京东方Ａ(000725)京东方2004年年度报告（英文版）

BOE TECHNOLOGY GROUP CO., LTD. 2004 ANNUAL REPORT (Overseas Version) Stock Exchange Listed With: Shenzhen Stock Exchange Short Form of the Stock: BOE - B, Stock Code: 200725 Apr. 25, 2005 1 Important: Board of Directors and its members of BOE TECHNOLOGY GROUP CO., LTD. (hereinafter referred to as the Company) individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions or errors which would render any statement misleading. This report was prepared in both Chinese and English. Should there be any difference in interpretation between the Chinese version and English version, the Chinese version shall prevail. Chairman of the Board and CEO Mr. Wang Dongsheng, President and COO Mr. Liang Xinqing, CFO and Secretary of the Board Mr. Wang Yanjun, and Vice CFO and Secretary of Planning & Financial Dept. Ms. Sun Yun hereby confirm that the Financial Report enclosed the Annual Report is true and complete. All directors attend the Board meeting. The 2004 Annual Report of the Company was compiled based on China Enterprise Accounting System. 2 Contents Chapter Ⅰ Company Profile Chapter Ⅱ Summary of Financial Highlights and Business Highlights Chapter Ⅲ Changes in Share Capital and Particulars about Shareholders Chapter Ⅳ Directors, Supervisors, Senior Executives and Employees Chapter Ⅴ Administrative Structure Chapter Ⅵ Shareholders’ General Meeting Chapter Ⅶ Report of the Board of Directors Chapter Ⅷ Report of the Supervisory Committee Chapter Ⅸ Significant Events Chapter Ⅹ Financial Report Chapter Ⅺ Documents for Reference 3 CHAPTER I COMPANY PROFILE 1. Legal Name of the Company: In Chinese: 京东方科技集团股份有限公司 In English: BOE TECHNOLOGY GROUP CO., LTD. Abbr. in Chinese: 京东方 Abbr. in English: BOE 2. Legal Representative: Wang Dongsheng 3. Secretary of the Board of Directors: Zhong Huifeng Contact Address: No. 10, Jiuxianqiao Road, Chaoyang District, Beijing Tel: (86) 10 – 64366264 64318888 sxt. Fax: (86) 10 – 64366264 E-mail: wangyanjun@boe.co.cn hfzhong@boe.com.cn 4. Registered Address: No. 10, Jiuxianqiao Road, Chaoyang District, Beijing Office Address: No. 10, Jiuxianqiao Road, Chaoyang District, Beijing Post Code: 100016 The Company’s Internet Web Site: http://www.boe.com.cn E-mail: web.master@boe.com.cn 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times, China Securities, Shanghai Securities News and Hong Kong Ta Kung Pao Internet Web Site for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Capital and Stock Warrant Dept. of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form for A-share: BOE - A, Stock Code for A-share: 000725 Short Form for B-share: BOE - B, Stock Code for B-share: 200725 7. Other Related Information: Initial registration date: April 9, 1993 Initial registration address: No.10, Jiuxianqiao Road, Chaoyang District, Beijing Registrations date after change: June 2,1997; December 25,1997; December 28, 2000; June 18, 2001; December 10, 2001; July 4, 2003 and August 6, 2004 Registration address after change: No.10, Jiuxianqiao Road, Chaoyang District, Beijing Registered number of enterprise legal person’s business license: 100001501259 Registration number of taxation: GSJZ No.110105101101660 DSJZ No. 110105101101660000 Certified Public Accountants engaged by the Company: Domestic: Jingdu Certified Public Accountants & Co., Ltd. Office Address: 5/F, SHG Plaza, No. 22, Jianguomenwai Revenue, Beijing International: Horwath Hong Kong Certified Public Accountants Office Address: No. 2001, Central Plaza, 18Harbour Road, Wan Chai Dist. H. K. 4 CHAPTER II. FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS 1. Major accounting data as of the year 2004 (Unit: In RMB’000) Items Amount Profit before tax 496,955 Net profit 353,701 Gross profit of sales 1,283,868 Other operating Income 30,736 Operating profit 188,009 Net cash inflow arising from operating activities： 424,865 Balance in cash and cash equivalents at the year-end 1,535,970 Note: Difference in net assets and net profit as reported based on Accounting System for Enterprise Business (domestic financial report) and IFRS (overseas financial report) Unit: RMB’000 Profit after tax Shareholders’ barring minority equity shareholders’ equity As reported under Accounting System for Enterprise Business 206,013 4,956,439 Adjustment based on IFRS and other: - Difference in term of amortization of goodwill -1,334 -5,334 - Reckoning rewards and welfares of the employee into -1,922 -- administrative expenses - Government subsidy 841 -3,014 - Capitalization of R&D expenses 163,786 172,473 - Capitalization of interests -11,186 18,448 - Difference in negative goodwill when acquire the equity of -- -2,171 subsidies - Stock on balance of foreign currency discount of -- 19,474 joint-operative company - Losses arising from selling part equity of subsidiary -2,945 -2,945 - Others 448 1,014 Balance after adjustment under IAS 353,701 5,154,384 2. Major accounting data and financial indexes over the past three years as ended the report period: 5 (Unit: RMB’000) 2003 22 Items 2004 After Before 2002 adjustment Adjustment Sales income 12,441,708 11,180,106 11,180,106 4,782,587 Net profit 353,701 396,016 411,234 79,000,000 Total assets 18,106,758 12,232,806 12,040,450 6,779,294 Shareholders’ equity 5,154,384 2,553,862 2,569,080 2,176,390 (excluding minority interests) Earnings per share (fully 0.29 0.60 0.67 0.14 diluted) Net assets per share 3.52 3.87 3.90 3.96 Net cash flow per share 0.29 1.08 1.08 0.35 from operating activities Return on equity (fully 6.85% 15.50% 16.00% 3.63% diluted) Note: ① The said diluted data are calculated on the basis of total share capital of 549.554 million shares at the year-end in 2002, on the basis of total share capital of 659.4648 million shares at the year-end in 2003, as well as on the basis of total share capital of 146,379.72 million shares at the year-end in 2004. ② The above data were reported in accordance with the consolidated accounting statements. 3. Changes and in shareholders’ equity in the report period and its reason (Unit: RMB’000) Discount Total of Surplus Statutory Retained balance of shareholders’ Items Share capital Public reserve capital public public profits foreign equity reserve reserve currency Amount at the 659,464,800 1,084,912,330 412,486,206 59,128,207 409,165,155 -11,098,080 2,554,930,411 year-beginning Increase in the 804,332,400 1,731,007,005 81,636,406 10,204,551 206,012,682 186,112,470 2,401,508,434 report period Decrease in the 514,275,809 93,316,721 report period Amount at the 1,463,797,200 2,301,643,526 494,122,612 69,332,758 521,861,116 175,014,390 4,956,438,845 year-end Additionally Additionally issued Withdrew Withdrew Net profit Additionally issued Reason of change B-share, capitalization of according according and profit issue B-share B-share and share equity and transferred to the to the distribution and net profit capitalization 6 of share into creditor balance of regulations regulations of 2004 of 2004 equity share equity investment CHAPTER III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS I. Changes in share equity 1. Statement of change in the Company’s shares (ended at Dec. 31, 2004) Unit: Share Increase/decrease (+, -) in this time Shares Before the After the Rationed Bonus transferred Additional Sub- change Others change share shares from public issuance total reserves I. Unlisted shares: 1. Sponsors’ shares Including： State-owned shares: 393634800 196817400 590452200 Domestic legal person’s shares: Foreign legal person’s shares: Others: 2. Raised legal person’s shares: 4290000 2145000 6435000 3. Inner employees’ shares: 10140000 — — 4. Preference shares or others: Total listed shares: 408064800 198962400 596887200 II. Listed shares: 1. RMB ordinary shares 72000000 41070000 123210000 2. Domestically listed foreign shares (B share) 179400000 316400000 247900000 743700000 3. Overseas listed foreign shares: 4. Others: Total listed shares: 251400000 288970000 866910000 III. Total shares: 659464800 316400000 487932400 1463797200 2. Issuance and Listing of shares in last three years ended in report period According to China Securities Regulatory Commission with ZJGSZ [2000] No. 197 document, the Company issued 10,140,000 shares of inner employees’ share, which were listed for circulating from Jan. 12, 2004. Approved by State Council Securities Regulatory Commission with ZJFXZ [2004] No. 2 document, the Company additionally increased and issued 316,400,000 B- shares on Jan. 13 – 15, 2004, which were listed for circulating on Apr. 16, 2004. As examined and approved by the shareholders’ general meeting 2003 (May 28, 2004), based on 975,864,800 shares of total share equity after additional-increase of B- share, 7 the Company implemented plan of transferring capital reserve into share capital at the rate of 5 shares for every 10 shares to all shareholders dated June 9, 2004. After transferring capital reserve into share capital, the Company’s total shares have increased from 975,864,800 shares to 1,463,797,200 shares. II. About shareholders (1) Ended Dec. 31, 2004, the Company had totally 75,658 shareholders, including 4 shareholders of legal person’s share, 40,667 shareholders of A-share and 34,987 shareholders of B-share. (2) Particulars about the shares held by top ten shareholders by Dec. 31, 2004 Increase/dec Shares Share held at Proportion rease in the pledged, No. Name of shareholder the year-end in total Nature of share equity report period frozen or (share) shares (share) entrusted BEIJING BOE INVESTMENT & State-owned legal 1 175235400 525706200 35.91% No DEVELOPMENT CO., LTD. person’s shares 2 FIELDS PACIFIC LIMITED Note 90000000 6.15% B-share Unknown BEIJING DONGDIAN INDUSTRIAL State-owned legal 3 20022000 60066000 4.10% No DEVELOPMENT COMPANY person’s shares SHANGHAI WANGUO (HONG KONG) 4 Note 26601148 1.82% B-share Unknown SECURITIES BANK OF CHINA GROUP 5 Unknown 23813945 1.63% B-share Unknown SECURITIES LIMITED GUOTAI JUNAN SECURITIES HONG 6 Note 14858149 1.02% B-share Unknown KONG LIMITED 7 TOP RESPECT GROUP LIMITED Note 13500000 0.92% B-share Unknown ZHONGXIN CAPITAL SECURITIES 8 Unknown 9693899 0.66% B-share Unknown LIMITED SUN HUNG KAI INVESTMENT 9 Note 8504463 0.58% B-share Unknown SERVICES LTD-CUSTOMERS A/C 10 KGI ASIA LIMITED Unknown B-share Unknown 6914274 0.47% Note: ① In the report period, the Company’s controlling shareholder is still Beijing BOE Investment & Development Co., Ltd., Beijing Electronics Holding Co., Ltd. (hereinafter referred to as BEHC) holds 56.25% share equity of Beijing BOE Investment & Development Co., Ltd., so it is the actual controller of the Company. Beijing Dongdian Industrial Development Company is a sole subsidiary. Beijing BOE Investment & Development Co., Ltd. and Beijing Dongdian Industrial Development Company has related relationship. In the report period, due to additional issues of B-share of the Company, the proportion of the shares which Beijing BOE Investment & Development Co., Ltd. and Beijing Dongdian Industrial Development Company hold 8 declined; due to the Company’s implement of transferring public reserve into the share capital at the rate of 5 shares for every 10 shares, the amount of shares held by Beijing BOE Investment & Development Co., Ltd. and Beijing Dongdian Industrial Development Company has increased. ② FIELD PACIFC LIMITED subscribed B-share additionally issued by the Company, so as to the holding proportion of shares has exceeded over 5% of the total share capital.Please refers to the Report on Change in Shareholders’ Holding of BOE Technology Group Co., Ltd. dated on March 13, 2004 for the further details. ③ Among the top ten shareholders, shares changes on the 2nd, 4th , 6th , 7th and 9th shareholders were due to subscribe B-share additionally issued by the Company, additionally issued B-share for circulating and the Company’s implement of transferring public reserve into share capital at the rate of 5 shares for every 10 shares; Share changes on the 5th, 8th and 10th shareholders were unknown. (3) About controlling shareholder and the actual controller ① About the controlling shareholders Beijing BOE Investment & Development Co., Ltd. holds 35.91% of the Company’s total shares, therefore is the virtual controlling shareholder of the Company; its basic information as follows: Name of the enterprise: Beijing BOE Investment & Development Co., Ltd. Legal Representative: Wang Dongsheng Date of Foundation: Oct.15, 1956 Location: No.10 Jiuxianqiao Road, Chaoyang District, Beijing Registered Capital: RMB 680.982 million Type of the enterprise: Limited Company Business Scope: project investment, manufacture and design of electronic products, communications equipment, computer software & hardware, paper products, industrial gasses, mould and matrix, steam; acquisition and sales of mechanical and electrical equipment, metal products, computer software and hardware and supporting equipment, construction material, general merchandise; technical development, technical consultation, technical service and transfer, undertaking exhibitions and sales ② The actual controller Beijing Electronics Holding Co., Ltd. holds 56.25% share equity of Beijing BOE Investment & Development Co., Ltd., and it is the actual controller of the Company. BEHC belongs to a state-owned holding company directly under Beijing Municipality that is a authorized operation unit by Beijing state-owned assets. The shareholder of the Company, Beijing Dongdian Industrial Development Company (holding 4.1% of shares) and Beijing Kinescope Headquarter (holding 0.3% of shares), are both sole subsidiaries of BEHC, and related enterprises with Beijing BOE Investment & Development Co., Ltd.. Basic information of BEHC is as follows: Name of the enterprise: Beijing Electronics Holding Co., Ltd. Legal Representative: Bao Yutong Date of Foundation: April 8, 1997 9 Location: No.12 Jiuxianqiao Road, Chaoyang District, Beijing Registered Capital: RMB 1307.37 million Type: Limited Liability Company (owned and funded solely by the state) Business scope: operation and management of state-owned assets within authorization; Communications equipments, audio & visual products for broadcasting and television; computer and its supporting equipments and the applied products; electronic raw material and components; home electric appliances and electronic products; electronic surveying instruments and meters; mechanical and electric equipments; electronic transportation products and investment in business fields other than electronics and its management; development of real estate, lease and sales of commodity apartments; property management. ③ The property right and controlling relationship between the actual controller and the Company is as follows: State-owned Assets Wang Dongsheng 20% Jiang yukun 10% Liang Xinqing 10% Zhao Caiyong Supervision & 6.667% Shi Dong 6.667% Chen Yanshun 6.667% Song Ying 6.667% Han Guojian Administration Commission 6.667% Gong Xiaoqing 3.333% Wang yanjun 3.333% Wang Jiaheng 3.333% of Beijing People’s Liu Xiaodong 3.333% Ren Jianchang 1.667% Sun Jiping 1.667% Government Zhang Peng 1.667% Wang Ai’zhen 1.667% Mu Chengyuan 1.667% Xu Yan1.667% Hua Yulun 1.667% Zhong Huifeng 1.667% 100% Beijing Electronics Holding Co., Ltd. Beijing Intelligent Kechuang Technology Development Co., Ltd. 56.25% 43.75% 35.91% Beijing BOE Investment & Development Co., Ltd. BOE Technology Group Co., Ltd. The Company regarded Beijing Intelligent Kechuang Technology Development Co., Ltd. as a platform to implement share equity encouragement for all core technology managers, the aforesaid 20 subscribers was nominal shareholders, proportion of providing funds is not actual equity proportion, the equity of Beijing Intelligent Kechuang Technology Development Co., Ltd. is held in common by all implemented objectives in which is a simulated plan of share equity encouragement mechanism. For the details, please refer to BOE Technology Group Co., Ltd. Report on Changes on Shareholders’ Holdings published on March 2, 2005. (4) Ended Dec. 31, 2004, particulars about shares held by the top ten shareholders of 10 circulation share Shares held at the Proportion in Natural of Name of shareholders year-end (share) total shares equity 1 FIELDS PACIFC LIMITED 90000000 6.15% B-share 2 SHANGHAI WANGUO (HONG KONG) SECURITIES 26601148 1.82% B-share 3 BANK OF CHINA GROUP SECURITIES LIMITED 23813945 1.63% B-share 4 GUOTAI JUNAN SECUITIES HONG KONG LIMITED 14858149 1.02% B-share 5 TOP RESPECT GROUP LIMITED 13500000 0.92% B-share 6 ZHONGXIN CAPITAL SECURITIES CO., LTD. 9693899 0.66% B-share 7 SUN HUNG KAI INVESTMENT SERVICES 8504463 0.58% B-share LTD-USTOMMER A/C 8 KGI ASIA LIMITED 6914274 0.47% B-share 9 MERRILL LYNCH INTERNATIONAL 5996251 0.41% B-share 10 TOYO SECURITIES ASIA LIMITED-A/C CLIENT. 4731896 0.32% B-share Explanation on associated relationship or related relationship The Company is unknown whether there exists among the abovementioned shareholders associated relationship or consistent action among the top ten circulating shareholders, as well as between the top ten shareholders and the top ten circulating shareholders. 11 CHAPTER IV. DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES I. Directors, supervisors and senior executives 1.General Introduction about directors, supervisors and senior executives Shares held Receiving pay Name Sex Age Title Office term Year- Year- from the begin end company? Wang Male 47 Chairman of the Board, Chairman of June 2004-June 2007 Yes 7800 11700 Dongsheng the Executive Committee and CEO Jiang Yukun Male 51 Vice Chairman of the Board June 2004-June 2007 4680 7020 No Liang Xinqing Male 52 Executive Director, President and June 2004-June 2007 Yes 3120 4680 COO Cui Bingdou Male 55 Executive Director, Executive June 2004-June 2007 Yes 0 0 Vice-President Xuan Jiansheng Male 61 Executive Director, Senior June 2004-June 2007 No 0 0 Vice-President Zhao Caiyong Male 57 Director June 2004-June 2007 7800 11700 No Chen Yanshun Male 39 Director June 2004-June 2007 0 0 No Tai Zhonghe Male 54 Independent Director June 2004-June 2007 0 0 No Xie Zhihua Male 45 Independent Director June 2004-June 2007 0 0 No Zhang Baizhe Male 61 Independent Director June 2004-June 2007 0 0 No Li Zhaojie Male 49 Independent Director June 2004-June 2007 0 0 No Xia Zhenzhi Male 42 Convener of the Supervisory June 2004-June 2007 No 3120 750 Committee Mu Chengyuan Male 37 Supervisor June 2004-June 2007 780 1170 No Yang An’le Male 34 Supervisor June 2004-June 2007 0 0 No Xu Yan Female 53 Employee Supervisor June 2004-June 2007 4680 7020 Yes Cao Hong Male 45 Employee Supervisor June 2004-June 2007 1560 2340 Yes Wang Yanjun Male 35 Chief Financial Officer and secretary June 2004-June 2007 Yes 3120 4680 of the Board Song Ying Female 47 Vice-President June 2004-June 2007 7800 11700 Yes Ren Jianchang Male 58 Vice-President June 2004-June 2007 0 0 Yes Han Guojian Male 51 Vice-President June 2004-June 2007 3120 4680 Yes Liu Xiaodong Male 40 Vice-President June 2004-June 2007 0 0 Yes Wang Jiaheng Male 36 Vice-President June 2004-June 2007 0 0 Yes Feng Weidong Male 37 Vice-President June 2001-June 2004 0 0 Yes Su Zhiwen Male 36 Chief Auditor June 2001-June 2004 0 0 Yes Note: ① Shares held by directors, supervisors and senior executives increasing was 12 because the Company implemented plan of transferring capital reserve into share capital at the rate of 5 shares for every 10 shares. ② Before Mr. Xia Zhenzhi, convener of the Board of the Company, was elected as the 4th Supervisory Committee of the Company, he sold part of inner employee’s share held from the Company due to inner employee’s share listed, after he was elected as the supervisor, the rest of shares held from the Company has been frozen according to relevant regulations. ③ After inner employee’s share of the Company listed for circulating on Jan. 12, 2004, shares held by directors, supervisors and senior executives has been frozen. 2. Main work experience and pat-time job about directors, supervisors and senior executives (1) Mr. Wang Dongsheng, 47 years old, master in engineering, took the posts of Chairman and President of the 1st , 2nd and 3rd Board of Directors and President of Executive Board of the Company in succession. Now he takes the posts of Chairman, President of Executive Board and CEO of the 4th Board of Directors of the Company and concurrently takes the posts of Chairman of the Board of Beijing BOE Photo electronic Technology Co., Ltd., Representative Director and Chairman of BOE-HYDIS, Chairman of Korea Hyundai LCD Inc., Chairman of the Board of Beijing Orient Top Victory Electronics Co., Ltd., Chairman of the Board of BOE Hyundai (Beijing) LCD Inc., Director of Top Victory Technology Co., Ltd., Director of Beijing Matsushita Color CRT Co., Ltd., Director and President of Beijing Electronic Holdings Company Limited, Chairman of the Board of Beijing BOE Investment and Development Co., Ltd., Chairman of the Board of Beijing Qixing Huadian Science (Group) Co., Ltd., Director of Beijing Intelligence & Science Technology Development Co., Ltd. and Vice Chairman of China Electronic Chamber of Commerce. (2) Mr. Jiang Yukun, 51 years old, senior economist. He ever took the posts of Managing Deputy Factory Director and Secretary of Committee of Communist Party of China of Beijing Electronic Tube Factory, Director and Vice President of the 1st Board of Directors and Vice Chairman of the 2nd and 3rd Board of Directors of the Company. Now he takes the post of Vice Chairman of the 4th Board of Directors of the Company and concurrently takes the posts of Director, President and Secretary of Committee of Communist Party of China in Beijing BOE Investment and Development Co., Ltd., Director of Beijing Star City Property Co., Ltd. and director of Beijing Intelligence & Science Technology Development Co., Ltd.. (3) Mr. Liang Xinqing, 52 years old and senior engineer. He ever took the posts of Director and Vice President of the 1st Board of Directors of the Company, Director of the 2nd Board of Directors of the Company, Executive Director, President and COO of the 3rd Board of Directors of the Company, Chairman of the Board of Beijing Asahi Glass Electronics Co., Ltd., Chairman of the Board of Beijing Nissin Electronics Precision Component Co., Ltd., Deputy General Manager of Beijing Matsushita Color CRT Co., Ltd.. Now he takes the posts of Executive Director, President and COO of the 4th Board of Directors of the Company and concurrently takes the posts of Director of Beijing Orient Top Victory Electronics Co., Ltd., Chairman of the Board of Beijing 13 BOE Software and System Integration Co., Ltd. Chairman of the Board of Beijing Nittan Electronics Co.,Ltd. Chairman of the Board of Beijing Orient Mosler Security and director of Beijing Intelligence & Science Technology Development Co., Ltd.. (4) Mr. Cui Bingdou, aged 55, came from Seoul of Korea, master of engineering, ever took the posts of researcher of Industrial Experiment Institute of Korea Commerce and Industry Department, industrial analyst of Korea Developing Finance Technology department, sales manager of DuPont Far Eastern Co., chief executive of Korea Silicon Wafer Manufactory Co.; he held the positions of GM and senior vice president of Stock business department of Hyundai and GM, chief executive, of business department of LCD CEO of HYDIS in succession. In Jan. 2003 he entered into the Company and took the posts of executive director and executive vice president of the 3rd Board of Directors. And he is now in charge of executive director and executive vice president of the 4th Board of Directors, executive officer of business department of TFT-LCD and concurrently representative councilor of BOE-Hydis and director and GM of Beijing BOE Photo Electricity Technology Co., Ltd.. (5) Mr. XuanJiansheng, aged 61, master of systems engineering of Boston University and PH.D of Systems of Engineering and Management Science of Polytechnic Institute of New York. He ever took the posts of industrial management office manager of RD department of GE of US, deputy general manager of Taiwan Pepsi-cola, deputy general manager of Taiwan Southeastern Jianye, Taiwan Pan’s Group, general manager of Top Victory (Fujian) Electronics Co., Ltd. and general manager of Beijing Orient Top Victory Electronics Co., Ltd.; executive director and executive vice president of the 3rd Board of Directors of the Company, and now is in charge of the executive director and executive vice president of the 4th Board of Directors of the Company and chairman of Board and Concurrently CEO of Top Victory Electronics Co., Ltd., CEO and Director of Beijing Orient Top Victory Electronics Co., Ltd.. (6) Mr. Zhao Caiyong, 57 years old, senior accountant, has ever been taken the posts of Chief Accountant in Beijing Electronic Tube Factory, Director and Chief Financial Officer of the 1st Board of Directors of the Company, Director of the 2nd and 3rd Board of Directors of the Company and Deputy Factory Director of Beijing Electronic Tube Factory. Now he takes the posts of Director of the 4th Board of Directors of the Company and concurrently takes the posts of Director, Managing Vice President and Chief Financial Office of Beijing BOE Investment and Development Co., Ltd., General Manager of Beijing Dongdian Industrial Development Company, Chairman of the Board of Beijing Asahi Glass Electronics Co., Ltd., Chairman of the Board of Beijing Nissin Electronics Precision Component Co., Ltd. and convener of the Supervisory Committee of Beijing Intelligence & Science Technology Development Co., Ltd.. (7) Mr. Chen Yanshun, 39 years old, master in economics, has ever been taken the posts of lecturer of Chongqing Industry & Commerce University, Secretary of the Board of the 1st Board of Directors of the Company, Secretary and Vice President of the 2nd Board of Directors and executive director and Senior Vice President of the 3rd Board of 14 Directors. Now he takes the posts of Director of the 4th Board of Directors of the Company and concurrently Top Victory Electronics Co., Ltd., Director of Korea Hyundai LCD Inc., Director of Zhejiang Beijing Orient Vacuum Electronic Co., Ltd., Supervisor of BOE-HYDIS, chairman of the Board of Beijing Intelligence & Science Technology Development Co., Ltd.. (8) Mr. Tai Zhonghe, 54 years old, Taiwanese of China,master ,ever worked in Mitac Computer Co., Ltd. and is one of founders of Acer Group. He successively took the posts of Deputy General Manager of Acer Co., Ltd., General Manager of Acer Science and Technology, Executive Deputy General Manager and General Manager of Marketing Business Group in Acer, General Manager of PC Division in America Branch of Acer, Vice Chairman of the Board of America Branch of Veutron Computer Co., Ltd. and Chairman of the Board of America InterNex Company, Independent Director of the 3rd Board of Directors of the Company. Now he takes the posts of Independent Director of the 4th Board of Directors of the Company, Copartner and Chairman of the Board of Xuyang Financing Counseling Co., Ltd., Chairman of the Board of Chief Telecom Co., Ltd., and Chairman of the Board and Publisher of Taiwan DigiTimes. (9) Mr. Xie Zhihua, 45 years old, doctor in economics, professor, instructor of doctorate and China public accountant, ever took the post of independent director of the 3rd Board of Directors. He now is Independent Director of the 4th Board of Directors of the Company, Vice President of Beijing Technology and Business University, Director of Accounting Society of China, Director of Accounting Professor Association of China, Managing Director of Commercial Accounting Society of China, Vice Chairman of Beijing Accounting Society, Director of Beijing Society of Finance and Politics, Managing Director of Beijing Auditing Society, Committeeman in Senior Title Assessment Committee of Beijing Accounting Serial and Professor Serial, Specially Engaged Researcher in China Problems Research Center of Cardiff University in England, Guest Professor of Kingston College in Canada, Expert Committeeman of Title and Vocation Certificate Examination of China Insurance Regulatory Commission, Research Institute of Finance and Politics of Ministry of Finance and Specially Engaged Professor and Researcher of Scientific Research in over 20 academies and scientific institutes such as Hunan University and etc.. (10) Mr. Zhang Baizhe, aged 61, senior engineer of Tsinghua University, expert in LCD, ever took part in establishment and compliment of electronic department of “75Plan”, “85Plan” and “95Plan” and Beijing LCD Research and Industry Development Plan, and ever took the posts of judger of comment group on photo electronic technology of electron department technology advanced award, expert of supervision group of state secret technology of State Science and Technology Commission, and was engaged expert of the 1st domestic expert group by UNDP to participated establishment and guidance work of technology plan related to LCD field; ever took charge of founding the 1st state LCD material manufactory so as to realized LCD domestically produced; took charge to accomplished task center of State Technology Commission and Beijing Science Commission---construction of STD-LCD model product line and LCD product 15 line of Hong Kong TQL Co.; made guidance to finished construction of large area of 掩 膜板 product line of Qingyi Nice Photo Electronic (Shenzhen) Co., Ltd.; independent director of the 3rd Board of the Directors. He is now in charge of independent director of the 4th Board of the Directors; deputy GM of Beijing Qinghua LCD Material Co., Ltd., executive director of Beijing Jingcheng Qingda Electronic Equipment Co. and consular of Beijing Qinghua LCD Technology Engineering Research Center. (11) Mr. Li Zhaojie, aged 49, master of Law and Library and Information of University of California of US, doctor of Law of Toronto of Canada, ever took the posts of vice professor of Law Institute of Beijing University, visiting professor Law Institute of University of Duke US, visiting professor of Law Institute of Hong Kong University and Hong Kong City University, lawyer of Wang-And-WangUSA Los Angeles of USA, law consular of Beijing Wang’s Funds, law expert of Olympic Venue Construction & Management Held in Beijing, independent director of the 3rd Board of Directors of the Company. He is now in charge of independent director of the 4th Board of Directors and professor of Law Institute of Qinghua University. (12) Mr. Xia Zhenzhi, aged 42, bachelor degree, ever took the posts of secretary of League Party of Beijing Electronic Tube Manufactory, deputy section chief of personnel department and concurrently minister of Party Organization of Beijing Dongfang Electronic Group Co., Ltd., manager of Human Resource department and minister of Party Organization of Beijing BOE Investment and Development Co., Ltd.. He is now in charge of convener of the 4th Supervisory Committee and deputy GM and secretary of CPC of Beijing Dongdian Industrial Development Company. (13) Mr. Mu Chengyuan, aged 37, China economist with bachelor degree, ever took the posts of manager of integration department of Guomao branch of the Company, deputy general manager of Beijing Dongfang Illumination Engineering Co., Ltd. section chief of OMO of Beijing Electronic Tube Manufactory and the supervisor of the 3rd Supervisory Committee, now he is charge of the supervisor of the 4th Supervisory Committee and secretary of the Board and vice president of Beijing BOE Investment and Development Co., Ltd.. (14) Mr. Yang Anle, 34 years old and college degree. He has ever been worked in Planning and Financial Department of the Company and in Financial Department of Beijing Orient Top Victory Electronics Co., Ltd. and has ever been taken the posts of Deputy Section Chief of Planning and Financial Section in Beijing Electronic Tube Factory and Supervisor of the 2nd and 3rd Supervisory Committee of the Company. Now he takes the posts of Supervisor of the 4th Supervisory Committee of the Company, Manager of Planning and Financial Department in Beijing BOE Investment and Development Co., Ltd., and Chief Accountant of Beijing Dongdian Industrial Development Company. (15) Ms. Xu Yan, 53 years old, college degree and economist, she ever took the posts of Secretary of CPC Branch, President of Labor Union and Personnel Deputy Factory Director etc. in Beijing Electronic Tube Factory Branch and Director in Beijing 16 Electronic Tube Factory Office and Party Committee Office and Supervisor of the 3rd Supervisory Committee. Now she takes the posts of Supervisor of the 4th Supervisory Committee, Vice-Secretary of Party Committee and Secretary of Committee for Discipline Inspection and concurrently Principal of Labor Union and Secretary of Auditing Supervision Department of the Company. (16) Mr. Cao Hong, aged 45, professional senior engineer with bachelor degree, ever took the posts of deputy factory manager and factory manager of Beijing BOE Semiconductor Devices Factory and employee’s supervisor of the 3rd Supervisory Committee. He is now in charge of employee’s supervisor of the 4th Supervisory Committee, president associate and minister of investment dept., chairman of the Board of Beijing BOE Semiconductor Devices Co., Ltd., director of Suzhou and Beijing BOE CHATANI Electronics Co., Ltd. and director of Beijing Asahi Glass Electronics Co., Ltd., director of Beijing Nittan Electronics Co.,Ltd. And Director of BOE Hyundai LCD Inc.. (17) Mr. Wang Yanjun, 35 years old, master and accountant. He ever took Section Chief in Financial Section of Beijing Electronic Tube Factory, Secretary of Financial Department of the Company, Director of Beijing Asahi Glass Electronics Co., Ltd., Director of Beijing Nissin Electronics Precision Component Co., Ltd. and Director of Beijing Orient Top Victory Electronics Co., Ltd.. Now he takes the posts of secretary of the Board of the 4th Board of Directors of the Company, Chief Financial Officer of the Company and concurrently Director of Zhejiang Beijing Orient Vacuum Electronic Co., Ltd., Top Victory Technology Co., Ltd., Director of BOE-HYDIS, and director of Beijing Intelligence & Science Technology Development Co., Ltd.. (18) Ms. Song Ying, 47 years old and senior accountant, she has ever been taken the posts of Section Chief of Planning and Financial Section in Beijing Electronic Tube Factory, Manager of Financial Department, Chief Financial Officer of the Company and Director and Managing Vice President of the 2nd Board of Directors of the Company, and executive director and senior vice president of the 3rd Board of Directors. Now she takes the posts of Secretary of Committee of Communist Party of China and Senior Vice President of the Company and concurrently Vice Chairman of the Board of Zhejiang Beijing Orient Vacuum Electronic Co., Ltd., director of Beijing BOE Software & Systems Integration Co., Ltd. and director of Beijing Intelligence & Science Technology Development Co., Ltd.. (19) Mr. Ren Jianchang, 58 years old, senior engineer, ever worked as technical principal in America Westinghouse Electric Company, Germany SIEMENS Company, AEG Company and CALOR-EMAG Company and etc. in succession. He has ever taken the post of Chief Engineer of Vacuum Switch Tube in ABB Company and was awarded several technical patents in Germany. After jointing into BOE in 1998, he has ever taken the posts of Director and Vice President of the 2nd and 3rd Board of Directors and General Manager of Beijing Orient Vacuum Electric Co., Ltd.. Now he takes the posts of vice president of the Company and concurrently Chairman of the Board of Beijing Orient Vacuum Electric Co., Ltd.. 17 (20) Mr. Han Guojian, 51 years old, undergraduate and senior engineer, he ever took Technical Section Chief in Division and Chief Technical Officer in Division of the affiliated company of the Company, Deputy General Manager of Beijing Asahi Glass Electronics Co., Ltd. and Chairman of the Board of Beijing BOE YAMATO Photoelectron Co., Ltd. Now he takes the posts of Vice President of the Company and concurrently Representative Director and Vice Chairman of BOE-HYDIS and Director of Beijing Asahi Glass Electronics Co., Ltd.. (21) Mr. Liu Xiaodong, 40 years old, and engineer with bachelor degree. He ever worked in Research Institute of Beijing Information Optics Apparatus. He successively took the posts of Director, Deputy General Manager and Secretary of Committee of CPC of Beijing Matsushita Color CRT Co., Ltd.. Now he takes the posts of Vice President of the Company and Director of BOE CHATANI Electronics Co., Ltd.. (22) Mr. Wang Jiaheng, 35 years old and MBA, ever took the posts of Deputy Manager in International Cooperation and Investment Department, Manager in Enterprise Development Department and General Manger in Electronic Parts Business Headquarters of the Company. Now he takes the posts of Vice President of the Company and concurrently Director of Korea Hyundai LCD Inc., Director and General Manager of BOE Hyundai LCD Inc., Director of Beijing Nissin Electronics Precision Component Co., Ltd.. (23) Mr. Feng Weidong, aged 37, doctor of management science and engineering of Tianjin University, ever was post doctorate of economic management of Qinghua University, and successively took the posts of GM of foreign cooperation department of Datang Communications Technology Industry Group, president associate and senior engineer of Central Research, professor associate of electric and computer engineering department of University of Connecticut of US, central researcher of Engineering and Advanced Technology of Taylor L. Booth, and president associate and concurrently director of enterprise planning department of the Company. He is now in charge of vice president of the Company. (24) Mr. Su Zhiwen, aged 36, H. K. China nationality, MBA of Hong Kong University of Technology, member of Hong Kong Accounting Firms and senior member of authorized and acknowledged Accounting Firms of UK. He successively took the posts of manager of check and business consultant department of Hong Kong PricewaterhouseCoopers CPAs, CFO of Hong Kong Economic Daily, and chairman of the Board associate of the Company. He is now in charge of Auditing chief of the Company. 3. Directors and supervisors assuming title in and receiving pay from shareholding companies Title Name Beijing Dongdian Industrial Beijing BOE Investment & Development Co., Ltd. Development Company 18 Jinag Yukun Director, President and Secretary of CPC Zhao Caiyong Director, Standing Vice-President and CFO General Manager Xia Zhenzhi Vice Secretary of CPC and Changer of LU Deputy GM and Secretary of CPC Mu Chengyuan Secretary of the Board and Vice President Yang Anle Manager of Planning and Financial Department Chief financial Supervisor II. Annual Salary The remuneration and award of the Company’s directors, supervisors and senior executives are determined by the Company according to the evaluation of their performance under the company’s salary and personnel system. The total annual remuneration (including basic wage, various premium, welfare, subsidy, housing allowance and other allowance) of the Company’s present directors, supervisors and senior executives is: RMB 6,700,000 Total remuneration of the top three directors (also senior executives) drawing the highest payment: RMB 3,635,000 Total sum of allowances for independent directors: Mr. Tai Zhonghe amounted to US$ 10,000 per year; Mr. Xie Zhihua, Mr. Zhang Baizhe and Mr. Li Zhaojie drew RMB 50,000 per year respectively. In the year of 2004, there were 13 directors, supervisors and senior executives receiving payment from the Company, among whom 1 enjoyed between 100,000 and 200,000 and 12 enjoyed over 200,000. III. Directors, supervisors and senior executives leaving their posts during the report period: On May 28, 2004, the 2003 Annual Shareholders’ General Meeting examined and approved the election of the Board of Directors and Supervisory Committee at expiration of office term, elected Mr. Wang Dongsheng, Mr. Jiang Yukun, Mr. Liang Xinqing,Mr.Cui Bingdou, Mr. Xuan Jiansheng, Mr. Zhao Caiyong and Mr. Chen Yanshun director of the 4th Board of Directors, elected Mr. Tai Zhonghe, Mr. Xie Zhihua, Mr. Zhang Baizhe and Mr. Li Zhaojie as independent director of the 4th Board of Directors and elected Mr. Xia Zhenzhi, Mr. Mu Chengyuan and Mr. Yang An’le as supervisor of the 4th Supervisory Committee. Examined and approved by the Expanding Meeting of Chairman Group (dated May 20, 2004) of Employee Representative Meeting of Labor Union of the Company, elected Ms. Xu Yan and Mr. Cao Hong as employee’s supervisor of the 4th Supervisory Committee. On May 28, 2004, examined and approved by the 1st meeting of the 4th board of Directors, elected Mr. Wang Dongsheng as chairman of the Board of the 4th Board of Directors as well as Mr. Jiang Yukun as vice chairman of the Board. The Board of Directors engaged Mr. Wang Dongsheng as CEO of the Company, and Mr. Liang Xinqing as COO, Mr. Cui Bingdou, Mr. Xuan Jiansheng and Mr. Cheng Yanshun as vice CEO, Mr. Wang Yanjun as CFO and concurrently secretary of the Board, and 19 engaged Ms. Song Ying, Mr. Ren Jianchang, Mr. Han Guojian, Mr. Liu Xiaodong and Mr. Wang Jiaheng as vice president of the Company. On May 28, 2004, examined and approved by the 1st meeting of the 4th Supervisory Committee, elected Mr. Xia Zhenzhi as convener of the 4th Supervisory Committee of the Company. On Aug. 27, 2004, examined and approved by the 2nd meeting of the 4th Board of Directors, Mr. Chen Yanshun would temporarily not took the post of executive vice president of the Company. On Sep. 29, 2004, examined and approved by the 3rd meeting of the 4th board of Directors, engaged Mr. Feng Weidong as vice president of the Company and Mr. Su Zhiwen as Auditing Chief of the Company. IV. About employees By the end of the year 2004, the Company had 13037 on-the-job employees, of them, 784 technology research and developing persons, 1714 technician, 438 salespersons, 1085 administrative personnel, 217 financial personnel, 8370 production workers and 429 others. Educational background of employees: 52 holding a doctoral or post-doctoral degree, 400 holding a master degree, 2066 holding college graduates, 1460 persons received three year college education, 4643 technical secondary school and 4416 others. CHAPTER V. ADMINISTRATIVE STRUCTURE 1. The Company’s current administrative structure In the report period, strictly according to the requirements of Company Law, Securities Law, Administration Rules for Listed Companies, Listed Rules of shares in Shenzhen Stock Exchange, Several Regulations on Strengthening Equity Protection of Social Public Shares, the Articles of the Association, and other regulations of CSRC, the Company operated normatively and consummated consistently the relevant rules and regulations. The Company conducted corporate governance in line with working rules of Shareholders’ General Meeting, Board and Supervisory Committee of the Company, in order to ensure the fulfillment of function and responsibilities of Shareholders’ General Meeting, Board and the Supervisory Committee, and protect interests of the Company and shareholders effectively. In the report period, according to regulations of Circular on Standardizing Capital Current between listed Company and Related Parties and Several Problems on External Guarantee of Listed Companies (ZJF [2003] No. 56 Document, the Company revised Articles of the Association. 根据“诚信、规范、透明、负责”的公司治理观念，The Company timely studied laws and regulations about corporate governance and various formative documents, inspected itself pursuant to the requirements, respected information disclosure rules, fulfilled 20 strictly information disclosure obligation of listed company, actively improved information disclosure quality of the Company, consistently reinforced investeeship management, and protect the interests of investors in earnest way. 2. The performance of Independent Director In the report period, as examined and approved by 2003 Shareholders’ General Meeting of the Company, the Company elected Mr. Tai Zhonghe, Mr. Xie Zhihua, Mr. Zhang Baizhe, and Mr. Li Zhaojie as independent directors of the 4th Board of the Company. The four independent directors engaged at present, were the specialists in IT, finance, law and TFT-LCD respectively. During their term, independent directors performed their duties as Independent Director according to the relevant regulations of Guiding Opinions on the Establishment of Independent Director System in Listed Companies, expressed independent opinions on the Changing of CPAs, related transactions, change of posts of directors and senior executives of Company and the other major projects and played an important role in promoting the Company’s strategic decision-making process, and safeguarded the benefits of the mass medium and small shareholders and the interest of the Company in real earnest. In the report period, particulars about independent directors attending Board meetings were as follows: Name of This year times Times of presence in Entrusted Absence Notes Independent of attending the person (including signing presence (Times) Directors Board meeting written opinions) (times) Tai Zhonghe 9 9 Xie Zhihua 9 7 2 Zhang Baizhe 9 8 1 Li Zhaojie 9 7 2 3. The separation between the Company and the controlling shareholder in dealing with personnel, assets, finance, organization and business The Company’s business activities, personnel, assets, institutions and finance were separated from that of the controlling shareholder. The Company was independent in personnel, finance and organization with complete finance and capability of production and operation. (1) Business activities: The Company was independent from the controlling shareholder and the actual controller in the aspect of business with its independent purchase and sale system. The purchase of main raw materials and the sale of products were conducted through its own purchase and sale system. The Company made independent decision-making, assumed sole responsibility for its profits or losses, with complete and independent business and capability of independent operation. The related transaction of the Company was carried on according to the standards of market principle, and didn’t harm the legal benefit of the Company and the whole shareholders. (2) Personnel: The Company was fully independent in its labor, personnel, salary and other matters. The president, vice-presidents, chief financial supervisor, secretary of the 21 Board and other senior executives of the Company were all full-time personnel and they did not have any dual duty in shareholding company. (3) Assets: The assets of the Company were independent, complete and the property rights were clear. The Company independently possessed the assets required by its major business activities, such as production system, auxiliary production system, equipment facilities, land using right and intellectual property rights and so on. There was no occupation of the Company’s assets by its controlling shareholder or actual controller. (4) Organization: The Company has set up organizations and institutions independent from its controlling shareholder and actual controller and possessed independent, sound organizations and legal person’s administrative structure. It has never handled business together with its controlling shareholder or its actual controller in the same office. (5) Finance: The Company has set up independent financial departments. The financial personnel were all full-time personnel. The Company has also established standard and independent financial and accounting system and the system of financial administration for its subsidiaries. Meanwhile, the Company has kept archives of its financial administration and prepared relevant management staff. 5. Assessments and Encouragement on the Senior Executives of the Company The Company implemented engagement system on the senior executives. In the aspect of selecting senior executives, pursuant to the principal of wisdom and concurrently talent, the Company selected all-round key members of good quality and noble moral and high working efficiency. The engagement and disengagement of senior executives of the Board of the Company was based on the working achievements and business capability. The Company worked out strict achievements assessment measures. Based on the nature of the post, in December of each year, the Company decided the annual achievement objective of the next year of senior executives and signed operating objective responsibility letter with senior executives; nominated by the Board, Salary Assessment Committee was responsible for the assessment and encouragement and punishment on the directors of the Company and senior executives; the assessment was conducted by way of monthly inspection, report senior executives’ work, semi-assessment and annual assessment, which integrated closely the salary and achievements. In the aspect of encouragement and binding on senior executives, the Company strengthened the achievement management, reinforced encouragement mechanism and set up perfect achievements evaluation and encouragement assessment index system. CHAPTER VI. SHAREHOLDERS’ GENERAL MEETING In the report period, particulars about Shareholders’ General Meeting held by the Company were as follows: I. 2004 1st Provisional Shareholders’ General Meeting The Company published Notification on Holding 2004 1st Provisional Shareholders’ General Meeting and Second Public Notice on Holding 2004 1st Provisional 22 Shareholders’ General Meeting of BOE Technology Group Co., Ltd. in Securities Times, Shanghai Securities News and China Securities and Hong Kong Ta Kung Pao respectively on Feb. 25, 2004 and Mar. 25, 2004. On Mar 30, 2004, 2004 1st Provisional Shareholders’ General Meeting was held in Beijing Guomen Road Hotel. Totally 55 shareholders and shareholder’s proxies attended the meeting, representing 513,341,884 shares (valid voting share), which took 53% of the total amount of shares of the Company, including: 3 legal person’s shareholders, representing 394,804,800 shares; 27 shareholders (proxy) of RMB ordinary share (A share), representing 8,255,950 shares and 25 shareholders (proxy) of overseas listed foreign capital share (B share), representing 110,281,134 shares. The meeting accorded with relevant regulations of the Company Law and Articles of the Association. The meeting examined and approved the following proposals by way of registered voting: (1) Suggestion on TFT-LTD Enterprise (Korean subsidiary) Listing Overseas; (2) Suggestion on Increasing Usage of Exceeding Raised Proceeds through B-share Additional Issuance; (3) Proposal on Increasing and Electing Directors. On Mar. 31, 2004, the Company published Public Notice on Resolutions of 2004 1st Provisional Shareholders’ General Meeting of BOE Technology Group Co., Ltd. in Securities Times, China Securities, Shanghai Securities News and Hong Kong Ta Kung Pao. II. 2003 Shareholders’ General Meeting The Company published Notification on Holding 2003 Shareholders’ General Meeting and Second Public Notice on Holding 2003 Shareholders’ General Meeting and Changing Holding Place of 2003 Shareholders’ General Meeting of BOE Technology Group Co., Ltd. in Securities Times, Shanghai Securities News and China Securities and Hong Kong Ta Kung Pao respectively on Apr. 27, 2004 and May 22, 2004. On May 28, 2004, 2003 Shareholders’ General Meeting was held in RoseDale Hotel & Suites. Beijing. Totally 56 shareholders and shareholder’s proxies attended the meeting, representing 473,577,790 shares, which took 49% of the total amount of shares of the Company, including: 3 legal person’s shareholders, representing 394,804,800 shares; 18 shareholders (proxy) of RMB ordinary share (A share), representing 115,100 shares and 35 shareholders (proxy) of overseas listed foreign capital share (B share), representing 78,657,890 shares. The meeting accorded with relevant regulations of the Company Law and Articles of the Association. The meeting examined and approved the following proposals by way of registered voting: (1) Work Report of the Board 2003; (2) Work Report of the Supervisory Committee 2003; (3) Preplan on Profit distribution and Conversion of Capital Reserve into Share Capital 2003; (4) Proposal on Withdrawing 2003 Encouragement Fund and Determining 2004 encouragement Fund Assessment Index; 23 (5) Proposal on Investing and Constructing TFT-LCD Production Line Project of the 5th Generation; (6) Proposal on Increasing the Investment to BOE Hyundai (Beijing) LCD Inc. and Building the CSTN Product Line; (7) Proposal on Loan and External Guarantee Line; (8) Proposal on Revising Articles of the Association; (9) Proposal on Expiration and Election of the Board; (10) Proposal on Expiration and Election of the Supervisory Committee. On May 29, 2004, the Company published Public Notice on Resolutions of 2003 Shareholders’ General Meeting of BOE Technology Group Co., Ltd. in Securities Times, China Securities, Shanghai Securities News and Hong Kong Ta Kung Pao. III. 2004 2nd Provisional Shareholders’ General Meeting The Company published Notification on Holding 2004 2nd Provisional Shareholders’ General Meeting and Second Public Notice on Holding 2004 2nd Provisional Shareholders’ General Meeting of BOE Technology Group Co., Ltd. in Securities Times, Shanghai Securities News and China Securities and Hong Kong Ta Kung Pao respectively on Dec. 11, 2004 and Jan. 6, 2005. On Jan. 11, 2005, 2004 2nd Provisional Shareholders’ General Meeting was held in Beijing Guomen Road Hotel. Totally 23 shareholders and shareholder’s proxies attended the meeting, representing 593,000,597 shares (valid voting share), which took 40.51% of the total amount of shares of the Company, including: 2 legal person’s shareholders, representing 585,772,200 shares; 8 shareholders (proxy) of RMB ordinary share (A share), representing 44,040 shares and 13 shareholders (proxy) of overseas listed foreign capital share (B share), representing 7,184,357 shares. The meeting accorded with relevant regulations of the Company Law and Articles of the Association. The meeting examined and approved the following proposals by way of registered voting: (1)Proposal on Changing CPAs; (2)Proposal on Revising the Articles of the Association; On Jan. 12, 2005, the Company published Public Notice on Resolutions of 2004 2nd Provisional Shareholders’ General Meeting of BOE Technology Group Co., Ltd. in Securities Times, China Securities, Shanghai Securities News and Hong Kong Ta Kung Pao. 4. Particulars about election and change of directors and supervisors On May 28, 2004, 2003 Shareholders’ General Meeting of the Company examined and approved Proposal on Changing and Electing the Board of the Directors and the Supervisory Committee. Mr. Wang Dongsheng, Mr. Jiang Yukun, Mr. Lian Xinqing, Mr. Cui bingdou, Mr. Xuan Jiansheng, Mr. Zhao Caiyong, and Mr. Chen Yanshun were elected as directors of the Company. Mr. Tai Zhonghe, Mr. Xie Zhihua, Mr. Zhang Baizhe and Mr. Li Zhaojie were elected as Independent Directors of the 4th Board of the Company. Mr. Xia Zhenzhi, Mr. Mu Chengyuan and Mr. Yang Anle were elected as supervisors of the 4th Supervisory Committee. 24 Examined and approved by the meeting on enlarging the presidium of employee representative of the Company’s labor union (on May 20, 2004), Mr. Cao Hong and Ms. Xu Yan was elected as the employee supervisor of the 4th Supervisory Committee. On May 28, 2004, as examined and approved by 1st meeting of the 4th Board of the Company, Mr. Wang Dongsheng was elected as Chairman of the Board of the 4th Baord of the Company and Mr. Jiang Yukun as Vice Chairman of the 4th Board of the Company. On May 28, 2004, as examined and approved by 1st meeting of the 4th Supervisory Committee, Mr. Xia Zhenzhi was elected as Convener of the 4th Supervisory Committee. CHAPTER VII. REPORT OF THE BOARD OF DIRECTORS I. Discussion and analysis and whole operation in the report period In the report period, the Company firmly carried out working guideline of “changing impossible into possible, and creating strengths of individuals, departments, and the Company”, actively adopted measures, propel investment construction of Beijing TFT-LCD production line of the 5th generation with all efforts. TFT-LCD production line of the 5th generation accomplished plant construction before December 2004 as schedule and realized trial production. With the fluctuation of TFT-LCD industry cycle, after experiencing the booming term of Feb., 2003 to June., 2004, TFT-LCD entered into downturn since the second half of 2004. In addition, low market price of TFT-LCD brought negative influence with big margin to operating achievements of global TFT-LCD enterprises, which resulted in big decrease of gross profit ratio of TFT-LCD products. In the report period, the Company realized sales income amounting to RMB 12444 million, increasing 11.31% over the same period; realized net profit amounting to 3537 million, decreasing 10.87% over the same period of last year. II. Main operation in the report period (I) Scope and operation of core business The Company, belonging to the industry of electric information, focuses the business in design, R&D, manufacture, sale and service of the display technology products, with seven products group. Its main products kept advance seat in the country or in the world in each field, including: ①TFT-LCD, the Company is the largest manufacturer of TFT-LCD in China, while ranking in the 9th place all over the world; ②Monitors/flat TVs, including CRT monitor, TFT-LCD, TFT liquid crystal TV, PDP TV and et.,; ③ Mobile display system, including STN-LCD, OLED and etc.; ④ Specific application display products, including VFD, LED etc., among which, the production and sales volume of VFD ranked the first place in China and ranked the third place in the global list; ⑤ CRT products, , jointly produced with Matsushita. The Company is the second largest producer of CRT; ⑥ Precision electronic components and materials products, majority of which related to display products took the top in the domestic and global list; ⑦Digital products and display application system relevant to display products etc.. Through implementing strategies including internationalization and cultivating core 25 competitive edges etc., BOE gradually grew up into a global advanced enterprise in display fields. It possessed 5 R&D centers, 6 manufacture bases in Beijing, Gyeonggi, Korean etc., and over 3000 pieces of patens; marketing and service system covered leading regions in the world. In 2004, the Company realized sales volume amounting to 3,986.4 thousand pieces in TFT-LCD, 47,587 pieces in STN-LCD business, 23,140 thousands pieces in VFD business, 3,997 thousands pieces in monitors and realized sales volume amounting to 9,986 thousands pieces in CRT incorporated with Panasonic. 1. Main products taking over 10% in income or profit from main operations of the Company and their areas ①Formation of income from main operations and cost of main operations classified according to product type (Unit: RMB’000) Products Sales Cost of goods Gross changes of sales changes of cost changes in gross sold margin from last year from last year margin rate from ratio (%) (%) last year (%) (%) Monitor 4,459,014 4,232,516 5.08% 41.74% 43.54% -18.96% TFT-LCD 5,973,178 5,452,935 8.71% 5.27% 19.54% -55.57% small-sized display products 3,461,161 3,104,600 10.30% 72.49% 81.17% -29.44% Other businesses 763,939 575,897 24.61% 48.52% 49.10% -1.17% Total 12,441,708 11,157,840 11.51% 11.28% 18.08% -37.19% ② Formation of income from main operations classified according to areas (Unit: RMB’000) Areas Sales Changes comparing to last year (%) Mainland China 6133427 27.27 Other countries in Asia 2442940 -14.67 Europe 484249 -64.05 America 2900883 204.47 Other countries 480209 -59.91 Total 12441708 11.28 2. There were no significant changes in profit formation and core business structure. 3. Explanation on changes in profitability of main operations (gross profit ratio) Affected by cyclical fluctuation of the industry, prices of main products of the Company decreased in the second half of 2004, resulted in decrease in gross margin ratio of products. (II) Operation and achievements of share-holding companies, share profit of which surpassed 10% of net profit of the Company (Unit: RMB’000) 26 Name of the Shareholding Operating scope Profit shared Net profit Company percentage during the period Top Victory 25.37% Design, manufacture and sales of 227,950 Technology Co., monitors for computer; main products 108337（$） Ltd. include CRT monitor, TFT-LCD monitor, TFT-LCD TV Beijing·Matsushita 30% Production and sales of color CRT for 87,818 Color CRT Co., Ltd. TV and computer; provide relevant 292728 service after sales (III) Main suppliers and customers The Company’s sales from the top five customers amount to RMB 5,041,663,263.14, representing 40.52% of total sales. (IV) Problems and difficulties arising from operations, and resolving plans Affected by cyclical fluctuation of TFT-LCD industry, since the second half of 2004, TFT-LCD industry entered into downturn cycle. In 1st quarter of 2005, the industry still remained unfavorable. Although in 2nd quarter of 2005, the prices rose up to some extend, up to now the market still kept low price level. Provided the changes of market environment, the Company proposed guideline of “increasing income by reducing costs, precise management, realizing and organizing maximum of profit” further promoted organization capability and technology creation capability, solidified and exploited resources of customers, sped up localization auxiliary process of accessories parts in the upper stream, decreased costs, and promoted finished products rate of product, increased additional value of products, to enhance profitability. With the resuscitation of TFT-LCD industry, through striving and efforts of all staff, the operating achievements would be promoted step by step. Till now, trial production of Beijing TFT-LCD production line of 5th generation undertook smoothly; yield rate and enhancement of product volume, product authentication of customers went better than expected. III. Investment and use of the raised proceeds in the report period 1. Use and achievements of the raised proceeds in the report period ① Use of the raised proceeds in the report period Names of investment Committed Committed Total of actual Project progress projects committed investment investment amount expenditure ended amount of excessive raised June 30, 2004 proceeds plan Refunding bank loan Completed amounting to USD 90 million caused by USD 90 million purchase of TFT-LCD (approximately RMB business from HYDIS 744.30 million) USD 90 million Investing USD 22.35 USD 22.35 million Completed million in TFT Colored (approximately RMB USD 22.35 27 Crystal Display Module 184.83 million) million project Refunding bank loan Completed amounting to USD 85 million from purchase of partial equity of Top USD 85 million (approximately Victory Technology Co., RMB 702.95 Ltd. million) USD 85 million Refunding bank loan Completed amounting to RMB USD 416.08 416.08 million RMB 416.08 million million ② In the report period reason, reason, procedures and disclosure of change of projects with raised proceeds During 13 to 15 January 2004, the Company additionally issued 316.40 million B-shares at price of HKD 6.32 per share. After relevant issuance expenses, net amount of the proceeds raised through this additional issuance of B-shares was HKD 1,922,072,431 (equivalent to RMB 2,048,160,383). The projects invested with the raised proceeds committed in Memorandum of BOE Technology Group Co., Ltd. on Issuing Domestically Listed Foreign Shares (B-shares) (hereinafter referred to as Memorandum) were (1) Refunding bank loan amounting to USD 90 million (approximately RMB 744.30 million) caused by purchase of TFT-LCD business from HYDIS; (2) Investing USD 22.35 million (approximately RMB 184.83 million) in TFT Colored Crystal Display Module project; meanwhile, the Company also promised in the Memorandum that “If the proceeds raised through this additional issuance of B-shares exceed the capital amount necessary for the said projects invested with the raised proceeds, the excessive proceeds raised will be arranged by the Board of Directors within the authorization of the Articles of Association”. The 1st Emergent General Meeting of the Company for 2004 (held on Mar. 30, 2004) considered and passed Proposal on Increase in Use of the Excessive Proceeds Raised through Additional Issuance of B-shares and used all excessive proceeds raised in “Refunding bank loan amounting to USD 85 million (approximately RMB 702.95 million) from purchase of partial equity of Top Victory Technology Co., Ltd.” and “Refunding bank loan amounting to RMB 416.08 million”. ③ Project progress and earnings Repaying bank loan amounting to USD 90 million arising from purchase of TFT-LCD business from Korea HYDIS Technology Co., Ltd. (HYDIS): the Company planned to raise proceeds investment USD 90 million, actually did it, accomplished it as schedule. TFT-LCD business has become one of the core businesses and the main point contributing to the profits. Invest USD 22.35 million into the Thin Film Transistor-Liquid Crystal Module Project: approved by the state administration, registered capital of Beijing BOE Optoelectronic Technology Co., Ltd. undertaking the project the Company was amounting to USD 29.8 28 million. The Company planned to invest raised proceeds of USD 22.35 million (taking 75% share equity of it) and has invested raised proceeds of USD 22.35 million as per the rate of progress by stages. As approved by the state administration, registered capital of Beijing BOE Optoelectronic Technology Co., Ltd. (“BOE OT”) increased to RMB 500 million, in charge of investing and constructing Beijing TFT-LCD project of 5th Generation. Repaying bank loan amounting to USD 85 million arising from purchase of partial share equity of Top Victory Electronics Co., Ltd.: the Company planned to raise proceeds investment USD 85 million, actually did it, accomplished it as schedule. In the report period, with the sharp increase in business of Top Victory Electronics Co., Ltd., investment income of the Company realized sharp increase. Repaying bank loan amounting to RMB 416.08 million: the Company planned to use raised proceeds of USD 416.08 million, actually used raised proceeds amounting to RMB 407.84 million and supplemented the differences. In the report period, the raised proceeds paid back bank loan, which consummated the financial structure of the Company and reduced financial expenses of the Company. (1) Significant investment with the proceeds not raised through shares offering Unit: RMB’ 000 Investment amount in the Accumulative investment Projects Progress of projects report period amount One drop filling (ODF) equipment 259,320 287,020 January 2005 5 Generation TFT-LCD production June 2005 173,830 240,110 equipment VFD production line improvement 23,890 269,100 June 2005 Total 457,040 796,230 4. Financial position and operating results of the Company (1) Analysis to financial position and operating results (Unit: RMB) Financial Dec. 31, 2004 Dec. 31, 2003 Increase/decrease indexes (%) Total assets 17,924,029,385 12,257,310,984 46.23% Long-term liabilities 3,697,249,047 2,446,080,093 50.90% Current liabilities 8,745,570,305 6,722,666,558 30.13% In 2004 In 2003 Increase/decrease (%) Profit from main operations 1,283,867,847 1,730,965,841 -25.83% 29 Investment earnings 286,112,046 53,204,161 437.76% Shareholders’ equity 4,956,438,845 2,554,930,411 94.00% Increase in total assets was because the Company additionally invested in BOE OT----- TET-LCD business project company. Increase in long-term liabilities was due to additionally loan by mandate for investing TFT-LCD business. Increase in current liabilities was due to increase of short-term loan for investing TET-LCD business. Decrease in profit from main operations was resulted from trade cycle of TET-LCD, price decline of the products from main operation, so as to impact on descend of gross ratio level of main operation of the Company. Increase in investment earnings was due to confirmation of investment income of Top Victory Technology Co., Ltd. accounted according to equity method. Increase in shareholders’ equity was due to increasing issued B-share and realized net profit in the report period. (2) Changes in accounting policies and accounting estimates or correction in material accounting errors Upon correction of the 2003 accounting errors, decreased net profit of 2003 and withdrawal of encouragement funds of 2003 were RMB 15,217,569 and RMB 4,668,871.39, respectively. On Dec. 29, 2003 the Company received RMB 200,000,000.00 from Beijing Economic & Technology Investment and Development Co., Ltd but incorrectly took into accounts in 2004, so the Company adjusted and increased loan from bank of 2003 and long-term receivables respectively amounting to RMB 200,000,000.00. 5. Significant changes of productive and operating environment and macro-policies and regulations of the Company impact on the Company Cyclical fluctuation of TET-LCD field impact on production and operation of the Company and measures adopted by the Company, please refer to the aforesaid. 6. Routine work of the Board of Directors (1) Meetings and resolutions of the Board of Directors in the report period: In the report period, the holding of the Board of Directors of the Company is as follows: ① On Feb. 24, 2004, the Company held the 19th Meeting of the 3rd Board of Directors, and examined and approved the followings: i. Proposal on overseas Listing of TET-LCD Industry (Korea Subsidiary) ii. Proposal on Change Joint Venture Party of Beijing BOE OT; iii. Proposal on Increase Use of Exceed Raising Capital from Additionally Issuance of B-shares 30 iv. Proposal on Additionally Electing Director and Appointed Senior Executives; v. Proposal on Holding the 1st Provisional Shareholders’ General Meeting of 2004. ② On Apr. 23, 2004, the Company held the 20th meeting of the 3rd Board of Directors and examined and approved the followings: i. Report on 2003 Operation; ii. Preplan on 2003 Profit Distribution and Converting share premium into Share Capital; iii. 2003 Annual Report and its Summary; iv. Proposal on Withdrawing the Award Funds 2003 and Setting the Indicators for Performance Appraisal 2004 of the Award Funds;; v. Proposal on Investing and Building the Product Line Project of the 5th Generation TFT-LCD; vi. Proposal on Increasing the Investment to BOE Hyundai (Beijing) LCD Inc. and Building the CSTN Product Line; vii. Proposal on the Line of Loans and External Guarantees; viii. Proposal on the Board of Directors Authorizing Chairman of the Board to Exert its Duty; ix. Proposal on Amendment of Articles of Association; x. Proposal on Convening the 2003 Annual Shareholders’ General Meeting. ③ On April 28, 2004, the Company held the 22nd meeting of the 3rd Board of Directors and examined and approved the followings: i. The 1st Quarter Report of 2004; ii. Proposal on Conducting Asset reorganization to Some of the subsidiaries ; ④ On May 28, 2004, the Company held the 1st meeting of the 4th Board of Directors and examined and approved the followings: i. Proposal on Electing Chairman of the Board of the Company; ii. Proposal on Electing Vice Chairman of the Board of the Company; iii. Proposal on Composing Commissar of Special Committee of the Board of Directors; iv. Proposal on appointing Senior Executives of the Company; v. Proposal on appointing Secretary of the Board of the Company. ⑤ On Aug. 27, 2004, the Company held the 2nd meeting of the 4th Board of Directors and examined and approved the followings: i. 2004 Semi-Annual Report; ii. Proposal on Change of Senior Executives of the Company; ⑥ On Sep. 29, 2004, the Company held the 3rd meeting of the 4th Board of Directors and examined and approved the followings: i. Proposal on appointing Senior Executives of the Company. ⑦ On Oct. 28, 2004, the Company held the 4th meeting of the 4th Board of Directors and examined and approved the followings: i. The 3rd Quarter Report of 2004; ii. Proposal on Additionally Investing in Suzhou BOE CHATANI Electronics Co., Ltd. 31 to Establish Beijing project of LED to be used by TET-LCD. ⑧ On Nov. 12, 2004, the Company held the Provisional 4th Board of Directors and examined and approved the followings: i. Proposal on Changing external auditor. ⑨ On Dec. 9, 2004, the Company held the 6th meeting of the 4th Board of Directors and examined and approved the followings: i. Proposal on Reorganiztion of Business of Monitors and LCD TVs; ii. Proposal on Amendment of Articles of Association; iii. Proposal on Convening of the 2nd Provisional Shareholders’ General Meeting of 2004. (2) Implementation on resolution of the Shareholders’ General Meeting According to the resolution of the 2003 Shareholders’ General Meeting, the Board of Directors of the Company implement plan on 2003 profit distribution: allotting at rate of RMB 0.10 (including tax) per 10 shares for wholly shareholders based on the total share equity amounting to 975,864,800 after additionally issued B-share, at the same time, converting share premium into share capital at the rate of 5 shares per 10 shares . Date of registration was June 8, 2004; date of dividend-out was June 9, 2004. Dividend of B-share shareholders was paid by HKD, at the exchange rate which is the middle price quoted by BOC, at the 1st work day (May 31, 2004) after Proposal on 2003 Profit Distribution was examined and approved by 2003 shareholders’ general meeting of the Company. BOE Technology Group Co., Ltd. Pubic Notice on Implementation of 2003 Distribution of Bonus, Allotment of Dividend and Capitalization of Share Capital has been published on Securities Times, China Securities, Shanghai Securities News and Hong Kong Ta Kung Pao. 7. The profit distribution preplan and preplan on capitalizing share premium into share capital As audited by Beijing Jingdu Accounting Co., Ltd., the Company realized net profit amounting to RMB 206,012,681.80 in 2004, with RMB 204,091,016 recognized by its mother company. According to the Articles of Association of the Company, under the rule that “the lower one is taken”, the Company, taking the profit recognized by the mother company, withdrew 10% of the net profit amounting to RMB 20,409,101.54 as statutory reserve, 5% of the net profit amounting to RMB 10,204,550.77 as statutory welfare funds, 25% of the net profit amounting to RMB 51,022,753.84 as discretionary surplus reserve and, employee bonus and welfare funds amounting to RMB 1,921,666.45, The remaining profit after the withdrawal added the accumulative distributable profit amounting to RMB 409,165,555 at the beginning of the year to RMB 521,861,116 at the end of the year. Based on total share capital of the Company amounting to 1,463,797,200 shares as of Dec. 31, 2004, cash dividend at the rate of RMB 0.20 (including tax) for every 10 32 shares was distributed to all registered shareholders. 8. Explanation on “Circular on Standardizing some issues regarding Listed Companies’ Capital Current with Related Parties and External Guarantees” (1) Please refer to the attachment: CPAs’ special explanation on “Circular on Standardizing issues regarding Listed Companies’ Capital Current with Related Parties and External Guarantees”, (2) According to opinions issued by independent directors of the Company on capital current between the Company and its controlling shareholder or other related parties of the Company, operation of the Company is in strict conformity with laws and regulations of stock supervision; there is no capital occupation between related parties offending relevant regulation; the special explanation has reflected the true situation of the Company. (3) Opinion of independent directors on the Company’s external guarantees Independent directors considered that the operation of the Company was strictly in line with laws and regulations of stock supervision; there is no guarantee for its shareholder, controlling subsidiary of the shareholder, affiliate companies of shareholder or individual debt and;the total external guarantee hasn’t exceed 50% of net assets reflected in the consolidated financial statements in the recent fiscal year. CHAPTER VIII. REPORT OF THE SUPERVISORY COMMITTEE I. Meetings of the Supervisory Committee and contents of the resolutions According to Company Law, Articles of Association of the Company, and other relevant regulations, the Supervisory Committee had strictly performed its duties. In the report period, the Supervisory Committee had totally held 6 meetings, and attended meetings of the Board as non-voting delegates. Details were as follows: 1. On Feb. 24, 2004, the 12th meeting of the 3rd Supervisory Committee was held. The meeting examined and approved: 1) Proposal on Listing the TFT-LCD Business Overseas; 2) Proposal on Increasing the Use of the Proceeds Raised through the additional issue of B-share. 2. On Apr. 23, 2004, the 13th meeting of the 3rd Supervisory Committee was held. The meeting examined and approved: 1) Work Report 2003 of the Supervisory Committee; 2) Report on the Operational Work of 2003 and the Operation Plan of 2004; 3) Preplan of 2003 Profit Distribution and the Transfer of Share Premium into Share Capital; 4) Annual Report 2003 and its Summary; 33 5) Proposal on Withdrawing the Award Funds 2003 and Setting the Indicators for Performance Appraisal 2004 of the Award Funds; 6) Proposal on Investing and Building the Product Line Project of the 5th Generation TFT-LCD; 7) Proposal on Increasing the Investment to BOE Hyundai (Beijing) LCD Inc. and Building the CSTN Product Line; 8) Proposal on the Line of Loans and External Guarantees; 9) Proposal on the Changing Election of the Supervisory Committee. 3. On Apr. 28, 2004, the 14th meeting of the 3rd Supervisory Committee was held. The meeting examined and approved: 1) The 1st Quarterly Report of 2004; 2) Proposal on Conducting Asset Reorganization to Part of the Subsidiaries. 4. On May 28, 2004, the 1st meeting of the 4th Supervisory Committee was held. The meeting examined and approved the Proposal on Choosing a Convener of the Supervisory Committee of the Company. 5. On Aug. 27, 2004, the 2nd meeting of the 4th Supervisory Committee was held. The meeting examined and approved the Semi-Annual Report 2004. 6. On Oct. 28, 2004, the 3rd meeting of the 4th Supervisory Committee was held. The meeting examined and approved the 3rd Quarterly Report of 2004. II. Independent opinions of the Supervisory Committee 1. The Company’s operation according to laws In conformity with relevant regulations, such as the Company Law, Articles of Association and Rules of Procedure of the Supervisory Committee, etc., the Supervisory Committee had dutifully performed its responsibilities. In the report period, members of the Supervisory Committee had attended meetings of the Board as non-voting delegates, and supervised the holding procedures and decision-making procedures of the Shareholders’ General Meeting and the Board of Directors, implementation of the resolutions of the Shareholders’ General Meeting by the Board, as well as the performance of the Company’s resolutions. The Committee believed that all the resolutions of the Company made in the report period was legal, and directors and senior administrative personnel of the Company had no deeds that had been against the Articles of Association of the Company, or had done harm to the interests of the shareholders or the Company. 2. Inspection of the Company’s financial status The Supervisory Committee believed that the auditing opinions furnished by Beijing Jingdu Certified Public Accountants and Horwath International Certified Public Accountants had been objective, and that the Financial Report had truly reflected the financial status and operation achievements of the Company. 3. The use of raised proceeds The Company had reissued 316.4 million B-shares from Jan. 13 to 15, 2004. Concerning the use of the raised proceeds through the reissue of B-shares, the 34 Supervisory Committee believed that the raised proceeds of the Company had been strictly invested in the exact promised projects, and the use of the surplus raised proceeds had also undergone relevant legal procedures. 4. Purchases and sales of assets made by the Company In the report period, the transaction prices of the sales of assets by the Company were reasonable and the transactions were in conformity with the legal procedures. No insider dealings had ever happened, nor had there been any cases that had done harm to part of the shareholders or led to the loss of the Company’s assets. 5. Related transactions Related transactions, in which the Company had involved, had strictly conformed to the market rules, and stuck to the principle of being fair and impartial. There was no case that had done harm to the interests of minority shareholders. The information of related transactions of great importance had been disclosed in time, financial consultant had been engaged to give consultant opinions, and independent directors had also expressed independent opinions. CHAPTER IX. SIGNIFICANT EVENTS I. Lawsuits and arbitrations of the Company in the report period 1. The wholly-owned subsidiary of the Company, BOE-Hydis Technology Co., Ltd. received the notification of Sharp Corporation, LG Philips LCD and Guardian Industries who announced the certain patent right of theirs has been infringed and counterclaimed the use expense. The Company has disclosed the relevant information in the Annual Report 2003. The investigation of the event is still in process, and the Board of Directors consider that it is difficult to assess the result of potential lawsuit temporarily, so the Company has not appropriated any provision for liabilities caused by the event in the consolidated statement. Beijing BOE Land Co., Ltd., the controlling subsidiary of the Company, signed the “Framework Agreement on Reorganizing Beijing Zhongjin Shunda Land Co., Ltd.(hereinafter referred to as Zhongjin Land)” with Beijing Zhongye Anshunda Metallurgy General Company (hereinafter referred to as Zhongye Anshunda) on Jan. 14, 2004, which regulated that Beijing BOE Land Co., Ltd. held 60% equity of Zhongjin Land and Zhongye Anshunda held 40% equity of Zhongjin Land. Seeing that Zhongye Anshunda did not finish investment on schedule, the Company has applied the saving on the relevant investment funds to the Court, the lawsuit is still in process. II. Purchase of assets in the report period. The Provisional Shareholders’ General Meeting 2003 of the Company (Oct. 8, 2003) examined and approved Proposal on Transferring Share Equity of Beijing Matsushita Lighting Co., Ltd.. According to Beijing Municipal Bureau of Commerce’ s Approval Reply on Transferring Share Equity of Beijing Matsushita Lighting Co., Ltd. to Foreign Enterprises with JSZZ[2004] No. 16 issued by Beijing Municipal Bureau of Commerce on Jan. 9, 2004, the Company transferred 30% share equity of Beijing Matsushita Lighting Co., Ltd. to Japan Matsushita Electric Industrial Co. Ltd. with the transfer 35 price of RMB 62, 400,000 (based on the evaluation value). III. Significant related transactions 1. Commodity on credit, related transaction of proving and accepting labor service Transactions between the Company and related parities were priced according to the market price. For details, please refer to the notes on financial statements “(a) Related Transaction” and “(b) The balance of Related Parties” of “35. Related Transaction”. 2. No related transaction occurred due to assets and equity transfer. 3. No related transaction occurred due to the external investment jointly by the Company and related transaction. 4. Bond, debt and guarantee existed between the Company and related transaction (including subsidiaries not be brought into the consolidated scope) Transactions between the Company and related parities were priced according to the market price. For details, please refer to notes to financial statement “(a) Related Transaction” and “(b) The balance of Related Parties” of “35. Related Transaction”. 5. No other significant related transaction IV. Significant contract and implementation 1. In the report period, the Company has no custody, contract or lease. 2. Significant guarantee (1) The external guarantee The Company provided a guarantee at 5% for the highest warranty loan of RMB 120 million (namely the amount of the highest warranty loan is RMB 6 million) to Beijing Municipal Administration & Communications Card Co., Ltd. who was borrowing from the Beijing Branch of Communications Bank of China. Ended Dec. 31, 2004, the Company has actually provided the loan guarantee at amount of RMB 4.5 millionto Beijing Municipal Administration & Communications Card Co., Ltd. for its borrowed RMB 90 million loan from the Beijing Branch of Communications Bank of China. The maturity of loan is from Jan. 29, 2006 to Apr. 22, 2006. The said guarantee has no significant influence on the Company. (2) The internal guarantee Ended Dec. 31, 2004, the Company provided a guarantee for a loan at RMB 1,693,646,750 of the controlling subsidiary; Zhejiang BOE Display Technology Co., Ltd., the controlling subsidiary of the Company, provided a guarantee for a loan of RMB 9 million of its controlling subsidiary. 3. In the report period, the Company has no assets that were entrusted others to manage. 4. Other significant contract (1) On Sep. 21, 2004, the Company signed the Agreement of Entrusted Loan (including attachment “the Agreement of Equity Pledge”) together with Beijing Municipal State-owned Assets Operation Co., Ltd. and Beijing Commercial Bank Co., Ltd. Shuangyu Sub-branch, Beijing Municipal State-owned Assets Operation Co., Ltd. entrusted Beijing Commercial Bank Co., Ltd. Shuangyu Sub-branch to lend a loan of 36 RMB 620 million to the Company for purpose of the investment of Beijing BOE Photoelectron Technology Co., Ltd.. The interest rate of the said loan was calculated based on the rate of middle-term and long-term loan (three years to five years (including five years)) of People’s Bank of China, namely annual rate of interest is 5.58% (if the People’s Bank of China adjusted the basis interest rate in the same time in the course of commission loan, then use the new interest rate since the date of adjustment). The Company refunded all principal of the said loan to Beijing Municipal State-owned Assets Operation Co., Ltd. in the fourth year and the fifth year from the date of loan in four separate doses, namely the Company refunded the principal of the said loan amounting to RMB 155 million for every time. All parties regulated synchronously: the Company took its 15% equity of Beijing BOE Photoelectron Technology Co., Ltd. (based on the registered capital of BOE Photoelectron amounting to USD 500 million) to pledge to Beijing Municipal State-owned Assets Operation Co., Ltd. as the guarantee that the Company implemented the responsibility and obligation regulated in the Agreement of Entrusted Loan. (2) Beijing Economic Technology Investment Development General Company and the Company jointly singed the “Agreement” and the “Supplementary Agreement” on Sep. 14, 2004 and morrow respectively, Beijing Economic Technology Investment Development General Company provided the funds of RMB 450 million to the Company for the purpose of investment of Beijing BOE Photoelectron Technology Co., Ltd., and the Company held the said equity instead of Beijing Economic Technology Investment Development General Company. The both parties regulated synchronously: within six months the said investment funds entered into the account of the Company, after approved by the relevant department, the Company transfers the equity to Beijing Economic Technology Investment Development General Company, but the corresponding rights of the said equity (including but not limiting profit sharing right, earning right and voting right and etc..) will be still held by the Company, Beijing Economic Technology Investment Development General Company will not bear any responsibility of investor due to operating loss of Beijing BOE Photoelectron Technology Co., Ltd., and the Company will take all the responsibilities of investor due from this transfer. Within three years since the Company received the said investment funds, the Company will purchase the equity from Beijing Economic Technology Investment Development General Company at the price of RMB 450 million; after three-year expiration, if the Company will not purchase the said equity on schedule, Beijing Economic Technology Investment Development General Company will dispose the equity based on the market price. (3) According to the Entrust Contract on Establishing Special Plant signed by the Company, Beijing BOE Photoelectron Technology Co., Ltd. (the controlling subsidiary of the Company) and Beijing Economic Technology Investment Development General Company, as investor, Beijing Economic Technology Investment Development General Company invested RMB 350 million to establish the plants for purpose of perticular use 37 by Beijing BOE Photoelectron Technology Co., Ltd. and enjoyed the absolute ownership of the plants. Meanwhile, according to the requirements of the Purchase Contract of Plant signed by both parties, Beijing BOE Photoelectron Technology Co., Ltd. should purchase the said special plant in five years since the effectiveness of the contract. On July 9, 2004, according to the Agreement of Contract Release signed by three parties, they unanimously agreed to release the contract involved in establishing and purchasing TFT-LCD plant, Beijing Economic Technology Investment Development General Company has paid RMB 350 million in the prophase, and the Company promised to refund the said investment funds by Oct. 22, 2008. Beijing Electronic Holding Co., Ltd. signed the Warranty Contract with the Company separately on the aforesaid events as the supplementary of the aforesaid release contract. In accordance with the Warranty Contract, Beijing Electronic Holding Co., Ltd. provided the joint warranty guarantee for Beijing Economic Technology Investment Development General Company in order to guarantee the Company to implement the obligation under the Agreement of Contract Release. 5. Particulars about implementation of the commitment events in the report period (1) The Company’s commitment events For details, please refer to the “Note 30. Commitment Events” to International Accounting Statement. (2) There existed no other commitment of the shareholders holding more than 5% equity of the Company in the report period. 6. The domestic and overseas Certified Public Accountants engaged by the Company and the relevant remuneration in the report period. The 2nd Provisional Shareholders’ General Meeting held by the Company on Jan. 11, 2005 examined and approved the proposal on changing certified public accountants, and decided to engage Beijing Jingdu Certified Public Accountants and Horwath Certified Public Accountants as auditors of the Company. In the report period, the remuneration of certified public accountants paid by the Company: The Company has totally paid RMB 1.6 million to Beijing Jingdu Certified Public Accountants Horwath Certified Public Accountants. 7. In the report period, the Company, the Board of Directors and its directors, supervisors and senior executives have neither been checked, given administrative punishment or public criticism by CSRC and nor been publicly condemned by Stock Exchange. 8. Other significant events (1) Change in equity of the controlling shareholder In order to establish the long-term effective encouragement biding mechanism platform 38 with competition for and the steady social insurance funds platform of the retirees, the partial core management on behalf of all the core staff of management and technology established Beijing Intelligent Kechuang Technology Development Co., Ltd. Beijing Intelligent Kechuang Technology Development Co., Ltd. acquired 43.75% equity of Beijing BOE Investment & Development Co., Ltd. sold by the China Huarong Assets Management Co.. According to State-owned Assets Supervision and Administration Commission of Beijing People’s Government Reply on BOE Investment Development Co., Ltd. Retirees Settlement Plan (JGZGFZi [2004] No. 21), project payment excluding arrangement for retirees of BOE Investment Development Co., Ltd. born in accordance with share equity proportion of two parties shareholder in the Company; according to Beijing Electronic Holdings Co., Ltd. Case on Social Insurance Fee of Beijing BOE Investment and Development Co., Ltd. (JDKB [2004] No. 162), based on measure and calculation of present relevant policies of Beijing Municipality and National Government, two parties of shareholders should bear various type of social insurance fees totally amounting to RMB 710,240,000. In order to promote the development of TFT-LCD business of the Company, the Company signed Strategic Cooperation Agreement with Japanese Marubeni Co., Ltd. on March 1, 2005 in Beijing. Furthermore, in order to confirm the mentioned strategic cooperation relationship, Japanese Marubeni Co., Ltd. actively participates the reconstruction and reorganization work of the parent company of the Company, Beijing BOE Investment and Development Co., Ltd.. On March 1, 2005, the actual controller of the Company, Beijing Electronic Holdings Co., Ltd., Beijing Intelligent Kechuang Technology Development Co., Ltd. and Japanese Marubeni Co., Ltd., three parties signed the joint-operative contract. As a strategic investor, Japanese Marubeni Co., Ltd. participates dividend through assigned share equity from Beijing BOE Investment Development Co., Ltd., and became 10% of shareholder of the Beijing BOE Investment and Development Co., Ltd.. Change on share equity had no significant influence on business operation and controlling management system of the Company, the amount of shares and nature of share equity of the Company held by Beijing BOE Investment and Development Co., Ltd. remained, Beijing BOE Investment and Development was still the controlling shareholder of the Company, Beijing Electronic Holdings Co., Ltd. still was the actual controller of the Company. (2) Changes on proportion of shares held by the Company from Top Victory Technology Co., Ltd. The Company has accomplished the purchase for 26.36% (totaled 356,033,783 shares) of share equity of Top Victory Technology Co., Ltd. before Dec. 31, 2003, and became the 1st large shareholder of Top Victory Technology Co., ltd.. Because Top Victory Technology Co., ltd. implemented plan of purchasing share equity in the report period, total share capital of Top Victory Technology Co., Ltd. increased to 1,403,284,264 shares, so share amount held by the Company from Top Victory Technology Co., Ltd. remained unchanged, however, proportion of holding shares decreased to 25.37% from 39 26.36%, continuously kept the 1st large shareholder position. 3. Integration of CRT and TTE business The Company signed Letter of Intent on Share Equity Transfer of Beijing Top Victory Electronic Co., Ltd. with Top Victory Technology on Dec. 15, 2004, the Company launched 45.21% share equity held from Beijing BOE Top Victory Electronic Co., Ltd. into Top Victory Technology Co., Ltd. so as to obtain its related shares. On the same day, Koninlijke Philips Electronics N. V. (hereinafter referred to as “Philips”) signed Letter of Intent with Top Victory Technology Co., Ltd. and put its owned CRT and basic type of TTE business into Top Victory Technology Co., Ltd. so as to obtain its share equity (un-exceeding 15% of total share equity after additionally issuance of Top Victory Technology Co., Ltd.) and transferable bond, l which will be locked for 3 years. On Dec. 15, 2004, the Company signed Irrevocable Letter of Acceptance with Philips; Philips offered the prior right for purchase when it solds transferable bond, transferred shares and shares after transfer. If the Company does not exerted the right for prior purchase, Philips will separately allot to the independent 3rd party, after allotment, there would be no independent 3rd party holding 15% or above of share equity, which has issued by Top Victory Technology. Philips will not sell promised shares, transferable bond and transferring share equity to the key five competitors of Top Victory Technology or to the Company’s main five competitors engaging in manufacturing TFT-LCD Panel. IX. For details, please refer to Attachment of Accounting Statement “38 After date events of Capital Balance Sheet” CHAPTER X. FINANCIAL REPORT I. Accounting statements (refer to the attached statement) II. Appendix of the accounting statements (refer to the attachment) CHAPTER XI. DOCUMENTS FOR REFERENCE 1.Accounting statements carrying the personal signatures and seals of legal representative, chief financial supervisor and person in charge of financial departments; 2. Original of Auditors’ Report carrying the seal of Certified Public Accountants as well as personal signatures and seals of certified public accountants; 3. Originals of all documents and manuscripts of public notices and announcements of the Company disclosed publicly on the newspapers designated by CSRC in the report period. Board of Directors of BOE TECHNOLOGY GROUP CO., LTD. April 25, 2005 40 AUDITORS’ REPORT TO THE SHAREHOLDERS OF BOE TECHNOLOGY GROUP CO., LTD. (Incorporated in the People’s Republic of China with limited liability) We have audited the financial statements on pages 2 to 71 which have been prepared in accordance with International Financial Reporting Standards. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The Company’s directors are responsible for the preparation of financial statements, which give a true and fair view. In preparing financial statements, which give a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion 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. BASIS OF OPINION We conducted our audit in accordance with International Standards on Auditing. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations, which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion. OPINION In our opinion the financial statements give a true and fair view of the state of affairs of the Group as at 31 December 2004 and of its profit and cash flows for the year then ended. HORWATH HONG KONG CPA LIMITED 2001 Central Plaza Certified Public Accountants 18 Harbour Road Wanchai 25 April 2005 Hong Kong Chan Kam Wing, Clement Practising Certificate number P02038 41 BOE TECHNOLOGY GROUP CO., LTD. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004 (Expressed in Renminbi) 2004 2003 (As restated) Notes RMB’000 RMB’000 Sales 4 12,441,708 11,180,106 Cost of sales 4 (11,157,840) (9,449,140) Gross profit 1,283,868 1,730,966 Other operating income 30,736 39,745 Distribution costs (315,449) (288,021) Administrative expenses (791,896) (788,051) Other operating expenses (19,250) (20,544) Profit from operations 5 188,009 674,095 Finance costs - net 6 (25,085) (235,550) Group profit before taxation 162,924 438,545 Available-for-sale investments – losses (30,196) (11,047) Share of results of associates before tax 364,227 76,616 Profit before tax 496,955 504,114 Income tax expenses 8 (61,293) (30,003) Group profit before minority interests 435,662 474,111 Minority interests (81,961) (78,095) Net profit 353,701 396,016 Earnings per share Basic 9 RMB0.288 RMB0.601 The notes on pages 8 to 71 form part of these financial statements. Page 42 BOE TECHNOLOGY GROUP CO., LTD. CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2004 (Expressed in Renminbi) 2004 2003 (As restated) Notes RMB’000 RMB’000 Non-current assets Property, plant and equipment 11 10,118,211 4,174,525 Investment property 12 13,893 14,780 Intangible assets 13 213,492 41,438 Land use rights 14 133,355 108,130 Investments in associates 15 2,180,519 1,926,561 Available-for-sale investments 16 8,020 17,836 Held-to-maturity investments 170 173 Deferred tax assets 26 13,220 10,759 Other non-current assets 17 77,936 125,547 12,758,816 6,419,749 Current assets Inventories 18 1,127,066 1,252,508 Receivables and prepayments 19 2,342,557 2,309,090 Convertible bonds – current portion 44,031 - Cash and cash equivalents 21 1,834,288 2,251,459 5,347,942 5,813,057 Current liabilities Trade and other payables 22 3,188,147 2,433,656 Current tax liabilities 7,172 13,530 Borrowings 23 5,506,259 4,249,483 Provisions 28 43,994 25,999 8,745,572 6,722,668 Net current liabilities (3,397,630) (909,611) Total assets less current liabilities 9,361,186 5,510,138 Page 43 BOE TECHNOLOGY GROUP CO., LTD. CONSOLIDATED BALANCE SHEET (CONTINUED) AS AT 31 DECEMBER 2004 (Expressed in Renminbi) 2004 2003 (As restated) Notes RMB’000 RMB’000 Total assets less current liabilities 9,361,186 5,510,138 Non-current liabilities Borrowings 23 2,503,381 1,766,291 Deferred tax liabilities 26 15 8,383 Post-employment benefit obligations 27 19,685 14,643 Other non-current liabilities 25 1,158,748 641,357 3,681,829 2,430,674 Minority interests 524,973 525,602 Net assets 5,154,384 2,553,862 Representing: Capital and reserves Ordinary shares 31 1,463,797 659,465 Share premium 2,284,812 1,040,984 Other reserves 32 696,414 406,358 Retained earnings 709,361 447,055 Total Shareholders’ Equity 5,154,384 2,553,862 The notes on pages 8 to 71 form part of these financial statements. Page 44 BOE TECHNOLOGY GROUP CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEAR ENDED 31 DECEMBER 2004 (Expressed in Renminbi) Ordinary Share Other Retained shares premium reserves earnings Total (Note 31) (Note 31) (Note 32) Balance at 31 December 2002 549,554 1,150,895 280,767 195,174 2,176,390 Conversion of share premium to ordinary shares 109,911 (109,911) - - - Net profit - - - 396,016 396,016 Currency translation difference - - (18,544) - (18,544) Provision of general reserves - - 144,135 (144,135) - Balance at 31 December 2003 659,465 1,040,984 406,358 447,055 2,553,862 Balance at 31 December 2003 As previously reported 659,465 1,040,984 423,166 445,465 2,569,080 Prior year adjustment arising from fundamental errors (Note 2) - - (16,808) 1,590 (15,218) As restated 659,465 1,040,984 406,358 447,055 2,553,862 Issue of new shares 316,400 1,731,760 - - 2,048,160 Conversion of share premium to ordinary shares 487,932 (487,932) - - - Net profit - - - 353,701 353,701 Currency translation difference - - 208,419 - 208,419 Dividend paid - - - (9,758) (9,758) Provision of general reserves - - 81,637 (81,637) - Balance at 31 December 2004 1,463,797 2,284,812 696,414 709,361 5,154,384 The notes on pages 8 to 71 form part of these financial statements. Page 45 BOE TECHNOLOGY GROUP CO., LTD. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2004 (Expressed in Renminbi) 2004 2003 (As restated) Notes RMB’000 RMB’000 Cash flows from operating activities Net profit 353,701 396,016 Adjustment for: Minority interests 81,961 78,095 Tax 8 13,112 18,889 Depreciation 11,12 717,579 615,248 Amortisation 19,737 23,968 Impairment charge and write off 114,776 109,756 Net loss on sale of property, plant and equipment 500 6,475 Gain on disposal of associates (31,421) - Finance costs 6 25,085 211,824 Share of result of associates before tax 15 (364,227) (76,616) Changes in working capital: Inventories (482,135) (384,590) Receivables and prepayments (289,049) (134,347) Pension employment benefit obligations 5,102 8,215 Trade and other payables 232,173 16,815 Cash generated from operations 396,894 889,748 Interest received 53,358 39,651 Tax paid (25,387) (20,193) Net cash from operating activities 424,865 909,206 Page 46 BOE TECHNOLOGY GROUP CO., LTD. CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2004 (Expressed in Renminbi) 2004 2003 (As restated) Notes RMB’000 RMB’000 Cash flows from investing activities Acquisition of a subsidiary, net of cash acquired (4,200) (2,433,235) Purchase of property, plant and equipment and land use rights (5,422,599) (643,878) Purchase of intangible assets (371,341) (15,505) Purchase of available-for-sale investments - (84) Refund of investment costs 32,978 - Purchase of associates (400) (1,174,623) Purchase of debentures (2,235) - Net cash outflow on change of subsidiary to associate 33 (105,281) - Other investing activities (11,144) (18,304) Disposal of subsidiary, net of cash disposed of 428 1,389 Proceeds from sale of property, plant and machinery 49,509 15,716 Proceeds from disposal of subsidiary 57,769 - Proceeds from disposal of associates 66,757 - Placement of long term fixed deposits (220,749) - Net cash inflow on consolidation of subsidiary 45,430 - Dividends received 48,577 20,442 Net cash used in investing activities (5,836,501) (4,248,082) Cash flows from financing activities Proceeds from debentures 71,448 - Proceeds from issue of new shares 2,072,101 - Proceeds from minority interest 4,020 - Proceeds from borrowings 10,399,068 8,811,082 Proceeds from other financial activities - 104,413 Repayments of borrowings (7,902,354) (5,352,148) Dividends paid to group shareholders (17,555) (13,434) Dividends paid to minority interests (10,477) (3,864) Interest paid (287,847) (216,241) Other long-term loan borrowings 450,000 - Finance lease repayments (22,907) - Payment for other financing activities (39,111) (34,019) Net cash from financing activities 4,716,386 3,295,789 Effects of exchange rate changes 59,624 (17,984) Net decrease in cash and cash equivalents (635,626) (61,071) Cash and cash equivalent at beginning of year 2,171,596 2,232,667 Cash and cash equivalent at end of year 21 1,535,970 2,171,596 The notes on pages 8 to 71 form part of these financial statements. Page 47 BOE TECHNOLOGY GROUP CO., LTD. NOTES TO THE FINANCIAL STATEMENTS (Expressed in Renminbi) 1. ORGANISATION AND OPERATIONS BOE Technology Group Co., Ltd. (the Company) was founded in 1993 in Beijing, the People’s Republic of China (PRC). It was reorganized into a joint stock limited company in 1997 and registered in Beijing. The Company and its subsidiaries are collectively referred to as the Group. The Group manufactures and sells electronic products, invests in enterprises engaged in the manufacture of electronic products and provides property management services to properties it owns. The Group has operations in more than five countries and employs over 13,037 employees (2003: 10,007). The parent company of the Group is Beijing Orient Investment and Development Co., Ltd., which is a state-owned enterprise registered in Beijing, PRC. The Company has its primary listing on the Shenzhen Stock Exchange issuing its first B shares in 1997, with further offerings of A Shares on the Shenzhen Stock Exchange in 2000 and B Shares in 2004 respectively. 2. PRIOR YEAR ADJUSTMENTS ARISING FROM FUNDAMENTAL ERRORS During the financial investigation conducted by the Ministry of Finance of PRC in July 2004, the following fundamental errors in respect of the financial year 2003 were found and rectified by the Company in this financial year: (a) Overstatement of cost of sales and a corresponding understatement of closing inventory value amounting to approximately RMB3,589,000 by a subsidiary of the Company due to misapplication of costing method; (b) Overstatement of share of the net assets of an associated company in the amount of approximately RMB18,424,000 as the Company did not properly adopt equity method of accounting for this company in accordance with the prevailing accounting standards; (c) Overstatement of share of the net assets of another associated company in the amount of approximately RMB5,052,000 as the Company did not apply equity method of accounting for this company based on the audited financial statements of this associate; Page 48 BOE TECHNOLOGY GROUP CO., LTD. 2. PRIOR YEAR ADJUSTMENTS ARISING FROM FUNDAMENTAL ERRORS (CONTINUED) (d) Overstatement of property, plant and equipment and intangible assets amounting to approximately RMB47,377,000 and RMB1,667,000 respectively and unrecorded taxes totaling approximately RMB7,574,000 due to omission of transaction for sale of property, plant and equipment and intangible assets at a consideration of approximately RMB82,700,000 to an unconsolidated subsidiary of the Company. The above fundamental errors resulted in a corresponding reduction of provision for management bonus of approximately RMB4,669,000 in respect of the year ended 31 December 2003 which was calculated on 10% of net profit and included in the administrative expenses for the same year, and a corresponding increase in other receivables as at 31 December 2003. As a result of the above fundamental errors, net profit for the year ended 31 December 2003 decreased by a total of approximately RMB15,218,000. In addition, the Company under-recorded a loan transaction, which resulted in an understatement of cash balance and long term payable of RMB200,000,000 as at 31 December 2003, which is now rectified by way of a prior year adjustment. 3. PRINCIPAL ACCOUNTING POLICIES The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The Group also prepares financial statements, which comply with PRC accounting regulations. A reconciliation of the Group’s results and shareholders’ equity under IFRS and PRC accounting regulations is presented in Note 39. The principal accounting policies adopted are as follows: In the current year, the Group adopted IFRS 3 “Business Combinations” to business combinations for which the agreement date is on or after 31 March 2004. For business combinations, which the agreement date was before 31 March 2004, goodwill arising on these acquisitions is accounted for in accordance with IAS 22, “Business Combinations”. The effect of adopting the accounting policy is set out in Note 3(e) below. Page 49 BOE TECHNOLOGY GROUP CO., LTD. 3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (a) Principles of consolidation The consolidated financial statements include those of the Company and its subsidiaries and the Group’s interest in associates and joint ventures on the basis as set out in Notes 3(b), (c) and (d) below. The acquisition method of accounting is used for acquired businesses. Results of subsidiaries and associates acquired or disposed of during the year are included in the consolidated financial statements from the date of acquisition or to the date of disposal. The equity and net income attributable to minority shareholders’ interests are shown separately in the consolidated balance sheet and consolidated income statement, respectively. All significant intercompany balances and transactions, including intercompany profits and unrealised profits and losses are eliminated on consolidation. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. (b) Subsidiaries A subsidiary is a company in which the Company has control. Control exists when the Company has the power to govern the financial and operating policies of the subsidiary so as to obtain benefits from its activities. Details of the Company’s subsidiaries as of 31 December 2004 are set out in Note 36 to the financial statements. (c) Associates An associate is a company, not being a subsidiary or a joint venture, in which the Company has significant influence. Significant influence exists when the Company has the power to participate in, but not control, the financial and operating decisions of the associate. Investments in associates are accounted for using the equity method of accounting. (d) Joint ventures A joint venture is a venture undertaken by two or more parties whose rights and obligations with respect to the venture are specified in a joint venture agreement. No single venture is in a position to control unilaterally the activity of the venture. The consolidated financial statements include the Group's share of the results of jointly controlled entities for the year, and their assets and liabilities, are accounted for using the proportionate consolidation method. Page 50 BOE TECHNOLOGY GROUP CO., LTD. 3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (e) Goodwill In the current year, the Group adopted IFRS 3 “Business Combinations” to business combinations for which the agreement date is on or after 31 March 2004. For business combinations, which the agreement date was before 31 March 2004, goodwill arising on these acquisitions is accounted for in accordance with IAS 22, “Business Combinations”. In accordance with IAS 22, the excess of the cost of an acquisition over the Company’s interest in the fair value of the net identifiable assets acquired as at the date of the exchange transaction is recorded as goodwill and recognised as an asset in the balance sheet. Goodwill is carried at cost less accumulated amortisation and accumulated impairment losses. The amortisation period and the amortisation method are reviewed annually at each financial year end. IFRS 3 requires goodwill arising from acquisitions to be determined as the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities on the date of acquisition and is measured after initial recognition at cost less accumulated impairment losses. Under IFRS 3, goodwill is not required to be amortised but to be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Page 51 BOE TECHNOLOGY GROUP CO., LTD. 3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (f) Property, plant and equipment and depreciation Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment loss. The initial cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance and overhauls costs, are recognised as an expense in the year in which it is incurred. In situations where it is probable 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 capitalised as an additional cost of the asset. When assets are sold or retired, their cost and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is included in the income statement. Depreciation is calculated using the straight line method to write off the cost, after taking into account the estimated residual value, of each asset over its expected useful life. The expected useful lives are as follows: Buildings 20 to 40 years Plant and machinery 2 to 15 years Motor vehicles 2 to 10 years The useful lives of assets and depreciation method are reviewed periodically. (g) Construction in progress Construction in progress represents buildings under construction and machinery under installation and testing and is stated at cost. This includes costs of construction, attributable borrowing costs and other direct costs capitalised during the period of construction, installation or testing up to the date of commissioning. Construction in progress is not depreciated until such time as the assets are completed and put into operational use. (h) Investment property Investment property, principally comprising office buildings, is held for long-term rental yields and is not occupied by the Group. Investment property is treated as a long-term investment and is stated at historical cost less depreciation and impairment. Depreciation is calculated on the straight-line method to write off the cost of each property, to their residual values over their estimated useful lives ranging from 20 to 40 years. Page 52 BOE TECHNOLOGY GROUP CO., LTD. 3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (i) Intangible assets i) Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and only if the cost can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit, not exceeding five years. ii) Computer software development cost Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with identifiable and unique software products controlled by the Group and have probable economic benefits exceeding the cost beyond one year, are recognised as intangible assets. Direct costs include staff costs of the software development team and an appropriate portion of relevant overheads. Expenditure that enhances or extends the performance of computer software programmes beyond their original specifications is recognised as a capital improvement and added to the original cost of the software. Computer software development costs recognised as assets are amortised using the straight-line method over their useful lives. iii) Technology rights Technology rights are confidential techniques or experience that has been applied to productions or operation. Expenditure on acquired technology rights is capitalised and amortised using the straight-line method over their useful lives, but not exceeding 10 years. iv) Other intangible assets Expenditure on acquired patents, trademarks and licences is capitalised and amortised using the straight-line method over their useful lives, but not exceeding 10 years. Intangible assets are not revalued. Page 53 BOE TECHNOLOGY GROUP CO., LTD. 3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (j) Investments The Group classified its investments in debt and equity securities into the following categories: trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets. For the purpose of these financial statements short term is defined as 3 months. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date, which are classified as current assets. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; and are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading and available-for-sale investments are subsequently carried at fair value. Held-to-maturity investments are carried at amortised cost using the effective yield method. Unrealised gain and losses arising from changes in the fair value of securities classified as available-for-sale are recognised in equity. Equity securities for which fair values cannot be measured reliably are recognised at cost less impairment. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities. (k) Land use rights Land use rights are the rights granted to the Group to develop, use and/or operate on a parcel of land within a pre-approved period of time. Upfront lump sum usage fees prepaid are recorded as land use rights, which are amortised on the straight-line basis over the pre-approved period, normally 50 years. Page 54 BOE TECHNOLOGY GROUP CO., LTD. 3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (l) Inventories Inventories are stated at the lower of cost or net realisable value. Cost is determined by the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity), but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. (m) Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. (n) Loan to employees Loans provided to employees for their welfare such as housing are recognised as loans to employees. Long-term loans are initially recognised at fair value and subsequently carried at amortised cost using the effective yield method. The fair value on initial recognition is based on discounted cash flows using a discount rate based on the borrowing rate which the directors expect would be available to the borrower. (o) Cash and cash equivalents Cash represents cash in hand and deposits with any banks or other financial institutions, which are repayable on demand. Cash equivalents represent short term, highly liquid investments which are readily convertible into known amounts of cash with original maturities of three months or less and that are subject to an insignificant risk of change in value. Page 55 BOE TECHNOLOGY GROUP CO., LTD. 3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (p) Operating leases i) A Group company is the lessee Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the assets or the lease term. Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. ii) A Group company is the lessor Assets leased out under operating leases are included in property, plant and equipment in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term. Page 56 BOE TECHNOLOGY GROUP CO., LTD. 3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (q) Provisions A provision is recognised when, and only when an enterprise has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditure expected to be required to settle the obligation. i) Warranty The Group recognises the estimated liability to repair or replace products still under warranty at the balance sheet date. This provision is calculated based on historical data of the level of repairs and replacements. ii) Employee compensated absences entitlement Employee compensated absences entitlement is provided by BOE-Hydis to their employees. Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave and long-service leave as a result of services rendered by employees up to the balance sheet date. (r) Government grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs they are intended to compensate. Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as other liabilities and are credited to the income statement on a straight line basis over the expected lives of the related assets. Other government grants are recognized as income upon receipt. Page 57 BOE TECHNOLOGY GROUP CO., LTD. 3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (s) Revenue recognition Revenue comprises the invoiced value for the sale of goods and services net of value-added tax, rebates and discounts, and after eliminating sales within the Group. Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Revenue from rendering of services is based on the stage of completion determined by reference to services performed to date as a percentage of total services to be performed. Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. Dividends are recognised when the right to receive payment is established. (t) Share capital Ordinary shares are classified as equity. Incremental external costs directly attributable to the issue of new shares, other than in connection with business combination, are shown in equity as a deduction, net of tax, from the proceeds. Share issue costs incurred directly in connection with a business combination are included in the cost of acquisition. (u) Borrowings Borrowings are recognised initially at the amount of proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings. When convertible bonds are issued by the Group, the fair value of the convertible bonds is determined using a market interest rate for an equivalent non-convertible bond; this amount is carried as liabilities on the amortised cost basis until extinguished on conversion or maturity of the bonds. Page 58 BOE TECHNOLOGY GROUP CO., LTD. 3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (v) Deferred taxation Deferred taxation is provided under the liability method in respect of significant temporary differences between the tax base of an asset or liability and its carrying amount in the balance sheet. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which the deductible temporary difference can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Page 59 BOE TECHNOLOGY GROUP CO., LTD. 3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (w) Foreign currency transactions i) Measurement currency Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (“the measurement currency”). The consolidated financial statements are presented in Renminbi, which is the measurement currency of the parent. ii) Transactions and balances Foreign currency transactions are translated into the measurement currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement. Translation differences on debt securities and other monetary financial assets measured at fair value are included in foreign exchange gains and losses. Translation differences on non-monetary items such as equities held for trading are reported as part of the fair value gain or loss. Translation differences on available-for-sale equities are included in the revaluation reserve in equity. iii) Group companies Income statements and cash flows of foreign entities are translated into the Group’s reporting currency at average exchange rates for the year and their balance sheets are translated at the exchange rates ruling on 31 December. Exchange differences arising from the translation of the net investment in foreign entities and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign entity is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Page 60 BOE TECHNOLOGY GROUP CO., LTD. 3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (x) Borrowing costs Borrowing costs include interest charges and other costs incurred in connection with borrowing of funds, including amortisation of discounts or premiums relating to the borrowing, amortisation of ancillary costs incurred in connection with arranging borrowings and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Borrowing costs are expensed as incurred, except when they are directly attributable to the acquisition, construction or production of the property, plant and equipment, that necessarily takes a substantial period of time to get ready for its intended use in which case they are capitalised as part of the cost of that asset. Capitalisation of borrowing costs commences when expenditure for the asset and borrowing costs are being incurred and the activities to prepare the asset for its intended use are in progress. Borrowing costs are capitalised at the weighted average cost of the related borrowings until the asset is ready for its intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded. (y) Employee benefits The Group participates in defined contribution employee benefits plans by respective local governments. Under the plans, the Group’s contribution is based on defined percentage of salaries and wages subject to certain salary ceilings. Contributions to the plans are charged to the income statement as incurred. BOE Hydis Technology Co., Ltd. (“BOE-Hydis”) and Hyundai LCD, Inc. (“Hyundai LCD”), subsidiaries of the Company incorporated in the Republic of Korea, provide post-employment benefits to their employees and directors according to the statutory requirement. The subsidiaries’ employees and directors with more than one year of service are entitled to receive a lump-sum payment upon termination of their employment depending on their length of service and rate of pay at the time of termination, regardless of the reason for termination. The defined benefit plan costs are assessed using the projected unit credit method: the cost of providing benefits is charged to the income statement so as to spread the regular cost over the service lives of employees. The defined benefit obligation is measured at the present value of the estimated future cash outflows using discount rates determined based on high quality fixed interest corporate bonds or Korean government bonds. Actuarial gains and losses are recognised over the average remaining service lives of employees. Page 61 BOE TECHNOLOGY GROUP CO., LTD. 3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (z) Financial instruments Financial assets and financial liabilities carried on the balance sheet include cash and cash equivalent, short term investments, notes receivable and payable, trade and other receivables and payables, loans to non-related parties, balances with related parties and borrowings. The accounting policies on recognition and measurement of these items are disclosed in the respective accounting policies. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument classified as a liability, are reported as an expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity. Financial instruments are offset when the Group has a legally enforceable right to offset and intends to settle either on a net basis or to realise the asset and settle the liability simultaneously. (aa) Impairment of assets Property, plant and equipment, intangible assets, investments in associates and joint ventures and long term investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in the income statement for items of property, plant and equipment, intangible assets, investments in associates and joint ventures and long term investments carried at cost. The recoverable amount is the higher of an asset’s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit. Reversal of impairment losses recognised in prior years is recorded when there is an indication that the impairment losses recognised for the asset no longer exist or has decreased. The reversal is recorded as income. (bb) Contingencies Contingent liabilities are not recognised in the consolidated financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the consolidated financial statements but disclosed when an inflow of economic benefits is probable. Page 62 BOE TECHNOLOGY GROUP CO., LTD. 3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (cc) Subsequent events Post year end events that provide additional information about the Group’s position at the balance sheet date or those that indicate the going concern assumption is not appropriate (adjusting events) are reflected in the consolidated financial statements. Post year end events that are not adjusting events are disclosed in the notes when material. (dd) Dividends Dividends are recorded in the Group’s financial statements in the period in which they are approved by the Group’s shareholders. (ee) Segment reporting Business segments provide products or services that are subject to risks and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments. (ff) Business combination Business combinations, which are acquisitions, are accounted for by using the purchase method of accounting. Cost of acquisition is the amount of cash or cash equivalent paid and fair value of the other purchase consideration given by the Company plus any cost directly attributable to the acquisition. All acquired assets and liabilities are initially recognized at fair value. Any excess, at the date of the exchange transaction, of the Company’s interest in the fair values of the identifiable assets and liabilities acquired over the cost of the acquisition, is recognised as negative goodwill and is amortised over the weighted-average useful life of the non-monetary assets acquired or recognised as income when the future losses identified in the acquirer’s plans occur. (gg) Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. Page 63 BOE TECHNOLOGY GROUP CO., LTD. 3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (hh) Financial instruments and risk management (a) Financial risk factors The Group’s activities expose it to a variety of financial risks, including the effects of changes in debt and equity market prices, foreign currency exchange rates and interest rates. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The overall responsibility for the implementation of the Group’s financial risk management policies lies with the Board of Directors. (i) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures primarily with respect to Korean Won (KRW). BOE-Hydis uses forward contracts to buy or sell KRW to hedge their exposure to foreign exchange risk. (ii) Interest rate risk The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group has no significant interest bearing assets. However, the Group has borrowings bearing variable interest rates and does not use interest rate swaps as cash flow hedges of future interest payments. (iii) Credit risk The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history. Derivative counterparties and cash transactions are limited to high credit quality financial institutions. The Group’s historical experience in the collection of accounts receivable falls within the recorded allowances. The carrying amount of receivables and cash represent the Group’s maximum exposure to credit risk. In respect of receivables and cash, the Group has policies in place to ensure that customers and counterparties and banks with whom the Group maintains its cash are of suitable credit standing. Page 64 BOE TECHNOLOGY GROUP CO., LTD. 3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (hh) Financial instruments and risk management (continued) (a) Financial risk factors (continued) (iv)Liquidity risk The Group ensures that it maintains sufficient cash which is available to meet its liquidity requirements. (b) Accounting for derivative financial instruments Derivative financial instruments are initially recognised in the balance sheet at cost and are subsequently remeasured at their fair value. Changes in the fair value of any derivative instruments are recognised immediately in the income statement. (c) Fair value estimation The carrying amounts of the following financial assets and financial liabilities approximate to their fair value at the balance sheet date: cash, notes receivables, trade receivables and payables, other receivables and payables, and borrowings. 4. SEGMENT INFORMATION Since 2003, the Group commenced new business in providing different products and service. And, the Group’s risks and rates of return were affected predominantly by the differences in business segment. Therefore, business segments are adopted as its primary segment reporting format and geographical segments as its secondary reporting format. For management purposes, the Group is organized on a worldwide basis into three major operating divisions - Cathode Radial Tube (CRT) business, Thin Film Transistor-Liquid Crystal Display (TFT-LCD) business and Digital Product and Service (DPS) business. Other operations include Precision Electronic Components & Materials business and so on. The divisions are the basis on which the Group reports its primary segment information. Page 65 4. SEGMENT INFORMATION (CONTINUED) (a) Primary reporting format – business segments CRT/LCD TFT-LCD DPS Others E 2004 2003 2004 2003 2004 2003 2004 2003 200 (As restated) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’00 Revenue External sales 4,456,879 3,145,925 4,865,946 5,520,455 2,521,353 2,006,577 597,530 507,149 Inter-segment sales 2,135 - 1,107,232 153,454 939,808 - 166,409 7,216 (2,215,58 Total 4,459,014 3,145,925 5,973,178 5,673,909 3,461,161 2,006,577 763,939 514,365 (2,215,58 Cost External costs (3,631,189) (2,797,211) (4,864,953) (4,558,085) (2,152,593) (1,707,592) (509,105) (386,252) Inter-segment costs (601,327) (151,540) (587,982) (3,678) (952,007) (6,007) (66,792) - 2,208,10 Total (4,232,516) (2,948,751) (5,452,935) (4,561,763) (3,104,600) (1,713,599) (575,897) (386,252) 2,208,10 Results Segment results 142,308 95,830 55,179 671,294 82,613 83,535 (92,091) (176,564) Profit from operations Finance costs - net Available-for-sale investments-losses (30,196) (11,047) Share of results of associates before tax 364,227 76,616 Profit before tax Income tax expenses Group profit before minority interests Minority interests (81,961) (78,095) Net profit 4. SEGMENT INFORMATION (CONTINUED) (a) Primary reporting format – business segments (continued) CRT/LCD TFT-LCD DPS Others E 2004 2003 2004 2003 2004 2003 2004 2003 200 (As restated) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’00 Other information Segment assets 1,820,341 1,550,768 12,742,497 5,069,685 1,105,724 1,925,246 361,732 2,024,341 (103,63 Investment in equity method associates - - - - 392 - 2,179,707 1,896,347 Consolidated total assets Liabilities Segment liabilities 1,219,443 1,044,285 8,622,617 3,235,061 854,358 1,476,926 1,812,638 3,631,335 (81,65 Consolidated total liabilities Other Segment items- Capital expenditure 84,883 71,615 6,366,804 3,229,508 100,845 147,401 54,466 170,376 Depreciation 40,728 28,255 513,382 449,322 105,631 90,567 61,668 47,104 Amortisation 10,047 9,683 4,255 (5,864) 2,240 4,563 5,803 5,317 Impairment charge - - 1,348 572 3,960 - - 12,333 BOE TECHNOLOGY GROUP CO., LTD. 4. SEGMENT INFORMATION (CONTINUED) (b) Secondary reporting format – geographical segments Although the Group’s three major business segments are managed on a worldwide basis, they operate in four main geographical areas. PRC is the home country of the parent company, which is also the main operating company. The areas of operation cover all the three activities. Other asian region – sales activities of TFT-LCD and DPS. European region – sales activities of DPS and CRT. American region –sales activities of TFT-LCD, DPS and CRT. Revenue Total assets Capital expenditure 2004 2003 2004 2003 2004 2003 (As restated) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 PRC Mainland 6,133,427 4,819,366 11,414,121 6,274,763 5,999,110 331,327 Other asian region 2,442,940 2,862,969 6,474,821 5,798,353 607,850 3,287,573 European region 484,249 1,347,144 191,792 116,014 23 - American region 2,900,883 952,761 26,024 43,676 15 - Other countries 480,209 1,197,866 - - - - 12,441,708 11,180,106 18,106,758 12,232,806 6,606,998 3,618,900 Revenue are based on the country or area in which customers are located. Total assets and capital expenditure are where the assets are located. (c) Analysis of revenue by category 2004 2003 RMB’000 RMB’000 Sales of goods 12,123,374 11,137,926 Others 318,334 42,180 12,441,708 11,180,106 Page 68 BOE TECHNOLOGY GROUP CO., LTD. 5. PROFITS FROM OPERATIONS 2004 2003 (As restated) RMB’000 RMB’000 Depreciation on property, plant and equipment: (Note 11) Owned assets 716,007 604,473 Owned assets, leased out under operating lease - 2,949 Leased assets under finance lease 685 7,195 Impairment of property, plant and equipment (Note 11) 5,078 12,333 Net loss on disposal of property, plant and equipment 500 6,475 Net loss on disposal of intangible assets (Note 13) - 12,975 Amortisation of intangible assets: Goodwill (Note 13) 2,585 2,585 Negative goodwill (Note 13) (9,754) (9,373) Other intangible assets (Note 13) 26,906 18,521 Impairment charge and write off for intangible assets (Note 13) 230 572 Amortization of leasehold improvements and long-term advance payment 2,863 10,269 Repairs and maintenance expenditure on property, plant and equipment 137,184 97,903 Research and development expenditure 319,227 246,745 Provision for obsolete and slow-moving inventories 67,555 51,973 Receivables and prepayments: Impairment charge for bad and doubtful debts 1,967 22,191 Reversal of bad and doubtful debts (463) (6,454) Government grant (815) (11,451) Investment property: Rental income (53,283) (31,475) Operating expense 29,500 22,270 Staff costs (Note 7) 928,684 740,771 Impairment of available-for-sale investments (Note 16) 15,688 9,711 Operating lease expense: Amortisation of land use rights (Note 14) 2,609 2,991 Operating lease expense 29,921 14,600 Warranty cost (Note 28) 40,189 25,402 Page 69 BOE TECHNOLOGY GROUP CO., LTD. 6. FINANCE COSTS - NET 2004 2003 RMB’000 RMB’000 Interest expenses: Bank borrowings 305,781 226,996 Convertible bonds (Note 24) 10,239 10,968 Long-term notes payable 10,961 12,880 Finance leases 564 631 Interest income (66,207) (39,651) Net foreign exchange transaction (gain) / loss (200,643) 11,109 Net fair value (gain) / loss on forward contracts (295) 16,282 Net gain on forward contract transactions (46,125) (6,358) Others 10,810 2,693 25,085 235,550 7. STAFF COSTS 2004 2003 RMB’000 RMB’000 Wages and salaries 721,913 633,588 Retirement benefit obligations (Note 27) 54,534 37,503 Social security costs 67,907 34,260 Welfare 84,330 35,420 928,684 740,771 The average number of employees in 2004 was 13,037 (2003: 10,007). Page 70 BOE TECHNOLOGY GROUP CO., LTD. 8. INCOME TAX EXPENSES 2004 2003 RMB’000 RMB’000 Current tax 23,862 26,977 Deferred tax (Note 26) (10,750) (8,088) Share of tax of associates (Note 15) 48,181 11,114 61,293 30,003 The tax of the Group profit before tax differs from the theoretical amount that would arise using the tax rate of the Company is as follows: Profit before tax 496,955 504,114 Tax calculated at a tax rate of 15% (2003: 15%) 74,543 75,617 Effect of different tax rates 458 81,327 Income not subject to tax (22,677) (14,194) Expense not deductible for tax purpose 54,185 37,915 Income tax effect of tax exemption (56,242) (166,272) Unrecognised deferred tax assets 12,145 16,979 Income tax effect of utilisation of previously unrecognized tax losses of foreign subsidiaries (1,119) (1,369) Tax charge 61,293 30,003 The Company is subject to a preferential income tax rate of 15% (2003: 15%) as an enterprise engaged in new and top-notch technology and registered in Beijing New Technology Development Zone. As approved by the relevant governing tax bureau, some of the Company’s subsidiaries are also subject to preferential income tax rates ranging from zero to 15% (2003: zero to 15%). Except for BOE-Hydis, whose income tax rate is 29.7%, and the subsidiaries mentioned in the above, other subsidiaries of the Company are subject to an income tax rate of 33%. Page 71 BOE TECHNOLOGY GROUP CO., LTD. 9. BASIC EARNINGS PER SHARE Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. 2004 2003 (As restated) RMB’000 RMB’000 Net profit attributable to shareholders 353,701 396,016 Weighted average number of ordinary shares in issue (thousands) 1,229,527 659,465 Basic earnings per share RMB 0.288 RMB 0.601 10. DIVIDEND PER SHARE At the meeting of the board of directors on 25 April 2005, a final dividend of RMB0.2 per every 10 shares, based on the total number of outstanding shares in issue as at 31 December 2004 of 1,463,797,200 totalling RMB29,275,944 has been proposed in respect of the year ended 31 December 2004. Page 72 BOE TECHNOLOGY GROUP CO., LTD. 11. PROPERTY, PLANT AND EQUIPMENT Plant and Motor Constructi Buildings machiner vehicles on Total y in progress RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Year ended 31 December 2003: Opening net book amount 464,243 730,897 8,372 122,706 1,326,218 Exchange difference - (1,238) (2) (65) (1,305) Acquisition of business unit 1,072,361 1,939,961 332 50,030 3,062,684 Other additions 17,174 182,110 3,453 306,147 508,884 Disposals (65,107) (7,021) (115) - (72,243) Transfer from CIP 14,525 131,844 461 (146,830) - Other deduction of CIP - - - (22,763) (22,763) Depreciation charge (86,520) (525,362) (2,735) - (614,617) Impairment charge - (12,333) - - (12,333) Closing net book amount (Restated) 1,416,676 2,438,858 9,766 309,225 4,174,525 At 31 December 2003: Cost after impairment 1,526,336 3,258,667 19,743 309,225 5,113,971 charge Accumulated depreciation (109,660) (819,809) (9,977) - (939,446) Net book amount (Restated) 1,416,676 2,438,858 9,766 309,225 4,174,525 Year ended 31 December 2004: Opening net book amount 1,416,676 2,438,858 9,766 309,225 4,174,525 Exchange difference 142,120 263,831 137 40,946 447,034 Consolidation of subsidiary 135,574 6,336 1,545 7,606 151,061 Acquisition of subsidiary 630 413 371 - 1,414 Other additions 12,817 265,067 8,033 6,098,711 6,384,628 Change from a subsidiary to (45,989) (205,356) (531) (285) (252,161) an associate (Note 33) Unconsolidated joint (893) (14,616) - (165) (15,674) venture Other disposals (90) (2,782) (321) (47,652) (50,845) Transfer from CIP 700,347 624,672 545 - (1,325,56 4) Other transfer 12,777 4,355 - (17,133) (1) Depreciation charge (120,647) (593,648) (2,397) - (716,692) Impairment charge (126) (4,612) - (340) (5,078) Closing net book amount 2,253,196 2,782,518 17,148 5,065,349 10,118,21 1 At 31 December 2004: Cost after impairment 2,469,194 4,128,499 29,643 5,065,349 11,692,68 charge 5 Page 73 BOE TECHNOLOGY GROUP CO., LTD. Accumulated depreciation (215,998) (12,495) - (1,574,47 (1,345,98 4) 1) Net book amount 2,253,196 2,782,518 17,148 5,065,349 10,118,21 1 As of 31 December 2004, buildings with net book amount of approximately RMB1,387,010,000 (2003: RMB1,153,860,000), plant and machinery with net book amount of approximately RMB1,405,548,000 (2003: RMB1,743,808,000), construction in progress with book amount of approximately RMB287,017,000 (2003: RMB18,956,000) are pledged as collateral for the Group’s current and non-current bank borrowings (Note 23). Page 74 BOE TECHNOLOGY GROUP CO., LTD. 11. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) The Group is in the process of obtaining formal title certificate for the buildings with a net book amount of approximately RMB78,540,000 (2003: RMB17,260,000). Bank borrowing cost of approximately RMB9,891,000 (2003: 1,053,000) arising from financing specifically for the construction of property, plant and equipment was capitalised during the year and are included in “other additions” in the table above. A capitalisation rate of 2.97% and 3% (2003: 5.76%) was used representing the borrowing cost of the loan used to finance the projects. Lease assets, where the Group is a lessee under a finance lease, comprise building and machinery: 2004 2003 RMB’000 RMB’000 Cost 11,292 19,640 Accumulated depreciation (685) (6,933) Net book amount 10,607 12,707 Lease assets, where the Group is a lessor under an operating lease, comprise machinery and motor vehicles: 2004 2003 RMB’000 RMB’000 Cost - 46,218 Accumulated depreciation - (24,644) Net book amount - 21,574 Page 75 BOE TECHNOLOGY GROUP CO., LTD. 12. INVESTMENT PROPERTY 2004 2003 RMB’000 RMB’000 At beginning of year 14,780 17,430 Depreciation charge (887) (631) Disposal - (2,019) At the end of year 13,893 14,780 Cost 21,436 21,436 Accumulated depreciation (7,543) (6,656) Net book amount 13,893 14,780 Investment property is not measured at fair value as it is not practicable within constraints of timeliness or costs to determine its fair value with sufficient reliability. There is no active market for similar properties in the same location and condition and alternative estimates of fair value are not readily available. Page 76 13. INTANGIBLE ASSETS Negative Technology Goodwill goodwill rights Software Patent RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Year ended 31 December 2003: Opening net book amount 47,625 - 48,917 - 369 Additions - (2,171) 37,559 4,624 4,199 Acquisition of business unit - (93,733) - 16,919 2,392 Impairment charge - - - - (572) Disposal - - (12,975) - - Amortisation charge (2,585) 9,373 (14,934) (2,310) (1,271) Closing net book amount 45,040 (86,531) 58,567 19,233 5,117 At 31 December 2003: Cost 51,929 (95,904) 94,284 21,543 6,448 Accumulated amortisation (6,889) 9,373 (35,717) (2,310) (1,331) Net book amount 45,040 (86,531) 58,567 19,233 5,117 Year ended 31 December 2004: Opening net book amount 45,040 (86,531) 58,567 19,233 5,117 Additions - - 7,661 3,939 10,355 Transfer - - 1,328 - 8,687 Impairment charge - - - - (230) Change from a subsidiary to an associate (Note 33) - 2,171 (2) (2) (474) Unconsolidated joint venture - - (3,091) - - Exchange difference - (11,753) 5,512 2,735 1,173 Amortisation charge (2,585) 9,754 (17,638) (3,774) (5,486) Closing net book amount 42,455 (86,359) 52,337 22,131 19,142 At 31 December 2004: Cost 51,926 (110,411) 106,815 28,937 26,312 Accumulated amortisation (9,471) 24,052 (54,478) (6,806) (7,170) Net book amount 42,455 (86,359) 52,337 22,131 19,142 As of 31 December 2004, patent with net book amount of approximately RMB1,105,000 (2003: 1,203,000 non-current bank borrowings (Note 23). 14. LAND USE RIGHTS 2004 2003 (As restated) RMB’000 RMB’000 Opening net book amount 108,130 100,266 Additions 29,162 17,803 Amortisation charge (2,609) (2,991) Disposal - (1,667) Transfer out (1,328) (5,281) Closing net book amount 133,355 108,130 Cost 141,651 114,785 Accumulated amortisation (8,296) (6,655) Net book amount 133,355 108,130 As of 31 December 2004, land use rights, with net book amount of approximately RMB4,123,000 (2003: RMB15,193,000), are pledged as collateral for Group’s current and non-current bank borrowings, respectively (Note 23). 78 15. INVESTMENTS IN ASSOCIATES 2004 2003 (As restated) RMB’000 RMB’000 At beginning of year 1,926,561 741,841 Additions 129,010 1,111,418 Transfer from available-for-sale investments - 48,638 Disposal or transfer to investments in subsidiaries (41,526) (20,989) Share of results before tax 364,227 76,616 Share of tax of associates (48,181) (11,114) Share of results after tax 316,046 65,502 Dividend received (48,426) (20,442) Other movement (101,146) 593 At end of year 2,180,519 1,926,561 Particulars of associates are set out in note 36. 16. AVAILABLE-FOR-SALE INVESTMENTS 2004 2003 RMB’000 RMB’000 At beginning of year 17,836 93,200 Transfer to investment in subsidiaries (7,731) (25,514) Transfer to an associate - (48,638) Unconsolidated joint venture 14,932 - Acquisition of subsidiaries 392 - Additions - 8,499 Disposals (1,721) - Impairment loss (15,688) (9,711) At end of year 8,020 17,836 Non-current 8,020 17,836 Available-for-sale investments, comprising primarily investments in 79 unconsolidated subsidiaries and other equity investments, are measured at cost less impairment, as it is not practicable to determine their fair value with sufficient reliability. 80 17. OTHER NON-CURRENT ASSETS 2004 2003 RMB’000 RMB’000 Long-term loans to employees 5,721 6,737 Long-term receivable from sale of investments in associates - 15,656 Long-term cash 22,153 34,019 Club debentures 23,700 20,579 Leasehold improvements 22,291 27,473 Plan assets in retirement benefit obligations (Note 27) - 2,501 Unregistered patents - 8,676 Others 4,071 9,906 77,936 125,547 The current portion of the above loans and receivables is set out in Note 19. All long term loans are due within 4 to 6 years from the balance sheet date. The carrying value of long-term loans approximates their fair value, which is based on discounted cash flows using an effective interest rate of 4.97%. Included in long term cash were deposits in total of KRW1,852,500,000 (equivalent to approximately RMB14,814,000) which have been pledged as collaterals for the syndicate loan (Note 23). 18. INVENTORIES 2004 2003 (As restated) RMB’000 RMB’000 Raw materials (at cost) 696,676 696,120 Work in progress (at cost) 120,525 294,512 Finished goods (at cost) 437,862 313,911 Provision for obsolete and slow-moving inventories (127,997) (52,035) 1,127,066 1,252,508 As of 31 December 2004, inventories amounting to approximately RMB614,284,000 owned by BOE-Hydis are pledged as collaterals for the syndicate loan (Note 23). 81 19. RECEIVABLES AND PREPAYMENTS 2004 2003 (As restated) RMB’000 RMB’000 Notes receivables 200,319 154,184 Trade receivables 1,866,559 1,896,521 Less: Provision for impairment of trade receivables (24,451) (29,449) Trade receivables – net 1,842,108 1,867,072 Other receivables 252,412 243,659 Less: Provision for impairment of other receivables (8,358) (1,441) Other receivables – net 244,054 242,218 Short-term receivable from sale of investment in associate - 3,263 Short-term loans to employees 5,632 4,105 Prepayments 33,146 26,978 Prepaid expense 12,665 11,078 Interest receivable on convertible bonds 4,633 - Forward foreign exchange contracts (Note 20) - 192 2,342,557 2,309,090 As of 31 December 2004, trade receivables amounting to approximately RMB406,313,000 (2003: RMB114,279,000) and notes receivable amounting to approximately RMB64,802,000 (2003: 34,215,000) are pledged as collateral for the Group’s current bank borrowings (Note 23). 20. FINANCIAL INSTRUMENTS 2004 2003 RMB’000 RMB’000 Forward foreign exchange contracts: - with positive fair values (Note 19) - 192 - with negative fair values (Note 22) - (16,474) During the year ended 31 December 2004, all the forward contracts had 82 been settled. 83 21. CASH AND CASH EQUIVALENTS 2004 2003 (As restated) RMB’000 RMB’000 Cash at bank and in hand 1,543,516 1,035,037 Short term bank deposits 290,772 1,216,422 1,834,288 2,251,459 Time deposits amounting to approximately RMB23,990,000, owned by BOE-Hydis are pledged as collateral for bank borrowings (Note 23). For the purpose of the cash flow statement, the cash and cash equivalents comprise the following: 2004 2003 (As restated) RMB’000 RMB’000 Cash and bank balances 1,834,288 2,251,459 Less: Restricted deposits for Letter of Credit (274,328) (6,261) Term deposits with original maturity of more than 3 months which cannot be withdraw on demand - (14,582) Pledged bank deposits (23,990) (59,020) 1,535,970 2,171,596 84 22. TRADE AND OTHER PAYABLES 2004 2003 (As restated) RMB’000 RMB’000 Trade payables 2,680,947 1,803,654 Notes payable 16,996 19,550 Accrued expenses 138,779 142,778 Advances to suppliers 26,353 25,901 Wages and welfare payables 44,880 37,064 Dividends payable 7,561 25,870 Other payables 271,076 340,589 Other tax liabilities 1,555 21,776 Forward exchange contracts (Note 20) - 16,474 3,188,147 2,433,656 23. BORROWINGS Current 2004 2003 RMB’000 RMB’000 Syndicate loan – secured 167,453 - Bank borrowings – secured 715,827 763,820 Bank borrowings - unsecured 4,509,979 3,396,291 Borrowings from joint venture’s other shareholder - 4,586 Discounts on bank acceptance 70,000 14,000 Discounts on commercial notes 43,000 - Convertible bonds (Note 24) - 70,786 5,506,259 4,249,483 85 23. BORROWINGS (CONTINUED) Non-current 2004 2003 RMB’000 RMB’000 Syndicate loan – secured 1,410,621 1,502,162 Bank borrowings – secured 979,590 35,035 Bank borrowings – unsecured 101,710 155,210 Convertible bonds (Note 24) - 51,637 Finance lease liabilities 9,660 20,447 Others 1,800 1,800 2,503,381 1,766,291 Maturity of non-current borrowings (excluding finance lease liabilities): 2004 2003 RMB’000 RMB’000 Due between 1 and 2 years 1,015,919 260,624 Due between 2 and 5 years 1,477,802 1,485,220 2,493,721 1,745,844 Finance lease liabilities – minimum lease payment: 2004 2003 RMB’000 RMB’000 Later than 1 year and not later than 5 years 9,660 22,863 Future finance charge - (2,416) Present value of finance lease liabilities 9,660 20,477 86 23. BORROWINGS (CONTINUED) The collaterals for secured current and non-current bank borrowings include buildings and machinery (Note 11), intangible assets (Note 13), land use rights (Note 14), inventories (Note 18), trade receivables and notes receivable (Note 19), restricted cash (Note 21) and the equity interest of 15% in Beijing BOE Optoelectronics Technology Co., Ltd. owned by the Company. BOE-Hydis entered into a financial covenant agreement in respect of the syndicate loan obtained from Korean Development Bank, Korean Exchange Bank, Woori Bank and Hyundai Marine and Fire Insurance Company. According to the agreement, BOE-Hydis should maintain certain financial ratios during the term of the syndicate loan and cannot declare dividends (Note 30). The share certificate issued by BOE-Hydis to the Company was kept under Industrial and Commercial Bank of China, Seoul Branch’s custody and the Company’s equity interest in BOE-Hydis shall not be lower than 51% at any event until the loan and related interest is repaid. Any shares or proceeds resulting from dividend appropriation or share exchange, as a result of a merger, consolidation or otherwise will be kept under the custody of Industrial and Commercial Bank of China, Seoul Branch. Current borrowings bear interest at rates ranging from 0.75% to 8.31% (2003: 5% to 8.5%). Non-current bank borrowings bear interest at rates ranging from 3% to 8.09% (2003: 4.10% to 8.09%). 24. CONVERTIBLE BONDS As of 31 December 2004, details of convertible bonds were as follows: Coupon Issuance Redemption Conversion No. rate date date rate Face value (per share) 2004 2003 KRW denominated, non-guaranteed: KRW'000 RMB'000 KRW'000 RMB'000 2nd 7% 02/06/2002 02/06/2004 KRW 5,000 - - 2,568,000 17,831 3rd 7% 02/08/2002 02/08/2004 KRW 5,000 - - 2,200,000 15,276 5th 7% 12/31/2003 12/31/2004 KRW 5,000 - - 4,800,000 33,330 - - 9,568,000 66,437 USD denominated, guaranteed: USD RMB'000 USD RMB'000 5th 2% 11/26/2002 11/26/2005 KRW 15,000 - - 5,800,000 48,006 - 114,443 87 24. CONVERTIBLE BONDS (CONTINUED) The convertible bonds were recognised in the balance sheet as follows: 2004 2003 RMB’000 RMB’000 Liability at the beginning of the year 122,423 137,257 Interest expense 10,239 10,968 Interest paid - (10,971) Change from subsidiary company to associate (132,662) - Redemption - (14,235) Net foreign exchange transaction gains - (596) Liability at end of year - 122,423 Current (Note 23) - 70,786 Non-current (Note 23) - 51,637 - 122,423 No convertible bonds existed at the year end date as the subsidiary became an associate of the Company due to exercise of conversion right of the bonds by other bond holders. 25. OTHER NON-CURRENT LIABILITIES 2004 2003 (As restated) RMB’000 RMB’000 Long-term notes payable 299,939 307,747 Long-term payables – construction loan 350,000 304,413 Trust capital loan 450,000 - Government grants 46,375 17,975 Payable for acquiring an associates - 8,032 Other liabilities 12,434 3,190 1,158,748 641,357 88 25. OTHER NON-CURRENT LIABILITIES (CONTINUED) Long-term notes payable mainly represent long-term promissory notes issued by BOE-Hydis for the acquisition of the TFT-LCD business from Hyundai Display Technology Inc. and accrued interests. The promissory notes are pledged by certain property, plant and equipment of BOE-Hydis. The principal and its accrued interests are due within 4 to 5 years from the balance sheet date. During 2003, the Company, its subsidiary Beijing BOE Optoelectronics Technology Co., Ltd (“BOE Optoelectronics”) entered into certain agreements (the “Agreement”) with Beijing Economic Technology Investment Development Co (“Beijing Economic Investment”) whereby Beijing Economic Investment shall provide capital of RMB350,000,000 for the construction of a custom built factory to be solely used by BOE Optoelectronics. BOE Optoelectronics is required to purchase the factory within 5 years from the date of the Agreement. In July 2004, the Company, BOE Optoelectronics and Beijing Economic Investment mutually agreed to cancel the Agreement. The Company undertake to repay RMB350,000,000 to Beijing Economic Investment before 22 October 2008 with the Company’s holding company acting as guarantor. During 2004, Beijing Technology Economic Development Zone Management Committee (“Beijing Technology Zone Committee”) provided capital of RMB450,000,000 to the Company as its investment in BOE Optoelectronics to encourage the establishment of the production facilities of the 5th Generation TFT-LCD products in the zone. The Company would hold Beijing Technology Zone Committee’s interest in BOE Optoelectronics on trust for Beijing Technology Zone Committee. The Company is required the purchase from Beijing Technology Zone Committee its interest in BOE Optoelectronics for RMB450,000,000 within three years from the receipt of the above capital sum. Should the Company fail to make the purchase within the specified period, Beijing Technology Zone Committee has the right to dispose of its interest in BOE Optoelectronics in the market. 89 26. DEFERRED INCOME TAXES Deferred income taxes are calculated in full on temporary differences under the liability method using the effective tax rates of the Company and its subsidiaries. The movement on the deferred income tax account is as follows: 2004 2003 RMB’000 RMB’000 At beginning of year (2,376) 5,770 Acquisition of business unit (57) (10) Income statement charge (10,750) (8,088) Exchange differences (22) (48) At end of year (13,205) (2,376) The movement in deferred tax assets and liabilities (prior to offsetting of balances within the same tax jurisdiction) during the period is as follows: Deferred tax liabilities Reserve for Foreign research and currency Interest development exchange gain income Others Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 At 1 January 2004 10,502 2,411 28 409 13,350 Exchange differences - 20 - (17) 3 Income statement charge (10,502) (2,218) (28) (590) (13,338) At 31 December 2004 - 213 - (198) 15 Deferred tax assets Over- Unapproved amortised impairment Accrued for intangible Price Unrealised loss royalty use assets protection income Others Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 At 1 January 2004 (2,148) (4,042) (3,620) (828) (730) (4,358) (15,726) 90 Exchange differences - - - - - (25) (25) Acquisition of business unit - - - - - (57) (57) Income statement charge (1,097) - (2,151) 742 730 4,364 2,588 (3,245) (4,042) (5,771) (86) - (76) (13,220) 91 26. DEFERRED INCOME TAXES (CONTINUED) Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax asset against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following amounts, determined after appropriate offsetting, are shown in the consolidated balance sheet: 2004 2003 RMB’000 RMB’000 Deferred tax assets (13,220) (10,759) Deferred tax liabilities 15 8,383 (13,205) (2,376) 27. POST-EMPLOYMENT BENEFIT OBLIGATIONS At 31 December 2003, the post-employment benefit obligations represented benefit plans maintained by Hyundai LCD and BOE-Hydis. As at 31 December 2004, Hyundai LCD became an associate and its post-employment benefit obligations were not included in the Group’s financial statements. The amounts recognised in the balance sheet are determined as follows: 2004 2003 RMB’000 RMB’000 Present value of funded obligations 88,928 70,680 Fair value of plan assets (69,243) (50,878) 19,685 19,802 Present value of unfunded obligations - 3,051 Unrecognised actuarial losses - (10,711) Net liability 19,685 12,142 92 27. POST-EMPLOYMENT BENEFIT OBLIGATIONS (CONTINUED) Employee benefit obligation assets and liability are offset when there is a legally enforceable right to use the surplus of one plan to settle the obligations under another plan and intends either to settle the obligations on a net basis, or to realise the surplus in one plan and settle its obligations under the other plan simultaneously. The following amount, determined after appropriate offsetting, is shown in the consolidation balance sheet: 2004 2003 RMB’000 RMB’000 Assets in the balance sheet (Note 17) - (2,501) Liabilities in the balance sheet 19,685 14,643 19,685 (12,142) The amounts recognised in the income statement are as follows: 2004 2003 RMB’000 RMB’000 Current service cost 54,534 35,277 Interest cost - 2,216 Expected return on plan assets - (450) Current service cost, included in staff costs - 460 54,534 37,503 Movement in the net liabilities recognised in the balance sheet are as follows: 2004 2003 RMB’000 RMB’000 At beginning of year 12,142 6,428 Exchange difference 2,387 (33) Liabilities acquired in business acquisition - 13,236 Total expense – as shown above 54,534 37,503 Contributions paid (25,842) (44,992) Change from a subsidiary to an associate (23,536) - At end of year 19,685 12,142 93 28. PROVISIONS Compensated Warranty absences Total RMB’000 RMB’000 RMB’000 At 1 January 2004 23,916 2,083 25,999 Exchange differences 2,238 832 3,070 Change from a subsidiary to an associate (480) (3,450) (3,930) Additional provisions 40,189 8,673 48,862 Utilised during the year (26,170) (3,837) (30,007) At 31 December 2004 39,693 4,301 43,994 (a) Warranties The Group gives warranties on certain products and undertakes to repair or replace items that fail to perform satisfactorily. A provision of approximately RMB39,693,000 has been recognised at the year-end for expected warranty claims based on past experience of the level of repairs and returns. (b) Compensated absences The Group provides for the expected cost of compensated absences based on the amount that the Group expects to pay as a result of the unused entitlement that has accumulated at the balance sheet date. 94 29. CONTINGENT LIABILITIES (a) Guarantee 2004 2003 RMB’000 RMB’000 Related parties - - Third parties 4,500 3,000 4,500 3,000 Above balances represent the credit facilities granted by banks to other enterprises which the Group has guaranteed. (b) Potential litigation i) BOE-Hydis was given notifications from Sharp Corporation, LG⋅Philips LCD and Guardian Industries, alleging infringement of certain patent rights and claiming royalties. The directors are of the opinion that while discovery is still ongoing, it is not possible to assess the outcome of the potential litigation for the time being and no provision for any liability which may result has been made in the consolidated financial statement. ii) Pursuant to the restructuring agreement signed between BOE Land Co., Ltd. (“BOE Land”) with a third party, 北京中治安顺 达冶金总公司(“中治安顺达＂) in respect of the restructuring of a newly acquired subsidiary of BOE Land, BOE Land and 中 治安顺达 shall own 60% and 40% of the equity interest of the subsidiary respectively after completion of the restructuring. BOE Land has completed the capital injection but 中治安顺达 was unable to fulfill the asset injection obligation as subject piece of land for injection was under a lien. Accordingly, the Company has applied to court for asset protection against the considerations that has been paid by BOE Land and legal proceedings are still in process. 95 30. COMMITMENTS (a) Capital commitments Capital expenditures contracted for at the end of balance sheet date but not recognised in the financial statements were as follows: 2004 2003 RMB’000 RMB’000 Property, plant and equipment 387,368 1,099,217 Equity investments 37,244 - 424,612 1,099,217 (b) Operating lease commitments A wholly owned subsidiary, BOE-Hydis has entered into a lease agreement with Hynix Semiconductor Inc. in respect of a piece of land for a term from 22 January 2003 to 21 January 2033. The future aggregate minimum lease payments under the non-cancellable operating leases of the land are as follows: 2004 2003 RMB’000 RMB’000 Not later than 1 year 14,631 12,704 Later than 1 year and not later than 5 years 58,524 50,817 Later than 5 years 350,743 317,256 423,898 380,777 (c) Licence agreement BOE-Hydis has entered into a technology transfer agreement with INTERNATIONAL BUSINESS MACHINES CORPORATION (“IBM”), to manufacture flat panel displays. BOE-Hydis is obliged to pay royalties based on a certain percentage of the net sales of the licensed products prior to 1 January 2010. As of 31 December 2004, the licensed products are not manufactured yet. (d) Financial covenant agreement BOE-Hydis has entered into a financial covenant agreement in relation to the syndicate loan agreement under which BOE-Hydis should 96 maintain certain financial ratios and is restricted from entering into material asset acquisitions, either business or equity acquisitions other than normal capital expenditure, prior to the repayment of the loan principal and interest. In addition, BOE-Hydis cannot declare dividends or incur additional liabilities without the approval from the lender (Note 23). 30. COMMITMENTS (CONTINUED) (e) Commitment in respect of Corporate guarantee obtained In 2004, the Company entered into an agreement with Beijing Electronics Holding Ltd., Co (“Electronic Holding”) whereby Electronic Holding is to provide corporate guarantee in respect of the Company’s long term payables to Beijing Economic Development to the extent of RMB350,000,000. Total guarantee fees of approximately RMB20,388,500 is payable. As of 31 December 2004, RMB8,000,000 has been paid, resulting in a commitment in the amount of approximately RMB12,388,500. Up to 25 April 2005, the Company has settled the guarantee fee for the first quarter of 2005 of RMB5,000,000. Accumulative payments of RMB13,000,000 has been made, resulting in commitment outstanding of approximately 7,388,500. 31. ORDINARY SHARES 2004 2003 No of shares No of shares ‘000 ‘000 Domestic non-listed shares of RMB1 each 596,887 408,065 A shares of RMB1 each 123,210 72,000 B shares of RMB1 each 743,700 179,400 1,463,797 659,465 All shares rank pari passu in all respects. On 16 January 2004, the Company issued 316,400,000 additional B shares at a premium of RMB5.47 per share and net proceeds received amounted to approximately RMB2,048,160,000. Accordingly, the share premium increased by RMB1,731,760,000. 97 Pursuant to the 2003 annual general meeting on 28 May 2004, the Company converted share premium of RMB487,932,400 into issued ordinary shares to existing shareholders at the ratio of 5 new ordinary shares to every 10 existing ordinary shares. 98 32. OTHER RESERVES Capital General Translation reserves reserves reserve Total RMB’000 RMB’000 RMB’000 RMB’000 Balance at 1 January 2003 4,970 268,351 7,446 280,767 Currency translation differences - amount arising in the year - - (18,544) (18,544) General reserves for the year - 144,135 - 144,135 Balance at 31 December 2003 4,970 412,486 (11,098) 406,358 Balance at 31 December 2003 As previously reported 4,970 429,294 (11,098) 423,166 Prior year adjustment arising from fundamental errors - (16,808) - (16,808) As restated 4,970 412,486 (11,098) 406,358 Currency translation differences - amount arising in the year - - 208,419 208,419 General reserves for the year - 81,637 - 81,637 Balance at 31 December 2004 4,970 494,123 197,321 696,414 In accordance with the relevant PRC regulations, the Group appropriated 10% and 5% of statutory net profit to the statutory surplus reserve and statutory public welfare reserve. The Company also appropriated 25% of statutory net profit to the discretionary surplus reserve which has been approved by the Board of Directors. 99 33. CHANGE FROM A SUBSIDIARY TO AN ASSOCIATE On 31 December 2004, the other shareholder of the Company’s ex-subsidiary, Hyundai LCD, Inc (“HyLCD”) exercised their rights and converted their on-hand convertible bonds issued by HyLCD into equity share capital of the company. As a result, the Company’s equity interest in HyLCD decreased from 48.49% to 39.11% and became an associate of the Company following such conversion. Accordingly, assets and liabilities of the subsidiary were not consolidated since that date while the results and cash flows for the year up to 31 December 2004 were consolidated. Details of the assets and liabilities of the subsidiary partially disposed of are as follows: RMB’000 Net assets disposed of: Property, plant and equipment 252,161 Intangible assets 499 Held-to-maturity investments 2,504 Other non-current assets 27,223 Investments in associates 13,288 Inventories 775,784 Trade and other receivables and prepayments 409,429 Cash at bank and in hand 105,281 Short-term borrowings (735,462) Trade and other payables (396,224) Provisions (3,930) Taxes payable (6,213) Long term borrowings (79,111) Other long term liabilities (30,887) 334,342 Analysis of the net cash outflow in respect of disposal of a subsidiary: Cash at bank and in hand of subsidiary disposed of (105,281) 100 34. CONSOLIDATION OF A SUBSIDIARY Owing to the cancellation of share transfer agreement in respect of the shareholding of BOE Land Co., Ltd., the assets and liabilities and financial results of the BOE Land was included in the Group financial statements. Details of the assets and liabilities of the subsidiary at 1 January 2004 are as follows: Net assets disposed of: Property, plant and equipment 151,211 Other non-current assets 5,573 Other investments (39,137) Inventories 47 Trade and other receivables and prepayments 28,235 Cash at bank and in hand 45,429 Trade and other payables (174,591) Minority interests (16,767) - Analysis of the net cash inflow in respect of consolidation of a subsidiary: Cash at bank and in hand 45,429 101 35. RELATED PARTY TRANSACTIONS (a) Related party transactions In the opinion of the directors, the terms of the transactions with related parties follow commercial terms and conditions arranged in the ordinary course of business of the Group. The following transactions were carried out with related parties: 2004 2003 RMB’000 RMB’000 Purchase of goods and services: BOE Land Co., Ltd. - 22,853 Beijing Orient Investment and Development Co., Ltd 455 - Beijing BOE Digital Technology Co., Ltd. - 3,167 Beijing Oriental Electronic Materials Co 125 - TPV Technology Limited 233,074 - Sales of goods and services: Beijing Matsushita Color CRT Co., Ltd. 90,095 86,993 Beijing Orient Mosler Security Technology Systems Co., Ltd. 2,949 2,949 TPV Technology Limited 2,770,917 - Beijing Electronic Holdings Ltd., Co. 2,247 - Beijing Orient Investment and Development Co., Ltd 138 - Rental income: Beijing Orient Mould Factory 780 - Beijing Nissin Electronics Precision Component Co., Ltd. 1,232 203 Beijing Nittan Electronics Co., Ltd. 2,073 1,555 Beijing Orient Mosler Security Technology System Co., Ltd. 459 133 Beijing Oriental Software Co., Ltd 252 - 102 35. RELATED PARTY TRANSACTIONS (CONTINUED) (a) Related party transactions (continued) 2004 2003 RMB’000 RMB’000 Service fee expenses: Beijing Nissin Electronics Precision Component Co., Ltd. 2,949 - Beijing Nittan Electronics Co., Ltd. 509 - Beijing Matsushita Color CRT Co., Ltd. 8,949 - Beijing Oriental Software Co., Ltd 109 - Beijing Star City Real Estate Development Co., Ltd357 - Interest income: Beijing Star City Real Estate Development Co., Ltd. - 600 Technology usage expenses: TPV Technology Limited 30,644 - After sales service expenses: TPV Technology Limited 26,259 - Management bonus payable to: Beijing Intelligence Technology Development Co., Ltd. 40,319 8,284 Other service fee expenses: Beijing Orient Mould Factory Industry Development Co., Ltd. 200 - Beijing Orient Electronic Industry Development Co., Ltd. 116 - Rentals paid: Beijing Orient Electronic Industry Development Co., Ltd 1,631 - Guarantee granted by: TPV Technology Limited 108,129 41,740 Payments on behalf: Beijing BOE Investment Development Co., Ltd. 1,636 - Receipts on behalf: Beijing BOE Investment Development Co., Ltd. 904 - 103 104 35. RELATED PARTY TRANSACTIONS (CONTINUED) (b) Related parties balances Related party receivables and payables at 31 December 2004 were as follows: 2004 2003 RMB’000 RMB’000 Trade receivables due from: Beijing Orient Mould Factory 4,024 3,956 Beijing Orient Mosler Security Technology System Co., Ltd. 2,227 2,105 Beijing Matsushita Color CRT Co., Ltd. 15,612 9,971 TPV Technology Limited 461,814 281,430 Hyundai LCD, Inc. 145,344 - Notes receivable due from: Beijing Matsushita Color CRT Co., Ltd. 6,499 24,096 Beijing Star City Real Estate Development Co., Ltd. 43,000 - Other receivables due from: Beijing BOE Digital Technology Co., Ltd. 573 5 Beijing Orient Investment and Development Co., Ltd. 4,912 3,933 Beijing Star City Real Estate Development Co., Ltd. 30,047 33,400 Beijing Intelligence Development Co., Ltd. 4,859 4,859 TPV Technology Limited 1,386 15,823 Shenzhen Evergreat Industrial Co., Ltd. 374 374 Trade payables due to: BOE Land Co., Ltd. - 563 TPV Technology Limited 82,909 45,242 Hyundai LCD, Inc. 141,842 - 105 35. RELATED PARTY TRANSACTIONS (CONTINUED) (b) Related parties balances (continued) 2004 2003 RMB’000 RMB’000 Other payables due to: Beijing Orient Investment and Development Co., Ltd. 904 - Beijing Matsushita Color CRT Co., Ltd. 200 - TPV Technology Limited 5,660 7,689 Accrued expense: TPV Technology Limited 16,160 11,824 Other non-current liabilities due to: Beijing Orient Investment and Development Co., Ltd. 9,661 - (c) Directors’ remuneration In 2004, total remuneration of the directors was in the amount of RMB3,909,000 (2003: RMB3,700,000). 106 36. SUBSIDIARIES AND ASSOCIATES Except for BOE Technology Incorporation, which was incorporated in the United States of America with limited liability, Hyundai LCD and BOE-Hydis, which were incorporated in the Republic of Korea with limited liability all of, the following principal subsidiaries and associates were all incorporated in the PRC. (a) Subsidiaries Name Equity interest Principal Activities Notes 2004 2003 Beijing BOE Digital 75% 75% Research, development, manufacture (1) Technology Co., Ltd. and sale of digital cameras and other digital visual wireless transfer platforms Beijing Software and System 100% 100% Research and development of network Integrated Co., Ltd. and telecommunications Beijing Orient Top Victory 45.21% 45.21% Manufacture and sale of color computer (2) Electronics Co., Ltd and monitors Zhejiang BOE Display 60% 60% Research, development, manufacture Technology Co., Ltd. and sale of monitors and related parts Beijing BOE Vacuum 55% 55% Manufacture and sale of vacuum Electronics Co., Ltd. electronic products BOE Technology 100% 100% Research, development, manufacture (1) Incorporation and sale of high technology electronic information products Beijing Orient Heng Tong 100% 100% Leasing of commercial facilities Property Centre Beijing BOE Mobile - 51% Research, development and manufacture Technology Co., Ltd. of mobile technology products Beijing BOE 100% 100% Development, manufacture and sale of Optoelectronics Technology TFT-LCD products and related services Co., Ltd. 107 36. SUBSIDIARIES AND ASSOCIATES (CONTINUED) (a) Subsidiaries (continued) Name Equity interest Principal Activities Notes 2004 2003 BOE Hyundai LCD (Beijing) 75% 75% Development, manufacture and sale of Display Technology Co., Ltd. related parts of LCD products Suzhou BOE Chagu Electronics 75% 75% Development, manufacture and sale of Co., Ltd. back-light products and related services BOE-Hydis Technology Co., 100% 100% Development, manufacture and sale of Ltd. TFT-LCD products and related services BOE Semi-conductor Co., Ltd. 63% 63% Manufacture and sale of semi-conductor products BOE Land Co., Ltd. (Note 34) 70% 70% Development of manufacture buildings facilities and leasing of commercial facilities 108 36. SUBSIDIARIES AND ASSOCIATES (CONTINUED) (a) Subsidiaries (continued) Name Equity interest Principal Activities Notes 2004 2003 BOE Optoelectronics Holding 100% 100% Design, manufacture and trading of (3) Co., Ltd electronics information technology products and investing activities BOE Optoelectronics 100% 100% Investment holding (3) Technology Co., Ltd BOE Optoelectronics Investment 100% 100% Investment holding (3) Co., Ltd (1) As the assets and results in the year were not material to the Group, they were not consolidated in the financial statements. (2) According to the capital injection agreement, 8.7% of the voting rights in this company held by Multi-Lines Investment Co., Ltd. have been consigned to the Company. This company is consolidated in the financial statements. (3) As at the date of the report, the three foreign subsidiaries set up by the Company for strategic purposes, namely BOE Optoelectronics Holding Co., Ltd, BOE Optoelectronics Technology Co., Ltd and BOE Optoelectronics Investment Co., Ltd have not yet commenced production or operation. Administration expenses incurred by these subsidiaries during the year were not significant and had been borne by the Company. Accordingly, their financial statements have not been consolidated. 109 36. SUBSIDIARIES AND ASSOCIATES (CONTINUED) (b) Associates Name Equity interest Principal Activities 2004 2003 Beijing Matsushita Color CRT 30% 30% Manufacture and sales of color picture tubes and Co., Ltd. color display tubes Shenzhen Evergreat Industrial 40% 40% Development and manufacture of mechanical Co., Ltd. integrated products, satellite communication equipment, computer software and automatic instruments Beijing Nittan Electronics Co., 40% 40% Manufacture and sales of terminals, connectors and Ltd. stampers Beijing Nissin Electronics 40% 40% Manufacture and sales of electronics tubes and Precision Component Co., Ltd. related spare parts Beijing Huaxu Jinka Co., Ltd. - 21% Manufacture and sales of IC card, magnetic card, laser card and related read-write equipment Beijing Orient Mosler Security 35% 35% Manufacture and sales of security and protection Technology System Co., Ltd. system and products Beijing Oriental Software Co., - 30% Design, develop, manufacture of software, Ltd. hardware and computer components; network Integration TPV Technology Limited 25.37% 26.36% Manufacture and sales of color computer monitors and LCD products Hyundai LCD, Inc. (Note 33) 39.11% 48.5% Manufacture and sale of Liquid Crystal Display (“LCD”) devices used in handset and electrical goods Beijing Star City Real Estate 40% - Property development Development Co., Ltd. 110 37. INTEREST IN JOINT VENTURES The Group has a 50% interest in a joint venture, Beijing Asahi Glass Electronics Co., Ltd., which manufactures electronics products. The following amounts represent the Group’s 50% share of the assets and liabilities, sales and results of the joint venture which were included in the consolidated balance sheet and income statement: 2004 2003 RMB’000 RMB’000 Property, plant and equipment 46,464 21,413 Intangible assets 4,909 2,690 Current assets 82,477 37,128 133,850 61,231 Current liabilities (22,333) (10,981) Net assets 111,517 50,250 Sales 98,438 46,504 Profit before tax 26,546 10,263 Income taxes (3,795) (1,636) Profit after tax 22,751 8,627 Beijing BOE YAMATO Photoelectron Co., Ltd., in which the Company has a 51% equity interest, went into voluntary liquidation on 1 August 2004. The assets, liabilities and results of this company are not material to the Group and therefore have not been consolidated." There are no contingencies and commitments relating to the Group’s interest in above joint ventures. The average number of employees in these joint ventures in 2004 was 402 (2003: 532). 111 38. POST BALANCE SHEET EVENTS (1) Capital increase in Suzhou BOE Chatani Electronics Co., Ltd (“Suzhou BOE Chatani”) and establishment of Beijing BOE Chatani Electronics Co., Ltd In March 2005, the Company and Chatani Properties Inc completed the additional capital injection of US$4,498,000 into Suzhou BOE Chatani, the controlling subsidiary of the Company, in proportion to their respective original investment., as a result of which the registered capital of Suzhou BOE Chatani has increased to US$8,552,000. On 22 March 2005, the Company and Suzhou BOE Chatani established in Beijing Economic Technology Development Area Beijing BOE Chatani Electronics Co., Ltd with a registered capital of RMB37,244,248, 1% of which is owned by the Company and the remaining 99% by Suzhou BOE Chatani. As of 18 March 2005, the paid-up capital from the two parties has amounted to RMB8,372,400. (2) Establishment of Beijing Fangyi Integrated Circuits Co Limited In order to reduce the manufacturing costs of TFT-LCD and ensure of the stable supply of drive IC, the principal component of TFT-LCD, the Board of Directors has passed a resolution on 24 February 2005 to approve the establishment of Beijing Fangyi Integrated Circuits Co Limited (“Beijing Fangyi”) by the Company and its wholly-owned subsidiary BOE Hydis Technology Co., Ltd. Currently the establishment is under process. (3) Redemption of Convertible bonds As of 25 April 2005, the Company has already completed the redemption of its convertible bonds issued by Hyundai LCD Inc. in the amount of US$724,000 (equivalent to approximately RMB5,992,000), with the outstanding US$2,170,000 (equivalent to RMB17,960,000) convertible bonds which was postponed to be redeemed in May of 2005. 112 38. POST BALANCE SHEET EVENTS (CONTINUED) (4) Syndicate loan facilities obtained by Beijing BOE Optoelectronics Technology Co., Ltd On 31 March 2005, Beijing BOE Optoelectronics Technology Co., Ltd (“BOE Optoelectronics”) , a subsidiary of the Company signed the Syndicate Loan Facility Agreement with the Beijing City Construction Development Division of China Construction Bank Co Ltd as the sole and lead manager of the banking consortium, for facilities with limit of US$740 million (including the equivalent balance of RMB denominated loans). The facilities include fixed assets loans with a term of 5 years and working capital loans with a term of 3 years from the respective dates of cash drawdown. Interest rates for United States Dollars denominated loans and Renminbi denominated loans shall be 1.8% over 3 months LIBOR rate and the applicable basis rates announced by the People’s Bank of China from time to time respectively. In respect of the consortium loan facilities, BOE Optoelectronics has entered into a Custody Agreement, a Machinery Pledge Agreement and a Real Estate Pledge Agreement with each lending bank under the banking consortium whereby BOE Optoelectronics has agreed to pledge the existing and future interests in all land and buildings and machinery and these assets are having appraised values of RMB1.479 billion and RMB4.12 billion respectively. BOE Optoelectronics also pledges all insurance contracts related to these assets to the consortium. Both the Company and Beijing Electronics Holdings Ltd., Co signed a corporate guarantee agreement with each lending bank under the banking consortium whereby both the companies agreed to provide joint and several non-cancellable corporate guarantees to the extent of 50% of the net asset values of the Company on consolidated basis, less the amount of corporate guarantees already granted to other third parties and recognized by the banking consortium. The Company has committed to reduce the amount of corporate guarantees to other third parties to a level no more than RMB900 million within 6 months from the date of signing of the guarantee agreement. At the same time, the Company, Beijing Electronics Holdings Ltd., Co and BOE Optoelectronics have jointly signed an agreement to the effect that BOE Optoelectronics, the Company and Beijing Electronics Holdings Ltd., Co are the primary, secondary and third-ranked guarantor. As of 25 April 2005, BOE Optoelectronics has drawn down the total facility limit of US$740 million. In addition, BOE Optoelectronics and Beijing Electronics Holdings Ltd., Co signed an agreement whereby BOE Optoelectronics is 113 liable to pay a guarantee fee of 0.1% per annum on the amount of facilities utilised by BOE Optoelectronics in each year. 114 38. POST BALANCE SHEET EVENTS (CONTINUED) (5) Issuance of corporate debentures On 12 April 2005, BOE Hydis Technology Co., Ltd. a wholly owned subsidiary has completed the initial public offerings of interest bearing, unsecured and bearer corporate bonds (the “Bonds”) with the purpose of fueling the working capital in Korea. The total amount of the issued Bonds is KRW6 billion with the following main terms: the par value of each bond is KRW10,000; the interest rate is 6.5% per annum, the issuance period is from 12 April 2005 to 12 April 2007. The principal amount of the Bonds will be repaid at the Maturity Date, and the interests of the Bonds will be paid every three months starting from the issuance date at one fourth of the annual interest. As of 25 April 2005, proceeds of KRW5.922 billion (equivalent to RMB473.56 million) have been raised from the issuance of the Bonds. (6) Leasing of properties By a board resolution dated 24 February 2005, the Company entered into a finance lease agreement with Beijing Dongdian Industrial Development Co (“Beijing Dongdian”) for the leasing of a youth hostel for a period of 20 years. The ownership of the property will rest with the Company after the full satisfaction of the lease. The Company is required to pay off the entire rental under the lease of approximately RMB11,292,000, representing the net present value of the total rental value of the property for the next 20 years of approximately RMB16,916,000, calculated at annual rental of RMB246.38 per sq. m using a discount rate of 6.76%. As at 25 April 2005, the Company has paid approximately RMB8,131,000 with a balance of approximately RMB3,161,000 to be paid. (7) Strategic Alliance with Marubeni Corporation of Japan (“Marubeni”) On 1 March 2005, the Company signed a Strategic Alliance Agreement (the “Agreement”) with Marubeni. According to the Agreement, Marubeni will: i) as required, provide the Company with TFT-LCD 115 production-related materials sourcing and components procurement information services and provide the TFT-LCD fab of the Company with stable and competitive materials and components supply; ii) by such means as active investment, assist in the introducing of overseas TFT-LCD materials and components manufacturers to invest in Beijing and form the localization services in ; iii) assist in the marketing and sale of the Company’s products into global markets; and iv) study on the co-operation model with the Company in the 2nd TFT-LCD production facility project, including such model of direct investment by Marubeni. 38. POST BALANCE SHEET EVENTS (CONTINUED) (8) Monitor and Flat Screen TV business restructuring On 15 December 2004, the Company signed a Heads of Agreement with TPV Technology Limited (“TPV”) under which the Company intends to transfer to TPV all its 45.21% shareholding in Beijing Orient Top Victory Electronics Co, Ltd. (“Beijing Top Victory”) , as a consideration TPV will issue to the Company a number of shares. On the same day, Koninklijke Philips Electronics N.V. (“Philips”) signed a Letter of Intent with TPV for the contribution of the monitor and flat screen TV businesses and assets owned by Philips to TPV , as a consideration TPV will issue to Philips Consideration Shares and Convertible Bonds. On 15 December 2004, the Company and Philips signed to each other an Irrevocable Letter of Undertaking, an attachment to which is the Outline of Proposed Shareholders Agreement (“Outline”). Under the Outline, the Company shows its support to the above-mentioned transaction between TPV and Philips, and Philips acknowledges that the Company is and intends to remain the largest shareholder in TPV and Philips acknowledges its support for the Company’s objective. The Consideration Shares of Philips shall be limited to 15% of TPV’s enlarged share capital post the TPV and OTPV transactions. The Philips Consideration Shares and Convertible Bonds shall be subject to a 3 years lock-up period. If Philips is to sell all or part of its TPV Shares, Convertible Bonds or Converted Shares, Philips will grant the Company a right of first refusal in relation to such shares and/or bonds. If the Company does not exercise its right of first refusal, Philips can sell such shares and/or bonds to a third party, provided that this third party can not be any person of TPV’s five key competitors and the Company’s five key competitors who manufacture TFT LCD panels and provided that 116 such third party (other than a financial institution in a block trade) in a transaction whereby receives from Philips more than 15% of the issued shares of TPV immediately after the completion of such sale. If at any time Philips’ shareholding in TPV is in excess of 15%, Philips agrees that it will not exercise any voting rights attaching to such excess shares. The Company and Philips confirm that they shall take all such actions as may be necessary or appropriate to enter into and execute a Shareholders Agreement in the form in accordance with the Outline. 117 39. IMPACT OF IFRS ADJUSTMENTS ON PROFIT AFTER TAXATION AND MINORITY INTERESTS AND SHAREHOLDERS’ FUNDS The statutory accounts of the Group are prepared in accordance with PRC accounting regulations applicable to joint stock limited companies. These accounting principles differ in certain significant respects from IFRS. The effects of these differences on the profit after taxation and minority interests for the year ended 31 December 2004 and shareholders’ funds at that date are summarised as follows: Profit after taxation and minority Shareholders' interests funds RMB’000 RMB’000 As determined pursuant to PRC accounting regulations 206,013 4,956,439 Difference in amortisation of goodwill (1,334) (5,334) Appropriation of staff bonus and welfare funds (1,922) - Government grant 841 (3,014) Capitalisation of certain development cost 163,786 172,473 Capitalisation of finance costs (11,186) 18,448 Difference in negative goodwill recognition arising from acquisition of a subsidiary - (2,171) Recognition of loss on deemed disposal of a subsidiary (2,945) 16,529 Others 448 1,014 As determined pursuant to IFRS 353,701 5,154,384 40. APPROVAL OF FINANCIAL STATEMENTS The Board of Directors authorised these financial statements for issuance on 25 April 2005. 118 119 At beginning of Items Increase Decrease At en year 一、Provision for doubtful debts 30,890,673.00 17,092,602.00 15,173,266.00 32 Including：account receivables 29,449,312.00 10,083,895.00 15,081,209.00 24 other receivables 1,441,361.00 7,008,707.00 92,057.00 8 二、Provision for short term investments 0.00 0.00 0.00 三、Provision for inventories 52,035,081.00 139,783,533.00 63,821,762.00 127 Including：Finished goods 36,488,863.00 130,345,805.00 50,475,220.00 116 Raw materials 15,546,218.00 9,437,728.00 13,346,542.00 11 四、Provision for long term investments 14,160,247.00 21,074,300.00 5,386,659.00 29 Including：long-term equity investments 14,160,247.00 21,074,300.00 5,386,659.00 29 long-term securities investments 0.00 0.00 0.00 五、Impairment of fixed assets 18,160,960.00 5,050,387.00 2,007,647.00 21 Including：buildings 0.00 139,005.00 0.00 plant and machinary 18,160,960.00 4,911,382.00 2,007,647.00 21 六、Provision for intangible assets 572,205.00 341,361.00 0.00 Including：Patent 572,205.00 341,361.00 0.00 trademark 0.00 0.00 0.00 七、Impairment of construction in process 0.00 376,001.00 0.00 八、Provision for consignment loans 0.00 0.00 0.00 九、Total 115,819,166.00 183,718,184.00 86,389,334.00 213 121