京东方Ａ(000725)京东方Ｂ2005年年度报告（英文版）

BOE TECHNOLOGY GROUP CO., LTD. ANNUAL REPORT 2005 (Overseas Version) Stock Exchange Listed On: Shenzhen Stock Exchange Stock Symbol: BOE - B Stock Code: 200725 Apr. 25, 2006 1 Important Note: Board of Directors, Supervisory Committee, directors, supervisors and senior executives 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 concurrently CEO Mr. Wang Dongsheng, President Mr. Liang Xinqing, COO Mr. B.D.Choi, CFO Mr. Wang Yanjun and Chief Accounting Officer and concurrently Principal of Planning & Financial Dept. Ms. Sun Yun hereby confirm that the Financial Report enclosed with the Annual Report is true and complete. Independent Director Mr.Xie Zhihua and Mr. Li Zhaojie separately authorized Independent Director Mr. Tai Zhonghe and Mr. Zhang Baizhe to attend and vote at the BOD meeting. The Annual Report 2005 of the Company was prepared based on International Financial Reporting Standards 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 Corporate Governance……………………………………………………… 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: Chen Yanshun Securities Affairs Representative: Zhong Huifeng Contact Address: No. 10, Jiuxianqiao Road, Chaoyang District, Beijing Tel: (86) 10 – 64366264 64318888 ext. Fax: (86) 10 – 64366264 E-mail: yschen@boe.com.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 Website: 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 Journal, Shanghai Securities News and Hong Kong Ta Kung Pao Internet Website for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Capital and Investor Relationship Dept. of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange A-share Symbol: G BOE, Stock Code for A-share: 000725 B-share Symbol: 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 The latest changing registrations date: Aug. 15, 2005 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: KPMG Huazheng Certified Public Accountants Office Address: 8/F, Office Tower E2, Oriental Plaza1, East Chang An Avenue, Beijing International: KPMG Certified Public Accountants Office Address: 8/F, Prince's Building, 10 Chater Road, Central, Hong Kong CHAPTER II. SUMMARY OF FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS 1. Major accounting data as of the year 2005 (Unit: In RMB’000) Items Amount Profit before tax -1,246,610 Net profit -1,245,993 Other operating income 100,384 Operating profit -1,075,732 4 Net cash inflow arising from operating activities： -983,559 Balance in cash and cash equivalents at the year-end 1,164,052 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 Net assets Net profit As reported under Accounting System for Enterprise Business 3,377,859 -1,587,087 Adjustment based on IFRS and other: Recognition and amortisation of positive goodwill 63,078 68,412 Recognition and amortisation of negative goodwill 101,715 －14,485 Government grant -3,014 4,105 Capitalised general borrowing costs, net of related depreciation 33,185 33,185 Capitalised development costs, net of related depreciation 200,450 27,977 Gain on disposal of subsidiary 141,631 141,631 Appropriation of staff bonus and welfare fund -916 Amortisation of loans arrangement fee 15,364 -3,085 Dilution gain on interest in associate -73,750 80,397 Equity accounting for interest in associates with the issuance of 111,357 convertible debentures - Others -259 3,873 Balance after adjustment under IFRS 3,967,616 -1,245,993 2. Major accounting data and financial indexes over the past three years as ended the report period: Unit: RMB’000 2004 Increase / 2003 decrease this year 2005 After Before After Before compared adjustment adjustment adjustment adjustment with the last year (%) Sales revenue 13,449,713 12,441,708 12,441,708 8.10% 11,180,106 11,180,106 Net profit －1,245,993 340,262 353,701 -466.19% 481,946 396,016 Total assets 21,284,929 18,223,237 18,106,758 18.12% 12,322,084 12,232,806 Shareholders’ equity (excluding 5,154,384 -24.73% 2,643,140 2,553,862 minority interests) 3,967,616 5,270,862 Unit: RMB 2004 (after Increase / decrease this year 2005 adjustment) compared with the last year (%) Earnings per share -0.57 0.23 -344.12% Return on equity -31.4% 6.46% -586.07% Net assets per share 1.81 3.60 -49.72% Note: ① The aforesaid diluted data of 2004 had been calculated based upon the total share capital of 1,463,797,200 shares at the end of that year and those of 2005 upon the total share capital of 2,195,695,800 shares at the end of the year. 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 Minority Share Capital Surplus Retained Shareholders’ shareholders’ capital reserve reserve profit equity equity Amount at the 1,463,797 2,284,812 708,167 814,086 524,973 5,795,835 5 beginning of the period Capitalisation of share 731,899 -731,899 - - - - premium Net loss for the year - - - -1,154,586 - -1,154,586 Profits attributable - - -91,407 91,407 - to minority interests Foreign currency - - -27,977 - - -27,977 translation difference Dividend approved -29,276 -29,276 during the year Capital contributions - - - - 18,529 18,529 from minority interests Distributed to - - - - -5,550 -5,550 minority shareholders Disposal of associated - - - - -395,478 -395,478 companies Amount at the end of 2,195,696 1,552,913 680,190 -461,183 233,881 4,201,497 the period CHAPTER III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS I. Changes in share capital 1. Statement of change in the Company’s shares (as at Dec. 31, 2005) Unit: Share Before the change Change of this term (+,-) After the changed Number Proportion Shares capital Split-share subtotal Number Proportion transferred from Reform public reserve I.Lock-up Shares 596954640 40.78% +298541720 -77394612 +221147108 818101748 37.26% 1. Shares held by the State 2. Shares held by state-owned 590452200 40.33% +295226100 -76784000 +218442100 808894300 36.84% legal person 3. Shares held by other 6502440 0.45% +3251220 -795812 +2455408 8957848 0.41% domestic investors Including: Shares held by domestic legal 6435000 0.44% +3217500 -838300 +2379200 8814200 0.40% persons Shares held by domestic natural persons (shares held by senior 67440 0.01% +33720 +42488 +76208 143648 0.01% executives) 4. Shares held by foreign 0 0 +64400 +185200 +249600 249600 0.01% investors Including: Shares held by foreign legal persons Shares held by foreign natural persons (shares held by senior 0 0 +64400 +185200 +249600 249600 0.01% executives) II. Shares without Lock-up 866842560 59.22% +433356880 +77394612 +510751492 1377594052 62.74% 1. RMB ordinary shares 123142560 8.41% +61571280 +77579812 +139151092 262293652 11.95% 2. Domestically listed foreign 743700000 50.81% +371785600 -185200 +371600400 1115300400 50.79% shares 3. Overseas listed foreign shares 4. Others III. Total shares 1463797200 100% +731898600 0 +731898600 2195695800 100% 2. Issuance and Listing of shares in recent three years ended the report period According to China Securities Regulatory Commission with ZJGSZ [2000] No. 197 document, 10,140,000 inner employees’ shares issued by the Company were listed for trade on Jan. 12, 2004. 6 Approved by State Council Securities Regulatory Commission with ZJFXZ [2004] No. 2 document, the Company additionally issued 316,400,000 B shares on Jan. 13 to 15, 2004, which were listed for trade on Apr. 16, 2004. As examined and approved by the shareholders’ general meeting 2003 (May 28, 2004), based on the total share capital amounting to 975,864,800 shares after additional issuance of B- share, the Company implemented the 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 capital has increased to 1,463,797,200 shares from 975,864,800 shares. As examined and approved by the 1st extraordinary shareholders’ general meeting 2005 (July 5, 2005), based on the total share capital amounting to 1,463,797,200 shares, the Company implemented the plan of transferring capital reserve into share capital at the rate of 5 shares for every 10 shares to all shareholders dated July 19, 2005. After transferring capital reserve into share capital, the Company’s total shares capital has increased to 2,195,695,800 shares. The Company examined and approved the plan of Split-share Reform of BOE Technology Group Co., Ltd. in the shareholders’ general meeting related with Split-share Reform dated Nov. 24, 2005, and implemented the plan of Split-share Reform on Nov. 30, 2005., which formally nontradable shareholders would obtain trading right after paying the consideration of 77,622,300 shares in total to shareholders of tradable A shares. After implementation of Split-share Reform, the Company’s total share capital remained unchanged. II. About shareholders 1. Number of shareholders and particulars about shares held by shareholders (as at Dec. 31, 2005) Total number of shareholders 71,341 shareholders in total (including 31,308 shareholders of B-share) Particulars about shares held by the top ten shareholders Total Share Nature of Proportion Number Name of shareholder number of pledged or shareholders (%) ofLock-up Shares shares held frozen State-owned BEIJING BOE INVESTMENT & corporate 32.80% 720,197,300 720,197,300 0 DEVELOPMENT CO., LTD. share FIELDS PACIFIC LIMITED B-share 6.15% 135,000,000 0 Unknown State-owned BEIJING DONGDIAN INDUSTRIAL corporate 3.75% 82,290,200 82,290,200 0 DEVELOPMENT COMPANY share EMERGING MARKETS GROWTH FUND INC B-share 1.53% 33,554,952 0 Unknown SHANGHAI (HONG KONG) WANGUO B-share 1.52% 33,421,443 0 Unknown SECURITIES BOCI SECURITIES LIMITED B-share 1.17% 25,764,914 0 Unknown TOP RESPECT GROUP LIMITED B-share 0.92% 20,250,000 0 Unknown BONY-DREYFUS PIFI-DREYFUS PREMIER B-share 0.80% 17,551,667 0 Unknown GREATER CHINA GUOTAI JUNAN SECURITIES HONG KONG B-share 0.73% 16,004,534 0 Unknown LIMITED CAPITAL INTERNATIONAL EMERGING B-share 0.71% 15,629,925 0 Unknown MARKETS FUND Particulars about shares held by the top ten shareholders without conditional sales Name of shareholders Number of Shares without Lock-up Natural of equity FIELDS PACIFIC LIMITED 135,000,000 B-share EMERGING MARKETS GROWTH FUND INC 33,554,952 B-share SHANGHAI (HONG KONG) WANGUO 33,421,443 B-share SECURITIES BOCI SECURITIES LIMITED 25,764,914 B-share TOP RESPECT GROUP LIMITED 20,250,000 B-share BONY-DREYFUS PIFI-DREYFUS PREMIER 17,551,667 B-share GREATER CHINA 7 GUOTAI JUNAN SECURITIES HONG KONG 16,004,534 B-share LIMITED CAPITAL INTERNATIONAL EMERGING 15,629,925 B-share MARKETS FUND BARINGS(IRELAND) SA THE ATLANTIS 10,999,919 B-share CHINA FUND PLC CITIC CAPITAL SECURITIES CO., LTD. 10,394,249 B-share There exists connected relationship between Beijing BOE Investment Explanation on associated relationship & Development Co., Ltd. and Beijing Dongdian Industrial among the top ten shareholders or Development Company. The Company was unknown whether there acting-in-concert is any associated relationship among the top ten shareholders and the top ten shareholders of tradable share. 2. Number of shares held by shareholders with conditional sales and Unit: share Number of Number of Name of shareholders Date of listing for additional No. Lock-up Conditional sales with conditional sales trade shares could Shares list for trade After G+12 months 36,009,865 After G+24 months 36,009,865 No trading and transfer may be taken within 12 months as of the date when corporate shares of BOE held by this company obtain the trading right in A Beijing BOE shares market. After expiration of the 1 Investment & 720,197,300 aforesaid undertaking, this company Development Co., Ltd. After G+36 months 648,177,570 could sale original nontradable shares through listing and trading on stock exchanges, but proportion of number of shares could be sold in total shares of BOE shall not exceed 5 percent within 12 months, as well as not exceed 10 percent within 24 months. No trading and transfer may be taken Beijing Dongdian within 12 months as of the date when 2 Industrial Development 82,290,200 After G+12 months 82,290,200 corporate shares of BOE held by this Company company obtain the trading right in A shares market. No trading and transfer may be taken Beijing Yixinwei within 12 months as of the date when 3 Display Technology 8,814,200 After G+12 months 8,814,200 corporate shares of BOE held by this Development Center company obtain the trading right in A shares market. No trading and transfer may be taken within 12 months as of the date when Beijing Kinescope 4 6,406,800 After G+12 months 6,406,800 corporate shares of BOE held by this Factory company obtain the trading right in A shares market. Note: G is November 30, 2005. 3. About controlling shareholder and the actual controller (1) About the controlling shareholders Beijing BOE Investment & Development Co., Ltd. holds 32.80% of the Company’s total shares, therefore is the virtual controlling shareholder of the Company, whose main information is as follows: Name: Beijing BOE Investment & Development Co., Ltd. Legal Representative: Wang Dongsheng Date of Foundation: Apr. 21, 2005 8 Address: No.10 Jiuxianqiao Road, Chaoyang District, Beijing Registered Capital: RMB 680.982 million Type of the company: Sino-foreign Equity Joint Ventures Enterprises (proportion of foreign-currency is lower than 25%) Business Scope: R&D and production of electronic products, electronic raw materials and components; the relevant technical development, technical consultation, technical service and transfer; sales of self-produced products. (Other than projects with limit and special provision invested by foreign investors) (2) The actual controller Beijing Electronics Holding Co., Ltd. held 56.25% equity of Beijing BOE Investment & Development Co., Ltd., who is was the actual controller of the Company. Beijing Electronics Holding Co., Ltd. belonged to state-owned holding company directly under Beijing Municipality as well as an Beijing municipal state-owned assets authorized operation unit. Beijing Dongdian Industrial Development Company (holding 3.75% of the Company’s shares) and Beijing Kinescope Factory (holding 0.29% of the Company’s shares) both were wholly-owned subsidiaries of Beijing Electronics Holding Co., Ltd., and belongs to associated enterprise with Beijing BOE Investment & Development Co., Ltd.. The main information of Beijing Electronics Holding Co., Ltd. was as follows: Name of the enterprise: Beijing Electronics Holding Co., Ltd. Legal Representative: Pu Shicheng Date of Foundation: April 8, 1997 Location: No.12 Jiuxianqiao Road, Chaoyang District, Beijing Registered Capital: RMB 1307.37 million Type: Limited Company (State-funded Corporations) 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 are as follows: Wang Dongsheng 20%, Jiang Yukun 10%, Liang Xinqing 10%, Zhao Caiyong 6.667%, Shi Dong 6.667%, Chen Yanshun 6.667%, Song Ying 6.667%, Han Guojian 6.667%, Gong Xiaoqing 3.333%, Wang yanjun 3.333%, Wang Jiaheng 3.333%, Liu Xiaodong 3.333%, Ren Jianchang 1.667%, Sun Jiping 1.667%, State-owned Assets Supervision & Administration Zhang Peng 1.667%, Wang Ai’zhen 1.667%, Mu Chengyuan 1.667%, Xu Yan Commission of Beijing People’s Government 1.667%, Hua Yulun 1.667%, Zhong Huifeng 1.667% 100% 9 Beijing Electronics Holding Co., Ltd. Marubeni Corporation Beijing Intelligent Kechuang Technology Development Co., Ltd. 56.25% 10% 33.75% Beijing BOE Investment & Development Co., Ltd. 32.80% BOE Technology Group Co., Ltd. Note: The Company regards Beijing Intelligent Kechuang Technology Development Co., Ltd. as a platform to implement equity encouragement for wholly core engineers and management, the aforesaid 20 subscribers are nominal shareholders, the equity of Beijing Intelligent Kechuang Technology Development Co., Ltd. was held in common by wholly core engineers and management. 10 CHAPTER IV. DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES I. Directors, supervisors and senior executives 1. General introduction about directors, supervisors and senior executives Number of share Receiving Annual held payment remuneration Gend Name Age Title Office term from the for the year er Year- Year- company 2005 end begin or not Wang Male 48 Chairman of the Board, Chairman of Jun. 2004- 24921 11700 Yes Dongsheng Executive Committee、CEO Jun. 2007 Jiang Yukun Male 52 Vice Chairman of the Board Jun. 2004- 14953 7020 No Jun. 2007 Zhao Male 58 Director Jun. 2004- 24921 11700 No Caiyong Jun. 2007 Moriko Male 58 Director Sep. 2005- 0 0 No Jun. 2007 Liang Male 53 Executive Director, President Jun. 2004- 9969 4680 Yes Xinqing Jun. 2007 B.D.Choi Male 56 Executive Director, COO Jun. 2004- 249600 0 Yes Jun. 2007 Cheng Male 40 Executive Director, Executive Jun. 2004- 0 0 Yes Yanshun Vice-president, Secretary of the Board Jun. 2007 Tai Zhonghe Male 55 Independent Director Jun. 2004- 0 0 No Jun. 2007 Xie Zhihua Male 46 Independent Director Jun. 2004- 0 0 No Jun. 2007 Zhang Male 62 Independent Director Jun. 2004- 0 0 No Baizhe Jun. 2007 Li Zhaojie Male 50 Independent Director Jun. 2004- 0 0 No Jun. 2007 Xia Zhenzhi Male 43 Convener of Supervisory Committee Jun. 2004- 1598 750 No Jun. 2007 Mu Male 38 Supervisor Jun. 2004- 2492 1170 No Chengyuan Jun. 2007 Yang Anle Male 35 Employee Supervisor Jun. 2004- 0 0 Yes Jun. 2007 Xu Yan Female 54 Employee Supervisor Jun. 2004- 14953 7020 Yes Jun. 2007 Wang Yanjun Male 36 CFO Jun. 2004- 9968 4680 Yes Jun. 2007 11 Song Ying Female 48 Vice-president Jun. 2004- 24921 11700 Yes Jun. 2007 Ren Male 59 Vice-president Jun. 2004- 0 0 Yes Jianchang Jun. 2007 Han Guojian Male 52 Vice-president Jun. 2004- 9968 4680 Yes Jun. 2007 Liu Male 41 Vice-president Jun. 2004- 0 0 Yes Xiaodong Jun. 2007 Wang Male 37 Vice-president Jun. 2004- 0 0 Yes Jiaheng Jun. 2007 Cao Hong Male 46 Vice-president, Investment Manager Jun. 2004- 4984 2340 Yes Jun. 2007 Feng Male 38 Vice-president Sep. 2004- 0 0 Yes Weidong Jun. 2007 Su Zhiwen Male 37 Auditor-General Sep. 2004- 0 0 Yes Jun. 2007 Lin Male 43 CTO Nov. 2005- 0 0 Yes Rongzhen Jun. 2007 Note: ① Shares held by directors, supervisors and senior executives has increased because the Company implemented plan of transferring capital reserve into share capital at the rate of 5 shares for every 10 shares and plan of Split-share Reform. ② Mr. B.D.Choi, executive director and concurrently COO bought 249,600 B shares of BOE (including bonus shares) from July 11, 2005 to August 5, 2005. The said shares were frozen according to the relevant regulations. 2. Main work experience and part-time job about directors, supervisors and senior executives (1) Mr. Wang Dongsheng, 48 years old, Master of Engineering, ever took the posts of Chairman of the Board and President of the 1st and 2nd Board of Directors, and Chairman of Board, Chairman of Executive Committee and CEO of the 3rd Board of Directors of the Company, Representative Director and Chairman in BOE-HYDIS Technology Co., Ltd., Chairman of the Board in BOE Hyundai LCD Inc. and Chairman of the Board of Suzhou BOE CHATANI Electronics Co., Ltd.. Now he takes the posts of Chairman of the Board, Chairman of Executive Committee and CEO of the 4th Board of Directors of the Company and concurrently takes the posts of Director of Top Victory Technology Co., Ltd., Director of Beijing Matsushita Color CRT Co., Ltd., Director and President of Beijing Electronic Holding Co., Ltd., Chairman of the Board of Beijing BOE Investment and Development Co., Ltd., Chairman of the Board of Beijing Sevenstar Science & Technology Co., Ltd., Director of Beijing Intelligent Kechuang Technology Development Co., Ltd. and Vice Chairman of China Electronic Chamber of Commerce. (2) Mr. Jiang Yukun, 52 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 and President in Beijing BOE Investment and Development Co., Ltd., 12 General Manager and Vice Secretary of CPC in Beijing Dongdian Industrial Development Company, Chairman of the Board in Beijing Songyan Economy and Trade Co., Ltd., Vice Chairman of Beijing Star City Real Estate Development Co. Ltd. and Director of Beijing Intelligent Kechuang Technology Development Co., Ltd.. (3) Mr. Zhao Caiyong, 58 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 Standing Deputy 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 Beijing Intelligent Kechuang Technology Development Co., Ltd.. (4) Mr. Moriko (もり ひかる), 58 years old, from Fukuoka, Japan, graduated from Agriculture Department of Kyushu University. In 1971, he entered in Japan Marubeni 饭田 Corporation (now Marubeni Corporation), and ever took the posts of head of organic chemical products Dept., head of Dept. of chemical synthetic fiber raw material, deputy general head and executive officer of Dept. of organic·fine chemical products; chairman of Marubeni (Thailand) Inc. and head of Bangkok branch. Now he acts as Director of the 4th Board of Directors of the Company, Director of Beijing BOE Investment and Development Co., Ltd., and Standing Executive Officer of Marubeni Corporation and Head of Chemical Products Dept. in Marubeni Corporation. (5) Mr. Liang Xinqing, 53 years old and senior engineer. He ever took the posts of Standing 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 and President of the 4th Board of Directors of the Company and concurrently takes the posts of and Director of Beijing Intelligent Kechuang Technology Development Co., Ltd.. (6) Mr. B.D.Choi, 56 years old, came from Seoul of Korea, bachelor of engineering, ever took the posts of researcher of Industrial Experimentation Institute of Korea Commerce and Industry Minister, industrial analyst of Korea Developing Financial Technology Minister, 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 Storage Business Division of Hyundai Group and GM, Executive Vice-president of LCD Division and 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 COO of the 4th Board of Directors of the Company, executive officer of TFT-LCD Division and concurrently representative director of BOE-Hydis Technology Co., Ltd. and Chairman of the Board of Beijing BOE Optoelectronics Technology Co., Ltd., Chairman of the Board of BOE Hyundai LCD Inc. and Chairman of the Board of BOE (Hebei) Mobile Display Technology Co., Ltd. (7) Mr. Chen Yanshun, 40 years old, master of 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 Secretary and Senior Vice President of the 3rd Board of Directors. Now he takes the posts of Executive Director, Secretary of the Board and Executive Vice-president of the 4th Board of Directors of the Company and concurrently Director of Top Victory Technology Co., Ltd., Director of Zhejiang Beijing Orient Vacuum Electronic Co., Ltd., Supervisor of BOE-HYDIS Technology Co., Ltd., Director of Beijing BOE Optoelectronics 13 Technology Co., Ltd. and Chairman of the Board of Beijing Intelligent Kechuang Technology Development Co., Ltd.. (8) Mr. Tai Zhonghe, 55 years old, Taiwanese of China, master, ever worked in Shinstone Computer Co., Ltd. and is one of founders of Acer Incorporated. 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 Division Group in Acer, General Manager of PC Division in America Branch of Acer, Vice Chairman of the Board of America Branch of Lijie 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 Inc., and Chairman of the Board and Publisher of Taiwan Digitimes. (9) Mr. Xie Zhihua, 46 years old, doctor in economics, professor, instructor of doctorate and China certified 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 Accounting Society of Beijing, Director of Beijing Society of Finance, Managing Director of Auditing Society of Beijing, 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, Specially Engaged Professor and Researcher of the Institute for Fiscal Science Research under the State Ministry of Finance and in over 20 academies and scientific research institutes such as Hunan University and etc.. (10) Mr. Zhang Baizhe, 61 years old, senior engineer of Tsinghua University, expert in LCD, ever took part in establishment and preparation of LCD Scientific Research and Industrial Development Plan during “seventh Five-Year Plan”, “eighth Five-Year Plan” and “ninth Five-Year Plan” from Ministry of Electron and Beijing, and ever took the posts of appraiser of appraisal group on optoelectronics technology of technology advanced award of Ministry of Electron, expert of the appraisal expert group of the state secret technology of the State Science and Technology Commission, and was engaged as expert of the 1st domestic expert group by UNDP to participated establishment and guidance work of technology plan related with LCD field; ever took charge of foundation of the 1st LCD material manufactory so as to realized LCD domestically produced; took charge to accomplished construction of STD-LCD model production line from “eighth Five-Year plan” science and technology task center of the State Plan Commission and Beijing Science Commission and construction of LCD production line from Hong Kong TQL Co.; guided to accomplish construction of large area precision masks production line of Qingyi Precision Maskmaking (Shenzhen) 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 General Manager of. Beijing Tsinghua Liquid Crystal Materials Co., Ltd., executive director of Beijing TSING Electronics Co., Ltd. and consular of Beijing Tsinghua ERC of Liquid Crystal Technology. (11) Mr. Li Zhaojie, 50 years old, master of Law and Library 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 Beijng Wang’s Funds, law expert of Olympic Venue Construction & Management Held in Beijing, the 3rd Board of Directors of the Company. He is now in charge independent director of the 14 4th Board of Directors and professor of Law Institute of Tsinghua University. (12) Mr. Xia Zhenzhi, 43 years old, bachelor degree, ever took the posts of secretary of League Party of Beijing Electronic Tube Factory, deputy division chief of personnel department and concurrently minister of Party Organization Dept. of Beijing Orient Electronics Group Co., Ltd., Manager of HR Department and minister of Party Organization Department of Beijing BOE Investment and Development Co., Ltd., and Deputy General Manager and secretary of CPC of Beijing Dongdian Industrial Development Company. He now acts as convener of the 4th Supervisory Committee of the Company, Deputy Secretary of the CPC and Principal of Labor Union of Beijing Dongdian Industrial Development Company. (13) Mr. Mu Chengyuan, 38 years old, bachelor degree, economist, ever took the posts of Manager of comprehensive department of Guomao Branch of the Company, Deputy General Manager of Beijing Orient Lighting Lamps Engineering Co., Ltd., Division Chief of Assets Operating and Management Division of Beijing Electronic Tube Factory and Supervisor of the 3rd Supervisory Committee of the Company, now he is charge of supervisor of the 4th Supervisory Committee, Secretary of the Board and standing Vice-president of Beijing BOE Investment and Development Co., Ltd.. (14) Mr. Yang Anle, 35 years old, master 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 Division Chief of Planning Financial Division in Beijing Electronic Tube Factory, Manager of Planning and Financial Department of Beijing BOE Investment and Development Co., Ltd., CFO of Beijing Dongdian Industrial Development Company and Supervisor of the 2nd ,3rd and 4th Supervisory Committee of the Company. Now he takes the posts of Employee Supervisor of the 4th Supervisory Committee of the Company, Director of Beijing BOE Special Display Technology Co., Ltd. and Director of Beijing Orient Mosler Intelligence Technology Co., Ltd.. (15) Ms. Xu Yan, 54 years old, college degree and economist, she ever took the posts of Secretary of CPC Branch, Chairman of Labor Union and Personnel Deputy Factory Director etc. in Beijing Electronic Tube Factory Branch, Deputy General Manager of HR Dept. in the Company, Director in Beijing Electronic Tube Factory Office and Party Committee Office and Employee Supervisor of the 3rd Supervisory Committee of the Company. Now she takes the posts of Employee Supervisor of the 4th Supervisory Committee of the Company, Vice-Secretary of CPC and Secretary of Committee for Discipline Inspection and concurrently Principal of Labor Union. (16) Ms. Song Ying, 48 years old, senior accountant, she has ever been taken the posts of Division Chief of Planning and Financial Division in Beijing Electronic Tube Factory, Manager of Financial Department, Chief Financial Officer of the Company of the Company, Director and Managing Vice-President of the 2nd Board of Directors of the Company, Executive Director and Senior Vice-president of the 3rd Board of Directors. Now she takes the posts of Secretary of CPC and Vice-president of the Company and concurrently Vice Chairman of the Board of Zhejiang Beijing Orient Vacuum Electronic Co., Ltd., Director of Beijing Matsushita Color CRT Co., Ltd. and Director of Beijing Intelligent Kechuang Technology Development Co., Ltd.. (17) Mr. Ren Jianchang, 59 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. 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.. 15 (18) Mr. Han Guojian, 52 years old, undergraduate, senior engineer, he successively took Technical Chief Officer in Division under 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 takes posts of Chairman of the Board of Beijing BOE Special Technology Co., Ltd., Representative Director of BOE-Hydis Technology Co., Ltd, Director of Beijing BOE Optoelectronics Technology Co., Ltd., Director of BOE Hyundai LCD Inc. and Director of BOE (Hebei) Mobile Display Technology Co., Ltd.. (19) Mr. Liu Xiaodong, 41 years old, undergraduate, engineer, he ever worked in Research Institute of Beijing Information Optics Apparatus. He successively took the posts of Director, Deputy General Manager and Secretary of CPC of Beijing Matsushita Color CRT Co., Ltd. and Director of BOE CHATANI Electronics Co., Ltd.. Now he takes the posts of Vice-president of the Company, Director and General Manager of Beijing BOE Optoelectronics Technology Co., Ltd.. (20) Mr. Wang Jiaheng, 36 years old, MBA, ever took the posts of Deputy Manager in International Cooperation and Investment Department, Manager in Enterprise Development Department and General Manger in Electronic Components General Division 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. and Director of BOE (Hebei) Mobile Display Technology Co., Ltd.. (21) Mr. Wang Yanjun, 36 years old, master, accountant. He ever took Division Chief in Financial Division 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., Director of Beijing Orient Top Victory Electronics Co., Ltd. and Director of Zhejiang Beijing Orient Vacuum Electronic Co., Ltd.. Now he takes the posts of Chief Financial Officer of the Company and concurrently Director of Beijing BOE Optoelectronics Technology Co., Ltd., of Top Victory Technology Co., Ltd., Director of BOE-HYDIS Technology Co., Ltd., Director of Beijing Star City Real Estate Development Co. Ltd., Chairman of the Board of Beijing BOE Land Co., Ltd., Chairman of the Board of Beijing Orient Hengtong Properties Co., Ltd. and Director of Beijing Intelligent Kechuang Technology Development Co., Ltd.. (22) Mr. Cao Hong, 46 years old, undergraduate, professional senior engineer, he ever took the posts of Deputy Factory Manager and Factory Manager of Beijing BOE Semiconductor Devices Factory and Employee Supervisor of the 3rd and 4th Supervisory Committee and Assistant President of the Company. He is now in charge of Vice-president and Investment Chief Officer of the Company, Chairman of the Board of Beijing BOE Semiconductor Co., Ltd., Chairman of the Board of Beijing Fangyi Integrate Circuit Design Co., Ltd., Director of Suzhou BOE CHATANI Electronics Co., Ltd., Director of Beijing Asahi Glass Electronics Co., Ltd., Director of Beijing Nittan Electronics Co., Ltd., Director of BOE Hyundai LCD Inc. and Director of Beijing BOE CHATANI Electronics Co., Ltd. (23) Mr. Feng Weidong, 38 years old, 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 General Manager of foreign cooperation department of Datang Telecom Technology & Industry Group, assistant to President and senior engineer of Central Research, research assistant to professor of electric and computer engineering department of University of Connecticut of US, central researcher of Engineering and Advanced Technology of Taylor L. Booth, and assistant to president 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, 37 years old, H. K. China nationality, MBA of Hong Kong University of Technology, member of Hong Kong Society of Accountants and senior member the 16 Association of Chartered Certified Accountants. He successively took the posts of manager of check and business consultant department of Hong Kong Pricewaterhouse Coopers CPAs, CFO of Hong Kong Economic Times Holding Limited, and Assistant to Chairman of the Board of the Company. He is now in charge of Auditing Chief of the Company. (25) Mr. Lin Rongzhen, 43 years old, Korea nationality, doctor of Science in Physics. He ever worked in Korea LG Electronics Co., and successively took the posts of Chief Engineer, Executive Chief Officer and Managing Director in Product Development Dept. of Hyundai Electronics and its subsidiaries HYDIS, Managing Director in Development Dept. of BOE-Hydis Technology Co., Ltd., a Korea subsidiary of the Company; and Managing Director of Development Center of TFT-LCD Business Group. Now he acts as Senior Managing Director of Development Center of TFT-LCD Business Group in the Company and Technology Chief Officer 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 Jinag Yukun Director and concurrently President General Manager and concurrently Vice Secretary of CPC Zhao Caiyong Standing Deputy General Manager Xia Zhenzhi Vice Secretary of CPC and Principal of labor union Mu Chengyuan Secretary of the Board and Standing Vice President II. Remunerations for directors, supervisors and senior executives The Nomination, Remuneration and Examination Committee of the Board of Directors would formulate the methods on remuneration, welfare and examination for directors and senior executives of the Company, and would also conduct the performance examination on directors and senior executives. The remuneration and welfare standards would set according to the market remuneration level as well as the real status of the Company and the individual conditions of the directors and senior executives. The actual remuneration would be proposed by the Nomination, Remuneration and Examination Committee according to the remuneration and welfare standards as well as the results of the performance evaluation, and then would be implemented after having been examined and approved by the Board of Directors. The remunerations (including basic salary, as well as the various rewards, welfare, subsidy, housing allowance, and other subsidies) for the current directors, supervisors and senior executives totaled RMB 8,027,000 (pretax) in the year 2005. The total amount of remunerations paid to the top three directors that enjoy the highest salaries totaled RMB 3,577,000 (Pretax), while the total amount of remunerations paid to the top three senior executives that enjoy the highest salaries totaled RMB 4,003,000 (Pretax). Subsidies for independent directors (after-tax): USD 10,000 per year for Mr. Tai Zhonghe, and RMB 50,000 per year for Mr. Xie Zhihua, Mr. Zhang Baizhe and Mr. Li Zhaojie respectively. In the year 2005, there were 16 directors, supervisors and senior executives that had drawn salaries from the Company, with 3 people drawing salaries below RMB 200,000, 10 people between RMB 200,000 and RMB 500,000 and 3 people above RMB 500,000. III. Changes of directors, supervisors and senior executives in the report period On Apr. 25, 2005, as examined and approved by the 9th meeting of the 4th Board of Directors, 17 Executive Director Mr. Chen Yanshun was engaged as the Executive Vice President and concurrently Secretary of the Board, and Mr. Cao Hong was engaged as Vice President and concurrently Chief Supervisor of Investment Management. Since Mr. Cao Hong, then a Employee Representative Supervisor, had been engaged by the Board of the Company as Vice President and concurrently Chief Supervisor of Investment Management, he applied for resignation from the position of Workers’ Representative Supervisor to the Workers’ Conference of the Labor Union of the Company. On Aug. 8, 2005, as examined and approved by the presidium joint meeting of the Workers’ Conference, Supervisor Mr. Yang Anle was elected as the Employee Representative Supervisor. Executive Director and concurrently Executive Vice President Doctor Xuan Jiansheng had held posts of Chairman of the Board and CEO of TPV Technology Limited. To strengthen the work of TPV Technology Limited, Doctor Xuan Jiansheng had applied for resignation from the positions of Executive Director and Executive Vice President of the Company. On Aug. 24, 2005, the 13th meeting of the 4th Board of the Company accepted Doctor Xuan Jiansheng’s application of resignation. Having been examined and approved by the 3rd Provisional Shareholders’ General Meeting 2005 (Sep. 29, 2005) of the Company, Doctor Xuan Jiansheng resigned from the post of Executive Director of the Company. As examined and approved by the 13th meeting of the 4th Board of the Company (Aug. 24, 2005) and the 3rd Provisional Shareholders’ General Meeting 2005 (Sep. 29, 2005), Mr. Moriko was elected as director to the 4th Board of Directors of the Company. On Nov. 21, 2005, as examined and approved by the 16th meeting of the 4th Board of the Company, President Mr. Liang Xinqing would not hold the concurrent post of COO of the Company; Executive Vice President Mr. B.D.Choi was engaged as COO, taking charge of the operation of the Company’s main business TFT-LCD; Mr. Lin Rongzhen was engaged as CTO of the Company, mainly taking charge of the technology R & D as well as management work. IV. Statement on the employees of the Company By the end of 2005, the number of the employees in service of the Company (including the headquarter of the Company and main controlling subsidiaries) totaled 12,249, with their work divisions and education levels as follows (Unit: person): Work Technology Professional Marketing Management Financial Production Others division R&D skills personnel personnel personnel personnel Number 443 1273 304 804 159 8967 299 proportion 3.62% 10.39% 2.48% 6.56% 1.30% 73.21% 2.44% Educational Doctor & Junior College Vocational School Master Bachelor Others background Post-Doctor Graduate Graduate Number 52 410 1588 1807 4227 4165 Proportion 0.42 3.35% 12.96% 14.75% 34.51% 34.01% 18 Section V. Corporate Government I. Corporate Government In the report period, the Company had operated strictly in accordance with the Company Law, Securities Law, and Code of Corporate Governance for Listed Companies in China, and had continually improved the Corporate Government structure. In the report period, the Company had revised the Articles of Association, Independent Director System and the Rules of Information Disclosure, and had formulated the Internal Report System on Important Information in accordance with the Regulations on Reinforcement of Protection of Interests of Public Shareholders issued by the CSRC, and the newly amended Stock Listing Rules of Shenzhen Stock Exchange. The Company had successfully implemented the Split-share Reform in the report period and thus further improved the stock liquidity and the capital structure. In the new year, the Board of Directors would further revise and improve the Articles of Association in conformity with the newly amended laws and regulations, such as the Company Law, Securities Law and the Opinions on Improving the Quality of Listed Companies, etc. In line with the administration concept of “good faith, standardization, transparency and responsibility”, the Company had learned various laws, regulations as well as other normative documents concerning Corporate Government in time, conducted self-inspection according to requirements, abided by the rules on information disclosure, strictly performed the information disclosure duty of listed companies, actively improved the quality of information disclosure, continually strengthened the management work on the relationship with investors and earnestly protect the investors’ interests. II. Duty performance of independent directors The current four independent directors engaged by the Company are experts in areas of the IT industry, Finance, Law and TFT-LCD respectively. In the report period, the independent directors had fulfilled their responsibilities strictly in conformity with the Guidelines on Establishing the Independent Director System in Listed Companies, and had expressed independent opinions on the change of the Certified Public Accountants, related transactions, change of directors and senior executives, Split-share Reform and other significant events, which had helped a lot in the Company’s strategic decisions and had practically protected the interests of the general medium and small shareholders and the Company. Attendance of independent directors at the Board meetings in the report period: Number of Board Number of meetings Name of Number of meetings Number of meetings needed present in person independent present by authorized meetings Note to attend this (including written director person absent from year Opinion ) Tai Zhonghe 10 10 Xie Zhihua 10 9 1 Zhang Baizhe 10 9 1 Li Zhaojie 10 10 III. Independence of the Company in business, personnel, assets, organizations and finance from the controlling shareholder The Company had separate businesses, personnel, assets, organizations and finance from the controlling shareholder and the actual controller. With its personnel, finance and organizations independent and assets complete, the Company had full production and operation capability. 1. Businesses: The Company was independent in the business aspect from the controlling 19 shareholder and the actual controller and had its own independent purchase and sales systems; the purchase of main materials and the sales of products were all conducted through its own supply and sales systems; the Company also made its own decisions and assumed sole responsibility for its profits and losses, and it had independent and complete businesses and self-operation capability. The related transactions had been conducted according to the market principles and regulations, and there were no cases that had done harm to the legal interests of all the shareholders or the Company. 2. Personnel: The Company was completely independent in labor, personnel and remunerations, etc. President, Vice President, Chief Finance Officer, Secretary of the Board as well as other senior executives of the Company all worked full-time and had not held any concurrent posts at the controlling shareholder’s place. 3. Assets: The Company had independent and complete assets and clear ownership, and had the production system, ancillary production system as well as supporting facilities, land use rights and intellectual property rights, etc. Neither the controlling shareholder nor the actual controller had any cases of occupying the Company’s assets. 4. Organizations: The Company had established organizations completely independent from the controlling shareholder and the actual controller, had independent and sound organizations and Corporate Government structure. 5. Finance: The Company had established independent financial departments, and the finance personnel all worked full-time. The Company had formulated a standard and independent finance accounting system as well as a financial management system targeting at subsidiaries, established the corporate financial management archives and also equipped with relevant management personnel. IV. Examination and incentives for the senior executives According to the performance examination method, the senior executives would sign a Target Responsibility Paper with the Group which sets the work goals, key performance indicators (KPI) as well as the evaluation, reward and punishment standards. the work targets accomplishment would be evaluated in the quarterly analyses, semi-annual reports and annual examinations. The examination and evaluation results would decide the remunerations, position shifts as well as the trainings taked by the senior executives. 20 Section VI. Shareholders’ General Meeting Details on the Shareholders’ General Meetings held in the report period are as follows: I. Shareholders’ General Meeting 2004 The Shareholders’ General Meeting 2004 was held at Guomen Hotel, Beijing on May 31, 2005. And the Company published the Public Notice on the Resolutions of the Shareholders’ General Meeting 2004 of BOE Technology Group Co., Ltd in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Jun. 1, 2005. II. 1st Provisional Shareholders’ General Meeting 2005 The 1st Provisional Shareholders’ General Meeting 2005 was held at Guomen Hotel, Beijing on Jul. 5, 2005. And the Company published the Public Notice on the Resolutions of the 1st Provisional Shareholders’ General Meeting 2005 of BOE Technology Group Co., Ltd in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Jul. 6, 2005. III. 2nd Provisional Shareholders’ General Meeting 2005 The 2nd Provisional Shareholders’ General Meeting 2005 was held at Guomen Hotel, Beijing on Aug. 2, 2005. And the Company published the Public Notice on the Resolutions of the 2nd Provisional Shareholders’ General Meeting 2005 of BOE Technology Group Co., Ltd in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Aug. 3, 2005. IV. 3rd Provisional Shareholders’ General Meeting 2005 The 3rd Provisional Shareholders’ General Meeting 2005 was held at Guomen Hotel, Beijing on Sep. 29, 2005. And the Company published the Public Notice on the Resolutions of the 3rd Provisional Shareholders’ General Meeting 2005 of BOE Technology Group Co., Ltd in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Sep. 30, 2005. V. 4th Provisional Shareholders’ General Meeting 2005 The 4th Provisional Shareholders’ General Meeting 2005 was held at Guomen Hotel, Beijing on Dec. 22, 2005. And the Company published the Public Notice on the Resolutions of the 4th Provisional Shareholders’ General Meeting 2005 of BOE Technology Group Co., Ltd in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Dec. 23, 2005. VI. Shareholders’ General Meeting on Split-share Reform On Nov. 24, 2005, the Shareholders’ General Meeting on Split-share Reform was held at Guomen Hotel, Beijing. And the Company published the Public Notice on the Ballot Result of the Shareholders’ General Meeting on Split-share Reform of BOE Technology Group Co., Ltd in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Nov. 25, 2005. 21 Section VII. Report of the Board of Directors I. Main business scope and overall operation The Company has focused its core operations in the display area, and there are seven large subordinate display-related groups, i.e. the TFT-LCD SBU, monitor and Flat Panel andTV SBU, professional display system SBU, mobile display system SBU, display application system SBU, precision electronic parts and materials SBU and the CRT SBU, with the operations involving the display parts and materials, display devices, monitors and Flat Panel TVs and application terminal products. In the report period, the sales revenue realized by the Company totaled RMB 13,449,713,000, up by 8.10 percent year-on-year. However, due to the price downslides in TFT-LCD market, small production capacity, high component and raw material supply costs, and increases in R&D expenses and financial expenses, the profitability of the main operations of the Company has decreased by large margins compared with the same period of the last year, and the losses totaled RMB1,245,993,000. 1. Distribution of main operations Breakdown of main operations classified according to products Unit: RMB’000 Increase or decrease Increase or decrease of Increase or decrease of Gross profit Product Sales revenue Sales cost of sales revenue sales cost year-on-year gross profit ratio ratio year-on-year (%) (%) year-on-year (%) Display terminal 4,612,913 4,382,124 5.00% 5.08 5.22 -1.96 products Display devices – Thin Film 7,950,352 8,431,119 -6.05% 45.35 70.40 -163.48 Transistor Liquid Crystal Small-size display 682,158 565,189 17.15% -73.16 -73.92 16.35% devices Other 1,083,246 814,380 24.82% 30.00 41.17 -19.15 operations Internal offset -878,956 -809,207 - - - - Total 13,449,713 13,383,605 0.49 8.10 19.95 -95.25 The data under the items of sales revenue and sales costs from the display terminal products operation were those of the period from January to November 2005 of Beijing Orient Top Victory Electronics Co., Ltd, which used to be the Company’s subsidiary and had not been included in the consolidation scope since December 2005. Sales revenue and sales costs from the display devices – Thin Film Transistor Liquid Crystal had increased by large margins compared with the same period of the last year, mainly because the controlling subsidiary of the Company Beijing BOE Optoelectronics Technology Co., Ltd (BOEOT) had launched its TFT-LCD 5G production line into mass production in May 2005. The gross profit ratio had decreased by a large margin compared with the same period of the last year, and explanations had been given on the reasons in “II Analyses on the main operations and business of the Company”. Sales revenue and sales costs from small-size display devices had decreased by large margins year-on-year, while the gross profit ratio had increased by a large margin. Reasons were that the income statement of the former controlling subsidiary of the Company Hyundai LCD Inc. had been included in the consolidation scope in 2004 while its income statement had not been included in consolidation scope in 2005. Breakdown according to regional distribution Unit: RMB’000 Regions Sales revenue of Sales revenue of Increase or decrease of sales revenue 22 2005 2004 year-on-year China 6,514,081 6,133,427 6.21% Other Asian 5,045,182 2,442,940 106.52% countries Europe 414,566 484,249 -14.39% America 1,309,074 2,900,883 -54.87% Other countries 166,810 480,209 -65.26% Total 13,449,713 12,441,708 8.10% II. Analyses on the main operations and business of the Company (I) Analyses on the profitability of the main operations In the report period, the main operations of the Company remained unchanged, while the profitability of the main operations had decreased by a large margin compared with the same period of the last year and so did the net profit of the Company. Reasons for the year-on-year large-margin decrease of the net profit of the Company included: ① Due to low price in the TFT-LCD market as well as the adjustment to product structure, the South Korean subsidiary BOE Hydis Technology Co., Ltd influenced the consolidated financial statements of the Company by RMB –1,144,860,000; ② Since the TFT-LCD 5G production line of BOEOT were at its inception and the market price was low, this company influenced the consolidated financial statements of the Company by RMB -394,590,000; ③ The affiliated company Hyundai LCD Inc. suffered operation difficulties and the net profit of Beijing Matsushita Color CRT Co., Ltd decreased, which had led to the large-margin decrease of the Company’s investment yield compared with the same period of the last year. 1. The price of the Company’s main product LCD panel had decreased by a large margin, but the price of raw materials decreased slowly. Due to the influence of the cyclicity of the LCD industry (known as “LCD Cycle”), the price of LCD panel started to decrease by large margins in the second half of 2004 and the trend lasts till now. The TFT-LCD industry was at its valley period. In the meantime, the price of raw materials decreased slowly.. Take 17” product, the current main product of the Company, as an example. The price of each unit of 17” product was about USD 280 in June 2004, and then it decreased to approximately USD 150 in 2005, a margin close to 47%. Also, the downslide margin of raw material prices had been far behind that of the TFT-LCD prices. There had been great fluctuations in the business performance and even losses in most of the TFT-LCD manufacturers worldwide, including BOE. 2. The scale of the Company’s TFT-LCD production was small, hence no obvious advantages in scale. In May 2005, the TFT-LCD 5G production line of the Company launched mass production and full production was achieved in the 3rd quarter of 2005, thereby increased the overall production capacity scale by a large margin compared with that of 2004. However, the overall scale of the Company was still smaller than the global major panel manufacturers, and the bargaining power of the Company in raw material purchase was lower, too. Apart from these, small scale had resulted in high average fixed cost of each unit of product. As the Beijing TFT-LCD 5G production line launched into production, the South Korean subsidiary BOE Hydis Technology Co., Ltd began focusing on the production of mobile and professional display products, such as the small-size panels for portable computers, cell phones and medical equipments, etc. In the report period, BOE Hydis started to adjust its product structure. Although the output of mobile and professional display products increase gradually, it had not formed large scale yet. To satisfy the demands from original customers, the 17” products still took up over 40 percent in BOE Hydis, sinceinfluenced by the market price fluctuation, therefore BOE Hydis suffered some losses during operation. 3. The localized supplying for TFT-LCD industry was poor. 23 As an emerging industry domestically, the TFT-LCD had low supplying ratio. Since the beginning of the construction of the TFT-LCD 5G production line in Beijing, the Company had started to carry out the project of localized supplying of raw materials. After two years’ efforts, more than 10 overseas enterprises providing raw materials had settled down in the BOE Beijing Display Technology Park. However, the localized supply of the key raw materials still had not been achieved, and the key raw materials all depended on import, resulting in production costs higher than the average level among foreign enterprises of the same business: 4. R&D expenses had increased by large margins. To ensure the success of the Beijing TFT-LCD 5G production line, the Company had done a lot preparation in R&D and trial production in the initial period. Apart from this, to meet the market demands and step up the adjustments to product structure, the Company had expanded its R&D investment in Wide Screen and LCD TVs. Due to the cyclicity of product development, corresponding rewards would not show up enough in the same period of the occurrence of the R&D expenses. 5. The financial expenses had increased by large margins. Due to small capital scale, the Company had to shoulder heavy interest burden from large amount of liabilities for the construction of Beijing TFT-LCD 5G production line. And the financial expenses in the report period reached as high as RMB 665,556,000. 6. The investment yield had decreased. Influenced by the competition from TFT-LCD products in the cell phone market, the price of CSTN product had dropped, leading to the difficulties in operation and liability repayment by the South Korean Hyundai LCD Inc., an affiliated company of the Company and the its minus net assets. The Company had reduced the book Value of long-term equity investment for the South Korean Hyundai LCD Inc. according to the equity of this company held by the Company. Apart from this, the net profit of the Company’s affiliated company Beijing Matsushita Color CRT Co., Ltd had decreased because of the stagnant TV market, and the investment yield of the Company decreased correspondingly. (II) Breakdown of the assets and liabilities of the Company Unit: RMB’000 Dec. 31, 2005 Dec. 31, 2004 Item Increase or decrease margin Amount Proportion Amount Proportion Total assets 21,524,766 100.00% 18,223,237 100.00% 18.12% Trade receivable 1,876,294 8.72% 2,042,427 11.20% -8.13% Inventories 1,919,901 8.92% 1,127,066 6.18% 70.35% Interest in associate 2,820,463 13.10% 2,209,700 12.13% 127.95% Fixed assets 11,330,272 52.64% 4,970,500 27.28% 27.64% construction in progress 285,244 1.33% 5,065,349 27.80% -94.37% Short-term loans 3,762,956 17.48% 5,436,259 29.83% -30.78% Long-term loans 9,569,710 44.46% 2,493,721 13.68% 283.75% Reasons for the decrease of Trade receivable: The Company had sold the equity of the former controlling subsidiary Beijing Orient Top Victory Electronics Co., Ltd. Reasons for the increase of inventories: The TFT-LCD 5G production line of the Company’s controlling subsidiary BOEOT had been launched into mass production. Reasons for the increase of interest in associates: 1. The Company had injected the equity of the former controlling subsidiary Beijing Orient Top Victory Electronics Co., Ltd into the Company’s affiliated company TPV Technology Limited, resulting in the investment cost increase by the Company in TPV Technology Limited. 2. TPV Technology Limited issued new shares, and its net assets had increased thereby, resulting in the interest increase of the 24 Company in TPV Technology Limited. 3. The business profit of TPV Technology Limited in 2005 had increased, resulting in the investment yield increase of the Company. Reasons for the increase of net fixed assets: The TFT-LCD 5G production line of the Company’s controlling subsidiary BOEOT had been transferred from under-construction project into fixed assets. Reasons for the decrease of construction in progress: The TFT-LCD 5G production line of the Company’s controlling subsidiary BOEOT had been transferred from under-construction project into fixed assets. Reasons for the decrease of short-term loans: The Company had repaid part of the short-term loans with the syndicate loans obtained. Reasons for the increase of long-term loans: The Company had got syndicate loans for the investment in and construction of the Beijing TFT-LCD 5G production line, and the Company’s controlling subsidiary the South Korean BOE Hydis Technology Co., Ltd had issued corporate bonds. (III) Analyses on the operations and business achievements of the major controlling companies and shareholding companies 1. Controlling companies Unit: 000RMB Income from Name of Registered Cost of main Main products Assets scale Net profit main company capital operations operations Development, BOE Hydis manufacture and Technology 626,306 6,460,260 6,326,673 6,796,575 sales of TFT-LCD － Co., Ltd products 1,144,864 Development and BOEOT manufacture of TFT 4,138,391 11,245,033 -394,590 3,418,070 3,316,694 display devices 2. Shareholding companies Unit: RMB’000 Name of company Main products or services Registered capital Assets scale Net profit TPV Technology Limited Manufacture and sales of CRT and 144,852 24,648,198 1,225,519 LCD display monitors Beijing Matsushita Color Manufacture and sales of CRTs 1,240,754 3,636,598 113,394 CRT Co., Ltd III. Measures to take in 2006 by the Company 1. Expand production scale and realize scale economy in production; The Company plans to invest USD 90 million in the technological transformation work for the Beijing TFT-LCD 5G production line in 2006, expand the production scale of the Beijing TFT-LCD 5G production line from 60,000 pieces of substrate per month to 85,000 pieces per month, improve production capacity, reduce the depreciation level of each unit of product, and uplift the bargaining power in raw material purchase through expanding production scale, so as to realize scale economy in production. 2. Realize the localized supplying of raw materials and cut purchase costs; The Company will actively promote the work on the localized supplying of the upper-stream raw materials, cooperate with the raw material manufacturers that have already made investments to expand their production scales, attract investments from more raw material manufacturers, gradually replace the raw materials imported and cut purchase costs. 3. Step up the adjustments to the product structure and switch into the products of high added value. The Company plans to speed up the adjusting of product structure, expand the output of the products of large market demands, such as TFT cell phone screens, mid-size monitors and TV 25 screens and improve the income and profit levels; in the meantime, increase the proportion of the products with added value of the AFFS technology and improve profitability. IV. Investment in the report period 1. The Company had not raised any proceeds in the report period, nor had it used any proceeds raised previously in the report period. 2. Significant investments with non-raised proceeds Unit: RMB’0000 Investment Progress of the Profit-making status of the Project amount project project TFT-LCD 5G Production Line 274,375 831,672 Finished One Drop Filling Equipment (ODF) 18,745 47,447 Finished Vacuum Fluorescent Display (VFD) Production Finished Line Phase 5 686 12,370 Investment in Beijing Fangyi Integrated Circuit Finished Designing Co., Ltd 4,110 4,110 Investment in Beijing BOE Chatani Electronics Finished Co., Ltd 2,803 2,803 Investment increase in BOE Hydis Technology Finished Co., Ltd 1,035 125,227 Investment increase in Suzhou BOE Chatani Finished Electronics Co., Ltd 2,792 5,309 Total 304,546 1,028,938 V. Revision of the accounting policies in the report period The implementation of the newly revised International Financial Report Standards started on Jan. 1, 2005. The Company has already made retrospective adjustments to the data of 2004. For details, please read the content on the revised accounting policies in the accounting report. VI. Routine work of the Board of Directors 1. Meetings held by the Board and content of the resolutions Meetings held by the Board in the report period were as follows: 1) On Jan. 31, 2005, the Company held the 7th meeting of the 4th Board of Directors, and public notices on the resolutions of this meeting were published in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kong Pao on Feb. 3, 2005. 2) On Feb. 24, 2005, the Company held the 8th meeting of the 4th Board of Directors, at which following resolutions had been examined and approved: the Proposal on Establishing a Driver IC Design Company and the Proposal on Lease of Premises from Beijing Dongdian Industrial Development Company. Since the capital amount involved in these proposals were small, relevant issues involved in the resolutions were disclosed in the Annual Report 2004 of BOE Technology Group Co., Ltd, which was published in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kong Pao on Apr. 28, 2005. 3) On Apr. 25, 2005, the Company held the 9th meeting of the 4th Board of Directors, and the public notices on the resolutions of this meeting were published in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kong Pao on Apr. 28, 2005. 4) On May 8, 2005, the Company held the 10th meeting of the 4th Board of Directors, at which the Proposal on the Integration of the Monitor Operation and the Plat-Panel TV Operation had been examined and approved. Since the issues in the resolution involved commercial secrets, they were disclosed in the Public Notice on the Integration of the Monitor Operation and the Plat-Panel TV Operation of BOE Technology Group Co., Ltd published in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kong Pao on Jun. 16, 2005. 5) On May 31, 2005, the Company held the 11th meeting of the 4th Board of Directors, and the public notices on the resolutions were published in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kong Pao on Jun. 2, 2005. 26 6) On Jun. 30, 2005, the Company held the 12th meeting of the 4th Board of Directors, and the public notices on the resolutions were published in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kong Pao on Jul. 1, 2005. 7) On Aug. 24, 2005, the Company held the 13th meeting of the 4th Board of Directors, and the public notices on the resolutions were published in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kong Pao on Aug. 26, 2005. 8) On Nov. 9, 2005, the Company held the 15th meeting of the 4th Board of Directors, and the public notices on the resolutions were published in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kong Pao on Nov. 11, 2005. 9) On Nov. 21, 2005, the Company held the 16th meeting of the 4th Board of Directors, and the public notices on the resolutions were published in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kong Pao on Nov. 23, 2005. 2. Implementation of the resolutions made at the Shareholders’ General Meeting by the Board According to the relevant resolutions made at the Shareholders’ General Meeting 2004, the Board of the Company implemented the profit distribution plan for the year 2004: based upon the total share capital of 1,463,797,200 shares, dividend of RMB 0.2 in cash had been distributed to all shareholders for every 10 shares held by them (Pretax. Tax deducted, actual dividend for individual shareholders and investment funds among the A-share social public shareholders was RMB 0.18 in cash for every 10 shares. No tax had been deducted for B shares for that time being.). The record date was Jun. 27, 2005, and the ex-dividend date Jun. 28, 2005. Dividend for B-share shareholders had been paid in HKD, and the exchange rate had been the middle price of the HKD against RMB exchange rates announced by the People’s Bank of China on the first work day (Jun. 1, 2005) since approval of the implementation of this profit distribution plan by the Shareholders’ General Meeting 2004, i.e. HKD 1 = RMB1.0637. On Jun. 3, 2005, the Company published the Public Notice on the Distribution of Bonus and Dividend for 2004 by BOT Technology Group Co., Ltd in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kong Pao. According to the relevant resolutions made at the 1st Provisional Shareholders’ General Meeting 2005, the Board of the Company implemented the plan on transferring capital public reserves into share capital: Based upon the total share capital of 1,463,797,200 shares, 5 shares transferred with capital public reserves had been distributed to all shareholders for every 10 shares held by them. The record date was Jul. 18, 2005, and the ex-dividend date Jul. 19, 2005. On Jul. 13, 2005, the Company published the Public Notice on the Implementation of Transferring Public Reserves into Share Capital by BOE Technology Group Co., Ltd in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kong Pao. VII. Preplan on profit distribution and preplan on capitalization of public reserves for the report period As audited by KPMG Certified Public Accountants, the Company made losses of RMB 1,587,087,256 in 2005. Therefore, the Board of the Company had decided not to distribute any profit or capitalize any public reserves for 2005. 27 Section VIII. Report of the Supervisory Committee I. Meetings held and contents of the resolutions The Supervisory Committee had fulfilled their duties strictly in accordance with relevant regulations in the Company Law and Articles of Association, etc. It had held 3 meetings in the report period and attended the Board meetings, with details as follows: 1. On Apr. 25, 2005, the 4th meeting of the 4th Supervisory Committee was held, at which some documents had been examined and approved, including the Work Report 2004 of the Supervisory Committee, the Text and Summary of the Annual Report 2004, the 1st Quarterly Report 2005, the Report on the Correction of Accounting Errors for the Year 2003, Explanation on the Use of the Proceeds Raised Last Time and the Proposal on the Routine Related Transactions of 2005. Public notices on the resolutions were published by the Company in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Apr. 28, 2005. 2. On Aug. 24, 2005, the 5th meeting of the 4th Supervisory Committee was held, at which the Semi-Annual Report 2005 had been examined and approved. Public notices on the resolutions were published by the Company in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Aug. 26, 2005. 3. On Oct. 27, 2005, the 6th meeting of the 4th Supervisory Committee was held, at which the 3rd Quarterly Report 2005 had been examined and approved. Public notices on the resolutions were published by the Company in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Oct. 29, 2005. II. Independent opinions 1. Operation The Supervisory Committee had fulfilled its duties strictly in accordance with the Company Law, Articles of Association and the Rules of Procedure of the Supervisory Committee. In the report period, members of the Supervisory Committee had attended the Board meetings and had conducted supervision over the convening procedures and the decision-making procedures of the Shareholders’ General Meeting and the Board of Directors, the implementation of the resolutions of the Shareholders’ General Meeting by the Board, as well as the operation of the decisions of the Company. The Supervisory Committee believed that the various decision-making procedures of the Company had been legal, and that, the directors and senior executives had no behavior during their daily work that had gone against the Articles of Association or done harm to the interests of the shareholders or the Company. 2. Finance inspection The Supervisory Committee believed that the auditing opinions expressed by the KPMG Certified Public Accountants and the KPMG Huazhen Certified Public Accountants had been objective, and that the Financial Report had truly reflected the financial status and business performance of the Company. 3. Transactions of assets purchase or sale In the report period, the transaction prices of the assets sales had been reasonable and the transactions had been in conformity with legal procedures. And there had been no insides dealings or other cases that had done harm to the interests or rights of part of the shareholders or had led to the loss of the Company’s assets. 4. Related transactions The related transactions of the Company had all been conducted according to the market rules 28 and the principle of being fair and square. There were been no cases that had done harm to the interests of the minority shareholders. The Company had disclosed the information on the significant related transactions in time, and had also engaged financial consultants for professional advices. Independent directors had expressed their independent opinions as well. 29 Section IX. Significant Events I. Lawsuits and arbitrations having occurred in the report period and those having lasted into the report period 1. On Jan. 14, 2004, the Company’s subordinate subsidiary Beijing BOE Land Co., Ltd (hereinafter referred to as “BOE Land”) and Beijing Zhongye Anshunda Metallurgical Corporation (hereinafter referred to as Zhongye Anshunda) signed a Framework Agreement on Reorganizing the Beijing Zhongjin Shunda Property Co., Ltd (hereinafter referred to as Zhongjin Property). According to the agreement, BOE Land and Zhongye Anshunda would hold 60 percent and 40 percent of Zhongjin Property’s equity after the reorganization respectively. BOE Land had finished the relevant reorganization procedures of capital injection, etc as according to the agreement, but Zhongye Anshunda had failed to finish the capital injection as planned due to the pledge of land. The Company had appealed to the court for the preservation of the investment fund in this project, and the Final Judgment (2005) GMZZ No. 1020 issued by Beijing Municipal High People’s Court ruled that this Framework Agreement and relevant supplementary agreements be terminated, and that Zhongye Anshunda return the investment fund injected by the Company in this project. Right now, this judgment has not been implemented. 2. The Company’s subordinate subsidiary, the South Korean BOE Hydis had received notices from Sharp Company, LG Philips and Honeywell International Incorporation and Honeywell Intellectual Properties Incorporation, proclaiming that some of their patents had been infringed and that royalties had to be paid. The Board of Directors reckoned that this event was still under inspection and it was hard to estimate the potential lawsuit result, therefore no reserves had been withdrawn in the consolidated statements for the possible liabilities that might be caused by this issue. II Implementation of assets sales in the report period 1. Integration of the monitor operation and the flat-panel TV operation: on Jun. 15, 2005, the Company signed the Agreement of Transferring Shares of Beijing Orient Top Victory Electronics Co., Ltd with the Company’s subordinate affiliated company TPV Technology Limited. According to the Agreement, the Company would inject the 45.21 percent equity of Beijing Orient Top Victory Electronics Co., Ltd into TPV Technology Limited in exchange for the 68,326,408 shares newly issued by TPV Technology Limited targeting at the Company. The assets / equity transfers involved in the aforesaid equity transfer issue were finished on Nov. 30, 2005. 2. Transfer of the 40 percent equity of Beijing Star City Property Co., Ltd held by the Company: the 13th meeting of the 4th Board of Directors of the Company (held on Aug. 24, 2005) examined and approved the Proposal on Transferring the Equity of Star City Property Held by the Company. On Aug. 29, 2005, the Company signed the Equity Transfer Agreement and the Agreement on Credits and Liabilities with Harper & Harper Investment Consultation Co., Ltd (hereinafter referred to as Harper Investment), Jade Dragon Capital AG (hereinafter referred to as JD Company), Harper & Harper Ltd, Hong Kong Xujing Investment Co., Ltd, Singapore Dianli Technologies Private Co., Ltd and Beijing Star City Property Co., Ltd (hereinafter referred to as Star City Property). According to these Agreements, the Company would transfer its 40 percent equity in Star City Property to Harper Investment (or any assignee designated by it) at the price of RMB 60 million. Since Harper Investment had failed to pay the BOE the transfer fund at the time as stipulated in the Agreements, the Company had decided to terminate these Agreements and other relevant agreements, and these assets would be planned by the Company according to business development demands. 30 III. Significant related transactions 1. Related transactions concerning routine operation The transactions between the Company and related parties had all been conducted according to the market principles within the amount limits for routine related transactions in 2005 as examined and approved by the Shareholders’ General Meeting. For details, please read the relevant content in the part concerning relation with related parties and transactions with them in the notes to the accounting statements. 2. Related transaction on assets or equity transfer Please read the relevant content concerning the integration of the monitor operation and the flat-panel TV operation above. 3. The Company had no related transaction on external co-investment with related parties. IV. Significant contracts and their implementation 1. Termination of the Operation Entrustment Contract In April 2003, the Company signed an Operation Entrustment Contract with BOE Land, which stated that the Company would entrust BOE Land with the operation of the assets including the energy facilities of water, power, gas and heat, etc, the housing properties, land, under-construction projects, etc at “BOE Digital Rose Garden (No. 10, Jiu Xian Road, Chaoyang District, Beijing)” and “BOE Small Backlight Project District (No. 10, Jiu Xian Road, Chaoyang District, Beijing)”, which had a book value of RMB 241,780,000. Since entrusted operation result had been far from meeting the expectations of both parties, in the meantime, the energy supply situation, especially power supply, in Beijing had become more and more tense, and the requirements on energy management in the area by Beijing Municipal Government had become stricter and stricter, which the energy assets operation mode by BOE Land entrusted by the Company could no longer satisfy. Therefore, as examined and approved by the 13th meeting of the 4th Board of Directors of the Company (held on Aug. 24, 2005), the Company had decided to terminate this Operation Entrustment Contract and the entrusted operation. 2. Significant guarantees (1) External guarantees The Company provided a 5% guarantee for the loan obtained by Beijing Municipal Administration & Communications Card Co., Ltd from the Beijing Branch of the Bank of Communications, the ceiling of the loan was RMB 120 million and the loan required guarantee. The ceiling of the guarantee to be provided by the Company was RMB 6 million. By Dec. 31, 2005, the Company had actually provided RMB 4.5 million guarantees for the loan totaling RMB 90 million got from the Beijing Branch of the Bank of Communications. The loan term was from Jan. 29, 2006 to Apr. 22, 2006. This guarantee issue had exerted no significant influence on the Company. The Company’s subordinate subsidiary Zhejiang BOE had provided guarantee for Zhejiang Huanyu Construction Group Co., Ltd for its loan with a ceiling of RMB 50,000,000. By Dec. 31, 2005, the actual balance of this guarantee loan totaled RMB 42,100,000. (2) Internal guarantees In the report period, the Company had provided guarantees for the subordinate subsidiary Zhejiang BOE’s loan of RMB 187,510,000, Vacuum Electric Equipment’s loan of RMB 4,000,000, BOE Hyundai’s loan of RMB 21,062,768 and BOEOT’s loan of RMB 6,037,964,000 (BOEOT had provided its fixed assets with total net value of RMB 7,473,300,000 as mortgage.). The guarantees totaled RMB 716,896,507. In the report period, Zhejiang BOE, the Company’s subordinate subsidiary, had provided 31 guarantees for its subsidiary Shaoxing BOE for a loan of RMB 9,000,000; the Company’s subsidiary Suzhou Chatani for its subordinate subsidiary Beijing Chatani for a loan of RMB 41,700,000. 3. In the report period, the Company had not entrusted others with cash assets management. 4. The Company had no other significant contracts. V. Implement of the commitments made by the Company in the report period 1. Commitments on the Split-share Reform All the shareholders holding non-circulating shares of the Company had promised not to trade or transfer the Company’s shares held by them before Nov. 29, 2006. In the meantime, the controlling shareholder of the Company BOE Investment had made further commitments that after the expiration of the aforesaid commitment, the total former non-circulating shares sold by it through listing at the Stock Exchange would not exceed 5 percent of the Company’s total share number within 12 months, and not exceed 10 percent within 24 months. 2. Details on the commitments of the Company, please read the relevant content on the commitment issues in the notes to the accounting statements. 3. The Company or shareholders holding over 5 percent stocks had made no other commitments in the report period. VI. Certified Public Accountants engaged by the Company and remuneration paid in the report period On Dec. 22, 2005, the Company held the 4th Provisional Shareholders’ General Meeting 2005, at which the Proposal on Changing the Certified Public Accountants had been examined and approved. KPMG Certified Public Accountants had been engaged as the Auditor of the Company. Remuneration paid to the Certified Public Accountants by the Company in the report period was as follows: The remuneration paid to KPMG Certified Public Accountants totaled RMB 3.2 million. VII. In the report period, neither the Company, nor its Board, directors, supervisors nor any other senior executives had been enforced by the CSRC, received any administrative punishments or criticism from the CSRC, or publicly criticized by the Shenzhen Stock Exchange. VIII. Other significant events 1. To promote the development of its TFT-LCD operation, the Company signed a Strategic Cooperation Agreement with Marubeni Corporation, Japan (hereinafter referred to as Marubeni Japan) on Mar. 1, 2005 in Beijing. On the same day, the actual controller of the Company Beijing Electronics Holdings Co., Ltd signed the Contract on the Joint Operation of Beijing BOE Investment & Development Co., Ltd with Beijing Zhineng Kechuang Technology Development Co., Ltd and Marubeni Japan. According to the agreement, Marubeni Japan, as a strategic investor, would join in the system reform and reorganization work of the Company’s controlling shareholder Beijing BOE Investment & Development Co., Ltd. 56.25 percent of the stocks of Beijing BOE Investment & Development Co., Ltd were held by Beijing Electronics Holdings Co., Ltd, 33.75 percent by Beijing Zhineng Kechuang Technology Development Co., Ltd, and 10 percent by Marubeni Japan. For details, please read the Public Notice on the Signing of a Strategic Cooperation Agreement by BOE Technology Group Co., Ltd and Marubeni Corporation, Japan, as well as the Report on the Changes in Shares Held by Shareholders of BOE Technology Group Co., Ltd published on Mar. 2, 2005. 32 2. On Mar. 31, 2005, the Company’s subordinate subsidiary BOEOT signed an Agreement on Syndicated Loan with the banking syndicate (the creditor) with the Beijing Urban Construction Development Professional Sub-Branch of the China Construction Bank Co., Ltd (hereinafter referred to as Urban Construction Sub-Branch of Construction Bank) as the sole leading bank. The loan totaled USD 740 million (including RMB with equal translated value), of which the term of the loan for fixed assets was 5 years since the day of initial drawing, while the term of the loan for current capital was 3 years since the day of initial drawing. In the meantime, BOEOT also signed the Account Supervision Agreement, the Agreement on the Pledge of Machinery Equipment and the Agreement on the Pledge of Real Estate, while the Company and Beijing Electronics Holdings Co., Ltd signed Guarantee Agreements with the creditor separately and provided irrevocable guarantees for this syndicated loan both separately and jointly. For details, please read the Public Notice on the USD-740-Million Syndicated Loan for the TFT-LCD 5G Production Line of BOE Technology Group Co., Ltd published on Apr. 8, 2005. 3. The Company’s wholly-owned subsidiary BOE Hydis in South Korea had successfully issued, for the first time, KRW 60 billion corporate bonds of public raising that would pay interest, require no registration and provide no guarantees (the term being 2 years), and KRW 140 billion the same kind of corporate bonds during the second time (the bonds with 3-year term totaling KRW 90 billion, and the bonds with 5-year term totaling KRW 50 billion). 4. On Nov. 30, 2005, the Company and TPV Technology Limited finished the assets / equity transfer procedures on the integration of the monitor operation and the flat-panel TV operation. The Company had injected its 45.21 percent equity of Beijing Orient Top Victory Electronics Co., Ltd into TPV Technology Limited in exchange for the 68,326,408 shares newly issued by TPV Technology Limited targeting at the Company. The shares of TPV Technology Limited held by the Company increased to 424,360,191 shares. In February 2006, TPV Technology Limited had the current shares placed and new shares subscribed, and its total share capital increased to 1,906,410,754. With the 22.26 percent equity of TPV Technology Limited held by it, the Company continued to be the principal shareholder of this company. Section X. Financial Report I. Accounting Statements (see statements attached) II. Notes to the Accounting Statements (see attachments) Section XI. Documents for Reference 1. Accounting Statements with the signatures and seals of the Legal Representative, Chief Financial Officer and the person in charge of accounting department; 2. Originals of the Auditors’ Report with the seals of the Certified Public Accountants as well as the signatures and seals of the CPAs; 3. Texts of all the documents of the Company disclosed in the newspapers designated by the CSRC in the report period and originals of all the public notices. BOE Technology Group Co., Ltd Board of Directors Apr. 25, 2006 33 BOE Technology Group Company Limited 京东方科技集团有限公司 31 December 2005 Report of the independent auditors to the shareholders of BOE Technology Group Company Limited (Established as a joint stock company in the People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of BOE Technology Group Company Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) as of 31 December 2005 and the related consolidated statements of income, changes in equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s directors. Our responsibility is to form an independent opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2005 and of the results of its operating loss and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Certified Public Accountants Hong Kong 25 April 2006 1 Consolidated income statement For the year ended 31 December 2005 (Expressed in Renminbi) 2005 2004 Continuing Discontinued Continuing Discontinued operations operation Total operations operations Total (restated) Note RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Turnover 5 8,836,800 4,612,913 13,449,713 8,051,994 4,389,714 12,441,708 Cost of sales (9,000,718) (4,382,887) (13,383,605) (6,993,079) (4,164,761) (11,157,840) _________ _________ ________ _________ _________ __________ Gross (loss)/profit (163,918) 230,026 66,108 1,058,915 224,953 1,283,868 Other operating income/(expenses) 7 94,053 6,331 100,384 (15,524) 4,654 (10,870) Distribution expenses (267,824) (54,924) (322,748) (258,093) (57,356) (315,449) Administrative expenses (524,308) (29,351) (553,659) (429,110) (43,559) (472,669) Research and development expenses (346,836) (18,981) (365,817) (304,215) (15,012) (319,227) _________ _________ ________ _________ _________ _______ (Loss)/profit from operations (1,208,833) 133,101 (1,075,732) 51,973 113,680 165,653 Net financing costs 8(a) (463,357) (3,991) (467,348) (38,252) (8,112) (46,364) Share of profits of associates 17 296,470 - 296,470 316,046 - 316,046 _________ _________ ________ _________ _________ _______ (Loss)/profit before tax 8 (1,375,720) 129,110 (1,246,610) 329,767 105,568 435,335 Income tax expense 9(a) (29,764) (11,965) (41,729) (4,652) (8,460) (13,112) _________ _________ _______ _________ _________ _______ (Loss)/profit after tax but before gain (1,405,484) 117,145 (1,288,339) 325,115 97,108 422,223 on sale of discontinued operation Gain on sale of discontinued operation net of tax 133,753 - 133,753 - - - _________ _________ _______ _________ _________ _______ (Loss)/profit for the year (1,271,731) 117,145 (1,154,586) 325,115 97,108 422,223 ======== ========= ======== ======== ======== ======== Attributable to: Equity shareholders of the Company (1,298,954) 52,961 (1,245,993) 296,359 43,903 340,262 Minority interests 27,223 64,184 91,407 28,756 53,205 81,961 _________ _________ _________ _________ _________ _________ (1,271,731) 117,145 (1,154,586) 325,115 97,108 422,223 ======== ========= ======== ======== ======== ======== Basic (Loss)/earnings per share 10 (0.59) 0.02 (0.57) 0.14 0.02 0.16 ======== ========= ======== ======== ======== ======== The notes on pages 9 to 68 form part of these financial statements. 2 Consolidated balance sheet At 31 December 2005 (Expressed in Renminbi) Note 2005 2004 (restated) RMB’000 RMB’000 Non-current assets Property, plant and equipment 12 11,330,272 4,970,500 Construction in progress 13 285,244 5,065,349 Intangible assets 14 449,850 300,789 Lease prepayments 15 103,332 133,355 Investment properties 16 113,121 118,547 Interest in associates 17 2,820,463 2,209,700 Other investments 18 10,661 8,190 Deferred tax assets 19 1,940 13,220 Long term deposits 20 23,856 22,153 Other non-current assets 46,651 33,492 15,185,390 12,875,295 Current assets Inventories 21 1,919,901 1,127,066 Trade receivables 22 1,876,294 2,042,427 Held-to-maturity securities 18 - 44,031 Prepayments, deposits and other receivables 462,501 300,130 Deposits with banks 23 916,628 298,318 Cash and cash equivalents 23 1,164,052 1,535,970 6,339,376 5,347,942 Current liabilities Trade payables 24 1,769,720 1,975,512 Other payables 972,555 1,292,295 Current taxation 9(b) 23,211 7,172 Provisions 25 50,771 43,994 Short term bank and other loans 26 3,762,956 5,436,259 6,579,213 8,755,232 Net current liabilities (239,837) (3,407,290) Total assets less current liabilities 14,945,553 9,468,005 The notes on pages 9 to 68 form part of these financial statements. 3 Consolidated balance sheet (continued) At 31 December 2005 (Expressed in Renminbi) Note 2005 2004 (restated) RMB’000 RMB’000 Non-current liabilities Bank and other loans 26 9,569,710 2,493,721 Long-term notes payable 27 299,939 299,939 Employee benefits 28 17,280 19,685 Deferred tax liabilities 19 588 15 Other non-current liabilities 29 856,539 858,810 10,744,056 3,672,170 Net assets 4,201,497 5,795,835 Capital and reserves Share capital 30 2,195,696 1,463,797 Share premium 1,552,913 2,284,812 Reserves 31 680,190 708,167 (Accumulated losses)/retained profits (461,183) 814,086 Total equity attributable to equity shareholders of the Company 3,967,616 5,270,862 Minority interests 233,881 524,973 Total equity 4,201,497 5,795,835 Approved and authorised for issue by the board of directors on 25 April 2006. ) ) ) Directors ) ) The notes on pages 9 to 68 form part of these financial statements. 4 Consolidated statement of changes in equity For the year ended 31 December 2005 (Expressed in Renminbi) Equity attributable to equity shareholders of the company__ (Accumulated Share Share losses)/ Minority capital premium Reserves retained profits interests Total equity Note RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 At 1 January 2004 - As previously reported 659,465 1,040,984 406,358 447,055 525,602 3,079,464 - Prior year adjustments arising from changes in accounting policies 3 - - 11,753 118,164 - 129,917 _________ _________ _________ _________ _________ _________ As restated 659,465 1,040,984 418,111 565,219 525,602 3,209,381 ------------- ------------- ------------- ------------- ------------- ------------- Issue of new shares 30 316,400 1,731,760 - - - 2,048,160 ------------- ------------- ------------- ------------- ------------- ------------- Capitalisation of share premium 30 487,932 (487,932) - - - - ------------- ------------- ------------- ------------- ------------- ------------- Net profit / (loss) for the year - As previously reported - - - 353,701 - 353,701 - Prior year adjustments arising from changes in accounting policies - - - (13,439) 81,961 68,522 _________ _________ _________ _________ _________ _________ As restated - - - 340,262 81,961 422,223 ------------- ------------- ------------- ------------- ------------- ------------- Currency translation differences 31 - - 208,419 - - 208,419 ------------- ------------- ------------- ------------- ------------- ------------- Dividend approved during the year 11 - - - (9,758) - (9,758) ------------- ------------- ------------- ------------- ------------- ------------- Transfer for the year 31 - - 81,637 (81,637) - - _________ _________ _________ _________ _________ _________ Deemed disposal of subsidiary - - - - (82,590) (82,590) ------------- ------------- ------------- ------------- ------------- ------------- At 31 December 2004 1,463,797 2,284,812 708,167 814,086 524,973 5,795,835 ======== ========= ========= ========= ======= ======== The notes on pages 9 to 68 form part of these financial statements. 5 Consolidated statement of changes in equity (continued) For the year ended 31 December 2005 (Expressed in Renminbi) Equity attributable to equity shareholders of the Company (Accumulated Share Share losses)/retained Minority capital premium Reserves profits interests Total equity Note RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 At 1 January 2005 - As previously reported 1,463,797 2,284,812 696,414 709,361 - 5,154,384 - Prior year adjustments from changes in accounting policies 3 - - 11,753 104,725 524,973 641,451 _________ _________ _________ _________ _________ _________ As restated 1,463,797 2,284,812 708,167 814,086 524,973 5,795,835 ------------- ------------- ------------- ------------- ------------- ------------- Capitalisation of share premium 30 731,899 (731,899) - - - - ------------- ------------- ------------- ------------- ------------- ------------- Net loss for the year - - - (1,154,586) - (1,154,586) ------------- ------------- ------------- ------------- ------------- ------------- Profits attributable to minority interests - - - (91,407) 91,407 - ------------- ------------- ------------- ------------- ------------- ------------- Currency translation differences 31 - - (27,977) - - (27,977) ------------- ------------- ------------- ------------- ------------- ------------- Dividend approved during the year 11 - - - (29,276) - (29,276) ------------- ------------- ------------- ------------- ------------- ------------- Capital contributions from minority interests - - - - 18,529 18,529 ------------- ------------- ------------- ------------- ------------- ------------- Distributions to minority interests - - - - (5,550) (5,550) ------------- ------------- ------------- ------------- ------------- ------------- Disposal of subsidiary 6 - - - - (395,478) (395,478) ------------- ------------- ------------- ------------- ------------- ------------- At 31 December 2005 2,195,696 1,552,913 680,190 (461,183) 233,881 4,201,497 ======== ======= ======== ======== ======== ======== The notes on pages 9 to 68 form part of these financial statements. 6 Consolidated cash flow statement For the year ended 31 December 2005 (Expressed in Renminbi) Year ended 31 December 2005 2004 Note RMB’000 RMB’000 Cash flows from operating activities (Loss)/profit before tax (1,246,610) 435,335 Adjustments for: - Depreciation 1,229,595 720,442 - Amortisation of intangible assets 32,660 29,727 - Amortisation of lease prepayments 2,934 2,609 - (Reversed)/ impairment loss on property, plant and equipment (60) 4,738 - Impairment loss on construction in progress 19,932 340 - Impairment loss on intangible assets 407 230 - Impairment loss on held-to-maturity securities 17,961 - - Impairment loss on unquoted equity securities - 15,688 - Provision for bad and doubtful debt 5,623 11,042 - Provision for obsolete inventories 85,411 75,961 - Share of profits of associates (296,470) (316,046) - Interest income (51,691) (66,207) - Other finance costs 519,039 112,571 - (Gain)/ loss on disposal of property, plant and equipment (5,697) 500 - Gain on disposal of unquoted securities (3,520) (31,421) - Amortisation of government grant (37,583) (21,279) Operating profit before change in working capital 271,931 974,230 Increase in inventories (1,037,363) (542,657) Increase in trade and other receivables (1,181,452) (316,479) Decrease in employee benefit obligations 2,405 5,102 Increase in trade and other payables 982,482 275,318 Cash generated from the operating activities (961,997) 395,514 Income taxes paid (21,562) (24,007) 371,507 Net cash from operating activities (983,559) Cash flows from investing activities Proceeds from sale of property, plant and equipment 36,112 49,509 Proceeds from sales of intangible assets 1,378 - Proceeds from sales of investments 5,520 - Interest income received 51,691 53,358 Acquisitions of property, plant and equipment (3,934,768) (5,422,599) Acquisitions of intangible assets (32,082) (371,341) Acquisitions of available-for-sale investments (8,576) - Acquisitions of associate - (400) Acquisitions of convertible debenture - (2,235) Refund of investment costs 26,070 32,978 Payments for lease prepayments - - Business combinations, net of cash acquired - (4,200) Disposal of subsidiaries, net of cash disposed 6 (53,609) 58,197 Disposal of an associate, net of cash disposed - 66,757 Increase in long-term receivables (9,540) (105,281) Placement of pledged deposits (618,310) 31,957 Placement of long-term fixed deposits - (220,749) Dividend received 115,285 48,577 Net cash used in investing activities (4,420,829) (5,785,472) The notes on pages 9 to 68 form part of these financial statements. 7 Consolidated cash flow statement (continued) For the year ended 31 December 2005 (Expressed in Renminbi) Years ended 31 December 2005 2004 Rmb’000 Rmb’000 Cash flows from financing activities Proceeds from government loan - 450,000 Proceeds from bank and other loans 12,421,541 10,399,068 Proceeds from issue of convertible debentures - 71,448 Proceeds from issue of corporate debentures 1,583,475 - Proceeds from capital contribution 18,529 2,076,121 Repayments of bank and other loans (8,288,467) (7,902,354) Dividend paid (35,675) (28,032) Interest paid (552,157) (287,847) Payment for other financing activities (59,474) (62,018) Net cash from financing activities 5,087,772 4,716,386 Effect of exchange rate changes (55,302) 59,624 Net decrease in cash and cash equivalents (371,918) (637,955) Cash and cash equivalents at 1 January 1,535,970 2,173,925 Cash and cash equivalents at 31 December 1,164,052 1,535,970 The notes on pages 9 to 68 form part of these financial statements. 8 Notes to the financial statements For the year ended 31 December 2005 (Expressed in Renminbi) 1 Background of the Company BOE Technology Group Company Limited (the “Company”) was founded on 9 April 1993 in the People’s Republic of China (the “PRC”) as a joint stock limited company as part of the restructuring of Beijing Electronic Tube Factory (“BETF”). On the same date, the relevant business undertakings of BETF together with the related assets and liabilities were taken over by the Company. The Company and its subsidiaries are collectively referred to as the Group. The parent company of the Group is Beijing Orient Investment and Development Company Limited (“BOID”), which is a state-owned enterprise registered in Beijing, the PRC. 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 Company has its primary listing on the Shenzhen Stock Exchange issuing its first B shares on 10 June 1997, with further offerings of A shares on the Shenzhen Stock Exchange in 12 January 2001 and B shares on 16 January 2004 respectively. 2 Summary of significant accounting policies (a) Statement of compliance The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) promulgated by the International Accounting Standards Board (“IASB”). IFRSs include all applicable individual IFRS, International Accounting Standards (“IAS”) and related interpretations. A summary of the significant accounting policies adopted in the preparations of the financial statements is set out below. The Company also prepares a set of financial statements which complies with the PRC Accounting Rules and Regulations (“PRC GAAP”). A reconciliation of the Group’s results for the year and the equity attributable to equity shareholders of the Company under IFRSs and the PRC GAAP is presented at the supplementary financial information on pages 69 to 71. The IASB has issued a number of new and revised IFRS which are effective or available for early adoption for accounting periods beginning on or after 1 January 2005. Information on the changes in accounting policies resulting from initial application of these new and revised IFRSs for the current and prior accounting periods reflected in these financial statements is provided in note 3. 9 2 Summary of significant accounting policies (continued) (b) Basis of preparation The consolidated financial statements for the year ended 31 December 2005 comprise the Company and its subsidiaries. The financial statements are presented in Renminbi (“RMB”), rounded to the nearest thousand. The measurement basis used in the preparation of the financial statements is historical cost, except for the measurement at fair value of financial instruments in accordance with IAS39 (revised 2004), Financial Instruments: Recognition and Measurement. The preparation of financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factor that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Judgments made by management in the application of IFRSs that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 40. Notwithstanding that the Group had accumulated losses and net current liabilities as at 31 December 2005 of RMB461,183,000 and RMB239,837,000 respectively, the management are of the opinion that the Group has the ability to continue as a going concern as they believe that continuous support will be obtained from the banks. The current liabilities of the Group comprise mainly of short term bank and other loans. Up to 31 March 2006, the Group has successfully renewed RMB590,000,000 matured short term loan and obtained a new short term loan facility of RMB80,000,000. In addition, on 18 April 2006, the board of directors has approved a private placement of 1,500 million A shares to certain specified persons. The Group is currently negotiating with the banks for the arrangement of long term loan financing to improve the debt maturity profile of the Group. Accordingly, the management considers it is appropriate that the financial statements of the Group should be prepared on a going concern basis and do not include any adjustments that would be required should the Group fail to continue as a going concern. (c) Basis of consolidation (i) Subsidiaries Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date of that control ceases. 10 2 Summary of significant accounting policies (continued) (c) Basis of consolidation (continued) (i) Subsidiaries (continued) Minority interests at the balance sheet date, being the portion of the net assets of subsidiaries attributable to equity interests that are not owned by the Company, whether directly or indirectly, are presented in the consolidated balance sheet and statement of changes in equity within equity, separately from equity attributable to the equity shareholders of the Company. Minority interests in the results of the Group are presented on the face of the consolidated income statement as an allocation of the total profit or loss for the year between minority interests and the equity shareholders of the Company. Where losses applicable to the minority exceed the minority’s interest in the equity of a subsidiary, the excess, and any further losses applicable to the minority, are charged against the Group’s interest except to the extent that the minority has a binding obligation to, and is able to, make additional investment to cover the losses. If the subsidiary subsequently reports profits, the Group’s interest is allocated all such profits until the minority’s share of losses previously absorbed by the Group has been recovered. (ii) Associates Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group’s share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an associate, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an associate. (iii) Jointly controlled entities Jointly controlled entities are those entities over whose activities the Group has joint control, established by contractual agreement. The consolidated financial statements include the Group’s proportionate share of the entities’ assets, liabilities, revenue and expenses with items of a similar nature on a line by line basis, from the date that joint control commences until the date that joint control ceases. (iv) Transactions eliminated on consolidation Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. 11 2 Summary of significant accounting policies (continued) (d) Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to RMB at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement, except those eligible for capitalisation as construction in progress (see note 2(i)). Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the transactions. Non- monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to RMB at foreign exchange rates ruling at the dates the fair value was determined. (ii) Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to RMB at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to RMB at rates approximating to the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised directly as a separate component of equity. On disposal of a foreign operation, the cumulative amount of the exchange differences recognised in equity which relate to that foreign operation is included in the calculation of the profit or loss on disposal. (e) Property, plant and equipment (i) Owned assets Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see note 2(n)) The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to working condition and location for its intended use. (ii) Subsequent costs The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the item can be measured reliably. All other costs are recognised in the income statement as an expense as incurred. (iii) Disposal Gains or losses arising from the retirement or disposal of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement on the date of retirement or disposal. 12 2 Summary of significant accounting policies (continued) (e) Property, plant and equipment (continued) (iv) Depreciation Depreciation is charged to income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, after taking into account its estimated residual value. The estimated useful lives are as follows: Estimated residual value as a Years percentage of costs Buildings 20 to 40 years 3%-10% Plant, machinery and equipment 2 to 15 years 3%-10% Motor vehicles 2 to 10 years 0%-10% Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually. (f) Derivative financial instruments Derivative financial instruments are recognised initially at fair value. At each balance sheet date, the fair value is remeasured. The gain or loss on remeasurements to fair value is charged immediately to the income statement. (g) Intangible assets (i) Goodwill All business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on acquisition of subsidiaries, associates and jointly controlled entities. It represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment (see note 2(n)). In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in the associate. Any excess of the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent assets and contingent liabilities over the cost of a business combination or an investment in an associate or a jointly controlled entity is recognised immediately in the income statement. On disposal of a cash generating unit, an associate or a jointly controlled entity during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal. 13 2 Summary of significant accounting policies (continued) (g) Intangible assets (continued) (ii) Research and development Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the income statement as an expense as incurred. Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources to complete development. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Other development expenditure is recognised in the income statement as an expense as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation (see below) and impairment losses (see note 2(n)). (iii) Other intangible assets Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation (see below) and impairment losses (see note 2 (n)). (iv) Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. (v) Amortisation Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets. Goodwill is systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows: Technology rights 8-20 years Patent 5-10 years Computer software 3-10 years (h) Investments (i) Investment properties Investment properties are properties which are held either to earn rental income or for capital appreciation or for both. Investment properties are stated at cost less accumulated depreciation and impairment losses (see note 2(n)). Depreciation is provided to write off the cost, where appropriate, of each asset over its estimated useful life ranging from 20 to 40 years on a straight-line basis, after taking into account its estimated residual value. The useful lives and residual values are reassessed annually. A property interest under an operating lease is classified and accounted for as an investment property on a property-by-property basis when the Group holds it to earn rentals or for capital appreciation or both. Any such property interest under an operating lease classified as an investment property is carried at cost less accumulated depreciation and impairment losses (see note 2(n)). Lease payments are accounted for as described in accounting policy (u). 14 2 Summary of significant accounting policies (continued) (h) Investments (continued) (ii) Other investments in debt and equity securities The Group’s policies for investments in debt and equity securities, other than investments in subsidiaries, associates and jointly controlled entities, are as follows: Investments in securities held for trading are classified as current assets and are initially stated at fair value. At the balance sheet date the fair value is remeasured, with any resultant gain or loss recognised in the income statement. Dated debt securities that the Group have the positive ability and intention to hold to maturity are classified as held-to-maturity securities. Held-to-maturity securities are initially recognised in the balance sheet at fair value plus transaction costs. Subsequently, they are stated in the balance sheet at amortised cost less impairment losses (see note 2(n)) Investments in equity securities that do not have quoted market price in an active market and whose fair value could not be measured reliably are recognised in the balance sheet at cost less impairment losses (see note 2(n)). Investments are recognised/derecognised on the date the Group commits to purchase/sell the investments or when they are expired. (i) Construction in progress Construction in progress represents buildings, various plant and equipment under construction and pending installation, and is stated at cost less impairment losses (see note 2(n)). Cost comprises direct costs of construction, borrowing costs and foreign exchange differences on related borrowed funds to the extent that they are regarded as an adjustment to interest charges and exchange differences on the designated financial instruments (see notes 2(d) and (w)) during the period of construction. Capitalisation of these costs ceases and the construction in progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use. No depreciation is provided in respect of construction in progress until it is completed and ready for its intended use. (j) Trade and other receivables Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less impairment losses for bad and doubtful debts (see note 2(n)), except where the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less impairment losses for bad and doubtful debts (see note 2(n)). (k) Lease prepayments Lease prepayments represent land use rights paid to the PRC’s governmental authorities. Land use rights are carried at cost less impairment losses (see note 2(n)) and are amortised on a straight-line basis over the respective periods of the rights. 15 2 Summary of significant accounting policies (continued) (l) Inventories Inventories, other than spare parts, tools and ancillary materials, are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is calculated using the weighted average cost formula and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity. When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write- down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs. Spare parts, tools and ancillary materials are stated at cost less provision for obsolescence. (m) Cash and cash equivalents Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated cash flow statement. (n) Impairment (i) Impairment of investments in debt and equity securities and other receivables Investments in debt and equity securities and other current and non-current receivables that are stated at cost or amortised cost are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any such evidence exists, any impairment loss is determined and recognised as follows: - For unquoted equity securities and current receivables that are carried at cost, the impairment loss is measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment losses for current receivables are reversed if in a subsequent period the amount of the impairment loss decreases. Impairment losses for equity securities are not reversed. - For financial assets carried at amortised cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets). If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through the income statement. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years. 16 2 Summary of significant accounting policies (continued) (n) Impairment (continued) (ii) Impairment of other assets Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or, an impairment loss previously recognised no longer exists or may have decreased: - property, plant and equipment; - construction in progress; - intangible assets; - lease prepayments; - investment properties; - other investments; and - goodwill. If any such indication exists, the asset’s recoverable amount is estimated. - Calculation of recoverable amount The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit). - Recognition of impairment losses An impairment loss is recognised in the income statement whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable. - Reversals of impairment losses In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed. A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to the income statement in the year in which the reversals are recognised. 17 2 Summary of significant accounting policies (continued) (o) Dividends Dividends are recognised as a liability in the period which they are declared. (p) Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. (q) Employees benefits Obligations for contributions to defined contribution retirement schemes are recognised as an expense in the income statement as incurred. The Group’s net obligation in respect of lump sum long service amounts payable on cessation of employment in certain circumstances under the relevant statutory requirement is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using the projected unit credit method, discounted to its present value and reduced by the fair value of any related assets. The discount rate is the yield at the balance sheet date on high quality fixed interest corporate bonds or government bonds that have maturity dates approximately to the terms of the Group’s obligations. (r) Provisions and contingent liabilities Provisions are recognised for liabilities for uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote. (s) Trade and other payables Trade and other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost. 18 2 Summary of significant accounting policies (continued) (t) Revenue recognition (i) Goods sold and services rendered Revenue from the sale of goods is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts. (ii) Rental income Rental income from investment property is recognised in the income statement on a straight- line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income. (iii) Government grant An unconditional government grant is recognised in the income statement as other operating income when the grant becomes receivable. Any other government grant is recognised in the balance sheet initially as deferred income when there is reasonable assurance that it will be received and that the Group will comply with the conditions attaching to it. Grants that compensate the Group for expenses incurred are recognised as revenue in the income statement on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are recognised in the income statement as other operating income on a systematic basis over the useful life of the asset. (iv) Dividend income Dividend income from other investments is recognised when the shareholder’s right to receive the payment is established. (iv) Interest income Interest income is recognised as it accrues using the effective interest method. (u) Expenses (i) Operating lease payments Payments made under operating leases are recognised in the income statement on a straight- line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense. (ii) Net financing costs Net financing costs comprise interest expenses on borrowings calculated using the effective interest rate method, interest receivable on bank deposits, dividend income, foreign exchange gains and losses, and gains and losses on derivative financial instruments that are recognised in the income statement. Interest income is recognised in the income statement as it accrues, using the effective interest method. Dividend income is recognised in the income statement on the date the entity’s right to receive payments is established which in the case of quoted securities is usually the ex- dividend date. 19 2 Summary of significant accounting policies (continued) (v) Income tax Income tax on the income statement for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (w) Borrowing costs Borrowing costs are expensed in the income statement in the period in which they are incurred, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use. The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete. (x) Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. In accordance with the Group’s internal financial reporting system, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format for the purposes of these financial statements. Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. For example, segment assets may include inventories, trade receivables and property, plant and equipment. Segment revenue, expenses, assets and liabilities are determined before intra- group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group entities within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties. 20 2 Summary of significant accounting policies (continued) (x) Segment reporting (continued) Segment capital expenditure is the total cost incurred during the period to acquire segment assets (both tangible and intangible) that are expected to be used for more than one period. Unallocated items mainly comprise financial and corporate assets, interest-bearing loans, borrowings, tax balances, corporate and financing expenses. (y) Related parties For the purposes of these financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/ or their close family members) or other entities and include entities which are under the significant influence of related parties of the Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group. (z) Non-current assets held for sale and discontinued operations Immediately before classification as held for sale, the measurement of the assets (and all assets and liabilities in a disposal group) is brought up-to-date in accordance with IFRSs. Then, on initial classification as held for sale, non-current assets and disposal groups are recognised at the lower of carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale are included in the income statement, even when there is a revaluation. The same applies to gains and losses on subsequent remeasurement. A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. A disposal group that is to be abandoned may also qualify. 21 3 Change in accounting policies The IASB has issued a number of new and revised IFRSs that are effective for accounting periods beginning on or after 1 January 2005. The accounting policies of the group after the adoption of these new and revised IFRSs have been summarised in note 2. The following sets out information on the significant changes in accounting policies for the current and prior accounting periods effected in these financial statements. The group has not applied any new standard or interpretation that is not yet effective for the current accounting period (see note 41). (a) Amortisation of positive and negative goodwill (IFRS 3, Business Combinations and IAS 36, Impairment of assets) In prior periods: - positive goodwill was amortised on a straight line basis over its useful life and was subject to impairment testing when there were indications of impairment; and - negative goodwill was amortised over the weighted average useful life of the depreciation/amortisable non-monetary assets acquired, except to the extent it related to identified expected future losses as at the date of acquisition. In such cases it was recognised in the income statement as those expected losses were incurred. With effect from 1 January 2005, in order to comply with IFRS 3 and IAS 36, the Group has changed its accounting policies relating to goodwill. Under the new policy, the Group no longer amortises positive goodwill but tests it at least annually for impairment. Also with effect from 1 January 2005 and in accordance with IFRS 3, if the fair value of the net assets acquired in a business combination exceeds the consideration paid (i.e. an amount arises which would have been known as negative goodwill under the previous accounting policy), the excess is recognised immediately in the income statement as it arises. Further details of these new policies are set out in note 2(g)(i). The new policy in respect of the amortisation of positive goodwill has been applied prospectively in accordance with the transitional arrangements under IFRS 3, while the new policy in respect of the recognition of negative goodwill has been applied retrospectively with comparatives restated. The carrying amounts of negative goodwill at the beginning of the year were derecognised with a corresponding adjustment to the opening balance of retained earnings. The following tables disclose the adjustments that have been made in accordance with IFRS3 and IAS 36 to each of the line items for the consolidation financial statements of the Group as previously reported for the year ended 31 December 2004 and those affected for the year ended 31 December 2005. 22 3 Change in accounting policies (continued) (a) Amortisation of positive and negative goodwill (IFRS 3, Business combinations and IAS 36, Impairment of assets) (continued) (i) Effect on consolidated income statement for the year ended 31 December 2004 2004 RMB’000 Other operating income (as previously reported) 30,736 Reclassification of available for sale investment losses (30,196) Reclassification of other operating expenses (19,250) Reclassification of government grant income from net financing costs 21,279 Sub-total 2,569 Effect of IFRS 3 (13,439) Other operating income (as restated) (10,870) (ii) Effect on consolidated balance sheet for the year ended 31 December 2004 Effect of new policy increase in net asset for the year 2004 (as previously 2004 (as reported) IFRS 3 restated) RMB’000 RMB’000 RMB’000 Intangible assets 213,492 87,297 300,789 Interest in associates 2,180,519 29,181 2,209,700 Translation reserve 197,321 11,753 209,074 Retained earnings 709,361 104,725 814,086 (iii) Estimated effect on consolidated income statement for the year ended 31 December 2005 Estimated effect of new policy increase in net profit for the year IFRS 3 RMB’000 Other operating income/(loss) 30,903 23 3 Change in accounting policies (continued) (a) Amortisation of positive and negative goodwill (IFRS 3, Business combinations and IAS 36, Impairment of assets) (continued) (iv) Estimated effect on consolidated balance sheet for the year ended 31 December 2005 Estimated effect of new policy increase in net asset for the year IFRS 3 RMB’000 Intangible assets 118,200 (b) Changes in presentation (IAS 1 Presentation of financial statements) (i) Presentation of shares of associates’ and jointly controlled entities’ taxation (IAS 1, Presentation of financial statements) In prior years, the Group’s share of taxation of associates and jointly controlled entities accounted for using the equity method was included as part of the Group’s income tax in the consolidated income statement. With effect from 1 January 2005, in accordance with the implementation guidance in IAS 1, the Group has changed the presentation and includes the share of taxation of associates and jointly controlled entities accounted for using the equity method in the respective shares of profit or loss reported in the consolidated income statement before arriving at the Group’s profit or loss before tax. These changes in presentation have been applied retrospectively with comparatives restated. (ii) Minority interests (IAS 1, Presentation of financial statements and IAS 27, Consolidated and separate financial statements) In prior years, minority interests at the balance sheet date were presented in the consolidated balance sheet separately from liabilities and as deduction from net assets. Minority interests in the results of the Group for the year were also separately presented in the income statement as a deduction before arriving at the profit attributable to shareholders (the equity shareholders of the Company). With effect from 1 January 2005, in order to comply with IAS 1 and IAS 27, the Group has changed its accounting policy relating to presentation of minority interests. Under the new policy, minority interests are presented as part of equity, separately from interests attributable to the equity shareholders of the Company. Further details of the new policy are set out in note 2(c). These changes in presentation have been applied retrospectively with comparatives restated. (c) Definition of related parties (IAS 24, Related party disclosures) As a result of the adoption of IAS 24, Related party disclosures, the definition of related parties as disclosed in note 2(y) has been expanded. The revised IAS 24 also requires the compensation of key management personnel to be disclosed. The Group has included these additional disclosures in note 32(d) to the financial statements. 24 4 Turnover Turnover represents the aggregate of the invoiced value of goods sold and services rendered, after allowances for goods returned and deduction of any trade discounts, and excludes value added tax or other sales taxes. 5 Segment reporting Segment information is presented in respect of the Group’s business and geographical segments. The primary format, business segments, is based on the Group’s management and internal reporting structure. Inter-segment pricing is determined on an arm’s length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly income- earning assets and revenue, interest-bearing loans, borrowings and expenses, and corporate assets and expenses. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. (i) Business segments The Group comprises the following main business segments: • Thin Film Transistor-Liquid Crystal Display (“TFT-LCD”) business; • Application Special Device (“ASD”) business, which include Super Twisted Nematic- Liquid Crystal Display (“STN-CTSN”) business and non STN-CTSN business; • Cathode Radial Tube-Liquid Crystal Display (“CRT-LCD”) business; and • Others include Precision Electronic Components and materials and other business lines. Upon the completion of share transfer of Beijing Orient Top Victory Electronics Co., Ltd (“OTPV”) to TPV Technology Limited (“TPV”) (see note 6) on 30 November 2005, the CRT- LCD business ceased to be a business segment of the Group. CRT-LCD is classified as discontinued operation for the years ended 31 December 2004 and 2005. (ii) Geographical segments The Group’s three major business segments are managed on a worldwide basis, but operate in four main geographical areas. PRC is the home country of the Group which is also the main operating country. The areas of operation cover all the three activities. Other Asia region mainly covers the production and sales activity of TFT-LCD, CRT-LCD and STN-CTSN. European region mainly covers the sales activity of STN-CTSN and CRT-LCD while American region mainly covers the sales activity of TFT-LCD, STN-CTSN and CRT-LCD. In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets. 25 5. Segment reporting (continued) Business segments TFT-LCD ASD CRT/LCD Others Years ended 31 December Years ended 31 December Years ended 31 December Years ended 31 December 2005 2004 2005 2004 2005 2004 2005 2004 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Revenue from external customers 7,364,962 4,865,946 682,158 2,521,353 4,612,913 4,387,579 789,680 666,83 Inter-segment sales 585,390 603,690 - 20,292 - 2,135 293,566 166,40 Total 7,950,352 5,469,636 682,158 2,541,645 4,612,913 4,389,714 1,083,246 833,23 (Loss)/ profit from operations (1,209,214) (1,410) 47,717 96,250 133,101 113,680 (17,060) (16,832 Net finance costs Share of profits of associates Gain on sale of discontinued operation net of tax Income tax expenses (Loss)/profit after tax 26 5. Segment reporting (continued) Business segments TFT-LCD ASD CRT/LCD Others At 31 December At 31 December At 31 December At 31 December 2005 2004 2005 2004 2005 2004 2005 2004 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’00 Segment assets 17,567,757 12,742,497 1,008,218 1,105,724 - 1,820,341 5,635,730 448,61 Investment in associates - - - 392 - - 2,820,463 2,209,30 17,567,757 12,742,497 1,008,218 1,106,116 - 1,820,341 8,456,193 2,657,91 Segment liabilities 12,929,272 8,622,617 737,636 854,358 - 1,219,443 4,701,676 1,812,63 Total liabilities 12,929,272 8,622,617 737,636 854,358 - 1,219,443 4,701,676 1,812,63 Capital expenditures 3,033,118 6,366,804 47,677 100,845 56,206 84,883 165,740 54,46 Impairment losses 407 1,348 (60) 3,960 - - 37,893 15,68 Depreciation 1,074,989 513,382 52,342 105,631 36,622 40,728 65,642 60,70 Amortisation 22,719 13,979 2,150 2,240 2,636 10,047 8,089 6,07 27 5. Segment reporting (continued) Geographical segments Revenue from external customers Segment assets Capital expenditures Years ended 31 December At 31 December At 31 December 2005 2004 2005 2004 2005 2004 (restated) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 PRC 6,514,081 6,133,427 15,157,714 11,530,600 3,078,034 5,999,110 Other Asian region 5,045,182 2,442,940 6,275,669 6,474,821 224,683 607,850 European region 414,566 484,249 - 191,792 - 23 American region 1,309,074 2,900,883 91,383 26,024 24 15 Other countries 166,810 480,209 - - - - 13,449,713 12,441,708 21,524,766 18,223,237 3,302,741 6,606,998 28 6 Discontinued operations On 30 November 2005, the Company sold all its equity interest in Beijing Orient Top Victory Electronics Co., Ltd (“OTPV”) to TPV Technology Limited (“TPV”), an associate of the Group. In connection with this transaction, TPV issued 68,326,408 new shares to acquire the Group’s entire interest in OTPV, formerly a 45.21% owned consolidated subsidiary of the Company. The total consideration received, which was based on the market value of the shares received on completion date at HK$6.55 per share, amounted to approximately HK$447,538,000 (equivalent to RMB466,440,000) and the Company recognised a gain of approximately RMB133,753,000, after netting of related expenses, on disposal of OTPV in 2005. Accordingly, the acquisition of the additional equity interest in TPV does not have any cash flow impact, apart from the net cash disposed of as disclosed below. OTPV mainly covers the CRT-LCD business of the Group. For the purpose of these financial statements, the results of OTPV are presented as discontinued operations for the years ended 31 December 2004 and 2005. During the year ended 31 December 2005, the subsidiary had cash outflow from operating activities of RMB 190,614,000 (2004: RMB 47,961,000 inflow), cash outflow from investing activities of RMB 13,309,000 (2004: RMB 54,606,000 outflow) and cash inflow from financing activities of RMB 57,250,000 (2004: RMB 145,375,000 inflow). Effect of the disposal of OTPV: 2005 RMB’000 Property, plant and equipment 243,779 Intangible assets 219 Construction in progress 10,981 Deferred tax assets 11,432 Inventories 452,214 Trade and other receivables 1,726,068 Other non-current assets 24,586 Cash and cash equivalents 53,609 Bank and other loans (327,125) Trade and other payables (1,477,318) Net identified assets and liabilities 718,445 Consideration received, satisfied in cash - Cash disposed of (53,609) Net cash outflow (53,609) 29 7 Other operating income/(expenses) Years ended 31 December 2005 2004 (restated) RMB’000 RMB’000 Gain/(loss) on disposals of property, plant and 5,697 (500) equipment Gain on disposals of unquoted equity securities 3,520 31,421 Government grants income 92,043 22,094 Penalty and compensation income 3,075 2,479 Profits from sales of raw materials 3,318 4,752 Royalty fee income 33,306 - Reversal/(provision) on impairment loss on property, plant and equipment 60 (4,738) Impairment loss on construction in progress (19,932) (340) Impairment loss on intangible assets (407) (230) Impairment loss on unquoted equity securities - (15,688) Impairment loss on held-to-maturity securities (17,961) - Amortisation of positive goodwill - (45,015) Guarantee loss - (4,867) Others (2,335) (238) __________ __________ 100,384 (10,870) ========== ========== 30 8 (Loss)/profit from ordinary activities before taxation (Loss)/profit from ordinary activities before taxation is arrived at after charging / (crediting) Years ended 31 December 2005 2004 (restated) RMB’000 RMB’000 (a) Net financing costs: Interest and other borrowing costs 798,400 357,651 Less: amount capitalised as construction in progress* (132,844) (8,827) __________ __________ Net interest expenses 665,556 348,824 --------------- -------------- Interest income (51,691) (66,207) Net unrealised fair value gain on forward contracts (1,573) (295) Net realised gain on forward contracts - (46,125) Net foreign exchange gain (163,074) (200,643) Other net financial expenses 18,130 10,810 ___________ __________ (198,208) (302,460) --------------- --------------- 467,348 46,364 ========= ========= * Average rate of capitalisation of borrowing costs (% per annum) 5% 3% ========= ========= 31 8 (Loss)/profit from ordinary activities before taxation (continued) Years ended 31 December 2005 2004 (restated) RMB’000 RMB’000 (b) Other items: Cost of inventories 13,383,605 11,157,840 Personnel costs - Salaries and wages 705,876 721,913 - Staff welfare and other costs 121,744 152,237 - Contributions to retirement benefit schemes 64,968 54,534 Total personnel costs 892,588 928,684 Depreciation and amortisation 1,265,189 752,778 Repairs and maintenance 121,744 137,184 Provision for bad and doubtful debt 5,623 11,042 Provision for obsolete inventories 85,411 75,961 ========== ========== 9 Income tax expense (a) Taxation in the consolidated income statement comprises: Years ended 31 December 2005 2004 RMB’000 RMB’000 Current tax expense PRC tax 41,040 17,472 Overseas tax 186 6,390 ___________ ___________ 41,226 23,862 Deferred tax expense Originating and reversal of temporary differences (note 19) 503 (10,750) ___________ ___________ 41,729 13,112 ========== ========== 32 9 Income tax expenses (continued) (a) Taxation in the consolidated income statement comprises: (continued) The Company is subject to a preferential income tax rate of 15% as an enterprise with new technology in Beijing New Technology Development Zone. As approved by the tax bureau, certain subsidiaries of the Group located in the PRC are also subject to the preferential income tax rates ranging from 0% to 15%. Other subsidiaries of the Group located in the PRC are subject to an income tax rate of 33%. BOE-Hydis Technology Co, Ltd (“BOE-Hydis”) entitled the full exemption of income tax from 2003 to 2009, followed by a 50 per cent reduction of enterprise income tax for the next 3 years. The reconciliation of income tax calculated at the applicable tax rate with actual expense for the year is as follows: Years ended 31 December 2005 2004 RMB’000 RMB’000 (Loss)/profit before tax (1,246,610) 435,335 ======= ======== Expected PRC income tax (benefit)/expense at 15% (186,992) 65,300 Effect on different tax rate available to different companies of the Group (84,695) (45,765) Non-deductible expenses 23,660 35,259 Tax exempt revenue (17,376) (14,524) Income tax effect of tax exemption (15,422) (38,184) Tax effect of unused tax losses not recognised 323,253 12,145 Tax effect of unrecognised prior year tax losses utilised (699) (1,119) _________ _________ 41,729 13,112 ======== ======== (b) Current taxation in the consolidated balance sheet represents: At 31 December 2005 2004 RMB’000 RMB’000 Brought forward balance 7,172 13,530 Provision for the year 41,226 23,862 Disposal of a subsidiary (3,625) (6,213) Provisional profits tax paid (21,562) (24,007) ___________ ___________ 23,211 7,172 ========== ========== 33 10 (Loss)/earnings per share (a) (Loss)/earnings per share The calculation of (loss)/earnings per share is based on the net loss for the year attributable to equity shareholders of the Company of RMB1,245,993,000 (2004: net profit of RMB 340,262,000) and on the weighted average number of ordinary shares outstanding during the year of 2,195,696,000 shares (2004: 2,175,921,000 shares), calculated as follows: (b) Weighted average number of ordinary shares 2005 2004 (restated) ’000 ’000 Issued ordinary shares at 1 January 1,463,797 659,465 Effects of shares issued in January 2004 - 303,217 Effects of capitalisation of share premium in 2004 - 481,340 Effects of capitalisation of share premium in 2005 731,899 731,899 _________ _________ Weighted average number of ordinary shares at 31 December 2,195,696 2,175,921 ========== ========== (c) Basic (loss)/earnings per share for continuing and discontinued operations For the year ended 31 December 2005, (loss)/earnings per share for continuing operations had been calculated by using the loss relating to continuing operations attributable to equity shareholders of RMB1,298,954,000 (2004: net profit of RMB296,359,000) where the earnings per share for discontinued operations had been calculated by using the profit relating to discontinued operations attributable to equity shareholders of RMB 52,961,000 (2004: net profit of RMB 43,903,000). 11 Dividends (a) Dividends payable to equity shareholders of the Company attributable to the year 2005 2004 RMB’000 RMB’000 Final dividend proposed after the balance sheet date of RMB Nil cents per every 10 shares (2004: RMB0.2 per - 29,276 every 10 shares) The final dividend proposed after the balance sheet date has not been recognised as a liability at the balance sheet date. (b) Dividends payable to equity shareholders of the Company attributable to the previous financial year, approved and paid during the year 2005 2004 RMB’000 RMB’000 Final dividends in respect of the previous financial year, approved and paid during the year, of RMB0.2 per every 10 shares (2004: RMB0.1 per every shares) 29,276 9,758 34 12 Property, plant and equipment Plant, machinery and Motor Buildings equipment vehicles Total RMB’000 RMB’000 RMB’000 RMB’000 Cost: At 1 January 2004 1,575,244 3,258,667 19,742 4,853,653 Foreign exchange differences 158,449 388,634 263 547,346 Additions 12,817 265,067 8,033 285,917 Transfer from construction in progress (note 13) 713,124 629,027 545 1,342,696 Consolidation of a subsidiary 5,416 8,464 2,821 16,701 Acquisition through business combinations 630 413 371 1,414 Deemed disposal of a subsidiary into an associate (58,136) (357,032) (1,447) (416,615) Unconsolidated jointly controlled entity (950) (19,157) - (20,107) Disposals (20,449) (45,584) (685) (66,718) _________ _________ _________ _________ At 31 December 2004 2,386,145 4,128,499 29,643 6,544,287 -------- -------- -------- -------- At 1 January 2005 2,386,145 4,128,499 29,643 6,544,287 Foreign exchange differences (4,925) (12,402) - (17,327) Additions 82,990 100,900 3,496 187,386 Transfer from construction in progress (note 13) 313,477 7,369,063 - 7,682,540 Disposal of a subsidiary (note 6) (169,427) (228,052) (4,127) (401,606) Disposals (21,934) (24,926) (1,225) (48,085) _________ _________ _________ _________ At 31 December 2005 2,586,326 11,333,082 27,787 13,947,195 -------- -------- -------- -------- Accumulated depreciation and impairment losses: At 1 January 2004 110,403 819,809 9,976 940,188 Foreign exchange differences 17,903 124,803 126 142,832 Charge for the year 119,073 593,648 2,397 715,118 Impairment losses 126 4,612 - 4,738 Consolidation of a subsidiary 369 2,128 1,276 3,773 Deemed disposal of a subsidiary into an associate (12,147) (151,676) (916) (164,739) Unconsolidated jointly controlled entity (57) (4,541) - (4,598) Written back on disposal (20,359) (42,802) (364) (63,525) _________ _________ _________ _________ At 31 December 2004 215,311 1,345,981 12,495 1,573,787 -------- -------- -------- -------- At 1 January 2005 215,311 1,345,981 12,495 1,573,787 Foreign exchange differences (927) (4,546) - (5,473) Charge for the year 136,874 1,083,744 3,551 1,224,169 (Reversal)/provision of impairment losses (139) 79 - (60) Disposal of a subsidiary (note 6) (26,327) (128,339) (3,161) (157,827) Written back on disposal (2,350) (14,681) (642) (17,673) _________ _________ _________ _________ At 31 December 2005 322,442 2,282,238 12,243 2,616,923 -------- -- - - - - - - - -- - - - - - - - -------- Net book value: At 31 December 2004 2,170,834 2,782,518 17,148 4,970,500 ========== ========== ========== ========== At 31 December 2005 2,263,884 9,050,844 15,544 11,330,272 ========== ========== ========== ========== 35 12 Property, plant and equipment (continued) (a) At 31 December 2005, the Group pledged property, plant and equipment with a book value of approximately RMB 9,933,625,000 (2004: RMB 2,924,415,000) (note 26(a)). (b) At 31 December 2005, the Group was in the process of applying the title certificates of certain of its buildings and land use rights with an aggregate carrying value of approximately RMB38,582,000 (2004: RMB78,540,000). (c) The Group assessed the recoverable amount of a number of specialised assets during the year. Based on the assessments, accumulated impairment loss of those assets was reversed by RMB60,000 for the year (2004: write down by RMB4,738,000). The estimates of the recoverable amount were based on the asset’s value in use, determined using a discount rate of 5% for the year (2004:3%). 36 13 Construction in progress 2005 2004 RMB’000 RMB’000 Balance at 1 January 5,065,349 309,225 Additions 3,052,018 6,106,317 ___________ ___________ 8,117,367 6,415,542 Transfer to property, plant and equipment (note 12) (7,682,540) (1,342,696) Transfer to intangible assets (note 14) (118,787) - Disposals - (47,652) Impairment losses (19,932) (340) Disposal of a subsidiary (note 6) (10,981) - Deemed disposal of a subsidiary into an associate - (285) Unconsolidated jointly controlled entity - (165) Effect of movements in foreign exchange 117 40,945 ___________ ___________ Balance at 31 December 285,244 5,065,349 ========== ========== At 31 December 2004, the Group pledged construction in progress with net book value of approximately RMB 287,017,000 as collateral for the Group’s bank loans (note 26(a)). Such construction in progress was completed and transferred to property, plant and equipment in 2005. 37 14 Intangible assets Computer Technology Goodwill software rights Patent Others Total (restated) (restated) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Cost: At 1 January 2004 55,055 21,543 94,284 6,448 23 177,353 Foreign exchange differences - 3,457 7,112 1,754 2 12,325 Additions - 3,939 172,775 19,041 15 195,770 Deemed disposal of a subsidiary into an associate - (2) (2) (702) (40) (746) Unconsolidated jointly controlled entity - - (3,568) - - (3,568) At 31 December 2004 55,055 28,937 270,601 26,541 - 381,134 At 1 January 2005 55,055 28,937 270,601 26,541 - 381,134 Foreign exchange differences - (16) (331) (59) - (406) Additions - 15,173 48,164 - - 63,337 Opening balance adjustment to eliminate accumulated amortisation (11,661) - - - - (11,661) Transfer from construction in progress (note 13) - 118,787 - - - 118,787 Disposal of a subsidiary (note 6) - - (29,150) - - (29,150) Disposals - - - (50) - (50) At 31 December 2005 43,394 162,881 289,284 26,432 - 521,991 Accumulated amortisation and impairment: At 1 January 2004 8,840 2,310 35,717 1,331 11 48,209 Foreign exchange differences - 722 1,600 581 - 2,903 Amortisation for the year 2,821 3,774 17,638 5,486 8 29,727 Impairment losses - - - 230 - 230 Deemed disposal of a subsidiary into an associate - - - (228) (19) (247) Unconsolidated jointly controlled entity - - (477) - - (477) At 31 December 2004 11,661 6,806 54,478 7,400 - 80,345 At 1 January 2005 11,661 6,806 54,478 7,400 - 80,345 Foreign exchange differences - (80) (561) (22) - (663) Amortisation for the year - 13,239 13,619 5,802 - 32,660 Opening balance adjustment to eliminate accumulated amortisation (11,661) - - - - (11,661) Impairment losses - - - 407 - 407 Disposal of a subsidiary (note 6) - - (28,931) - - (28,931) Written back on disposal - - - (16) - (16) At 31 December 2005 - 19,965 38,605 13,571 - 72,141 Net book value: At 31 December 2004 43,394 22,131 216,123 19,141 - 300,789 At 31 December 2005 43,394 142,916 250,679 12,861 - 449,850 38 14 Intangible assets (continued) (a) Adoption of IFRS 3 “Business Combinations” In 2004, positive goodwill not already recognised directly in reserves was amortised on a straight-line basis over five years. The amortisation of positive goodwill for the year ended 31 December 2004 was included in administrative expenses in the income statement. As explained further in note 3(a), with effect from 1 January 2005 the Group no longer amortises goodwill. In accordance with the transitional provisions set out in IFRS 3, the accumulated amortisation of goodwill as at 1 January 2005 has been eliminated against the cost of goodwill as at that date. (b) Impairment losses In 2005, the patent protection periods of certain patents owned by BOE-Hydis were expired and the carrying amount of the patents was written down by RMB407,000 accordingly. (c) Impairment tests for cash-generating units (“CGUs”) containing goodwill Goodwill is allocated to the Group’s CGU identified according to country of operation and business segment as follows: At 31 December 2005 2004 RMB’000 RMB’000 Property management activities based in Beijing (Beijing Orient Heng Tong Property Centre) 42,632 42,632 Others 762 762 ___________ ___________ 43,394 43,394 ========== ========== The recoverable amounts of CGUs are determined based on value-in-use calculations as derived from financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimate rates stated below. The growth rate does not exceed the long-term average growth rate for the business in which the CGUs operates. Key assumptions used for value-in-use calculations: 2005 2004 % % Gross margin 13.7 13.7 Growth rate 10 10 Discount rate 8.2 8.2 Management determined the budgeted gross margin based on past performance and its expectation for market development. The weighted average growth rates used are consistent with the forecasts included in industry reports. The discount rates used are pre-tax and reflect specific risks relating to the property management industry, in which Beijing Orient Heng Tong Property Centre, a subsidiary of the Group, is mainly engaging. 39 14 Intangible assets (continued) Based on the assessment, the carrying amount of the unit was approximately equal to its recoverable amount. Any adverse change in the assumptions used in the calculation of recoverable amount would cause the carrying value to be less than the recoverable amount (see note 40). For details on Beijing Orient Heng Tong Property Centre, please see note 36. (c) At 31 December 2005, the Group pledged intangible assets with net book value of approximately RMB734,000 (2004: 1,105,000) as collateral for the Group’s bank loans (note 26(a)). 15 Lease prepayments Lease prepayments represent the land use rights on land located in the PRC. The remaining periods of the land use rights of the Group range from 6 to 48 years. At 31 December 2005, the Group did not pledge its land use rights (2004: net book value of RMB4,123,000) as collateral for the Group’s bank loans (note 26(a)). 16 Investment properties Cost: RMB’000 At 1 January 2004 21,436 Consolidation of a subsidiary 110,662 ___________ At 31 December 2004 and at 31 December 2005 132,098 ---------- Accumulated depreciation: At 1 January 2004 6,656 Consolidation of a subsidiary 1,571 Charge for the year 5,324 ___________ At 31 December 2004 and 1 January 2005 13,551 Charge for the year 5,426 ___________ At 31 December 2005 18,977 ---------- Net book value: At 31 December 2004 118,547 ========= At 31 December 2005 113,121 ========= 40 16 Investment properties (continued) Investment property is not measured at fair value as the determination of its fair value cannot be made with sufficient reliability on a continuing basis as comparable market transactions are infrequent and alternative reliable estimates of fair value are not available. Investment properties comprise a number of commercial properties that are leased to external parties. The leases typically run for an initial period from one year to ten years. Subsequent renewals are negotiated with the leasee. Property interests held under operating leases are classified as investment properties. No contingent rents are charged. At 31 December 2005, the Group pledged investment properties with a book value of approximately RMB 129,028,000 (2004: RMB 134,668,000) (note 26(a)). Please see note 33(b) for details on investment properties leased out under operating leases. 17 Interest in associates Except for the Group’s interest in TPV, a listed company in Hong Kong, and Beijing Matsushita Color CRT Company Limited (“BMCC”), the Group’s interest in other associates are individually and in aggregate not material to the Group’s financial conditions or results of operations for the year. Financial information on TPV and BMCC are set out as below: Summary financial information on associates – 100 per cent Assets Liabilities Equity Revenue Profit RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 2005 TPV 24,648,198 17,662,916 6,985,282 41,406,910 1,225,519 BMCC 3,636,598 1,187,967 2,448,631 3,444,357 113,397 28,284,796 18,850,883 9,433,913 44,851,267 1,338,916 2004 TPV 12,289,154 8,916,886 3,372,268 30,915,700 857,533 BMCC 4,339,017 1,834,615 2,504,402 4,266,317 362,735 16,628,171 10,751,501 5,876,670 35,182,017 1,220,268 At 31 December 2005 2004 RMB’000 RMB’000 Fair values of investments in TPV 3,203,919 1,655,557 =========== =========== Details of the Group’s principal associates are set out in note 36. 41 18 Other investments At 31 December 2005 2004 RMB’000 RMB’000 Non-current investments Held-to-maturity debt securities 170 170 Unquoted equity securities (b) 10,491 8,020 ___________ ___________ 10,661 8,190 ========== ========== Current investments Held-to-maturity debt securities (a) - 44,031 ========== ========== (a) During the year, held-to-maturity debt securities of RMB26,076,000 were matured and received in full. Impairment losses amounting to USD2,170,000 (equivalent to RMB17,961,000) in respect of held-to-maturity debt securities under current investments were recognised for the year in view of the net liabilities position of Hyundai LCD, Inc. (“HYLCD”), the issuer of the debt securities. (b) Unquoted equity securities comprise primarily investments in unconsolidated subsidiaries and other unquoted equity investments. Particulars of unconsolidated subsidiaries are set out in note 36. 42 19 Deferred tax assets and liabilities (a) Deferred tax assets and (liabilities) are attributable to the following: Assets Liabilities At 31 December At 31 December 2005 2004 2005 2004 2 RMB’000 RMB’000 RMB’000 RMB’000 RMB’ Unrealised foreign exchange gain - - (588) (213) (5 Impairment losses on assets 1,629 3,245 - - 1, Royalty fee accrued - 4,042 - - Amortisation of intangible assets - 5,771 - - Others 311 162 - 198 ___________ ___________ ___________ ___________ ________ Total assets/(liabilities) 1,940 13,220 (588) (15) 1, ========== ========== ========== ========== ======= 43 19 Deferred tax assets and liabilities (continued) (b) Movements in temporary differences during the year are as follows: Unrealised Research and foreign Impairment Amortisation development exchange Interest losses on Royalty of intangible Unrealised expenses gain income assets fee accrued assets income Others RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 R Balance at 1 January 2004 (10,502) (2,411) (28) 2,148 4,042 3,620 730 4,777 Exchange differences - (20) - - - - - 42 Acquisition through business combinations - - - - - - - 57 Recognised in income statement (note 9) 10,502 2,218 28 1,097 - 2,151 (730) (4,516) ________ _________ ________ ________ ________ _________ ________ ________ __ Balance at 31 December 2004 and 1 January 2005 - (213) - 3,245 4,042 5,771 - 360 Exchange differences - 28 - 3 - - - 51 Disposal of a subsidiary (note 6) - - - (1,619) (4,042) (5,771) - - ( Recognised in income statement (note 9) - (403) - - - - - (100) ________ _________ ________ ________ ________ ________ ________ ________ __ Balance at 31 December 2005 - (588) - 1,629 - - - 311 ======= ======== ======= ======= ======= ======== ======= ======= == 44 20 Long term deposits At 31 December 2005, approximately of RMB14,758,000 (2004: RMB14,814,000) of bank deposits were pledged as collateral for bank and other loans and long-term notes payable by BOE-Hydis (note 26(a)) 21 Inventories At 31 December 2005 2004 RMB’000 RMB’000 Raw materials 673,543 655,263 Work in progress 281,143 84,059 Finished goods 940,658 357,968 Low-valued consumables and packing materials 24,557 29,776 1,919,901 1,127,066 The inventories at 31 December 2005 were stated at cost less full provision on certain obsolete inventories. At 31 December 2005, approximately RMB213,408,000 (2004: RMB127,997,000) of stock provision were made in the financial statements to state the inventories at the lower of cost and net realisable value. At 31 December 2005, inventories stated at net realisable value amounted to RMB837,240,000 (2004: RMB225,872,000) . At 31 December 2005, the Group pledged inventories with net book value of approximately RMB 594,041,000 (2004: RMB 614,284,000) as collateral for the syndicated loan (note 26(a)). 22 Trade receivables At 31 December 2005 2004 RMB’000 RMB’000 Accounts receivable 1,775,056 1,842,108 Bills receivable 101,238 200,319 ___________ ___________ 1,876,294 2,042,427 ========== ========== Credit of up to 90 days is granted to customers with established trading history, otherwise sales on cash terms are required. 45 22 Trade receivables (continued) At 31 December 2005, the Group pledged trade receivables with a net book value of approximately RMB 1,149,045,000 (2004: RMB 406,313,000) as collateral for the Group’s bank loans (note 26(a)). Included in trade receivables are the following amount denominated in a currency other than the functional currency of the entity to which they relate: At 31 December 2005 2004 '000 '000 United States dollars 55,558 12,766 ========== ========== 23 Deposits with banks and cash and cash equivalents Included in deposit with banks and cash and cash equivalents are the following amounts denominated in currencies other than the functional currency of the entity to which they relate: At 31 December 2005 2004 '000 '000 United States Dollars USD 54,102 USD 46,403 Hong Kong Dollars HKD 13,720 HKD 13,846 Korean Won KRW 63,992,986 KRW 57,626,519 Japanese Yen Yen 3,380,464 Yen 118,053 ========== ========== At 31 December 2005, the Group’s deposits with banks with maturity date over 3 months amounted to RMB299,178,000 (2004: Nil). Apart from those disclosed in note 20, at 31 December 2005, the Group pledged bank deposits amounting to approximately RMB 75,300,000 (2004: 23,990,000) as security for certain interest-bearing loans and borrowings and other facilities (note 26(a)). 24 Trade payables At 31 December 2005 2004 RMB’000 RMB’000 Accounts payable 1,679,396 1,888,516 Bills payable 90,324 86,996 ___________ ___________ 1,769,720 1,975,512 ========== ========== Included in trade payables are the following amounts denominated in a currency other than the functional currency of the entity to which they relate: At 31 December 2005 2004 ’000 ’000 United States Dollars 78,145 10,945 =========== ======== 46 25 Provisions Compensated Warranties absences (note a) (note b) Total RMB’000 RMB’000 RMB’000 Balance at 1 January 2004 23,916 2,083 25,999 Foreign exchange differences 2,238 832 3,070 Additional provisions made 40,189 8,673 48,862 Acquisition through business combinations (480) (3,450) (3,930) Provisions utilised (26,170) (3,837) (30,007) _______________ _______________ _______________ Balance at 31 December 2004 and 1January 39,693 4,301 43,994 2005 Foreign exchange differences (95) 50 (45) Additional provisions made 152,835 6,296 159,131 Disposal of subsidiary (29,426) - (29,426) Provisions utilised (118,503) (4,380) (122,883) _______________ _______________ _______________ Balance at 31 December 2005 44,504 6,267 50,771 ============== ============== ============== (a) Warranties The provision mainly relates to the warranty on certain products and undertakes to repair or replace items that fail to perform satisfactorily. The provision is based on estimates made from historical warranty data associated with similar products and services. A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities. (b) Compensated absences The Group provides for the expected cost of compensated absences based on the expected amount to pay as a result of the unused entitlement that has accumulated at the balance sheet dates. 47 26 Bank and other loans At 31 December 2005, bank and other loans were repayable as follows: At 31 December 2005 2004 RMB’000 RMB’000 Within 1 year or on demand 3,762,956 5,436,259 After one year but within 2 years 1,979,254 1,015,919 After 2 years but within 5 years 7,590,456 1,477,802 9,569,710 2,493,721 13,332,666 7,929,980 Representing: At 31 December 2005 2004 RMB’000 RMB’000 Current portion of bank and other loans - denominated in RMB 2,704,704 4,513,927 Fixed interest rate ranging from 5.00% to 6.70% per annum as at 31 December 2005 - denominated in USD 483,424 711,561 Fixed interest rate ranging from 4.27% to 7.19% per annum as at 31 December 2005 - denominated in Yen 363,299 44,963 Fixed interest rate ranging from 5.00% to 5.70% per annum as at 31 December 2005 - denominated in KRW 168,529 122,808 Fixed interest rate ranging from 5.05% to 8.09% per annum as at 31 December 2005 - discounted commercial notes 43,000 43,000 3,762,956 5,436,259 Non-current portion of bank and other loans - denominated in RMB 3,800,636 806,910 Fixed interest rate ranging from 2.55% to 5.76% per annum as at 31 December 2005 with maturities through 2008 - denominated in USD 3,732,448 748,462 Fixed interest rate ranging from 4.31% to 7.42% per annum as at 31 December 2005 with maturities through 2008 - denominated in KRW 453,151 938,349 Fixed interest rate ranging from 5.05% to 8.09% per annum as at 31 December 2005 with maturities through 2008 Corporate Debenture - denominated in KRW 1,583,475 - Fixed interest rates at 6.5%, 6.7% and 7.39% per annum for the corporate debenture with maturities in 2007, 2008 and 2010 respectively Sub-total (non-current portion) 9,569,710 2,493,721 13,332,666 7,929,980 48 26 Bank and other loans (continued) At 31 December 2005, bank and other loans were secured as follows: At 31 December 2005 2004 RMB’000 RMB’000 Non-current liabilities Secured bank loans 964,670 979,590 Secured syndicated loans 6,819,413 1,410,621 ___________ ___________ 7,784,083 2,390,211 Unsecured bank loans 200,352 101,710 Corporate debenture 1,583,475 - Other borrowings 1,800 1,800 ___________ ___________ 9,569,710 2,493,721 ========== ========== At 31 December 2005 2004 RMB’000 RMB’000 Current liabilities Secured bank loans 473,114 715,827 Secured syndicated loans 308,060 167,453 ___________ _________ 781,174 883,280 Unsecured bank and other loans 2,981,782 4,552,979 ___________ ___________ 3,762,956 5,436,259 ========== ========= 49 26 Bank and other loans (continued) (a) As at 31 December 2005, bank and other loans of the Group totalling RMB8,565,257,000 (2004: RMB3,273,491,000) were pledged by certain assets as set out below: 2005 2004 RMB’000 RMB’000 Property, plant and equipment (note 12(a)) 9,933,625 2,924,415 Investment properties (note 16) 129,028 134,668 Construction in progress (note 13) - 287,107 Lease prepayment (note 15) - 4,123 Intangible assets (note 14) 734 1,105 Long term deposits (note 20) 14,758 14,814 Inventories (note 21) 594,041 614,284 Deposit with banks (note 23) 75,300 23,990 Trade receivables (note 22) 1,149,045 406,313 Total 11,896,531 4,410,819 In addition, the Company has pledged its 15% equity interest in Beijing BOE Optoelectronics Technology Co., Ltd (“BOEOT”) to secure the bank loans. (b) BOE-Hydis entered into a financial covenant agreement and obtained a syndicated loan from Korean Development Bank, Korean Exchange Bank, Woori Bank and Hyundai Marine and Fire Insurance Company. According to the agreement, BOE-Hydis should maintain certain financial ratios before the repayment of syndicated loan and the related interests. The share certificate issued by BOE-Hydis to the Group was kept under Industrial and Commercial Bank of China, Seoul Branch’s (“ICBC Seoul”) custody. During the loan period, the shareholding of the Group in BOE-Hydis shall not be lower than 51% in any event until the loan and related interest expenses are repaid. Any additional shares resulting from share split, share exchange, a merger or consolidation or otherwise will be paid or retained by ICBC Seoul. During 2005, BOE-Hydis was unable to meet certain loan covenants and has obtained a waiver from the lenders of the syndicated loans in March 2006. (c) BOE-Hydis has entered into a financial covenant agreement in relation to the unsecured corporate debentures under which BOE-Hydis should maintain its debt ratio at not less than 500% till 2007 and 1000% for the period from 2008 to 2010. (d) As of 31 December 2005, RMB38,000,000 bank loans of Zhejiang BOE Display Technology Co., Ltd (“ZJBOE”) was guaranteed by Zhejiang Huanyu Construction Company Limited (2004: Nil). (e) As of 31 December 2005, RMB6,037,964,000 (2004: Nil) bank loans of BOEOT was jointly guaranteed by the Company and Beijing Electronics Holding Co., Ltd (“BEH”), the Company’s ultimate holding company. A guarantee fee of RMB6,125,000 was paid to BEH in 2005 (see note 32(c)). 50 27 Long-term notes payable Long-term notes payable mainly include Long-term Promissory notes issued by BOE- Hydis on 23 January 2003 when acquiring the TFT-LCD business from Hyundai Display Technology Inc.. The notes are partially secured by certain property, plant and equipments of BOE-Hydis and are due on 22 January 2008. 28 Employee benefits BOE-Hydis provide post employment benefits to its employees and directors according to the statutory requirement. The subsidiary’s 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. Movements in net liabilities for defined benefit obligations during the year are as follows: At 31 December 2005 2004 RMB’000 RMB’000 Net liability for defined benefit obligations at 1 January 19,685 12,142 Contributions paid (62,934) (25,842) Expense recognised in the income statement 64,968 54,534 Deemed disposal of a subsidiary into an associate - (23,536) Foreign exchange differences (4,439) 2,387 Net liabilities for defined benefit obligations at 31 December 17,280 19,685 The expense is recognised in the following line items in the income statement: At 31 December 2005 2004 RMB’000 RMB’000 Cost of sales 39,377 33,053 Distribution and other operating expenses 2,542 2,133 Administrative expenses 23,049 19,348 ____________ ____________ 64,968 54,534 ========== ========== 51 29 Other non-current liabilities At 31 December 2005 2004 RMB’000 RMB’000 Long-term construction loan 300,456 284,577 Trust capital loan 410,657 388,953 Deferred income 88,887 126,470 Others 56,539 58,810 ____________ ____________ 856,539 858,810 ========== ========== (a) Long-term construction loan According to the Workshop Construction Consignment Agreement (the “Agreement”) and other agreements signed among the Company, BOEOT and Beijing Economic- Technological Investment & Development Corporation (“BETIDC”), BETIDC agreed to invest a total of RMB350,000,000 (2004: RMB350,000,000) for the construction of the 5th Generation TFT-LCD special workshop (“5th Generation workshop”). According to the Agreement, BETIDC has the ownership of the 5th Generation workshop, BOEOT is required to acquire from BETIOC the 5th Generation workshop within five years from the date of the Agreement. In July 2004, the Company, BOEOT and BETIDC mutually agreed to cancel the Agreement. The Company has undertaken to repay the RMB350,000,000 (2004: RMB350,000,000) to BETIDC before 22 October 2008 with a corporate guarantee issued by BEH (see note 32(c)). (b) Trust capital loan According to the agreement signed between the Company and Beijing Technology Economic Development Zone Management Committee (“Beijing Technology Zone Committee”) in 2004, Beijing Technology Zone Committee provided capital of RMB450,000,000 to the Company, representing an equity interest of 10.8%, as its investment in BOEOT to encourage the establishment of the production facilities of the 5th Generation TFT-LCD products in the zone. The Company would hold interest in BOEOT on trust for Beijing Technology Zone Committee while the related benefits derived from the equity interests in BOEOT (including but not limited to the entitlement to dividends, the right to share the results of BOEOT and right to exercise the voting right) still belongs to the Company. The Company is required to purchase from Beijing Technology Zone Committee its interest in BOEOT for RMB450,000,000 within three years from the receipt of the above capital sum. If the Company fails to make such purchase within the specified period, Beijing Technology Zone Committee has the right to dispose its interest in BOEOT in the market. (c) Deferred income Deferred income represents the difference between the amount of trust capital loan and long-term construction loans and the fair values of these loans. The deferred income will be amortised and is recognised as interest income over the respective loan period. 52 30 Share capital 2005 2004 Number Number of of Shares Share '000 RMB’000 '000 RMB’000 Issued and fully paid: State-owned legal person shares of RMB1 each At 1 January 596,887 596,887 408,065 408,065 Transfer of State-owned legal person shares to listed A shares - - (10,140) (10,140) Capitalisation of share premium (note a) 298,444 298,444 198,962 198,962 Decrease as a result of State-owned share Reform Plan (note b) (77,622) (77,622) - - _________ __________ __________ __________ At 31 December 817,709 817,709 596,887 596,887 -------------- -------------- -------------- --------------- A shares of RMB1 each At 1 January 123,210 123,210 72,000 72,000 Transfer of State-owned legal person shares to listed A shares - - 10,140 10,140 Capitalisation of share premium (note a) 61,605 61,605 41,070 41,070 Increase as a result of State-owned share Reform Plan (note b) 77,622 77,622 - - _________ _________ __________ _________ At 31 December 262,437 262,437 123,210 123,210 --------------- --------------- --------------- --------------- B shares of RMB1 each At 1 January 743,700 743,700 179,400 179,400 Capitalisation of share premium (note a) 371,850 371,850 247,900 247,900 Issue of new shares - - 316,400 316,400 _________ __________ __________ __________ At 31 December 1,115,550 1,115,550 743,700 743,700 ------------- --------------- --------------- --------------- 2,195,696 2,195,696 1,463,797 1,463,797 ======== ======== ======== ======== 53 30 Share capital (continued) (a) Pursuant to the shareholders’ meeting held on 5 July 2005, the Company issued additional shares out of the share premium in the ratio 10:5 to all its shareholders. (b) In accordance with the “Approval notice related to State-owned Share Reform Plan of BOE Technology Group Company Limited” issued by Stated-owned Assets Supervision and Administration Commission of the State Council in the PRC, the Company implemented its State-owned Share Reform Plan (“Reform Plan”) on 29 November 2005. According to the Reform Plan, the four state-owned legal persons agreed to compensate the existing holders of listed BOE shares by 4.2 shares for every 10 listed shares. Holders of state-owned legal person shares transferred a total of 77,622,000 shares of the Company to those registered A Share shareholders on 29 November 2005. Upon the completion of the Reform Plan, the percentage of state-owned legal person shares out of the total issued shares decreased from 40.78% to 37.24%. All these holders of state-owned legal person shares are not permitted to sell the A shares on the public market or transfer to other entities on or before 29 November 2006 (“the Period”). Further to this limitation, BOID, the major shareholder of the Company, is permitted to sell not more than 5% of its total holdings of A shares within 12 months after the expiry of the Period and not more than 10% of its total holdings of A shares within 24 months after the expiry of the Period. (c) All shares rank pari passu in all material aspects. 31 Reserves Statutory Statutory surplus public Discretionary Translation Capital reserve reserve welfare fund surplus reserve reserve (note a) (note a) (note a) (note b) Total (restated) (restated) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Balance at 1 January 2004 4,970 119,679 59,129 233,678 655 418,111 Transfer for the year - 20,409 10,205 51,023 - 81,637 Currency translation differences – amount arising in the year - - - - 208,419 208,419 ________ ________ ________ _________ _________ ________ Balance at 31 December 2004 and 1 January 2005 4,970 140,088 69,334 284,701 209,074 708,167 Currency translation differences – amount arising in the year - - - - (27,977) (27,977) ________ ________ ________ _________ _________ ________ Balance at 31 December 2005 4,970 140,088 69,334 284,701 181,097 680,190 ======= ======= ======= ======== ======== ======= 54 31 Reserves (continued) (a) Statutory surplus reserve According to the Articles of Association of the Company and certain of its subsidiaries, the Company and the relevant subsidiaries are required to transfer 10% of their annual net profits after taxation, as determined in accordance with the PRC GAAP, to a statutory surplus reserve until the reserve balance reaches 50% of the registered capital. The transfer to this reserve must be made before distribution of a dividend to shareholders. Statutory surplus reserve can be used to offset prior years’ losses, if any, and may be converted into share capital by the issue of new shares to shareholders in proportion to their existing shareholding or by increasing the par value of the shares currently held by them, provided that the balance after such issue is not less than 25% of the registered capital. Statutory public welfare fund According to the Articles and Association of the Company and certain of its subsidiaries, the Company and the relevant subsidiaries are required to transfer 5% to 10% of their annual net profits after taxation, as determined under PRC GAAP, to the statutory public welfare fund. This fund can only be utilised on capital items for the collective benefits of the Company’s and the relevant subsidiaries’ employees such as the construction of dormitories, canteen and other staff welfare facilities. This fund is non- distributable other than in liquidation. The transfer to this fund must be made before distribution of a dividend to shareholders. Discretionary surplus reserve The appropriation to the discretionary surplus reserve is subject to the shareholders’ approval. The utilisation of the reserve is similar to that of the statutory surplus reserve. Under the Company’s Articles of Association, the net profit after taxation as reported in the financial statements prepared in accordance with PRC GAAP can only be distributed as dividends after allowance has been made for: (i) making up cumulative prior years’ losses, if any; (ii) allocations to the statutory surplus reserve of at least 10% of after-tax profit, until the fund aggregates to 50% of the Company’s registered capital; (iii) allocations of 5% to 10% of after-tax profit to the Company’s statutory public welfare fund; and (iv) allocations to the discretionary surplus reserve, if approved by the shareholders. (b) The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. 55 32 Related party transactions The following is a summary of significant transactions carried out between the Group, its holding company, its associates and other related parties during the year. (a) Significant transactions with related parties Particulars of significant transactions which the Group conducted with related parties are as follows: 2005 2004 RMB’000 RMB’000 Purchase of goods 1,836,793 233,198 Sales of goods 2,665,647 2,866,346 Service income 17,907 13,024 Purchase of fixed assets 13,437 - Rental income 2,576 4,796 Technology usage expenses 25,170 30,644 After sales service expenses 26,722 26,259 Management bonus (income)/expense (4,669) 40,319 Service fee expenses 1,638 316 Rental expenses 8,774 1,631 Guarantee fee paid 18,514 8,000 (b) Significant balances with related parties Particulars of amount due from related parties are as follows: At 31 December 2005 2004 RMB’000 RMB’000 Accounts receivables 336,145 629,027 Bills receivables 43,000 49,499 Other receivables 36,141 42,151 Amounts due from these related companies are unsecured, interest free and have no fixed terms of repayment. There was no provision made against these amounts at 31 December 2005. 56 32 Related party transactions (continued) (b) Significant balances with related parties (continued) Particulars of amount due to related parties are as follows: At 31 December 2005 2004 RMB’000 RMB’000 Trade payables 102,621 224,848 Other payables 2,668 23,294 Other non-current liabilities - 9,661 Amounts due to these related companies are unsecured, interest free and have no fixed terms of repayment. (c) Guaranteed loan As at 31 December 2005, RMB350,000,000 of long term payable was due to BETIDC. Guarantee fee of RMB20,388,500 was payable to BEH and the amount is fully paid as at 31 December 2005 (2004: RMB8,000,000)(see note 29(a)). In 2005, BEH provided corporate guarantee to BOEOT for its long term syndicated loans of RMB6,037,964,000. Guarantee fee of RMB6,125,000 was payable to BEH and the amount is fully paid as at 31 December 2005 (see note 26(e)). (d) Transaction with key management personnel Key management personnel receive compensations in the form of fees, salaries, housing and other allowances, benefits in kind, discretionary bonuses and retirement scheme contribution. Key management personnel received total compensation of RMB8,027,000 for the year ended 31 December 2005 (2004: RMB6,700,000). (e) Transactions with other state-owned entities in the PRC The Group is a state-owned entity and operates in an economic regime currently predominated by state-owned entities. The Group conducts a majority of its business activities with entities directly or indirectly owned or controlled by the PRC government and numerous government authorities and agencies (collectively referred to as “state- owned entities”) in the ordinary course of business. Unless otherwise specified, these transactions are carried out at terms similar to those that would be entered into with non- state-owned entities and have been reflected in the financial statements. The Group believes that it has provided meaningful disclosure of related party transactions as summarised above. (f) In the opinion of the directors, the terms of the transactions with related parties follow commercial terms in the ordinary course of business of the Group. 57 33 Commitments (a) Capital commitments As at 31 December 2005, the Group had capital commitments outstanding as follows: At 31 December 2005 2004 RMB’000 RMB’000 Authorised and contracted for - Property, plant and equipment 186,035 387,368 - Investment - 37,244 ___________ ___________ 186,035 424,612 ========= ========= At 31 December 2005 2004 RMB’000 RMB’000 Authorised but not contracted for - Property, plant and equipment 92,775 - ========== ========== (b) Operating lease commitments Leases as lessee BOE-Hydis has entered into a lease agreement in respect of a piece of land for a term of 30 years. Non-cancellable operating lease rentals are payable as follows: At 31 December 2005 2004 RMB’000 RMB’000 Less than one year 14,576 14,631 Between one year and five years 58,305 58,524 More than five years 334,852 350,743 ___________ ___________ 407,733 423,898 ========= ========= 58 33 Commitments (continued) (b) Operating lease commitments (continued) Leases as lessor The Group leases out its investment properties under operating leases (note 16). The future minimum lease payments under non-cancellable leases are as follows: At 31 December 2005 2004 RMB’000 RMB’000 Less than one year 14,201 13,786 Between one year and five years 128 - More than five years - - ___________ ___________ 14,329 13,786 ========= ========= (c) Licence agreement In 2004, 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. For the year ended 31 December 2005, no sales have been generated by the licensed products. 59 34 Contingent liabilities (a) Guarantee The Group provides guarantees in respect of bank credit facilities granted by banks to certain third parties and an investee company as follows: At 31 December 2005 2004 RMB’000 RMB’000 To third parties 4,500 4,500 To an investee company 42,100 - 46,600 4,500 (b) Potential litigation BOE-Hydis was given notifications from Sharp Corporation, LG Philips LCD and Honeywell International Incorporation and Honeywell Intellectual Properties Incorporation on 7 October 2005, 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 liabilities which may result has been made. 35 Financial instruments Exposure to liquidity, credit, interest rate and currency risk arises in the normal course of the Group’s business. The risks are limited by the Group’s financial management policies and practices described below. Credit risk Substantially all of the Group’s cash and cash equivalents are held in major financial institutions located in the PRC and Korea. The Group’s major customers are the manufacturers of computer monitors and various electronics products, which accounted for significant amounts of the Group’s total operating revenues during the year. The Group has no significant credit risk with any of these customers since the Group maintains long-term and stable business relationships with these large customers in the industry. The Group performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on trade receivables. Interest rate risk The interest rates of bank and other borrowings of the Group are disclosed in note 26. 60 35 Financial instruments (continued) Foreign currency risk The Group operates globally and is exposed to foreign exchange risk arising from various currency exposures primarily with respect to Korean Won and United States Dollars. The Group uses forward exchange contracts to hedge its foreign currency risk. Substantially all the Group’s cash flows are denominated in Renminbi. Apart from Korean Won and United States Dollars denominated trade and other receivables, cash and cash equivalents, trade and other payables and interest bearing loans and borrowings as disclosed in notes 22, 23, 24 and 26 to the financial statements respectively. In respect of other monetary assets and liabilities held in currencies other than the Renminbi, the Group ensures that the net exposure is kept to an acceptable level, by buying or selling foreign currencies at spot rates where necessary to address short-term imbalances. Liquidity risk Individual operating entities within the group are responsible for their own cash management, including the short term investment of cash surpluses and the raising of loans to cover expected cash demands, subject to approval by the Company’s board when the borrowings exceed certain predetermined levels of authority. The Group’s policy is to regularly monitor current and expected liquidity requirements and its compliance with loan covenants to ensure that it maintains sufficient reserves of cash, adequate lines of funding from major financial institutions and access to the capital markets to meet its liquidity requirements in the short and longer terms. Fair value The fair values of cash and cash equivalents, trade and other receivables, trade and other payables and held-to-maturity securities are not materially different from their carrying amounts. The fair values of the Group’s bank loans and other borrowings are estimated by applying a discounted cash flow using current market interest rates for similar financial instruments approximate to their carrying values. Fair value estimates are made at a specific point in time and based on relevant market information and information about financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 61 36 Principal subsidiaries, associates and jointly controlled entities The particulars of the Group’s principal subsidiaries at 31 December 2005 are as follows: Place and date of Attributable Incorporation/ Registered/ equity interest Principal activities Name of company establishment issued capital Direct Indirect Consolidated subsidiaries Zhejiang BOE Display PRC RMB99,200,000 60% - Research, development, manufacture and Technology Co., Ltd. 8 July 1993 sale of monitors and related parts Beijing BOE Vacuum PRC RMB35,000,000 55% - Manufacture and sale of vacuum Electronics Co., Ltd. 14 September 1998 electronic products BOE Semi-conductor PRC RMB15,000,000 63% - Manufacture and sale of semi-conductor Co., Ltd. 29 May 1992 products Beijing Software and PRC RMB20,000,000 100% - Research and development of network System Integrated 6 May 1999 and telecommunications Co., Ltd. (formerly known as Beijing Software and System Integrated Co., Ltd) Beijing Orient Heng PRC RMB9,931,560 100% - Leasing of commercial facilities Tong Property Centre 22 August 1997 Suzhou BOE Chagu PRC USD8,552,000 75% - Development, manufacture and sale of Electronics Co., Ltd. 26 March 2002 back-light products and related services BOE Hyundai LCD PRC USD5,000,000 75% - Development, manufacture and sale of (Beijing) Display 20 May 2002 related parts of LCD products Technology Co., Ltd. BOE-Hydis Technology Korea KRW88,745,250,000 100% - Development, manufacture and sale of Co., Ltd. 28 November 2002 TFT-LCD products and related services Beijing BOE PRC USD500,000,000 75% 25% Development, manufacture and sale of Optoelectronics 9 June 2003 TFT-LCD products and related services Technology Co., Ltd. BOE Land Co., Ltd. PRC RMB55,420,000 70% - Leasing of commercial facilities 28 April 1994 Beijing BOE Chatani PRC RMB37,244,000 1% 75% Development, manufacture and sale of Electronics Co., Ltd 22 March 2005 flat screen display products Beijing Fangyi PRC USD5,000,000 75% 25% Development, manufacture and sale of Integrated Circuits 19 May 2005 Integrated Circuits products Co., Limited BOE-Hydis Japan Japan YEN10,000,000 - 100% Sales distributor of BOE-Hydis in Holding Company 1 October 2001 Japan BOE-Hydis America United States USD302,500 - 100% Sales distributor of BOE-Hydis in Inc. 1 September 2002 United States BOE-Hydis America United States USD302,500 - 100% Sales distributor of BOE-Hydis in Inc. 1 September 2002 United States 62 36 Principal subsidiaries, associates and jointly controlled entities (continued) Place and date of Attributable Incorporation/ Registered/ equity interest Principal activities Name of company establishment issued capital Direct Indirect Consolidated subsidiaries (continued) Shenzhen BOE Display PRC RMB20,000,000 - 36% Manufacture and sale of LED products Technology Co., Ltd 23 December 1998 Shaoxing BOE Ueno PRC RMB27,000,000 - 36% Manufacture and sale of electronics Electronics Apparatus 19 November 1999 products Company Limited Unconsolidated subsidiaries FineICs Co., Ltd Korea KRW500,000,000 - 100% Research and development for the TFT- (Note a) 7 December 2004 LCD products BOE TFT-LCD Europe Germany EURO500,000 - 100% Sales distributor of BOE-Hydis in Gmbh (Note a) 6 July 2005 Germany BOE Technology USA USD200,000 100% - Research, development, manufacture and Incorporation 31 October 2000 sale of high technology electronic (Note a) infrastructure products Beijing BOE Digital PRC USD10,000,000 75% - Research, development, manufacture and Technology Co., Ltd. 5 March 2001 sale of digital cameras and other digital (Note a) visual wireless transfer platform BOE Optoelectronics British Virgin Island USD100,000 100% - Design, manufacture and trading of Holding Company 7 January 2003 electronics information technology Ltd (Note a) products and investing activities BOE Optoelectronics Bermuda HKD100,000 - 100% Investment holding Technology Co., Ltd 15 March 2004 (Note a) BOE Optoelectronics Malta USD10,000 - 100% Investment holding Investment Co., Ltd 29 April 2004 (Note a) Associates Hyundai LCD, Inc. Korea KRW24,800,000,000 39.11% - Manufacture and sale of LCD devices 19 November 2001 used in handset and electrical goods Beijing Star City Real PRC RMB66,400,000 40% - Properties development Estate Development 11 October Co., Ltd. 1995 Beijing Nissin PRC USD7,100,000 40% - Manufacture and sales of electronics Electronics Precision 1 April 1996 tubes and related spare parts Component Co., Ltd Beijing Nittan PRC USD2,000,000 40% - Manufacture and sales of terminals, Electronic Co., Ltd 24 June 1996 connectors and stampers 63 36 Principal subsidiaries, associates and jointly controlled entities (continued) Place and date of Attributable Incorporation/ Registered/ equity interest Principal activities Name of company establishment issued capital Direct Indirect Associates (continued) Beijing Orient Mosler PRC USD1,300,000 35% - Manufacture and sales of security and Security Technology 7 September 1998 protection system and products System Co., Ltd. Beijing Matsushita PRC RMB1,240,754,049 30% - Manufacture and sales of color picture Color CRT Co., Ltd. 8 September 1987 tubes and color display tubes TPV Technology Bermuda USD14,033,000 23.68% - Manufacture and sale of color computer Limited (Note b) 12 January monitors and LCD products 1998 Shenzhen Evergreat PRC RMB15,000,000 - - Development and manufacture of Industrial Co., Ltd 1 November 1993 mechanical integrated products, satellite (Note c) communication equipment, computer software and automatic instruments Jointly controlled entities Beijing Asahi Glass PRC RMB61,576,840 50% - Manufacture and sales of electronic Electronics Co., Ltd. 16 November 1993 products (a) The results of these subsidiaries were not consolidated in the Group’s results in 2005 owing to the fact that these subsidiaries are either remained dormant or at their initial stage of operations during the year. (b) On 15 June 2005, Koninklijke Philips Electronics N.V. (“Philips”) signed a Share Transfer Agreement with TPV to sell its monitor and flat screen TV businesses and assets owned by Philips to TPV, which will issue new shares and convertible debentures to Philips as consideration. On the same day, the Company, TPV and Philips signed a Corporate Governance Agreement which acknowledges that the Company will remain the largest shareholder in TPV after the transactions. The transaction was completed on 9 September 2005 and the Company’s equity interest in TPV decreased from 25.37% to 21.01%. Following the sales of OTPV to TPV on the same day, the Company’s equity interest in TPV increased from 21.0% to 23.68%. Please also see note 6. (c) In 2005, the Group disposed of all its 40% equity interest in Shenzhen Evergreat Industrial Co., Ltd (“Shenzhen Evergreat”), which had been fully provided for in 2004, to third parties and realised a gain on disposal of RMB3,420,000. 64 37 Ultimate holding company The directors of the Company consider the ultimate holding company to be BEH, a state-owned enterprise incorporated in the PRC. 38 Comparative figures Certain comparative figures have been adjusted or reclassified as a result of the changes in accounting policies as disclosed in note 3. Certain comparative figures have also been reclassified to confirm with the current year’s presentation. 39 Post balance sheet events (a) On 1 January 2006, the Company and TPV signed a Letter of Intent under which TPV agreed to purchase the TFT-LCD panels for the production use of monitor display and television from the Company from 2006 to 2008. The maximum purchases amounts of TPV from the Company are USD600,000,000, USD700,000,000 and USD1,000,000,000 in 2006, 2007 and 2008 respectively The Letter of Intent only specified the maximum amounts of purchase in each year under the Letter of Intent for which the corresponding purchase prices have not been determined. For each purchase of TFT-LCD panels by TPV, both parties will sign a separate purchase agreement which verifies the transaction’s details. The price for each transaction will be determined by comparison with the market price. (b) On 24 January 2006, 河北省廊坊市固安工业区管理委员会, the Bank of China and the Company entered an entrusted loan agreement, under which the Company obtained RMB200 million of entrusted loans granted from 河北省廊坊市固安工业区管理委员 会 through the Bank of China. The proceed will be used for the construction of 移动显 示系统产业化项目. The entrusted loans are interest-free and are repayable in three years. (c) On 8 February 2006, the board of directors has approved the Company to increase the capital investment in BOE-Hydis by USD5,000,000. The capital injection will be used to increase the production capacity of the small-sized flat panel displays (“FPDS”) of BOE-Hydis. (d) On 26 March 2006, the board of directors has approved the Company to increase its equity interest in ZJBOE by RMB50 million. The capital injection is for the first phase construction of CCFL which is the raw material used in the TFT-LCD production. After the capital injection, the equity interests held by BOE at ZJBOE will be increased from 60% to 69.3%. (e) The proposal on transferring the Company’s interest in Beijing Star City Real Estate Development Co., Ltd (“Beijing Star City”) was resolved in the meeting of the board of directors on 24 August 2005. On 29 August 2005, the Company, 汉博和汉博投资顾问 (北京)有限公司 (“汉博投资”), Jade Dragon Capital AG, Harper & Harper Ltd, 香港旭 景投资有限公司,新加坡典立科技私人有限公司 and Beijing Star City entered into a share transfer agreement and loan restructuring agreement under which the Company will dispose its 40% equity interest in Beijing Star City to 汉博投资 (or other appointed parties) at a consideration of RMB 60,000,000. The agreement was terminated as 汉博 投资 could not make the payments to the Company as specified in the agreements. 65 39 Post balance sheet events (continued) (f) Pursuant to the meeting of the board of directors held on 18 April 2006, the private placement of A shares to specified persons amounting to a maximum of 1,500 million shares was approved. The Company planned to use the proceeds raised to increase its capital investment in BOEOT for the improvement of the 5th generation TFT-LCD production line and related facilities. Such improvement can increase the monthly production capacity of glass plate from 60,000 units to 85,000 units and color filter to 85,000 units. 40 Accounting estimates and judgments Key sources of estimation uncertainty Notes 28 and 35 contain information about the assumptions and their risk factors relating to employee benefits and financial instruments. Other key sources of estimating uncertainty are as follows: (i) Impairment of assets The Group determines the impairment of assets taking into account the Group’s estimate of the selling prices, for manufacturing costs and the costs to be incurred in selling certain products. Management reviews the impairment of assets at the balance sheet date. (ii) Provision for inventories As explained in the note 2(l), the Group’s inventories are stated at the lower of cost and net realisable value. Based on the Group’s recent experience and the nature of the inventories, the Group makes estimates of the selling prices, the costs of completion in case for work in progress, and the costs to be incurred in selling the inventories. Uncertainty exists in these estimations. (iii) Warranty provisions The Group makes provisions under the warranties it gives on sale of its products taking into account the Group’s recent claim experience. Based on the Group’s estimates and the nature of the products developed by the Group, the Group makes estimates and assumptions concerning the future events that are believed to be reasonable under the circumstances. (iv) Bad debt provision for trade receivables The Group’s management determines the bad debt provision for trade receivables on a regular basis. This estimate is based on the credit history of its customers and current market conditions. Management reviews the bad debt provision for trade receivables at the balance sheet date. (v) Depreciation Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives, after taking into account the estimated residual value. The Group reviews the estimated useful lives of the assets regularly in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are based on the Group’s historical experience with similar assets and taking into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates. 66 41 Possible impact of amendments, new standards and interpretations issued but not yet effective for the annual accounting period ended 31 December 2005 Up to the date of issue of these financial statements, the IASB has issued the following amendments, new standards and interpretations which are not yet effective for the accounting period ending 31 December 2005 and which have not been adopted in these financial statements: Of these developments, the following relate to matters that may be relevant to the Group’s operations and financial statements: Effective for accounting periods beginning on or after IFRIC 4 Determining whether an arrangement 1 January 2006 contains a lease Amendments to IAS 19 Employee benefits - Actuarial Gains and 1 January 2006 Losses, Group Plans and Disclosures Amendments to IAS 39 Financial instruments: Recognition and measurement: - The fair value option 1 January 2006 - Financial guarantee contracts 1 January 2006 IFRS 7 Financial instruments: disclosures 1 January 2007 Amendment to IAS 1 Presentation of financial statements: 1 January 2007 capital disclosures The Group is in the process of making an assessment of what the impact of these amendments, new standards and new interpretations is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the Group’s results of operations and financial position. 67 42 Other important issues Pursuant to the restructuring agreement signed between BOE Land Co. Ltd. (“BOE Land”) with Beijing Zhong Ye An Shun Da Metallurgy Corporation (“Beijing An Shun Da”) in respect of the restructuring of Beijing Zhongjin Shun Da Corporation (“BZSD”), BOE Land would acquire 60% interest of BZSD which was a 100% owned subsidiary of Beijing An Shun Da. BOE Land paid RMB26,000,000 to Beijing An Shun Da and had advanced RMB18,000,000 to BSZD as operating fund. As part of the transaction, Beijing An Shun Da was required to inject a land use right and ownerships of respective properties totally RMB40,000,000 on that land to BZSD. Beijing An Shun Da failed to make the said injection of land use right and ownership of respective properties to BZSD. Accordingly, the Group applied to the court which concluded that the share transfer agreement of BZSD was ineffective due to the failure of Beijing An Shun Da to perform the responsibility as stated in the agreement. Beijing An Shun Da is required to repay RMB 44,000,000 to BOE Land and related interest of approximately RMB 5,300,000. 68 Differences between financial statements prepared in accordance with International Financial Reporting Standards (“IFRSs”) and PRC Accounting Rules and Regulations (“PRC GAAP”) For the years ended 31 December Note 2005 2004 RMB’000 RMB’000 (Loss)/profit attributable to equity shareholders of The Company under PRC GAAP (1,587,087) 206,013 Adjustments: Recognition and amortisation of positive goodwill (i) 68,412 (1,334) Recognition and amortisation of negative goodwill (i) (14,485) (13,439) Government grant (ii) 4,105 841 Capitalised general borrowing costs, net (iii) of related depreciation 33,185 - Capitalised development costs, net of (iv) related depreciation 27,977 163,786 Gain on disposal of subsidiary (v) 141,631 - Appropriation of staff bonus and welfare fund (vi) (916) (1,922) Amortisation of loans arrangement fee (vii) (3,085) (11,186) Dilution gain on interest in associate (viii) 80,397 - Others 3,873 (2,497) (Loss)/profit attributable to equity shareholders of the Company under IFRSs (1,245,993) 340,262 ========= ======== 69 Differences between financial statements prepared in accordance with International Financial Reporting Standards (“IFRSs”) and PRC Accounting Rules and Regulations (“PRC GAAP”) (continued) At 31 December Note 2005 2004 RMB’000 RMB’000 Total equity attributable to equity shareholders of the Company under PRC GAAP 3,377,859 4,956,439 Adjustments: Recognition and amortisation of positive goodwill (i) 63,078 (5,334) Recognition and amortisation of negative goodwill (i) 101,715 116,478 Government grant (ii) (3,014) (3,242) Capitalised general borrowing costs, net (iii) 33,185 - of related depreciation Capitalised development costs , net of (iv) 200,450 172,473 related depreciation Gain on disposal of subsidiary (v) 141,631 16,529 Amortisation of loans arrangement fee (vii) 15,364 18,448 Dilution gain on interest in associate (viii) (73,750) - Equity accounting for interest in associates with the issuance of convertible debentures (ix) 111,357 - Others (259) (929) Total equity attributable to equity shareholders of the Company under IFRSs 3,967,616 5,270,862 ========= ======== 70 Notes to the Financial Statements (Expressed in Renminbi) (i) In prior years, positive and negative goodwill were amortised on a straight line basis over its useful life not exceeding 20 years under IFRS. With effect from 1 January 2005, following the adoption of IFRS 3, the Group no longer amortises the positive goodwill but tests it at least annually for impairment under IFRS. For negative goodwill, the carrying amounts of previously recognised negative goodwill at the beginning of the year were derecognised with a corresponding adjustment to opening balance of retained earnings (see note 3). Under PRC GAAP, positive and negative goodwill were amortised over its useful life not exceeding 40 years. (ii) Under IFRSs, the receipt of government grant is recognised in the income statement. Under the PRC GAAP, receipt of certain government grant is required to credit to capital reserve. (iii) Under IFRSs, general borrowing costs are capitalised by applying a capitalisation rate to the expenditures on the qualifying assets. Under the PRC GAAP, general borrowing costs are charged to the income statement when incurred. (iv) Under IFRSs, development costs are capitalised in intangible assets. Under PRC GAAP, development costs are charged to the income statement when incurred. (v) On 30 November 2005, the Group disposed all its equity interest in Beijing Orient Top Victory Electronics Co., Ltd (“OTPV”), which was previously a 45.21% owned consolidated subsidiary of the Group, to TPV Technology Limited (“TPV”) which issued 68,326,408 new shares to the Group as consideration. Under IFRSs, gain on disposal of OTPV was calculated by comparing the share of net assets in OTPV by the Group (RMB324,809,000) and the fair value of newly issued shares by TPV (RMB466,440,000) on the transaction date (see note 6 to the consolidated financial statements). Under PRC GAAP, no gain on disposal of OTPV was recognised on the transaction as the carrying amount of the equity interest in OTPV being disposed of by the Group was deemed to be the cost of the newly acquired equity interest in TPV. (vi) The amount represents the different treatment on appropriation of staff bonus and welfare fund under IFRSs and PRC GAAP. (vii) Under IFRSs, the loans arrangement fee is amortised over the loan period. Under PRC GAAP, the loans arrangement fee was charged to the income statement when incurred. (viii) On 5 September 2005, TPV issued certain new shares and convertible debentures to Koninklijke Philips Electronics N.V. (“Philips”) as consideration to acquire the monitor and flat screen TV businesses from Philips. Upon the completion of the transaction, the Group’s equity interest in TPV decreased from 25.37% to 21.01% and the share of net assets increased from RMB949,824,000 to RMB1,103,971,000 simultaneously. Under IFRSs, the decrease in the Company’s shareholding of TPV was deemed to be a disposal and the increase in share of net assets of TPV right after its issuance of new shares, amounting to RMB80,397,000, was recognised as dilution gain arising on the deemed disposal of equity interest in TPV. Under PRC GAAP, such increase in share of net assets was recorded as an increase in the company’s share of the reserve of TPV. (ix) The amount represents the GAAP differences on the equity accounting of TPV which has issued convertible debentures in 2005. Under IFRS, the equity portion of the convertible debentures is recognised in shareholders’ equity. Under PRC GAAP, the equity portion is recognised in liability. 71