南玻Ａ(000012)南玻Ｂ2005年年度报告（英文）

CSG HOLDING CO., LTD. 2005 ANNUAL REPORT CEO:ZENG NAN March 2006 CSG HOLDING CO., LTD. 2005 ANNUAL REPORT IMPORTANT NOTICE The board of directors, the supervisory committee, all directors and supervisors and the senior management of CSG Holding Co., Ltd. (hereinafter referred to as the Company) hereby confirms that there are no fictitious statements, serious misleading or important omissions information carried in this report, and shall take all responsibilities, jointly and severally, for the truthfulness, accuracy and completeness of the whole contents. Pricewaterhouse Coopers Zhongtian CPAs Co., Ltd. and Pricewaterhouse Coopers CPAs issued standard unqualified Auditor’s Report for the Company. Chairman of the Board of the Company Mr. Chen Chao, CEO Mr. Zeng Nan and CFO Mr. Luo Youming hereby confirm that the Financial Report enclosed in this annual report is true and complete. This report is prepared both in Chinese and in English. Should there be any difference in interpretation of the text between the two versions, the Chinese version shall prevail. CONTENTS IMPORTANT NOTICE_________________________________________________________________ 1 I Company Profile _____________________________________________________________________ 2 II Financial Highlight__________________________________________________________________ 3 III Changes in Share Capital and Particulars about the Shareholders ___________________________ 4 IV Directors, Supervisors, Senior Executives and Employees___________________________________ 7 V Corporation Governance Structure_____________________________________________________ 10 VI Brief Introduction to Shareholder’s General Meeting _____________________________________ 12 VII Report of the Board of Directors _____________________________________________________ 12 VIII Report of the Supervisory Committee_________________________________________________ 18 IX Significant Events _________________________________________________________________ 19 X Financial Report ___________________________________________________________________ 21 XII Documents for Reference ___________________________________________________________ 21 -1- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT I Company Profile i Legal name of the Company In Chinese: 中国南玻集团股份有限公司 (Abbr: 南玻集团) In English: CSG Holding Co., Ltd. (Abbr: CSG ) ii Legal representative: Chen Chao iii Secretary of the board of directors: Wu Guobin Securities affairs representative: Li Tao Address: CSG Building, No.1, 6th Industrial Road, Shekou, Shenzhen, China. Tel: (86) 755-26860666 Fax: (86) 755-26692755 E-mail: szcsgcsg@public.szptt.net.cn iv Registered address and office address: CSG Building, No.1, 6th Industrial Road, Shekou, Shenzhen, China. Post code: 518067 Internet website: http://www.csgholding.com E-mail: csg@csgholding.com v Newspapers for disclosing the information: Securities Times, China Securities Journal and Wen Wei Po. Internet website designated by China Securities Regulatory Commission for publishing the Annual Report: http://www.cninfo.com.cn The place where the Annual Report is prepared and placed: Securities & Law Department, 4/F., CSG Building. vi Stock exchange listed with: Shenzhen Stock Exchange Short form of the stock and stock code (A-share): Southern Glass A (000012) Short form of the stock and stock code (B-share): Southern Glass B (200012) vii Other information About the Company (i) Initial registration date: September 10, 1984. Initial registration place: State Administration for Industry & Commerce, Shenzhen Municipal office. (ii) Registration code for business license of the Company: GSWQGYSZ Zi No.100482 (iii) Reference Number of taxation: State S Zi 440301618838577; Local D Zi 440305618838577. (iv) The Certified Public Accountants engaged by the Company A. Domestic: Pricewaterhouse Coopers Zhongtian CPAs Co., Ltd. Address:11/F., Pricewaterhouse Center, No.202, Huhin Road, Shanghai 200021, China B. Overseas: Pricewaterhouse Coopers CPAs Address: 22/F., Prince’s Building, Central, Hong Kong, China. -2- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT II Financial Highlight i Major accounting data as of the report period Unit: RMB’000 Profit before income tax 405,741 Net profit 318,660 Gross profit 731,651 Other income 10,959 Profit from operating 477,033 Net cash from operating activities 896,741 Net increase in cash and cash equivalents (65,615) In the year 2005, the Company realized a net profit amounting to RMB316,412 thousand and RMB318,660 thousand respectively audited by Pricewaterhouse Coopers Zhongtian CPAs Co., Ltd. and Pricewaterhouse Coopers CPAs. The difference between two results was due to: Unit: RMB’000 As reported under CAS: 316,412 Recognition of deferred income tax 2,192 Derecognition of deferred pre-operating expenses and other assets 1,741 Reversal of amortisation of goodwill and derecognition of negative goodwill (1,685) As reported under IAS: 318,660 ii Major accounting data and financial indexes over the past three years Unit: RMB’000 Items 2005 2004 2003 Sales 2,293,980 1,849,421 1,320,900 Net profit 318,660 337,806 202,632 Total assets 5,524,264 4,729,642 3,526,990 Shareholder’s equity (excluding minority interests) 2,487,091 2,328,068 2,132,202 Earnings per share (RMB) 0.31 0.50 0.30 Equity per share (RMB) 2.45 3.44 3.15 Net cash flows from operating activities per share (RMB) 0.88 0.78 0.58 Return on equity (%) 12.81 14.51 9.50 iii Particulars about change in shareholders’ equity in the report period Unit: RMB’000 Statutory Statutory common public Retained Items Share capital Capital reserve reserve fund welfare fund Earnings Total Balance at the period-begin 676,975 927,929 186,427 112,001 424,236 2,456,430 Increase in the period 338,488 - 31,703 15,852 328,322 460,635 Decrease in the period - 338,653 - - 216,799 190,155 Balance at the period-end 1,015,463 589,276 218,130 127,853 535,759 2,726,910 Reason of change Capitalization Capitalization Draw from the Draw from Profit of Profit of of public of public profit of the the profit of the period the period reserve into reserve into period the period share share and Exchange reserve -3- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT III Changes in Share Capital and Particulars about the Shareholders i Changes in share capital (i) Statement of changes in share capital as of the report period Unit: Share Before the change Increase / Decrease in the period After the change Capitalization of Amount Proportion public reserve Sub-total Amount Proportion Unlisted shares Promoters’ shares 242,326,589 35.80% 121,163,295 121,163,295 363,489,884 35.80% Including: State-owned shares 87,175,364 12.88% 43,587,682 43,587,682 130,763,046 12.88% Domestic legal person’s shares 155,151,225 22.92% 77,575,613 77,575,613 232,726,838 22.92% Foreign legal person’s shares - - - - - - Others - - - - - - Raised legal person’s shares 28,430,284 4.20% 14,215,142 14,215,142 42,645,426 4.20% Inner employees’ shares - - - - - - Preference shares or other - - - - - - Total unlisted shares 270,756,873 40.00% 135,378,437 135,378,437 406,135,310 40.00% Listed shares RMB ordinary shares 107,165,997 15.83% 53,582,998 53,582,998 160,748,995 15.83% Domestically listed foreign shares 299,052,546 44.17% 149,526,273 149,526,273 448,578,819 44.17% Overseas listed foreign shares - - - - - - Others - - - - - - Total listed shares 406,218,543 60.00% 203,109,271 203,109,271 609,327,814 60.00% Total shares 676,975,416 100.00% 338,487,708 338,487,708 1,015,463,124 100.00% (ii) Share issue and listing over the recent three years Shares of the Company converted in May, 2005. The Company took the total capital stocks of 646,975,416 as the cardinal number on 31 December 2004, increased 5 shares on the fundamental of every 10 shares. After conversion, the total capital stock amounted to 1,015,463,124, and there was no change in capital structure. ii Particulars about the principal shareholders ended by the report period (i) Ended by the report period, the Company had totally 60,294 shareholders, of them, 28,581 shareholders of A-share and 31,713 shareholders of B-share. -4- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT (ii) Particulars about the shares held by top ten shareholders Unit: Share Number of Nature of Total amount Amount of share share- of shares non-circulatin pledged or Name of shareholders holders Proportion held g shares held frozen ① Yiwan Industrial Development (Shenzhen) 12.98 131,847,550 131,847,550 0 Co., Ltd. ② China North Industries Corporation State-owned 12.88 130,763,046 130,763,046 0 shareholder ③ Xin Tong Chan Development (Shenzhen) 12.12 123,124,507 123,124,507 0 Co., Ltd. ④ China Merchants (Glass Industry) Holding Foreign 1.63 16,522,902 0 Unknown Co., Ltd. shareholder ⑤ Xuanwei Co., Ltd. Foreign 0.84 8,500,060 0 Unknown shareholder ⑥ Shenzhen Yuquan Investment Co., Ltd. 0.81 8,239,294 0 0 ⑦ KGI Asia Limited Foreign 0.59 5,996,695 0 Unknown shareholder ⑧ China Merchants Securities Co., Ltd. 0.56 5,713,325 5,713,325 3,514,512 ⑨ Deutsche Bank AG London Foreign 0.43 4,383,395 0 Unknown shareholder ⑩ Jing, Ning Foreign 0.40 4,060,000 0 Unknown shareholder Note: There existed the associated relationship between Yiwan Industrial Development (Shenzhen) Co., Ltd.， Xin Tong Chan Development (Shenzhen) Co., Ltd., and Xuanwei Co., Ltd., which controlled by Shenzhen International Holdings Limited. Except for this, there is no associated relationship had been found among the other shareholders. (iii) Brief introduction of actual controller of the Company The actual controller of the Company is Shenzhen International Holdings Limited established in Bermuda in November 1989, which listed in main board of Hong Kong Exchanges and Clearing Co., Ltd.. Chairman of the Board: Li Heihu The Group, comprising the company and its subsidiaries and associates, is principally engaged in the provision of total logistics and transportation ancillary services as well as investment, operation and management of related assets and projects. The property relationship between the actual controller and the Company was following: Shenzhen International Holdings Limited 100% 100% Yiwan Industrial Development (Shenzhen) Co., Ltd. Xin Tong Chan Development (Shenzhen) Co., Ltd. 12.98% 12.12% CSG Holding Co., Ltd. -5- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT (iv) Brief introduction of corporation shareholders holding no less than 10% of total shares of the Company Yiwan Industrial Development (Shenzhen) Co., Ltd. was founded in 1980. Its registered capital is HKD 20 million. Legal representative: Zhong Shanqun Business scope: Manufacture and operation of construction material, decoration material, new-style macromolecular material, energy saving electromechanical products, refining chemical industry products and etc. China North Industries Corporation was founded on 22 May 1981. Its registered capital is RMB 1 billion. Legal representative: Zhang Guoqing Business scope: import & export of goods and technologies, carrying trade, barter trade, domestic trade, equipment introduction, project contract, labor cooperation, processing raw materials on clients’ demands, assemble parts for the clients and processing according to the clients’ samples, engaging in compensation trade, industry investment etc., as well as dealing with logistic, exhibition advertisement, record publishing, information consultation, real estate development, finance, hotel and travel service. Xin Tong Chan Development (Shenzhen) Co., Ltd. was founded on 8 September 1993. Its registered capital is RMB 200 million. Legal representative: Zhong Shanqun Business scope: Consultation of transport information, development of special-purpose software for transport platform and setting up industry. (v) Particulars about the shares held by the top ten shareholders of circulating share Holding shares at Name of shareholders the year-end (share) Type of shares ① China Merchants (Glass Industry) Holding Co., Ltd. 16,522,902 B-share ② Xuanwei Co., Ltd. 8,500,060 B-share ③ Shenzhen Yuquan Investment Co., Ltd. 8,239,294 A-share ④ KGI Asia Limited 5,996,695 B-share ⑤ Deutsche Bank AG London 4,383,395 B-share ⑥ Jing, Ning 4,060,000 B-share ⑦ Barings (Ireland) SA the Atlantis China Fund Plc 3,499,891 B-share ⑧ Guotai Junan Securies Hong Kong Limited 3,393,663 B-share ⑨ TOYO Securities Asia Limited-A/C Client 2,937,471 B-share ⑩ Naito Securities Co., Ltd. 2,470,560 B-share Note: The Company is unknown whether there exists no associated relationship among circulating shareholders. -6- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT IV Directors, Supervisors, Senior Executives and Employees i Directors, supervisors and senior executives (i) Basic status Shares Shares held held at the at the Name Title Sex Age Term office year-begin year-end Reason for change Chen Chao Chairman of the Board Male 50 2005/4~2008/4 - - - Zeng Nan Director / CEO Male 61 2005/4~2008/4 67,680 101,520 Increasing of capital reserve Long Long Independent Director Male 50 2005/4~2008/4 - - - Yan Ganggang Independent Director Male 46 2005/4~2008/4 - - - Zhang Jianjun Independent Director Male 41 2005/4~2008/4 - - - Zhou Daozhi Director Male 56 2005/4~2008/4 - - - Li Jingqi Director Male 49 2005/4~2008/4 - - - Guo Yongchun Director Male 38 2005/4~2008/4 - - - Liu Jun Director Male 42 2005/4~2008/4 - - - Jiao Zhiren Chairman of the Supervisory Male 59 2005/4~2008/4 - - - Committee Yang Hai Supervisor Male 44 2005/4~2008/4 - - - Zhao Xijun Supervisor Male 37 2005/4~2008/4 - - - Ke Haiqi Vice president Male 40 2005/4~2008/4 - - - Luo Youming Chief Financial officer Male 43 2005/11~2008/4 - - - Zhang fan Vice president Male 40 2005/11~2008/4 - - - Wu Guobin Vice president / Secretary Male 41 2005/4~2008/4 - - - of the Board of Directors (ii) Particulars about directors, supervisors holding the post in Shareholding Company Get Title in Shareholding remuneration Name Name of Shareholding Company Company Term office or not Chen Chao Xin Tong Chan Development (Shenzhen) Co., Ltd. Director Apr. 1993 to now No Chen Chao Yiwan Industrial Development (Shenzhen) Co., Ltd. Director Apr. 2000 to now No Li Jingqi Xin Tong Chan Development (Shenzhen) Co., Ltd. Director Sep. 2002 to now No Li Jingqi Yiwan Industrial Development (Shenzhen) Co., Ltd. Director Dec. 2002 to now No nd Guo Yongchun China North Industries Corporation Manager of the 2 Jul. 2003 to now Investment Department Liu Jun Xin Tong Chan Development (Shenzhen) Co., Ltd. Director Sep. 2002 to now No Liu Jun Yiwan Industrial Development (Shenzhen) Co., Ltd. Director Apr. 2000 to now No Yang Hai Yiwan Industrial Development (Shenzhen) Co., Ltd. Director Apr. 2000 to now Yes Yang Hai Xin Tong Chan Development (Shenzhen) Co., Ltd. Director Mar. 2001 to now No (iii) Major work experiences of directors, supervisors and senior executives, and particulars about holding the post or concurrent posts in other company. Chen Chao, took posts of Deputy Director General of Road Bureau of Department of Communications, Secretary to the undersecretary of Department of Communications, Deputy General Manager of Industrial and Trade Company of Zhongtong Group belonging to Department of Communications, Chairman of Shenzhen Expressway Co., Ltd., Chairman of Xin Tong Chan Development (Shenzhen) Co., Ltd., Chairman of Yiwan Industrial Development (Shenzhen) Co., Ltd.. Presently, besides taking the post -7- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT of shareholding companies, he holds concurrently posts of President and Vice Chairman of Shenzhen International Holdings Ltd.,. Zeng Nan, took posts of Director General Manager and Director President of the Company. At the present, he takes posts of the Director, President and CEO of the Company. Long Long, takes the post of Director Researcher of Industry Economy Information Center of Comprehensive Development Academe (Shenzhen.China), and holds concurrently post of Independent Director of Guizhou Huachuang Securities Co., Ltd.. Yan Ganggang, took posts of Deputy Director General of Regulatory Section of Legislative Affairs Bureau of Shenzhen Municipality, and lawyer of Shenzhen Tianjun Law Office. At present, he is the Legal Representative of Guangdong Liang & Yan Law Office. Zhang Jianjun, took posts of Subdecanal of Accounting College of Jiangxi University of Finance & Economics, Vice-president of Sino-Hawk Credit Rating Co., Ltd.. At present, he is Dean and Professor of Economy College of Shenzhen University. Besides, he concurrently holds post of Independent Director of Shenzhen Property Development (Group) Stock Co.,Ltd and Independent Director of Shenzhen Zhongjin Lingnan Nonfemet Co., Ltd. Zhou Daozhi, took posts of Vice-president of China Everbright Bank, Standing Deputy Manager of Everbright Securities Co., Ltd. and Everbright Financial Holding (HongKong), Chairman of Boshi Fund Management Co., Ltd.. Presently, he is Secretary of the Party Committee of Boshi Fund Management Co., Ltd.. Li Jingqi, took posts of Assistant General Manager of exchange center of Bank of China (Hong Kong), Section Chief of exchange capital section of Bank of China, Shenzhen branch, President of Bank of China, Shatoujiao sub-branch, President Assistant of Shenzhen Investment Management Company. Presently, besides taking the post of shareholding companies, he holds concurrently posts of Executive Director and Associate President of Shenzhen International Holdings Ltd., Supervisor of Shenzhen West Logistics Co., Ltd.. Guo Yongchun, took posts of Section Chief of Management and Administrative Department of China North Industries Corporation, Director of Information Department of China North Industries Corporation, General Manager of North Exhibition & Ads Company. Presently, besides taking the post of Shareholding Company, he holds concurrently post of Chairman of Chengdu Yinhe Dynasty Hotel Co Ltd. Liu Jun, took posts of Accountant at the financial department of China North Industries Group Corporation, Undersecretary of planning & finance department of Shenzhen Investment Management Company, Deputy Director General of comprehensive division of Shenzhen State-owned Assets Management Office, Director of merchant’s department of Shenzhen governmental Foreign Investment Bureau. Presently, besides taking the post of shareholding companies, he holds concurrently posts of Executive Director and Vice President of Shenzhen International Holdings Ltd.. Jiao Zhiren, took posts of Secretary of the Party Committee, Vice Manager and General Manager of China North Industry (Shenzhen) Group. Presently, he is General Manager of DFD Investment Co., Ltd. as well as Chairman of Board of Shenzhen North Building Co., Ltd.. -8- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT Yang Hai, took posts of Assistant Director of the Second Highway Transport Engineering Bureau of Transportation Department, Deputy General Manager of Shenzhen Expressway Co., Ltd.. Presently, besides taking the post of shareholding companies, he holds post of Vice President of Shenzhen International Holdings Ltd. as well as Chairman of Shenzhen Expressway Co., Ltd.. Zhao Xijun, took posts of Finance Manager of Architectural Glass Department of the Company, Assistant of General Manager of Shenzhen CSG Electronic Co., Ltd., Finance Manager of Guangzhou CSG Glass Co., Ltd.. At present, he is supervisor and Manager of Audit Department of the Company. Ke Hanqi, took posts of General Manager of Refined Glass & Microelectronics Department of the Company, General Manager of Shenzhen CSG Wellight Conductive Coating Co., Ltd.. At present, he is Vice President of the Company. Luo Youmingi, took posts of Manager at the Financial Management Department of the Company and Assistant Chief Financial Officer of the Company. At present, he is Chief Financial Officer of the Company. Zhang Fan, took posts of General Manger of Shenzhen CSG Electronics Co., Ltd and General Manager of Chengdu CSG Glass Co., Ltd.. At present, he is Vice-president of the Company. Wu Guobin, took posts of Manager of securities department of the Company and Assistant of General Manager of the Company. At present, he is Vice-president as well as Secretary of Board of Directors of the Company. (iv) Particulars about the annual remuneration of directors, supervisors and senior executives A The annual payment of the senior executives is decided by the Board of Directors of the Company and carried out under the system of basis salary plus floating premium binding with the achievements. The premium is decided by the annual return on equity. It takes the annual net profit total after taxation as the assessment basis, and withdraws the premium of achievements with proportion. B Particulars about the annual payment of directors, supervisors and senior executives Total amount of annual remuneration Name Title (RMB’0000) Zeng Nan Director / CEO 79.73 Long Long Independent Director 5.00 Yan Ganggang Independent Director 5.00 Zhang Jianjun Independent Director 5.00 Zhao Xijun Supervisor 25.82 Ke Hanqi Vice president 59.57 Luo Youming Chief Financial officer 38.11 Zhang Fan Vice president 57.91 Wu Guobin Vice president / Secretary of the Board of Directors 46.55 Total 322.69 C The following directors and supervisors received no remuneration or allowance from the Company: Mr. Chen Chao, Mr. Zhou Daozhi, Mr. Li Jingqi, Mr. Guo Yongchun, Mr. Liu Jun, Mr. Jiao Zhiren, Mr. Yang Hai. -9- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT (v) Changing and reason of directors, supervisors and senior executives in the report period A The original director, Mr. Ding Jiuru, resigned the post of Director at 2004 Shareholder’s General Meeting held on 22 April 2005 due to work change. Meanwhile, Mr. Guo Yongchun was elected to host the post of Director of the Company in the Meeting. B Board of Director of the Company elected Mr. Luo Youming CFO at the extraordinary meeting of the 4th Board of Director held on 22 November 2005 due to the death of illness of the original CFO Ms. Sun Jingbo. Meanwhile, Mr. Zhang Fan was supplemented to hold the post of Vice-president of the Company. C The original Vice-president, Mr. Lu Wenhui, resigned the post of Vice-president at the 4th Meeting of the 4th Board of Director held on 21 January 2006 due to the health condition. D The original Vice-president, Mr. Yuan Dingfu, proposed the resignation in February, 2006 as a result of his individual reason. ii Employee of the Company Categories Number of person Proportion (%) Generative personnel 3,712 72.26 Marketing personnel 238 4.63 Technical personnel 552 10.75 Financial personnel 95 1.85 Administrative personnel 540 10.51 Total 5,137 100 At the end of the report period, there were 1,419 employees having received college and polytechnic school or higher education, accounting 27.62% of the total employees. In the report period, there was no retired who was paid by the Company. V Corporation Governance Structure i Corporation Governance Strictly according to the requirements of Company Law, Securities Law of PRC and the relevant laws and regulations promulgated by China Securities Regulatory Commission, the Company established modern enterprise system and the governance structure were operated well. In the report period, based on the requirements on Notices on Strengthening the Protection of Social Public Shareholders’ Rights and Interests, Directions on Online Voting for the Shareholder’s General Meeting of Listed Company (Trial) and Stock Listing Rules of Shenzhen Stock Exchange (the revised edition of 2004) released by China Securities Regulatory Commission, the Company set up and revised Articles of Association of the Company and protected the legal rights and interests of social public shareholders. In addition, the Company organized directors, supervisors and senior executives to learn the new-revised Company Law and Securities Laws of PRC, and make good foundation to perfect the administrative system of the Company. ii Performance of independent directors Since independent directors took their positions, they implemented their duties according -10- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT to relevant laws and regulations, actively attended the Board meeting and shareholders’ general meeting with the serious and responsible attitude, issued independent opinion on significant matters, and took active effect in order to safeguard the interests of the Company and small or medium shareholders. (i) Particulars about independent directors’ presenting the Board meeting: Times that should be Times of commission Times of Name attend the Board Meeting Times of personal presence presence absence Long Long 7 7 0 0 Yan Ganggang 7 7 0 0 Zhang Jianjun 7 6 1 0 (ii) Particulars about objection proposed by the independent directors on the relevant matters: In the report period, three independent directors of the Company didn’t propose the objection on all proposals and other issues of the Company examined at the Board meetings in 2005. iii Separation between the Company and its principal shareholders in terms of business, personnel, assets, organization and finance The Company has been absolutely independent in business, personal, assets, and organization and financial from its holding shareholders ever since its establishment. The Company had an independent and complete business system and independent management capability. (i) In terms of business: The Company has owned independent purchase and supply system of the raw resources, completely production systems, independent salesmen and customers. The Company has been completely independent from the holding shareholders in business. The holding shareholder and their subsidiaries don’t engage any same business or similar business with the Company. (ii) In terms of personnel: The Company is absolutely independent in the management of labor, personnel and salaries. General manager, person in charge of financing and other senior executives get their payment from the Company and have not received any remuneration from the holding shareholders or held any title therein. (iii) In terms of assets: The Company possesses independent production system, auxiliary production system and complementary facilities. The intangible assets, such as industrial property rights, trademark, patent & non-patent technologies, etc. solely belong to the Company. The Company has independent purchase and sales system. The assets invested by the holding shareholder are independent and complete, and the ownership and rights are clear. The operation and management of listed company is never occupied or dominated, and not even interfered by the holding shareholder. (iv) In terms of organization: The Company has been totally independent from its holding shareholders in production, operation and administration. The Company has its own office and production sites. The holding shareholder and their subsidiaries never instruct any operation plans and dictates related with the Company to the Company and subsidiaries, and never interfere the independence of the operation and management of the Company in any forms. (v) In terms of finance: The Company has independent financial department and has established independent accounting calculation system & financial management system. The Company has independent bank accounts. The Company has paid tax independently -11- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT according to the laws. iv Evaluation and incentive mechanism of senior executives in the report year The Board of Directors approved the encouragement method of outstanding achievement to management team based on total net profit after tax in the current year with annual return on equity as assessment basis. Namely, the management team could get the award only when the annual return on equity reached to 8%. Otherwise, they could not take encouragement of outstanding achievement. When the return on equity reached to 8%, taking the total net profit after tax as the basis, the management team takes bonus of outstanding achievement based on proportion of 6%; while the return on equity exceeded 8%, and it has increased 1%, the withdrawal proportion of bonus of outstanding achievement increased by 2% accordingly based on proportion of 6%. VI Brief Introduction to Shareholder’s General Meeting In the report period, the Company has held once shareholders’ general meeting and one extraordinary shareholders’ meeting. i The Company held the 2004 Shareholders’ General Meeting on 22 April 2005, and the public notice on the meeting’s resolution has been published on Securities Times, China Securities Journal and Ta Kung Pao dated 23 April 2005. ii The Company held the 1st 2005 extraordinary shareholders’ meeting on 22 November 2005, and the public notice on the meeting’s resolution has been published on Securities Times, China Securities Journal and Ta Kung Pao dated 23 November 2005. VII Report of the Board of Directors i Operation of the Company (i) Reviews on the operation of the Company A The general operations of the Company in the report period In 2005, the Company’s high quality float glass, top grade deep-processing glass and fine glass and micro-electronics three large industries which have been formed leading advantage and had high complementarities had played a constructive role in withstand operating risks and difficulties in individual industry. The float glass industry occurred significant turnover and the price dropped sharply due to rapidly and continuously expansion in previous three years, the Company still realized performance of rapid increase in sales income and steady relatively in net profit. The Company totally realized sales amounting to RMB 2.294 billion and gross profit amounting to RMB 0.732 billion, and increased respectively 24.04% and 16.32% against the corresponding period of last year. The Company realized net profit amounting to RMB 0.319 billion, decreased 5.67% over last year but increased 57.26% over the same period of 2003, and gained new high net cash inflows from operating activities amounting to RMB 0.897 billion in latest year and kept top in the industries. The Company gave priority to operating traditional glass manufacturing in the past, now overspread and expended into -12- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT hi-tech new type industries like high quality float glass, environmental energy-saving constructive glass, display parts and micro-electronics, photovoltaic solar energy, etc., which development strategy has made obvious results. Float glass industry: The Company keep on going high end route, implement diversity operating strategy and improve the proportion of high extra-value products in float glass products. At the same time, the Company adopted active and efficient measures to save energy, reduce consumption, increase rate of finished products, reduce cost and increase the competitive power. Engineering glass industry: Tianjin’s product line put into production successfully, it means that the Company’s engineering glass industry take an important step forward. With the increase of capacity, use of new technology and promote of new products, the Company’s high quality deep-processing glass has further improved its competitive in the market, maintained those products to keep the number one brand and market share in domestic market continuously. Due to significant technologic progress of energy-saving glass in civil construction, the Company has started to arrange and nurture the market of civil construction with demand of Chinese energy saving policy. This market would supply huge developing space for engineering glass industry of the Company. Fine glass and micro-electronics industry: The accomplishment of the 2nd phase production-expanding project of CF (Color Filter) has expanded the production scale of CF, decreased the cost and improved the possible of getting profit on this project. By reason of successively expansion of market share, improvement of rate of finished products and fast and efficient service, the CF products of the Company owned strong competitiveness, also supply situations for the further development of this project. The Company’s ITO glass still kept big scale of produce & sale and good possible of getting profit in the market. With the market came better, the possible of getting profit of electronic component and structural ceramics articles products of the Company have been improved. Solar energy industry: Because energy supply in the world is nervous gradually, government made the national policy to construct economy society. The Company made the plan for entering the solar energy industry according policy on energy-saving and renewable energy sources promulgated by China. The Company established Dongguan Green Energy Industrial Park in September 2005, which would be a milestone in developing history of the Company and would produce important effect on the industrial structure and operation scale of the Company. B Sales and operation of the Company ¾ Sales classified according to products: Unit: RMB’000 2005 2004 Sales of glass products 2,120,626 1,599,900 Sales of ceramics products 68,963 59,037 Sales of properties 73,574 160,762 Glass installation service revenue 30,817 29,722 Total 2,293,980 1,849,421 -13- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT ¾ Sales classified according to location: Unit: RMB’000 2005 2004 PRC 1,968,365 1,672,889 United States 74,634 33,884 Australia 47,015 36,638 Others 203,966 106,010 Total 2,293,980 1,849,421 ¾ Business segment information is not presented as no individual segment except glass segment accounted for more than 10% of revenue, results or net assets. ¾ Major suppliers and customers In the report period, the total purchase amount of the top five suppliers of the Company was RMB 350.49 million, taking 28.08% of the total annual purchase amount, while the total sales amount of the top five customers of the Company was RMB 351.11 million, taking 15.00% of the total annual sales amount. C In the report period, relevant data of cash flows and reason for change Unit: RMB’000 Change Items 2005 2004 amount Analysis on reason Net cash generated form operating activities 896,741 530,905 365,836 Increase of sales as well as account payable settled by means of note. Net cash used in investing activities (1,034,655) (1,107,100) 72,445 Decrease of investment expenses Net cash generated from of financing activities 72,299 657,715 -585,416 Paying back loans from bank D Particulars about the wholly owned and jointly controlled subsidiaries Please refer to Note 29 of the Auditors’ Report. (ii) View on the future of the Company A Trend of development of the Company’s industries In 2006, float glass industry would be adjusted continuously, fast-growing capacity in the market would be released gradually. The condition of medium & low-grade products’ supply exceeding demands would not be well, however, high-grade products still kept its normal operating situation. With enforcing energy-saving policy, the market of energy saving constructive glass would rapidly increase. Especially, the market for energy saving glass for civil construction would have outbreak development. With the development of information industry and upgrade themselves of products, the market for ITO glass, CF, electronic component and structural ceramics articles of the Company would maintain a good momentum growth in 2006. B Development strategy and operation plan of the Company for the new year Development strategy of the Company is connected with the demand of the market, further adjusting industrial structure, giving priority to soft power—group operation, quickening the development of new products; grasping the opportunity to fast and efficiently finish new project construction; taking Lean Production as target, successively perfect target cost management system, severely control each cost expenditure; implement strictly risk prevention mechanism, and tighten prevention on operation risk and financial risk. -14- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT The Company’s new annual operation plan is as follows: Further to strengthen the implementation of full budget management, esp. to introduce into concept of “Total Cost Control”, put in time and energy and tap ties on energy-saving and decrease consumption of production, material circulation and personnel, etc. To adapt to change of market, modify marketing management concept, more strengthen marketing plan, customer service and brand construction. To strengthen operation dynamic management, establish smart information feedback and command system in production operation of the Group so as to fit for the constantly changing market. Intensify research continuously, enhance input and consolidate and expand differentiation operation advantage. Subsequently get hold of the investment construction and make sure of accomplishment and put into production of each project in time and quality guaranteed. Keep on implementing steady financial policy, strictly prevention operation risk and financial risk and more enhance cash flows and account receivable and inventory control Further enhance Human Resources management, enlarge the soft & hard investment in demand of HR, and close upon the education and reserve of medium and senior executives so as to meet the demand of rapid development of the Group. C Demand for capital and its use plan and capital resources In 2006, the Company plans to invest capital amounting to RMB 1.3 billion or so, capital mainly comes from own capital and operation net cash inflows, insufficient part would be settled through loans from bank. D Risk elements and countermeasure Main raw material and fuel kept on high price which resulted in great pressure on controlling of production cost. The Company planed to tap new resources and economize on expenditure and reduce production cost by means of expanding production scale, renovate production technology, etc. Products maintaining low price, market competitive growing tense, the competitive advantage on differentiation of products disappeared step by step. Confronted to constantly changing market, the Company is ready to modify products structure, improve the proportion of high extra-value products, to enlarge research power and make a technology enterprise. ii Investment (i) Raise fund The Company did not raise any fund through share offering or used any fund raised through previous share offering till the report period. (ii) Investment of the funds not raised A Project of top grade special float glasses project in Guangzhou CSG. The total investment of the said project was about RMB 0.73 billion, whose main -15- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT products is top grade special float glasses such as super-thin glass, glass used in optical instrument and environment protection glass and etc.. The two production lines of this project had been lighted successfully respectively in November 2004 and February 2005 with capacity over 360,000 tons every year. During the report period, the two lines produced the product commercially and largely. The project had made net profit amounting to RMB 70,550,000 by the end of the report period. B Project of Chengdu CSG Glass Industry Base. The 1st phase of the project invested RMB 0.33 billion, and the 2nd phase additionally invested RMB 0.35 billion, plan to establish two production line of high quality float special glass which widely used in science field and construction industry such as optics, electronics, communication and motor, etc.. The two production lines of the project have been lighted successfully respectively in December 2005 and February 2006, the capacity would come up over 360,000 tons of high quality float glass every year after putting into production. At present, the 1st production line has entered the stage of trial production and it estimated to completely put into production the middle of 2006. C Project of Guangzhou CSG Engineering Glass. At present, the project has been rebuilt into Dongguan Green Energy Industrial Park, the company was named as Dongguan CSG Enineering Glass Co., Ltd.. The project initially invested amounting to RMB 0.25 billion and planed to establish a production line for import coated glass with capacity of 5 million m2. The products positioned for middle or high civil housing. The project is in progress nowadays and estimated to put into production at the end of 2006. D Project of solar energy super white electronic glass. The project has been established in Dongguan Green Energy Industrial Park, estimated to invest amounting to RMB 0.15 billion and planed to establish a rolling line of solar energy photovoltaic super white electronic glass with 250 tons melting per day, the project could produce over 79,000 tons of solar energy photovoltaic super white electronic glass per year after putting into production. The project is in progress nowadays and estimated to put into production at the end of 2006. E The project of solar energy battery. The project has been established in Dongguan Green Energy Industrial Park, planed to initially invest fixed assets amounting to RMB 0.202 billion, to establish a line of solar energy battery with yearly output amounting to 30 megawatt, equipment and technology were mainly imported from Europe. The project exists in the stage of preparation and estimate to put into production in the beginning of 2007. F The project of 3rd phase of CF. The 1st phase and 2nd phase of CF have been put into production respectively in July 2004 and May 2005, monthly output amounts to 40,000 at present. The 3rd phase plan to invest amounting to RMB 48 million and newly adding monthly output 10,000, the project is in progress and estimated to put into production in June 2006. In 2005 the project of CF realized net profit amounting to RMB 46.32 million. iii Routine work of the Board of Directors (i) The meeting and resolutions of the Board of Directors -16- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT In the report period, the Company totally held 7 meetings. th rd A On 28 January 2005, the Company held 18 meeting of the 3 Board of Directors. The resolutions of the meeting were published on Securities Times, China Securities Journal and Ta Kung Pao dated 1 February 2005. th rd B On 18 March 2005, the Company held 19 meeting of the 3 Board of Directors. The resolutions of the meeting were published on Securities Times, China Securities Journal and Ta Kung Pao dated 22 March 2005. st th C On 22 April 2005, the Company held 1 meeting of the 4 Board of Directors. The resolutions of the meeting were published on Securities Times, China Securities Journal and Ta Kung Pao dated 23 April 2005. nd D On 12 August 2005, the Company held 2 meeting of the 4th Board of Directors. The resolutions of the meeting were published on Securities Times, China Securities Journal and Ta Kung Pao dated 16 August 2005. th E On 13 September 2005, the Company held extraordinary meeting of the 4 Board of Directors. The resolutions of the meeting were published on Securities Times, China Securities Journal and Ta Kung Pao dated 15 September 2005. F On 18 October 2005, the Company held 3rd meeting of the 4th Board of Directors. The resolutions of the meeting were published on Securities Times, China Securities Journal and Ta Kung Pao dated 20 October 2005. th G On 22 November 2005, the Company held extraordinary meeting of the 4 Board of Directors. The resolutions of the meeting were published on Securities Times, China Securities Journal and Ta Kung Pao dated 23 November 2005. (ii) Implementation of the resolutions of Shareholders’ General Meeting by the Board of Directors A The Company’s 2004 Shareholders General Meeting approved 2004 profit distribution plan in which the Company distributed cash dividend to the Shareholders at the rate of cash RMB 2.5 (tax included) for every 10 shares based on the total share capital of 676,975,416 shares at the end of 2004. The Company published the public notice on 2004 dividend distribution on Securities Times, China Securities and Hong Kong Ta Kung Pao dated May 20, 2005, and implements the cash distribution. B The 1st extraordinary Shareholders Meeting of 2005 approved the Increasing the registration capital of the Company, Revising the Articles of Association and Applying for Short-term financial notes. At present, the works on increasing the registration capital and revising the Articles of Association have been changed in the Industrial and Commercial Department, and the works on short-term financial notes concerned are taking under way. iv Preplan of profit distribution As audited by Pricewaterhouse Coopers Zhong Tian CPAs Co., Ltd., the net profit of the Company was RMB 317,023,914. The Board of Directors proposed to make profit distribution as follows: 10% of the net profit is to be withdrew as statutory common reserve fund amounting to RMB 31,702,391 and 5% of the net profit is to be withdrew as statutory public welfare fund amounting to RMB 15,851,196. Based on the total share capital of 1,015,463,124 shares at the end of 2005, the dividends will be distributed to the -17- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT whole Shareholders in cash at the rate of RMB 1.80 for every 10 shares (including tax), and the totally amounts of cash dividends is RMB 182,783,362. The aforesaid profit distribution preplan should be submitted to the 2005 Shareholders’ General Meeting for examination. v Other events In the report period, the newspaper for overseas public disclosure engaged by the Company are Securities Times, China Securities Journal and Hong Kong Ta Kung Pao, since March 2006, it will be changed to Securities Times, China Securities Journal and Hong Kong Wen Wei Po. VIII Report of the Supervisory Committee i. Particular about working of the Supervisory Committee In the report period, Supervisory Committee of the Company held five meetings in total. (i) The 17th meeting of the 3rd Supervisory Committee was held on 28 January 2005. The meeting examined and approved Administrative Structure and Adjustment of Senior Executives of the Company, Investment Plan of CSG Group and Encouragement Measures on Outstanding Achievements of CSG Management Team. (ii) The 18th meeting of the 3rd Supervisory Committee was held on 18 March 2005, and the resolutions of the meeting were published on Securities Times, China Securities Journal and Ta Kung Pao dated 22 March 2005. (iii) The 1st meeting of the 4th Supervisory Committee was held on 22 April 2005, and the resolutions of the meeting were published on Securities Times, China Securities Journal and Ta Kung Pao dated 23 April 2005. (iv) The 2nd meeting of the 4th Supervisory Committee was held on 12 August 2005. The meeting examined and approved Work Report on the 1st Half Year of 2004 and Work Scheme on the Next Half Year of 2005 of CSG, 2005 Semi-annual Report and Summary of CSG. (v) The 3rd meeting of the 4th Supervisory Committee was held on 18 October 2005. The meeting examined and approved the 3rd Quarterly Report for 2005 of the Company, Increasing the registration capital of the Company, Revising the Articles of Association and Holding the 1st Extraordinary Shareholders Meeting of 2005. ii. Independent opinion of the Supervisory Committee (i) Operation according to the Law The Supervisory Committee knew and mastered the operation and financial situation of the Company through attending as nonvoting delegate and took part in the Shareholders’ General Meeting, the Board of Directors and operation & management meetings. The Supervisory Committee believes that the Board of Directors of the Company worked strictly according to the laws, regulations and Articles of Association in 2004, and performed its duties in the scope of Articles of Association and its decision procedure was legal. The Company has a complete internal control system and normative operation. The -18- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT directors and senior executives of the Company had neither violated the laws, regulation and the Articles of Association nor damaged the Company’s interests when they implemented their duties. (ii) Financial Inspection The Supervisory Committee believes that the auditor’s report issued by Pricwaterhouse Coopers Zhong Tian CPAs Co., Ltd. and Pricewaterhouse Coopers CPAs was true and reliable. The Company’s financial report and auditor’s opinion reflected truly the financial situation and operation achievements of the Company. (iii) There was no capital raised in the report period. (iv) There was no significant purchase and sale of assets in the report period. (v) There was no significant related transaction in the report period. IX Significant Events i. In the report period, the Company has not been involved in any significant lawsuits or arbitrations. ii. In the report period, the Company conducted neither sale and purchase of assets nor consolidation and merge. iii. There is no significant related transaction in the report period. iv. Significant contract and implementation (i) In the report period, the Company did not entrust other Company to manage its assets. (ii) In the report period, the Company had never offered guarantee to any companies or individuals other than the Company’s subsidiaries. The guarantees offered to the subsidiaries are as follows: Unit: RMB’0000 Guarantee of the Company for the controlling subsidiaries Total amount of guarantee for controlling subsidiaries in the report period 139,072 Balance of guarantee for controlling subsidiaries at the end of the report period 99,162 Particulars about the guarantee of the Company(Including the guarantee for the controlling subsidiaries) Total amount of guarantee 99,162 Proportion of the total guarantee in net assets of the Company (%) 40.05% Including: Total amount of the guarantee for shareholders, actual controller and correlated parties 0 The debts guarantee amount provided for the guarantee of which the assets-liability ratio 58,143 exceeded 70% Total amount of guarantee in net assets of the Company exceeded 50% 0 Total amount of guarantee aforesaid 58,143 (iii) In the report period, the Company did not entrust others to manage cash assets. Also, there was no organization of finance entrustment. v. Commitment events After the recommendation of China Merchants Securities Co., Ltd, the Company -19- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT publicized the Explanations on Share Merger Reform of CSG Holding Co., Ltd on 1 March 2006 and published its summary in Securities Times, China Securities and Shanghai Securities. Non-circulating shareholders of the Company committed in Explanations on Share Merger Reform of CSG Holding Co., Ltd: (i) Since the implementation of Share Merger Reform, no transaction or transfer in the market within 12 months. (ii) The original non-circulating shareholders whose total stock exceeds 5% sells the original non-circulating shares in listed transaction on Shenzhen Stock Exchange after the expiration of the above 1st item and the sales proportion of the total shares of the Company will not exceed 5% in 12 months and 10% in 24 months. The aforesaid commitments need to communicate with circulating shareholders, and implement according to the communications and correlated Shareholders’ Meetings. vi. Engagement of Certified Public Accountants In the report period, the Company engaged sequentially Pricewaterhouse Coopers Zhong Tian CPAs Co., Ltd. and Pricewaterhouse Coopers CPAs as the auditing organizations of A share and B share of the Company. Since the year 2002, the above two auditing organizations have provided auditing services for the Company for continuous four years. In the report period, the expenses that the Company paid to the auditing organization of A share and B share are RMB 1.3 million and RMB 0.70 million. And they conducted the other expenses, such as evection and living. vii. Punishment In the report period, the Company, the Board of Directors and its directors had never been checked and given administrative punishment or circular notices of criticism by the CSRC nor been condemned publicly by the Stock Exchange. viii. Other significant events Shenzhen Yuquan Investment Co.,Ltd is one company invested and founded by the management team of the Company, which mainly deals with purchasing and holding the shares of CSG, and realize the shareholding management of the management team. And the relevant details refer in 2004 Annual Report. In 2004, 5,357,520 Legal Shares of CSG Group are transferred to Shenzhen Yuquan Investment Co.,Ltd with the price which is higher than the net assets (Transferring of the Ownership still to be dealt with), and purchased 8,239,294 circulating shares of A-share of CSG Group on the secondary market in 2005. At the end of the report period, Shenzhen Yuquan Investment Co.,Ltd held 13,596,814 shares of CSG Group accounting 1.34% of the Company. While the establishments and purchasing the shares of CSG Group, Shenzhen Yuquan Investment Co.,Ltd carried on the report to the relevant departments; and the registered capital of it is invested personally in cash by the management team. CSG Group did not provide financial funds or guarantee for the company or its shareholders, and there were no relationship between the company and CSG Group. -20- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT X Financial Report Attached hereafter. XII Documents for Reference i. Original of Annual Report with the signature of CEO. ii. Financial statement with the signature and seal of the legal representative, CEO and the chief financing supervisor. iii. Original of the Auditor’s Report with the seal of Pricewaterhouse Coopers Zhong Tian CPAs, and the signature and seal of the certified public accountants. iv. Original of the Auditor’s Report from Pricewaterhouse Coopers CPAs. v. Original of the documents and public notices disclosed on the newspapers designated by CSRC in the report period. Board of Directors of CSG Holding Co., Ltd. 17 March 2006 -21- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT REPORT OF THE INDEPENDENT AUDITORS TO THE SHAREHOLDERS OF CSG HOLDING CO., LTD. (incorporated in the People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of CSG Holding Co., Ltd. (the “Company”) and its subsidiaries (the “Group”) as of 31 December 2005 and the related consolidated statements of income, cash flow and changes in shareholders’ equity for the year then ended. These financial statements set out on pages 22 to 53 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accompanying consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2005, and of the results of its operations and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards. Certified Public Accountants Hong Kong, 17 March 2006 -22- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT CSG HOLDING CO., LTD. CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2005 Note 2005 2004 RMB’000 RMB’000 ASSETS Non-current assets Property, plant and equipment 6 4,392,810 3,608,271 Land use rights 7 158,954 130,846 Intangible assets 8 13,451 5,505 Available-for-sale financial assets 9 9,078 9,078 Deferred income tax assets 20 3,227 1,035 4,577,520 3,754,735 Current assets Inventories 10 217,412 150,517 Properties held for sale 11 93,507 150,532 Trade and other receivables 12 350,188 286,057 Derivative financial instruments 13 3,416 7,847 Pledged bank deposits 14 54,458 72,505 Cash and cash equivalents 14 227,763 307,449 946,744 974,907 Total assets 5,524,264 4,729,642 EQUITY Capital and reserves attributable to equity holders of the Company Share capital 15 1,015,463 676,975 Other reserves 16 935,869 1,226,857 Retained earnings 535,759 424,236 2,487,091 2,328,068 Minority interest 239,819 128,362 Total equity 2,726,910 2,456,430 LIABILITIES Non-current liabilities Borrowings 19 913,987 562,150 Current liabilities Trade and other payables 17 807,705 447,906 Current tax liabilities 18 24,217 26,464 Borrowings 19 1,049,203 1,236,692 Derivative financial instruments 13 2,242 - 1,883,367 1,711,062 Total liabilities 2,797,354 2,273,212 Total equity and liabilities 5,524,264 4,729,642 The accompanying notes form an integral part of these financial statements. -23- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT CSG HOLDING CO., LTD. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 Note 2005 2004 RMB’000 RMB’000 Sales 5 2,293,980 1,849,421 Cost of sales (1,562,329) (1,220,416) Gross profit 731,651 629,005 Other gains, net 21 28,799 6,348 Selling and marketing costs (162,520) (122,291) Administrative expenses (118,416) (91,169) Other income 10,959 12,283 Other expenses (13,440) (4,861) Profit from operations 477,033 429,315 Finance costs, net 24 (71,292) (31,189) Profit before income tax 405,741 398,126 Income tax expense 25 (24,805) (30,463) Profit for the year 380,936 367,663 Attributable to: Equity holders of the Company 318,660 337,806 Minority interest 62,276 29,857 380,936 367,663 Earnings per share for profit attributable to the equity holders of the Company Basic (RMB cents per share) 26 31.38 33.27 The accompanying notes form an integral part of these financial statements. -24- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT CSG HOLDING CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2005 Attributable to equity holders of the Company Minority Total Note Share Other Retained interest equity capital reserves earnings Note 15 Note 16 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Balance at 1 January 2004 676,975 1,196,089 259,138 91,272 2,223,474 Capital contributed by minority shareholders 18,959 18,959 Capital exchange reserve recognised - 27 - - 27 Cash flow hedges - (19,924) - - (19,924) Currency translation differences - (187) - - (187) Profit for the year - - 337,806 29,857 367,663 Dividend - - (121,856) (11,726) (133,582) Appropriation to reserve funds - 50,852 (50,852) - - Balance at 31 December 2004 676,975 1,226,857 424,236 128,362 2,456,430 Balance at 1 January 2005 676,975 1,226,857 424,236 128,362 2,456,430 Derrecognition of negative goodwill 8 - - 9,662 - 9,662 Capital contributed by minority shareholders - - - 69,410 69,410 Capitalisation of other reserves 338,488 (338,488) - - - Capital exchange reserve recognised - (165) - (165) Cash flow hedges - 470 157 627 Currency translation differences - (360) - (360) Profit for the year - - 318,660 62,276 380,936 Dividend 27 - - (169,244) (20,386) (189,630) Appropriation to reserve funds - 47,555 (47,555) - - Balance at 31 December 2005 1,015,463 935,869 535,759 239,819 2,726,910 The accompanying notes form an integral part of these financial statements. -25- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT CSG HOLDING CO., LTD. CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 Note 2005 2004 RMB’000 RMB’000 Cash flows from operating activities Cash generated from operations 28 1,011,314 600,158 Interest paid (86,413) (45,412) Income tax paid (28,160) (23,841) Net cash from operating activities 896,741 530,905 Cash flows from investing activities Purchase of property, plant and equipment (1,009,352) (1,057,622) Purchase of land use rights (32,588) (43,053) Purchase of intangible assets (63) (10,906) Proceeds from sale of property, plant and equipment 5,807 2,772 Interest received 1,541 1,709 Net cash used in investing activities (1,034,655) (1,107,100) Cash flows from financing activities Proceeds from borrowings 3,314,910 3,170,575 Repayments of borrowings (3,142,715) (2,327,952) Dividends paid to Company’s shareholders (166,802) (121,420) Dividends paid to minority shareholders (20,386) (11,726) Capital contributed by minority shareholders 69,245 18,986 Pledged bank deposits withdrawn/(placed) 18,047 (70,748) Net cash generated from financing activities 72,299 657,715 Net increase in cash and cash equivalents (65,615) 81,520 Cash and cash equivalents at beginning of year 307,449 213,859 Exchange (losses)/gains on cash (14,071) 12,070 Cash and cash equivalents at end of year 14 227,763 307,449 The accompanying notes form an integral part of these financial statements. -26- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT CSG HOLDING CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 1. General information CSG Holding Co., Ltd. (the “Company”) was incorporated in 1984 in the People’s Republic of China (the “PRC”) as a joint venture enterprise under the laws of the PRC and was reorganised as a joint stock limited company in 1991. The Company’s domestic shares (“A Shares”) and domestically listed foreign shares (“B Shares”) have been listed on the Shenzhen Stock Exchange since 1992. The Company and its subsidiaries (the “Group”) are principally engaged in the manufacture and sales of glass and ceramics products and properties. The business activities of its subsidiaries are shown in Note 29. The registered address of the Company is CSG Building, No. 1 of the 6th Industrial Road, Shekou, Shenzhen, the PRC. 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. A Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of forward contract assets. This basis of accounting differs from that used in the statutory accounts of the Company and its principal subsidiaries (the “PRC Accounts”) which are prepared in accordance with generally accepted accounting principles and relevant financial regulations applicable to enterprises in the PRC (“PRC GAAP”). The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement of complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4. In 2005, the Group adopted the new/revised IFRS below, which are relevant to its operations. The 2004 accounts have been amended as required, in accordance with the relevant requirements. IAS 1 (revised 2003) Presentation of Financial Statements -27- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT IAS 2 (revised 2003) Inventories IAS 8 (revised 2003) Accounting Policies, Changes in Accounting Estimates and Errors IAS 10 (revised 2003) Events after the Balance Sheet Date IAS 16 (revised 2003) Property, Plant and Equipment IAS 17 (revised 2003) Leases IAS 21 (revised 2003) The Effects of Changes in Foreign Exchange Rates IAS 24 (revised 2003) Related Party Disclosures IAS 27 (revised 2003) Consolidated and Separate Financial Statements IAS 32 (revised 2003) Financial Instruments: Disclosure and Presentation IAS 33 (revised 2003) Earnings per Share IAS 36 (revised 2004) Impairment of Assets IAS 38 (revised 2004) Intangible Assets IAS 39 (revised 2004) Financial Instruments: Recognition and Measurement IFRS 3 (issued 2004) Business Combinations The adoption of IAS 1, 2, 8, 10, 16, 17, 21, 24, 27, 32, 33, 36 and 39 (all revised 2003) didn’t result in substantial changes to the Group’s accounting policies. In summary: - IAS 1 has affected the presentation of minority interest and other disclosures. - IAS 2, 8, 10, 16, 17, 27, 32, 33, 36 and 39 had no material effect on the Group’s policies. - IAS 21 had no material effect on the Group’s policy. The functional currency of each of the consolidated entities has been re-evaluated based on the guidance to the revised standard. All the Group entities have the same functional currency as their measurement currency. - IAS 24 has affected the identification of related parties and some other related-party disclosures. The adoption of IFRS 3, and IAS 38 resulted in a change in the accounting policy for negative goodwill. Until 31 March 2004: - The excess (the “Excess”) of the fair value of the Group’s share of the net assets of the acquired subsidiary at the date of acquisition over the cost of an acquisition is recognised as negative goodwill. Negative goodwill is presented in the same balance sheet classification as goodwill. - Negative goodwill is recognised in the consolidated income statement as follows: (a) To the extent that negative goodwill relates to expected future losses and expenses that are identified in the Group’s plan for the acquisition and can be measured reliably but which cannot be accrued for at the date of acquisition, that portion of negative goodwill is recognised as income when the future losses and expenses are recognised. (b) The amount of negative goodwill not exceeding the fair values of acquired identifiable non-monetary assets is recognised as income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable assets. (c) The amount of negative goodwill in excess of the fair values of acquired identifiable non-monetary assets is recognised as income immediately. -28- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT In accordance with the provision of IFRS 3: - The Excess arising from business combination for which the agreement date is on or after 31 March 2004 is recognised as income immediately. The Group has reassessed the useful lives of its intangible assets in accordance with the provisions of IAS 38. No adjustment resulted from this reassessment. IFRS 3 requires simultaneous adoption with IAS 36 and IAS 38. All changes in the accounting policies have been made in accordance with the transition provisions in the respective standards. In accordance with the transitional provision of IFRS 3: - The carrying amount of negative goodwill that arose from a business combination for which the agreement date was before 31 March 2004 was derecognised as at 1 January 2005 with a corresponding adjustment to the opening balance of retained earnings. The adoption of IFRS 3 resulted in: 2005 RMB’000 Increase in intangible assets 6,633 Increase in retained earnings 6,633 Increase in administrative expenses 3,029 Decrease in basic earnings per share RMB 0.30 cents B Consolidation Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiary by the Group. The cost of an acquisition is measured as the fair value of the assets given equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition -29- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the assets transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. C Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. Geographical segment is engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments. D Foreign currency translation (1) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements and balance sheet of the Company are presented in Renminbi (“RMB”), which is the functional and presentation currency of the Company and its principal subsidiaries. (2) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges. Translation differences on non-monetary items and available-for-sale investments are reported as part of the fair value gain or loss. (3) Group companies The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; (ii) Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates -30- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and (iii) All resulting exchange differences are recognised as a separate component of equity. When a foreign operation is sold, such exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale. E Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost of property, plant and equipment also includes transfers from equity of any gains/losses on qualifying cash flow hedges relating to purchases of plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives as follows: Buildings 20 - 35 years Machinery and equipment 10 - 20 years Vehicles and others 5 - 10 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2(H)). Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit. F Land use rights Land use rights are stated at cost and amortised over the period of lease on a straight-line basis. G Intangible assets (1) Computer software Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (5 to 10 years). -31- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT (2) Patents and licenses Patents and licenses are shown at historical cost and carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of patents and licenses over their expected useful lives of not more than 15 years. H Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. I Financial assets The Group classifies its financial assets in the following categories: at fair value through profit or loss, hold to maturity, loans and receivables and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date. The Group has only financial assets classified as loans and receivables and available for sale. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date, which are classified as non-current assets. Loans and receivables are classified as “trade and other receivables” in the balance sheet (Note 2(M)). Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Regular purchases and sales of investments are recognised on trade-date, which is the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method. Changes in fair value of available-for-sale financial assets are recognised directly in equity, except for impairment losses and foreign exchange gains and losses, which are recognised directly in the income statement. When available-for-sale equity instruments are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement. Dividends on available-for-sale equity instrument are recognised in the income statement when the Group’s right to receive payments is established. -32- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss, which is measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss, is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments classified as available for sale are not reversed through the income statement. If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is carried at cost, the amount of the impairment loss is measured as the difference between the carrying amount of the financial assets and the present value of estimated future cash flows discounted at the current market rate return for a similar financial assets. Such impairment losses shall not be reversed. Impairment testing of trade and other receivables is described in Note 2(M). J Derivative financial instruments and hedging activities Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss is dependent on the whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either (1) hedges of the fair value of recognised assets or liabilities (fair value hedge); or (2) hedges of a particular risk associated with a highly forecast transaction (cash flow hedge). The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair value or cash flow of hedged items. Movements on the hedging reserve in shareholders’ equity are shown in Note 16. The full fair value of hedging derivatives is classified as a non-current asset or liability if the remaining maturing of the hedged item is more than 12 months and as a current asset or liability if the remaining maturing of the hedged item is less than 12 months. (a) Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss over the period to maturity. (b) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. -33- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item affects profit or loss. However, when the forecasted transaction that is hedged results in the recognition of a non-financial asset (for example, property, plant and equipment) or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. When a hedging instrument expires or is sold, or when a hedge no longer meet the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. K Inventories Inventories are stated at the lower of cost or net realisable value. Cost is determined using the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. L Properties held for sale Properties held for sale are stated at the lower of cost or net realisable value. Cost of properties held for sale comprises cost and interest of borrowings for the purpose of financing the construction for the period prior to their being in a condition to enter into service. Net realisable value is calculated based on the estimated selling price less all further costs of construction and the related marketing expenses. M Trade and other receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement. N Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less. O Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. P Borrowings -34- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Q Borrowing costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. R Deferred income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. S Employee benefits (1) Pension schemes The Group participates in defined contribution retirement schemes organised by the respective municipal governments where the Group operates. The Group has no obligation beyond the contributions which are calculated based on certain percentage of basic salary set by the provincial government. The Group’s contributions to the defined contribution retirement schemes are charged to the consolidated income statement when incurred. (2) Bonus plans The Group recognises a liability and an expense for bonuses calculated based on a formula that takes into consideration the profit attributable to the Company’s shareholders after certain adjustments. T Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods -35- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT and services in the ordinary course of the Group’s activities. Revenue is shown, net of value-added tax, estimated returns, rebates and discounts and after eliminated sales within the Group. Revenue is recognised as follows: (a) Sales of goods Sales of goods are recognised when a group entity has delivered products to the customer, the customer has accepted the products and collectibility of the related receivables is reasonably assured. (b) Sales of properties Revenue from sale of properties is recognised when the significant risks and rewards of ownership of the properties have been transferred to customers and the bill of settlement has been submitted and confirmed by customers. (c) Sales of services Sales of services are recognised in the accounting period in which the services are rendered by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. (d) Interest income Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. (e) Dividend income Dividend income is recognised when the right to receive payment is established. U Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. V Dividend distribution Dividends distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which they are approved by the Company’s shareholders. W Comparatives Where necessary, comparatives have been adjusted to conform to changes in presentation in the current year. -36- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT 3. Financial risk management A Financial risk factors The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and price risk), credit risk, liquidity risk and cash flow and fair value interest rate risk. (a) Market risk (i) Foreign exchange risk Sales of the Group are mainly made to customers in the PRC while purchases are mainly from suppliers in the PRC, Japan and Europe. The Group is therefore exposed to foreign exchange risk arising from various currency exposures primarily with respect to United Stated Dollars (“USD”), Japanese Yuan (“JPY”) and EURO. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities. The conversion of RMB into foreign currencies is subject to the rules and regulations of foreign exchange control promulgated by the PRC government. The Group hedges the foreign currency exposure of its contract commitments to purchase certain plant and equipment payable in foreign currencies. The forward contracts used in its programme mature in 12 months or less are, consistent with the related purchase commitments. (ii) Price risk The Group is exposed to commodity price risk. It has not used any commodity futures to hedge its price risk exposure. (b) Credit risk The Group has no significant concentration of credit risk. It has policies in place to ensure that sales of products are made to customers with an appropriate credit history. (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities. Due to the dynamic nature of the underlying businesses, the Group aims to maintain flexibility in funding by arranging banking facilities and other external financing. (d) Cash flow and fair value interest rate risk As the Group has no significant interest-bearing assets, the Group’s income and operating cash flow are substantially independent of changes in market interest rates. The Group’s interest rate risk arises from borrowings. Borrowings at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group has not used any interest rate swaps to hedge its exposure to interest rate risk. -37- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT B Fair value estimation The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates at the balance sheet date. The fair value of quoted investments is based on current bid prices. The fair value of unlisted equity securities are estimated using applicable price/earnings or price/cash flow ratios refined to reflect the specific circumstances of the issuer. The nominal values less any estimated impairment provision for financial assets with a maturity of less than one year, if any, are assumed to approximate their fair value. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. 4. Critical accounting estimates and judgements The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. A Useful lives of property, plant and equipment The Group’s management determined the estimated useful lives and related depreciation charges for its fixed assets. This estimate is based on the historical experience of the actual useful lives of assets of similar nature and functions. It could change significantly as a result of technical innovations and competitors actions in response to serve industry cycles. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned or sold. B Net realisable value of inventories Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. These estimates are based on the current market condition and the historical experience and selling goods of similar nature. It could change significantly as a result of change in market condition. Management will reassess the estimations at the balance sheet date. C Provision for impairment of receivables The Group’s management determines the provision for impairment of receivables. This estimate is based on the credit history of its customers and the current market condition. It could change significantly as a result of change in financial position of customers. Management will reassess the provision at the balance sheet date. Fair value estimates are made at a specific point in time and are based on relevant market information. These estimates are subjective in nature and involved uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in valuation methods and assumptions could significantly affect the estimates. -38- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT 5. Sales and segment information (a) Business segment Sales, as disclosed net of applicable business tax and value-added tax, comprise: 2005 2004 RMB’000 RMB’000 Sales of glass products 2,120,626 1,599,900 Sales of ceramics products 68,963 59,037 Sales of properties 73,574 160,762 Glass installation service revenue 30,817 29,722 2,293,980 1,849,421 Business segment information is not presented as no individual segment except glass segment accounted for more than 10% of revenue, results or net assets. (b) Geographical segment The Group’s activities are carried out and assets are located predominantly in the PRC. Sales for the year, by locations of customers, are analysed as follows: 2005 2004 RMB’000 RMB’000 PRC 1,968,365 1,672,889 United States 74,634 33,884 Australia 47,015 36,638 Others 203,966 106,010 2,293,980 1,849,421 -39- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT 6. Property, plant and equipment Machinery and Vehicles and Construction- Buildings equipment others in-progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 At 1 January 2004 Cost 547,054 2,054,864 138,960 564,845 3,305,723 Accumulated depreciation (86,445) (506,727) (75,291) - (668,463) Provision for impairment (5,634) (2,272) (73) (5,244) (13,223) Net book amount 454,975 1,545,865 63,596 559,601 2,624,037 Year ended 31 December 2004 Opening net book amount 454,975 1,545,865 63,596 559,601 2,624,037 Reclassification 169,542 742,909 16,440 (928,891) - Additions 641 9,959 16,927 1,126,208 1,153,735 Transfer from equity of gains on cash flow hedges (Note 16) - - - (19,924) (19,924) Capitalised borrowing costs - - - 14,223 14,223 Capitalised exchange difference - - - (2,403) (2,403) Disposals (294) (275) (2,063) - (2,632) Depreciation charge (17,172) (127,351) (14,252) - (158,775) Write back of impairment charge - 10 - - 10 Closing net book amount 607,692 2,171,117 80,648 748,814 3,608,271 At 31 December 2004 Cost 716,847 2,803,869 162,626 754,058 4,437,400 Accumulated depreciation (103,521) (630,490) (81,905) - (815,916) Provision for impairment (5,634) (2,262) (73) (5,244) (13,213) Net book amount 607,692 2,171,117 80,648 748,814 3,608,271 Year ended 31 December 2005 Opening net book amount 607,692 2,171,117 80,648 748,814 3,608,271 Reclassification 216,371 830,119 2,850 (1,049,340) - Additions 10,237 26,023 13,965 953,714 1,003,939 Capitalised borrowing costs - - - 15,121 15,121 Capitalised exchange difference - - - 5,538 5,538 Disposals (789) (4,168) (1,266) - (6,223) Depreciation charge (23,586) (186,717) (15,674) - (225,977) Impairment charge - (7,610) (100) (149) (7,859) Closing net book amount 809,925 2,828,764 80,423 673,698 4,392,810 At 31 December 2005 Cost 942,526 3,654,213 171,466 679,091 5,447,296 Accumulated depreciation (126,967) (815,576) (90,870) - (1,033,413) Provision for impairment (5,634) (9,873) (173) (5,393) (21,073) Net book amount 809,925 2,828,764 80,423 673,698 4,392,810 The borrowing costs are calculated at 4.91% (2004: 3.91%) per annum which represented the weighted average interest rate on the loans used to finance the projects. -40- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT 7. Land use rights 2005 2004 RMB’000 RMB’000 Opening net book amount 130,846 91,283 Additions 32,588 43,053 Amortisation charge (4,480) (3,490) Closing net book amount 158,954 130,846 Represented by: Cost at end of the year 196,826 164,238 Accumulated amortisation at end of the year (37,872) (33,392) Net book amount 158,954 130,846 Land use rights comprise fees paid for acquiring the rights to use the land where the Group’s buildings are located. Payments for land use rights represent prepaid lease payments for the land and are recognised as an expense on a straight-line basis over the period of use of the rights ranging from 30 to 50 years. The period of use is the land use period granted according to the land use right certificate. As of 31 December 2005, the certificates of land use rights held by four subsidiaries, Guangzhou CSG Glass Company Limited and Sichuan Luxian Silica Sand Co., Ltd., Dongguan CSG Architectural Glass Co., Ltd. and Dongguan CSG Solar Glass Co., Ltd. are still under process. 8. Intangible assets Computer Patents and Negative software licenses goodwill Total RMB’000 RMB’000 RMB’000 RMB’000 At 1 January 2004 Cost 3,870 4,552 (17,075) (8,653) Accumulated amortisation (2,363) (766) 5,828 2,699 Net book amount 1,507 3,786 (11,247) (5,954) Year ended 31 December 2004 Opening net book amount 1,507 3,786 (11,247) (5,954) Additions 59 10,847 - 10,90 Amortisation charge (359) (673) 1,585 553 Closing net book amount 1,207 13,960 (9,662) 5,505 At 31 December 2004 Cost 3,929 15,399 (17,075) 2,253 Accumulated amortisation (2,722) (1,439) 7,413 3,252 Net book amount 1,207 13,960 (9,662) 5,505 Year ended 31 December 2005 Opening net book amount 1,207 13,960 (9,662) 5,505 Transfer to retained earnings - - 9,662 9,662 Additions 63 - - 63 Amortisation charge (55) (1,724) - (1,779) Closing net book amount 1,215 12,236 - 13,451 At 31 December 2005 Cost 3,992 15,399 - 19,391 Accumulated amortisation (2,777) (3,163) - (5,940) Net book amount 1,215 12,236 - 13,451 -41- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT 9. Available-for-sale financial assets 2005 2004 RMB’000 RMB’000 Unlisted equity securities, in the PRC: Cost at end of the year 25,499 25,499 Provision for impairment in value at end of the year (16,421) (16,421) Net book amount 9,078 9,078 No quoted market prices are available for the above unlisted companies. The directors of the Company are of the opinion that the carrying value approximated their recoverable amount as of year end. 10. Inventories 2005 2004 RMB’000 RMB’000 Raw materials (at cost) 112,412 91,947 Work-in-progress (at cost) 14,153 11,067 Finished goods (at cost) 95,595 50,226 222,160 153,240 Less: provision (4,748) (2,723) 217,412 150,517 As at 31 December 2005, finished goods of RMB3,759,000 (2004: RMB1,671,000) and raw materials of RMB2,736,000 (2004: RMB2,104,000) were stated at net realisable value. 11. Properties held for sale 2005 2004 RMB’000 RMB’000 Opening net book amount 150,532 231,558 Additions 350 42,323 Transfer to cost of sales upon sale (113,051) (189,487) Write back of impairment provision upon sale 55,676 66,138 Closing net book amount 93,507 150,532 Represented by: Cost at end of the year 145,328 258,029 Impairment provision at end of the year (51,821) (107,497) Net book amount 93,507 150,532 -42- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT All properties are stated at net realisable value. The provision for net realisable value of properties held for sale was determined by the directors based on the net selling price of similar properties with reference to the property market. 12. Trade and other receivables 2005 2004 RMB’000 RMB’000 Trade receivables 293,306 216,637 Notes receivable 31,708 36,888 325,014 253,525 Less: provision for doubtful accounts (6,456) (5,840) 318,558 247,685 Prepayments 6,125 21,946 Other receivables 25,505 16,426 350,188 286,057 13. Derivative financial instruments 2005 2004 Assets Liabilities Assets Liabilities RMB’000 RMB’000 RMB’000 RMB’000 Forward foreign exchange contracts - cash flow hedges 2,869 2,242 - - - fair value hedges 547 - 7,847 - 3,416 2,242 7,847 - Gain and losses recognised in the hedging reserve in equity (Note 16) on forward foreign exchange contracts as of 31 December 2005 will be transferred to the cost of construction-in-progress at various dates between the six months to nine months from the balance sheet date. 14. Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise the following: 2005 2004 RMB’000 RMB’000 Cash in hand 18,087 178 Cash at banks 264,134 379,776 282,221 379,954 Less: pledged bank deposits (Note (a)) (54,458) (72,505) Cash and cash equivalents 227,763 307,449 -43- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT (a) At 31 December 2005, bank deposits of RMB54,458,000 (2004: RMB72,505,000) were pledged to banks as security deposits for property mortgage loans granted by the banks to customers of the Group and banking facilities granted to the Group. 15. Share capital Registered, issued and fully paid ordinary shares of RMB1 each: Unlisted Listed Listed A shares A shares B shares Total Number’000 Number’000 Number’000 Number’000 Note (b) Note (b) At 1 January 2004 and 31 December 2004 270,757 107,166 299,052 676,975 Capitalisation Issue (Note (a)) 135,378 53,583 149,527 338,488 At 31 December 2005 406,135 160,749 448,579 1,015,463 (a) On 18 March 2005, the directors of the Company resolved to increase the share capital by means of capitalisation of the capital reserves of the Company to the extent of 5 shares per 10 shares (the “Capitalisation Issue”). The capitalisation Issue was approved by the shareholders and took effect on 26 May 2005 and 31 May 2005 for the Company’s A share and B share capital respectively. (b) The unlisted A shares are owned by domestic legal persons. Agreements were entered into in 2004 between Shenzhen Yuquan Investment Limited (“Yuquan Investment”) and certain domestic shareholders of the Company, whereby Yuquan Investment would acquire 28,858,914 unlisted A shares (after Capitalisation Issue) from these shareholders. The acquisition of 23,501,394 shares had been cancelled in 2005 and the registration of the remaining shares was still under process as at 31 December 2005. In addition, Yuquan Investment acquired 8,239,294 listed A shares during the year, which represents approximately 0.81% of the issue share capital of the Company. Yuquan Investment was incorporated in 2004 and owned by certain management staff of the Company. Pursuant to the relevant rules and regulations issued by the PRC authorities, share segregation reform of the Company commenced on 20 February 2006 and a proposed reform scheme was revised and announced on 15 March 2006 (the “Revised Reform Scheme”). Under the Revised Reform Scheme, the unlisted A shares shareholders agreed to offer 3.55 shares for every 10 shares held by listed A shares shareholders in exchange for listed A shares shareholders to agree that all the unlisted A shares be converted into listed A shares. Total number of shares of the Company will remain unchanged after the said exchange and the unlisted share will become listed A shares, subject to certain restrictions on disposal of such shares, on the first day when the Revised Reform Scheme is completed. The Revised Reform Scheme is subject to the approval by relevant government authorities including State-owned Supervision and Administration Commission, and by the relevant shareholders’ meeting of the listed A shares shareholders. All shares carry equal rights with respect to the distribution of the Company’s assets and profits and rank pari passu in all other respects except for the currency in which dividend is payable. -44- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT 16. Other reserves Statutory Statutory common public Capital reserve welfare Hedging Exchange reserve fund fund reserve reserve Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note (a) Note (b) Balance at 1 January 2004 927,902 152,525 95,051 19,924 687 1,196,089 Capital exchange reserve recognised 27 - - - - 27 Transfer to property, plant and equipment of fair value gains on cash flow hedges (Note 6) - - - (19,924) - (19,924) Currency translation differences - - - - (187) (187) Appropriation to reserve funds - 33,902 16,950 - - 50,852 Balance at 31 December 2004 927,929 186,427 112,001 - 500 1,226,857 Balance at 1 January 2005 927,929 186,427 112,001 - 500 1,226,857 Capitalisation of other reserves (Note 15) (338,488) - - - - (338,488) Capital exchange reserve recognised (165) - - - - (165) Fair value gains on cash flow hedges - - - 470 - 470 Currency translation differences - - - - (360) (360) Appropriation to reserve funds - 31,703 15,852 - - 47,555 Balance at 31 December 2005 589,276 218,130 127,853 470 140 935,869 In accordance with relevant PRC regulations applicable to joint stock limited companies by shares and the Articles of Association of the companies within the Group, the Group is required to allocate its profit after tax to the following reserves: (a) Statutory common reserve fund Each year to transfer 10% of the profit after tax as reported under the PRC Accounts to the statutory common reserve fund until the balance reaches 50% of the paid-up share capital. This reserve can be used to make up prior years’ losses or to increase share capital. Except for the reduction of losses incurred, any other usage should not result in this reserve balance falling below 25% of the registered capital. (b) Statutory public welfare fund Each year to transfer between 5% to 10% of the profit after tax as reported under the PRC Accounts to the statutory public welfare fund which is restricted to finance capital expenditure for staff welfare facilities which are owned by the Group. The statutory public welfare fund is not available for distribution to shareholders (except in liquidation). Once the capital expenditure on staff welfare facilities has been made, an equivalent amount will be transferred from the statutory public welfare fund to the discretionary common reserve fund. For the year ended 31 December 2005, the directors of the Company proposed that 10% and 5% (2004: 10% and 5%) of the net profit as reported in the PRC Accounts be appropriated to statutory common reserve fund and statutory public welfare fund respectively totalling RMB47,555,000 (2004: RMB50,852,000). The resolution is subject to approval by shareholders in the coming annual general meeting. -45- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT (c) Discretionary common reserve fund The discretionary common reserve fund can be set up by means of appropriation from the retained profits or transfer from the statutory public welfare fund. Subject to the approval of shareholders in general meeting, the reserve can be used to make up any losses, to increase share capital or to pay dividends. The Group has not made any appropriation from the retained profits or transfer any amount from the statutory public welfare fund to the discretionary common reserve fund during the year. 17. Trade and other payables 2005 2004 RMB’000 RMB’000 Trade payables 212,739 147,320 Notes payable 316,770 39,324 Payable for construction work and purchase of equipment 165,892 156,522 Advance from customers 26,010 32,679 Salary payable and welfare payable 30,106 14,557 Accruals 25,819 21,761 Dividend payable 3,717 1,275 Others 26,652 34,468 807,705 447,906 18. Current tax liabilities 2005 2004 RMB’000 RMB’000 Provision for income tax 11,216 12,379 Value-added tax payable 10,740 9,544 Business tax payable 1,394 3,759 Others 867 782 24,217 26,464 19. Borrowings 2005 2004 RMB’000 RMB’000 Unsecured bank loans - current 1,049,203 1,236,692 - non-current 913,987 562,150 1,963,190 1,798,842 -46- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT 2005 2004 RMB’000 RMB’000 Interests on bank loans are: - At fixed rates 846,915 1,232,284 - At floating rates 1,116,275 566,558 1,963,190 1,798,842 The effective interest rates of these bank loans were ranging from 4.37% (2004: 3.15%) per annum. The carrying amounts of borrowings approximate amortised cost. The fair values are based on discounted cash flows using a discount rate based upon the borrowing rates which the directors expect would be available to the Group at the balance sheet date. Maturity of non-current bank loans: 2005 2004 RMB’000 RMB’000 Between 1 and 2 years 192,527 263,000 Between 2 and 3 years 455,540 47,817 Between 3 and 4 years 137,920 209,976 Between 4 and 5 years 128,000 41,357 913,987 562,150 As at 31 December 2005, the Group has unused bank facilities totalling RMB3,119,843,000 (2004: RMB1,538,410,000). As approved by the shareholders of the Company on 22 November 2005, the Company applied to issue short-term financing bond of not more than RMB800,000,000 to finance the business operation of the Group. The application is still under process of the People’s Bank of China as at the approval date of these financial statements. 20. Deferred income tax assets Movements of deferred tax assets are as follows: Credit/(charge) At to consolidated At 1 January income 31 December 2005 statement 2005 RMB’000 RMB’000 RMB’000 Provision for impairment of receivables 42 (42) - Provision for impairment of inventories 282 46 328 Provision for impairment of construction-in-progress 152 657 809 Provision for impairment of property, plant and equipment 393 1,015 1,408 Unutilised tax losses 166 516 682 1,035 2,192 3,227 -47- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT Certain companies of the Group had unused tax losses totalling RMB32,388,000 (2004: RMB12,368,000) for which no deferred tax asset was recognised in the consolidated balance sheet due to the uncertainty of its recoverability. Apart from this, there were no material unprovided deferred tax assets and liabilities at the balance sheet dates. 21. Other gains, net 2005 2004 RMB’000 RMB’000 Interest income 1,541 1,709 Net foreign exchange gains/(losses) 26,711 (3,208) Fair value gains on fair value hedge (Note 13) 547 7,847 28,799 6,348 22. Expenses by nature 2005 2004 RMB’000 RMB’000 Raw materials and consumable used 1,037,008 744,662 Properties held for sale transferred to cost of sales (Note 11) 113,051 189,487 Employee benefit expense (Note 23) 213,904 197,538 Depreciation of property, plant and equipment (Note 6) 225,977 158,775 Amortisation of land use rights (Note 7) 4,480 3,490 Amortisation of intangible assets (Note 8) 1,779 (553) Provision/(Write back) of impairment of property, plant and equipment (Note 6) 7,859 (10) Provision for obsolescence of inventories (Note 10) 2,025 533 Write-back of impairment provision of properties held for sale (Note 11) (55,676) (66,138) (Write back of provision)/Provision for doubtful receivables 616 (5,474) Transportation 92,715 65,846 Loss/(Profit) on disposals of property, plant and equipment 291 (150) Other expenses 199,236 145,870 Total cost of sales, selling and marketing costs and administrative expenses 1,843,265 1,433,876 23. Employee benefit expense 2005 2004 RMB’000 RMB’000 Wages and salaries 155,055 135,119 Staff and workers’ welfare 23,601 31,939 Retirement scheme contributions (Note (a)) 13,718 9,480 Management bonus (Note (b)) 21,530 21,000 213,904 197,538 -48- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT (a) The Company and its domestic subsidiaries participate in certain defined contribution retirement schemes managed by governmental organisation. According to the relevant provisions, these companies and their employees are required to make contributions to local governmental organisation at specified rates, depending on the respective place of incorporation, based on the basic salaries of the employees. The portion of expenses contributed by the Group is charged to the consolidated income statement. (b) During 2005, the Board of Directors of the Company approved that a bonus amounted to RMB21,530,000 (2004: RMB21,000,000) be paid to management on the basis of return on net assets of the Company. The bonus was included in administrative expenses. 24. Finance costs, net 2005 2004 RMB’000 RMB’000 Interest expenses on bank borrowings 86,413 45,412 Less: interest capitalised in property, plant and equipment (Note 6) (15,121) (14,223) 71,292 31,189 25. Income tax expense 2005 2004 RMB’000 RMB’000 Current tax 26,997 30,571 Deferred tax (Note 20) (2,192) (108) 24,805 30,463 In accordance with the prevailing Enterprise Income Tax (“EIT”) regulations, the Company and its subsidiaries in the PRC are subject to income tax at rates of 15% to 33%, depending on their respective place of incorporation. Subsidiaries located abroad are subject to tax rates of their place of incorporation. Those subsidiaries that are enterprises with foreign investment in the PRC and meet certain criteria are entitled to full exemption from EIT for the first two years and a 50% reduction in EIT for the following three years, commencing from the first profitable year after offsetting all tax losses carried forward from the previous years. The reconciliation of the statutory tax rates to the effective tax rate is as follows: -49- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT 2005 2004 RMB’000 RMB’000 Profit before income tax 405,741 398,126 Tax calculated at tax rates of 15% to 33% (2004: 15% to 33%) 70,947 63,175 Tax benefits arising from preferential policies (48,745) (31,332) Expenses not deductible for tax purposes 938 562 Tax losses on certain subsidiaries not recognised as deferred tax assets 4,907 6,310 Utilisation of unrecognised tax losses (3,242) (8,252) 24,805 30,463 26. Earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity shareholders of the Company by the weighted average number of ordinary shares in issue during the year. 2005 2004 (Adjusted) Profit attributable to shareholders of the Company (RMB) 318,660,000 337,806,000 Weighted average number of ordinary shares in issue (Number) (Note (a)) 1,015,463,000 1,015,463,000 asic earnings per share (RMB cents per share) 31.38 33.27 Diluted earnings per share for both years were not presented as the Company has no dilutive potential shares. (a) In calculating the weighted average number of ordinary shares in issue, the Capitalisation Issue (Note 15) was treated as if it had occurred as at 1 January 2004. Accordingly, the 2004’s figures have been adjusted retrospectively. 27. Dividend per share Pursuant to the Board resolution passed on 17 March 2006, a dividend in respect of 2005 of RMB0.18 (2004: RMB0.25) per share amounting to a total of RMB182,783,000 (2004: RMB169,244,000). These consolidated financial statements do not reflect this dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in the year ending 31 December 2006. -50- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT 28. Cash generated from operations 2005 2004 RMB’000 RMB’000 Profit for the year 380,936 367,663 Adjustments for: Income tax expense (Note 25) 24,805 30,463 Depreciation (Note 6) 225,977 158,775 Amortisation of intangible assets (Note 8) 1,779 (553) Amortisation of land use rights (Note 7) 4,480 3,490 Loss/(Profit) on disposals of property, plant and equipment 291 (150) Provision/(Write back) of impairment charge for property, plant and equipment (Note 6) 7,859 (10) Provision for obsolescence of inventories (Note 10) 2,025 533 Write back of impairment provision for properties held for sale (Note 11) (55,676) (66,138) Provision/(Write back of provision) for doubtful receivables (Note 12) 616 (5,474) Interest expense (Note 24) 71,292 31,189 Interest income (Note 21) (1,541) (1,709) 662,843 518,079 Changes in working capital: Inventories (68,920) (47,163) Properties held for sale 112,701 147,164 Trade and other receivables (67,536) (51,266) Trade and other payables 372,226 33,344 1,011,314 600,158 29. Principal subsidiaries As of 31 December 2005, the Company has direct/indirect interest in the following principal subsidiaries: Percentage Place of of equity interest Name incorporation Principal activities held 2005 2004 Shenzhen CSG Southern Star Glass Processing Co., Ltd. PRC Glass processing 100% 100% Shenzhen CSG Architectural Glass Co., Ltd. PRC Production of architectural glass 100% 100% Hainan CSG Industrial Development Co., Ltd. PRC Property development 100% 100% CSG (Australia) Pty. Limited Australia Glass trading 100% 100% Shenzhen CSG Structure Ceramics Co., Ltd. PRC Production of structural ceramic products 100% 100% Shenzhen CSG Curtain Wall Engineering Co., Ltd. PRC Glass curtain wall installation 100% 100% Shenzhen CSG Electronic Co., Ltd. PRC Production of electronic ceramic products 100% 100% Shenzhen CSG Float Glass Co., Ltd. PRC Production of float glass 100% 100% Shenzhen CSG Automotive Glass Co., Ltd. PRC Production of automotive glass 100% 100% Sichuan CSG Industrial Development Co., Ltd. PRC Property development 100% 100% Hainan Wen Chang CSG Silica Sand Mine Co., Ltd. PRC Mining of silica sand 100% 100% Shenzhen CSG Wellight Coating Glass Co., Ltd. PRC Production of coated glass and mirrors 100% 100% Shenzhen CSG Display Technology Co., Ltd. PRC Production of monitor display glass 75% 75% Shenzhen CSG Wellight Conductive Coating Co., Ltd. PRC Production of colourful filter glass 70% 70% Tianjin CSG Architectural Glass Co., Ltd. PRC Production of specially processed glass 75% 75% Guangzhou CSG Glass Co., Ltd. PRC Production of float glass 75% 75% CSG (HK) Limited Hong Kong Glass trading 100% 100% -51- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT (Names of those subsidiaries incorporated in the PRC are direct translation of their Chinese names.) 30. Commitments As at 31 December 2005, capital expenditure contracted for but not recognised in the consolidated financial statements is as follows: 2005 2004 RMB’000 RMB’000 Purchase of property, plant and equipment 660,122 623,489 31. Significant related party transactions i） Significant related party transactions and balances with Total Logistics (Shenzhen) Co., Ltd., a company controlled by a major shareholder, who has influence over the Group, are as follows: 2005 2004 RMB’000 RMB’000 Transportation fee for the year 26,487 18,418 Balance included in accounts payables at year end 6,063 2,958 These transactions were carried out in ordinary course of business and at market prices. The amount due is payable in accordance with the terms of the contracts. ii) Key management compensation 2005 2004 RMB’000 RMB’000 Wages and salaries 1,937 1,599 Welfare 242 210 Retirement scheme contributions 42 38 Management bonus 1,139 1,111 3,360 2,958 32. Approval of financial statements These financial statements have been approved for issue by the Board of Directors on 17 March 2006. -52- CSG HOLDING CO., LTD. 2005 ANNUAL REPORT SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2005 The impact of IFRS adjustments on PRC Accounts are as follows: Net consolidated profit Net consolidated assets for the year ended as at 31 December 2005 31 December 2005 RMB’000 RMB’000 As per the PRC Accounts 316,412 2,475,927 Impact of IFRS adjustments: Recognition of deferred income tax 2,192 3,227 Derecognition of deferred pre-operating expenses and other assets 1,741 (6,938) Reversal of amorstisation of goodwill and derecognition of negative goodwill (1,685) 14,875 After IFRS adjustments 318,660 2,487,091 -53-