宁通信Ｂ(200468)2006年年度报告（英文版）

Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report April 2007 Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report (Based on IFRS) Important Note The Board of Directors, the Supervisory Committee, the directors, supervisors and senior management of the Company hereby confirm that there are no factitious record, misleading statements or material omissions in this report, and collectively and individually accept full responsibility for the truthfulness, accuracy and completeness of the whole contents. Nine directors were present at the board meeting, including Ms. Fu Ruolin, Mr. Li Tong and Mr. Yang Zhen who respectively authorized Mr. Zhou Desheng, Mr. Zheng Jianhua and Mr. Yu Hongliang to attend the meeting and vote on his/her behalf due to official business. The Company’s Legal Representative Mr. Zhao Xinping, General Manager Mr. Sun Liang, and Associate Chief Accountant Mr. Shi Lian hereby confirm that the financial report in this report is truthful and complete. This report is prepared both in Chinese and in English. In case of any inconsistency between the two versions, the Chinese version should prevail. I. Company Profile ........................................................................................................... 2 II. Financial & Operating Highlights................................................................................ 2 III. Share Capital Variation & Shareholders Introduction .............................................. 4 IV. Directors, Supervisors, Senior Management & Employees..................................... 7 V. Corporate Governance Structure.............................................................................. 11 VI. Highlights of Shareholders’ General Meeting ......................................................... 13 VII. Report of the Board of Directors............................................................................... 13 VIII. Report of Supervisory Committee ............................................................................ 20 IX. Significant Events....................................................................................................... 21 X. Financial Report.......................................................................................................... 24 XI. Documents for Inspection ......................................................................................... 25 -1- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report I. Company Profile 1. Legal Chinese Name of the Company: 南京普天通信股份有限公司 Legal English Name of the Company: Nanjing Putian Telecommunications Co., Ltd. 2. Legal Representative: Mr. Li Weide 3. Secretary of the Board of Directors: Mr. Xiao Zhaokai Mailing Address: No. 1 Putian Road, Qinhuai District Nanjing Telephone: 86-25-52418518-2278 Fax: 86-25-52409954 Email Address: xzk@postel.com.cn Securities Affair Representative: Mr. Zhang Shenwei Mailing Address: No. 1 Putian Road, Qinhuai District Nanjing Telephone: 86-25-52418518-2073 Facsimile: 86-25-52409954 Email Address: zsw@postel.com.cn 4. Registered Address: No. 58 Qinhuai Road, Jiangning Economics and Technology Development Zone, Nanjing, Jiangsu Province PRC Business Address: No. 1 Putian Road, Qinhuai District Nanjing Postal Code: 210012 Web Site: www.postel.com.cn Email Address: securities@postel.com.cn 5. Appointed Newspaper for Company Information Disclosure: Securities Times & Hong Kong Ta Kung Pao Appointed Web Site for Annual Report Publication: www.cninfo.com.cn Annual Report Prepared At: Financial & Securities Department 6. Listing and Trading Place of Company stock: Shenzhen Stock Exchange Stock Abbreviation: NJ TEL Stock Code: 200468 7. Latest Registration Date: 27 June, 2006 Registered At: Jiangsu Administration for Industry and Commerce Legal Person Operating License Qi Gu Su Zong Zi No. 000225 Registration Code: Taxation Registration Code: 320121134878054 Appointed Public Accounting Firm: Domestic: Shulun Pan Certified Public Accountants Co., Ltd. Overseas: Horwath Hong Kong CPA Limited Business Address: Domestic:61 Nanjing Dong Road, Shanghai Overseas: 2001 Central Palaza,18 Harbour Road, Wanchai,Hong Kong II.Financial & Operating Highlights 1. Financial data for 2006(RMB’000) Profit/(loss) before taxation -658 Profit/(loss) attributable to equity holders of the parent -11,137 Gross profit/(loss) 190,023 -2- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report Profit/(loss) from operations 13,881 Subsidy Receipt 856 Net Cash Generated from Operating Activities -27,914 Increase of Cash and Cash Equivalent -282 Note: Explanation of discrepancy as audited under CAS and IFRS (RMB’000) (Loss)/profit for the year Equity attributable to attributable to equity holders of equity holders the parent of the parent RMB’000 RMB’000 As determined pursuant to PRC accounting regulations 4,118 316,212 Adjustment for provision of staff welfare and bonuses (72) - Recognition of losses of subsidiaries in excess of the Company’s investment costs in profit and loss account (28,218) - Write back of losses attributable to the minority over their contribution in the Company’s accounts 13,154 Difference in recognition and amortisation of goodwill (119) 926 As determined pursuant to IFRS (11,137) 317,138 2. Main financial data for the last 3 years: Financial Indicators 2006 2005 2004 2004(before adjusted) Turnover(RMB’000 yuan) 991,795 775,783 851,292 851,292 Profit/(loss) attributable to -11,137 -263 -36,614 -27,461 equity holders of the parent (RMB’000 yuan) Total Assets(RMB’000 yuan) 1,153,043 1,085,994 948,276 948,276 Shareholder’s Equity(excluding 317,138 329,168 329,040 339,948 minor shareholder’s equity) (RMB’000 yuan) Earnings Per Share(yuan) -0.052 -0.001 -0.170 -0.128 Net Assets Per Share(yuan) 1.475 1.531 1.530 1.581 Net Cash Per Share -0.130 -0.027 0.274 0.075 Generated from Operating Activities(yuan) Return On Net Assets(%) -3.51% -0.08% -11.13% -8.08% Note 1: The share capital of the Company kept unchanged from the end of the reporting period to the day when this report is published. Note2: Attached Profit Form Profit for Return On Net Equity（%） Earnings Per Share（Yuan） reporting period Fully diluted Weighted average Fully diluted Weighted average Gross profit 59.92% 58.72% 0.8838 0.8838 Profit/(loss) 4.38% 4.29% 0.0646 0.0646 from operations Profit/(loss) -3.51% -3.44% -0.0518 -0.0518 attributable to equity holders of the parent -3- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report 3. Changes on Shareholders’ Equity during the reporting period (RMB’000) Capital Statutory and Statutory Exchange Attributable to Share surplus discretionary public Translation Other Retained equity holders of Item capital surplus reserve welfare reserve reserves earnings the parent fund fund At 215,000 168,817 16,037 9,962 268 115 -81,031 329,168 year-beginning Increase 10,822 31 10,853 Decrease 31 9,962 893 11,997 22,883 At year-end 215,000 168,817 26,828 0 -625 115 -92,997 317,138 Increase of statutory and discretionary surplus reserve fund was due to the balance of statutory public welfare fund being transferred into statutory surplus reserve fund and profits appropriation by subsidiaries. Decrease of statutory and discretionary surplus reserve fund was due to the liquidation of a subsidiary. Statutory public welfare fund decreased because its balance was transferred into statutory surplus reserve fund in accordance with the regulations of the Cai.Qi.No.67 Document of the Ministry of Finance. Increase of retained earnings was due to liquidation of a subsidiary, and decrease of it was due to net loss for the year and profits appropriation by subsidiaries. III. Share Capital Variation & Shareholders Introduction 1. Share Capital Variation (1)Change of the Company’s shares Increase/decre Year-beginning ase During the Year-end Year Number Proportion Number Proportion Un-listed non-tradable shares 1.Promoter shares 115,000,000 53.49% 115,000,000 53.49% Including: State-owned shares 115,000,000 53.49% 115,000,000 53.49% Domestic legal person shares Foreign legal person shares Other 2.Placement legal person shares 3.Employee’s shares 4.Preference shares and other Listed shares 1.RMB ordinary shares 2.Domestically-listed foreign shares 100,000,000 46.51% 100,000,000 46.51% 3.Overseas listed foreign shares 4.Other Total number of shares 215,000,000 100% 215,000,000 100% (2)Share issuing and listing in the last three years The Company did not issue shares in the last three years ended by 2006. -4- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report 2. Shareholders introduction Total number of shareholders 15807 Top ten shareholders Non-tradable Number of Shareholder’s Type of Proportion in shares held Shareholding mortgaged or name shareholder share capital by the frozen shares shareholder China Potevio State-owned 53.49% 115,000,000 115,000,000 0 Company legal person Limited shareholder Chan Keung B-shareholder 0.59% 1,265,600 0 Unknown Zheng Ganch B-shareholder 0.32% 692,946 0 Unknown ABN AMRO B-shareholder 0.30% 655,600 0 Unknown BANK NV Chen Chaofan B-shareholder 0.19% 416,979 0 Unknown Zhong Guowei B-shareholder 0.19% 412,600 0 Unknown Zhao Guanghui B-shareholder 0.18% 377,650 0 Unknown Li Y B-shareholder 0.16% 351,837 0 Unknown THE CHINA B-shareholder 0.16% 337,900 0 Unknown INDEX FUND LIMITED Ye Zhuanyou B-shareholder 0.15% 322,900 0 Unknown Top ten shareholders of tradable shares Shareholder’s name Number of tradable shares Share type Chan Keung 1,265,600 B-share Zheng Ganchi 692,946 B-share ABN AMRO BANK NV 655,600 B-share Chen Chaofan 416,979 B-share Zhong Guowei 412,600 B-share Zhao Guanghui 377,650 B-share Li Yi 351,837 B-share THE CHINA INDEX FUND 337,900 B-share LIMITED Ye Zhuanyou 322,900 B-share Lin Xiaoyan 310,000 B-share Specification of related parties Among the top ten shareholders, China Potevio Company Limited or persons acting in concert is neither a related party nor a person acting in concert with the among the above-mentioned others. It’s unknown by the Company whether there are related shareholders parties or persons acting in concert among the other shareholders. The Company does not know whether there are related parities or persons acting in concert among the top ten holders of tradable shares. 3. Introduction of the Company’s controlling shareholder and effective controller: Name of the controlling shareholder: China Potevio Company Limited Company type: a company limited by shares Legal representative: Xing Wei Date of corporation: July 23, 2003 Registered capital: RMB 1.9 billion Principal business: to develop, manufacture, sell and provide services for mobile telecommunications system and terminals, Internet communication equipment and terminals, radio and TV equipment and terminals, computers, software, system -5- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report integration, optical cable, postal equipment and related spare and parts; to contract domestic and overseas projects, to undertaken project planning, designing and inspection; to produce, sell and maintain mechanical and electrical products, mechanical devices, instruments, meters and related spare and parts; to engage in industry investment; to provide technology transfer, consultancy and services; import and export. Name of the Company’s effective controller: China Putian Corporation Company type: state-owned sole enterprise Legal representative: Xing Wei Registered capital: RMB 1093.37 million Date of corporation: 1980 Business scope: to organize its subsidiaries to develop and manufacture various communications equipment such as large-scale digital program-controlled switchboard, GSM and CDMA mobile telecommunication equipment and mobile phone, IP serial products, micro-wave telecommunication equipment, optical telecommunication equipment, optical and electric telecommunication cable, communication power supply, distribution equipment, IC phone, multi-media computer terminal, fax machine, postal mechanic and so on; engage in contract for international and domestic telecommunication project, engage in technical and economic business such as cooperation, technology introduction, import and export of relevant products. The following diagram illustrates the ownership and controlling relationship between the Company and its effective controller: State-owned Assets Supervision and Administration Commission of the State Council 100% China Putian Corporation 100% China Potevio Company Limited 53.49% Nanjing Putian Telecommunications Co., Ltd. -6- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report IV. Directors, Supervisors, Senior Management & Employees 1. Directors, supervisors and senior management (1) Profile Shareholdi Shareholding Whether ng at at year-end Receive Name Sex Age Position Term of Office year-begin Remuneratio ning n from the Company Zhao Chairman of the May 2006 Male 40 0 0 No Xinping BOD -May 2009 Vice chairman of the May 2006 Sun Liang Male 42 BOD, General 0 0 Yes -May 2009 Manager Zheng May 2006 Male 34 Director 0 0 No Jianhua -May 2009 May 2006 Li Tong Male 36 Director 0 0 No -May 2009 Zhou May 2006 Male 32 Director 0 0 No Desheng -May 2009 May 2006 Fu Ruolin Female 36 Director 0 0 No -May 2009 May 2006 Yang Zhen Male 45 Independent Director 0 0 Yes -May 2009 Yu May 2006 Male 52 Independent Director 0 0 Yes Hongliang -May 2009 May 2006 Shi Jiguo Male 52 Independent Director 0 0 Yes -May 2009 Chairman of the May 2006 Wang Zhiqi Male 58 Supervisory 0 0 No -May 2009 Committee Xiong May 2006 Male 44 Supervisor 0 0 No Weihua -May 2009 May 2006 Shi Xinhua Male 56 Supervisor 0 0 Yes -May 2009 Jiang Deputy General May 2006 Male 51 0 0 Yes Haishan Manager -May 2009 Deputy General May 2006 Sun Qiang Male 49 0 0 Yes Manager -May 2009 Jiang Deputy General May 2006 Male 44 0 0 Yes Hanbin Manager -May 2009 Deputy General May 2006 Liu Chuanxi Male 52 0 0 Yes Manager -May 2009 Deputy General May 2006 Yuan Yong Male 43 0 0 Yes Manager -May 2009 Zou Deputy General May 2006 Male 46 0 0 Yes Dezhong Manager -May 2009 Secretary of the Xiao May 2006 Male 41 BOD, Deputy 0 0 Yes Zhaokai -May 2009 General Manager (2) Major work experience of the directors, supervisors and senior management Directors: Mr. Zhao Xinping, aged 40, a postgraduate. He began to work in 1989, and served successively as manager of Investment Management Department, manager of Operation and Finance Department, associate chief accountant(concurrently), assistant to general manager of China Putian Corporation, financial supervisor of China Potevio Company Limited(concurrently), chief accountant of China Putian Corporation during September -7- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report 1999 - November 2006. He has been serving as secretary of the BOD and manager of Purchase Center of China Potevio Company Limited since March 2006. During March 2006 - May 2006 he served as a member of the Third BOD of the Company. Since May 2006, he has been serving as chairman of the Fourth BOD of the Company. Mr. Sun Liang, aged 42, a university graduate, began to work in 1986, and served successively as assistant to general manager, deputy general manager, and executive deputy general manager of Shanghai Posts and Telecommunications Co., Ltd. during September 1995 - January 2005. He has been serving as general manager of the Company since January 2005, and was a member of the Third BOD during June 2005 to May 2006. Since May 2006, he has been serving as vice chairman of the Fourth BOD. Mr. Zheng Jianhua, aged 34, a university graduate, began to work in 1994, serves as supervisor of President Office of China Putian Corporation since November 2001. He was elected into the Fourth BOD of the Company in May 2006. Mr. Li Tong, aged 36, began to work in 1993, and served successively as the head of Operation Plan Division and vice manager of Enterprise Management Department, deputy supervisor of Enterprise Reorganization Office and vice manager of Enterprise Development Department of China Putian Corporation during September 1999 to November 2005. Since November 2005 he has been serving as vice manager of Enterprise Development Department and concurrently supervisor of No. 1 Operation Division under the department of China Potevio Company Limited. He was elected into the Fourth BOD of the Company in May 2006. Mr. Zhou Desheng, aged 32, a postgraduate, began to work in 1997, served successively as assistant to manager of Personnel Department and vice manager of Human Resources Department of China Putian Corporation during August 1999 to April 2005. He has been holding the post of vice manager of Human Resources Department of China Potevio Company Limited since April 2005. He was elected into the Fourth BOD of the Company in May 2006. Ms. Fu Ruolin, aged 36, a postgraduate, began to work in 1992. She successively served as assistant to manager of Financial Department, supervisor of Financial Management Office and vice manager Financial Department of China Putian Corporation during July 1999 - April 2005. She has been serving as vice manager of Financial Department of China Potevio Company Limited since April 2005. She was elected into the Fourth BOD of the Company in May 2006. Independent Directors: Mr. Yang Zhen, aged 45, Ph.D., began to work in 1983 He successively served as a teacher, vice president and president of Nanjing University of Posts & Telecommunications since 1983, and served as an independent director in the Third BOD of the Company during June 2003 -May 2006. He was elected into the Fourth BOD of the Company as independent director in May 2006. Mr. Yu Hongliang, aged 52, a university graduate, CPA, began to work in 1982, he successively served as a teacher, associate professor and professor in Nanjing Audit University since 1985. He was elected into the Fourth BOD of the Company as independent director in May 2006. Mr. Shi Jiguo, aged 52, a postgraduate, began to work in 1997. He served as president of Xuzhou TV Transmission Station during 1995 - May 2002, and has been serving as dean of Network Center of Xuzhou TV Station since May 2002. He was elected into the Fourth BOD of the Company as independent director in May 2006. Supervisors Mr. Wang Zhiqi, aged 58, a college graduate, began to work in 1968. He served successively as deputy supervisor of Audit and Supervision Office of China Posts and Telecommunication Industry Corporation, vice manager and manager of Audit Department of China Putian Corporation. He has been serving as manager of Audit -8- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report Department of China Potevio Company Limited since March 2006. He was elected into the Fourth Supervisory Committee of the Company in May 2006 and served as chairman of the committee. Mr. Xiong Weihua, aged 44, a college graduate, began to work in 1982. He served successively as a supervisor, vice chief and chief of Auditing Office of China Putian Corporation during August 1995 -April 2006, as senior supervisor of Party-mass Relation Department of China Potevio Company Limited since April 2006. He was elected into the Fourth Supervisory Committee of the Company in May 2006. Mr. Shi Xinhua, aged 56, a university graduate, joined the Company in 1994. He served successively as deputy secretary of the Party Committee, an employee supervisor and concurrently chairman of labor union. Since May 2006 he has been serving as supervisor in the Fourth Supervisory Committee and concurrently chairman of labor union of the Company. Senior management: Mr. Sun Liang: see the chapter of Directors Mr. Jiang Haishan, aged 51, a postgraduate, joined the Company in 1985. He successively served as chief of Factory Manager Office, assistant to the factory manager and a director in the BOD. He has been serving as deputy general manager of the Company since May 1997. Mr. Sun Qiang, aged 49, a university graduate, began to work in 1978. He used to hold the post of vice secretary of Party Committee, supervisor, and chairman of labor union. He has been serving as deputy general manager of the Company since May 2002. Mr. Jiang Hanbin, aged 44, a university graduate, began to work in 1983. He used to hold the post of manager of Wiring Department and assistant to general manager of the Company and has been serving as deputy general manager of the Company since December 1998. Mr. Liu Chuanxi, aged 52, a postgraduate, began to work in 1970. He used to hold the post of manager of Marketing Department, assistant to general manager, and director of the Company. He has been serving as deputy general manager since March 2002. Mr. Yuan Yong, aged 43, began to work in 1984. He used to hold the post of manager of Wireless Department and assistant to general manager of the Company, and has been serving as deputy general manager since August 2002. Mr. Zou Dezhong, aged 46, a university graduate, began to work in 1979. He used to hold the post of associate chief engineer, chief engineer of Wireless Department and assistant to general manager of the Company, and has been serving as deputy genera manager of the Company since August 2002. Mr. Xiao Zhaokai, aged 41, a university graduate, started to work in 1988. He used to hold the post of chief of Factory Manager Office and manager of Investment Management Department. During May 1997-May 2006, he served as secretary of the First, Second, and Third BOD. Since May 2006 he has been serving as secretary of Fourth BOD and concurrently deputy general manager of the Company. Note: Five directors, including Mr. Zhao Xinping, Mr. Zheng Jianhua, Mr. Li Tong, Mr. Zhou Desheng and Ms. Fu Ruolin, and two supervisors, including Mr. Wang Zhiqi and Mr. Xiong Weihua, are working for the Company’s shareholder, China Putian Corporation and China Potevio Company Limited. (3) Annual remuneration ① Procedure of decision-making on the annual remuneration of the directors, supervisors and senior management, and the basis on which such decisions are made. Directors and supervisors are not paid remuneration by the Company. Those who -9- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report concurrently take administrative posts in the Company receive salary according to their administrative posts. Remuneration of members of the senior management is decided by the BOD, who assess the performance of the management and pay remuneration to them pursuant to Remuneration Scheme and Assessment Measures for the Senior Management passed by the board. The Company pay allowance to the independent directors. As approved by 2005 shareholders general meeting, allowance to each independent director is 50,000 Yuan(before tax) a year. ② Annual remuneration of the directors, supervisors and senior management in 2006: Total amount of remuneration received Name Position Note from the Company in 2006(Yuan) Vice Chairman of the Sun Liang 201,400 BOD, General Manager Allowance for Yang Zhen Independent Director 41,667 independent directors Allowance for Yu Hongliang Independent Director 41,667 independent directors Allowance for Shi Jiguo Independent Director 29,167 independent directors Shi Xinhua Supervisor 111,576 Jiang Haishan Deputy General Manager 131,939 Sun Qiang Deputy General Manager 136,476 Jiang Hanbin Deputy General Manager 130,657 Liu Chuanxi Deputy General Manager 127,706 Yuan Yong Deputy General Manager 134,932 Zou Dezhong Deputy General Manager 141,792 Secretary of the BOD, Xiao Zhaokai 116,856 Deputy General Manager Total 1,345,835 ③Directors and supervisors who do not receive remuneration from the Company Name Position Whether receive remuneration from the Company’s shareholder Zhao Xinping Chairman of the BOD Yes Zheng Jianhua Director Yes Li Tong Director Yes Zhou Desheng Director Yes Fu Ruolin Director Yes Wang Zhiqi Chairman of the Yes Supervisory Committee Xiong Weihua Supervisor Yes (4) Appointment and resignation of the directors, supervisors and senior management in the reporting period ① As the office term of the third BOD and Supervisory Committee expired in May 2006, -10- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report a re-election was held in 2005 shareholders general meeting on 11 May 2006. According to the result, members of the Fourth BOD include Mr. Zhao Xinping, Mr. Sun Liang, Mr. Zheng Jianhua, Mr. Litong, Mr. Zhou Desheng, Mr. Fu Ruolin and three independent directors, including Mr. Yang Zhen, Mr. Yu Hongliang and Mr. Shi Jiguo. Members of the Fourth Supervisory Committee include Mr. Wang Zhiqi, Mr. Xiong Weihua, and employee supervisor Mr. Shi Xinhua. Mr. Li Weide, Mr. Zhang Xiaocheng, Mr. Wu Xiaohua, Mr. Jiang Kun and Mr. Shi Jianjun left the post of director, and Mr. Wang Jiaqiang and Ms. Xu Xiaohui left the post of supervisor upon the expiration of their office term. ② As approved by the First Meeting of the Fourth BOD on 11 May 2006, Mr. Zhao Xinping serves as chairman of the Fourth BOD, and Mr. Sun Liang serves as vice chairman of the Fourth BOD. ③As approved by the First Meeting of the Fourth Supervisory Committee on 11 May 2006, Mr. Wang Zhiqi serves as chairman of the Fourth Supervisory. ④As approved by the First Meeting of the Fourth BOD on 11 May 2006, Mr. Sun Liang was appointed as general manager of the Company, Mr. Xiao Zhaokai was appointed as secretary of the Fourth BOD, and Mr. Jiang Haishan, Mr. Sunqiang, Mr. Jiang Hanbin, Mr. Liu Chuanxi, Mr. Yuan Yong, Mr. Zou Dezhong and Mr. Xiao Zhaokai were appointed as deputy general manager of the Company. 2. Employees of the Company At the end of 2006, the Company had 1,513 employees. A breakdown by job duties of the employees is as follows: Technology 264 Production 490 Sales 350 Services 165 Administration 244 A breakdown by educational level is as follows: University degree and above 374 Technical secondary school 123 College 463 High school and below 553 The Company should bear expenses for 569 retired employees. V. Corporate Governance Structure 1. Present status of the Company’s governance The Company made unswerving efforts in optimizing legal person governance structure in accordance with the PRC Company Law, Securities Law and relevant requirements of CSRC and Shenzhen Stock Exchange ever since its IPO in the stock market. It has formulated a series of rules on internal control, such as Rules of Procedure of BOD, Rules of Procedure of Supervisory Committee, Working Rules of Independent Directors, Detailed Working Rule of General Manager, Rules of Administration of Guarantee, Rules of Administration of Related Party Transactions and so on. Pursuant to the regulations of CSRC, the Company revised the Articles of Association and Rules of Procedure of Shareholders General Meeting. At present, the legal person governance structure of the Company is generally in conformity with the requirement of the documents promulgated by CSRC on standardizing the corporate governance of the listed companies. -11- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report 2. Independent directors’ working performance During the reporting period, the independent directors took part in all the board meetings and shareholders’ general meetings and carefully considered each proposals pursuant to relative regulations, and presented independent opinions on a series of significant issues, including related-party transactions, guarantee providing, director nomination and appointment of senior management. Meanwhile, they proposed lots of constructive advice on the Company’s development strategy, internal control policy and decision-making mechanism. With these efforts they played a positive role in helping the BOD to make decisions scientifically and objectively and promoting healthy and sustainable development of the Company, and safeguarded the interests of the shareholders and the Company. (1) Independent directors’ attendance at the board meetings during the reporting period: Number of Attendance Attendance Name board Absence Note in person by proxy meetings Absence due to official Shi Jianjun 6 5 1 business Yan Zhen 10 10 Yu 10 10 Hongliang Shi Jiguo 4 4 (2) objections raised by independent directors to the Company During the reporting period, the independent directors did not raise objections to any proposals of the BOD. 3. The Company’s separation from the controlling shareholder in five aspects (1) Personnel: The Company owns an independent labor system. All members of the senior management receive remuneration from the Company. None of them was employed by the controlling shareholder. (2) Assets: The Company’s assets are clearly separated from the controlling shareholder, subject to no impropriation or control by the controlling shareholder. (3) Finance: The Company has established an independent financial department and accounting system. The controlling shareholder did not interfere the financial activities of the Company. (4) Organization: The Company has a complete and independent internal organization. All of the branches, including the Board of Directors and Supervisory Committee, can perform their duties independently. (5) Operation: The Company operates independently with integrated production, supply and sales systems, not relying on the controlling shareholder. 4. Establishment and implementation of appraisal and incentive system for the senior management In the reporting period, the senior management were assessed and paid by the BOD based on their individual performance and operating results of the Company in accordance to the Remuneration Scheme and Measures on Assessment for Senior -12- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report Management, which was formulated by the BOD. VI. Highlights of Shareholders’ General Meeting I. On March 2 2006, the Company held the First Extempore Shareholders’ General Meeting of 2006 , which passed the resolutions on changing public accounting firm and co-opting a director. The announcement of the meeting was published on Securities Times and Ta Kung Pao on March 3 2006. II. On 11 May 2006, the Company held the 2005 Shareholders’ General Meeting, in which the following proposals were passed: (1) 2005 Work Report of the Board of Directors (2) 2005 Work Report of the Supervisory Committee (3) 2005 Work Report of General Manager (4) 2005 Financial Report (5) 2005 Profit Distribution Plan (6) 2005 Annual Report of the Company (7) Electing members of the Fourth BOD (8) Electing members of the Fourth Supervisory Committee (9) Proposal on paying allowance to independent directors The announcement of the meeting was published on Securities Times and Ta Kung Pao on 12 May 2006. VII.Report of the Board of Directors I. Review of operations during the reporting period 1. Discussion and analysis of the overall operating condition of the Company during the reporting period The Year 2006 was an important year for the Company in which we made a breakthrough and advanced vigorously in an innovative spirit. In the face of hot market competition, we pressed ahead with the reform of management mechanism, and promoted organizational restructuring and refined management with focus on the fulfillment of operating target. In order to adapt to the situation in the transitional period of telecommunications industry, we further adjusted structure of production to ensure steadily development in application industry, processing industry and integration trade industry. According to the domestic and overseas conditions of telecommunications industry, we intensified market exploration with emphasis on strategic analysis of market development. And the marketing system was optimized. In response to the demand of -13- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report market, we accelerated technological and technical innovation and put out a lot of new products to enhance our core competitiveness. Meanwhile, we gradually carried forward with the reform of operation mechanism and the implementation of refined management, and strengthened internal control. Under the effort of the whole staff, the annual operation budget was accomplished smoothly. The revenue and profit for the reporting period is as follows(RMB’000): 2006 2005 Change(%) Change(%) Sales revenue 991,795 775,783 216,012 27.84% Gross profit 190,023 127,282 62,741 49.29% Profit/(loss) -11,137 -263 -10,874 -4134.60% attributable to equity holders of the parent Increase of revenue and gross profit mainly resulted from expansion of sales volume by our efforts in market exploration and increase of services like processing Desk-top Box. Decrease of net profit is mainly influenced by increase of administrative expenses and decrease of investment income. 2. Operating condition of main business (1) Industry and products which account for more than 10 percent of the company’s main business( RMB’000) A breakdown of main business by industry Year-on-year A breakdown Year-on-year Year-on-year Gross margin increase/decre by industry or Revenue Cost increase/decrease increase/decrease （％） ase of gross product of revenue（％） of cost（％） margin（％） Telecommunic 866,732 698,574 19.40% 32.52% 27.84% 2.95% ations industry Electric 121,719 98,522 19.06% 5.57% 3.51% 1.61% appliances A breakdown of main business by product Distribution 253,170 179,322 29.17% 10.35% 8.30% 1.34% frame and related products PDS and data 333,035 259,170 22.18% 5.60% -1.17% 5.33% transmission products Plugs and 121,719 98,522 19.06% 5.57% 3.51% 1.61% receptacles for industrial and civilian use Other 283,870 262,253 7.62% 145.36% 113.72% 13.68% (2) A breakdown of main business by region( RMB’000) Year-on-year Region Revenue Cost increase/decrease of revenue （％） North China 228,431 175,004 17.46% East China 347,003 305,446 13.25% Other regions 416,361 318,817 51.45% -14- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report 3. Major suppliers and customers In 2006, the Company’s purchase from the top five suppliers amounted to RMB 257,939 thousand, accounting for about 25.59 percent of the total purchase, and sales to the top five customers amounted to RMB 167,681 thousand, accounting for about 16.9 percent of the total revenue. 4. Composition and changes of assets in the reporting period 2006 Year-en 2005Year-end Change(RMB’000) Change(%) Main factors that cause a d material change Receivables 519,878 461,221 58,657 12.72% sales volume was and expanded. And the service prepayments of processing Desk-top Box we began to undertake in this year caused increases in accounts receivable, material in stock and finished goods Inventories 204,365 163,202 41,163 25.22% - Property, plant 114,704 116,873 -2,169 -1.86% - and equipment Construction in 1,786 5,842 -4,056 -69.43% Construction-in-progress progress was transferred into fixed assets when completed Short-term 477,900 434,000 43,900 10.12% - bank loan Long-term bank 0 35,000 -35,000 -100.00% A long-term loan of seven loan years is due within one year and was transferred into current assets 2006 2005 Change(RMB’000) Change(%) Selling costs 71,836 72,511 -675 -0.93% - Administrative 106,660 34,099 72,561 212.80% The accounting method of expenses technology development cost was adjusted. Provisions for bad assets, which was accounted as administrative expenses, was increased over last year. The administrative expenses of last year was decreased due to selling inventory. Finance costs 19,277 18,235 1,042 5.71% - Tax 3,284 4,314 -1,030 -23.88% - 5. Composition of cash flows and material change 2006 2005 Change(’000) Change(%) Main factors that cause a material change Cash flows from operating -27,914 -5,774 -22,140 -383.44% The service of processing activities Desk-top Box generated an increase of account receivable Cash flows from investment -3,707 19,704 -23,411 -118.81% Buying land and other activities fixed assets in 2006 Cash flows from financing 31,339 -19,641 50,980 259.56% Increase of bank loans activities 6. Operating results of main subsidiaries and associated companies in 2006 (Yuan) (1) Main subsidiaries -15- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report Equity owned Registered Subsidiary by the Main business Total Assets Revenue Net Profit/loss capital Compa ny Nanjing Manufacture and Nanfang sales of data Telecommunicat 98.24% 34,205,148 145,770,062.88 163,737,382.02 6,591,111.16 communication ions Company equipment Limited Nanjing Putian Manufacture and Smart-building 41.35% sales of intelligent 12,000,000 87,125,683.31 131,874,344.07 11,288,518.42 Technology Ltd. building system Beijing Picom Network electronic Telecommunicat products, digital USD -16,521,054.4 51% 496,663.85 3,720,847.48 ions Equipment transmission 500,000 8 Ltd. system Nanjing Putian Electric Hongyan appliances, USD Electric 51.2% 58,731,202.44 87,416,449.25 854,454.33 telecommunicatio 1,930,000 Appliance n parts Company Nanjing Putian manufacture and Network sales of software Company Ltd. of 91.16% telecommunicatio 10,000,000 12,787,985.15 4,029,271.64 -1,104,449.61 ns, network and electronic equipment Nanjing Putian Manufacture and Changle sales of Telecommunicat 50.7% 5,000,000 14,335,419.04 45,140,407.00 3,540,114.09 telecommunicatio ions Equipment n equipment Co., Ltd. Putian Export and import Telecommunicat of ions (H.K.) Co., telecommunicatio HKD Ltd. 90% ns equipment, 16,369,807.44 25,601,981.31 576,607.27 2,000,000 Hi-tech R & D and transfer, technology trade Nanjing Postel Design, Wongzhi production and 90,000,000 67% 44,247,993.61 76,666,097.42 -4,273,602.28 Telecommunicat sales of CDMA ($10,900,000) ions Co., Ltd. cell phone Note: Beijing Picom Telecommunications Equipment Ltd. reported a decrease of net profit by 10,698 thousand yuan compared with the previous year, mainly due to provision for bad debts of accounts receivable and depreciation of inventory accounted for 2006. The operation conditions of Nanjing Postel Wongzhi Telecommunications Co., Ltd. were improved this year by undertaking the service of processing Set-top Box. It realized revenue of 766,661 thousand yuan, whereas the considerably high cost impeded it to make a profit. (2) Associated companies that contributed more than 10 percent of the Company’s net profit. Investment Equity owned Registered Income Company by the Main business Net profit capital contributed to Company the Company -16- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report Data Xishan Putian communications, Information Network 49% 20,000,000 -1,035,756.76 -507,520.81 voice transmission, Co., Ltd. internet services II. Forecast of future development 1. Analysis of the trend of industrial development and market competition Generally, the telecommunications equipment industry will keep growing steadily and rapidly in the next few years. Increase of investment in mobile communications and 3G network will bring about abundant opportunities for the industry. In the face of the favorable macro environment, we will try to grasp the opportunity of development to expand our market shares in fierce competition and carry out sustainable development by taking a series of measures, including optimizing structure of production, enhancing the competitiveness of our core products and promoting our profitability. 2. Operating plan for the new year The overall principle for our work in 2007 is: to widen our ideas and make innovations in a creative spirit; to promote optimization of structure of production by making breakthrough in emerging industries and capital operation; to deepen reforms and corporate reorganization and implement refined management, creating our overall competitiveness in operation cost, human resources and corporate culture, so as to ensure the budget of year to be fulfilled. In order to ensure the accomplishment of annual operation goal and sustainable development, we are going to take the following measures: (1) To expand development into new areas; (2) To cooperate with competitive domestic and overseas enterprises more closely, vigorously exploring international market, realizing our internationalization strategy. (3) To intensify our work in brand publicity, market exploration and technology research, building a solid foundation for development. (4) To further the reforms and corporate reorganization, restructuring qualified subsidiaries as limited-liability firms. (5) To establish a modernized enterprise management mode. We will implement refined management to raise efficiency and effectiveness. (6) To continue to strengthen work in corporate culture to build a harmonious enterprise. 3. Fund demand and usage plan According to the operating plan, the need of current capital for 2007 is around RMB 100 million, which will be financed by the Company itself in operating activities and by bank loans. 4. Difficulties and risks in operations At present, the domestic telecommunications industry is experiencing structural transition. As a telecommunications equipment supplier, the Company is faced with both an opportunity for development and a severe challenge. We are going to respond energetically. We will try to maintain our market shares of competitive traditional products and meanwhile seek new impetus of profit growth and explore overseas market. At the -17- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report same time, we will intensify internal management, optimize assets structure, control costs and raise profitability. 5. Influence of possible changes in accounting policy and accounting estimate on the financial conditions and operating results of the Company after the new Accounting Standards for Business Enterprises are implemented (1) Long-term equity investments——investments in subsidiaries will be accounted for by equity method instead of the previous cost method, which will reduce the influence of subsidiaries’ profits or losses on the parent company. But the consolidated statements will not be influenced. (2) The joint ventures will no longer be consolidated instead of being consolidated by proportion method previously, which will influence profit before tax in consolidated statements, but net profit will not be influenced by this change. (3) The structure of consolidated statements will differ from the previous one, for example, the item of uncertain investment loss will not be included in balance sheet and income statement, and minor shareholders’ equity will not listed above net profit, which will influence net profit and undistributed profit. (4) Other changes of accounting policies and estimates will not exert significant influences on the Company. The above influences are subject to variation in case of further explanation made by the Ministry of Finance on the new accounting standard. III. Investment in the reporting period 1. Use of proceeds from share issuing The Company did not raise any proceeds by issuing shares in the reporting period or use proceeds raised in previous periods. 2. Other investment in the reporting period (1) There was no significant investment in the reporting period. (2) In the reporting period, the Company and Germany Mennekes Electrical Products respectively reinvested 375,000 dollars in Nanjing Mennekes Electric Appliances Ltd., increasing its registered capital from 2.7 million dollars to 3.45 million. After the reinvestment, the parties still own 50% equity of the company it each. IV. Day-to-day work of the Board of Directors 1. Meetings and resolutions of the BOD during the reporting period (1)On 23 January 2006, the Company held the 26th Meeting of the Third BOD, which considered and approved the proposal of changing public accounting firm and holding the First Extempore Shareholders’ General Meeting of 2006. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 25 January 2006. (2)On 16 February 2006, the Company held the 27th Meeting of the Third BOD, which considered and approved the proposal of reinvesting in Nanjing Mennekes Electric Appliance Ltd. -18- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report (3) On 17 February 2006, the Company held the 28th Meeting of the Third BOD, which considered and approved the proposal of filing an application to China Putian Corporation to require it to provide guarantee for the Company for borrowing fund from banks. (4) On 5 April 2006, the Company held the 29th Meeting of the Third BOD, which considered and approved the proposal of transferring 41% equity of Beijing Picom Telecommunications Equipment Ltd. (5) On 7 April 2006, the Company held the 30th Meeting of the Third BOD, which considered and approved 2005 Work Report of the Board of Directors, 2005 Annual Report of the Company and other 8 proposals. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 11 April 2006. (6) On 24 April 2006, the Company held the 31st Meeting of the Third BOD, which considered and approved the First Quarterly Report and adding a proposal on 2005 Shareholders’ General Meeting. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 25 April 2006. (7) On 11 May 2006, the Company held the 1st Meeting of the Fourth BOD, which considered and approved the proposal of electing chairman and vice chairman of the BOD, and appointing the Company’s senior management and representative of securities affairs. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 12 May 2006. (8) On 14 June 2006, the Company held the 2nd Meeting of the Fourth BOD, which considered and approved two proposals, including adjusting the share structure of Nanjing Postel Wongzhi Telecommunication Ltd. and transferring 1.54% equity of Nanjing Broadband Telecommunications Technology Ltd. (9) On 19 August 2006, the Company held the 3rd Meeting of the Fourth BOD, which considered and approved Work Report of General Manager for the First Half of 2006, the proposal of amending the Articles of Association and other 3 proposals. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 22 August 2006. (10) On 24 October 2006, the Company held the 4th Meeting of the Third BOD, which considered and approved the 2006 Third Quarterly Report. (2) Implementation of resolutions of shareholders’ general meeting by the board of directors During the reporting period, the board of directors engaged two public accounting firms, Shulun Pan Certified Public Accountants Co., Ltd. and Horwath Hong Kong CPA Limited, -19- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report as the domestic and overseas auditing body pursuant to resolutions of shareholders’ general meeting. 5. Profit distribution preplan for the year Audited by the international accounting standard, the Company reported net loss of 11,137 thousand Yuan for 2006 and accumulated losses of 92,997 thousand Yuan(according to the Chinese accounting standard, the Company reported net profit of 4,118,123.31 Yuan and attributable profit of -83,098,223.47 Yuan). The Board of Directors advised that no dividends be declared for 2006, and no capital reserve be transferred into share capital. VIII. Report of Supervisory Committee 1. Meetings of the Supervisory Committee during the reporting period The Supervisory Committee held five meetings in the reporting period: (1) On 7 April 2006, the Company held the 12th Meeting of the Third Supervisory Committee, which considered and approved 2005 work report of the Supervisory Committee and other four proposals. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 11 April 2006. (2) On 24 April 2006， the Company held the 13th Meeting of the Third Supervisory Committee, which considered and approved the Company’s First Quarterly Report of 2006. (3) On 11 May 2006, the Company held the 1st Meeting of the Fourth Supervisory Committee, which considered and approved the proposal of electing Mr. Wang Zhiqi as chairman of the Fourth Supervisory Committee. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 12 May 2006. (4) On 19 August 2006, the Company held the 2nd Meeting of the Fourth Supervisory Committee, which considered and approved the full text and summary of the Company’s 2006 Semi-annual Report. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 22 August 2006. (5) On 24 October 2006, the Company held the 3rd Meeting of the Fourth Supervisory Committee, which considered and passed the Company’s 2006 Third Quarterly Report. -20- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report 2. Independent opinion presented by the Supervisory Committee (1) The Company’s operation according to the laws The Supervisory Committee supervised the procedures and resolutions of shareholders’ general meeting and meetings of the Board of Directors, the implementation of resolutions of shareholders’ general meeting by the Board of Directors, and the actions of senior management in performing their duties, as well as the managerial rules formulated by the Company. The Supervisory Committee believe that the Company’s operations were in conformity with the PRC Company Law, Rules Governing Listing of Stocks on Shenzhen Stock Exchange, and the Company’s Articles of Association. The Company’s procedures of decision-making is in conformity with the relevant laws and sound internal control system has been established. No acts of the directors and senior management were observed violating the laws, regulations and the Company’s Articles of the Association or contrary to the interest of the Company. (2) The Company’s financial position: The Supervisory Committee believe that the 2006 Financial Statements give a true view of the Company’s financial position and operating results The new Accounting Standard of Business Enterprises will be first implemented in listed companies from 1 January 2007. In order to ensure the new standard to be smoothly implemented in the Company The management shall attach great importance and organize all staff of the financial department to attend relevant trainings, making adequate preparation for the implementation. (3) The Company’s transaction in purchasing and selling assets The Company’s transactions in purchasing and selling assets in the reporting period were executed at fair prices. No insider deals, actions harmful to certain shareholders’ interest or causing loss of the Company’s assets were found. (4)The Company’s related-party transactions: The Company’s related-party transactions in the reporting due to objective reasons were executed with contracts signed under the rule of fair trade. No actions of harming the interests of the Company were observed. IX. Significant Events 1. Significant lawsuit or arbitration during the reporting period The Company was not involved in any significant lawsuit or arbitration during the reporting period. 2. Matters related to purchasing assets, selling assets, acquisition or merging during the reporting period -21- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report (1) Brief introduction on assets acquisition and selling during the reporting period and progress of such issues ① As approved by the 2nd meeting of the 4th BOD, the Company transferred 1.54% equity of Nanjing Dongda Broadband Telecommunications Technology Ltd. to Nanjing Jianjiang Science & Technology Ltd. with 1.05 million yuan and no longer owns any equity in that company. Income from the share transfer is RMB 750,000. ② In the reporting period, the board of directors approved Nanjing Nanfang Telecommunications Company ltd., a subsidiary of the Company, to buy 33% equity of Nanjing Wongs Telecommunications Co., Ltd. from Hongkong Wong's Industrial (Holdings) Ltd. with 6.03 miilion yuan. When the share transfer is accomplished, the Company will hold 67% equity of Nanjing Wongs Telecommunications Co., Ltd., and the remaining 33% will be held by Nanjing Nanfang Telecommunications Company. At present, we have acquired approval from the Ministry of Commerce, but haven’t gone through all official procedures with industry and commerce administration department. (2) Influence of the above issues on the continuity of the Company’s business and the stability of the management The above-mentioned assets purchase and selling will not affect the continuity of the Company’s business and the stability of the management. 3. Related-party transactions and receivables and payables with the related parties: (1) Related-party transactions that are relevant to day-to-day operations in the reporting period ① Purchase from the related parties Related Party Relations with the Amount Proportion in total Company (RMB,000) purchase amount in 2006 China Putian Corporation Effective controller 192 0.02% Nanjing Putian Datang Information Associated company 108 0.01% Electric Company Ltd. Guangxi Putainyoutong Both controlled by the 85 0.01% Telecommunications Equipment same parent company Company Ltd. Nanjing Yuhua Electroplating Associated company 8,998 0.93% Factory Total 9,383 0.97% ② Sales to the related parties Related Party Relations with the Amount Proportion in total Company (RMB,000) revenue in 2006 Naning Putian Zhongyou Associated company 8,991 0.91% Telecommunications Co., Ltd. China Putian Corporation Effective controller 405 0.04% Guangxi Putainyoutong Both controlled by the 97 0.01% Telecommunications Equipment same parent company Company Ltd. Total 9,493 0.96% Of the above transactions, sales to controlling shareholder and its subsidiaries is RMB 9,493,000. ③ Note on day-to-day related-party transactions The above-mentioned transactions were regular purchase and sales executed between the Company and the related parties according to the demand of operation on the basis of equality, mutual benefit and fair trade. These transactions, which were executed on the principle of market price, will not affect the independence of the Company or cause the -22- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report Company to rely on the related parties. According to the demand of the operation of the Company, such transactions of purchase and sales will continue in the next year. (2) Receivables and payables with the related parties Account receivable： Related party Relations with the Amount Company (RMB,000) Naning Putian Zhongyou Telecommunications Co., Ltd. Associated company 4,845 China Putian Corporation Effective controller 474 Guangxi Putainyoutong Telecommunications Equipment Both controlled by the Company Ltd. same parent 111 company Shanghai Huanying Display Technology Company Ltd. Both controlled by the same ultimate 4,555 shareholder Shanghai Potevio Co., Ltd. Both controlled by the same parent 404 company Account payable： Related party Relations with the Amount Company (RMB,000) China Putian Corporation Effective controller 224 Nanjing Putian Datang Information Electric Company Associated company 34 Ltd. Guangxi Putainyoutong Telecommunications Equipment Both controlled by the Company Ltd. same ultimate 100 shareholder Nanjing Yuhua Electroplating Factory Associated company 1,282 Other notes receivable: Related party Relations with the Amount Company (RMB,000) China Putian Corporation Effective controller 20,000 4. Material contracts (1) During the reporting period the Company did not trust, contract or lease assets to other companies or from other companies. (2) Guarantee providing During the reporting period the Company provided guarantee for the following consolidated subsidiaries (Yuan): Amount of Starting time Ending time Type of Name guarantee guarantee Nanjing Nanfang 9,000,000 2006-8-5 2007-8-4 Joint liabilities Telecommunications Company Nanjing Nanfang 8,000,000 2006-6-6 2007-6-6 Joint liabilities Telecommunications Company Nanjing Putian Hongyan Electric 5,000,000 2006-2-10 2007-2-10 Joint liabilities Appliance Company Nanjing Putian Hongyan Electric 4,000,000 2006-5-30 2007-5-24 Joint liabilities Appliance Company Nanjing Mennekes Electric 2,000,000 2006-3-31 2007-3-31 Joint liabilities Appliance Ltd. Nanjing Putian Smart-building 4,900,000 2006-5-26 2006-11-26 Joint liabilities Technology Ltd. Nanjing Putian Smart-building 4,900,000 2006-11-28 2007-5-28 Joint liabilities Technology Ltd. The accumulative amount of guarantee during the reporting period is -23- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report RMB37,800,000, and the balance at year-end is RMB32,900,000, accounting for10.40% of the amount of net assets. Except the above guarantee, the Company did not provide guarantee for any other parties. (3) Entrustment investment The Company made no entrust investment during the reporting period. 5. Commitment of the Company or a shareholder holding over 5 percent of the Company’s share capital During the reporting period, the Company’s shareholders which hold over 5 percent of the Company’s share capital did not made a commitment. 6. Appointment and discharging of a public accounting firm The domestic and overseas public accounting firms appointed by the Company, Shulun Pan Certified Public Accountants Co., Ltd. and Horwath Hong Kong CPA Limited, have provided services for the Company for two consecutive years. The Company paid an audit fee of RMB1.25 million to the two firms in 2006. The travel expenses of the firms are not borne by the Company. 7. Punishment exerted by securities regulatory departments on the Company, the Board of Directors and directors The Company, the Board of Directors or the directors were not punished by the securities regulatory departments during the reporting period. 8. Reception of visitors and interviews during the reporting period Pursuant to the requirement of Guideline of Fair Information Disclosure of Listed Companies, we strictly kept to the principle of fair information disclosure when receiving visiting analysts and interviewers during the reporting period. No un-disclosed information was disclosed, leaked or divulged to specific people selectively, secretly or in advance. Details of receiving visiting analysts and interviewers during the reporting period is as follows: Time Place Form Visitor Topic of talks and information provided 22 September In the Face-to-face Analysts with Naito Operation conditions of 2006 Company discussion Securities Co., Ltd. the Company 2 November In the Face-to-face An investor from Operation conditions of 2006 Company discussion Shanghai the Company 13 December In the Face-to-face An investor from Operation conditions of 2006 Company discussion Hainan the Company X. Financial Report 1. Auditor’s report -24- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report The Company’s 2006 Financial Statements were audited and issued a report with unqualified opinion by Horwath Hong Kong CPA Limited. Report of the auditors (attached ) 2. Financial statements(attached) 3. Notes to the financial statements (attached) XI. Documents for Inspection 1. Original text of accounting statements signed and sealed by legal person representative, financial controller and accountant officer. 2. Original text of Auditor’s Report signed and sealed by Certified Public Accountant with the public accounting firm’s seal on. 3. Original texts of all the files and announcements published on the newspapers appointed by China Securities Regulatory Commission during the reporting period. Nanjing Putian Telecommunications Co., Ltd. 10 April 2007 -25- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. (Incorporated in the People’s Republic of China with limited liability) We have audited the consolidated financial statements of Nanjing Putian Telecommunications Co., Ltd. set out on pages 3 to 38 which comprise the consolidated balance sheet as at 31 December 2006, and the consolidated income statement, consolidated statement of changes in equity and consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Directors’ responsibility for the financial statements The directors are responsible for the preparation and the true and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit and to report our opinion solely to you, as a body and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and true and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. -26- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report Opinion In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Group as at 31 December 2006 and of the loss and cash flows of the Group for the year then ended in accordance with International Financial Reporting Standards. HORWATH HONG KONG CPA LIMITED 2001 Central Plaza Certified Public Accountants 18 Harbour Road Wanchai 6 April 2007 Hong Kong Chan Kam Wing, Clement Practising Certificate number P02038 -27- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 (Expressed in Renminbi thousands) 2006 2005 Notes RMB’000 RMB’000 Turnover 6 991,795 775,783 Cost of sales (801,772) (648,501) Gross profit 190,023 127,282 Other operating income 7 2,354 1,641 Selling expenses (71,836) (72,511) Administrative expenses (106,660) (34,099) Profit from operations 13,881 22,313 Other gains and losses 8 5,120 (3,553) Finance costs 9 (19,277) (18,235) Gain on disposal of subsidiaries - 10,698 Share of losses of associates (382) (1,995) (Loss)/profit before taxation 10 (658) 9,228 Taxation 12 (3,284) (4,314) (Loss)/profit for the year (3,942) 4,914 Attributable to: Equity holders of the parent (11,137) (263) Minority interests 7,195 5,177 (3,942) 4,914 Basic loss per share 13 RMB(0.052) RMB(0.001) The accompanying notes form part of these financial statements. -28- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2006 (Expressed in Renminbi thousands) 2006 2005 Notes RMB’000 RMB’000 Non-current assets Property, plant and equipment 14 114,704 116,873 Construction in progress 1,786 5,842 Land use rights 15 32,354 33,632 Interests in associates 16 1,026 1,408 Available-for-sale investments 18 924 1,212 Intangible assets 19 4,236 5,503 155,030 164,470 Current assets Inventories 20 204,365 163,202 Trade and other receivables 21 519,878 461,221 Pledged bank deposits 80,000 103,000 Cash and bank balances 193,770 194,101 998,013 921,524 Current liabilities Bank loans 22 477,900 434,000 Tax payable 2,246 1,199 Trade and other payables 23 284,747 222,295 764,893 657,494 Net current assets 233,120 264,030 Total assets less current liabilities carried forward 388,150 428,500 -29- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. CONSOLIDATED BALANCE SHEET (CONTINUED) AS AT 31 DECEMBER 2006 (Expressed in Renminbi thousands) 2006 2005 Notes RMB’000 RMB’000 Total assets less current liabilities brought forward 388,150 428,500 Non-current liabilities Bank loans 22 - 35,000 Employee housing benefits payable 10,737 10,691 Other non-current liabilities 80 80 (10,817) (45,771) Net assets 377,333 382,729 Equity Share capital 24 215,000 215,000 Reserves 25 102,138 114,168 Attributable to equity holders of the parent 317,138 329,168 Minority interests 60,195 53,561 Total equity 377,333 382,729 The financial statements were approved and authorised for issue by the board of directors on 6 April 2007. The accompanying notes form part of these financial statements. -30- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2006 (Expressed in Renminbi thousands) Statutory and Attributabl discret e -ionary Statutory Exchange to equity surplus public Accumu- holders of Share Capital reserve welfare translation Other lated the Minority Total Capital surplus fund fund reserve reserves losses parent interests Equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 24) (Notes 25 (Note 25 (a)&( c)) (b)) At 1 January 2005 215,000 168,817 16,151 10,054 (123) 115 (80,974) 329,040 40,509 369,549 Exchange translation difference recognised directly in equity - - - - 391 - - 391 - 391 (Loss)/profit for the year - - - - - - (263) (263) 5,177 4,914 Total income and expenses recognised for the year - - - - 391 - (263) 128 5,177 5,305 Partial disposal of a subsidiary - - - - - - - - 10,316 10,316 Elimination on disposal of a subsidiary - - (792) (356) - - 1,148 - - - Changes in minority interests - - - - - - - - (1,000) (1,000) Dividend paid to minority shareholders - - - - - - - - (1,441) (1,441) Profits appropriation by subsidiaries - - 678 264 - - (942) - - - 215,000 At 31 December 2005 168,817 16,037 9,962 268 115 (81,031) 329,168 53,561 382,729 Exchange translation difference recognised directly in equity - - - - (893) - - (893) - (893) (Loss)/profit for the year - - - - - - (11,137) (11,137) 7,195 (3,942) Total income and expenses - recognised for the year - - - (893) - (11,137) (12,030) 7,195 (4,835) Liquidation of a subsidiary - - (31) - - 31 - - - Dividend paid to minority - shareholders - - - - - - - (561) (561) Profits appropriation by subsidiaries - - 860 - - (860) - - - Transfer - - 9,962 (9,962) - - - - - - At 31 December 2006 215,000 168,817 26,828 - (625) 115 (92,997) 317,138 60,195 377,333 The accompanying notes form part of these financial statements.. -31- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2006 (Expressed in Renminbi thousands) 2006 2005 RMB’000 RMB’000 Operating activities (Loss)/profit before taxation (658) 9,228 Adjustment for: Depreciation 14,682 17,242 Provision for/(write back of) bad and doubtful debts of trade and other receivables 13,365 (426) Provision for/(write back of) slow-moving inventories 6,273 (19,071) Amortisation of land use rights and intangible assets 5,272 5,436 Interest expenses 24,904 22,121 Interest income (6,600) (4,857) Share of losses of associates 382 1,995 Impairment loss on available-for-sale investments (12) - Dividend income (39) - Gain on disposal of available-for-sale investments (750) - (Gain)/loss on disposal of property, plant and equipment and and construction in process (410) 981 Gain on disposal of investments held for trading - (359) Gain on partial disposal of equity interest of a subsidiary - (10,704) Loss on disposal of subsidiaries - 6 Cash flows before changes in working capital 56,409 21,592 (Increase)/decrease in inventories (47,436) 17,406 Increase in trade and other receivables (72,022) (65,252) Increase in trade and other payables 63,074 53,036 Increase/(decrease) in employee housing benefits payable 46 (4,378) Decrease in other non-current liabilities - (2,449) Effect of foreign exchange rate changes (844) 550 Cash (used in)/generated from operations (733) 20,505 Interest paid (24,904) (22,121) Income tax paid (2,237) (4,158) Net cash used in operating activities (27,914) (5,774) -32- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2006 (Expressed in Renminbi thousands) 2006 2005 RMB’000 RMB’000 Investing activities Proceeds from disposal of property, plant and equipment 1,771 1,955 Purchase of property, plant and equipment, and payments on construction in progress (12,661) (9,147) Purchase of land use right (349) - Purchase of intangible assets (157) (317) Proceeds from disposal of investments held for trading 1,050 722 Increase in investment in an associate - (600) Refund of deposit on investment - 2,500 Dividends 39 - Net cash outflow arised from disposal of a subsidiary - (1,286) Partial disposal of equity interest of a subsidiary - 21,020 Interest received 6,600 4,857 Net cash (used in)/generated from investing activities (3,707) 19,704 Financing activities New borrowing of bank loans 468,800 464,000 Repayment of bank loans (459,900) (379,200) Increase in pledged bank deposits 23,000 (103,000) Dividend paid to minority shareholders (561) (1,441) Net cash generated from/(used in) financing activities 31,339 (19,641) Net decrease in cash and cash equivalents (282) (5,711) Cash and cash equivalents at beginning of year 194,101 199,971 Effect of foreign exchange rate changes (49) (159) Cash and cash equivalents at end of year 193,770 194,101 The accompanying notes form part of these financial statements.. -33- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Renminbi thousands) 1. GENERAL INFORMATION Nanjing Putain Telecommunications Co., Ltd. (the “Company”) was established in May 1997 in the People’s Republic of China (the “PRC”). The principal activities of the Company and its subsidiaries (the “Group”) are the manufacture and marketing of telecommunication equipment, electronic appliances and other related accessories in the PRC. All the operating assets and substantially all the sales of the Group are based in the PRC. The registered office of the Company is located at No. 58 Qing Huai Road, Jiangning Economic-tech Development Zone, Nanjing City Jiangsu Province, the PRC. 2. ADOPTION OF NEW AND REVISED STANDARDS In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (the “IASB”) and the International Financial Reporting Interpretations Committee (“IFRIC”) of the IASB that are relevant to its operations and effective for accounting periods beginning on 1 January 2006. The adoption of these new and revised Standards and Interpretations has resulted in changes to the Group’s accounting policies in the following areas that have affected the amounts reported for the current or prior years: Investments classified as at fair value through profit or loss Following amendments to IAS 39 Financial Instruments: Recognition and Measurements in June 2005, the ability of entities to designate any financial asset or financial liability as ‘at fair value through profit or loss’ (FVTPL) has been limited. Financial assets that can no longer be designated as at FVTPL are now classified as either loans and receivables, held-to-maturity or available-for-sale financial assets, as appropriate, and measured at amortised cost, or at fair value with changes in fair value recognised in equity, according to their classification. Financial liabilities that can no longer be designated as at FVTPL are classified as ‘other’ financial liabilities and measured at amortised cost. These changes have had no material effect on the financial statements of the Group. Accounting for financial guarantee contracts The IASB has also amended IAS 39 Financial Instruments: Recognition and Measurement to require certain financial guarantee contracts issued by the Group to be accounted for in accordance with that Standard. Financial guarantee contracts that are accounted for in accordance with IAS 39 are measured initially at their fair values, and subsequently measured at the higher of: -34- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report - the amount of the obligation under the contract, as determined in accordance with IAS 37 Provision, Contingent Liabilities and Contingent Assets; and - the amount initially recognised less, where appropriate, cumulative amortisation recognised in accordance with the revenue recognition policies set out in note 3 below. These changes have had no material impact on the financial statements of the Group. At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue but not yet effective: Effective for annual periods beginning on or after IFRIC 8 Scope of IFRS 2 1 May 2006 IFRIC 10 Interim Financial Reporting and Impairment 1 November 2006 The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group. 3. PRINCIPAL ACCOUNTING POLICIES The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The Group also prepares a set of consolidated financial statements which comply with accounting regulations in the PRC. A reconciliation of the Group’s results and shareholders’ equity under IFRS and PRC accounting regulations is presented in Note 33. The principal accounting policies adopted are as follows: (a) Consolidation The consolidated financial statements include those of the Company and its subsidiaries and the Group’s interests in associates and joint ventures on the basis as set out in Notes 3(c), (d) and (e) below. The acquisition method of accounting is used for acquired businesses. Results of subsidiaries and associates acquired or disposed of during the year are included in the consolidated financial statements from the date of acquisition or to the date of disposal. All significant intercompany balances and transactions, including intercompany profits and unrealised profits and losses are eliminated on consolidation. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. Minority interests in the net assets of consolidated subsidiaries are identified -35- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report separately from the Group’s equity therein. Minority interests consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. (b) Business combinations The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquire, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IRFS 3 are recognised at their fair values at the acquisition date. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss. The interest of minority shareholders in the acquiree is intitially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. (c) Subsidiaries A subsidiary is a company in which the Company has control. Control exists when the Company has the power to govern the financial and operating policies of the subsidiary so as to obtain benefits from its activities. Details of the Company’s subsidiaries as of 31 December 2006 are set out in Note 31 to the financial statements. (d) Associates An associate is a company, not being a subsidiary or a joint venture, in which the Company has significant influence. Significant influence exists when the Company has the power to participate in, but not control, the financial and operating decisions of the associate. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the -36- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report associate) are not recognised, unless the Group has incurred obligations or made payments on behalf of the associate. Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate. (e) Joint ventures A joint venture is a venture undertaken by two or more parties whose rights and obligations with respect to the venture are specified in a joint venture agreement. No single venture is in a position to control unilaterally the activity of the venture. Joint venture arrangements that involve the establishment of a separate entity in which each venture has an interest are referred to as jointly controlled entities. The Group reports its interests in jointly controlled entities using proportionate consolidation. The Group’s share of the assets, liabilities, income and expenses of jointly controlled entities are combined with the equivalent items in the consolidated financial statements on a line-by-line basis. Any goodwill arising on the acquisition of the Group’s interest in a jointly controlled entity is accounted for in accordance with the Group’s accounting policy for goodwill arising on the acquisition of a subsidiary. Where the Group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the extent of the Group’s interest in the joint venture. (f) Goodwill Goodwill arising on the acquisition of a subsidiary or a jointly controlled entity represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary or jointly controlled entity recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the -37- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. The Group’s policy for goodwill arising on the acquisition of an associate is described under “Associate” above. (g) Property, plant and equipment and depreciation Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment loss. The initial cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance and overhaul costs, are recognised as expense in the year in which it is incurred. In situations where it is probable that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalised as an additional cost of the asset. Depreciation is calculated on the straight line method to write off the cost of each asset to their residual value over their estimated useful life. The estimated useful lives of the assets are as follows: Buildings 15 to 35 years Plant and machinery 10 to 15 years Furniture, fixtures and office equipment 4 to 11 years Motor vehicles 6 to 8 years The useful lives of assets and depreciation method are reviewed periodically. When assets are sold or retired, their cost and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is included in the income statement. (h) Construction in progress Construction in progress represents buildings under construction and machinery under installation and testing and is stated at cost. This includes costs of construction, attributable borrowing costs and other direct costs capitalised during the period of construction, installation or testing up to the date of commissioning. Construction in progress is not depreciated until such time as the assets are completed and put into operational use. (i) Land use rights Land use rights are stated at cost less accumulated amortisation. Land use -38- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report rights are amortised on the straight-line basis over its lease term of land use rights. (j) Intangible assets Intangible assets are measured initially at cost. Intangible assets are recognised if it is probable that the future economic benefits that are attributable to the assets will flow to the enterprise and the cost of the asset can be measured reliably. After initial recognition, intangible assets are measured at cost less accumulated amortisation and any accumulated impairment losses. Intangible assets are amortised on a straight line basis over the best estimate of their useful lives. The amortisation period and amortisation method are reviewed annually. (k) Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduce to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which cash the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. (l) Inventories Inventories are stated at the lower of cost and 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 -39- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report business, less the costs of completion and selling expenses. Provision is made for obsolete, slow-moving and defective items where appropriate. (m) Financial instruments Financial assets and financial liabilities are recognised on the Group’s balance sheet which the Group becomes a party to the contractual provisions of the instrument. (i) Trade receivables Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. (ii) Investments Investments are recognised and derecognised on a trade date basis where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus directly attributable transaction costs. At subsequent reporting dates, debts securities that the Group has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost using the effective interest rate method, less any impairment loss recognised to reflect irrecoverable amounts. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the investment’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised. Investments other than held-to-maturity debt securities are classified as either investments held for trading or as available-for-sale, and are measured at subsequent reporting dates at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in profit or loss for the period. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulate gain or loss previously recognised in equity is included in the profit or loss for the period. For investment in an equity instrument that does not have a -40- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report quoted market price in active market and for which other methods of reasonably estimating fair value are clearly inappropriate or unworkable, the instrument would be measured at cost, subject to review of impairment. Impairment losses recognised in profit or loss for equity investments classified as available-for-sale are not subsequently reversed through profit or loss. Impairment losses recognised in profit or loss for debt instruments classified as available-for-sale are subsequently reversed if an increase in the fair value of the instrument can be objectively related to an event occurring after the recognition of the impairment loss. (iii) Cash and cash equivalents Cash represents cash in hand and deposits with any banks or other financial institutions which are repayable on demand. Cash equivalents represent short term, highly liquid investments which are readily convertible into known amounts of cash with original maturities of three months or less and that are subject to an insignificant risk of change in value. (iv) Bank borrowings Interest-bearing bank loans and overdrafts are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the Group’s accounting policy for borrowing costs (see below). (v) Trade payables Trade payables initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. (n) Operating leases Leases are classified as operating leases whenever substantially all the risks and rewards incidental to the ownership of the leased assets remain with the lessor. Lease payments under operating leases are recognised as an expense in the consolidated income statement on a straight line basis over the lease term. Aggregate benefit of incentives on operating leases is recognised as a reduction of rental expense over the lease term on a straight line basis. (o) Provisions A provision is recognised when, and only when an enterprise has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of -41- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditure expected to be required to settle the obligation. (p) Contingencies Contingent liabilities are not recognised in the consolidated financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the consolidated financial statements but disclosed when an inflow of economic benefits is probable. (q) Pension obligations The Group participates in a government defined contribution retirement scheme. Under the scheme, retirement benefits of existing and retired employees are guaranteed by the local Unified Retirement Fund and the Group has no further obligations beyond the annual contributions. The Group’s contributions are charged to the consolidated income statement in the period to which they relate. (r) Government grants Grants from the government are recognised at their fair value when there is a reasonable assurance that the grant will be received and all attached conditions are complied with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant, on a systematic basis, to the costs which it is intended to compensate. Where the grant relates to an asset, the fair value is deducted in arriving at the carrying amount of the related asset. (s) Foreign currency transactions The Group maintains its books and records in RMB, which is not a freely convertible currency. Transactions in other currencies are translated into RMB at the exchange rates prevailing at the time of the transactions. Monetary assets and liabilities denominated in other currencies at the balance sheet date are re-translated into RMB at the exchange rates prevailing at that date. Non-monetary assets and liabilities denominated in other currencies are translated at historical rates. Exchange differences, other than those capitalised as a component of borrowing costs, are recognised in the income statement in the period in which they arise. (t) Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit -42- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report differs from profit as reported in the income statement because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, associated companies and joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. (u) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the cost of those assets. All other borrowing costs are dealt with in income in the period in which they are incurred. (v) Revenue recognition -43- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and sales related taxes. (i) Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the customers; (ii) Revenue from rendering of services is based on the stage of completion determined by reference to services performed to date as a percentage of total services to be performed; and; (iii) Interest income is recognised on a time proportion basis taking into account the principal outstanding and the effective interest rate applicable. (w) Use of estimates The preparation of the financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 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 have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. 5. SEGMENT INFORMATION The Group is organised into one main business segment, telecommunication and related products. Accordingly no business segment information is presented. All assets and operations of the Group are located in the PRC, which is considered as one geographic location in an environment with similar risks and returns. Accordingly, no geographical segment information is presented. 6. TURNOVER Turnover represents the gross value of goods sold/services provided less value-added tax and returns/discounts and is analysed as follows: -44- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report 2006 2005 RMB’000 RMB’000 Self manufactured telecommunication and electrical products 639,208 474,989 Purchased telecommunication and electrical products 337,141 292,449 Others 15,446 8,345 991,795 775,783 7. OTHER OPERATING INCOME 2006 2005 RMB’000 RMB’000 Subsidy income 856 1,000 Service income, net 1,498 413 Others - 228 2,354 1,641 8. OTHER GAINS AND LOSSES 2006 2005 RMB’000 RMB’000 Redundancy pays and compensation 2,280 - Gain on liquidation of a subsidiary 1,386 - Others 1,202 655 Gain from disposal of investments held for trading 750 - Gain/(loss) on disposal of property, plant and equipment 495 (981) Dividend income 39 - Impairment loss on investments held for trading 12 - Loss on disposal of construction in progress (85) - Loss on disposal of raw materials (959) (3,227) 5,120 (3,553) 9. FINANCE COSTS 2006 2005 RMB’000 RMB’000 Interest expense on bank loans 24,904 22,121 Interest income (6,600) (4,857) Net foreign exchange losses/(gains) 458 (187) Others 515 1,158 -45- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report 19,277 18,235 10. LOSS/(PROFIT) BEFORE TAXATION Loss/(profit) before taxation is arrived at after charging/(crediting): 2006 2005 RMB’000 RMB’000 Depreciation of property, plant and equipment 14,682 17,242 Provision for/(write back of) bad and doubtful debts of trade and other receivables 13,365 (426) Provision for/(write back of) slow-moving inventories 6,273 (19,071) Amortisation of land use rights 3,007 778 Amortisation of intangible assets 2,265 4,658 Repairs and maintenance cost on property, plant and equipment 3,492 2,264 Research and development expenditure 16,658 5,946 Operating lease rentals 687 1,652 11. STAFF COSTS 2006 2005 RMB’000 RMB’000 Employees’ wages and salaries 80,230 54,476 Directors’ remuneration 276 320 Pension costs 21,511 17,514 Medical insurance and others 8,853 8,661 110,870 80,971 Average number of staff employed by the Group during the year 1,807 1,894 12. TAXATION Taxation in the consolidated income statement represents: 2006 2005 RMB’000 RMB’000 Current year taxation 3,284 4,314 The Company is qualified as a High and New Technology Enterprise established in Nanjing Jiangning National Hi-technology Development Zone. In accordance with relevant -46- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report regulations, the company is subject to income tax at a reduced rate of 15%. All subsidiaries and jointly controlled entities of the Company are subject to income tax at the rates between 12% and 33%. The total tax charge for the year can be reconciled to the accounting (loss)/ profit as follows: 2006 2005 RMB’000 RMB’000 (Loss)/ profit before taxation (658) 9,288 Tax (credit)/charge calculated at a tax rate of 15% (99) 1,384 (Under)/over provision for taxation (444) 407 Tax effect of share of loss of associates 57 299 Tax effect of temporary differences not recognised 1,331 2,666 Income and expense items which are not taxable or deductible for income tax purposes 1,905 (1,718) Effect of different tax rates for certain subsidiaries and a joint venture 534 1,276 Tax expenses 3,284 4,314 13. BASIC LOSS PER SHARE The calculation of basic loss per share for the year ended 31 December 2006 is based on the loss attributable to equity holders of the parent for the year of RMB 11,137,000 (2005: loss of RMB263,000) and the total number average of 215,000,000 shares (2005: 215,000,000 shares) in issue during the year. 14. PROPERTY, PLANT AND EQUIPMENT Furniture, fixtures Plant and and office Motor Buildings machinery equipment vehicles Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Cost: At 1 January 2005 114,219 113,203 51,187 10,882 289,491 Additions 251 1,013 2,243 1,154 4,661 Transfer from construction 561 457 824 - 1,842 -47- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report in progress Disposal of a subsidiary - - (41) (205) (246) Disposals (1,216) (11,928) (27,185) (1,664) (41,993) Reclassification 1,485 (32,881) 30,360 1,036 - At 31 December 2005 115,300 69,864 57,388 11,203 253,755 Additions 73 1,917 3,366 2,167 7,523 Transfer from construction in progress 999 4,807 - 121 5,927 Disposals - (2,792) (8,219) (1,416) (12,427) At 31 December 2006 116,372 73,796 52,535 12,075 254,778 Accumulated depreciation and impairment losses: At 1 January 2005 41,653 69,649 38,996 8,491 158,789 Disposal of a subsidiary - - (11) (81) (92) Charge for the year 5,012 5,777 5,273 1,180 17,242 Disposals (1,373) (10,184) (26,102) (1,398) (39,057) Reclassification 3,030 (29,413) 26,936 (553) - At 31 December 2005 48,322 35,829 45,092 7,639 136,882 Charge for the year 1,802 7,746 4,119 1,015 14,682 Transfer from construction in progress 361 - - - 361 Disposals - (2,792) (7,791) (1,088) (11,851) At 31 December 2006 50,485 40,783 41,240 7,566 140,074 Net book value: At 31 December 2006 65,887 33,013 11,295 4,509 114,704 At 31 December 2005 66,978 34,035 12,296 3,564 116,873 15. LAND USE RIGHTS 2006 2005 RMB’000 RMB’000 Cost: At 1 January 40,824 40,824 Additions 349 - Transfer from construction in progress 1,380 - At 31 December 42,553 40,824 Accumulated amortisation: At 1 January 7,192 6,414 -48- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report Charge for the year 3,007 778 At 31 December 10,199 7,192 Net book value: At 31 December 32,354 33,632 16. INTERESTS IN ASSOCIATES 2006 2005 RMB’000 RMB’000 Unlisted investment, at cost 10,700 10,700 Share of post-acquisition loss, net of dividend received (9,674) (9,292) 1,026 1,408 Details of the Group’s associates at 31 December 2006, all of which were established in the PRC, were as follows: Proportion of ownership interest Name of associate 2006 2005 Principal activity Xishan Putian Information 49% 49% Provision of data and voice Network Co., Ltd. transmission services Nanjing Zhongyou 30% 30% Manufacture and sale of Telecommunications Co., Ltd. telecommunication equipment and electrical accessories Nanjing Putain Datang 40% 40% Manufacture and sale of Information and Electronics telecommunication equipment Co., Ltd. and electrical accessories The names of the above companies are directly translated from their registered names in Chinese and may not represent their legal names. Summarised financial information in respect of the Group’s major associate is set out below: 2006 2005 RMB’000 RMB’000 Total assets 15,806 15,927 Total liabilities (14,105) (13,390) -49- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report Net assets 1,701 2,537 Group’s share of net assets of associates 1,026 1,408 Revenue 5,702 5,572 Loss for the year (836) (4,071) Group’s share of losses of associates (382) (1,995) 17. JOINT VENTURE Details of the Group’s joint venture at 31 December 2006, which was established in the PRC, were as follows: oportion of ercentage ership interest of voting of joint venture power pal activity Nanjing Mennekes Electric 50% 50% Manufacture and sale of switches Appliance Ltd. The following amounts are included in the Group’s financial statements as a result of the proportionate consolidation of the joint venture: 2006 2005 RMB’000 RMB’000 Current assets 46,709 39,447 Non-current assets 15,174 14,851 Current liabilities 28,080 20,878 Income 70,378 61,518 Expenses 66,852 57,993 18. AVAILABLE-FOR-SALE INVESTMENTS 2006 2005 RMB’000 RMB’000 Unlisted equity investments 924 1,224 Less: Provision for impairment losses - (12) 924 1,212 Available-for-sale investments do not have quoted market prices in an active market and their fair values cannot be reliably measured. As a result, these investments are carried at -50- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report cost less impairment. 19. INTANGIBLE ASSETS 2006 2005 RMB’000 RMB’000 Cost: At 1 January 33,699 33,382 Additions 157 317 Transfer from construction in progress 841 - At 31 December 34,697 33,699 Accumulated amortisation: At 1 January 28,196 23,538 Charge for the year 2,265 4,658 At 31 December 30,461 28,196 Net book value: At 31 December 4,236 5,503 The intangible assets represent expenditure on software and proprietary technologies. 20. INVENTORIES 2006 2005 RMB’000 RMB’000 Raw materials 35,666 45,587 Work in progress 14,788 21,994 Finished goods 153,911 95,621 204,365 163,202 21. TRADE AND OTHER RECEIVABLES 2006 2005 RMB’000 RMB’000 Trade receivables 420,180 359,993 Other receivables 73,311 66,860 Less: Provision for bad and doubtful debts (29,447) (20,040) Trade and other receivables, net 468,044 406,813 -51- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report Prepayments 41,445 43,530 Receivables from and prepayments to ultimate holding company 474 - Receivables from and prepayments to related companies 9,915 10,878 519,878 461,221 22. BANK LOANS 2006 2005 RMB’000 RMB’000 Bank loans - secured (Note 27) 153,000 166,000 - unsecured 324,900 303,000 477,900 469,000 The borrowings are repayable as follows: On demand or within one year 477,900 434,000 In the second year - 35,000 477,900 469,000 Less: Amount due for settlement within 12 months (shown under current liabilities) (477,900) (434,000) Amount due for settlement after 12 months * - 35,000 As at 31 December 2006, all bank loans bore interest at rates ranging from 5.58% to 6.32% (2005: 5.16% to 6.21%) per annum. The loan of RMB 258,000,000 (2005: RMB259,000,000) is guaranteed by the Company’s ultimate holding company. 23. TRADE AND OTHER PAYABLES 2006 2005 RMB’000 RMB’000 Trade payables 227,642 186,328 Notes payable 3,221 - Other payables 16,788 19,474 Deposits received from customers 14,468 14,954 Accrued expenses 988 408 Payables to ultimate holding company 20,000 - Payables to related companies 1,640 1,131 284,747 222,295 24. SHARE CAPITAL -52- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report 2006 2005 Number Number of shares RMB’000 of shares RMB’000 Registered, issued and fully paid: State-owned shares of par value of RMB 1 each 115,000,000 115,000 115,000,000 115,000 B shares of par value of RMB 1 each 100,000,000 100,000 100,000,000 100,000 215,000,000 215,000 215,000,000 215,000 The shareholders of “State” shares and “B” shares are entitled to receive the same amount of dividend per share as declared from time to time and are entitled to one vote per share at the annual general meeting of the Company and rank pari passu in all other respects. 25. RESERVES Movements in reserves are set out in the consolidated statement of changes in shareholders' equity. (a) Statutory surplus reserve fund In accordance with the relevant PRC regulations and the articles of association of the Company, the Company and its subsidiaries are required to allocate, where applicable, 10% of profit after taxation as determined in accordance with PRC accounting standards and regulations applicable to each individual company, to the statutory surplus reserve fund until such reserve reaches 50% of the registered capital of the respective companies. According to the relevant PRC regulations, statutory surplus reserve and discretionary surplus reserve can be used to make up losses or to increase share capital. Except for the reduction of losses incurred, other usage should not result in the statutory surplus reserve falling below 25% of the registered capital. (b) Statutory public welfare fund In prior years, the Company was required by PRC Companies Law to appropriate 5% to 10% of its annual statutory net profit to the statutory public collective welfare fund, which is restricted to capital expenditure for the collective welfare of their employees. According to the amendment on relevant financial regulations in the PRC, the Company and its subsidiaries are no longer required by law to appropriate their annual statutory net profit to the statutory public welfare fund with effect from 1 January 2006. (c) Discretionary surplus reserve fund The appropriation of profit to discretionary surplus reserve fund is made in accordance with the Company’s articles of association and recommendation of the Board of Directors and is subject to approval by shareholders at the general meeting. -53- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report (d) Retained earnings available for distribution According to the relevant regulations in the PRC, the amount of retained earnings available for distribution is the lower of the amount determined under PRC accounting standards and regulations and the amount determined under IFRS. In the PRC statutory financial statements, accumulated loss carried forward as at 31 December 2006 amounted to RMB 83,098,000 (2005 : RMB86,315,000). 26. RETIREMENT BENEFITS The Group participates in a government defined contribution retirement scheme. Under the scheme, retirement benefits of existing and retired employees are guaranteed by the local Unified Retirement Fund and the Group has no further obligations beyond the annual contribution. 27. ASSETS PLEDGED As at 31 December 2006, the Group’s short-term bank loans were secured by the following assets: (a) Buildings with a net book value of RMB48,486,000 (2005: RMB47,675,000). (b) Land use rights with a net book value of RMB27,022,000 (2005: RMB29,902,000). (c) Bank deposits totaling RMB80,000,000 (2005: RMB103,000,000). 28. COMMITMENTS 2006 2005 RMB’000 RMB’000 (a) Capital commitments Contracted, but not provided for 3,563 18,950 (b) Operating lease commitments At the balance sheet date, the Group had outstanding commitments under non-cancellable operating leases for office buildings, which fell due as follow: 2006 2005 RMB’000 RMB’000 Within one year 354 506 In the second to fifth years inclusive 1,213 1,391 -54- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report After five years 761 1,391 2,328 3,288 29. CONTINGENT LIABILITIES At 31 December 2006, the Group had provided guarantees to banks in respect of borrowings granted to a joint venture to the extent of RMB 1,000,000 (2005: RMB 2,000,000). The directors consider that the fair value of financial guarantees were not significant to the Group. 30. FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each major class of the Group’s financial instruments for which it was practicable to estimate that value: (a) Fair values (i) Cash and cash equivalents and bank borrowings The carrying amounts approximate their fair values because these assets or liabilities either carry a current rate of interest or have a short period of time between the origination of the cash deposits or borrowings and their expected maturity. (ii) Investments The carrying amounts approximate their fair values. (iii) Notes receivable and payables, trade receivables and payables and loans to non-related parties The carrying amounts approximate their fair values. (iv) Balances with related parties Balances with related parties approximate their fair value because these are subject to normal commercial terms. No disclosure of fair values is made for other balances with related parties as it is not practicable to determine their fair values with sufficient reliability since these balances are non-interest bearing and have no fixed repayment terms. (b) Concentration of risks (i) Interest rate risk -55- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report The Group has no significant interest-bearing assets, such as its income and operating cash flows are substantially independent of changes in market interest rates. Interest rates on bank loans are disclosed in Note 22. (ii) Credit risk The Group has no significant concentration of credit risk. The carrying amounts of receivables included in the balance sheet represent the Group’s maximum exposure to credit risk in relation to its financial assets. No other financial assets carry a significant exposure to credit risk. (iii) Foreign exchange risk The Group operates in the PRC and has no significant exposure to any specific foreign currency. (iv) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash, other liquid assets and the ability to close out market positions. The Group maintains flexibility in funding by keeping the current bank borrowings available. 31. PRINCIPAL SUBSIDIARIES Details of the Company’s subsidiaries at 31 December 2006, all of which were established in the PRC, were as follows: Proportion of ownership interest Name of subsidiary held by the Company Principal activity Directly Indirectly Nanjing Nanfang 97% 1.24% Manufacture and sale of data Telecommunications communication equipment Company Limited Nanjing Bada 60% - Manufacture and sale of Telecommunications Co., Ltd. telecommunication equipment Nanjing Putian Shiye Company 99% 1% Hotel and catering Ltd. Nanjing Putian Smart-building 41.35% - Manufacture and sale of smart Technology Ltd. (“Putian building system Smart-building”) (Note) Putian Telecommunications 90% - Export and import of -56- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report (H.K.) Co., Ltd. telecommunications equipment Beijing Picom 51% - Manufacture and sale of data Telecommunications communication equipment Equipment Ltd. (“Beijing Picom”) Nanjing Putian Hongyan 51.2% - Manufacture and sale of electric Electric Appliance Company products and telecommunication equipment Nanjing Putian Network 91.16% Manufacture and sale of network Company Ltd. equipment Nanjing Putian Wangzhi 67% - Design and production of CDMA Telecommunications Co., Ltd. and 3G products Nanjing Putian Changle 50.7% - Manufacture and sale of Telecommunications telecommunication equipment Equipment Co., Ltd. The names of the above companies are directly translated from their registered names in Chinese and may not represent their legal names. Note: The Company controls more than half of the voting rights of the Board of Directors and has control over its financial and operating policies. The financial statements of the subsidiary was accordingly consolidated in 2006. 32. RELATED PARTY TRANSACTIONS The ultimate holding company of the Company is China Putian Information Industry Corporation, which was incorporated in the PRC. Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below: (a) Trading transactions During the year, the Group had the following trading transactions with related parties that are not members of the Group, which in the opinion of the Directors, were conducted at arms-length and on normal commercial terms: 2006 2005 RMB’000 RMB’000 Sale of products to: - associates 8,991 1,797 - fellow subsidiaries 97 3,215 - ultimate holding company 405 5,893 -57- Nanjing Putian Telecommunications Co., Ltd. 2006 Annual Report Purchases from: - associates 108 - - fellow subsidiaries 85 - - ultimate holding company 192 - - related companies 8,998 1,824 Guarantee fee to ultimate holding company - 680 (b) Balances with related parties Amounts due from/(to) associates and related companies are unsecured, interest-free and have no fixed terms of repayment. (c) Compensation of key management personnel The remuneration of directors and other members of key management during the year was RMB5,476,000 ( 2005: RMB5,903,000 ). 33. IMPACT OF IFRS ADJUSTMENTS ON PROFIT FOR THE YEAR AND EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT The statutory accounts of the Group are prepared in accordance with PRC accounting regulations applicable to joint stock limited companies. These accounting principles differ in certain significant respects from IFRS. The effects of these differences on the profit for the year attributable to equity holders of the parent for the year ended 31 December 2006 and equity attributable to equity holders of the parent at that date are summarised as follows: (Loss)/profit for the year attributable to Equity attributable equity holders of the to equity holders of parent the parent RMB’000 RMB’000 As determined pursuant to PRC accounting regulations 4,118 316,212 Adjustment for provision of staff welfare and bonuses (72) - Recognition of losses of subsidiaries in excess of the Company’s investment costs in profit and loss account (28,218) - Write back of losses attributable to the minority over their contribution in the Company’s accounts 13,154 Difference in recognition and amortisation of goodwill (119) 926 As determined pursuant to IFRS (11,137) 317,138 -58-