佛山照明(000541)粤照明Ｂ2005年年度报告（英文）

Annual Report of 2005 of Foshan Electrical & Lighting Company Limited Important Hints: The Board of Directors, the Board of Supervisors of FSL and all its directors, supervisors and senior managers guarantee that there is no false account, misleading statement or significant omission existing in the information contained in this report, and that they shall bear the individual and joint liabilities for the truthfulness, accuracy and completeness of its content. Mr. Liang Weidong, the director of the company is unable to attend the board meeting on the business trip, and has authorized Mr. Zhong Xincai, the Chairman of the Board of Directors, to vote on his behalf. The accounting data and financial report in this report have been audited by KPMG Peat Marwick in Hong Kong, and respectively made in Chinese and English. In case of any misunderstanding between the two versions, the Chinese text shall be prevailing. Mr. Zhong Xincai, the Chairman of the Board of Directors and the financial chief of the company and Ms. Wang Shuqiong, the Manager of the Financial Department declare to guarantee the truthfulness and completeness of the financial report in this annual report. Content I. Brief Introduction to the Company II. Summary of Accounting Data and Business Data III. Change of Capital Stock and Shareholders IV. Directors, Supervisors, Senior Management Personnel and Staffs V. Administration structure of the Company VI. Brief Introduction to the General Meeting of Shareholders VII. Report of the Board of Directors VIII. Report of the Board of Supervisors IX. Significant Events X. Financial Report XI. Reference Documents １ I. Brief Introduction to the Company 1. Name in Chinese: 佛山电器照明股份有限公司 缩 写 ： 佛山照明 Name in English: Foshan Electrical and Lighting Co. Ltd. Abbr.: FSL 2. Legal representative: Zhong Xincai 3. Secretary of the Board of Directors: Lin Yihui Address: #15 Fenjiang North Road, Foshan, Guangdong Tel: (0757) 82966098, 82810239 Fax: (0757) 82816276 E-mail: gzfsligh@pub.foshan.gd.cn 4. Registered and office address: #15 Fenjiang North Road, Foshan, Guangdong Zip code: 528000 Internet web: www.Chinafsl.com E-mail: gzfsligh@pub.foshan.gd.cn 5. Company information disclosed in: China Security, Security Times and Ta Kung Pao (in Hong Kong) Internet web site publishing the annual report designated by China Securities Regulatory Committee: http:// www.cninfo.com.cn Annual report prepared in: Secretariat of the Board of Directors in the office building of the company at #15 Fenjiang North Road, Foshan, Guangdong, PRC 6. Listing place of shares: Shenzhen Stock Exchange. Abbr. of shares: Foshan Electrical & Lighting (A Share) Yue Electrical & Lighting (B Share) ２ Code of shares: 000541 (A Share) 200541 (B Share) 7. Other relevant information: Date and place of first registration: registered with the Industrial and Commercial Administrative Bureau of Guangdong Province on Oct. 20, 1992. Registration No. of Legal Entity Business License: 19035257-5 Tax registration No.: YWZ 440601190352575 Names and offices of accountant firms employed by the company: Domestic: Guangdong Zhengzhong Zhujiang Certified Public Accountants (former Guangzhou Certified Public Accountants) 10/F Guangdong Group Building, 555 Dongfeng East Road, Guangzhou Tel: (020) 83859808 Fax: (020) 83800977 Foreign: KPMG Peat Marwick in HongKong (former KPMG Peat Marwick) 8/F Prince’s Building, Hong Kong Tel: (00852) 2826 7126 Fax: (00852) 2845 2588 ３ II. Summary of Accounting Data and Business Data 1. Main accounting data and business data of this year. Unit: CNY Total profit 259,507,052.00 Net profit 213,939,222.00 Main business profit 357,468,945.00 Other business profit 10,152,352.00 Operating profit 259,666,795.92 Investment return --- Income from subsidy --- Non-operating net income and expenditure --- Net cash flow from business activities 266,057,234.00 Net increase of cash and cash equivalent 24,834,094.00 2. Net profits calculated by two different accounting standards and the difference: The net profit of the company in 2005 audited according to the domestic accounting system for enterprises is RMB 219,583,403, and the net profits audited based on the international accounting standard is RMB 213,939,222. Reasons for such difference are shown in the following table: Item Net profit (consolidated) As reported pursuant to IFRS 213,939,222 1. Transfer the amount of deferred tax into the current profit and -2,191,215 loss as per the law for tax payable. 2. Investment held for sales adjusted from fair value to the cost 9,069,778 and market price (which is lower) 3. Income from subsidy -1,000,000 4. Insolvent debt -234,382 As reported pursuant to the “Accounting System for Enterprises” 219,583,403 of the PRC ４ 3. Main accounting data and financial targets of three years immediately as at the report period (consolidated) Unit: CNY Ｉｔｅｍ ２００５年 ２００４年 ２００３年 Main business income 1,213,810,498 1,219,922,140 1,016,750,204.00 Net profit 213,939,222 228,925,136 234,560,108.00 Total assets 2,574,971,613 2,541,097,893 2,431,572,874.00 Shareholder equity (excluding the shareholder 2,313,771,048 2,271,886,990 2,207,848,053.00 equity of minority shareholders) Proceeds per share (fully amortized) 0.60 0.64 0.65 Proceeds per share (weighted average) 0.60 0.64 0.65 Net assets per share 6.45 6.34 6.16 Net assets per share after adjustment 6.45 6.34 6.12 Net cash flow per share from business activities 0.74 0.65 0.66 Return rate of net assets (fully amortized) % 9.25 10.08 10.62 ５ 4. Profit data calculated according to the requirements of the “Disclosure and Preparation Rules for Publishing the Information of Security Companies” promulgated by China Securities Regulatory Committee (? 9). Profit of the report 2005 2004 period Return rate of net Proceeds per share, Return rate of net Proceeds per share, assets (%) CNY assets (%) CNY Fully Weighted Fully Weighted Fully Weighted Fully Weighted amortized average amortized average amortized average amortized average Main business profit 15.45 15.12 1.00 1.00 17.12 16.78 1.09 1.09 Operating profit 11.03 11.03 0.71 0.71 12.41 12.14 0.79 0.79 Net profit 9.25 9.33 0.60 0.60 10.08 9.86 0.64 0.64 5. Change of shareholders’equity during the report period. Unit: CNY Item Capital Capital Earned surplus Legal welfare Undistributed Total shareholders’ stock surplus funds profit equity At beginning of the period 358,448,25 1,195,529,80 441,526,856 147,981,386 276,382,075 2,271,886,990 9 0 Increase of this period -- -- 32,937,510 21,958,340 213,939,222 246,876,732 Decrease of this period -- -- -- -- 204,992,674 204,992,674 At end of the period 358,448,25 1,195,529,80 474,464,366 169,939,726 285,328,623 2,323,771,048 9 0 Reasons of change -- Transfer of a Profit distribution Profit distribution Profit distribution ppropriation ６ III. Change of Capital Stock and Shareholders 1. Change of capital stock (1) Change on capital stock of the company Unit: share Item Before change Change (+, －) After change Numbers Ratio Subtotal Numbers Ratio I. Uncirculating shares 128,912,850 35.97% -- 128,912,850 35.97% 1. Founder’s share 88,397,100 24.67% -- 88,397,100 24.67% Including: National share 85,922,100 23.97% -- 85,922,100 23.97% Domestic corporate share 2,475,000 0.69% -- 2,475,000 0.69% Foreign corporate share -- -- -- -- -- Others -- -- -- 2. Raised corporate share 40,515,750 11.31% -- 40,515,750 11.91% 3. Internal staff share -- -- -- -- -- 4. Preferred share or others -- -- -- -- -- II. Circulating shares listed 229,535,409 64.04% -- 229,535,409 64.04% 1. Ordinary shares in CNY 147,035,409 41.02% -- 147,035,409 41.02% 2. Foreign share listed at home 82,500,000 23.02% -- 82,500,000 23.02% 3. Foreign share listed abroad -- -- -- -- -- 4. Others -- -- -- -- -- III. Total shares 358,448,259 100% -- 358,448,259 100% ７ (2) Issuing and listing of shares All Previous Issuing and Listing of Shares (CNY, 10,000 shares) Year Type of shares Issuing Issuing Issuing quantity List date List volume Total capital stock date price 1993 A share issuing 93.10 10.23 1930 93.11.23 1930 7,717.0 1994 A share granting 94.04 --- 3858.5 94.5.11 965 11,575.5 (grant 5 for 10) (after granting) 1995 A share rationing 95.01 8.00 1815.3036 95.2.22 481.1946 13,390.8036 (ration 3 for 10) (after rationing) B share issuing 95.07 HK5.61 5000 95.8.8 5000 18,390.8036 RMB6.02 (after issuing B share) Listing of internal shares held 92.08 4.00 1157 95.9.29 1157 18,390.8036 by staff (after the listing of staff shares) 1996 A, B shares, shares transferred 96.09 --- 9195.4018 96.9.20 5278.3 27,586.2054 from public surplus (increase 5 for 10) (after increase shares by transfer) 1997 A, B shares --- --- --- --- --- 27,586.2054 1998 A, B shares --- --- --- --- --- 27,586.2054 1999 A, B shares --- --- --- --- --- 27,586.2054 2000 Transferred & rationed shares 95.01 8.00 31.9554 2000.4.14 31.9554 27,586.2054 (include transferred and rationed shares listed) Increased shares from A and B 2000.06 --- 2758.6205 (increase 2000.6.23 2758.6205 30,344.8259 shares transfer 1 for 10) (after increased shares by transfer) New issue of A shares 2000.12 12.65 5500 2000.12.23 5500 35,844.8259 (after increase) 2001 A and B shares -- -- -- -- -- 35,844.8259 2002 A and B shares -- -- -- -- -- 35,844.8259 2003 A and B shares -- -- -- -- -- 35,844.8259 2004 A and B shares -- -- -- -- -- 35,844.8259 2005 A and B shares -- -- -- -- -- 35,844.8259 ８ (3) When the company transformed its system to an internal stock company in Aug., 1992, it issued 11,570,000 shares to its internal staffs at the price of RMB 4/share, which were handed over to the Securities Department of Foshan International Trust & Investment Company for trust in Apr., 1993. On Sep. 29, 1995, the shares held by internal staffs were granted to list in Shenzhen Stock Exchange at the expiration of three years, with 11,570,000 shares approved to be listed. At that time, the 143,000 shares for internal staffs held by the directors and supervisors were frozen by Shenzhen Securities Registration Company. There were still 129,030 shares (including the rationed and granted shares) for internal staffs held by the directors and supervisors and senior management personnel still frozen at the end of 2005. 2. Introduction to shareholders. (1) As at Dec. 31, 2005, the company has had 45,080 shareholders in total. Among them, there are 34,831 shareholders for A share (Foshan Electrical and Lighting 000541), and 10,249 shareholders for B share (Yue Electrical and Lighting 200541) (2) Shares held by the top ten shareholders (as at Dec. 31, 2005) Names of shareholders Nature of Holding Total Uncirculated Shares pledged shareholder ratio (%) shares held shares held or frozen State-owned Assets Supversivion & Management Committee of Foshan State-owned 85,922,100 None 23.97% 85,922,100 City SYWG BNP PARIBAS Shengli Choice Securities Investment Funds Others 2.47% 8,870,700 None Unknown Desheng Small Choice Securities Investment Funds of Guotai Junan Others None Unknown 2.31% 8,287,784 Allianz Fund Management Co 102 Combination of National Social Insurance Funds Others 2.08% 7,472,582 None Unknown Youchang Lighting Equipment Trading Co., Ltd. ,Guangzhou Others 1.95% 7,002,641 7,002,641 Unknown Fortis Haitong Income Growth Securities Investment Funds Others 1.67% 6,000,000 None Unknown 108 Combination of National Social Insurance Funds Others 1.62% 5,813,134 None Unknown Yuyuan Securities Investment Funds Others 1.20% 4,290,000 None Unknown HTHK-VALUE PARTNERS INTELLIGENT FD-CHIAN B SHS FD Foreign 1.08% 3,882,449 None Unknown EAST ASIA SECURITIES COMPANY LIMITED Foreign 0.97% 2,489,773 None Unknown ９ Note on relationship or concerted Among the top ten shareholders of the company, the State-owned Assets Supervision & Management Committee of Foshan action of the top ten shareholder City, the shareholder for state-owned shares has neither relationship with Youchang Lighting Equipment Trading Co., Ltd., Guangzhou, nor relationship with any other shareholder, nor the shareholder of concerted action set forth in the “Regulatory Method for Disclosure of Information on Change of the Shares of the Listed Company”. The 108 combination of national social insurance funds, Yuyuan securities investment funds and 102 combination of national social insurance funds are all controlled by Boshi Funds Management Company. It is unclear whether there is any relationship between other shareholders, or if there is any shareholder of concerted action set forth in the “Regulatory Method for Disclosure of Information on Change of the Shares of the Listed Company”. (3) The first major shareholder of the company is the State-owned Assets Supervision & Management Committee of Foshan City, which is one of the founder shareholders of the company holding 85,922,100 shares at present, making up 23.97% of the total shares of the company. Except it, there is no other corporate shareholder in the company holding more than 10% of the total shares. (4) Circulating shares held by the top ten shareholders Names of shareholders Circulating shares held Type (share) SYWG BNP PARIBAS Shengli Choice Securities Investment Funds 8,870,700 Common stock in CNY Desheng Small Choice Securities Investment Funds of Guotai Junan 8,287,784 Common stock in CNY Allianz Fund Management Co 102 Combination of National Social Insurance Funds 7,472,582 Common stock in CNY Fortis Haitong Income Growth Securities Investment Funds 6,000,000 Common stock in CNY 108 Combination of National Social Insurance Funds 5,813,134 Common stock in CNY Yuyuan Securities Investment Funds 4,290,000 Common stock in CNY HTHK-VALUE PARTNERS INTELLIGENT FD-CHINA B SHS 3,882,449 Foreign stock listed at home FD EAST ASIA SECURITIES COMPANY LIMITED 3,489,773 Foreign stock listed at home VALUE PARTNERS CLASSIC FUND 3,090,854 Foreign stock listed at home HTHK-EK HONG KONG AND CHAINA FUND 2,999,935 Foreign stock listed at home Note on relationship or concerted The 108 combination of national social insurance funds, Yuyuan securities investment action of the top ten shareholder funds and 102 combination of national social insurance funds are all controlled by Boshi Funds Management Company. It is unclear whether there is any relationship between other shareholders, or if there is any shareholder of concerted action set forth in the “Regulatory Method for Disclosure of Information on Change of the Shares of the Listed Company”. １０ IV. Directors, Supervisors, Senior Management Personnel and Staffs (I) Directors, supervisors and senior management personnel 1. General Name Post Sex Age Term of offices Shares held (numbers) Reason of Total remuneration Remuneration Year start Year end change received from this received from company in this shareholder or report period (CNY affiliated unit 10,000) Zhong Xincai Chairman of the Board of M 63 Jun. 2004 –Jun., 2007 Purchased by 41 No 184,250 242,650 Directors incentive funds Alfred K. N. Chong Vice Chairman of the Board of M 54 Jun. 2004 –Jun., 2007 2,415,500 2,415,500 Yes Directors （B share） （B share） Liu Xingming Managing director, General M 44 Jun. 2004 –Jun., 2007 Purchased by 22 No 74,800 104,300 Manager incentive funds Liang Weidong Director M 44 Jun. 2004 –Jun., 2007 — — — No Chen Guanbiao Director M 57 Jun. 2004 –Jun., 2007 — — — Yes Ye Zaiyou Director M 50 Jun. 2004 –Jun., 2007 — — — Yes Liang Zhen Independent Director M 68 Jun. 2004 –Jun., 2007 — — — No Wu Jianhong Independent Director F 60 Jun. 2004 –Jun., 2007 — — — No Chen Ziyun Independent Director F 42 Jun. 2004 –Jun., 2007 — — — No Huang Guanxiong Chairman of the Board of M 55 Jun. 2004 –Jun., 2007 Purchased by 13 No Supervisors 23,400 38,600 incentive funds Chairman of the Labor Union Mei Feixing Supervisor M 35 Jun. 2004 –Jun., 2007 Purchased by 11.7 No 12,300 18,600 incentive funds Li Jianwu Supervisor M 35 Jun. 2004 –Jun., 2007 Purchased by 8.7 No 14,400 20,700 incentive funds Zhang Chaoyang Supervisor M 41 Jun. 2004 –Jun., 2007 — — — No Shen Weiqiang Supervisor M 55 Jun. 2004 –Jun., 2007 — — — Yes Ou Muben Vice General Manager M 57 Jun. 2004 –Jun., 2007 Purchased by 20 No 70,800 90,800 incentive funds Guo Jieming Vice General Manager M 57 Jun. 2004 –Jun., 2007 Purchased by 20 No 37,936 58,636 incentive funds Liang Weiqiang GM assistant M 48 Jun. 2004 –Jun., 2007 Purchased by 15 No 32,300 49,800 incentive funds Lin Yihui Secretary of the Board of M 52 Jun. 2004 –Jun., 2007 Purchased by 13 No 23,100 38,200 Directors incentive funds Wang Shuqiong Financial manager F 44 Jun. 2004 –Jun., 2007 Purchased by 12.2 No 25,760 43,360 incentive funds Total 2,914,546 3,121,146 176.6 １１ Mr. Ye Zaiyou is appointed the Chairman of the Board of Directors of Wuzhuang Color Glazed Tiles Factory, Nanhai, the shareholder unit and the sponsor shareholder of FSL. This factory is a popularly-run enterprise. 2. Work experiences and posts of the current directors, supervisors and senior management personnel (1) Work experiences of directors Zhong Xincai: male, native of Nanjing of Jiangsu Province, 63, polytechnic school graduate, is the chairman of the Board of Directors of FSL. He has been with FSL from 1964 since he was graduated from Nanjing Radio Industrial School till now, and has been appointed the workshop director, production chief, technology chief, vice factory director and factory director since 1979, the manager of FSL since 1985, and the chairman of the Board of Directors, the general manager and the secretary of Party committee of FSL since 1992. He has been engaged in the electro-optical production for 40 years with rich professional knowledge in electro-optical production and abundant experiences in enterprise management. He has been elected the excellent worker by the Ministry of Light Industry, the national and provincial excellent entrepreneur, and provincial and municipal Party representative, and a deputy to the 8th and 9th People’s Congress of Guangdong Province. Alfred K. N. Chong: male, native of Chaoyang, Guangdong, 54, university graduate, MBA is the Vice Chairman of the Board of Directors of FSL. Currently as the chairman of the board of director of Prosperity Lamps & Components Ltd. in Hong Kong, he has been engaged in the production and trading of electro-optical products for more than 20 years, and is the big shareholder of FSL and the Honorable Citizen of Foshan City as well. He has been elected the director and the Vice Chairman of the Board of Directors of FSL since 1995. Liu Xingming: male, native of Xinhui, Guangdong, 44, university graduate, engineer, is the managing director and General Manager of FSL. Admitted in FSL in 1983, he has been appointed the workshop director and the general manager assistant, the vice general manager from 1997 to 2005, and the General Manager of FSL in Dec., 2005. He has been the director of FSL since 1995. Liang Weidong: male, native of Sanshui, Guangdong, 44, MBA from Murdoch University, Australia. He has been appointed the vice chief of the Foreign Affairs Office of Foshan City since 1983, the director and vice general manager of HK Foshan Development Co., Ltd. since 1993, the vice general manager and the vice secretary of the Party Committee of Foshan Industrial Investment Management Co., Ltd., and the general manager of Gongying Investment Holding Co., Ltd. of Foshan since 2001. He is the director of the 3rd and 4th Board of Directors of FSL. １２ Ye Zaiyou: male, native of Nanhai, Guangdong, 50, junior high school graduate, is the director of the 1 – 4th Board of Directors of FSL. He is now the Chairman of the Board of Directors of Wuzhuang st Universal Ceramic Factory of Nanhai, and the sponsor corporate shareholder of FSL. Chen Guanbiao: male, from Hong Kong, 57, professional college graduate, is the director of FSL. He has been appointed the manager of HK Sylvania Ltd. since 1975, the director of Griffin Services Ltd. (British Virgin Islands) since 1997, and the general manager of Prosperity Lamps & Components Ltd. in Hong Kong since 2003. He is now the supervisor of the 3rd Board of Supervisors of FSL. Liang Zhen (independent director): male, native of Yangjiang, Guangdong, 68, professional college graduate, senior engineer. He has worked in the County Party Committee office of Yangjiang, Guangdong since 1995, studied in the South China Agriculture Institute since 1957, appointed in the Ministry of Light Industry, China Light Industry Association, China Light Industry Administration and China Association of Lighting Industry (CALI) since 1960, and is now the executive member of CALI. As the macro instructor in this trade for over 40 years with rich experiences in electro-optical industry, and is now the independent director of the 3rd and 4th Board of Directors of FSL. Wu Jianhong (independent director): female, native of Nanjing, Jiangsu, born in Dec., 1946, CPC member, professional college graduate, senior accountant (economist), certified public accountant in China, and the member of the Senior Accountant Appraisal Committee of Jiangsu Province. Graduated from the Department of Finance of Jiangsu Business Professional College in Aug., 1965 (the current Business College of Yangzhou University), she has been appointed the accountant in Nanjing Coal Industry Company from 1965 to1978, the vice section chief, section chief and vice office chief of the Financial & Accounting Office under the Business Department of Jiangsu Province from 1978 to 1992, the vice general manager of Jiangsu Business Development Co., Ltd. from 1992 to 1994, and the office chief of the Financial & Accounting Office under the Trade Department of Jiangsu Province from 1994 to Dec., 2001, and retired in Jan., 2002. She is now the chairman of Jiangsu Business & Accounting Association, the member of the Senior Accountant Appraisal Committee, and the independent director of the 3rd and 4th Board of Directors of FSL. １３ Chen Ziyun (independent director): female, native of Hepu, Guangxi, born in Feb., 1964, Han, started employment in Sep., 1987 and joined in China Zhi Gong Party (Public Interest Party) in Oct., 1995, university graduate, second-grade lawyer. She is now the vice chairman of Zhi Gong Party Committee of Foshan City, the director of Guangdong Tianjue Law Firm, a deputy to the 9th and 10th National People’s Congress, the member of the 5th China National Lawyers Association, the executive member of the 4th Foshan Lawyers’Association, the member of the Legal Consultant Group of Standing Committee of People’s Congress of Foshan City, the member of the Junior and Middle-Rank Solicitor & Notary Public Examination and Appraisal Committee of Foshan City, and the independent director of the 3rd and 4th Board of Directors of FSL as well. She studied in the Department of Law of Zhongshan University from 1983 to 1987, appointed the assistant lawyer, lawyer and vice director of Foshan 1st Law Office, Foshan Foreign Economic Law Office, Foshan Economic and Trade Law Office, and Foshan Huafa Law Office from 1987 to 1999, appointed the director and lawyer of Guangdong Tianjue Law Firm from 2000 till now, studied in the postgraduate class in commercial law in the People’s University of China from 2001 till now, elected the member of Zhi Gong Party Committee of Foshan City in 1996 and the vice chairman in 2001, elected a deputy to the 9th National People’s Congress in 1998 and a deputy to the 10th National People’s Congress in 2003, elected the member of the 5th China National Lawyers Association in 2001 and the executive member of the 4th Foshan Lawyers’Association in 2002, and appointed the member of the Junior and Middle-Rank Solicitor & Notary Public Examination and Appraisal Committee of Foshan City (2) Work experiences of supervisors Huang Guanxiong: male, born in Oct., 1951, native of Foshan, Guangdong, junior high school graduate, is the Chairman of the Board of Supervisors of FSL. He went and worked in the countryside and mountain area in 1969, worked in Tougan Chemical Plant of Guangdong Province in 1972, assigned to Foshan Coal Company in 1979, transferred to FSL in 1979, appointed the workshop director in 1983, and appointed the factory director of Wuzhuang Bulbs Factory in 1993 till now. He has been appointed the vice secretary of Party Committee of FSL in Jul., 2002. １４ Lian Jianwu: male, born in Nov., 1971, polytechnic school graduate, is the supervisor of FSL. Graduated from Nanjing Radio Electrical Industry School in 1993, he has been employed in FSL till now, and has been appointed the workshop directors of the miniature automotive lamps workshop, motorcycle lamp workshop and bromine-tungsten lamp workshop. He received the certificate for electro-optical assistant engineer in 1995, and was elected the 12th People’s Congress of Foshan City in Feb., 2003. Mei Feixing: male, native of Pingjiang, Hunan, born in Aug., 1971, professional college graduate, is the supervisor of FSL. He has worked in the grass roots level of FSL since Mar., 1994, participated in the electro-optical technical training held by the company, appointed the workshop director of the powder painting workshop since 1997 in charge of the production and technical management in powdering and frosting, and assigned first to the glass plant and afterwards to T8 plant as the factory director from Mar., 2004 till now. Zhang Chaoyang: male, native of Chaoyang, Guangdong, 41, postgraduate, bachelor degree, political worker, is the supervisor of FSL. He has studied in Henan Science and Technology University (the former College of Engineering of Luoyang) since 1981, appointed the League secretary of Foshan Water Pump Factory since 1985, the vice section chief of the Organization Department under the Party Committee of Foshan City since 1991, the section chief of Foshan Economic Committee since 1997, and vice general manager and secretary of the commission for inspecting discipline since 1998, and is now the vice general manager and Party Secretary of Gongying Investment Holding Co., Ltd., Foshan, and the Chairman of the Board of Directors and General Manager of Zhengtong Group Co., Ltd., Guangdong. He is the supervisor of the 3rd and 4th Board of Supervisors of FSL. Shen Weiqiang: male, native of Bao’an, Guangdong, 55, undergraduate from Hong Kong University, Bachelor of Engineering, is the supervisor of FSL. As the director and general manager of Fuyu Industrial Ltd. in Hong Kong, he has engaged in the international trading of electrical appliances for more than 10 years, and kept the close relationship with many large electro-optical and electric companies both at home and abroad. Ever appointed in the large financial institution in Hong Kong, he has the rich experiences in enterprise operation, project financing and investment planning, and has been appointed the director of the 2nd and 3rd Board of Directors of FSL. １５ (3) Work experiences of senior management Ou Muben: male, male, native of Nanhai, Guangdong, 56, senior high school graduate, is the vice general manager of FSL. Admitted in this factory in 1969, he has ever been appointed the workshop director and the chief of the production section, the vice general manager of the company since 1991, and the director of the 1st to 3rd Board of Directors of FSL. Guo Jieming: male, born in Jul., 1949, native of Yiyang, Hunan, professional college graduate, engineer, is the vice general manager of FSL. He has been appointed the technician, workshop director and vice factory director of Yiyang Panels Factory since 1980, the head of the research institute, the director of the development department and vice factory director of Yiyang Bulbs Factory and the member of the Political Consultative Conference of Yiyang City with special subsidies from the State Council since 1985, and the workshop director and chief of the equipment section of FSL since 1996. Liang Weiqiang: male, native of Guangdong, born in Feb., 1958, senior high school graduate, is now the general manager assistant of FSL. Admitted in Foshan Bulbs Factory in 1976 and joined the army in 1978, he has always been with FSL since he was transferred to civilian work, and has ever been appointed the technician, workshop director, chief of the sales section and the manager of the production department. Lin Yihui: male, native of Jieyang, Guangdong, born in Nov., 1954, postgraduate in economy, CPC member, is now the secretary of the Board of Directors. He has served in the army from Dec., 1970 to 1986, worked in the grass-rooted level and government organization then, appointed in Foshan International Trust & Investment Company as the section chief and vice general manager from 1986 to Sep., 2000, in charge of securities operation of such company and the underwriting, issuing and recommendation for listing of shares for many companies, and ever appointed the director of the 1st and 2nd Board of Directors of FSL. He has been with FSL since Oct., 2000 till now. Wang Shuqiong: female, native of Qinghai, born in Apr., 1962, polytechnic school graduate, is now the manager of the financial department. She has worked in Qinghai Bulbs Factory since 1982, assigned to the Financial Bureau of Xining City, Qinghai Province in Dec., 1988, and admitted to FSL since Apr., 1993 till now. １６ 3. Annual remuneration. (1) The remuneration of directors, supervisors and senior management personnel of the company shall be determined in accordance with the program approved by the Board of Directors, depending on their respective positions, posts and tasks completed. The total annual remuneration of the current directors, supervisors and senior management personnel is RMB 1,766,000. (2) During the report period, Mr. Liang Zhen, Ms Wu Jianhong and Ms Chen Ziyun, the independent directors of the company, have received no subsidy nor other welfare from the company, but have been refunded the expenses on transportation and board and lodging for attending the Board meeting of the company. (3) Alfred K. N. Chong, the Vice Chairman of the Board of Directors, directors Liang Weidong, Chen Guanbiao and Ye Zaiyou, and supervisors Zhang Chaoyang and Shen Weiqiang, have received neither remuneration nor subsidy from the company. Except for Ye Zaiyou who receives the remuneration from the shareholder unit as a shareholding director, and Alfred K. N. Chong, Chen Guanbiao and Shen Weiqiang who receive the remuneration from the affiliated units, no other director or supervisor has received any remuneration or subsidy from the shareholder unit and any other affiliated unit, but received the remuneration from his own work unit. (II) Staffs The staffs and organizational structure of the company: the company has the total staff members of 8691, including 8117 production personnel, 103 sales personnel, 399 technical personnel, 27 financial personnel, and 45 administrative personnel. There are 682 staff graduated from universities, colleges and polytechnic schools, and 243 retired staff. １７ V. Administration Structure of the Company 1. Administration of the company. The company has constantly perfected its legal entity administration structure according to the relevant regulations and requirements of the “Company Law”, the “Securities Law” and the China Securities Regulatory Committee after its listing, standardized the operation of the company, and set out the relevant rules and management systems. According to the requirements in the “Administration Rules for Listed Companies”issued by the China Securities Regulatory Committee and the National Economic and Trade Committee on Jan. 7, 2002, the administration conditions of the company comply with the regulations concerned, with details shown below: (1) Shareholders and Shareholders’ General Meeting: The company has made the “Articles of Association”of the company and the “Rules of Debate of Shareholders’General Meeting”, to guarantee the legal rights and interests and equality of all shareholders, especially the medium and minority shareholders, strictly notify the shareholders’meeting at the request, convene the Shareholders’General Meeting, enable the shareholders to exercise their right to vote, and ask the attorney to present the meeting for witness. (2) Big shareholder and listed company: the first shareholder of the company is the State-owned Assets Supervision & Management Committee of Foshan City, which has not overstepped the rights and duties of the Shareholders’ General Meeting and the Board of Directors, nor directly or indirectly interfered the decision-making, production and business operation of the company. The Board of Directors, Board of Supervisors and internal organizations of the company have all carried out the independent operation in personnel, assets, business, finance and organizational structure, separated from the first shareholder. (3) Directors and Board of Directors: the nomination and election of the directors shall comply with the “Articles of Association” of the company. The number and member constitution of the Board of Directors shall meet the requirements of relevant laws and regulations, and the directors can faithfully, sincerely and diligently perform their duties. The company has worked out the “Rules of Debate of the Board of Directors”, to guarantee the high-efficient operation and scientific decision-making of the Board of Directors. The company has appointed three independent directors during the report period, making up one third of the total numbers in the Board of Directors. １８ (4) Supervisors and Board of Supervisors: the company has set up the “Rules of Debate of the Board of Supervisors”, and the number and member constitution of the Board of Supervisor shall meet the requirements of relevant laws and regulations. The supervisors shall perform their duties, and independently and effectively make the supervision and inspection conscientiously. (5) Performance evaluation and incentive and restriction system: the company shall appoint the managers in an open and democratic way, which complies with the provisions of laws and regulations. It has already established the open and democratic performance evaluation standard and incentive and restriction system, to attract more talents and stabilize the managers. (6) Parties at interest: the company and its parties at interest including the creditors, employees, consumers and suppliers complement to each other for mutual promotion and development. The company can fully respect and maintain the legal rights and interests of its parties at interest, and actively cooperate with them, to promote the constant and health development of the company. (7) Information disclosure and transparency: the company shall designate the special personnel to disclose the information, receive the shareholders and answer their questions. In such a way, the company will truly, accurately, completely and timely disclose the information concerned, making sure that all shareholders shall have the equal opportunities for the information. 2. Performance of duties of the independent director. Liang Zhen, Wu Jianhong and Chen Ziyun, the independent directors of the company, have carefully performed their duties as the independent directors since they took their posts. Liang Zhen, Wu Jianhong and Chen Ziyun have attended all five board meetings held during this report period, made the preparations and studies before hand after receiving the notice, and fully put forward their personal opinions to earnestly maintain the overall interests of the company. Attendance of independent directors to the board meetings: Name of independent directors Board meeting held this year Attend in person Attend by Absence Remark proxy Liang Zhen 5 5 0 0 Wu Jianhong 5 5 0 0 Chen Ziyun 5 5 0 0 １９ 3. Relationship between the company and the first shareholder. The company has been separated from its first shareholder, the State-owned Assets Supervision & Management Committee of Foshan City in business, personnel, assets, organization and finance. The company has the independent and complete business and autonomous operation ability, and has the well-distributed supply and sales channels. All employees are recruited by the company at its discretion, and there is no employee of the first shareholder taking any post in FSL. With complete assets, clear legal properties, and independent organization, the company is an integrated legal entity, and has set up the account of its own in finance, and carries out the independent operation and independent auditing. 4. Assessment and evaluation for senior management personnel during the report period and the execution of the incentive system. The Remuneration and Assessment Commission of the Board of Directors of the company has examined the operating result of the year according to the regulations in the “Implementation Plan for Share Incentive Funds for Senior and Middle-Rank Management Personnel of Foshan Electrical & Lighting Limited Company”passed by the Shareholders’General Meeting of the company during the report period, appropriated RMB 15 million as the share incentive funds, and drawn up the allocation standard of personal incentive funds for senior and middle-rank management personnel and business and technical backbones based on assessment and appraisal. The company has fixed the shares purchased by the incentive funds. VI. Shareholders’General Meeting The company has held the shareholder’s general meeting for annual report once during the report period. Such Shareholders’General Meeting of 2004 was convened in the conference room on the third floor in North Area of the company on May 26, 2005, with its resolutions published on China Security, Security Times and Ta Kung Pao (in HK) on May 27, 2005. VII. Report of the Board of Directors (I) Production and business operation 1. Look back on the business operation of the company during the report period (1) Overall business operation during the report period ２０ Facing the increasingly violent competition on the electro-optical markets both at home and abroad, as well as the rise in price of various raw materials, the Board of Direcotrs of FSL focused on the long-term development of the enterprise and the interests of all shareholders, gave full play to its advantages, and carried out a series of powerful measures including the strengthened management, expanded production scale, reformed marketing concept and perfected layout of the industrial base to guarantee the constant fast development of the production and business operation of the company, to further improve its market competitive force, and to achieve the considerable economic benefits. In 2005, the company has made 977 million bulbs in total, increasing by 1.0% than that of last year. The main business income has reached RMB 1214 million, basically same with that of last year, and the sales from export has been USD 48 million. Moreover, the company has realized the total profits of RMB 267 million, 8.08% less than that of last year, the net profits of RMB 220 million, dropping by 5.14%, and the income per share after tax of RMB 0.61. The drop of profits during the report period is largely due to the rise in price of raw materials and fuels and the revaluation of CNY. (2) Existing advantages and difficulties, and the stable profit-earning ability a. Advantages As the leading enterprise in the domestic electro-optical industry, FSL has the outstanding comprehensive advantages especially in funds, personnel, management and technology, as well as the strong key competitive force. By enlarging its investment on the production base in 2005, the company has not only improved its production ability, but also created the conditions for its strategic target of redoubling its production and sales within five years. b. Difficulties Because of the influence to the export in the electro-optical industry by the international environmental restrictions and the revaluation of CNY, the disorderly competition on the domestic market has become more and more violent, thus lowering the profit rate of the electro-optical products. The rise in price of raw materials and fuels and the increase of labor costs have also brought pressure to the main business costs of the enterprise. c. Despite of the above pressures, the electro-optical industry, as the everyday consumables, is still of huge potentiality in its development based on the progress of economic society in China, the improvement of people’s living standard and the support of the national policies. Therefore, there will be the broad space and stability for the business and profit-earning ability of the enterprise in the future. ２１ (3) Main suppliers and clients: The purchase amount of the company from the top five suppliers is RMB 133 million, making up 21.81% of the total purchase amount, and the sales amount to the top five clients is RMB 164 million, making up 13.96% of the total sales. (4) There is no significant change on the assets composition of the company during the report period compared with that of last year. (5) There is no significant change on the main financial data of the company during the report period compared with that of last year. (6) There is no significant change on the cash flow composition of the company during the report period compared with that of last year, nor significant difference of net profits during the report period. (7) Business operation and results of main holding and equity-participating enterprises Business operation and results of main holding and equity-participating enterprises: QL Lamps and Components Limited, Foshan is a Sino-foreign joint venture held by FSL, in which FSL holds 40% of its shares. The joint venture, with the registered capital of USD 1.8 million, mainly produces special optical sources such as bromine-tungsten lamps and lighting accessories. FSL Modern Lighting Co., Ltd. was established in the last half of 2004 with the registered capital of RMB 5 million, including RMB 4.5 million invested by FSL, making up 90% of the total capital stock. It mainly produces and sells lighting products and accessories. Chansheng Electronic Ballasts Co., Ltd., Foshan, a Sino-foreign joint venture established in 2003 with the registered capital of RMB 1 million, including 75% of capital stock from FSL, mainly produces and sells electronic ballasts and electronic transformers. Foshan QL Electrical (Gaoming) Co., Ltd. is a Sino-foreign joint venture founded in Oct., 2005 with the registered capital of RMB 60 million, including 70% contributed by FSL, which mainly produces and sells electro-optical products, lamps and related spare parts. All these four enterprises are under normal production, standard operation and with fine results. Besides, the company has also made investments in China Everbright Bank, Bank of Communications, Fochen Highway in Foshan, Liangke Investment Co., Ltd., Shenzhen and Zhujiang Property Management Company in Guangzhou with minority shares. All these enterprises are of standard management, fast business development and fine benefits, and have given the considerable investment return to the company based on their actual operations. ２２ 2. Prospect for the future (1) Possible influence by the industrial development trend and the coming market competition pattern. a. The increasingly violent competition in the domestic electro-optical industry nowadays has increased the business expenses of the electro-optical enterprises to a great extent, and thus gradually lowered the average industrial profit rate. However, it is still of huge potentiality in its development based on the progress of economic society in China, the improvement of people’s living standard and the support of the national policies. Therefore, there will be the broad space and stability for the business and profit-earning ability of the enterprise in the future. Therefore, FSL will make use of leading position in this industry and its brand superiority as the “Lamp King in China”, integrate its industrial resources, expand the main industry, carry out the large-scale production, strengthen the internal management, reduce the costs and improve its profit-earning ability. b. Seizing the golden opportunity when the environmental restriction on the export market and the revaluation of CNY are pounding at the small and medium-size enterprises, FSL will give full play to its superiorities as a large enterprise of great advantages, take an active part in the competition on the international market, establish the well-known national brand, attempt to expand its shares on the export market without loosing the existing foundation, and propel the enterprise forward to a broader development space. (2) Work scheme of 2006 The company will keep on the fast development in 2006, realize its strategic target steadily by strengthening its internal management, rationalizing its strategic layout and fully improving its key competitive force, and further expand its export sales while solidifying its leading position in the domestic elector-optical industry. The work program of the company in 2006: a. Greatly promote the precision management, solidify the management foundation, continuously improve the management level of the enterprise, and promote its overall operating efficiency. b. Construct the production base in Gaoming, implement its strategic balance, expand the production capacity, speed up the market response and enlarge the market occupation of its products. c. Maintain the large-scale production of the enterprise and give it full play, integrate the internal resources of the enterprise, focus on the sharing of resources, reduce the operating costs and improve its profit-earning ability. d. Further regulate the product structure, greatly develop and make the product of high added value, and improve the profit-earning ability of such products. ２３ e. Establish the brand superiority, strengthen the brand construction, enlarge its influence and recognition, and promote the fast and health development of the company. f. Continuously tap the market potentialities, and open up the sales space. g. Continue to perfect the corporate administrative structure, standardize the operation, constantly improve the management level, and give the reliable guarantee for the interests of the masses of investors and other interested parties. (3) Risks with disadvantageous influences on the future development strategy and business target of the company, and the corresponding measures: We assumed that there would be neither significant change on the state laws and regulations and the relevant industrial policies, nor significant change on the macro environment for the steady development of the national economy, or major change on the electro-optical industrial market environment, nor force majeure event or unforeseeable factor that may adversely and significantly affect the business result of the company and cause the serious losses when making the future prospect and new-year business plan of the company. The main risks confronted by the company in the future shall include: a. Market risk The increasingly violent competition on the domestic electro-optical industry certainly will force up the business expenses of such enterprises and lower their average profit rate. For this reason, the company will further strengthen its internal management, reduce the costs, expand the major industry and carry out the large-scale production, and try its best to open up the Level-II and Level-III markets, so as to relieve the enterprise from the risk, and expand the space for its existence and development. b. Investment risk As the company will keep on a considerably fast development in 2006, it is important to increase more capital investment. Therefore, the company will further control the decision -making process for investment, set up the alarm system for risks, carry out the advance investigation, in-process supervision and post evaluation, relieve the enterprise from the investment risk, and guarantee the legal rights and interests of the shareholders. c. Product quality risk The company uses the leading technologies and equipment both from home and abroad, and possesses the matured technology and proper process. It always pays major attention to the product quality, and executes the quality standard complying with or even superior to the national or international standards. However, as the low-price consumption goods, the electro –optical products are controlled under the strict environmental requirements. Thus, the company will persist in the strict quality management, perfect its quality control system to guarantee its compliance, and maintain the high prestige of the company on the market. ２４ (II) Investment of the company. 1. Use of funds raised In the last half of 2000, the company has actually raised RMB 667 million by issuing more shares (A share), and invested in the 9 investment projects disclosed in the Prospectus (except the current funds). As at Dec. 31, 2005, RMB 667 million has already been invested, making up 100% of the total funds, with all raised funds used out. As the major investment projects, there are currently 23 production lines for T8 fluorescent lamps, with 22 (including the existing 3 lines for T8) and the 4 production lines for T5 fluorescent lamps already under normal production. The auxiliary projects such as the fluorescent lamp test center, the kilns, tube-pulling lines, filaments and leads, power facilities and environmental and fire-fighting facilities have all completed as per the investment plan, some even overfulfilled the investment plan. The company can make 15 million T8 fluorescent lamps and 1.3 million T5 fluorescent lamps each month. Because the fluorescent lamps have found a good market, the T8 and T5 fluorescent lamps made by us still have the demand exceeding the supply. The company has sold 140.1 million T8 and T5 fluorescent lamps in 2005, and has earned the profits basically same with that in the same period last year. The detailed investment projects and the progress for use of funds are shown as follows: Unit: RMB 10,000 Total funds raised 66,691 Total funds raised and used this year 3,247 Accumulative total funds already used 66,691 Committed project Planned Project Actual Proceeds Planned schedule/estimated investment changed/not investment proceeds met/not T8 19,500 N 22,618 6,946 Y T5 19,200 N 14,544 676 Y Double loop 2,940 N 2,700 — Y Test center 2,962 N 3,314 — Y Three kilns 2,920 N 3,332 — Y Tube-pulling production line 2,944 N 2,345 — Y Filament and lead 2,950 N 4,806 — Y Power facilities 2,900 N 2880 — Y Environment & fire fight facilities 2,800 N 2,863 — Y Current funds 7,575 N 7,289 — Y Total 66,691 ---- 66,691 7,622 Reason for failing to meet the planning schedule and proceeds (item by item) ２５ 2. Major investment projects by non-raised funds during the report period. During the report period, the company has implemented the resolution passed in the shareholders’ general meeting to invest five projects by its self-possessed funds of more than RMB 600 million within three to five years, i.e., to arrange and make the investment of golden halogen lamps, investment and expanded production of energy-saving lamps, ordinary bulbs, middling lamps and fluorescent lamps as planned. All projects for new lamps and accessories have been put into operation, and sold together with our optical products. (III) Routine operation of the Board of Directors. 1. Board meetings and resolutions during the report period: the Board of Directors has held five board meetings within this year. The contents of the meetings and resolutions are disclosed on China Security, Security Times and Ta Kung Pao (in HK) as regulated. The dates of conference and the dates of disclosure for such five board meeting are: (1) The seventh meeting of the 4th Board of Directors of FSL was held on Mar. 23, 2005, and the resolutions were disclosed on Mar. 25, 2005. (2) The eighth meeting of the 4th Board of Directors of FSL was held on Apr. 14, 2005, and the resolutions were disclosed on Apr. 16, 2005. (3) The ninth meeting of the 4th Board of Directors of FSL was held on Aug. 17, 2005, and the resolutions were disclosed on Aug. 19, 2005. (4) The tenth meeting of the 4th Board of Directors of FSL was held on Oct. 18, 2005, and the resolutions were disclosed on Oct. 20, 2005. (5) The eleventh meeting of the 4th Board of Directors of FSL was held on Dec. 20, 2005, and the resolutions were disclosed on Dec. 21, 2005. 2. Execution of the Board of Directors to the resolutions of the Shareholders’General Meeting: the Board of Directors has carefully executed the resolutions of the Shareholders’General Meeting. All nine resolutions passed in the Shareholders’General Meeting of 2004 (including the profit distribution plan) have been carried out completely, and the Board of Directors has organized and implemented the plan of share incentive funds for senior and middle-rank management personnel of the company under the authorization. ２６ (IV) Draft profits distribution plan of 2005 The net profit of FSL audited by KPMG Peat Marwick in Hong Kong (which is lower than that audited by Zhengzhong Zhujiang Certified Public Accountants, Guangdong) in 2005 is taken as the standard. The minimum net profit realized by the company in 2005 is RMB 213,939,222.00, and the profits available for distribution to shareholders this year after deducting 10% of public welfare funds and 5% of arbitrary earned surplus is RMB 265,377,521.29 (including RMB 78,731,628.85 as the undistributed profits of last year) Based on 358,448,259 shares of capital stock at the end of 2005, the Board of Directors of the company will distribute RMB 4.90 (including the tax. Dividends for B share shall be paid after being converted into HK dollar) as the cash dividend for every 10 shares to all shareholders of A and B shares. The total dividend actually paid is RMB 175,639,646.91, and the remaining RMB 89,737,874.38 will be carried forward to the next year for distribution. There is no increase of capital stock by surplus in 2005. The cash dividend paid to shareholders of B share shall be converted into HK dollars by the middle rate between RMB and HKD declared by the Bank of China on the first business day after the resolution of the Shareholders’General Meeting. The above draft distribution plan shall be implemented so long as it is examined and passed in the Shareholders’General Meeting. (V) Other issues in report 1. China Security, Security Times (both for A share, in Chinese) and Ta Kung Pao in Hong Kong (for B share, in English) have been elected by the company as the newspapers for disclosing the relevant information. There is no change during the report period. 2. Special notes and independent opinion of the independent director on external guarantee of the company: It is examined and verified that FSL has provided no security for any shareholder of the listed company, the control subsidiary of the shareholder, the affiliated company of the shareholder, any other related party with less than 50% of shares held by FSL, and any non-corporate unit or individual. ２７ VIII. Report of the Board of Supervisors 1. Operation of the Board of Supervisors during the report period. During the report period, the Board of Supervisors has convened two meetings. The Chairman of the Board of Supervisors always attended the meetings of the Board of Directors and the management level, participated in the discussion of the significant policies of the company, reviewed and supervised the resolution and procedure of each board meeting and Shareholders’ General Meeting. The meetings convened by the Board of Supervisors include: (1) The written notice for the 3rd meeting of the 4th Board of Supervisors was sent to all supervisors personally or by fax on Mar. 11, 2005, and the meeting was held in the administrative conference room of the company on Mar. 23, 2004, with four of five supervisors attending the meeting, complying with the relevant provisions set forth in the “Company Law”and the “Articles of Association”of the company. Mr. Shen Weiqiang asked for leave because he was on business trip. Mr. Huang Guanxiong, the Chairman of the Board of Supervisors presided the meeting. The attendants reviewed and passed the following resolutions: l Examine and pass the operation report of the Board of Supervisors of 2004. l Examine and pass the 2004 Annual Report and Summary of 2004 Annual Report of the company, both in Chinese and English. l Examine and pass the final financial report and the draft profits distribution plan of 2004. l Examine and pass the resolution on joint transactions related to daily business operation. (2) The 4th meeting of the 4th Board of Supervisors was held in the conference room on 4/F of the company on Aug. 17, 2005, with four of five supervisors attending the meeting. Mr. Zhang Chaoyang asked for leave because he was on business trip. Mr. Huang Guanxiong, the Chairman of the Board of Supervisors presided the meeting. The attendants reviewed and passed the following resolutions: l Review and pass the interim report of 2005 and its summary of the company (in Chinese and English versions). l Review and pass the resolution on making no interim profit distribution, nor increase of capital stock by surplus in 2005. ２８ 2. Independent opinion of the Board of Supervisors. (1) Legal operation of the company: it can carry out the strict legal operation, strengthen the standardized construction, set up the rules and systems to perfect the management of the listed company, and further improve management level and standard construction of the company. The company has perfected its internal control system, carried out all management policies for the use of capital, investment project and business operation upon the discussion of the Board of Directors, and made the decisions in legal procedures after making the research and investigation, and studying the feasibility. The company has solicited the opinion of the independent director for some major decisions, to implement such decisions correctly and effectively, and achieve quite good economic benefits. The Board of Supervisors finds that neither director nor manager of the company has violated the laws, rules and regulations and the Articles of Association of the company or damage the interest of the company while taking his post. The directors and managers of the company abide by the laws and discipline, and being honest in performing their official duties, united and enterprising, actively making their efforts and contributions to the development of the company. (2) Inspect the financial status of the company. The Board of Supervisors believed that the audit reports and relevant notes made by Zhengzhong Zhujiang Certified Public Accountants, Guandong and KPMG in HK have truly reflected the financial situation and business results of the company. (3) The last actual investment with raised funds: The company has issued more A shares in the last half of 2000, and raised funds of RMB 667 million. By now, the company has invested in the 9 investment projects disclosed in the Prospectus (except the items of current funds), and the actual investment has no difference with the items disclosed in the Prospectus. As at Dec. 31, 2005, RMB 667 million has already been invested, making up 100% of the total funds, with all raised funds used out and fine economic results received. . (4) During the report period, there is no transaction for purchase and sales of assets in FSL. The joint transaction at the fair and reasonable price has no detriment to the interests of FSL. (5) Zhengzhong Zhujiang Certified Public Accountants, Guangdong and KPMG Certified Public Accountants in HK have issued the audit report without any reservation to the financial report of the company of 2005. ２９ IX. Significant Events 1. There is no significant suit or arbitration of the company during the report period. 2. There is no matter on purchase, amalgamation and sales of assets of the company during the report period. 3. Joint transactions: (1) Joint transactions related to daily operations: Related party Sell products and provide labor to related party Purchase products & get labor from related party Transaction amount % of amount in same Transaction amount % of amount in transaction same transaction Prosperity Lamps 29,874,637.26 2.46% 15,075,605.03 2.48% Hangzhou Prosperity 1,923,551.33 0.16% -- -- Hangzhou Times 680.00 0.02% Prosperity Electrical 3,119,398.23 0.26% 437,037.94 0.07% Nanjing Prosperity 217,954.72 0.02% 2,053,141.03 0.58% Osram 31,330,747.55 2.58% -- -- Prosperity Xinxiang -- -- 116,300.00 0.09% Prosperity Foshan -- -- 220,000.00 0.17% Total 66,466,969.09 5.49% 17,902,084.00 3.39% • The company has paid RMB 1,468,222.33 to Prosperity Lamps as the service charge for the importation of equipment, making up 3% of the price of such equipment. • The above transactions are all priced based on the market price, which is fair and just. • The joint transactions are necessary for the normal business operation of the company, which is benefit to the long-term development of the company. • No joint transaction would adversely affect the independence of the company. ３０ (2) Joint creditor’s rights and liabilities: Related party Funds provided to related party Funds from related party to listed company Incurrence of amount Balance Incurrence of amount Balance Prosperity Xinxiang 12,500,000.00 0 -- -- Hangzhou Prosperity 10,000,000.00 0 -- -- For the need of business development, Prosperity Xinxiang and Hangzhou Prosperity have made loans from Chanchang whose 40% of shares are held by FSL during the report period. All funds and interests accrued have been repaid in full. 4. Significant contract: there is neither the trust, contract, lease of assets from any other company, nor trust, contract, lease of assets of out company by any other company, nor security affair, nor financing entrust. 5. No change has taken place to the domestic and foreign accountants firms of the company during the report period. The company continues to appoint Zhengzhong Zhuangjiang Certified Public Accounts, Guangdong and KPMG Certified Public Accountants in HK as its accountants firms. Zhengzhong Zhuangjiang Certified Public Accounts, Guangdong has served the company for continuous 12 years, while KPMG Certified Public Accountants in HK has served the company for continuous 10 years. The remuneration paid by the company to such two accountants firms: the remuneration standard for financial auditing during the report period is RMB 340,000 to Zhengzhong Zhuangjiang Certified Public Accounts, Guangdong, and HKD 560,000 for KPMG in HK. 6. No company, the Board of Directors of the company or any director has been checked by the China Securities Regulatory Committee, or experienced the administrative sanction or notice of criticism by the China securities supervision committee, or the public condemn of any security exchange. 7. There is no significant event listed in Article 67 of the “Security Law”and Article 17 of the “Rules for Information Disclosure for Companies with Publicly Issued Shares”(trial), and any matter judged as the significant event by the Board of Directors of the company during the report period. ３１ X. Financial Report Report of the international auditors to the shareholders of Foshan Electrical and Lighting Company Limited (Established as a joint-stock company in the People’s Republic of China with limited liability) Respective responsibilities of directors and auditors We have audited the accompanying consolidated balance sheet of Foshan Electrical and Lighting Company Limited and its subsidiaries (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, set out on pages 2 to 36, which have been prepared in accordance with International Financial Reporting Standards. These consolidated financial statements are the responsibility of the directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. This report is made solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Basis of opinion We conducted our audit in accordance with International Standards on Auditing. 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 the directors, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 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 operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Certified Public Accountants Hong Kong, China, 21 March 2006 ３２ Consolidated statement of income for the year ended 31 December 2005 (Expressed in Renminbi Yuan) Note 2005 2004 Rmb Rmb Revenue 2 1,213,810,498 1,219,922,140 Cost of sales (856,341,553) (830,229,143) Gross profit 357,468,945 389,692,997 Other operating income 4 10,152,352 9,776,840 Distribution expenses (40,520,915) (44,827,482) Administrative expenses (70,535,759) (64,977,399) Other operating expenses 5 (1,343,273) (7,807,142) Operating profit before financing costs 255,221,350 281,857,814 Financial income 7 15,310,663 14,982,067 Financial expenses 8 (11,024,961) (6,078,110) Net financing costs 4,285,702 8,903,957 Share of loss of an associate - (382,010) Profit before tax 259,507,052 290,379,761 Income tax expense 9(a) (44,341,981) (60,560,601) Profit for the year 215,165,071 229,819,160 =========== =========== Attributable to: Equity shareholders of the company 20 213,939,222 228,925,136 Minority interest 1,225,849 894,024 Profit for the year 215,165,071 229,819,160 =========== =========== Basic earnings per share 24 0.60 0.64 =========== =========== The notes on pages 8 to 36 form part of these consolidated financial statements. ３３ Consolidated balance sheet at 31 December 2005 (Expressed in Renminbi Yuan) Note 2005 2004 Rmb Rmb Assets Property, plant and equipment 10 672,839,154 663,275,937 Lease prepayments 11 178,758,716 166,722,508 Construction in progress 12 138,918,777 118,662,455 Investments 13 138,449,248 114,313,326 Deferred tax assets 14 10,835,320 8,644,105 Total non-current assets 1,139,801,215 1,071,618,331 ------------------- ------------------- Investments 13 27,785,300 117,217,865 Inventories 15 198,537,535 162,368,390 Trade receivables 16 252,284,621 227,104,336 Deposits, prepayments and other receivables 17 28,462,279 59,582,402 Cash and cash equivalents 18 928,100,663 903,206,569 Total current assets 1,435,170,398 1,469,479,562 ------------------- ------------------- Total assets 2,574,971,613 2,541,097,893 =========== =========== The notes on pages 8 to 36 form part of these consolidated financial statements. ３４ Consolidated balance sheet at 31 December 2005 (continued) (Expressed in Renminbi Yuan) Note 2005 2004 Rmb Rmb Equity Share capital 19 358,448,259 358,448,259 Share premium 1,186,000,059 1,186,000,059 Other reserves 20 769,322,730 727,438,672 Total equity attributable to equity shareholders of the company 2,313,771,048 2,271,886,990 Minority interest 25,682,953 6,830,075 Total equity 2,339,454,001 2,278,717,065 ------------------- ------------------- Liabilities Trade payables 86,375,850 107,977,494 Taxation 9(c) 10,480,433 18,511,550 Accruals and other payables 21 92,306,180 78,844,550 Salaries, bonus and staff welfare payables 46,355,149 57,047,234 Total current liabilities 235,517,612 262,380,828 ------------------- ------------------- Total equity and liabilities 2,574,971,613 2,541,097,893 =========== =========== Approved and authorised for issue by the board of directors on 21 March 2006. ) ) ) Directors ) ) The notes on pages 8 to 36 form part of these consolidated financial statements. ３５ 2005 Consolidated statement of changes in equity for the year ended 31 December 2005 (Expressed in Renminbi Yuan) Total equity attributable to Share Share Other equity shareholders Minority Total Capital Premium Reserves of the company interest equity Rmb Rmb Rmb Rmb Rmb Rmb (Note 20) Balance as at 1 January 2004 358,448,259 1,186,000,059 663,399,735 2,207,848,053 5,236,051 2,213,084,104 Profit for the year - - 228,925,136 228,925,136 894,024 229,819,160 Dividends to share holders - - (164,886,199) (164,886,199) - (164,886,199) Capital injection by minority shareholders - - - - 700,000 700,000 Balance as at 31 December 2004 358,448,259 1,186,000,059 727,438,672 2,271,886,990 6,830,075 2,278,717,065 ====================== ============ ============ =========== ============ Balance as at 1 January 2005 358,448,259 1,186,000,059 727,438,672 2,271,886,990 6,830,075 2,278,717,065 Profit for the year - - 213,939,222 213,939,222 1,225,849 215,165,071 Dividends to share holders - - (172,055,164) (172,055,164) - (172,055,164) Capital injection by minority shareholders - - - - 18,000,000 18,000,000 Distribution to minority shareholders - - - - (372,971) (372,971) Balance as at 31 December 2005 358,448,259 1,186,000,059 769,322,730 2,313,771,048 25,682,953 2,339,454,001 ====================== ============ ============ ======================= The notes on pages 8 to 36 form part of these consolidated financial statements.３６ Consolidated statement of cash flows for the year ended 31 December 2005 (Expressed in Renminbi Yuan) Note 2005 2004 Rmb Rmb Operating activities The notes on Profit before tax 259,507,052 290,379,761 pages 8 Adjustments for: to 36 - Depreciation and amortisation 119,373,610 116,122,632 form - Interest income (11,310,663) (11,584,297) part of - Net loss on disposal of property, these plant and equipment 534,766 4,862,782 consolid - Dividend income - (2,705,303) ated - Loss / (gain) on revaluation of investments financial held for trading to fair value 1,926,252 (310,457) stateme - (Reversal) / provision for impairment of nts. unlisted equity securities investments (4,000,000) 1,710,000 - Net loss on disposal of investment in an associate and other investments 4,869,348 1,967,096 - Reversal of provision for inventory (179,485) - - Provision for bad and doubtful debts 1,148,861 3,942,751 - Share of loss of an associate - 382,010 Cash flows from operating activities before changes in working capital 371,869,741 404,766,975 Increase in inventories (35,989,660) (44,838,886) Increase in trade receivables (25,827,112) (74,620,810) Decrease / (increase) in deposits, prepayments and other receivables 31,053,089 (37,997,017) (Decrease) / increased in trade payables (21,601,644) 18,439,366 Increase in accruals and other payables 11,809,218 7,199,714 (Decrease) / increase in salaries, bonus and staff welfare payables (10,692,085) 6,260,077 Cash generated from operations 320,621,547 279,209,419 PRC income tax paid (54,564,313) (46,445,095) Cash flows from operating activities 266,057,234 232,764,324 ----------------- --------------- -- - ３７ Consolidated statement of cash flows for the year ended 31 December 2005 (continued) (Expressed in Renminbi Yuan) Note 2005 2004 Rmb’000 Rmb’000 Investing activities Interest received 11,310,663 11,584,297 Dividends received - 2,705,303 Payment for acquisitions of property, plant and equipment and construction in progress (146,516,476) (159,787,320) Increase in lease prepayment (14,420,761) (55,528,716) Purchase of investments (520,664,872) (104,262,100) Proceeds from disposal of investment in an associate and other investments 583,165,915 102,008,970 Proceeds from disposal of property, plant and equipment 390,526 4,880,507 Cash flows from investing activities (86,735,005) (198,399,059) ---------------- ---------------- - - Financing activities Capital injection from minority shareholders 18,000,000 700,000 Dividends paid (172,055,164) (164,886,199) Dividends paid to minority shareholders (372,971) - Cash flows from financing activities (154,428,135) (164,186,199) ---------------- ---------------- - - Net increase / (decrease) in cash and cash equivalents 24,894,094 (129,820,934) Cash and cash equivalents at 1 January 903,206,569 1,033,027,503 Cash and cash equivalents at 31 December 18 928,100,663 903,206,569 ========== ========== The notes on pages 8 to 36 form part of these consolidated financial statements. ３８ The n Notes to the consolidated financial statements (Expressed in Renminbi Yuan) 1 Significant accounting policies Foshan Electrical and Lighting Company Limited (the “Company”) is a joint stock company established in the People’s Republic of China (the “PRC”) with limited liability. The consolidated financial statements of the Company for the year ended 31 December 2005 comprise the Company and its subsidiaries (together referred to as the “Group”). (a) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and its interpretations adopted by the International Accounting Standards Board (“IASB”). (b) Basis of preparation The consolidated financial statements are presented in Renminbi Yuan. They are prepared on the historical cost basis as modified by the revaluation of property, plant and equipment (see note 10) and the remeasurement of investment held for trading (see note 13), which are stated at their fair value. The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of polices and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors 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 IFRS that have significant effect on the consolidated financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 27. The accounting policies set out below have been applied consistently by the Group and are consistent with those used in the previous years. ３９ 1 Significant accounting policies (continued) (c) Basis of consolidation (i) Subsidiaries Subsidiaries are those 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. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. (ii) Transactions eliminated on consolidation Intragroup balances and transactions and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements. (d) Translation of foreign currencies Transactions in foreign currencies are translated to Renminbi Yuan at the foreign exchange rates ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Renminbi Yuan at the foreign exchange rates ruling at that date. Foreign exchange differences arising on translation are recognised in the consolidated statement of income other than those eligible for capitalisation as construction in progress. (e) Property, plant and equipment (i) Property, plant and equipment are stated at cost or valuation (see note 10) less accumulated depreciation and impairment losses (see note 1(l)). The cost of self-constructed items of property, plant and equipment includes the cost of materials, direct labor, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads. When an asset of property, plant and equipment’s carrying amount is increased as a result of a revaluation, the increase is credited directly to equity under the component of revaluation reserve. However, a revaluation increase is recognised as income to the extent that it reverses a revaluation decrease of the same asset previously recognised as an expense. When an asset’s carrying amount is decreased as a result of a revaluation, the decrease is recognised as an expense in the consolidated statement of income. However, a revaluation decrease is charged directly against any related revaluation surplus to the extent that the decrease does not exceed the amount held in the revaluation reserve in respect of that same asset. Revaluations are performed periodically to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date. ４０ 1 Significant accounting policies (continued) (e) Property, plant and equipment (continued) Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. (ii) 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 consolidated statement of income as an expense as incurred. (iii) Depreciation is charged to the consolidated statement of income on a straight-line basis over the estimated useful lives, after taking into account their estimated residual values, of each part of an item of property, plant and equipment. The estimated useful lives are as follows: Buildings 3 to 25 years Plant and machinery 2 to 8 years Furniture, fixtures and office equipment 2 to 8 years Motor vehicles 5 to 10 years Assets are depreciated from the date of acquisition or, in respect of internally constructed assets, from the time an asset is substantially completed and ready for its intended use. (iv) Gains or losses arising from the retirement or disposal of an item 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 as income or expense in the consolidated statement of income on the date of retirement or disposal. On disposal of a revalued asset, the related revaluation surplus is transferred from revaluation reserve to retained earnings. (f) Lease prepayments Lease prepayments represent land use rights paid to the PRC’s land bureau. Land use rights are carried at cost less accumulated amortisation and impairment losses (refer to note 1(l)) and amortised on a straight-line basis over the respective periods of the rights which range from 40 years to 50 years. ４１ 1 Significant accounting policies (continued) (g) Construction in progress Construction in progress represents buildings, various plant and equipment under construction and pending installation, and is stated at costs less impairment losses (see note 1(l)). Cost comprises direct costs for construction as well as interest incurred directly contributable to the construction or acquisition during the periods of construction or installation. Capitalisation of these costs ceases and the construction in progress is transferred to property, plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided in respect of construction in progress until it is completed and ready for its intended use. (h) Investments Investments in equity securities held for trading are classified as current assets and are initially stated at fair value. At each balance sheet date, the fair value is remeasured, with any resultant gain or loss recognised in the consolidated statement of income. Debt securities that the Group has the positive intention and ability to hold to maturity are classified as held-to-maturity securities. Held-to-maturity securities are initially recognised in the consolidated balance sheet at fair value plus transaction costs. Subsequently, they are stated at amortised cost less impairment losses (see note 1(l)). Investments in equity securities that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are recognised in the consolidated balance sheet at cost less impairment losses (see note 1(1)). An impairment loss is made where, in the opinion of management, the carrying amount of the investments exceeds its recoverable amount. Investments are recognised/derecognised on the day that the Group commits to purchase/sell the investments or they expire. (i) Inventories Inventories 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 based on the weighted average principle 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 production overheads based on normal operating capacity. (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 1(l)). ４２ 1 Significant accounting policies (continued) (k) Cash and cash equivalents Cash and cash equivalents comprises cash balances and deposits with banks and other financial institutions with an original maturity of three months or less. (l) Impairment The carrying amounts of the Group’s assets, other than inventories (see note 1(i)), deferred tax assets (see note 1(o)), are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the consolidated statement of income. Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash generating units (group of units) and then, to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. (i) Calculation of recoverable amount The recoverable amount of the Group’s investments in held-to-maturity securities and receivables carried at amortised cost is calculated at the present value of estimated future cash flows, discounted at the original effective interest rate (i.e., the effective interest rate computed at initial recognition of these financial assets). The recoverable amount of other assets is the greater of their 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 the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. (ii) Reversals of impairment An impairment loss in respect of a held-to-maturity security or receivables is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. ４３ 1 Significant accounting policies (continued) (m) Provisions A provision is recognised in the consolidated balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. (n) Dividends Dividends are recognised as a liability in the period in which they are declared or approved. (o) Income tax Income tax expense on the consolidated statement of income for the year comprises current and deferred tax. Income tax is recognised in the consolidated statement of income 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 the 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 following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. 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. (p) Revenue recognition (i) Goods sold Revenue from the sale of goods is recognised in the consolidated statement of income when the significant risks and rewards of ownership have been transferred to the buyer. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods also continuing management involvement with the goods. ４４ 1 Significant accounting policies (continued) (q) Expenses (i) Operating lease payments Payments made under operating leases are recognised in the consolidated statement of income on a straight-line basis over the term of the leases. (ii) Net financing costs Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method, interest receivable on funds invested, dividend income, foreign exchange gains and losses that are recognised in the consolidated statement of income, except to the extent that interest payable on borrowings 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. Dividend income is recognised in the consolidated statement of income on the date the entity’s right to receive payments is established which in the case of listed securities is usually the ex-dividend date. Interest income is recognised in the consolidated statement of income as it accrues, using the effective interest rate method. (r) Employee benefits Pursuant to the relevant laws and regulations in the PRC, the Group joined a defined contribution retirement scheme for the employees arranged by a governmental organisation. The Group entities make contributions to the retirement scheme at the applicable rates based on the employees’salaries. The required contributions under the retirement scheme are charged to the consolidated statement of income when they are due. 2 Revenue The principal activities of the Group are the manufacture and sale of electrical lightings. Revenue represents the invoiced value of goods supplied to customers, net of value added tax. 3 Segment reporting The Group’s profits are almost entirely attributable to its manufacture and sale of electrical lightings in the PRC. Accordingly, no segmental analysis is provided. ４５ 4 Other operating income 2005 2004 Rmb Rmb Income from sale of raw materials and packaging materials 5,418,121 5,666,115 Others 4,734,231 4,110,725 10,152,352 9,776,840 ========== ========== 5 Other operating expenses 2005 2004 Rmb Rmb Loss on disposal of property, plant and equipment 606,894 5,440,347 Others 736,379 2,366,795 1,343,273 7,807,142 ========== ========== 6 Personnel expenses 2005 2004 Rmb Rmb Salaries and staff welfare 144,089,383 129,653,021 Senior management incentive scheme payment (note (i)) 16,435,028 20,338,756 Contribution to defined contribution retirement scheme (note (ii)) 4,977,408 8,515,993 165,501,819 158,507,770 ========== ========== Notes: (i) Pursuant to a resolution passed in the Board Meeting held on 25 March 2002 and the approval by the shareholders in the Annual General Meeting (“AGM”) held on 16 May 2002, the Company established a Senior Management Incentive Scheme (the “Scheme”). According to the Scheme, incentive payments are to be made to the senior management when the Company’s return on net assets for the year is 6% or above, which is measured based on the Company’s annual net profit determined under PRC accounting standards. No incentive payments would be made if the return on net assets is less than 6%. The amounts of provisions are included in administrative expenses. ４６ 6 Personnel expenses (continued) Notes (continued): (ii) Certain employees of the Group participate in a defined contribution retirement scheme operated by the PRC municipal government. The Group is required to contribute to the scheme at a rate of 10% of certain salary costs (first half-year of 2004: 15%; second half-year of 2004: 10%). Members of the retirement scheme are entitled to pension benefits equal to a fixed portion of the salary at the retirement date. The Group has no obligation to make payments in respect of pension benefits associated with this plan other than the annual contribution described above. 7 Financial income 2005 2004 Rmb Rmb Interest income 11,310,663 11,584,297 Reversal of impairment of unlisted equity securities investments 4,000,000 - Dividends income - 2,705,303 Gain on disposal of investment in an associate - 382,010 Net unrealised gains of investments held for trading carried at fair value - 310,457 15,310,663 14,982,067 ========== ========== 8 Financial expenses 2005 2004 Rmb Rmb Loss on disposal of investments held for trading 4,869,348 2,349,106 Exchange losses 2,077,189 378,027 Bank charges and other financial expenses 2,152,172 1,640,977 Net unrealised losses of investments held for trading carried at fair value 1,926,252 - Provision for impairment of unlisted equity securities investments - 1,710,000 11,024,961 6,078,110 ========== ========== ４７ 9 Taxation (a) Income tax expense in the consolidated statement of income represents: 2005 2004 Rmb Rmb Current tax expense Provision for PRC income tax for the year 46,278,878 51,493,081 Under-provision of PRC income tax relating to previous years 254,318 6,944,915 46,533,196 58,437,996 Deferred tax expense (Addition) / reversal of temporary difference (note 14) (2,191,215) 2,122,605 Total income tax expense in the consolidated statement of income 44,341,981 60,560,601 ========== ========== The statutory PRC income tax rate applicable to the Company is 33%. Pursuant to a notice Yue Fa (1998) No. 16 issued by the People’s Government of Guangdong Province on 23 September 1998, a new and high technology enterprise in the Guangdong Province is entitled to a reduced income tax rate of 15%. Pursuant to a notice “Yue Di Shui Han [2001] No.410”issued by Guangdong Province Local Tax Bureau on 23 August 2001, the Company is entitled to a reduced tax rate of 15% with effect from 1 January 2001. In 2003, the certificate of recognition of new and high technology enterprise was renewed by Guangdong Provincial Department of Science and Technology and was effective for a period of two years commencing 29 March 2003. In 2005, the certificate of recognition of new and high technology enterprise was renewed by Guangdong Provincial Department of Science and Technology and is effective for a period of two years commencing 1 June 2005. Accordingly, the provision for PRC income tax for the year is calculated at the rate of 15% (2004: 15%) on the estimated assessable profits for the year. ４８ 9 Taxation (continued) (b) Reconciliation of income taxes calculated at the applicable tax rate with actual tax expenses: 2005 2004 Rmb Rmb Profit before taxation 259,507,052 290,379,761 ========== ========= Income tax at applicable tax rate 15% 38,926,058 15% 43,556,964 Non-taxable items (224,885) (375,847) Non-deductible expenses 4,833,127 4,985,323 Under-provision of PRC income tax relating to previous years 254,318 6,944,915 Write down of deferred tax assets not to be utilised - 5,320,481 Others 553,363 128,765 44,341,981 60,560,601 ========== ========= (c) Taxation in the consolidated balance sheet represents: 2005 2004 Rmb Rmb Balance at 1 January 18,511,550 6,518,649 Provision for income tax for the year 46,278,878 51,493,081 Balance of income tax provision relating to previous years 254,318 6,944,915 Payments made during the year (54,564,313) (46,445,095) Balance at 31 December 10,480,433 18,511,550 ========== ========== ４９ 10 Property, plant and equipment Furniture, fixtures Plant and and office Motor Buildings machinery equipment vehicles Total Rmb Rmb Rmb Rmb Rmb Cost or valuation: At 1 January 2004 329,987,415 731,291,926 5,917,116 10,235,101 1,077,431,558 Additions 5,559,548 12,316,483 1,006,911 603,934 19,486,876 Transfer from construction in progress (note 12) 4,684,966 72,415,138 - 1,008,000 78,108,104 Disposals (10,181,767) (13,039,700) (78,769) (413,395) (23,713,631) At 31 December 2004 330,050,162 802,983,847 6,845,258 11,433,640 1,151,312,907 --------------- --------------- -------------- -------------- ---------------- At 1 January 2005 330,050,162 802,983,847 6,845,258 11,433,640 1,151,312,907 Additions 918,589 8,533,311 - 1,137,371 10,589,271 Transfer from construction in progress (note 12) 5,559,898 110,939,477 388,920 - 116,888,295 Disposals (202,959) (8,481,810) (348,370) - (9,033,139) At 31 December 2005 336,325,690 913,974,825 6,885,808 12,571,011 1,269,757,334 --------------- --------------- ------------- -------------- ---------------- Depreciation and impairment loss: At 1 January 2004 111,338,433 267,314,678 4,411,244 5,294,928 388,359,283 Charge for the year 14,204,700 97,106,092 1,054,868 1,282,369 113,648,029 Written back on disposal (5,220,902) (8,420,406) (72,300) (256,734) (13,970,342) At 31 December 2004 120,322,231 356,000,364 5,393,812 6,320,563 488,036,970 --------------- --------------- -------------- -------------- ---------------- At 1 January 2005 120,322,231 356,000,364 5,393,812 6,320,563 488,036,970 Charge for the year 17,395,295 97,453,777 702,372 1,437,613 116,989,057 Written back on disposal (130,707) (7,797,820) (179,320) - (8,107,847) At 31 December 2005 137,586,819 445,656,321 5,916,864 7,758,176 596,918,180 --------------- --------------- -------------- -------------- ---------------- ５０ 10 Prope rty, plant and equipment (continued) Furniture, fixtures Plant and and office Motor Buildings machinery equipment vehicles Total Rmb Rmb Rmb Rmb Rmb Carrying amounts: At 1 January 2004 218,648,982 463,977,248 1,505,872 4,940,173 689,072,275 ========== ========== ========= ========= =========== At 31 December 2004 209,727,931 446,983,483 1,451,446 5,113,077 663,275,937 ========== ========== ========= ========= =========== At 1 January 2005 209,727,931 446,983,483 1,451,446 5,113,077 663,275,937 ========== ========= ========= ========= =========== At 31 December 2005 198,738,871 468,318,504 968,944 4,812,835 672,839,154 ========== ========= ========= ========= =========== Valuation As required by the relevant PRC rules and regulations, the assets and liabilities of the Company were revalued at 30 April 1993 by Guangzhou Assets Appraisal Corporation using the depreciated replacement cost method prior to the listing of the Company’s A shares on the Shenzhen Stock Exchange. The surplus on revaluation was taken directly to revaluation surplus. In accordance with IAS 16, subsequent to these revaluations, which was based on depreciated replacement costs, property, plant and equipment are carried at revalued amount, being the fair value at the date of the revaluation less any subsequent accumulated depreciation and impairment losses. Revaluation is performed periodically to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date. Based on a revaluation performed as of 31 December 2003, which was based on depreciated replacement costs, the carrying value of property, plant and equipment did not differ materially from their fair value. ５１ 11 Lease prepayments 2005 2004 Rmb Rmb Cost: Balance at 1 January 178,591,876 123,063,160 Additions 14,420,761 55,528,716 Balance at 31 December 193,012,637 178,591,876 ----------------- ----------------- Amortisation: Balance at 1 January 11,869,368 9,394,765 Amortisation charge for the year 2,384,553 2,474,603 Balance at 31 December 14,253,921 11,869,368 ----------------- ----------------- Net book value: At 31 December 178,758,716 166,722,508 ========== ========== At 1 January 166,722,508 113,668,395 ========== ========== ５２ 12 Construction in progress Furniture, fixtures Plant and and office Motor Buildings machinery equipment vehicles Total Rmb Rmb Rmb Rmb Rmb At 1 January 2004 373,589 55,725,835 - - 56,099,424 Additions 47,458,875 91,804,260 400,000 1,008,000 140,671,135 Transfer to property, Plant and equipment (note 10) (4,684,966) (72,415,138) - (1,008,000) (78,108,104) At 31 December 2004 43,147,498 75,114,957 400,000 - 118,662,455 ========== ========= ======== ========= ========== At 1 January 2005 43,147,498 75,114,957 400,000 - 118,662,455 Additions 49,781,018 87,283,799 - 79,800 137,144,617 Transfer to property, plant and equipment (note 10) (5,559,898) (110,939,477) (388,920) - (116,888,295) At 31 December 2005 87,368,618 51,459,279 11,080 79,800 138,918,777 ========== ========== ========= ========= ========== 13 Investments 2005 2004 Rmb Rmb Non-current investments Unlisted equity securities, at cost 148,009,248 127,873,326 Less: Provision for impairment losses (9,560,000) (13,560,000) 138,449,248 114,313,326 ========== ========== Current investments Equity securities held for trading, at fair value 27,785,300 17,755,765 Debt securities held-to-maturity, at amortised cost - 99,462,100 27,785,300 117,217,865 ========== ========== ５３ 14 Deferred tax assets Recognised deferred tax assets Deferred tax assets are attributable to the following: 2005 2004 Rmb Rmb Property, plant and equipment 7,505,913 4,145,256 Investments 1,722,938 1,493,115 Trade and other receivables 1,606,469 2,978,811 Inventories - 26,923 Deferred tax assets 10,835,320 8,644,105 ========== ========== Movement in temporary differences during the year At Recognised At Recognised At 31 1 January in statement 1 January in statement December 2004 of income 2005 of income 2005 Rmb Rmb Rmb Rmb Rmb Property, plant and equipment 4,845,483 (700,227) 4,145,256 3,360,657 7,505,913 Investments 1,726,091 (232,976) 1,493,115 229,823 1,722,938 Trade and other receivables 2,452,335 526,476 2,978,811 (1,372,342) 1,606,469 Inventories 1,742,801 (1,715,878) 26,923 (26,923) - 10,766,710 (2,122,605) 8,644,105 2,191,215 10,835,320 ========= ======== ========== ========== ========= (note 9(a)) ５４ 15 Inventories 2005 2004 Rmb Rmb Raw materials 45,719,896 41,326,704 Work in progress 84,814,700 66,825,257 Finished goods 67,980,307 54,184,959 Spare parts and consumables 22,632 31,470 198,537,535 162,368,390 ========== ========== There is no provision for diminution in value of inventories at 31 December 2005. Included in inventories at 31 December 2004 are finished goods of Rmb54,184,959 stated at net of a provision amounting to Rmb179,485. 16 Trade receivables Trade receivables are shown net of impairment losses amounting to Rmb11,202,553 (2004: Rmb10,555,726). 17 Deposits, prepayments and other receivables 2005 2004 Rmb Rmb Prepayments for purchase of raw materials and machinery 21,601,449 41,600,915 Deposits and other prepayments 6,860,830 17,981,487 28,462,279 59,582,402 ========== ========== Deposits and other prepayments are shown net of impairment losses amounting to Rmb824,680 (2004:Rmb322,646). ５５ 18 Cash and cash equivalents Cash and cash equivalents as of 31 December 2004 and 2005 represent cash at bank and in hand. 19 Share capital 2005 2004 Rmb Rmb Registered, issued and paid up capital: 275,948,259 “A”shares of Rmb 1 each 275,948,259 275,948,259 82,500,000 “B”shares of Rmb1 each 82,500,000 82,500,000 358,448,259 358,448,259 ========= ========= All the A and B shares rank pari passu in all material respects. ５６ 20 Reserves 2004 Statutory Statutory Discretionary Revaluation Surplus staff welfare surplus Retained surplus Reserve reserve reserve Earnings Total Rmb Rmb Rmb Rmb Rmb Rmb (a) (c) (d) (e) (b) Balance as at 1 January 2004 13,479,958 179,142,435 124,833,407 79,681,067 266,262,868 663,399,735 Profit for the year attributable to equity shareholders of the Company - - - - 228,925,136 228,925,136 Appropriations - 23,147,979 23,147,979 11,573,989 (57,869,947) - Revaluation surplus realised (3,950,217) - - - 3,950,217 - Dividends to shareholders - - - - (164,886,199) (164,886,199) Balance as at 31 December 2004 9,529,741 202,290,414 147,981,386 91,255,056 276,382,075 727,438,672 ===================== ================================= =========== 2005 Statutory Statutory Discretionary Revaluation Surplus staff welfare surplus Retained surplus Reserve reserve reserve Earnings Total Rmb Rmb Rmb Rmb Rmb Rmb Balance as at 1 January 2005 9,529,741 202,290,414 147,981,386 91,255,056 276,382,075 727,438,672 Profit for the year attributable to equity shareholders of the Company - - - - 213,939,222 213,939,222 Appropriations - - 21,958,340 10,979,170 (32,937,510) - Dividends to shareholders - - - - (172,055,164) (172,055,164) Balance as at 31 December 2005 9,529,741 202,290,414 169,939,726 102,234,226 285,328,623 769,322,730 ===================== ================================= =========== ５７ 20 Reserves (continued) (a) Revaluation surplus The revaluation surplus relates to the revaluation of certain property, plant and equipment on 30 April 1993 (see note 10) which is not distributable. (b) Distributable retained earnings According to the Company’s Articles of Association, the retained earnings available for distribution are the lower of the amount determined under PRC accounting standards and the amount determined under IFRS. As of 31 December 2005, the retained earnings available for distribution were Rmb89,737,875 (2004: Rmb78,731,629), after taking into account of the current year’s proposed final dividend and the transfers to other reserves. (c) Statutory surplus reserve According to the current PRC Company Law and the Company’s articles of association, the Company is required to transfer 10% of its profit after taxation to statutory surplus reserve until the surplus reserve balance reaches 50% of the registered capital. For the purpose of calculating the transfer to reserve, the profit after taxation shall be the amount determined under PRC accounting standards. The transfer to this reserve has to be made before distribution of dividend to shareholders. Statutory surplus reserve can be used to make good previous years’losses, if any, and for capitalisation issue provided that the balance after such issue is not less than 25% of the registered capital. (d) Statutory staff welfare reserve According to the current PRC Company Law and the Company’s articles of association, the Company is required to transfer 5% to 10% (at the discretion of the Board of Directors) of its profit after taxation (determined under PRC accounting standards) to its statutory staff welfare reserve. The statutory staff welfare reserve can only be used for the collective benefits of the Company’s employees such as the construction of dormitories, canteen and other staff welfare facilities. The reserve forms part of the shareholders’equity as individual employees can only use these facilities, the title of which will remain with the Company. The transfer to this reserve must be made before distribution of dividend to shareholders. The Directors have resolved to transfer 10% (2004: 10%) of the current year’s profit after taxation (determined under PRC accounting standards) to this reserve on 21 March 2006. ５８ 20 Reserves (continued) (e) Discretionary surplus reserve The usage of this reserve is similar to that of statutory surplus reserve. The transfer to this reserve must be made out of its profit after taxation (determined under PRC accounting standards), but before distribution of dividend to shareholders. The Directors have resolved to transfer ５% (2004: 5%) of the current year’s profit after taxation (determined under PRC accounting standards) to this reserve on 21 March 2006. (f) Dividend (i) The following dividend has not been provided for in the consolidated financial statements: 2005 2004 Rmb Rmb Proposed final dividend of Rmb0.49 per ordinary share (2004: Rmb0.48) 175,639,647 172,055,164 ========== ========== Pursuant to a resolution passed at the Directors’meeting held on 21 March 2006, a final dividend of Rmb0.49 per ordinary share totaling Rmb175,639,647 will be payable to shareholders, subject to the approval of the shareholders at the Company’s Annual Shareholders’Meeting of 2005. (ii) Dividend paid during the year is as follows: 2005 2004 Rmb Rmb Final dividend of Rmb0.48 per ordinary share for the year ended 31 December 2004 (2003: Rmb0.46) 172,055,164 164,886,199 ========= ========= ５９ 21 Accruals and other payables 2005 2004 Rmb Rmb Senior Management Incentive Scheme 53,857,680 50,982,466 Value added tax and other taxes payable 14,147,537 4,085,681 Others 24,300,963 23,776,403 92,306,180 78,844,550 ========== ========= 22 Financial instruments and concentration of risks Exposure to credit, liquidity and currency risks arises in the normal course of the Group’s business. These risks are limited by the Group’s financial management policies and practices described below. (a) Credit risk The Group’s credit risk is primarily attributable to trade and other receivables and cash and cash equivalents. The Group does not have significant exposure to any individual customer or counterparty. To reduce exposure to credit risk, the Group performs ongoing credit evaluations of the financial condition of its customers but generally does not require collateral. The Group deposits substantially all the cash and cash equivalents with the four largest state-owned banks of the PRC. The Group is exposed to credit-related losses in the event of non-performance by counterparties to financial instruments but, based on the Group’s credit assessment and the past repayment records of the counterparties, management does not expect any material counterparty to fail to meet its obligations. At balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the consolidated balance sheet. (b) Liquidity risk The Group maintains sufficient reserves of cash and readily realisable marketable securities to meet its liquidity requirement in the short and longer term. The Group has a total balance of cash and marketable securities of approximately Rmb956 million as of 31 December 2005 (2004: Rmb1,020 million). ６０ 22 Financial instruments and concentration of risks (continued) (c) Foreign currency risk The Group incurs foreign currency risk on trade receivables of Rmb41,552,157 (2004: Rmb44,704,430), trade payables of Rmb2,030,392 (2004: nil), other payables of Rmb7,093,983 (2004: nil), and cash and cash equivalents of Rmb47,376,898 (2004: Rmb54,368,466) that are denominated in United States dollars. Fluctuation of the exchange rate of United States dollars against Renminbi Yuan will affect the Group’s financial position and results of operations. (d) Fair value The following summarise the major methods and assumptions used in estimating the fair values of the Group’s financial instruments. The carrying amounts of cash and cash equivalents, trade receivables, deposits, prepayments and other receivables, debt securities held-to-maturity, trade and other payables and accruals, and salaries, bonus and staff welfare payables approximate fair value due to the short-term nature of these instruments. The fair values of the Group’s listed investments in equity securities held for trading are estimated by referring to the market prices obtained from the relevant stock exchanges. There are no quoted market prices for unlisted equity securities investments. Accordingly, a reasonable estimate of fair value could not be made without incurring excessive costs. However, provision for impairment losses of Rmb9,560,000 (2004: Rmb13,560,000) was made at 31 December 2005 (see note 13). 23 Commitments (a) Capital expenditure commitments At 31 December 2005 and 2004, capital commitments for the Group are as follows: 2005 2004 Rmb Rmb Authorised and contracted for 47,631,000 16,465,000 Authorised but not contracted for 16,000 20,178,000 47,647,000 36,643,000 ========== ========== ６１ 23 Commitments (continued) (b) Operating lease payments Minimum lease payments under non-cancellable operating lease are payable as follows: 2005 2004 Rmb Rmb Within one year 1,965,０００ 1,781,000 Between one and five years 6,254,０００ 6,512,000 After five years 14,028,000 15,197,000 22,247,000 23,490,000 ========== ========== The Group leases a land use right under operating lease. The lease typically runs for an initial period of thirty years, with an option to renew the lease after that date. Fixed annual lease payments are payable over the lease terms. During the year ended 31 December 2005, Rmb2,131,527 was recognised as an expense in the consolidated statement of income in respect of operating leases (2004: Rmb3,727,387). 24 Earnings per share (a) Basic earnings per share The calculation of basic earnings per share at 31 December 2005 was based on the profit for the year attributable to equity shareholders of the Company of Rmb213,939,222 (2004: Rmb228,925,136) and the weighted average number of shares in issue during the year ended 31 December 2005 of 358,448,259 (2004: 358,448,259). (b) Diluted earnings per share No diluted earnings per share is calculated as there are no dilutive potential shares during 2004 and 2005. ６２ 25 Related party transactions (a) The Group had the following material transactions during the year with Prosperity Lamps and Components Limited and its affiliated companies. Prosperity Lamps and Components Limited is a company in which Mr. Alfred K.N. Chong, a director of the Company, is the beneficial owner: 2005 2004 Rmb Rmb Sale of goods 66,466,969 48,464,327 Purchase of raw materials 17,165,784 12,436,707 Commission paid 1,468,222 1,627,575 ========== ========== In the opinion of the directors of the Company, the above transactions were undertaken in the normal course of business and were conducted on normal commercial terms and on the arm’s length basis. (b) At 31 December 2005 and 2004, the balances with related parties were as follows: 2005 2004 RMB RMB Amount due from Prosperity Lamps and Components Limited and its affiliated companies 16,136,598 11,202,031 ========= ========= ６３ 26 Group entities (a) Details of the subsidiaries, which are established and operating in the PRC, are as follows: Percentage of Name of company equity held Principal activity QL Lamps and Components 40% Manufacture of Limited (“QLLC”) (note b) lighting products ? ? ? ? ? ? ? ? ? ? ? ? ? ? 75% Manufacture of lighting products ? ? ? ? ? ? ? ? ? ? ? ? 90% Manufacture of lighting products ? ? ? ? 禅昌(高明)? ? ? ? 70% Manufacture of lighting products (b) As the Group has effective control of QLLC through the power of governing the financial and operating policies of the economic activity under a contractual arrangement, QLLC has been accounted for as a subsidiary. 27 Accounting estimates and judgements The Group’s financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the consolidated financial statements. The Group bases the assumptions and estimates on historical experience and on various other assumptions that the Group believes to be reasonable and which form the basis for making judgements about matters that are not readily apparent from other sources. On an on-going basis, management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change. The selection of critical accounting policies, the judgements and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the consolidated financial statements. The principal accounting policies are set forth in Note 1. The Group believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the consolidated financial statements. ６４ 27 Accounting estimates and judgements (continued) (a) Impairment loss of long-lived assets If circumstances indicate that the net book value of a long-lived asset may not be recoverable, this asset may be considered “impaired”, and an impairment loss may be recognised in accordance with IAS 36 “Impairment of Assets”. The carrying amounts of long-lived assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to recoverable amount. The recoverable amount is the greater of the net selling price and the value in use. It is difficult to precisely estimate selling price because quoted market prices for the Group’s assets are not readily available. In determining the value in use, expected cash flows generated by the asset are discounted to their present value, which requires significant judgement relating to level of sale volume, selling price and amount of operating costs. The Group uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of sale volume, selling price and amount of operating costs. (b) Depreciation Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets, 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. (c) Impairment for bad and doubtful debts The Group estimates impairment losses for bad and doubtful debts resulting from the inability of the customers to make the required payments. The Group bases the estimates on the aging of the trade receivables balances, customer credit-worthiness, and historical write-off experience. If the financial condition of the customers were to deteriorate, actual write-offs would be higher than estimated. ６５ 28 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 consolidated financial statements, the IASB has issued the following amendments, new standards and interpretations which are not yet effective for the annual accounting period ended 31 December 2005 and which have not been adopted in these consolidated financial statements: Effective for accounting period beginning on or after IFRS 6, Exploration for and evaluation of mineral resources 1 January 2006 IFRS 7, Financial instruments: disclosures 1 January 2007 IFRIC 4, Determining whether an arrangement contains a lease 1 January 2006 IFRIC 5, Rights to interests arising from decommissioning, 1 January 2006 restoration environmental rehabilitation funds IFRIC 6, Liabilities arising from participating in a specific market – 1 December 2005 Waste electrical and electronic equipment IFRIC 7, Applying the restatement approach under IAS 29, Financial 1 March 2006 reporting in hyperinflationary economies IFRIC 8, Scope of IFRS 2 1 May 2006 Amendment to IAS 1, Presentation of financial statements: capital 1 January 2007 disclosures Amendment to IAS 19, Employee benefits – Actuarial Gains and 1 January 2006 Losses, Group Plans and Disclosures Amendment to IAS 21, Net investment in a foreign operation 1 January 2006 ６６ 28 Possible impact of amendments, new standards and interpretations issued but not yet effective for the annual accounting period ended 31 December 2005 (continued) Amendments to IAS 39, Financial instruments: Recognition and measurement: - Cash flow hedge accounting of forecast intragroup transactions 1 January 2006 - The fair value option 1 January 2006 - Financial guarantee contracts 1 January 2006 Amendments to IFRS 1, First-time Adoption of International 1 January 2006 Financial Reporting Standards 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 the Group believes that the adoption of IFRS 6， IFRIC 4, IFRIC 5, IFRIC6, IFRIC 7, IFRIC 8, and the amendments to IAS 19, IAS 21 and IFRS 1 are not applicable to any of the Group’s operations and that the adoption of the rest of the above amendments, new standards and new interpretations is unlikely to have a significant impact on the Group’s results of operations and financial position. ６７ Net impact of IFRS adjustments on the consolidated results and shareholders’equity prepared under PRC accounting regulations Consolidated financial statements for the year ended 31 December 2005 (Expressed in Renminbi Yuan) Profit for the year attributable to equity shareholders of the Equity attributable to equity Company shareholders of the Company 2005 2004 2005 2004 As reported in statutory financial statements prepared under PRC accounting regulations 219,583,403 231,479,787 2,304,699,123 2,255,936,502 Adjustments to align with IFRS (i) Deferred taxation 2,191,215 (2,122,605) 10,835,320 8,644,105 (ii) Net unrealised (loss)/gain of investments held for trading carried at fair value (9,069,778) (535,771) - 9,069,778 (iii) Government grants 1,000,000 - - - (iv) Write off debts forgiven 234,382 103,725 - - (v) Others - - (1,763,395) (1,763,395) As reported pursuant to IFRS 213,939,222 228,925,136 2,313,771,048 2,271,886,990 ========== ========== =========== =========== ６８ XI. Reference Documents The investors and the relevant departments can consult the following information at the secretariat of the Board of Directors in the office building of our company: 1. Accounting statements signed and sealed by the legal representative of the company, the financial manager and the chief of the financial department. 2. Origin of the audit report signed and sealed by the accountants office and the public certified accountant. 3. Announcement origin and master copy of all documents of the company publicly disclosed on the newspapers designated by the China Securities Regulatory Committee during the report period. 4. Origin of the Annual Report of 2005 personally signed by the Chairman of the Board of Directors. Foshan Electrical and Lighting Co. Ltd. Board of Directors Mar. 23, 2006 ６９