’000 Net profit Net assets Year 2004 Year 2003 Dec.31, 2004 Dec.31, 2003 RMB’000 RMB’000 RMB’000 RMB’000 As reported in the financial statements audited by the PRC auditors 101,989 181,755 1,404,719 1,411,669 CCPC adjustment at the year begin: Fixed assets prepare change of China policy —— -13,183 —— -13,183 More withdrawal of associates income tax —— 997 —— 997 Previous lease fee withdrew by supplement for lease contract —— —— —— -12,789 _______ _______ _______ _________ Restatement 101,989 169,569 1,404,719 1,386,694 IFRS adjustments: Bad account prepare decrease/increase —— -22,659 —— —— 6 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 More withdrew of VAT export rebate 524 -5,524 —— —— Written off of reserve for unrealized loss on investment (withdraw) —— -2,370 —— —— Fixed assets prepare change of China policy —— 13,183 24,000 13,183 Written off of loss on un-deemed disposal of a subsidiary —— —— —— —— Share of results of associates 997 -997 —— -997 Previous lease fee withdrew by supplement for lease contract -12,789 —— —— 12,789 Transfer employees’ reward and welfare fund -3,351 —— —— —— Minority shareholders’ gains and losses 10,817 —— —— —— _______ _______ _______ _________ As adjusted in conformity of IFRS 98,187 151,202 1,428,719 1,411,669 ======= ======== ========= ========= (III) Accounting data and financial indexes over the previous three years at the end of report period Indexes Year 2004 Year 2003 Year 2002 Before Before After adjustment After adjustment adjustment adjustment 1. Income from main operations 2,587,914,745.43 2,321,697,094.05 2,321,697,094.05 2,206,470,817.69 2,206,470,817.69 (RMB) 2. Net profit (RMB) 101,989,382.04 181,754,546.40 169,568,523.60 100,817,981.43 100,817,981.43 3. Total assets (RMB) 3,860,604836.79 3,911,243,947.08 3,875,452,356.12 3,699,826,113.90 3,699,826,113.90 4. Shareholder’s equity (excluding 1,404,719,098.30 1,411,668,500.56 1,386,693,709.60 1,228,904,201.06 1,216,115,432.90 minority interests) (RMB) 5. Earnings per share 0.14 0.2503 0.2335 0.1388 0.1388 05 (RMB/share) (Fully diluted) 6. Earnings per share 0.1405 0.2503 0.2335 0.1388 0.1388 (RMB/share) (Weighted average) 7. Earnings per share after 0.1365 0.1093 0.1093 0.1262 0.1262 deducting non-recurring gains and losses (RMB/share) 8. Net assets per share 1.935 1.944 1.910 1.692 1.675 (RMB/share) 9. Net assets per share after 1.776 1.810 1.792 1.630 1.612 adjustment (RMB/share) 10. Net cash flow per share arising 0.103 0.446 0.446 0.884 0.884 from operating activities (RMB/share) 7 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 11. Return on equity (%) (Fully 7.26 12.875 12.228 8.20 8.30 diluted) 12. Return on equity (%) 7.26 13.772 13.025 8.56 8.65 (Weighted average) 13. Weighted return on equity 7.06 6.0123 6.431 7.78 7.87 after deducting non-recurring gains and losses (%) Note: retroactive adjustments on previous net profit are set out as follows: Items Adjustment amount 1. The Company consolidated the SEG Samsung occupying 21.44% rights and interests, according to Shenzhen local taxes administration giving an official written Reply on Shenzhen SEG Samsung Co., Ltd. Property Loss Deducting Before Tax [SDS 2H (2004) No.94], agree SEG Samsung to deduct 2003 fixed assets abandonment loss amounting to RMB 61,661,371.04 before 2003 enterprise income tax, which event result conducted to decrease RMB 4,666,247.99 of SEG Samsung 2003 income tax adjustment and increase previous year net profit adjustment amounting to RMB 4,666,247.99, which made influences on previous 997,177.20 year net profit adjustment of the Company increasing amounting to RMB 997,177.20 and previous year withdrew statutory surplus public reserve increasing amounting to RMB 99,717.72 and previous year withdrew statutory public welfare capital increasing RMB 49,858.86. The influences on data of 2004 B.S., P.S. and P.D.S as follows: retained profit at the year-begin adjustment increasing amounting to RMB 847,600.62, surplus public reserve at the year-begin adjustment increasing RMB 149,576.58 and long-term share equity investment at the year-begin adjustment increasing amounting to RMB 997,177.20. 2. On Aug.10, 2000 the Company leased 2,3,6,7/F property to use for business space of Shenzhen SEG electronic market, at that time, due to various historic reasons, the Company and SEG Group could not come to an agreement on rent of 2,36/F of SEG Plaza crowd buildings on Aug.10, 2000, so as not to signed the relevant rent agreement first and last. In view of the actual situation that the term of leasing business has taken place on Aug.1, 2000 to Oct.31, 2000 and played an active role in 12,788,768.16 sustainable and steady development of SEG electronic market of the Company, after signing the supplement for the relevant rent agreement with SEG Group, the Company pay off at the average price RMB 238 per hour per sq.m., which is market evenhanded rent price, for leasing 2,3,6,7/F of SEG plaza from Aug.1, 2000 to Oto.31, 2000 to SEG Group. Accounted as leasing space (practical space) amounting to 17,911.44 sq.m., the total rent was RMB 12,788,768.16, which made 8 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 influence on 2000 net profit adjustment of the Company decreasing amounting to RMB 12,788,768,16, on previous year withdrew statutory surplus public reserve decreasing amounting to RMB 1,278,876.82 and previous year withdrew statutory public welfare capital decreasing RMB 639,438.41, the influences on data of 2004 B.S., P.S. and P.D.S as follows: retained profit at the year-begin adjustment decreasing amounting to RMB 10,870,452.94, surplus public reserve at the year-begin adjustment increasing RMB 1,918,315.22 and accounts recoverable-others at the year-begin adjustment decreasing amounting to RMB 12,788,768.16. 3. SEG Samsung, the indirect-controlled company of the Company, derived and adjusted switched-back fixed assets decrease preparation of 2003 according to relevant regulation On Implement Enterprise Accounting System and Question Answer (IV) for Relevant Accounting Rule, which made influences on 2003 net profit adjustment of the Company decreasing amounting to RMB 13,183,200.00, on previous year withdrew statutory surplus public reserve decreasing amounting to RMB 1,318,320.00 and previous year withdrew statutory public welfare capital decreasing RMB 659,160.00, the influences on data of 2004 13,183,200.00 B.S., P.S. and P.D.S as follows: accumulated depreciation at the year-begin adjustment decreasing amounting to RMB 24,000,000.00, retained profit at the year-begin adjustment increasing RMB 11,205,720.00 and surplus public reserve at the year-begin adjustment decreasing amounting to RMB 1,977,480.00, minority shareholders’ share equity at the year-begin decreasing amounting to RMB 10,816,800.00 and minority shareholders’ gains and losses decreasing amounting to RMB 10,816,800.00. Total 26,969,145.36 (IV) Supplemental statement of profit in the report period Return on equity and earnings per share calculated according to Regulations on the Information Disclosure of Companies Publicly Issuing Shares (No. 9) released by CSRC: 2004 2003 2002 Return on equity Earnings per share Return on equity Earnings per share Return on equity Earnings per share Items (%) (RMB) (%) (RMB) (%) (RMB) Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted diluted average diluted average diluted average diluted average diluted average diluted average Profit from main operations 24.50 24.51 0.4739 0.4739 26.09 27.79 0.50 0.50 32.19 33.61 0.539 0.539 Operating profit 6.56 6.55 0.1270 0.1270 6.85 7.29 0.13 0.13 9.18 9.58 0.1537 0.1537 Net profit 7.26 7.26 0.1405 0.1405 12.23 13.03 0.23 0.23 8.30 8.65 0.1388 0.1388 Net profit after deducting 7.06 7.06 0.1365 0.1365 6.04 6.43 0.11 0.11 7.54 7.87 0.1262 0.1262 non-recurring gains and 9 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 losses (V) Particulars about changes in shareholders' equity at the report period Amount at the Increase in Decrease in Amount at Items period-begin the report period the report period the period-end Share capital 726,145,863 ---- ---- 726,145,863 Capital reserve 392,031,744.66 191,392.45 ---- 392,223,137.11 Statutory surplus reserve 25,759,773.69 10,198,938.20 ---- 35,958,711.89 Statutory public welfare fund 65,657,115.08 5,099,469.10 ---- 70,756,584.18 Retained profit 179,469,425.45 101,989,382.04 99,978,034.87 181,480,772.62 Less: unrealized loss on investment (2,370,212.28) 524,241.78 ---- (1,845,970.50) Total shareholders’ equity 1,386,693,709.60 118,003,423.57 99,978,034.87 1,404,719,098.30 Causes of change: 1. Increase of capital public reserve is because that capital public reserve was adjusted due to price spread of related association of SEG Samsung, the affiliated company of the Company calculated based on equity method, corresponding, the Company’s capital public reserve has adjusted. 2. Increase of surplus public reserve as of year 2004 is because that the Company withdrew 10% net profit as statutory surplus public reserve and 5% net profit as statutory public welfare fund according to profit distribution plan made by the Board of Directors. 3. Causes on change of unrealized loss on investment: long-term equity investment of the subsidiaries that the Company calculated based on equity method and net asset is negative reduced to zero. This term reflects the part that the Company shouldered for these subsidiaries with zero net profit. The year-begin balance is unrealized loss on investment of Xi’an SEG Electronic Market Co., Ltd., which is subsidiary company of the Company. For decrease of this year, due to Xi’an SEG realized the net profit in this year. 4. Explanation on change of retained profit: Increase of retained profit as of year 2004 is because that the realized net profit increase the term, while decrease of retained profit is because:①this item was reduced in withdrawal of two reserves according to net profit distribution preplan as of year 2004 as advised by the Board of Directors, ②The Company distributed cash bonus as of the year 2003 in this year (dividend at rate of RMB 1.12 in cash for every 10 shares amounting to RMB 81,328,336.66, which decreased this term). III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS (I) Particulars about changes in share capital 1. Statement of change in shares Statement of change in shares Unit: share Items Before the Increase/decrease of this time (+, -) After the 10 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 change Rationed Bonus Capitalization of Additional Sub- change Others share shares public reserve issuance total I. Unlisted shares 1. Sponsor’s shares Including: State-owned share 237,359,666 237,359,666 Domestic legal person’s shares 174,118,232 174,118,232 Foreign legal person’s shares Others 2. Raised legal person’s shares 3. Inner employees’ shares 4. Preference shares or others Including: Transferred / allotted shares Total unlisted shares 411,477,898 411,477,898 II. Listed shares 1. RMB ordinary shares 86,626,238 86,626,238 (Including: shares held by 43,556 +32,400 41,300 senior executives) -34,650 2. Domestically listed foreign 228,041,727 228,041,727 shares 3. Overseas listed foreign shares 4. Others Total listed shares 314,667,965 314,667,965 III. Total shares 726,145,863 726,145,863 Explanation on change in structure of shares: (1) Ms. Zheng Dan, deputy general manager and concurrently secretary of the Board, increasing holds A-share of the Company amounting to 32,400 shares through second market in the report period. (2) Ms. Fan Qing, previous supervisor of the Company, holds the A shares of the Company amounting to 34,650 shares, which has been frozen in the report period as approved by China Securities Registration and Clearing Co., Ltd. Shenzhen branch. (3) Closed by the end of the report period, the frozen shares held by senior executives of the Company amounted to 41,300 shares. 2. Issuance and listing of shares (1) Over the previous three years at the end the report year, the Company did not issue shares. (2) There exist no inner employees’ shares. (II) About shareholders 1. Total shareholders at the end of the report period Based on shareholder’s beadroll of the Company provided by China Securities Registration and Clearing Co., Ltd. Shenzhen Branch, ended Dec. 31, 2004, the Company had 83,043 shareholders in total, including 53,279 shareholders of A-share and 29,764 shareholders of B-share. 2. Shares held by major shareholders 11 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 (1) Particulars about changes on shares held by shareholders holding over 5% (including 5%) of the total shares in the report period. Holding Increase/decrease Holding Pledged or frozen Shareholders’ shares at the share in the shares at the No. Proportion Type of shares name year-begin report year(+/-) year-end (share) (share) 1 Shenzhen 237,359,666 0 237,359,666 32.69% State-owned Be the end of the report , SEG Group legal person’s 98,500,000 shares were Co., Ltd. shares pledged frozen 2 FODAK 129,968,232 0 129,968,232 17.9% Domestic legal Be the end of the report, Group person’s share 129,968,232 shares were Guangzhou pledged frozen (2) Ended Dec. 31, 2004, the top ten shareholders of the Company Holding shares No. Shareholders’ name at the year-end Proportion Type of shares (share) 1 Shenzhen SEG Group Co., Ltd. 237,359,666 32.69% State-owned legal person’s shares 2 FODAK Group Guangzhou 129,968,232 17.9% Domestic legal person’s share 3 Shanghai Zhongnan Investment Holdings Co., Ltd. 6,300,000 0.87% Domestic legal person’s share 4 Shanghai Qile Economic and Trading Co., Ltd. 6,000,000 0.83% Domestic legal person’s share 5 Shenzhen Shengyi Industrial Development Co., Ltd. 5,000,000 0.69% Domestic legal person’s share Shanghai Taili Science and Technology 4,000,000 0.55% 6 Domestic legal person’s share Development Co., Ltd. 7 Shanghai Xinyuan Investment Co., Ltd. 3,600,000 0.5% Domestic legal person’s share 8 Qinhuangdao Sanyuan Co., Ltd. 3,100,000 0.43% Domestic legal person’s share 9 Shanghai Wantong Painting and Chemical Co., Ltd. 2,450,000 0.34% Domestic legal person’s share 10 Wuxi Hongyu Department Store 2,000,000 0.30% Domestic legal person’s share Notes 1: The name list of the aforesaid top ten shareholders and China Securities Registration and Clearing Co., Ltd. Shenzhen Branch provided the name-list of the aforesaid top ten shareholders and situation of shares held by them. Note 2: Among shareholders as listed above, there existed no associated relationship between Shenzhen SEG Group Co., Ltd. (hereinafter referred to as SEG Group) and the other shareholders, and did not belong to consistent actionist regulated by the Management Regulation of Information Disclosure on Change of Shareholding for Listed Companies. The Company consulted the other shareholders by means of the telecommunication, and confirms that there exists no associated relationship or belongs to concerted actor relationship among the No. 2, 6 and 8 shareholders and the other shareholders respectively. Except for these, the Company was unknown whether there exists associated relationship or belongs to concerted actor among the other shareholders. 3. The first largest shareholder of the Company 12 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 The first largest shareholder of the Company: Shenzhen SEG Group Co., Ltd. Legal representative: Mr. Sun Yulin Date of foundation: Aug. 23, 1986 Business scope: Production and research of electronic products, electrical home appliances, electronic toys, electronic telecom equipments, instrument and meter, motor equipments, computer and its equipments, OA equipments and articles and electronics chemical (the license of production circle conducted additionally); undertake various electronic system project; launch specialized market of electronic communications; manpower training; real estate development (engaging at development in the earth of legally acquiring land use right); real estate broker; cargo agent and logistics & storage; high-floor sightseeing, supporting food and drink, marketplace and exhibition of SEG Plaza; development and maintenance of internet and information engineering technology; business of import and export. Registered capital: RMB 1,355,420,000 The structure of equity: State-owned Assets Supervision and Administration Commission of Shenzhen Municipal Government invested RMB 630,539,000, taking 46.52%; China Huarong Asset Management Corporation invested RMB 400 million, taking 29.51%; China Orient Asset Management Corporation invested RMB 189,514,700, taking 13.98%. China Great Wall Asset Management Corporation invested RMB 135,366,300, taking 9.99%. STATE-OWNED CHINA HUARONG ASSETS CHINA ORIENT ASSETS CHINA GW ASSETS ASSETS SUPERVISION MANAGEMENT CO. MANAGEMENT CO. MANAGEMENT CO. 46.52% 29.51% 13.98% 9.99% SHENZHEN SEG GROUP CO., LTD. 32.69% SHENZHEN SEG CO., LTD. 4. The controlling shareholder of the first largest shareholder The controlling shareholder of the first largest shareholder: State-owned Assets Supervision and Administration Commission of Shenzhen Municipal Government 13 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 5. The other legal person’s shareholder of the Company holding over 10% of the total shares Legal person’s shareholder holding over 10% of the total shares: FODAK Group Guangzhou Legal representative: Wang Fuliang Date of foundation: March 18, 1994 Business scope: domestic trading and material supply and marketing business (except for national special operating and special controlling commodity); transportation of vehicle cargo; polytechnic service business; consultation of technology; commodity information consultation service; interior decoration; landscaping; investment with self-funds; self-support and agency of various commodities; import & export business of technology (does not attach export & export commodity list), except for commodities and technology operated limited by the state or imported or exported prohibited by the state; operation of process materials and business of “process raw materials on clients’ demands, assemble parts for the clients and process according to the clients’ samples”; operation of sales each other and carrying trade. Registered capital: 213,118,000 (III) Ended Dec. 31, 2004, the top ten shareholders of circulation share provided by China Securities Registration and Clearing Co., Ltd. Shenzhen Branch Share held at the year-end No. Name Nature of share (share) 1 DEUTSCHE BANK AG 3,227,126 B-share LONDON 2 ZHENG SHAO QIU 1,400,000 B-share 3 FANG YI JUN 1,310,492 B-share 4 LI MEI 1,193,000 B-share 5 WONG, CHI HO 810,000 B-share 6 SO, SONG 808,005 B-share 7 PENG HONG LIAN 649,660 B-share 8 BBH BOS S/A PRESIDENT & F 646,920 B-share OF H C- HARVARD M C 9 MAXFORM ENTERPRISES LTD 642,395 B-share 10 WANG JIN FENG 621,300 B-share Note: it is unknown whether there exists associated relationship or belongs to concerted actor among the foresaid top ten circulation shareholders. IV. PARTICULARS ABOUT DIRECTORS, SUPERVISORS AND SENIOR EXECUTIVES AND EMPLOYEES (I) Director, supervisor and senior executives 1. Basic information 14 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 Number of Number of Increase shares held shares held / No. Name Gender Age Office term Title at the at the decrease year-begin year-end (share) (share) (share) Dec. 31, 2003- Chairman of the Board 1 Zhang Weimin Male 53 0 0 0 Dec. 31, 2006 Dec. 31, 2003- Vice Chairman of the 2 Guo Hanbiao Male 39 0 0 0 Dec. 31, 2006 Board May.26, 2004- Director/ 3 Wang Chu Male 46 0 0 0 Dec. 31, 2006 General Manager Dec. 31, 2003- Director/Deputy 4 Li Lifu Male 49 0 0 0 Dec. 31, 2006 General Manager Dec. 31, 2003- Director 5 Shi Dechun Female 53 0 0 0 Dec. 31, 2006 Dec. 31, 2003- Director 6 Li Caimou Female 58 0 0 0 Dec. 31, 2006 Dec. 31, 2003- Independent Director 7 Xin Huanping Male 41 0 0 0 Dec. 31, 2006 Dec. 31, 2003- Independent Director 8 Su Xijia Male 50 0 0 0 Dec. 31, 2006 Dec. 31, 2003- Independent Director 9 Deng Er’kang Female 36 0 0 0 Dec. 31, 2006 Dec. 31, 2003- Supervisor 10 Wang Li Male 43 0 0 0 Dec. 31, 2006 Dec. 31, 2003- Supervisor 8,900 11 Xu Changhui Male 56 8,900 0 Dec. 31, 2006 (A-share) Dec. 31, 2003- Supervisor 12 Yang Bo Male 33 0 0 0 Dec. 31, 2006 May 20, 2003- Supervisor (employee 13 Zhao Xingxue Male 50 0 0 0 Dec. 31, 2006 supervisor) May 20, 2003- Supervisor (employee 14 Tian Jiliang Male 38 0 0 0 Dec. 31, 2006 supervisor) Deputy General Dec. 31, 2003- 32,400 15 Zheng Dan Female 39 Manager/Secretary of 0 32,400 Dec. 31, 2006 (A-share) the Board Note: In the report period, the shares held by other directors, supervisors and senior executives remain unchanged; excluding Ms. Zheng Dan, deputy general manager and concurrently secretary of the board, increasing hold A-share amounting to 32,400 shares through second market. 2. Particulars about position held by directors or supervisors in Shareholding Company (shareholding company of shareholders): 15 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 ① Chairman of the Board Mr. Zhang Weimin took the post of Chief Economist of SEG Group from May 2000. ② Vice Chairman of the Board Mr. Guo Hanbiao took the post of Director and concurrently Vice-president of Guangzhou FODAK from Apr. 2003. ③ Director Ms. Shi Dechun took the post of Director of Auditing Dept. of SEG Group from Apr. 2003. ④ Director Ms. Li Caimou took the post of General Manager of Asset Business Center of Guangzhou FODAK from 2003. ⑤ Supervisor Mr. Wang Li took the post of President, Director and concurrently Secretary of Party Committee of Shenzhen SEG Hi-Tech Investment Co., Ltd. from Jul. 2003. ⑥ Supervisor Mr. Xu Changhui took the post of Vice Secretary of the League & Party Committee, Director and concurrently Chairman of labor Union of SEG Group from Oct. 2000. ⑦ Supervisor Mr. Yang Bo took the post of CFO of Financial Center of Guangzhou FODAK from June 2002. (II) Particulars about main work experience and posts or part-time job of present directors, supervisors and senior executives: 1. Members of the Board of Directors (1) Mr. Zhang Weiming, present Chairman of the Board of the Company and Chief Economist of SEG Group Co., Ltd., was born in 1951, bachelor degree and senior economist, he concurrently takes the post of Chairman of the Board of Shenzhen SEG Zhongdain Color Display Device Co., Ltd. and SEG Samsung. He was in charge of vice general manager and concurrently commissary of the Party Committee. (2) Mr. Guo Hanbiao, master degree of economics, was born in 1965; he is present in charge of vice chairman of the board of the Company, chairman of the board and vice president of Guangzhou Fuda. He took the turns of director and vice president of Guangzhou Chengqi Group Co., Ltd., director and vice president of Guangzhou Yuetai Group, director of construction office of Guangdong Xintianyuan Technology Group Co., Ltd., director and vice general manager of Guanghzhou South Special Copper Co., Ltd., vice proprietor of Golden Time magazine, vice chief secretary of Young Entrepreneur Association of Guangdong province, standing committee and vice secretary-general of Young League of Guangdong province, trustee of China Young Enterpriser Association, trustee of Private Enterprise Association of Guangdong province and permanent trustee and secretary-general of the Young Scientist Association of Guangdong province. (3) Mr. Wang Chu, Bachelor of Science and senior economist, was born in 1958. Now he takes the post of director and general manager of the Company and concurrently the director of Shenzhen SEG Hi-Tech Co., Ltd. and chairman of the board of Shenzhen SEG Daohang Technology Co., Ltd. (hereinafter referred to as “SEG Daohang ”) and Shenzhen SEG Storage and Cargo Co., Ltd. (hereinafter referred to as “SEG S&C”). He took turns of vice general manager of Shenzhen SEG Import and Export Co. and office director and concurrently general manager assistance of SEG Group. (4) Mr. Li Lifu, a senior accountant with master degree, was born in 1955. At present, he is in charge of director and vice GM of the Company, and concurrently chairman of the board of Shenzhen SEG BaoHua Electronic Co., Ltd. (hereinafter referred to as “SEG BaoHua”), chairman of the board of Xi’an SEG, chairman of the Board of Shenzhen SEG Industrial Investment Co., Ltd.. He took turns of general inspector of financial affairs of SEG Group and general inspector of financial affairs of the Company. 16 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 (5) Ms. Shi Dechun, an accountant with master degree, was born in 1951. She is now in charge of director of the Company, minister of auditing department of SEG Group, and concurrently director of Shenzhen SEG Hi-Tech Investment Co., Ltd. and Shenzhen SEG Engineering Investment Co., Ltd.. She took turn of minister of financial department. (6) Ms. Li Caimou, an engineer with bachelor degree, was born in 1946. She is now in charge of director of the Company, general manager of Guangzhou FODAK Capital Operation Center and concurrently independent director of Shenzhen Agricultural Products Co., Ltd.. She took turns of director of Shenzhen Agricultural Products Co., Ltd. and minister of capital operation department of Shenzhen Trading Holding Co., Ltd.. (7) Mr. Su Xijia, Doctor of Accounting, was born in 1954. At present he takes the post of independent director of the Company and vice professor of Hong Kong City University Accounting major. He was ever in charge of instructor of Shanghai Financial and Economic University accounting department and part-time professor of Canada Concordia University. (8) Mr. Xin Huanping, a senior lawyer with bachelor degree of Law, was born in 1963. He is now in charge of independent director of the Company, copartner of Guangdong Shengdian law office and concurrently independent director of Guangdong Power Development Co., Ltd.. He was ever engaged in lawyer work in Shenzhen Special Zone Economic and Trade Law Firm and copartner of Guangdong Chinese Merchandiser Law Firm. (9) Ms. Deng Er’kang, bachelor of applied chemistry, was born in 1968. She is now in charge of independent director of the Company and Deputy general manager of Guangzhou Hi-Tech Industrial Group Co., Ltd. She was ever engaged in investment banking department of Guangzhou Securities , Guangdong Kangyuan CPA, Guangdong Zhengzhong CPA. 2. Members of supervisory Committee (1) Mr. Wang Li, an accountant with master degree, was born in 1961. He is now in charge of chairman of the supervisory Committee, president of Shenzhen SEG Hi-Tech Investment Co., Ltd. and concurrently director of Shenzhen Saiyifa Micro-electronics Co., Ltd.. He took turns of minister and vice general accountant of capital department of SEG Group and concurrently took the post of director of Shenzhen Shen’ai Semiconductor Co., Ltd.. (2) Mr. Xu Changhui, a senior politic engineer with bachelor degree, was born in 1948. Now he takes the post of supervisor of the Company, vice secretariat of League Party Committee and chairman of Labor Union and concurrently convener of the supervisory committee of Shenzhen SEG Plaza Investment Development Co., Ltd. and Shenzhen SEG Engineering Industrial Co., Ltd.. He took the turns of section chief of Party secretariat of Shenzhen Electronics Industry, vice master, master of League and Party Committee office, minister of party & people’s department and secretariat of direct-affiliated Party Committee in SEG Group. (3) Mr. Yang Bo, bachelor degree, was born in 1971 and has taken the post of supervisor of the Company since December 2003. He is now in charge of general inspector of financial center of Guangzhou FODIA. He took the turns of general inspector of financial department of Guangdong Fangda Enterprise Group; financial manager of China district of USA solely-invested Hengdeng Electronic (China) Co., Ltd.; master of domestic accounting department, general accountant of domestic accounting department and audit assistance of China CPA the 6th audit department of Hong Kong listed company Dongqiang Electronic Group. (4) Mr. Zhao Xingxue, an economist, was born in 1954. He is now in charge of supervisor (employee’s supervisor), director of real property department, chairman of Labor Union of the Company and concurrently supervisor of Shenzhen SEG Industrial Investment Co., Ltd., director of SEG S& C and chairman of the Board of Shenzhen Beimu Trade Co., Ltd.. He 17 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 took the turns of office director, Party branch secretary of market department of the Company, and he ever concurrently took the post of supervisor of SEG Samsung. (5) Mr. Tian Jiliang, an engineer with bachelor degree was born in 1966.he is now a supervisor of the Company (employee’s supervisor) and vice minister of ministry of personnel and concurrently directors of Shenzhen SEG Samsung Industrial Co., Ltd. (hereinafter referred to as SEG Samsung Industrial), Shenzhen SEG Zhongdian Color Display Device Co., Ltd., Shenzhen SEG Orient Industrial Co., Ltd., Shenzhen SEG Industrial Investment Co., Ltd., SEG Baohua and Shenzhen SEG Communication Co., Ltd. (hereinafter referred to as “SEG Communication”). He took the turns of minister assistance of planning department and minister assistance of ministry of personnel. 3. Other senior executives Ms. Zheng Dan, a senior economist with master degree of science, was born in 1965. She is now in charge of secretary of the board and vice general manager of the Company and concurrently convener of supervisory committee of SEG Baohua, independent director of Shenzhen Hongji (Group) Co., Ltd.. She took the turns of representative of securities affairs, vice office director, and office director of Shenzhen SEG Co., Ltd. and she’s ever took the post of director of Shenzhen SEG Xinlide Intelligent System Engineering Co., Ltd. and convener of supervisory committee of SEG Daohang. (III) Annual remuneration 1. The determinate procedure and basis of the recompense: The Company implemented the position wages system. The annual remuneration for senior executives comprises two parts, namely, the wage (the position wage, floating wage and allowance) and the year-end bonus. The wage was decided by the Board of Directors and pay in monthly based on the position function and the position wage rules of the Company; the year-end bonus was decided by the Board of Directors based on the accomplishment of annual operation targets and working tasks laid out in the Shareholders’ General Meeting, which was implemented after approval of the Board of Directors. According to the Articles of Association of the Company, the shareholders’ general meeting determined the salary of directors and supervisors, but at present the Company had not practiced remuneration system for non-independent directors and supervisors except for independent directors. Non-independent directors only draw their position wage from the Company. 2. Particulars about the annual remuneration of directors, supervisors and senior executives in office No. Name Sex Title Notes 1 Zhang Weimin Male Chairman of the Board Drawing salary from SEG Group Guo Hanbiao Drawing salary from Guangzhou 2 Male Vice Chairman of the Board FODAK 3 Wang Chu Male Director/ General Manager Drawing salary from the Company 4 Li Lifu Male Director/Deputy General Manager Drawing salary from the Company 5 Shi Dechun Female Director Drawing salary from SEG Group Li Caimou Drawing salary from Guangzhou 6 Female Director FODAK 18 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 Xin Huanping Drawing allowance of independent 7 Male Independent Director director from the Company Su Xijia Drawing allowance of independent 8 Male Independent Director director from the Company Deng Er’kang Drawing allowance of independent 9 Female Independent Director director from the Company Wang Li Drawing salary from Shenzhen SEG 10 Male Supervisor Hi-Tech Investment Co., Ltd. 11 Xu Changhui Male Supervisor Drawing salary from SEG Group Yang Bo Drawing salary from Guangzhou 12 Male Supervisor FODAK Deputy General Manager/Secretary Drawing salary from the Company 13 Zheng Dan Female of the Board 14 Zhao Xingxue Male Supervisor (employee supervisor) Drawing salary from the Company 15 Tian Jiliang Male Supervisor (employee supervisor) Drawing salary from the Company There are 15 directors, supervisors and senior executives in office at present. Of them, 5 persons (excluding independent directors) drew their annual remuneration from the Company with total amounting to RMB 1,518,000 of annual remuneration. The total amount of annual remuneration of the top two directors drawing the highest payment was RMB 722,000 (note: there are only two directors drew their remuneration from the Company); the total amount of annual remuneration of the top three senior executives drawing the highest payment was RMB 1,047,000. One enjoyed the annual remuneration below RMB 200,000, one enjoyed the annual remuneration between RMB 250,000 and RMB 300,000, two enjoyed the annual salary between RMB 300,000 and RMB 350,000 and one enjoyed the annual remuneration over RMB 350,000 respectively. According to resolution of the 7th Shareholders’ General Meeting, independent directors of the Company drew their allowance in monthly from the Company in term of the standard of annual allowance of RMB 50,000 (tax included) respectively per year. The Company reimbursed the reasonable charges according to the actual situation; such as fees for trips and fees for food and accommodation which independent directors attended the Board of Directors, shareholders’ general meeting or fees for exercising their functions and powers in accordance with Articles of Association of the Company. (IV) Particulars about senior executives, directors, supervisors and senior executives leaving their posts and the new engagements in the report period: 1. Senior executives leaving the post and new engagement: Due to the alteration of the work, examined and approved by the 2nd meeting of the 3rd Board of Directors held on Mar. 29, 2004 to Apr. 14, 2004, Ms. Zhang Liying abdicated the post of General Manager of the Company so as to the Board of Directors engaged Mr. Wang Chu to take her position. The aforesaid event has been disclosed on China Securities edition A16 and Ta Kong Pao edition B5 dated Apr. 17, 2004. 2. Directors leaving the post and new engagement: The 9th Shareholders’ General Meeting (2003 Shareholders’ General Meeting) held on May 26, 19 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 2004 examined and approved that Ms. Zhang Liying abdicating the post of Director of the Company and elected Mr. Wang Chu Director of the 3rd Board of Directors. The aforesaid event has been disclosed on China Securities edition 20 and Ta Kong Pao edition D5 dated May 27, 2004. 3. New engagement of supervisor: The 2nd General Meeting for Representative of Employee held on May 20, 2004 elected Mr. Zhao Xingxue and Mr. Tian Jiliang supervisors of employee representative of the 3rd Supervisory Committee. The aforesaid event has been disclosed on China Securities edition A16 and Ta Kong Pao edition B3 dated May 22, 2004. (V) About employees (number, profession composing, education background and retirees) At the end of the report period, The Company had totally 3,455 on-the-job employees and 123 retirees. The annuities, hospitalization insurance of the retirees were planed as a whole. The profession composing and education background of the staff are as follows: Profession Production personnel Salespersons Technicians Administrative personnel composing Number 2,575 187 278 415 Education Bachelor 3-years regular Polytechnic school Senior high school Doctor Master background degree college graduate graduate graduate or lower Number 2 65 392 487 1,651 858 V. ADMINISTRATIVE STRUCTURE (I) Administration of the Company In the report period, according to the requirements of laws and regulations of Company Law, Securities Law, and Administration Rules of Listed Companies, the Company consistently perfected its administration structure and standardized the operation, and promoted the Company to develop healthy. In the report period, the Company further consummated and standardized the legal person’s administration structure of the Company through carrying out the requirements of inspection and rectification of Shenyang Branch of CSRC. The following work were accomplished: 1. The Company finished Report on Rectification Plan of Inspection Problems of Shenyang Branch of CSRC for Shenzhen SEG Co., Ltd., which was disclosed on Page 24 of China Securities and Page B8 of Ta Kung Pao dated Jun. 16, 2004. In the report period, the Company actively carried out rectification matters. 2. With respect to the matters of capital occupied by the first largest shareholder of the Company SEG Group, SEG Group decided to compensate arrearage with partial equity of Shenzhen Shenai Semiconductor Co., Ltd.. Equity transfer matters involved were transacted according to the relevant regulations and relevant procedures of State-owned share equity transfer of the State and Shenzhen and Notification on Standardizing Current Capital between the Listed Company and Related Parties and Several Problems about External Guarantee of Listed Company (the said matter has been disclosed on Page 24 of China Securities and Page B8 of Ta Kung Pao dated Jun. 16, 2004.). In the report period, the Company and SEG Group 20 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 had respectively commissioned relevant staff to constitute special group, which actively coordinated and promoted the matter, however, the said matter was not approved by the Board of Directors in the report period. 3. With respect to the absence of two employee representative supervisors of the Company, the 2nd Employee Congress of the Company was held on May 20, 2004, in which elected two employee representative supervisors. The Company still further perfected and standardized in the following aspects: 1. The Company still didn’t establish effective, fair, transparent achievements evaluation and encouragement binding mechanism of directors, supervisors and senior executives adaptive to the development of the Company. Reformation measures: Shareholders’ General Meeting of the Company approved the Board to establish Salary and Checking Committee, which facilitated to establish achievements evaluation and encouragement binding mechanism of directors, supervisors and senior executives. 2. The first largest shareholder SEG Group of the Company was state-owned shareholding enterprise. At present, SEG Group still implemented Shenzhen Municipal “Property Representative Report System” to the Company according to Shenzhen Municipal State-owned Assets Management Measures. 3. The Company still didn’t signed engagement contracts with managers to confirm the rights and obligations of both parties. (II) Performance of Independent Directors: In the report period, the Company totally held six meetings of the Board, including four meetings by means of present and two meetings by means of communication; particulars about independent directors’ presenting the Board meetings: Name of Times that should Times of Times of Times of Remark independent be attend the Board personal commission absence directors meeting presence presence Su Xijia 4 3 1 0 Naught Xin Huanping 4 3 1 0 Naught Deng Erkang 4 4 0 0 Naught In the report period, three independent directors of 3rd Board of Directors, namely, Mr. Su Xijia, Mr. Xin Huanping and Ms. Deng Erkang actively attended the Board meetings of the Company carefully read the relevant information provided by the Company, knew the operating situation of the Company actively, seriously examined all proposals, and expressed the independent opinion in accordance with the relevant requirements of Articles of Association of the Company and Work Rule of Independent Director. (IV) Particulars about the Company’s “Five Separations” from the first largest shareholder in respect of business, personnel, assets, organization and finance: 1. In respect of business, the Company has integrated business system, keeps independence in 21 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 operating management, confronts with the market independently during operation, and avoids competition with the Group in same trade. 2. In respect of personnel, the Company’s senior executives including general manager, deputy general manager and secretary of the Board are full time employers in the Company without taking concurrent position in the first largest shareholder’s company, and receive salary from the Company. The Company has integrated administration system of labor, personnel affairs and salaries, and keeps independence of its personnel. 3. In respect of assets, in the early days of the Company’s establishment, the equity of the eight enterprises striped from SEG Group to the Company have been audited and evaluated by domestic and overseas Certified Public Accountants, and have also been recognized by Shenzhen municipal and national administrative authority of state-owned assets. The controlling shareholder of these eight enterprises was changed from SEG Group to the Company as registered in Administration Bureau of Industrial and Commercial. The Company makes independent registration, establishes independent accounts, and implements business accounting and management independently for the assets so as to keep completeness and independence of these assets. According to the Article No. 5 of Equity Transfer Agreement signed by the Company with SEG Group when the Company was listed, SEG Group agreed to let the Company and its subsidiaries and joint affiliated companies to use the eight trademarks that had been registered in National Trademark Bureau; and SEG Group agreed the Company to use the aforesaid trademarks or similar signs as the Company’s logo during its operation; but the Company didn’t need to pay any fee to SEG Group for using the aforesaid trademarks or signs. 4. In respect of organization, the Company has set up organization and engaged staff fully in accordance with its own demand of management, and its production management department and administrative department are totally independent from the first largest shareholder. 5. In respect of finance, as a legal person corporation that independently operates management, business accounting and assumes sole responsibility for its profits and losses, the Company has independent financial and auditing department, has established independent business accounting system and financial administration system, has independent bank account, pays taxes according to law, and keeps absolute independence in its financial work. (V) Evaluation, Encouragement Mechanism and Relevant Reward System for Senior Executives In respect of evaluation, SEG Group made annual performance evaluation towards senior executives of the Company according to accomplishment of the assigned annual operating plan targets and other targets. Meanwhile, SEG Group and the Company’s Board of Directors encouraged senior executives of the Company based on the relevant encouragement system under prerequisite of achievement of annual operating plan targets. VI. BRIEFINGS ON THE SHAREHOLDERS’ GENERAL MEETING (I) In the report year, the Company held one shareholders’ general meeting, namely, the 9th Shareholders’ General Meeting (the Annual Shareholders’ General Meeting 2003). (II) The Company published the notification and proposals of the 9th Shareholders’ General 22 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 Meeting (the Annual Shareholders’ General Meeting 2003) on Page A16 of China Securities and Page B4 of Ta Kung Pao dated Apr. 17, 2004 and the public notice of the Board of Directors on Adding Provisional Proposals in the 9th Shareholders’ General Meeting (the Annual Shareholders’ General Meeting 2003) on Page 29 of China Securities and Page B4 of Ta Kung Pao dated May 11, 2004. The said Meeting was held at the large meeting room on 31/F of the Company, Tower A, Stars Plaza, Huaqiang North Road, Shenzhen at 9:30 am on May 26, 2004. There were 7 shareholders and shareholders’ proxies attended the meeting who represented 369,005,649 shares (including 367,360,298 A shares and 1,645,351 B shares), taking 50.82% of total shares with voting right, which was in compliance with the relevant regulations of Company Law and the Articles of Association of the Company. The said shareholders’ general meeting was presided over by Mr. Zhang Weimin, Chairman of the Board of the Company; the Company’s directors, supervisors, senior executives and lawyers engaged by the Company attended the said Meeting as non-voting delegates. The following resolutions were examined and approved item by item by means of registered voting in the Shareholders’ General Meeting: 1. Examined and approved Business Work Report 2003 of General Manager; 2. Examined and approved Work Report 2003 of the Board of Directors; 3. Examined and approved Work Report 2003 of the Supervisory Committee; 4. Examined and approved 2003 Financial Settlement Report; 5. Examined and approved 2003 Preplan of Profit Distribution and Converting Capital Reserve into Share Capital; Profit available for distribution of 2003 was RMB 163,619,000; in 2003, the Company distributed cash dividend RMB 1.12 (tax included) for every 10 shares to withdraw dividend funds based on total share capital of the Company, namely, the Company withdrew cash dividend amounting to RMB 81,328,336.66, the retained profit would be transferred to next year. In 2003, the Company didn’t convert capital public reserve into share capital. 6. Examined and approved 2003 Annual Report and its Summary; 7. Examined and approved Proposal on Changing Directors: (1) The Company agreed that Mr. Zhang Liying resigned from the post of Director of the 3rd Board of Directors due to work adjustment. The Company expressed heartfelt thanks for contribution for the Company’s development made by Director Zhang Liying during her office period. (2) Mr. Wang Chu was elected as Director of the 3rd Board of Directors of the Company. In view of Zhang Liying’s resignation from the post of Director due to work adjustment, the shareholders’ general meeting elected Mr. Wang Chu to replace Ms. Zhang Liyiing as Director of the 3rd Board of Directors, and his office term is the same as the term of the 3rd Board of Directors. The said Director election adopted accumulative vote system in accordance with Administrative Rules of Listed Companies and the Articles of Association of the Company. 8. Examined and approved Proposal on Establishing Three Special Committees of the Board; 9. Examined and approved 2004 Financial Budget Report. 23 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 The public notice on resolutions of the said Meeting was published on Page 20 of China Securities and Page D5 of Ta Kung Pao dated May 27, 2004. (III) Election and changing of directors and supervisors in the report year 1. Changing of Director The 9th Shareholders’ General Meeting (the Annual Shareholders’ General Meeting 2003) of the Company was held on May 26, 2004, in which examined and approved Zhang Liying’s resignation from the post of Director of the Company, and elected Mr. Wang Chu as Director of the 3rd Board of Directors. The aforesaid matters were published on Page 20 of China Securities and Page D5 of Ta Kung Pao dated May 27, 2004. 2. Changing of Supervisor The 2nd Employee Congress of the Company elected Mr. Zhao Xingxue and Mr. Tian Jiliang as employee representative supervisors of the 3rd Supervisory Committee of the Company on May 20, 2004. The aforesaid matters were published on Page A16 of China Securities and Page B3 of Ta Kung Pao dated May 22, 2004. VII. REPORT OF BOARD OF DIRECTORS (I) Discussion and analysis to the operation In 2004, facing the intense competition in the market, the Company reinforced the operating management, reduced the cost, continued to enhance the products quality, and actively exploited the market and accomplished the operating task in the whole year completely. In the report period, the Company realized sales income amounting to RMB 2,587,910,000, up 11.47% compared with the same period of last year; however, profit from main operations CPT has decreased due to decrease of export rebate rate and changing in sales market of 34” CPT. In the report period, the Company realized net profit amounting to RMB 101,990,000, an decrease of 39.85% over the same period of last year; and net profit after deducting non-recurring gains and losses was RMB 99,110,000, up 24.91% year-on-year. (II) Operation in the report period 1. Scope of main operations and its operation The Company is mainly engaged in the business of scientific research, production and operation of hi-tech electronic and information products including CPT, electronic system engineering, network engineering and communications etc., operation of industry of information service, operation of electronic market, operation and management of property, bonded warehousing and foreign transportation etc.. In the aspect of CPT business, in 2004, under the condition that external operating environment was very disadvantageous, SEG Hitachi, whose 54.93% equity is held by the Company indirectly, reinforced innovation of operation and management, and reduced all kinds of disadvantageous influences to minimum, so as to ensure the smooth development of CPT production and operation. In the aspect of operation of electronic market, lease rate of Shenzhen SEG Electronic Market, 24 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 directly operated by the Company, always was kept 100% through promoting the all-round knight service and scientific management. In the report period, under the condition of the intense competition in circumjacent electronic market, the operating income of electronic market still increased by 11.4% compared with the last year. The Company insisted on the unified brand, unified design, unified advertising and unified management, and continually renovated operating mode and quickened the step to expand SEG electronic market in central cities of the Mainland. At present, the Company has possessed eight SEG electronic markets through the following forms such as sole proprietorship or holding operation, franchise operation and cooperative business operation within the scope of the Country with operation acreage of over 150,000 sq.m.; the strategic blueprint on establishing nationwide market chain operation network has been formed in an embryonic form with the following five cities namely Beijing, Shanghai, Xi’an, Chongqing and Wuhan as zone center. In the aspect of foreign transportation and bonded storage business, SEG Storage, whose 95% equity is held by the Company, actively developed market and expanded market share through adopting various measures in the report period. The said company achieved the better operating income in transportation and storage business. (1) Formation of income from main operations and profit from main operations a. Formation of income from main operations and profit from main operations classified according to industries: (Unit: RMB) Industries Income from main Profit from main operations operations 1 Manufacture of CPT 2,309,915,710.77 255,714,648.57 2 Business of electronic market operation 107,542,617.42 47,880,599.56 and properties leasing 3 Business of foreign transportation and 57,313,642.75 21,163,277.05 bonded storage 4 Business of commerce and trade 80,177,054.20 4,574,521.91 5 Manufacture of products of 32,965,720.29 14,797,202.54 telecommunications Total 2,587,914,745.43 344,130,249.63 b. Formation of income from main operations and profit from main operations classified according to sales areas of products: Sales area of products Income from main operations Profit from main operations 1 Domestic 1,344,074,799.04 212,850,672.14 2 Overseas 1,243,839,946.39 131,279,577.49 Total 2,587,914,745.43 338,130,249.63 25 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 (2) Major products of production and operation or providing service and their market shares In 2004, in CPT business, the Company continuously kept the position of 1st place in export volume of 21’’ CPT and 1st place in sales volume of 34’’ CPT at home. (Origin of the information—statistical data from National Association of CPT Industry). Statement of production, sales, export and sales/output ratio of CPT of the year of 2004: Variety Output Increase/ Sales Increase/ Sales/ Export Increase/ of (in’0000 decrease volume decrease output volume decrease product pieces) over the (in’0000 over the ratio (in’0000 over the same period pieces) same period pieces) same period of the last of the last of the last year year year 21’’ CPT 561.03 +47% 541.58 +42% 96% 320.48 +53% 34’’ CPT 66.97 -18% 69.34 -5% 103% 24.04 -23% (3) Sales income, sales cost and gross profit ratio of major product (CPT) taking over 10% of the total amount of profit from main operations: The business taking over 10% of the income from main operations and profit from main operations is CPT business and business of electronic market operation and properties leasing. (Unit: RMB’000) Major products taking over 10% of the Sales income Sales cost of Gross profit ratio total amount of income from main products operations or profit from main operations CPT 2,309,915,710.77 2,054,201,062.20 11.07% Business of electronic market operation 107,542,617.42 59,662,017.86 44.52% and properties leasing (4) In the report period, the main operations and its structure of the Company experienced no comparatively great change compared with the end of the previous report period. 2. Operation and achievement of major holding companies and share-holding companies Major holding companies: (1) SEG Hitachi, whose 54.93% equity is held indirectly by the Company, is mainly engaged in design, production and sales of 21” CPT and 34” CPT with the registered capital of USD 113 million. In the report period, this company realized sales income of RMB 2309.92 million, an increase of 13.50% over the same period of last year, and realized total profit of RMB 88.10 million, down 11.40% year-on-year. The total assets of the said company amounted to RMB 2242.72 million at the end of the year 2004. (2) SEG Storage, whose 95% equity is controlled by the Company, is mainly engaged in the business of foreign transportation and bonded storage etc. with the registered capital of RMB 66 million and total assets of RMB 110.09 million. In the report period, this company realized revenue of RMB 57.31 million, up 13% year-on-year; and realized total profit of RMB 12.81 26 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 million, an increase of 52.63% compared with the same period of previous year. (3) SEG Baohua, whose 66.58% equity is controlled by the Company, is mainly engaged in the operation and management of properties with the registered capital of RMB 30,808,800 and total assets of RMB 106.12 million. In the report period, this company realized revenue of RMB 27.25 million and total profit of RMB 1.81 million. (4) Xi’an SEG, whose 65% equity is held by the Company, is mainly engaged in the operation and management of electronic accessory market with the registered capital of RMB 3 million and total assets of RMB 8.63 million. In the report period, the said company achieved income from rent amounting to RMB 12.77 million and realized total profit amounting to RMB 810,000. (5) SEG Communications, whose 97.7% equity is held by the Company, is mainly engaged in the design, production and installation of communications products with the registered capital of RMB 30 million and total assets of RMB 38.15 million. In the report period, this company realized sales income amounting to RMB 22.70 million and total profit amounting to RMB 1.25 million. (6) Shenzhen SEG Network and Information Co., Ltd., whose 52.41% equity is controlled by the Company, is mainly engaged in the technology development of computer system, network system, network service and service of E-commerce etc. with the registered capital of RMB 20 million and total assets of RMB 17.99 million. In the report period, the said company achieved income from main operations amounting to RMB 10.26 million and total profit amounting to RMB 0.23 million. Major share-holding companies: (7) SEG Samsung, whose 21.37% equity is held by the Company, is a listed company of A-share listed in Shenzhen Stock Exchange. This company is mainly engaged in the production and sales of glass shell of CPT with the registered capital of RMB 785.97 million and total assets of RMB 4982.83 million. In the report period, this company produced screens amounting to 14.162 million pieces, up 67% year-on-year; and produced wimbles amounting to 11.164 million pieces, down 11% year-on-year; and sold screens of 13.257 million pieces and wimbles of 11.905 million pieces respectively, up 57% and down 5% year-on-year respectively. Sales/output ratio of screens and wimbles was 93.6% and 106.6% respectively and their market share rate of products at home was 13.6%. In the report period, the said company realized a sales income of RMB 1698.84 million and net profit of RMB 274.49 million. (8) SEG Navigation Science, whose 21.137% equity is held by the Company, is mainly engaged in production of GPS products and service business of its operating network with the registered capital of RMB 60 million and total assets of RMB 106.66 million. In the report period, this company gained obvious achievements in all aspects of GPS units, construction of 27 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 GPS operating network and technology development and etc.. In the report period, this company realized a sales income and total profit amounting to RMB 88.99 million and RMB 7.53 million respectively, up 49% and 84% year-on-year respectively. 3. Major suppliers and customers In the report period, the amount of purchase from the top five suppliers of the Company was RMB 99.33 million, taking 12.46% of the total amount of annual purchase and the amount of sales to the top five customers of the Company was RMB 1153.75 million, taking 44.58% of the total amount of sales. 4. Difficulties and problems arising from the operation and solutions In the report period, the Company existed some difficulties and problems, which mainly reflected in: the intense competition in the market made all businesses of the Company suffer the pressure of continuous decrease in price completely. Therefore, the Company adopted a series of measures to solve the aforesaid difficulties and problems: ① Deeply developing the cost engineering so as to offset the losses from the decrease in sales price as possible as much. ② Tightly following the market, timely adjusting the production rhythm and expanding the productive and sales volume by all ways. ③ Further reducing cost of raw materials through strengthening management of invitation for bidding and choosing and buying for raw materials; ④ While expanding the production scale, adopting new concepts and measures to further improve the quality control system in the whole course for the whole staff from operation of quality assurance system of suppliers to materials’ inspection in factories and from product manufacture to service after sales so as to ensure the stability of the product quality. (III) Investment In the report period, the net long-term investment of the Company increased by RMB 58.98 million compared with the previous year, an increase of 12.52%. For the name of invested companies, principal operating activities and proportion of equity of the invested companies held by the Company etc., please refer to the Notes V-12 of Accounting Statements. 1. Application of the proceeds raised through share offering in the report period In the report period, the Company raised no proceeds through share offering and there existed no such situation that the application of proceeds raised through share offering before the report period continued to the report period. 2. Important projects invested with proceeds not raised through share offering, the progress and earnings in the report period: (1) The technical renovation project of 54cm (21’’) (S8 line) Color Projection Tube or Display Tube with middle and high resolving power invested by SEG Hitachi with RMB 237 million (the said project has been approved by the 1st Provisional Shareholders’ General Meeting for 2003 and disclosed on Page 12 of China Securities and Page A21 of Ta Kung Pao dated Jan. 23, 2003) has been put into production formally and reached to yearly capability of design 28 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 and production. In 2004, SEG Hitachi realized a sales income of RMB 665 million and total profit of RMB 20.97 million from the said project. The said matter (2) The operation auxiliary project invested and established by SEG Hitachi with RMB 90 million (the said matter has been approved by the 5th meeting of the 3rd Board of Directors and disclosed on Page C1 of China Securities, Page 9 of Securities Times and Page C7 of Ta Kung Pao dated Mar. 15, 2005.). In the report period, all work from project listing to completion and acceptance has been finished and put into using. The total architectural floor area of this project is about 50,000 sq.m.. From formal start working on Apr. 29, 2004 to completion and acceptance on Dec. 6, 2004, the relevant benefit did not be occurred. (IV) Analysis to the financial position and operating results 1. Analysis to the financial position and operating results: (Unit: RMB) Items Dec. 31, 2004 Jan. 1, 2004 Increase/decrease (%) Total assets 3,860,604,836.79 3,875,452,356.12 -0.38 Inventories 248,694,909.24 196,517,426.39 26.55 Short-term loan 497,200,000.00 410,000,000.00 21.27 Long-term loan 439,440,330.22 226,030,116.25 94.42 Shareholders’ equity 1,404,719,098.30 1,386,693,709.60 1.30 Retained earnings 181,480,772.62 179,469,425.45 1.12 Items In 2004 In 2003 Increase/decrease (%) Income from main 2,587,914,745.43 2,321,697,094.05 11.47 operations Profit from main 348,130,249.63 361,752,537.73 -4.87 operations Other operating profit 22,529,060.90 8,113,786.75 177.66 Financial expenses 21,190,549.92 59,314,765.26 -64.27 Operating profit 92,190,106.49 94,947,896.56 -2.90 Investment income 58,332,851.21 27,298,412.82 113.69 Net non-operating -6,662,015.72 83,379,923.26 ---- income and expenses Net profit 101,989,382.04 169,568,523.60 -39.85 Undistributed profit at 179,469,425.45 50,594,294.50 254.72 the year-begin Profit available for 281,458,807.49 204,904,703.99 37.36 distribution Net cash flow arising 74,671,775.35 324,164,868.89 -76.96 from operation activities Net increase in cash -87,059,763.61 -182,806,379.68 52.38 and cash equivalents 29 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 Reasons of changes: 1. Total assets has decreased by 0.38% over the end of the last year, which was mainly because the Company implemented cash dividend in this period and decreased items under monetary funds. 2. Inventories have increased by 26.55% over the last year, which was mainly because that the stocks of CPT, the main product of the Company, increased in this report year. 3. Short-term loan increased by 21.27% over the last year, which was mainly because that the Company increased some loans for the operation demands in this period. 4. Long-term loan increased by 94.42% over the end of the last year, which was mainly because that the Company increased some loans for the operation demands in this period. 5. Shareholders’ equity increased by 1.30% over the last year, which was mainly because that the profit realized by the Company made this item increase in the year. 6. Retained earnings － by 1.12% over the end of the last year, which was mainly because that the profit realized by the Company made this item increase in the year. 7. Income from main operations increased by 11.47% over the last year, which was mainly because that the sales volume of CPT, the main product of the Company, increased so as to make this item increase in the year. 8. Profit form main operations has decreased by 4.87% over the last year, which was mainly because that the price of CPT, the main product of the Company, has decreased by a big margin. 9. Other operating profit increased by 177.66% over the same period of last year, which was mainly because that the management income from electronic market and income from equipment rent received by the Company has increased by a large margin. 10. Financial expenses has decreased by 64.27% over the same period of last year, which was mainly because that fiscal discount revenue of SEG Hitachi controlled indirectly by the Company wrote off financial expenses, so as to make this item decrease in this period. 11. Operating profit has decreased by 14.93% over the last year, which was mainly because that the price of CPT, the main product of the Company, decreased. 12. Investment income increased by 113.69% over the last year, which was mainly because that profit realized by SEG Samsung (it was share-held by the Company) has increased by a big margin compared with the last year, the Company calculated investment income of this company based on the equity method, so as to make this item increase by a large margin over the last year. 13. Net non-operating income and expenses has decreased by a big margin over the last year, which was mainly because that the Company cancelled loan guarantee for SEG Samsung Industrial so as to make this item increase by RMB 83.88 million; however, there was no the similar business happened in this period so as to make this item decrease. 14. Net profit has decreased by 39.85% over the last year, which was mainly because that net non-operating income and expenses of the Company has decreased by a big margin over the same period of previous year. 15. Undistributed profit at the year-begin has increased by a big margin over the last year, 30 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 which was mainly because that profit realized by the Company in the previous year made undistributed profit at the beginning of this year increase by a large margin compared with the beginning of last year. 16. Profit available for distribution increased by 37.36% over the last year, which was mainly because that the profit realized by the Company made this item increase in the year. 17. Net cash flow arising from operating activities has decreased greatly over the last year, which was mainly due to the increase of difficulty of loan receival-back, and the increase in accounts receivable and notes receivable of the Company in the period. 18. Net increase in cash and cash equivalents: decreased compared with the decrease extent of the previous year with main reasons as follows: ① Investment expenses for fixed assets decreased by a big margin over last year; ② Cash flow arising from financing activities increased mainly because last year the Company returned much loan while the total amount of loan increased over the previous year. 2. In the report period, the Company had no material assets loss. 3. Explanation of the Board on the Company’s adjustment to retained earnings at the beginning of the year in 2004: (1) SEG Samsung, of which the Company held 25% investment, according to Approving Reply of Administration of Local Taxation of Shenzhen Municipality [SDSEH (2004) No. 94], SEG Sumsang was approved to exempt rejection losses for fixed assets in 2003 amounting to RMB 61, 661, 371.04 before 2003 corporate income tax. For the matter, SEG Samsung adjusted income tax in 2003 with a decrease of RMB 4,666,247.99, and net profit in 2003 with an increase of RMB 4,666,247.99. Due to the influence of the matter, net profit of the Company in 2003 was adjusted with an increase of RMB 997,177.20, statutory public reserve withdrawn with an increase of RMB 99,717.72, and statutory welfare reserve with an increase of RMB 49,858.86. The data influenced in Balance Sheet, Income Statement, and Profit Distribution Statement of 2004 were as follows: retained profit in the year beginning was adjusted with an increase of RMB 847,600.62, surplus public reserve in the year beginning with an increase of RMB 149,576.58, and long-term equity investment in the year beginning with an increase of RMB 997,177.20. (2) From August to October 2000, the Company rent property at 2nd floor, 3rd floor, 6th floor, and 7th floor of SEG building for operating ground of SEG Electronics Market. Due to various historical reasons of the time, the Company and SEG Group didn’t achieve agreements on the rent of property at 2nd floor, 3rd floor, 6th floor, and 7th floor of SEG building. Therefore, we didn’t sign any relevant rent agreement. In view of this, rent business actual happened from Aug. 1, 2000 to Oct. 31, 2000, which played an active role in the sustainable and steady development of the electronics market of the Company in fact. In the report period, the Company signed relevant rent contract with SEG Group: the Company paid rent property at 2nd floor, 3rd floor, 6th floor, and 7th floor of SEG building from Aug. 1, 2000 to Oct. 31, 2000 to SEG Group at the market fair leasing price of RMB 238 per month per square, which was totaled to RMB 12,788,768.16 accounted based on leasing areas (usable areas) 17,911.44 square meters. The matter affected net profit of the Company in 2000 was adjusted with a 31 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 decrease of RMB 12,788,768.16, statutory public reserve withdrawn in 2003 with a decrease of RMB 1,278,876.82 and statutory welfare reserve withdrawn in 2003 with a decrease of RMB 639,438.41. The data influenced in Balance Sheet, Income Statement, and Profit Distribution Statement of 2004 were as follows: retained profit in the year beginning was adjusted with a decrease of RMB 10,870,452.94, surplus public reserve in the year beginning with a decrease of RMB 1,918,315.22, and other accounts receivable in the year beginning with a decrease of RMB 12,788,768.16. 3. Indirectly controlling subsidiary of the Company, SEG Hitachi adjusted retroactively impairment losses for fixed assets switch-back according to relevant regulations Key (IV) to Problems about Implementing Enterprise System and relevant Accounting Principles. The matter affected net profit of the Company in 2003 was adjusted with a decrease of RMB 13,183,200.00, statutory public reserve withdrawn in 2003 with a decrease of RMB 1,318,320.00 and statutory welfare reserve withdrawn in 2003 with a decrease of RMB 659,160.00. The data influenced in Balance Sheet, Income Statement, and Profit Distribution Statement of 2004 were as follows: accumulated depreciation in the year beginning was adjusted with an increase of RMB 24,000,000.00, retained profit in the year beginning with a decrease of RMB 11,205,720.00, surplus public reserve in the year beginning with a decrease of RMB 1,977,480.00, minority shareholders’ equity in the year beginning with a decrease of RMB 10,816,800.00 and minority shareholders’ income in 2003 with a decrease of RMB 10,816,800.00. V. Dated the disclosure date of the report, there existed no circumstances happening, which had caused or was causing, or would cause significant influence by productive and operative environment, macro-policies and regulations, on the Company. VI. Business plan for year 2005 In 2005, the Company would actively propel innovation project of 34” color tube assembly line and increase types to improve responding capability to the market; continue to accelerate cost project all-around and keep steady operation of color display tube business; speed up expansion and development of SEG electronics Market and push the development of reorganization of SEG logistics business and development of SEG automobile electronics industry. The Company searched for new profit increasing point of the Company in an active way. VII Routine work of the Board of Directors 1. Meetings and resolutions of the Board In the report period, the Board of the Company totally held 6 meetings of the Board, 2 of which by communications, with the following resolutions formed: 1. The 1st Provisional Meeting of the 3rd Board of Directors was held at the meeting room of the Board of Fuda Group 19F of Everbright Bank Building at Tianhe North Road No. 689, Guangzhou on Feb. 21, 2004. 9 directors should be present at the Meeting but actually all attended the Meeting. Chairman of the Board Zhang Limin presided the meeting, in 32 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 compliance with the relevant provisions in Company Law of the P.R.C. and the Articles of Association of the Company. 3 Supervisors attended the meeting as non-voting delegates. The meeting studied document Several Opinions of the State Council on Propelling Reform and Steady Development of Capital Market. The meeting examined and approved Proposal on Relevant Work of Salary and Assessment of Shenzhen SEG Co., Ltd. voting by show of hands. 2. The 2nd Meeting of the 3rd Board of Directors of the Company was held in the Middle Conference Room, 31F of Star Plaza, Huaqiang North Road. From Mar. 29, 2004 to Apr. 14, 2004. 9 directors should be present and actually all attended the Meeting. Chairman Zhang Weimin presided the meeting in compliance with the relevant provisions in Company Law of the P.R.C. and the Articles of Association of the Company. 3 supervisors of the Company attended the Meeting as nonvoting delegates. The meeting heard the report of auditing in 2003 by preparatory team of auditing committee. The meeting formed the following resolutions item by item voting by show of hands: (1) Examining and approving work Report 2003 of General Manager of the company; (2) Examining and approving Work Report 2003 of the Board of the Company; (3) Examining and approving Financial Settling Report 2003 of the Company; (4) Examining and approving Report Non-recurring Income from Relevant Banks Removing Loan Guarantee of the Company Provided for Shenzhen SEG Samsung Co., Ltd.; (5) Examining and approving Proposal on the Company Withdrawing and Canceling out Impairment Loss for Every Item of Assets; (6) Examining and approving Proposal on the Change of Consolidation Scope of 2003 Financial Statements of the Company; (7) Examining and approving Proposal on Adjusting Retained Profit in 2003 Accounting Statements as audited of the Company; (8) Examining and approving Proposal Switch-back Partial Impairment Losses withdrawn for 34” Color Tube Assembly Line of Shenzhen SEG Co., Ltd; (9) Examining and approving Preplan on 2003 Preplan Profit Distribution and Conversion of Capital Public Reserve into Share Equity; (10) Examining and approving Annual Report 2003 and its Summary of the Company; (11) Examining and approving Proposal on Engaging Beijing Municipality Jindu Law Office Shenzhen branch as 2004 Law Consultant and Paying Remuneration for Law Consultancy amounting to RMB 150,000; (12) Examining and approving Proposal on Changing Director of the Board of the Company; (13) Examining and approving Proposal on Engaging General Manger of the Company; (14) Examining and approving Proposal on holding 9th Shareholders’ General Meeting (2003 Shareholders’ General Meeting). The resolution of the Meeting was published on Page A16 of China Securities and Page B4 of Ta Kung Pao dated Apr. 17, 2004. 3. The 2004 2nd Provisional Meeting of the 3rd Board of Directors of the Company was held by communication on Apr. 21, 2004. 9 directors should be present at the Meeting but actually all attended the Meeting, in compliance with the relevant provisions in Company Law of the 33 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 P.R.C. and the Articles of Association of the Company. The meeting examined and approved 2004 1st Quarterly Report of the Company voting by communication. The resolution of the Meeting was published on Page 41 of China Securities and Page B10 of Ta Kung Pao dated Apr. 23, 2004. 4. The 2004 3rd Provisional Meeting of the 3rd Board of Directors of the Company was held by communication on May 9, 2004. 9 directors should be present at the Meeting but actually all attended the Meeting, in compliance with the relevant provisions in Company Law of the P.R.C. and the Articles of Association of the Company. The meeting examined and approved 2004 Financial Budget of the Company voting by communication. The resolution of the Meeting was published on Page 29 of China Securities and Page B4 of Ta Kung Pao dated May 11, 2004. 4. The 2004 3rd Provisional Meeting of the 3rd Board of Directors of the Company was held by communication on May 9, 2004. 9 directors should be present at the Meeting but actually all attended the Meeting, in compliance with the relevant provisions in Company Law of the P.R.C. and the Articles of Association of the Company. The meeting examined and approved 2004 Financial Budget of the Company voting by communication. The resolution of the Meeting was published on Page 29 of China Securities and Page B4 of Ta Kung Pao dated May 11, 2004. 5. The 2004 3rd Meeting of the 3rd Board of Directors of the Company was held by communication at Yujing Bay Hotel, Dongguan, from Aug. 25, 2004 to Aug. 26, 2004. 9 directors should be present at the Meeting but actually 7 attended the Meeting. Independent Directors, Mr. Xin Huanping and Ms Deng Erkang didn’t attend the meeting due to business and entrusted Independent Director Mr. Su Xijia to attend the meeting and vote on their behalf. Chairman Zheng Weimin presided the meeting, in compliance with the relevant provisions in Company Law of the P.R.C. and the Articles of Association of the Company. 4 Supervisors attended the meeting as non-voting delegates. The meeting heard report about operation in the first half of the year made by General Manager Wang Chu. The meeting examined and approved the following resolutions item by item voting by show of hands: (1) Examined and approved 2004 Semi-annual Report of the Company and its Summary; (2) Examined and approved Management Measure on Investorship of Shenzhen SEG Co., Ltd.; (3) Examined and approved Proposal on the Company Providing Pledge Guarantee for “Subway Project” of Shenzhen SEG Communications Co., Ltd. amounting to RMB 0.8 mil; (4) On the condition that related directors obviated voting, the meeting examined and approved proposal on the Company paying rent amounting to RMB 12,788,768.16 for renting 2nd, 3rd, 6th, and 7th floor of SEG Plaza from Aug.-Oct., 2000 used for operation ground of SEG Electronics Market. The resolution of the Meeting was published on Page A13 of China Securities, Page 39 of Securities Times and Page D4 of Ta Kung Pao dated Aug. 28, 2004. 6. The 2004 4th Meeting of the 3rd Board of Directors of the Company was held by communication at Shangri-La Hotel, Dingshan, Nanjing from Oct. 22, 2004 to Oct. 24, 2004. 9 directors should be present at the Meeting but actually 8 attended the Meeting. Independent 34 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 Director, Mr. Su Xijia didn’t attend the meeting due to business and entrusted Independent Director Mr. Xin Huanping to attend the meeting in written form and vote on his behalf. Chairman Zheng Weimin presided the meeting, in compliance with the relevant provisions in Company Law of the P.R.C. and the Articles of Association of the Company. 4 Supervisors attended the meeting as non-voting delegates. The meeting examined and approved the following resolutions item by item voting by show of hands: (1) Examined and approved 2004 3rd Quarterly Report of the Company; (2) Examined and approved Proposal on Reengaging Zhongtian Huazheng Certified Public Accountants as domestic auditing organization and Paying Remuneration for Auditing; the Board agreed auditing expenses amounting to RMB 0.5 mil for 2004 domestic annual report by Zhongtian Huazheng CPAs and the Company didn’t undertake traveling expenses and boarding expenses during auditing period; (3) Examined and approved Proposal on Reengaging Hong Kong Ho and Ho & Company as overseas auditing organization and Paying Remuneration for Auditing; the Board agreed auditing expenses amounting to RMB 0.45 mil for 2004 domestic annual report by Hong Kong Ho&Ho Company and the Company didn’t undertake traveling expenses and boarding expenses during auditing period; (4) Examined and approved Proposal on Composition of Two Special Committees of the Baord; Mr. Zhang Weimin took the post of Director of Development and Strategy Committee and Guo Hanbiao, Wang Chu, Li Lifu, Su Xijia, Xin Huanping, and Deng Erkang as members of Development and Strategy Committee; Mr. Su Xijia took the post of Director of Auditing Committee and Li Caimou, Deng Erkang, Xin Huanping, and Shi Dechun as members of Auditing Committee. (5) Examined and approved Explanation on Self-inspection of Internal controlling System of Shenzhen SEG Co., Ltd. and Internal Control System of the Company. The resolution of the Meeting was published on Page 21 of China Securities, Page 16 of Securities Times and Page A21 of Ta Kung Pao dated Oct. 27, 2004. 2. Implementation of the Board on resolutions of the Shareholders’ General Meeting (1) In the report period, the Board of the Company could implement all resolutions of the Shareholders’ General Meeting and authorization of the Shareholders’ General Meeting according to laws in a honest and responsible way. (2) As approved by the 9th Shareholders’ General Meeting of the Company (Annual Shareholders’ General Meeting 2003) held on May 26, 2004, Plan on Profit Distribution 2003 was: In 2003, the profit for distribution was RMB 163,619,000. Based on total share capital amounting to 726,145,863 shares of the Company, the Company distributed cash dividend to all shareholders at the rate of RMB 1.12 (tax included) for every 10 shares; in 2003 the Company did not convert capital public reserve into share capital. The Company respectively published Implementation Plan on Profit Distribution on Page 21 of China Securities, Page 4 of Securities Times and Page B12 of Ta Kung Pao dated Jul. 13, 2004 and Noticeable Public Notice on Relevant Affairs of distributing 2003 Bonus to Legal-person Shareholders on Page 24 of China Securities, Page 5 of Securities Times and 35 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 Page C11 of Ta Kung Pao dated Jul. 16, 2004. The register date of the distribution was Jul. 19, 2004 and the ex-dividend date was Jul. 20, 2004. (VII) The preplan on profit distribution and converting capital reserve into share capital Audited by Zhongtian Huazheng Certified Public Accountants according to Chinese Accounting Standards, the Company’s net profit was RMB 101,989,382.04 in 2004. According to the relevant provisions in Company Law of the P.R.C. and the Articles of Association of the Company, based on the net profit audited by Zhongtian Huazheng Certified Public Accountants, in 2004, the Company appropriated 10% of the net profit as statutory surplus reserve amounting to RMB 10,198,938.20 and appropriated 5% of the net profit as statutory welfare amounting to RMB 5,099,469.10, adding the retained earnings in 2003 amounting to RMB 179,469,425.45, less encourage and welfare fund for employees withdrawn amounting to RMB 3,351,290.91 and cash dividend distributed in the previous year amounting to RMB 81,328,336.66, the profit available for distribution to shareholders was RMB 181,480,772.62. Based on the following reasons, the Company would neither distribute profits nor convert capital reserve into share capital this year: 1. To keep competition edge of original color tube products in the field, in 2005 the Company would devoted itself to development and reserve for new type technology, innovation of quality costs and strengthening of market selling strategy, which demands support of large quantity of capital; 2. To keep one-up position of SEG Electronics Market brand in the field, in 2005, the Company would continue to enlarge external exploitation of electronics market, which still need input of large quantities of capital; 3. To protect long-term interests of shareholders and steady undergoing of operation of the Company, in 2005, the Company still need sufficient liquid capital to ensure competitive edge of the Company corresponding to the market change. The retained profit would be used to enlarge input in electronics market, reconstruction and construction of original industry and liquid capital in need of normal operation of the Company. The preplan should be submitted to the Shareholders’ General Meeting of the Company for consideration and approval before its implementation. Independent Opinion on Preplan of Profit Distribution for 2004 and Converting Capital Reserve into Share Capital Issued by Independent Directors 1. Su Xijia and Xin Huanping, independent directors of the Company, agreed to preplan of profit distribution for 2004 and converting capital reserve into share capital and issued the following independent opinion: We issued the following opinion on preplan of profit distribution for 2004 and converting capital reserve into share capital in line with our serious and responsible attitudes: In order to keep competition edge of original color tube products in the field, in 2005, the Company would devoted itself to development and reserve for new type technology, innovation of quality costs and strengthening of market selling strategy, which demands 36 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 support of large quantity of capital; in order to keep one-up position of SEG Electronics Market brand in the field, in 2005, the Company would continue to enlarge external exploitation of electronics market, which still need input of large quantities of capital; in order to protect long-term interests of shareholders and steady undergoing of operation of the Company, in 2005, the Company still need sufficient current capital to ensure competitive edge of the Company corresponding to the market change. In view of the aforesaid actual situations, the Company would neither distribute profits nor convert capital reserve into share capital this year: The retained profit of the Company would be used to enlarge technology renovation and construction of original industry, and development and reserve of newly technology; strengthen marketing, enlarge input and exploitation in electronics market and current capital in need of normal operation of the Company. We considered that this was compliance with the Company’s actual situation, and was beneficial to the normal production and operations and healthy and sustaining development. 2. Independent Director Deng Erkang waived the voting right on preplan of profit distribution for 2004 and converting capital reserve into share capital and issued the following independent opinion: I explained the reason for waiving the voting right on preplan of profit distribution for 2004 and converting capital reserve into share capital in line with my serious and responsible attitudes: For the Profit Distribution Plan, I hoped that the Company could give consideration to the expectation of the whole shareholders especially middle and small shareholders while considering the development demand of the Company. (IX) Special explanation on capital occupied by controlling shareholders and other related parties by Certified Public Accountant: please refer to the appendix attached back to the reference documents of the report. (X) Special explanation and independent opinions of independent directors on the Company’s accumulated and current external guarantees and implementing provisions in ZJF [2003] No. 56 document: According to the requirements in Circular on Standardizing Listed Companies’ Capital Current with Related Parties, External Guarantees and Other Several Problems released by CSRC, we have inspected the Company’s external guarantees in a serious and responsible attitude with details explained as follows: 1. In 2004, the total amount of external guarantee accumulatively of the Company was RMB 102 mil. The external guarantee would be approved and transacted as per legal procedures. By Dec. 31, 2004, the external guarantee balance of the Company was RMB 267.815,which are all guarantees for holding subsidiaries. 2. By the end of 2004, the proportion of the consolidated external guarantee balance of the Company taking up the consolidated statement net assets of 2004 after audition was 19.07%. 37 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 3. Ended Dec. 31, 2004, according to regulations of CSRC ZJF [2003] No. 56 Document, the balance of external guarantee out of line of the Company was amounting to RMB 27,815,000, with a decrease of RMB 11,179,500 by 28.67% compared with RMB 38,994,500 in the beginning of 2004. The decrease proportion was close to the standard of decreasing 30% ZJF [2003] No. 56 Document in every accounting year. 4. According to sprit of CSRC ZJF [2003] No. 56 Document 2003 2nd Provisional Meeting of 2nd Board of the Company revised the articles of external guarantee in the Articles of the Association of the Company, which was examined and approved by 2003 2nd Provisional Shareholders’ General Meeting held on Dec. 31, 2003. 5. We believed, in 2004 the Company had no newly-increased guarantee out of line and the decision-making procedures of external guarantee occurred in 2004 were reasonable, lawful and fair. The Company timely implemented information disclosure obligation. VIII. REPORT OF SUPERVISORY COMMITTEE (I) Work of the Supervisory Committee According to relevant regulations of Company Law and Articles of Association of the Company, the Supervisory Committee of the Company patiently performed its duties. In the report period, the Supervisory Committee of the Company totally held two meetings, attended every meeting of the Board as nonvoting delegate, participated in the discussion of significant decision-making events of the Company and examined the periodical reports of the Company. In the report period, the meetings of the Supervisory Committee are as follows: (I). The 1st meeting of the 3rd Supervisory Committee of the Company was held in the middle meeting room of 31F, Star Plaza, Huaqiang North Rd., Shenzhen, on Apr. 14, 2004. 3 supervisors should attend the meeting and actually all of them were present. Supervisor Wang Li presided the meeting in compliance with the relevant regulations of the Company Law and the Articles of the Association The meeting formed the following resolutions through examination item by item and show of hands: 1.Examined and approved Work Report 2003 of the Supervisory Committee of the Company; 2. Examined and approved Financial Settlement Report 2003 of the Company; 3. Examining and approving Report Non-recurring Income from Relevant Banks Removing Loan Guarantee of the Company Provided for Shenzhen SEG Samsung Co., Ltd.; 4. Examining and approving Proposal on the Company Withdrawing and Canceling out Impairment Loss for Every Item of Assets; 5. Examining and approving Proposal on the Change of Consolidation Scope of 2003 Financial Statements of the Company; 6. Examining and approving Proposal on Adjusting Retained Profit in 2003 Accounting Statements as audited of the Company; 7. Examining and approving Proposal Switch-back Partial Impairment Losses withdrawn for 34” Color Tube Assembly Line of Shenzhen SEG Co., Ltd; 8. Examining and approving Preplan on 2003 Preplan Profit Distribution and Conversion of Capital Public Reserve into Share Equity; 9. Examining and approving Annual Report 2003 and its Summary of the Company; 38 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 10. Examining and approving Proposal on Engaging Beijing Municipality Jindu Law Office Shenzhen branch as 2004 Law Consultant and Paying Remuneration for Law Consultancy amounting to RMB 150,000. The public notice on the resolution of the meeting was published on Page A16 of China Securities and Page B4 of Ta Kung Pao dated Apr. 17, 2004 (II). The 2nd meeting of the 3rd Supervisory Committee of the Company was held in Yujing Bay Hotel, Dongguan on Aug. 25, 2004. 5 supervisors should attend the meeting and actually 4 were present. Supervisor Wang Li presided the meeting in compliance with the relevant regulations of the Company Law and the Articles of the Association The meeting formed the following resolutions through examination item by item and show of hands: Examined and approved 2004 Semi-annual Report pf the Company and its Summary; Supervisor Wang Li was elected as Chairman of the Supervisory Committee. The public notice on the resolution of the meeting was published on Page A13 of China Securities, Page 39 of Securities Times and Page D7 of Ta Kung Pao dated Aug. 26, 2004. (II) Independent opinion on operation of the Company in 2004 issued by the Supervisory Committee 1. Operation according to Law According to relevant stipulations of national laws, regulations and Articles of Association, the Company has established and improved the legal administrative structure, established a rather perfect internal control system, and well kept away risks of administration and finance; the Company’s decision-making procedures were legitimate. In the report year, the Board of Directors and management team seriously implemented each resolution of the Shareholders’ General Meeting in a diligent and conscientious manner, and didn’t violate laws, regulations and Articles of Association or damage the Company’s interests when performing duties and obligations. 2. Financial inspection The Supervisory Committee made serious and careful inspection on the Company’s financial system and financial status, and believed 2004 financial report could truly reflect the Company’s financial status and business results. Zhongtian Huazheng Certified Public Accountants and Hong Kong Ho and Ho & Company Certified Public Accountants audited 2004 financial report of the Company according to Independent Auditing Standards of Chinese Certified Public Accountant and International Auditing Standards and issued respectively auditor’s reports with non-reservation opinion and non-explanation which truly reflected the Company’s financial status and business results. 3.In the report period, there has no use of raised capital. 4. Purchase or sales of assets In the report period, the Company occurred no purchase of assets. The trade price of the assets sold by the Company was reasonable, no inside trading was found, and the transactions hadn’t damaged the rights and interests of shareholders or resulted in runoff of assets. 5.About correlative transactions of the Company The correlative transactions interfered in 2004 by the Company were all in accordance with the principle of equity and fairness as checked by the Supervisory Committee. No inside 39 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 trading was found, and the transactions hadn’t damaged the interests of the Company as well as rights and interests of other shareholders or resulted in runoff of assets. IX. SIGNIFICANT EVENTS (I) Significant lawsuits and arbitrations 1. Lawsuit about the delinquent guarantee that the Company had provided Shenzhen Development Bank Co., Ltd. for the loan amounting to RMB 10 million Shenzhen SEG Dasheng Co., Ltd. (hereinafter referred to as Shen Dasheng) had obtained: The above-mentioned guarantee for the RMB-10-million loan formed during the period of relatively controlling equity of Shen Dasheng by the Company. The main reason was to support the normal production and operation of this company. Right now, the present principal shareholder of this company Guangzhou Borong Investment Co., Ltd. (hereinafter referred to as Guangzhou Borong Company) has furnished the Company credit counter-guarantee. After the expiration of the loan on Mar. 25, 2004, Shen Dasheng had not been able to pay off the funds, nor had it reached an on-lending agreement with the loans bank. On Jun. 30, 2004, Shenzhen Development Bank Co., Ltd. Shenzhen Futian Subbranch (hereinafter referred to as Shen Development Futian Subbranch) sued Shen Dasheng and the Company to the Shenzhen Intermediate People’s Court. On Jul. 19, 2004, Huaqiang Subbranch (secondary subbranch) of Shen Development Futian Subbranch withdrew RMB 10,194,178.91 from the account of the Company, resulting in the Company actually shouldering the guarantee responsibility for Shen Dasheng. Of the funds amount Shen Development Futian Subbranch withdrew, the loan principal is RMB 10 million, debit interest RMB 186.9 thousand, compound interest RMB 1,152.46 and part of the legal fare RMB 6,126.45. After the withdrawal, Shen Development Futian Subbranch applied to Shenzhen Intermediate People’s Court to discontinue the prosecution against Shen Dasheng and the Company. Soon afterwards, the Company sued to the Court and asked Shen Dasheng and Guangzhou Borong Company to recover the aforesaid funds so as to ensure the interest of the Company. After winning the suit through the Court’s verdict, the Company and Shen Dasheng reached a reconciliatory agreement about the case, in which Shen Dasheng agreed to progressively pay the Company back the total funds amount withdrawn by the bank due to this case as well as the interest arising from this amount between Jul. 19, 2004 and the day the amount was totally paid back. Shenzhen Intermediate People’s Court confirmed the reconciliatory agreement with (2004) SZFMECZI NO. 484 Civil Mediation Document. However, by the end the year 2004, Shen Dasheng had refused to perform the repayment duty stipulated in SZFMECZI NO. 484 Civil Mediation Document. On Jan. 12, 2005, the Company applied to Shenzhen Intermediate People’s Court for compulsory enforcement. As to the aforesaid affair, the Company had made continuous information disclosure in Page 24 of China Securities and P. B8 of Ta Kung Pao dated Jun. 16, 2004, P.16 of China Securities, P. 3 of Securities Times and P. B1 of Ta Kung Pao dated Jul. 21, 2004, P. 25 of China Securities, P. 27 of Securities Times and P. B5 of Ta Kung Pao dated Aug. 20, P. 24 of China Securities, P.6 of Securities Times and P. C5 of Ta Kung Pao dated Dec. 10, 2004, as well as in China Securities, Securities Times and Ta Kung Pao dated Jan. 13, 2005. 40 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 2. By Dec. 31, 2004, RMB 76.55 million of the accounts receivable of SEG-Hitachi，which is an indirect holding company of the Company, had been sued to the People’s Court and won the suit. This affair had already been disclosed in the Semi-annual Report 2004 of the Company. However, by Dec. 31, 2004, the funds still hadn’t been recovered, and SEG-Hitachi had already withdrawn RMB 20.82 million of bad debts reserves according to Bad Debts Provision Policy. (II) Purchase and sale of assets, consolidation and merge of the Company in the report period 1. Purchase of assets (share equity) by the Company in the report period On Aug. 16, 2004, in compliance with the decision of the Board of Directors, the Company increased shares holding of SEG Navigations by 8.3175 million shares at the price of RMB 1.32 per share, and the total price of the transferred shares was RMB 10.9791 million. In the report period, the share-transfer price funds of the first term amounting to RMB 9.88119 million (taking up 90% of the total price) had already been paid. Relevant formalities of share conveyance were underway according to procedure in the report period. Once this share transfer was finished, the shares proportion of SEG Navigations held by the Company would increase from the original 21.137% to 35%, resulting in the Company becoming SEG Navigations’ principal shareholder. SEG Navigations is an unlisted limited company, and by the disclosure day of this annual report, the whole amount of share-transfer funds had been fully paid, while the share conveyance formalities had been completed on Jan. 21, 2005 at Shenzhen International High and New Tech & Property Exchange. 2. In the report period, the Company had no sales of assets (share equity), consolidation or merge. (III) Important related transactions 1. Related transactions concerning purchase/sale of commodities and providing and accepting labor services. SEG-Hitachi purchased glass shells from SEG Samsung. SEG-Hitachi: a subsidiary indirectly controlled by the Company by shareholding (54.93%), with registered capital of USD 113 million and the legal representative Sun Shengdian. The company is mainly engaged in design, production and sales of “21” and “34” CPT. SEG Samsung: The company is a share company of the Company by 21.37%. It is listed with Shenzhen Stock Exchange, with a registered capital of RMB 785.97 million and the legal representative Zhang Weimin. The company is mainly engaged in production and sales of CPT glass shells. Based on the market fairness principle, in the report year, SEG-Hitachi purchased glass shells from SEG Samsung at the fair market price amounting to RMB 2.53 million, taking up 0.32% of the total sum of money that had been used to purchase glass shells in the report year. This related transaction belongs to continuous related transaction and was settled using commercial bill. 2. In the report period, the Company existed no related transaction of transfer of asset and 41 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 equity. 3. In the report period, there was no related transaction in which the Company made external investment along with related parties. 4. Issues concerning credit, liabilities and guarantees with the related parties (1) Credit and liability relations with related parties ① With related directors avoiding voting and through the deliberation of non-related directors, the 3rd meeting of the 3rd Board of Directors examined and approved the Proposal on the Related Transaction of Paying the Rent of SEG Plaza to Shenzhen SEG Group Co., Ltd.: as to the real estate of the 2nd, 3rd, 6th and 7th floor of SEG Plaza that the Company rented as the business space of SEG Electronics Market between August and October 2000, the Company had supplemented and signed a related lease contract with SEG Group: at the fair market lease price of RMB 238 per square meter for every month, the Company should pay the rent for the 2nd, 3rd, 6th and 7th floor of SEG Plaza between Aug. 1, 2000 and Oct. 31, 2000 to SEG Group. The leasing space counted (floor space) as 17,911.44 square meters, the rent amounted to RMB 12,788,768.16 in total. This rent would be deducted from the total funds amount of the Company SEG Group had occupied. This event influenced the Company by a net profit decrease of RMB 12,788,768.16 of the year 2000, statutory surplus public reserve withdrawal decrease of RMB 1,278,876.82 and statutory public welfare fund withdrawal decrease of RMB 639,438.41 of the year 2003, and the influenced data in Consolidated Balance Sheet, Profit Sheet and Profit Distribution Sheet of 2004 were as follows: retained profit at the year begin decreased by RMB 10,870,452.94 and surplus public reserve at the year begin decreased by RMB 1,918,315.22, including other receivable funds at the year begin decreasing by RMB 12,788,768.16. ② Credit and liability relations of the Company with related parties by the end of the year 2004 UNIT: RMB Accounts Related parties Dec. 31, 2004 Reasons/Type Dec. 31, 2003 Reasons/Types Accounts Shenzhen SEG Plaza Inv. & Normal business 4,815.05 - - receivable Dev. Co., Ltd. transaction funds Other Shenzhen SEG Plaza Inv. & - 5,479,624.81 Loan and interest receivables Dev. Co., Ltd. SEG (Hong Kong) Co., Ltd. 2,963,838.61 Loan and interest 2,963,838.61 Loan and interest Shenzhen SEG Group Co., 119,025,044.42 116,819,306.54 Loan and interest Ltd. Influence of credit and liability with related parties on the Company: Accounts receivable of the Company, which SEG Group’s transactions had occupied, increased the capital cost and bore certain impact on the asset turnover of the Company. Transactions between other related companies belonged to normal business transactions and exerted no influence on the operation of the Company. (2) Related guarantees Concerning the guarantee issues between the Company and related parties, please refer to the 42 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 item of 2.Significant guarantees of (IV) Important contracts and implementation in this section for details. (IV) Important contracts and implementation 1. Important custody, contract and leasing: In the report period, the Company had no significant custody, contract or leasing. 2. Significant guarantees: By Dec. 31, 2004, the external guarantee balance of the Company was RMB 267.815 million. (For details, please refer to related contents of the aforesaid item X of Section VII Report of the Board of Directors.) (1) External guarantees of the Company (excluding guarantees for holding subsidiaries) In the report period, external guarantees (excluding guarantees for holding subsidiaries) of the Company had all been performed. The accomplished guarantees totaled 3, amounting to RMB 11.1795 million: For related Object of Amount Conference Type of Accomplished parties or Order Decision-making procedure guarantee (’0000) guarantee terms guarantee or not not (Yes or No) Wang Lihua Sep. 5, 2003- Buyback Reported to and approved by 1 RMB 94 Accomplished No (Note 1) Sep. 5, 2011 guarantee the Board of Directors Zhou Wanying Sep. 23, 2003- Buyback Reported to and approved by 2 RMB 23.95 Accomplished No (Note 1) Sep. 23, 2011 guarantee the Board of Directors Reported to and approved by the Annual Shareholders’ Shen Dasheng Dec. 25, 2003- Joint 3 RMB 1,000 General Meeting and Accomplished No (Note 2) Mar. 25, 2004 liabilities implemented concretely by the Board [Note 1] On Nov. 30, 2004, the Company received A Reply about the Cancellation of Buyback Guarantee from Industrial Bank Co., Ltd. Shenzhen Jiabin Subbranch, and the reply read: the issue concerning cancellation of guarantee for the Modernist Windows Bldg. mortgage operation have been submitted to the Subbranch for examination and the Company have been permitted to cancel this buyback guarantee. So far, the mortgage buyback guarantee the Company furnished Wang Lihua and Zhou Wanting has been cancelled. As to this event, the Company had already disclosed in P. 24 of China Securities, P. 3 of Securities Times and P. A16 of Ta Kung Pao dated Dec. 7, 2004. [Note 2] Please refer to “(I) Significant Lawsuits and Arbitrations” of this section. (2) Guarantees by the Company for holding subsidiaries: In the year 2004, there occurred a guarantee amount of RMB 102 million that the Company had provided holding subsidiaries. ① In the report period, the number of accomplished guarantees the Company had furnished holding subsidiaries totaled 3, amounting to RMB 70 million. Order Object of guarantee Amount Terms of loan Type of Procedure of Accomplished 43 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 (’0000) guarantee decision-making or not Aug. 30, 2003 - Joint 1 SEG-Hitachi RMB 4,800 Ditto Accomplished Aug. 30, 2004 liabilities SEG Storage and Dec. 4, 2003 - Joint 2 RMB 1,000 Ditto Accomplished Transportation Dec. 4, 2003 liabilities SEG Jul. 31, 2003 – Joint 3 RMB 1,200 Ditto Accomplished Communications Jul. 31, 2004 liabilities ② By the end of the report period, the unaccomplished guarantees the Company provided holding subsidiaries totaled 7, amounting to RMB 267.815 million. Conference loan Type of Procedure of Accomplishe Order Object of guarantee Amount (’0000) terms guarantee decision-making d or not Approved by Annual Shareholders’ General Jun. 19, 2003- 1 SEG-Hitachi RMB 15,000 Joint liabilities Meeting and implemented No Dec. 19, 2005 concretely by the Board of Directors Nov. 19, 2004- 2 SEG-Hitachi RMB 4,000 Joint liabilities Ditto No Nov. 18, 2005 SEG-Hitachi Nov. 29, 2004- 3 RMB 4,000 Joint liabilities Ditto No [Note 1] Nov. 22, 2006 SEG Storage and Dec. 4, 2004- 4 RMB 1,000 Joint liabilities Ditto No Transportation Dec. 4, 2005 SEG Aug. 2, 2004- 5 Communications RMB 1,200 Aug. 2, 2005 Joint liabilities Ditto No [Note 2] Jul. 1, 2003-the SEG RMB 6 day of inspecting Joint liabilities Ditto No Communications 527.17 for acceptance Jul. 25, 2003-the SEG day of awarding 7 RMB 1,054.33 Joint liabilities Ditto No Communications the pre-receipt certificate [Note 1] This guarantee occurred due to the guarantee Guangdong Development Bank Co., Ltd. Shenzhen City Plaza Sub-branch provided SEG-Hitachi to get a seller’s credit loan of RMB 0.17 billion with a 2-year term that would expire on Nov. 22, 2006 from the Export-Import Bank of China Co., Ltd.. With the above-mentioned guarantee of RMB 40 million, the Company provided Guangdong Development Bank Co., Ltd. Shenzhen City Plaza Sub-branch a credit counter-guarantee. This guarantee was within the RMB 0.3-billion line of mutual guarantee between SEG-Hitachi and the Company. [Note 2] It was very likely that the Company would have to shoulder joint responsibility for this loan guarantee. 44 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 Of the aforesaid unaccomplished guarantees the Company furnished holding subsidiaries: The reason of the guarantees for SEG-Hitachi and the influence they bore on the Company: the loan guarantee of RMB 0.15 billion was provided by the Company to support the technological renovation project of 54cm color tube with middle and high resolution ratio of this company; the two RMB 40-million guarantees were to satisfy the capital need of production and operation of this company. Since the operation of SEG-Hitachi had been normal, it was predicted that the guarantees for this company wouldn’t be at any risk. The reason of the guarantee for SEG Storage and Transportation and the influence it bore on the Company: the RMB 10-million guarantee was to support the company’s capital need for normal operation. Since the operation of SEG Storage and Transportation had been well on the right track, it was predicted that this guarantee wouldn’t be at any risk. The reason of the guarantees for SEG Communications and the influence they bore on the Company: The bank loan guarantee of RMB 12 million occurred in 1998 and was provided by the Company to support the GPS project of this company. Since the GPS project had already parted with this company in 1999, meanwhile the assets status of this company had not been good in recent years and its capability of debt payment had been poor, it was predicted that this guarantee would be in relatively great risk. The RMB 5.2717 million occurred in 2003 and was provided by the Company as performance bond guarantee for the “Shenzhen Subway” project the company won through bidding. It was predicted that the possibility of risk of this guarantee would be small. The RMB 10.5433 million occurred in 2003 and was provided by the Company as advance payment bond for the “Shenzhen Subway” project this company won through bidding. It was predicted that the possibility of risk of this guarantee would be small. (3) Irregular guarantees of the Company By the end of the year 2004, the whole amount of external guarantees, which did not conform to the regulation of ZJF [2003] No. 56 Paper, had decreased by RMB 11.1795 million from RMB 38.9945 million at the beginning of the report period to RMB 27.815 million, declining 28.67%. The decline proportion was close to the standard stipulated in ZJF [2003] No. 56 Paper that the amount of irregular guarantees should decrease at least 30% in every fiscal year. The RMB 27.815 million guarantees that did not conform to regulation were all provided by the Company to SEG Communications, including: RMB 12 million was historical bank loan guarantee; RMB 5.2717 million and RMB 10.5433 million were provided by the Company as performance bond guarantee and advance payment guarantee respectively for the company’s Shenzhen Subway project. Since the Shenzhen Subway project SEG Communications contracted would be pre-inspected for acceptance before the end of May 2005 and the use of advance payment guarantee letter would expire by then, the guarantee amount provided SEG Communications by the Company would decrease by RMB 10.5433 million accordingly. (4) By the end of 2004, the proportion of the consolidated external guarantee balance of the Company taking up the consolidated statement net assets of 2004 after audition was 19.07%. 45 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 3. In the report period, the Company had not entrusted others in capital assets management. (V) Commitments made by shareholder holding more than 5% in the report period or lasting into the report period 1. The Company had disclosed the event that the principal shareholder of the Company, namely SEG Group, would compensate for the funds amounting to RMB 109,861,484.56 that it owed the Company with the share equity of Shenzhen SI Semiconductors Co., Ltd. it held in P. 24 of China Securities and P. B8 of Ta Kung Pao dated Jun. 16, 2004. In the report period, both the Company and SEG Group had sent related personnel to form a special panel to coordinate and promote this event. However, the Board of Directors of the Company had not approved this event in the report period. 2. Article 5 of the Equity Transfer Agreement which the Company had signed with SEG Group at the time of the Company’s listing stipulated: SEG Group permits the Company, as well as subsidiaries of the Company and affiliated companies to use the 8 registered trademarks that SEG Group has presently registered at the State Trademark Office; it also permits the Company to take the aforesaid trademarks and symbols that are similar to these marks as the symbol of the Company, as well as to use the aforesaid symbols or symbols that are similar to these symbols during the operation process; the Company doesn’t have to pay SEG Group any fee for the use of the aforesaid trademarks or symbols. In the report period, this commitment was still executed according to the agreement. (VI) Engagement of Accounting Firms The 4th session of the 3rd Board of Directors of the Company, which had been held from Oct. 22nd to 24th, 2004, examined and approved the renewal engagement of Zhongtian Huazheng Certified Public Accountants as the domestic auditing institution of the Company in 2004 and an auditing fee of RMB 0.5 million (the Company did not pay the fees for business trips and accommodation occurring in the auditing period.) to be paid to this institution; as well as the renewal engagement of Hong Kong Ho and Ho & Company Certified Public Accountants as the overseas auditing institution of the Company of 2004 and an auditing fee of RMB 0.45 million (the Company did not pay the fees for business trips and accommodation occurring in the auditing period.) to be paid to this institution. Accounting firms of 2004 Financial auditing fee of 2004 Zhongtian Huazheng Certified Public Accountants RMB 500,000 Hong Kong Ho and Ho & Company Certified Public RMB 450,000 Accountants The above-mentioned still need to be submitted to the 10th Shareholders’ General Meeting (2004 Annual Shareholders’ General Meeting) for retroactive approval. By the end of 2004, Zhongtian Huazheng Certified Public Accountants had provided auditing services for the Company for 3 successive years. 46 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 By the end of 2004, Hong Kong Ho and Ho & Company Certified Public Accountants had provided auditing services for the Company for 5 successive years. (VII) In the report period, the Company, the Board of Directors and directors of the Company had not been inspected by China Securities Regulatory Commission, nor received any administrative penalty, circulating notice of criticism from CSRC or public blame from the Shenzhen Stock Exchange. The Company had been appraised by Shenzhen Stock Exchange as 2004 Imformation Disclosure Excellent Unit. (VIII) Other important events Shenyang Securities Regulatory Office of CSRC made a tour inspection dated from Nov. 20 to 28, 2003. On Feb. 6, 2004, the Company received Notification on Requirement of Rectifying and Reforming of Shenzhen SEG Co., Ltd. in Regulated Term (hereinafter referred to as the Notification) with SZBFZ [2004] No. 14 of Shenzhen Regulation Office and immediately organized all directors, supervisors and senior executives of the Company to patiently made research and discussion aiming at relevant problems stated in the Notification compared with Company Law, Securities Law and Rule for Stock Listed with Shenzhen Stock Exchange, Notification of Problems of Listed Companies’ Guarantee for Others and relevant regulation of Articles of Association of the Company and made measures of rectifying and reforming item by item. And Notification of Shenzhen SEG Co., Ltd.’s Improving Plan on the Problems Revealed by Shenyang Securities Regulatory Office’s Tour Inspection was disclosed in P. 24 of China Securities and P. B8 of Ta Kung Pao dated Jun. 16, 2004. X. FINANCIAL REPORT 47 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 SHENZHEN SEG CO., LIMITED REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 48 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 SHENZHEN SEG CO., LIMITED REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 CONTENTS PAGE(S) Report of the auditors 49 Consolidated income statement 50 Consolidated balance sheet 51 Consolidated statement of changes in equity 52 Consolidated cash flow statement 53 Notes to the accounts 54 - 77 49 SHENZHEN SEG CO., LIMITED ANNUAL REPORT 2004 50 REPORT OF THE AUDITORS To the shareholders of B shares of Shenzhen SEG Co., Limited (incorporated in the People’s Republic of China with limited liability) We have audited the financial statements on page 2 to 29. The preparation on these financial statements is the responsibility of the Group’s management. It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements give a true and fair view of the state of affairs of the Group as at 31st December, 2004 and of its profit and cash flows for the year then ended and have been prepared in accordance with International Financial Reporting Standards. Ho and Ho & Company Certified Public Accountants Hong Kong 8th April, 2005 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER, 2004 SHENZHEN SEG C., LTD ANNUAL REPORT 2004 NOTES 2004 2003 RMB’000 RMB’000 Revenue 4 2,599,743 2,321,697 Cost of sales (2,256,573) (1,970,817) ) Gross profit 343,170 350,880 Other operating income 6 35,102 20,614 Decrease in impairment loss on property, plant and equipment - 24,000 Distribution costs (72,098) (71,138) ) Administrative expenses (199,432) (186,307) ) Profit from operations 7 106,742 138,049 Finance costs 8 (41,120) (56,431) Decrease in provision for contingent loss 9 - 83,881 Share of results of associates 71,861 32,385 Profit before taxation 137,483 197,884 Taxation 10 (15,637) (11,974) Profit before minority interests 121,846 185,910 Minority interests (23,659) (34,708) Net profit for the year 98,187 151,202 Dividends 11 - 81,328 Earnings per share 12 RMB 0.135 RMB 0.208 -1- SHENZHEN SEG C., LTD ANNUAL REPORT 2004 CONSOLIDATED BALANCE SHEET AS AT 31ST DECEMBER, 2004 NOTES 2004 2003 RMB’000 RMB’000 ASSETS Non-current assets Property, plant and equipment 13 1,574,956 1,588,809 Construction in progress 14 4,224 4,081 Interests in associates 16 480,488 418,261 Other investments 17 14,270 14,270 Other assets 35,215 37,467 2,109,153 2,062,888 Current assets Inventories 18 248,695 196,517 Investments in securities 19 4,233 6,445 Accounts receivable, deposits and prepayments 20(c)(ii) 842,908 866,725 Pledged deposits 21 63,515 130,038 Cash and bank balances 616,100 648,631 1,775,451 1,848,356 Total assets 3,884,604 3,911,244 EQUITY AND LIABILITIES Capital and reserves Share capital 22 726,146 726,146 Reserves 23 702,573 685,523 1,428,719 1,411,669 Minority interests 495,716 481,478 Non-current liabilities Loans - due after one year 24(a) 439,440 226,030 Current liabilities Loans - due withinone year 24(a) 655,433 732,667 Accounts payable, deposits received and accruals 20(c)(iv) 852,678 1,051,912 Dividend payable 2,801 74 Tax payable 9,817 7,414 1,520,729 1,792,067 Total equity and liabilities 3,884,604 3,911,244 The financial statements on pages 2 to 29 were approved by the Board of Directors and authorised for issue on 8th April, 2005 and are signed on its behalf by :- Director Director -2- SHENZHEN SEG C., LTD ANNUAL REPORT 2004 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST DECEMBER, 2004 Statutory Statutory public welfare Exchange Accumulated Share capital Capital reserve surplus reserve fund reserve profits Total RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 Balance at 1st January, 2003 726,146 398,893 31,071 61,002 295 39,680 1,257,087 Net profit for the year - - - - - 151,202 151,202 Transfer of reserves - - 18,175 9,088 - (27,263) - Provision for unrealised gain on interests in associates - 3,380 - - - - 3,380 Balance at 31st December, 2003 and 1st January, 2004 726,146 402,273 49,246 70,090 295 163,619 1,411,669 Net profit for the year - - - - - 98,187 98,187 Transfer of reserves - - 7,361 3,680 - - (11,041) Provision for unrealised gain on interests in associates - 191 - - - - 191 Dividends (Note 11) - - - - - (81,328) (81,328) Balance at 31st December, 2004 726,146 402,464 56,607 73,770 295 169,437 1,428,719 -3- SHENZHEN SEG C., LTD ANNUAL REPORT 2004 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER, 2004 NOTES 2004 2003 RMB’000 RMB’000 OPERATING ACTIVITIES Cash generated from operations 25 5,365 401,935 Interest paid (41,120) (56,431) Income tax paid (4,469) (18,237) NET CASH (USED IN) / FROM OPERATING ACTIVITIES (40,224) 327,267 INVESTING ACTIVITIES Interest received 22,503 8,955 Purchase of property, plant and equipment (53,032) (121,122) Expenditure on construction in progress (88,888) (258,418) Proceeds from disposal of property, plant and equipment 10,220 12,880 Increase in investments in associates - (8,100) Net cash inflow from disposal of a subsidiary - 1,147 Net cash inflow from acquisition of a subsidiary 26(b) 1,500 1,050 Purchase of other investments - (267) Proceeds from disposal of other investments - 1,950 Decrease in investments in securities 2,212 1,028 Decrease / (increase) in pledged deposits 66,523 (41,381) NET CASH USED IN INVESTING ACTIVITIES (38,962) (402,278) FINANCING ACTIVITIES Dividend paid (78,601) - Dividend paid to minority shareholders (10,920) (2,121) New bank and other loans raised 1,328,576 1,244,500 Repayment of bank and other loans (1,192,400) (1,399,299) NET CASH FROM / (USED IN) FINANCING ACTIVITIES 46,655 (156,920) DECREASE IN CASH AND CASH EQUIVALENTS (32,531) (231,931) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 648,631 880,562 ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS AT END OF YEAR Cash and bank balances 616,100 648,631 -4- SHENZHEN SEG C., LTD ANNUAL REPORT 2004 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 1. CORPORATE INFORMATION Shenzhen SEG Co., Limited (the “Company”) and its subsidiaries are collectively referred to the “Group”. The Company, which was approved by the Shenzhen Municipal Government, the People’s Republic of China (the “PRC”) on 10th April, 1996, was established in the name of Shenzhen SEG Co., Limited. The Company obtained a business certificate licence on 16th July, 1996. The Company’s shares have been listed and traded on the Shenzhen Stock Exchange since July, 1996. The holding company of the Company is Shenzhen Electronics Group Ltd. (the “SEG Group”), a state-owned enterprise registered in the PRC and under the direct supervision of the Shenzhen Municipal Government. The Company, its subsidiaries (note 15) and its associates (note 16) are engaged primarily in the production and sales of electronic products of which colour cathode tubes are the major product. 2. PRESENTATION OF FINANCIAL STATEMENTS The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). These financial statements are presented in Renminbi (“RMB”) since that is the currency in which the majority of the Group’s transactions are denominated. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared on the historical cost basis except for the investments in securities and other investments which were stated at fair value. The principal accounting policies adopted are set out below :- (a) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (“its subsidiaries”) made up to 31st December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. On acquisition, the assets and liabilities of a subsidiary are measured at their fair value at the date of acquisition. The interest of minority shareholders is stated at the minority's proportion of the fair value of the assets and liabilities recognised. -5- SHENZHEN SEG C., LTD ANNUAL REPORT 2004 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of consolidation - Continued The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by other members of the Group. All significant inter-company transactions and balances between group enterprises are eliminated on consolidation. (b) Interests in associates An associate is an enterprise over which the Group is in a position to exercise significant influence, through participation in the decision making on the financial and operating policies of the investee. The results, assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. The carrying amount of such investments is reduced to recognise any impairment in the value of individual investment. Where a group enterprise transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the Group’s interests in the relevant associate, except where unrealised losses provide evidence of an impairment of the asset transferred. (c) Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interests in the fair value of the identifiable assets and liabilities of a subsidiary or an associate at the date of acquisition. Goodwill is recognised as an asset and amortised on a straight-line basis following an assessment of its useful life. Goodwill arising on the acquisition of an associate is included within the carrying amount of the associate. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet. NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -6- SHENZHEN SEG C., LTD ANNUAL REPORT 2004 (c) Goodwill - Continued Negative goodwill, which represents the excess of the Group’s interests in the fair value of the identifiable assets and liabilities of a subsidiary or an associate acquired over the cost of acquisition, is eliminated proportionately against the fair value of the non-monetary assets acquired. Any amount in excess of the fair value of the non-monetary assets acquired should be amortised over the remaining weighted average useful life of the identifiable acquired depreciable or amortisable assets. On disposal of a subsidiary or an associate, the attributable amount of unamortised goodwill or negative goodwill is included in the determination of the profit or loss on disposal. (d) Property, plant and equipment (i) Investment properties Investment property, which is property held to earn rentals and for capital appreciation, is stated at cost less accumulated depreciation and impairment losses. (ii) Other property, plant and equipment Other property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Expenditure incurred after the asset has been put into operation, such as repairs and maintenance and overhaul costs, is normally charged to the income statement in the year in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is captialised as an additional cost of the asset. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement. NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (d) Property, plant and equipment - Continued Depreciation is calculated to write off the cost of other property, plant and equipment -7- SHENZHEN SEG C., LTD ANNUAL REPORT 2004 on a straight-line basis over their estimated useful lives as follows :- Leasehold land Over the remaining lease terms Buildings 20 - 40 years Machinery and equipment 5 - 10 years Motor vehicles 5 - 10 years (e) Construction in progress Construction in progress represents properties under construction and equipment purchased prior to installation and is stated at cost. Cost comprises direct costs, attributable overheads and borrowing costs capitalised in accordance with the Group’s accounting policy. No depreciation is provided on construction in progress prior to their completion upon which they will be reclassified into the appropriate categories of property, plant and equipment and depreciation will be provided. (f) Impairment At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the asset to which the asset belongs. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment loss is recognised as expense immediately, unless the relevant asset is land or buildings at a revalued amount , in which case the impairment loss is treated as a revaluation decrease. NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (f) Impairment - Continued Where impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss is recognised -8- SHENZHEN SEG C., LTD ANNUAL REPORT 2004 as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. (g) Other investments Other investments represent unlisted investments held for long-term purposes. Other investments are stated at cost less impairment. (h) Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less estimated costs to completion and costs to be incurred in marketing, selling and distribution. (i) Financial instruments Financial assets and liabilities are recognised on the Group’s balance sheet when the Group has become a party to the contractual provisions of the instrument. (i) Accounts receivable, deposits and prepayments Accounts receivable, deposits and prepayments are stated at cost as reduced by appropriate allowances for estimated irrecoverable amounts. NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (i) Financial instruments - Continued (ii) Investments in securities Investments in securities are recognised on a trade-date basis and are initially measured at cost. At subsequent reporting dates, debt securities that the Group has the expressed -9- SHENZHEN SEG C., LTD ANNUAL REPORT 2004 intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost, less any impairment loss recognised to reflect irrecoverable amounts. The annual amortisation of any discount or premium on the acquisition of a held-to-maturity security is aggregated with other investment income receivable over the terms of the instrument so that the revenue recognised in each year represents a constant yield on the investment. Investments other than held-to-maturity debt securities are classified as either held for trading or available-for-sale and are measured at subsequent reporting dates at fair value. Where securities are held for trading purposes, unrealised gains and losses are included in net profit or loss for the year. For available-for-sale investments, unrealised gains and losses are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for the year. (iii) Loans Interest-bearing loans are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the year in which they arise. (iv) Accounts payable, deposits received and accruals Accounts payable, deposits received and accruals are stated at cost. (j) Operating leases Rentals payable under operating leases are charged to the income statement on a straight-line basis over the terms of the relevant lease. NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (k) Foreign currencies Transactions in currencies other than RMB are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are re-translated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the year. (l) Taxation The charge for current taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been - 10 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 enacted or substantively enacted by the balance sheet date. Deferred taxation is accounted for using the liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the taxable profits nor the accounting profits. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group is able to control the reversal of the timing difference and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax is calculated at the tax rate that are expected to apply to the year when the asset is realised or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax asset and liability is offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax asset and liability on a net basis. - 11 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (m) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the cost of those assets. All other borrowing costs are recognised in net profit or loss in the year in which they are incurred. (n) Retirement benefit costs The Group participates in retirement funds scheme managed by the local social security bureau in accordance with government regulations. The contributions are charged to the income statement as incurred at rates specified in the rules of the scheme. (o) Provisions Provisions are recognised when the Group has a present obligation as a result of a past event which it is probable that it will result in an outflow of economic benefits that can be reasonably estimated. (p) Revenue recognition (i) Sales of goods are recognised when goods are delivered and title has passed. (ii) Rental income is recognised on a straight-line basis over the respective lease terms. (iii) Transportation and warehousing service income and maintenance fee income are recognised over the relevant period in which the services are rendered. (iv) Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable. (v) Income from other investments is accounted for to the extent of dividend income received and receivable during the year. - 12 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 4. REVENUE An analysis of the Group’s revenue is as follows:- 2004 2003 RMB’000 RMB’000 Sales of goods 2,390,093 2,129,910 Rental income 116,079 103,108 Transportation and warehousing service income 57,314 50,208 Others 36,257 38,471 2,599,743 2,321,697 5. BUSINESS AND GEOGRAPHICAL SEGMENTS (a) Business segments Since the Group is mainly engaged in the business of production and sales of colour cathode tubes and related products, the analysis of business segments is not presented. (b) Geographical segments The analysis of the Group’s revenue by geographical market is as follows:- 2004 2003 RMB’000 RMB’000 The PRC 1,355,903 1,329,297 Countries other than the PRC 1,243,840 992,400 2,599,743 2,321,697 Since the Group’s assets are mainly in the PRC, the analysis of geographical segments is not presented. - 13 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 6. OTHER OPERATING INCOME An analysis of the Group’s other operating income is as follows:- 2004 2003 RMB’000 RMB’000 Interest income 22,503 8,955 Rental income from leasing of equipment 8,228 4,105 Gain on disposal of property, plant and equipment 566 2,389 Handling fee income - 17 Penalty imposed on customers for late payments 233 450 Franchise income 1,269 2,800 Exchange gain 31 551 Net profit on sales of raw materials 296 868 Others 1,976 479 35,102 20,614 7. PROFIT FROM OPERATIONS Profit from operations has been arrived at after charging / (crediting):- 2004 2003 RMB’000 RMB’000 Wages, salaries and welfare 172,168 163,471 Contribution to retirement scheme (note 30) 11,491 12,521 Increase / (decrease) in impairment loss on property, plant and equipment 290 (24,000) Loss / (gain) on disposal of property, plant and equipment 1,631 (470) Depreciation on property, plant and equipment 143,489 125,224 Provision for bad debts 23,205 23,071 8. FINANCE COSTS 2004 2003 RMB’000 RMB’000 Interest expenses on bank and other loans 41,120 56,431 - 14 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 9. DECREASE IN PROVISION FOR CONTINGENT LOSS In 2003, the provision for contingent loss in 2001 in respect of the guarantee given to Shenzhen SEG Samsung Enterprises Co., Ltd. (“SEG Samsung”) amounted to RMB83,881,000 was reversed in that year because the Government had injected additional capital to finance SEG Samsung during that year. All the guarantee related bank loans due by SEG Samsung had been fully repaid during that year. 10. TAXATION 2004 2003 RMB’000 RMB’000 Income tax - the Company and its subsidiaries 6,872 9,187 - associates 8,765 2,787 15,637 11,974 Income tax represents the provision for the PRC income tax charged for the year. Each company of the Group provided income tax on the assessable profits according to the tax rate prevailing in the territories in which they operate. Deferred tax has not been provided for in the financial statements as in the opinion of directors, there are no material timing differences which are expected to crystallise in the foreseeable future. 11. DIVIDENDS 2004 2003 RMB’000 RMB’000 Proposed final dividend: Nil (2003 : RMB1.12 per 10 shares) - 81,328 - 15 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 12. EARNINGS PER SHARE The calculation of basic earnings per share is based on the following data :- 2004 2003 Net profit for the year RMB 98,187,000 RMB 151,202,000 Number of issued shares 726,145,863 726,145,863 The Company has no issued shares with potential dilutive effect. Therefore, no diluted earnings per share are presented. 13. PROPERTY, PLANT AND EQUIPMENT Leasehold Machinery Investment land and and Motor properties buildings equipment vehicles Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 COST At 1st January, 2004 42,617 1,038,719 1,746,490 50,709 2,878,535 Additions - 24,262 21,625 7,145 53,032 Transfer from construction in progress (Note 14) - 81,273 7,472 - 88,745 Disposals / written off (197) (9,287) (14,910) (2,037) (26,431) At 31st December, 2004 42,420 1,134,967 1,760,677 55,817 2,993,881 ACCUMULATED DEPRECIATION At 1st January, 2004 1,673 214,140 782,732 26,097 1,024,642 Charge for the year 959 41,655 95,320 5,555 143,489 Written back on disposals / written off (84) (1,137) (11,187) (1,844) (14,252) At 31st December, 2004 2,548 254,658 866,865 29,808 1,153,879 ACCUMULATED IMPAIRMENT LOSSES At 1st January, 2004 - 6,746 258,215 123 265,084 Increase during the year - - 290 - 290 Written back on disposals / written off - (318) - (10) (328) At 31st December, 2004 - 6,428 258,505 113 265,046 NET BOOK VALUES At 31st December, 2004 39,872 873,881 635,307 25,896 1,574,956 At 31st December, 2003 40,944 817,833 705,543 24,489 1,588,809 - 16 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 13. PROPERTY, PLANT AND EQUIPMENT - Continued Rental income earned by the Group from its investment properties, all of which are leased out under operating leases, amounted to RMB23,962,000 (2003: RMB22,137,000). Direct operating expenses arising on the investment properties in the year amounted to RMB12,488,000 (2003: RMB11,633,000). In the opinion of the directors, the aggregate carrying value of investment properties approximates to their fair value at the balance sheet date. 14. CONSTRUCTION IN PROGRESS 2004 2003 RMB’000 RMB’000 COST At beginning of year 4,081 4,438 Additions 88,888 258,418 Transfer to property, plant and equipment (Note 13) (88,745) (258,775) At end of year 4,224 4,081 15. SUBSIDIARIES Details of the Company’s principal subsidiaries at 31st December, 2004 are as follows :- Place of incorporation, Proportion of registration and ownership Name of company operation interest Principal activities % Shenzhen SEG Communication PRC 99.81 Manufacture and Co., Ltd. installation of communication Equipment Shenzhen SEG Store and PRC 99.59 Cargo transportation Transport Enterprise Co., Ltd. and storage Shenzhen Baohua PRC 66.58 Manufacture of Electronic Joint Stock Co., Ltd. electronic consumer products and property investment Shenzhen SEG CNEDC PRC 73.24 Investment holding Color Display Devices Corp. - 17 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 15. SUBSIDIARIES - Continued Place of incorporation, Effective registration and rate of Name of subsidiary operation equity held Principal activities % Shenzhen SEG Hitachi Color PRC 54.93 Manufacture of Display Devices Co., Ltd.* colour TV tubes Shenzhen SEG Real PRC 91.79 Investment holding Estate Co., Ltd. Shenzhen SEG Business PRC 99.80 Sales of computers, Machine Co., Ltd. equipment and communication devices Shenzhen SEG Net Information PRC 52.41 Trading of and provision Company Limited of services for electronic and communication products XiAn SEG Electronic Market PRC 65 Leasing and property Company Limited management ChongQing SEG Electronic Market PRC 50 Leasing and property Company Limited ** management * Indirectly held subsidiary ** The Group has 50% equity interests in ChongQing SEG Electronic Market Company Limited and has more than 50% voting rights in the Board of Directors. The Group is able to control the subsidiary and should be included in the consolidation. 16. INTERESTS IN ASSOCIATES 2004 2003 RMB’000 RMB’000 Unlisted investments in the PRC Share of net assets 480,488 418,261 - 18 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 16. INTERESTS IN ASSOCIATES – Continued Details of the Company’s principal associates at 31st December, 2004 are as follows :- Place of Proportion incorporation, of registration ownership Name of company and operation interest Principal activities % Shenzhen SEG PRC 21.44 Manufacture and sales of cathode Samsung Glass Co., tubes, glass shells and relevant Ltd. moulds and tools Shenzhen SEG Navigations PRC 21.14 Development, design and Technology Stock Co., Ltd provision of consultancy services in respect of electronic and communication products Shanghai SEG Electronic Market PRC 35 Sales of electronic and Company Limited communication products 深圳日立賽格顯示器有限公司 PRC 16.48 Manufacture of colour TV tubes 深圳巿賽格東方實業有限公司 PRC 20 Import and export trading 17. OTHER INVESTMENTS 2004 2003 RMB’000 RMB’000 Unlisted investments in the PRC, at fair value 14,270 14,270 18. INVENTORIES 2004 2003 RMB’000 RMB’000 Raw materials 144,349 126,090 Consumables 161 461 Work in progress 23,243 18,140 Finished goods 80,655 51,679 Others 287 147 248,695 196,517 At the balance sheet date, raw materials of approximately RMB553,000 (2003: RMB521,000) are stated at net realisable value. All the other inventories are stated at cost. - 19 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 19. INVESTMENTS IN SECURITIES 2004 2003 RMB’000 RMB’000 Listed shares in the PRC, at fair value 4,233 6,445 Investments in securities represent the Group’s investments in listed equity securities. The Group obtains its return on investments by dividend income and trading gains received. The fair value of investments in securities is based on quoted market prices. 20. FINANCIAL INSTRUMENTS Financial assets of the Group include cash and bank balances, pledged deposits, investments in securities, accounts receivable, deposits and prepayments. Financial liabilities of the Group include bank loans, accounts payable, deposits received and accruals. The Group exposes to credit and interest rate risk arising from the normal course of the Group’s business. (a) Credit risk The Group has a credit policy in place and the exposure to credit risk is monitored on an on-going basis. Credit evaluations are performed on all customers requiring credit over a certain amount. (b) Interest rate risk The interest rates and terms of repayment of the bank loans of the Group are disclosed in note (24). (c) Fair value The carrying amounts of significant financial statements and liabilities approximate to their respective fair values at the balance sheet date. (i) Cash and bank balances and pledged deposits Cash and bank balances and pledged deposits represent cash and short-term deposits placed at bank. The carrying amounts of these assets approximate their respective fair values. NOTES TO THE ACCOUNTS - 20 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 FOR THE YEAR ENDED 31ST DECEMBER, 2004 20. FINANCIAL INSTRUMENTS - Continued (c) Fair value - Continued (ii) Accounts receivable, deposits and prepayments An allowance has been made for estimated irrecoverable amounts of the accounts receivable, deposits and prepayments by reference to past default experience. The directors consider that the carrying amounts of these assets approximate their respective fair value. Amounts receivable, deposits and prepayments included amounts due from holding company, fellow subsidiaries and related companies. The major balances at the balance sheet date are shown in note (31) to the accounts. (iii) Loans The carrying amount of loans approximates its fair value based on the borrowing rates currently available for loans with similar terms and maturity. (iv) Accounts payable, deposits received and accruals Accounts payable, deposits received and accruals are short-term in nature. The carrying amounts of these liabilities approximate their respective fair values. Accounts payable, deposits received and accruals included amounts due to holding company, fellow subsidiaries and related companies. The major balances at the balance sheet date are shown in note (31) to the accounts. 21. PLEDGED DEPOSITS Pledged deposits represent bank balances that were pledged to the banks of the Group to secure the banking facilities granted thereto. 22. SHARE CAPITAL 2003 and 2004 RMB’000 Registered, issued and fully paid :- 498,104,136 ‘A’ shares of RMB 1 each 498,104 228,041,727 ‘B’ shares of RMB 1 each 228,042 726,146 - 21 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 23. RESERVES Statutory Statutory public welfare Exchange Accumulated Capital reserve surplus reserve fund reserve profits Total RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 Balance at 1st January, 2003 398,893 31,071 61,002 295 39,680 530,941 Net profit for the year - - - - 151,202 151,202 Transfer of reserves - 18,175 9,088 - (27,263) - Provision for unrealised gain on interests in associates 3,380 - - - - 3,380 2 Balance at 31st December, 2003 7 and 1st January, 2004 402,273 3 49,246 70,090 295 163,619 685,523 Net profit for the year - - - - 98,187 98,187 Transfer of reserves - 7,361 3,680 - (11,041) - Provision for unrealised gain on interests in associates 191 - - - - 191 Dividends (Note 11) - - - - (81,328) (81,328) 6 Balance at 31st December, 2004 402,464 56,607 73,770 295 169,437 702,573 Attributable to :- The Company and subsidiaries 402,464 56,607 73,770 295 (135,753) 397,383 Associates - - - -- 305,190 305,190 Balance at 31st December, 2004 402,464 56,607 73,770 295 169,437 702,573 Under the relevant law, regulations and policies in the PRC, the Company is required to make an appropriation of the profit after taxation to the statutory surplus reserve account until the reserve amount has reached 50% of the registered capital of the Company. The Company is also required to make an appropriation to the statutory public welfare fund. Any premium received on the issue of shares (net of issue costs) is treated as capital reserve. The statutory surplus reserve and capital reserve may be applied only for the following purposes:- (i) The statutory surplus reserve may be used to make up losses; and (ii) The reserves may be converted into share capital by the issue of new shares to shareholders in proportion to their existing shareholdings, but when reserves are converted into share capital, the amount remaining in the reserves shall not be less than 25% of the enlarged registered capital. The statutory public welfare fund shall be applied only for the collective welfare of the Company’s employees. Prior to making up the Company’s losses and making the relevant appropriations to the statutory surplus reserve and the statutory public welfare fund, no dividends may be paid. - 22 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 24. LOANS (a) The loans are repayable as follows :- 2004 2003 RMB’000 RMB’000 Bank loans - secured 114,373 183,197 - unsecured 978,000 773,000 Other unsecured loans 2,500 2,500 1,094,873 958,697 Less : Amount shown under current liabilities (655,433) (732,667) Amount shown under non-current liabilities 439,440 226,030 (b) The weighted average interest rates paid were as follows :- 2004 2003 Bank loans - short-term loans 3.78% 5.07% - long-term loans 5.97% 5.65% Other loans 5.60% 5.60% (c) Bank loans of approximately RMB432,500,000 (2003: approximately RMB260,000,000) were guaranteed by independent third parties. - 23 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 25. CASH GENERATED FROM OPERATIONS 2004 2003 RMB’000 RMB’000 Profit from operations 106,742 138,049 Adjustments for :- Interest income (22,503) (8,955) Depreciation on property, plant and equipment 143,489 125,224 Net loss /(gain) on disposal of property, plant and equipment 1,631 (470) Impairment loss on other investments - 105 Amortisation on other assets 2,252 2,252 Loss on disposal of interest in a subsidiary - 478 Increase / (decrease) in impairment loss on property, plant and equipment 290 (24,000) Increase in inventories (52,178) (51,527) Decrease in amounts due from associates - 5,534 Decrease in accounts receivable, deposits and prepayments 24,876 22,638 (Decrease)/ increase in accounts payable, deposits received and accruals (199,234) 192,607 Cash generated from operations 5,365 401,935 - 24 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 26. ACQUISITION OF A SUBSIDIARY (a) During the year, the Group acquired 50% equity interests in ChongQing SEG Electronic Market Company Limited. The net asset value of the above subsidiary at the date of acquisition was as follows :- RMB’000 Cash and bank balances 3,000 (b) The net cash inflow from acquisition of a subsidiary was as follows :- RMB’000 Cash and bank balances 3,000 Cash consideration (1,500) 1,500 27. PLEDGE OF ASSETS At 31st December, 2004, certain of the Group’s properties, machinery and equipments, bank deposits and bills receivable with an aggregate net book value of approximately RMB452,856,000 (2003: approximately RMB 573,901,000) were pledged to secure banking and other facilities granted to the Group. 28. CAPITAL COMMITMENT At 31st December, 2004, the Group had capital commitment contracted for but not provided for in the financial statements in respect of acquisition of property, plant and equipment totalling approximately RMB8,764,000 (2003: approximately RMB3,148,000). - 25 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 29. OPERATING LEASE COMMITMENT (a) The Group as lessee At the balance sheet date, the Group had commitments under non-cancellable operating leases which fall due as follows:- 2004 2003 RMB’000 RMB’000 Within one year 8,819 7,860 In the second to fifth year inclusive 43,830 36,954 After five years 21,112 33,381 73,761 78,195 (b) The Group as lessor At the balance sheet date, the Group had contracted with tenants for the following future minimum lease receipts:- 2004 2003 RMB’000 RMB’000 Within one year 25,618 16,312 In the second to fifth year inclusive 27,989 33,520 After five years 8,550 10,450 62,157 60,282 30. RETIREMENT BENEFIT PLANS The employees of the Group are members of a state-managed retirement benefit scheme operated by the PRC government. The subsidiaries are required to contribute a specified percentage of their payroll costs to the retirement benefit scheme to fund the benefits. The only obligations of the Group with respect to the retirement benefit scheme are included in the amount disclosed in note (7) to the accounts for contribution to defined retirement benefit plans. - 26 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 31. RELATED PARTY TRANSACTIONS The followings are the major related party transactions entered by the Group during the year and the corresponding balances at the balance sheet date:- Name of Company Relationship Nature 2004 2003 RMB’000 RMB’000 Shenzhen Electronic Holding - Payment of guarantee charges 480 - Group Ltd. company - Amount the therefrom 119,025 129,608 深圳市賽格廣場投資 Fellow - Amount due therefrom/ 5 (75) 發展有限公司 subsidiary (thereto) 賽格(香港)公司 Fellow - Amount due therefrom 2,964 2,964 subsidiary Shenzhen SEG Associate - Purchase of raw materials 2,526 13,807 Samsung Glass Co., Ltd. Shenzhen SEG Investee - Guarantee given - 10,000 Dasheng Joint company - Amount due therefrom 19,094 9,000 Stock Co., Ltd. In the opinion of the directors, the above transactions were undertaken in the normal course of the business and were conducted at prices agreed by each party. - 27 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2004 32. IMPACT OF IFRS ADJUSTMENTS ON NET PROFIT FOR THE YEAR AND NET ASSETS Net profit for the year Net assets 2004 2003 2004 2003 RMB’000 RMB’000 RMB’000 RMB’000 As reported in the financial statements audited by the PRC auditors 101,989 181,755 1,404,719 1,411,669 Adjustments made for prior year by the PRC auditors - Change of PRC policy in respect of provision in fixed assets - (13,183) - (13,183) - Over-provision of income tax of associates - 997 - 997 - Provision for rental expenses in prior years according to a new tenancy agreement - - - (12,789) As restated 101,989 169,569 1,404,719 1,386,694 Adjustments to align with IFRS :- - Change of PRC policy in respect of provision in fixed assets - 13,183 24,000 13,183 - Share of results of associates 997 (997) - (997) - Provision for rental expenses in prior years according to a new tenancy agreement (12,789) - - 12,789 - (Increase) / decrease in provision for doubtful debts - (22,659) - - - Over-provision of export VAT refund - (5,524) - - - Reversal of unrecognised loss / (gain) on investments 524 (2,370) - - - Transfer of welfare fund (3,351) - - - - Minority interests 10,817 - - - As adjusted in conformity to IFRS 98,187 151,202 1,428,719 1,411,669 33. LANGUAGE The report is originally prepared in Chinese. In the event of a conflict between this English translation and the original Chinese version or difference in interpretation between the two versions of the report, the Chinese language report shall prevail. - 28 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 XI. DOCUMENTS AVAILABLE FOR REFERENCE (1) Accounting statements carried with the signatures and seals of legal person representative, person in charge of accounting affairs and person in charge of accounting institution. (2) Original of auditor’s report carried with the seal of Certified Public Accountants, the signature and seal of certified public accountants. (3) Originals of documents and manuscripts of public notices disclosed publicly on the newspapers designated by CSRC in the report period. Board of Directors of Shenzhen SEG Co., Ltd. April 12, 2005 - 29 - SHENZHEN SEG C., LTD ANNUAL REPORT 2004 Shenzhen SEG Co., Ltd. Special Explanation ZTHZ (J) ZS Zi[2005] No. 3002 中天华正会计师事务所 ZHONG TIAN HUA ZHENG CPA CO., LTD. 地 址： 深圳市深南中路爱华大厦十三层 Add ： 13/F, Aihua Building Shennan Road Middle Shenzhen China 邮政编码： 518031 Postcode: 518031 电 话： 0755-83662290, 83662286 Telephone: 0755-83662290, 83662286 传 真： 0755-83697329 Fax: 0755-83697329 - 30 - 深圳赛格股份有限公司 专项说明 Special Explanation ZTHZ (J) ZS Zi[2005] No. 3002 China Securities Regulatory Commission Shenzhen Securities Regulatory Office: To all shareholders of Shenzhen SEG Co., Ltd.: Entrusted by Shenzhen SEG Co., Ltd., we have audited the capital occupied by the largest shareholders and related parties of Shenzhen SEG Co., Ltd. and its controlling subsidiaries (hereinafter referred to as SEG Co.) in 2004. The facticity and integrality of situations of these capital occupation are the responsibility of SEG Co.; and our responsibility is to express a special explanation on these situations of capital occupations based on our audit. We conducted our audit in accordance with Independent Standards of Chinese CPA on Auditing and Circular on Standardizing Capital Current between Listed Company and Related Parties and External Guarantees and Other Several Problems of Listed Company released by CSRC with ZJF [2003] No. 56 document, we have implemented the necessary auditing procedures considered by us, including spot-checking accounting notes and etc. during the auditing combining the actual situation of SEG Co.. Since annual accounting statements of SEG Co. audited by us are not with inspecting the capital occupied by the largest shareholder and related parties as direct objective and at the same time, due to the intrinsic limit of the auditing test and internal control of the audited company, our audit is unable to assure to discover all capital occupied by the largest shareholder and related parties. Particulars about capital of SEG Co. occupied by the largest shareholder and related parties for the year 2004 are as follows: I. Summary of related parties The related parties stated in the Special Report only include the shareholders and other related parties of the Company occupying the capital of SEG Co.. Names of related parties Relationships with SEG Co. Shenzhen SEG Group Co., Ltd. The largest shareholder Shenzhen SEG (Hong Kong) Company Subsidiary of the largest shareholder Shenzhen SEG Dasheng Co., Ltd. Original related party II. General situation of capital occupied by the related parties 1. Ended Dec. 31, 2004, the balance of capital of SEG Co. occupied by the related parties was RMB 121,990,000. 2. Illegal capital occupied by the related parities (1) Ended Dec. 31, 2004, the balance of illegal capital of SEG Co. occupied by the related parities was RMB 121,990,000, an increase of RMB 2,210,000 compared with the year-begin. (2) Illegal capital occupied by the controlling shareholder: Ended Dec. 31, 2004, the balance of capital of SEG Co. occupied by Sheznhen SEG Group Co., Ltd. (“SEG Group”) was RMB 119,030,000, an increase of RMB 2,210,000 compared with the 31 深圳赛格股份有限公司 专项说明 year-begin, which was mainly because that SEG Group refunded expenses of loan guarantee to Shenzhen SEG Hitachi Color Display Devices Co., Ltd. controlled by Shenzhen SEG Co., Ltd. indirectly. III. Ended Dec. 31, 2004, the details of capital occupied by the related parties Unit: RMB’0000 Name of Relationships Account of Balance at the Debit Credit Balance at Amount of Way and Way of Capital Remark related between accounting period-begin occurred occurred the reserve for reason of refund occupation parties related statement amount amount period-end bad debts occupation out of line parties and withdrawn forbidden by listed No. 56 company Document or not A B C D E F G H I J K L Shenzhen The Other 11,682 269 48 11,903 1,573 Inter-bank Yes SEG Group controlling receivables borrowing Co., Ltd. shareholder capital to related parties SEG (Hong Subsidiary of Other 296 - - 296 59 Inter-bank Yes Kong) the receivables borrowing Company controlling capital to shareholder related parties Total 11,978 269 48 12,199 1,632 IV. Capital occupied by the original related parties Due to change of equity, SEG Co. and Shenzhen SEG Dasheng Co., Ltd. (hereinafter referred to as SEG Dasheng) no longer belonged related parties. Ended Dec. 31, 2004, the balance of capital of SEG Co. occupied by the original related party SEG Dasheng was RMB 19,090,000, which increased by RMB 19,090,000 compared with the year-begin. Reason for increase was mainly because that Shenzhen SEG Co., Ltd. originally provided a guarantee for SEG Dasheng and refunded the debts guaranteed in 2004, which was transferred by credit bank. V. SEG Co. did not provide entrusted loan for its related parties through banks or non-bank financial institutions. VI. SEG Co. did not authorize its controlling shareholder and other related parties to conduct investing activities. VII. SEG Co. did not open trade acceptance without true trade background for its controlling shareholder and other related parties. VIII. SEG Co. did not refund liabilities for its controlling shareholder and other related parties. 32 深圳赛格股份有限公司 专项说明 In our opinion, the said the largest shareholder and related parties’ occupying capital of SEG Co. was in compliance with the preparation requirements in Circular on Standardizing Capital Current between Listed Company and Related Parties and External Guarantees and Other Several Problems of Listed Company released by China Securities Regulatory Commission with ZJHF [2003] No. 56 document. It is necessary to point out that the said report is a special explanation issued in accordance with relevant provisions in Circular on Standardizing Capital Current between Listed Company and Related Parties and External Guarantees and Other Several Problems of Listed Company released by China Securities Regulatory Commission with ZJHF [2003] No. 56 document and based on the relevant materials collected and relevant warranties spot-checked in the course of auditing. The report is unable to be considered as special opinions expressed by us on the whole accounting statements of SEG Co.. For our auditing opinion on accounting statements of SEG Co. in 2004, please refer to ZTHZ (J) SZ [2005] No. 3002 Auditors’ Report presented by us on Apr. 11, 2005. Zhong Tian Hua Zheng CPA Co., Ltd. Chinese CPA: Xie Jiawei Chinese CPA: Yang Xi Beijing·China Apr. 11, 2005 33