南玻Ｂ(200012)2007年年度报告（英文版）

CSG HOLDING CO., LTD. 2007 ANNUAL REPORT Chairman of the Board: ZENG NAN March 2008 CSG Holding Co., Ltd. 2007 Annual Report Important Note Board of Directors and the Supervisory Committee of CSG Holding Co., Ltd. (hereinafter referred to as the Company) and its directors, supervisors and senior executives hereby confirm that there are no any fictitious statements, misleading statements, or important omissions carried in this report, and shall take all responsibilities jointly and severally, for the truthfulness, accuracy and completeness of the whole contents. Because director Zhang Liqing was taking a business leave, he authorized Li Jingqi to vote on his behalf. PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd issued standard and unconditional Auditor’s Report for the Company. Mr. Zeng Nan, Chairman of the Board & CEO of the Company, CFO Mr. Luo Youming and principle of the financial department Mr. Huang Yanbin confirm that the Financial Report enclosed in this 2007 Annual Report is true and complete. CONTENTS §1 Company Profile _____________________________________________________________2 §2 Financial Data Highlights ______________________________________________________3 §3 Changes in Share Capital and Particulars about the Shareholders ____________________5 §4 Particulars about the Directors, Supervisors, Senior Executives and Employees _________9 §5 Corporate Governance Structure _______________________________________________14 §6 Brief Introduction of Shareholders' General Meetings _____________________________20 §7 Report of the Board of Directors _______________________________________________21 §8 Report of the Supervisory Committee ___________________________________________33 §9 Important Events ____________________________________________________________35 §10 Financial Reports ___________________________________________________________39 §11 Documents for Reference _____________________________________________________101 -1- CSG Holding Co., Ltd. 2007 Annual Report §1 Company Profile I. Registered Name of the Company In Chinese: 中国南玻集团股份有限公司（Abbr: 南玻集团） In English: CSG Holding Co., Ltd. (Abbr: CSG) II. Legal Representative: Zeng Nan III. Secretary of the Board of Directors: Wu Guobin Securities Affairs Representative: Li Tao Address: CSG Building, No.1, the 6th Industrial Road, Shekou, Shenzhen, P.R.C. Tel: (86) 755-26860666 Fax: (86) 755-26692755 E-mail: securities@csgholding.com IV. Registered office address of the Company: CSG Building, No.1, the 6th Industrial Road, Shekou, Shenzhen, P.R.C. Post Code: 518067 Company’s website: http://www.csgholding.com E-mail: csg@csgholding.com V. Newspapers for disclosing the information: Securities Times, China Securities Journal, and Hong Kong Wen Wei Po Website for publishing the Annual Report: http://www.cninfo.com.cn The place where the Annual Report is prepared and kept: Securities Department of the Company VI. Stock Exchange Listed with: Shenzhen Stock Exchange Short form of the stock and stock code (A-share): Southern Glass A (000012) Short form of the stock and stock code (B-share): Southern Glass B (200012) VII. Other Information about the Company 1. Initial business registration date: September 10, 1984 Initial registration authority: Shenzhen Administration for Industry and Commerce 2. Business license number: 440301501125544 3. Reference number of tax: 440301618838577 4. Code of Organization Certificate: 61883857-7 5. Certified public accountants engaged by the Company Name: Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd. Address: 11/F, PricewaterhouseCoopers Center, No.202 Hubin Rd. Shanghai, P.R.C. -2- CSG Holding Co., Ltd. 2007 Annual Report §2 Financial Data Highlights I. Major accounting highlights as of the year 2007 Unit: RMB Operating profit 642,983,465 Total profit 634,467,082 Net profit attributable to equity holders of the Company 431,484,803 Net profit attributable to equity holders of the Company after extraordinary gains and losses 412,588,587 Net cash flows from operating activities 1,102,315,515 Net profit attributable to equity holders of the Company: 431,484,803 Losses on disposal of non-current assets 19,546,234 Gains on disposal of subsidiary (29,280,123) Net value of other non-operating expenses (11,029,851) Tax effects on extraordinary gains and losses (428,814) Extraordinary gains and losses of minority interests 2,296,338 Net profit attributable to equity holders of the Company after extraordinary gains and losses 412,588,587 II. Differences in Domestic and International accounting standards (Unaudited) Unit: RMB Net profit attributable to equi Total equity attributable to ty holders of the Company equity holders of the Company As reported under CAS: 431,484,803 4,007,014,118 Acquisition of minority interest (563,188) － Adjustment in goodwill － (3,039,946) As reported under IAS: 430,921,615 4,003,974,172 -3- CSG Holding Co., Ltd. 2007 Annual Report III. Major accounting data over the past three years Unit: RMB Percentage change between 2007 Year 2007 Year 2006 and 2006 Year 2005 Before After After Before After adjustment adjustment adjustment adjustment adjustment Revenue 4,187,962,628 2,951,599,066 2,964,816,212 41.26% 2,302,016,737 2,305,489,599 Total profit 634,467,082 444,480,832 449,144,771 41.26% 405,684,768 405,740,592 Net profit attributable to equity 431,484,803 332,111,553 335,110,814 28.76% 316,411,545 318,659,665 holders of the Company Net profit attributable to equity 412,588,587 328,227,833 332,344,206 24.14% 304,762,196 307,010,316 holders of the Company after extraordinary gains and losses Net cash flows from operating 1,102,315,515 806,665,961 800,792,553 37.65% 923,609,014 923,609,014 activities Percentage change on 31 Dec 2007 compared to 31 Dec 2007 31 Dec 2006 31 Dec 2006 31 Dec 2005 Before After After Before After adjustment adjustment adjustment adjustment adjustment Total assets 8,452,981,947 6,772,237,421 6,776,321,412 24.74% 5,523,323,511 5,524,489,214 Total equity attributable to equity 4,007,014,118 2,628,344,891 2,632,509,855 52.21% 2,475,927,247 2,477,092,950 holders of the Company IV. Major financial indices over the past three years Unit: RMB Percentage change between 2007 2006 2007 and 2006 2005 Before After After Before After adjustment adjustment adjustment adjustment adjustment Basic earnings per share 0.41 0.33 0.33 24.24% 0.31 0.31 Diluted earnings per share 0.41 0.33 0.33 24.24% 0.31 0.31 Basic earnings per share after 0.39 0.32 0.33 18.18% 0.30 0.30 extraordinary gains and losses Fully diluted return on equity (%) 10.77% 12.64% 12.73% Decrease 1.96% points 12.78% 12.86% Weighted average return on equity (%) 14.50% 13.01% 13.12% Increase 1.38% points 13.33% 13.43% Fully diluted return on equity after 10.30% 12.49% 12.62% Decrease 2.32% points 12.31% 12.39% extraordinary gains and losses (%) Weighted average return on equity after 13.86% 12.86% 13.01% Increase 0.85% points 12.84% 12.93% extraordinary gains and losses (%) Net cash flows from operating 0.93 0.79 0.79 17.72% 0.91 0.91 activities per share Percentage change on 31 Dec 2007 compared 31 Dec 2007 31 Dec 2006 to 31 Dec 2006 31 Dec 2005 Before After After Before After adjustment adjustment adjustment adjustment adjustment Total assets per share for equity holders 3.37 2.59 2.59 30.12% 2.44 2.44 of the Company -4- CSG Holding Co., Ltd. 2007 Annual Report §3 Changes in Share Capital and Particulars about the Shareholders I. Changes in share capital i. In the report period, the changes on share capital are as follows: Unit: Share Before the change Increase/Decrease in the period (＋/－) After the change New share Amount Proportion issued Other Sub-total Amount Proportion I. Restricted shares 349,208,968 34.39% 172,500,000 -168,720,982 3,779,018 352,987,986 29.71% 1) State-owned shares 0 0 0 0 0 0 0 2) State-owned legal person’s shares 112,837,024 11.11% 80,000,000 -50,786,075 29,213,925 142,050,949 11.96% 3) Other domestic shares 236,371,944 23.28% 92,500,000 -117,934,907 -25,434,907 210,937,037 17.76% Including: －Domestic legal person’s shares 236,232,385 23.26% 92,500,000 -117,898,517 -25,398,517 210,833,868 17.75% －Domestic natural person’s shares 139,559 0.01% 0 -36,390 -36,390 103,169 0.01% 4) Foreign-owned shares 0 0.00% 0 0 0 0 0.00% Including: －Foreign legal person’s shares 0 0.00% 0 0 0 0 0.00% －Domestic natural person’s shares 0 0.00% 0 0 0 0 0.00% II. Unrestricted shares 666,254,156 65.61% 0 168,720,982 168,720,982 834,975,138 70.29% 1) RMB Ordinary shares 217,675,337 21.44% 0 168,720,982 168,720,982 386,396,319 32.53% 2) Domestic listed foreign shares 448,578,819 44.17% 0 0 0 448,578,819 37.76% 3) Overseas listed foreign shares 0 0.00% 0 0 0 0 0.00% 4) Others 0 0.00% 0 0 0 0 0.00% III. Total shares 1,015,463,124 100.00% 172,500,000 0 172,500,000 1,187,963,124 100.00% -5- CSG Holding Co., Ltd. 2007 Annual Report ii. The changes of restricted shares in the report period Unit: Share Amount of Restricted Amount restricted Restricted amount converted shares amount Reason Date of Name of the restricted held in the to tradables increased held at the of been the rest shareholders year-begin in 2007 in 2007 year-end restricted conversions Yiwan Industrial Development 113,256,408 50,773,156 59,538 62,542,790 Commitments 2008.5.25 (Shenzhen) Co., Ltd. from Share 2009.5.25 Merger Reform China Northern Industry 112,324,822 50,773,156 59,050 61,610,716 Commitments 2008.5.25 Corporation from Share 2009.5.25 Merger Reform Xing Tong Chan Industrial 105,763,353 50,773,156 55,602 55,045,799 Commitments 2008.5.25 Development (Shenzhen) Co., from Share 2009.5.25 Ltd. Merger Reform 10 former non-tradable shareholders 1,359,702 174,190 0 1,185,512 Commitments 2008.2.4 who didn’t performed the Share from Share Merger Reform in 2006 (Note 1) Merger Reform 29 former non-tradable shareholders 16,365,124 16,365,124 0 0 Commitments 2007.5.25 who performed the Share Merger from Share Reform in 2006 (Note 2) Merger Reform China Ping’an Trust & 0 0 80,000,000 80,000,000 Due to Private 2010.10.15 Investment Co., Ltd. placement 0 0 80,000,000 80,000,000 Due to Private 2010.10.15 Citics Securities Co., Ltd. placement 0 0 6,250,000 6,250,000 Due to Private 2010.10.15 CIL Holdings Limited placement Zhejiang Silicon Paradise 0 0 6,250,000 6,250,000 Due to Private 2010.10.15 Pengcheng Venture & placement Investment Co., Ltd. Zeng Nan 137,559 34,390 0 103,169 Senior executive － shares Total 349,206,968 168,893,172 172,674,190 352,987,986 － － Note 1:In February 2008, there were seven (out of ten) former non-tradable shareholders accomplished the compensation requirement of Share Merger Reform, 1,065,512 non-tradable shares they held was released and been unrestricted. The relevant information was announced in the Notice on Release of Restricted Shares published in the China Securities Journal, Securities Times and Hong Kong Wen Wei Po on the 1st of Feb, 2007. Note 2:Please refer to the Notice on Release of Restricted Shares published in the China Securities Journal, Securities Times and Hong Kong Wen Wei Po dated May 22 2007 for the detail information about the 29 former non-tradable shareholders and their restricted shares released. iii. Share issuance and listing over the past three years. (i) In May 2005, the Company increased the share capital once using common reserve fund. The Company took capital stock of 646,975,416 on 31 December 2004 as the cardinal number, offered every shareholder 5 shares for every 10 shares held. After conversion, the total capital stock increased to 1,015,463,124, and there was no change in capital structure. (ii) The Company privately issued 172.5 million CSG A-shares to 4 specific investors in Oct. 2007 with the issuing price of 8 Yuan per each share which raised RMB 1.38 billion (including the issuing expense) in total. The listing date of the new shares was Oct.15 2007, and the restricted trading period was 36 months. After the private issuance, the total shares capital of the Company increased to 1,187,963,124 shares from 1,015,463,124 shares, the restricted shares increase to 29.71% in total shares. -6- CSG Holding Co., Ltd. 2007 Annual Report II. Particulars about the major shareholders and actual controller i. Particulars about the shareholders and shares held Total shareholders: 66,814 shareholders (including 34,902 shareholders of A-share, 31,912 shareholders of B-share) Particulars about the shares held by the top ten shareholders Total Proportion Restricted Shares Nature of shares held in total shares held pledged Name of shareholder shareholders (Unit: Share) (%) (Unit: Share) or frozen ① China Ping’an Trust & Investment Co., Ltd. － 80,100,000 6.74% 80,000,000 N/A ② Citics Securities Co., Ltd. State-funded 80,000,000 6.73% 80,000,000 N/A shareholder ③ Xing Tong Chan Industrial Development 76,035,957 6.40% 55,045,799 N/A － (Shenzhen) Co., Ltd. ④ Yiwan Industrial Development (Shenzhen) 67,942,632 5.72% 62,542,790 N/A － Co., Ltd. ⑤ China Northern Industries Corporation State-funded 61,610,716 5.19% 61,610,716 N/A shareholder ⑥ Mirae Asset China Solomon Equity Foreign-funded 22,320,293 1.88% 0 N/A Investment Trust 1 shareholder ⑦ Bongy-Dreyfus Pifi-Dreyfus Premier Greater Foreign-funded 20,250,766 1.70% 0 N/A China shareholder ⑧ Gao-Ling Fund, L.P. Foreign-funded 18,682,064 1.57% 0 N/A shareholder ⑨ Industrial and Commercial Bank of 13,887,797 1.17% 0 N/A China-Jianxin Optimized Collocation Mixed － Securities Investment Fund ⑩ Industrial and Commercial Bank of 13,567,072 1.14% 0 N/A China-Penghua High Quality Administration － Stock Securities Investment Fund (LOF) Particulars about the shares held by the top ten unrestricted shareholders Unrestricted share held Name of shareholder (Share) Type of share ① Mirae Asset China Solomon Equity Investment Trust 1 22,320,293 B-share ② Xing Tong Chan Industrial Development (Shenzhen) Co., Ltd. 20,990,158 A-share ③ Bony-Dreyfus Pifi-Dreyfus Premier Greater China 20,250,766 B-share ④ Gao-Ling Fund, L.P. 18,682,064 B-share ⑤ Industrial and Commercial Bank of China-Jianxin Optimized Collocation Mixed 13,887,797 A-share Securities Investment Fund ⑥ Industrial and Commercial Bank of China-Penghua High Quality 13,567,072 A-share Administration Stock Securities Investment Fund (LOF) ⑦ Credit Suisse (Hong Kong) Limited 12,936,570 B-share ⑧ Guotai Junan Securies Hong Kong Limited 12,001,781 B-share ⑨ China Construction Bank-Rongtong Leading Growth Stock Securities 10,009,699 A-share Investment Fund ⑩ Industrial and Commercial Bank of China-Merchant Core Value Mixed 8,706,016 A-share Securities Investment Fund Statement on associated Among shareholders as listed above, Yiwan Industrial Development (Shenzhen) Co., Ltd. and Xin relationship or consistent Tong Chan Development (Shenzhen) Co., Ltd. are holding enterprises of Shenzhen International action among the above Holdings Limited. Except for this, It is unknown whether other shareholders belong to consistent shareholders: actors or have associated relationship regulated by the Management Regulation of Information Disclosure on Change of Shareholding for Listed Companies. -7- CSG Holding Co., Ltd. 2007 Annual Report ii. Brief introduction of actual controller of the Company: The actual controller of the Company is Shenzhen International Holdings Limited established in Bermuda in November 1989, which listed in main board of Hong Kong Exchanges and Clearing Co., Ltd.. Chairman of the Board is Guo Yuan. The Group, including the company, and its affiliated companies, associated companies and jointly controlled companies, is mainly engaged in service of total logistics and transportation ancillaries, as well as investment, operation and management of related assets and projects. The property right between the actual controller and the Company is as follow: Shenzhen International Holdings Co., Ltd. 100% 100% Xin Tong Chan Development (Shenzhen) Co., Ltd. Yiwan Industrial Development (Shenzhen) Co., Ltd. 6.40% 5.72% CSG Holding Co., Ltd. iii. There were no other corporate shareholders holding more than 10% of total shares in the Company. -8- CSG Holding Co., Ltd. 2007 Annual Report §4 Particulars about the Directors, Supervisors, Senior Executives and Employees I. Directors, supervisors and senior executives i. Basic information Shares held Shares held at the at the Name Title Gender Age Term year-begin year-end Zeng Nan Chairman of the Board/ Male 63 2005/04～2008/04 137,559 137,559 Chief Executive Office (Note 1) (Note 1) Li Jingqi Director Male 51 2005/04～2008/04 － － Long Long Independent Director Male 52 2005/04～2008/04 － － Zhang Jianjun Independent Director Male 43 2005/04～2008/04 － － Xie Rudong Independent Director Male 50 2007/04～2008/04 － － Yan Ganggang Director Male 48 2007/04～2008/04 － － Guo Yongchun Director Male 40 2005/04～2008/04 － － Zhang Liqing Male 41 2007/11～2008/04 28,700 28,700 Director (Note 2) (Note 2) Wu Guobin Director/ Vice President/ Male 43 2005/04～2008/04 － － Secretary of the Board Yang Hai Chairman of the Male 46 2005/04～2008/04 － － Supervisory ommittee Li Jiong Supervisor Male 37 2007/11～2008/04 － － Zhao Xijun Supervisor Male 39 2005/04～2008/04 － － Luo Youming Chief Financial Officer Male 45 2005/11～2008/04 － － Ke Hanqi Vice President Male 42 2005/04～2008/04 － － Zhang Fan Vice president Male 42 2005/11～2008/04 － － Note 1: These shares are all A-shares; Note 2: These shares are all B-shares. ii. Major working experiences and positions (i) Particulars about the directors and supervisors holding the post in the shareholder’s company Receiving Title in the remuneration shareholder’s & allowance Name Name of shareholder’s company company Term or not Li Jingqi Xing Tong Chan Industrial Director 2002/09～Now No Development (Shenzhen) Co., Ltd. Li Jingqi Yiwan Industrial Development Director 2003/12～Now No (Shenzhen) Co., Ltd. Guo Yongchun China Northern Industries General Manager of 2003/07～Now Yes Corporation Investment Department II Zhang Liqing China Ping’an Trust & Investment Associate General 2006/08～Now Yes Co., Ltd. Manager Yang Hai Xing Tong Chan Industrial Director 2000/03～Now No Development (Shenzhen) Co., Ltd. Li Jiong Citics Securities Co., Ltd. Executive General 2003/01～Now Yes Manager of Capital Operation Department -9- CSG Holding Co., Ltd. 2007 Annual Report (ii) Major work experience of directors, supervisors and senior executives and particulars about holding the posts or concurrent posts in other companies apart from the shareholder company Zeng Nan, took posts of Director General Manager, Director President and Vice Chairman of the Board in the Company. At present, he is the Chairman of the Board, CEO and President of the Company. Li Jingqi, took posts of Section Chief of Foreign Exchange Section of Bank of China (Shenzhen),President of Bank of China (Shatoujiao Sub-branch), Assistant President of Shenzhen Investment Management Company, Vice President of Shenzhen International Holding Co., Ltd. and Chairman of the Board in the Company. At present, besides taking the post in the Company, he concurrently holds posts of Executive Director, President and Vice Secretary of Party Committee in Shenzhen International Holdings Ltd., and Director of Shenzhen Expressway Company Ltd. Long Long, takes posts of Director of Council and Director of Industry Economy Information Center of Comprehensive Development Academe (Shenzhen.China), and concurrently holds the post of Independent Director of Shenzhen Jinjia Color Printing Group Co., Ltd.. Zhang Jianjun, took posts of Associate Dean of Accounting Department of Jiangxi University of Finance and Economy, Vice President of Sino-Hawk Credit Rating Co., Ltd., Dean of Economy Department of Shenzhen University. At present, he is Dean and Professor of Accounting and Economy Research Center of Shenzhen University. Besides, he concurrently takes the post of Independent Director of Shenzhen Zhongjin Lingnan Nonfemet Co., Ltd and Independent Director of Guangdong Zhaoqing Star Lake Bioscience Co., Inc.. Xie Rudong, took posts of Chief Lawyer of Guangdong International Trust & Investment Co., Ltd, China Legal Counselor of Johnson Stokes & Master, Director General Manager of China Law and Investment Corporation, Director General Manager of Jindong Financing & Investment Co., Ltd, Director General Manager of Jingtai Securities & Investment Co., Ltd., Director General Manager of Fuwan Assets Management Ltd. Now, he is the President of China-link Capital Management Ltd. Yan Ganggang, took the post of Associate Section Chief of Regulatory Section of Legislative Affairs Bureau of Shenzhen Municipality, Lawyer of Shenzhen Juntian Law Office and the Legal Representative of Guangdong Liang Yuyan Law Office. At present, he is the Lawyer of Guangdong Zhongzhen Law Office. Guo Yongchun, took the post of Section Chief of Operational Management Department of China Northern Industries Corporation, Director of Information Department of China Northern Industries Corporation, General Manager of North Exhibition & Ads Company. At present, besides taking the post in the Company, he concurrently takes the post of Chairman of Chengdu Yinhe Dynasty Hotel Co. Ltd. Zhang Liqing, took the posts of Associate General Manager of Financial Department in Property Insurance of China Ping’an Insurance Co., Ltd, General Manager of Financial Department in Life Insurance of China Ping’an Insurance Co., Ltd, Associate Dean of Strategic Development Center of China Ping’an Insurance Co., Ltd, Associate General Manager of Ping’an Securities Co., Ltd. At present, he is the Associate General Manager of -10- CSG Holding Co., Ltd. 2007 Annual Report China Ping’an Trust & Investment Co., Ltd. (corporate shareholder of the Company). Wu Guobin, took the posts of Manager of Securities Department of the Company and General Manager Assistant of the Company. At present, he is Director, Vice-president and Secretary of Board of Directors in the Company. Yang Hai, took the posts of Assistant Director of the Second Highway Transport Engineering Bureau of Transportation Department, Vice General Manager of Shenzhen Expressway Co., Ltd., and Vice President of Shenzhen International Holdings Ltd. At present, besides taking the post in the Company, he concurrently holds posts of Chairman of the Board of Shenzhen Expressway Co., Ltd. and Executive Director of Shenzhen International Holdings Ltd.. Li Jiong, took the posts of Senior Manager and Vice General Manager of Capital Operation Department of Citic Securities Co., Ltd. At present, he is the Executive General Manager of Capital Operation Department of Citic Securities Co., Ltd.. Zhao Xijun, took the posts of Assistant General Manager of Shenzhen CSG Electronic Co., Ltd., Finance Manager of Guangzhou CSG Glass Co., Ltd., and Manager of Audit Department of the Company. At present, he is Supervisor and General Manager of Dongguan Architectural Glass Co., Ltd.. Luo Youming, took the posts of Manager at Financial Management Department of the Company and Assistant Chief Financial Officer of the Company. At present, he is Chief Financial Officer in the Company. Ke Hanqi, took the posts of General Manager of Shenzhen Wellight Conductive Coating Glass Co., Ltd., General Manager of Fine Glass Department of the Company. At present, he is Vice President of the Company. Zhang Fan, took the posts of General Manger of Shenzhen CSG Electronics Co., Ltd., General Manager of Shenzhen CSG Glass Co., Ltd., General Manager of Float Glass Department of the Company and President Assistant of the Company. At present, he is Vice President of the Company. iii. Particulars about the annual remuneration (i) The annual remuneration of the senior executives is decided by the Board of Directors of the Company and carried out under the system of basis salary plus floating premium binding with the achievements. The premium is decided by the annual return on equity. It takes the annual net profit total after taxation as the assessment basis, and withdraws the premium of achievements with proportion. (ii) Particulars about the annual remuneration of directors, supervisors and senior executives paid by the Company -11- CSG Holding Co., Ltd. 2007 Annual Report Total annual remuneration Name Title (RMB’0000) Zeng Nan Chairman of the Board / CEO 114.21 Long Long Independent Director 5.00 Zhang Jianjun Independent Director 5.00 Xie Rudong (Note) Independent Director 3.33 Yan Ganggang (Note) Independent Director 1.67 Wu Guobin Director/ Vice-president / Secretary of Board of Directors 84.67 Zhao Xijun Supervisor 56.83 Luo Youming CFO 86.39 Ke Hanqi Vice-president 86.14 Zhang Fan Vice-president 88.10 Total - 531.34 Note: In April 2007, Xie Rudong was elected as independent director of the Company; at the same time, Yan Ganggang resigned his post of independent director. Thus, in the report period, the independent director’s allowance for Xie Rudong was calculated from May 2007 and the independent director’s allowance for Yan Ganggang was calculated from the year-begin to April 2007. (iii) The following directors and supervisors received no remuneration or allowance from the Company: Li Jingqi, Guo Yongchun, Zhang Liqing, Yang Hai and Li Jiong. Yan Ganggang did not receive remuneration and allowance from the Company after May 2007. iv. Changing of directors, supervisors and senior executives (i) On March 16 of 2007, Mr. Zhou Daozhi and Mr. Yan Ganggang respectively resigned their posts of director and independent director in the 16th meeting of the 4th board of directors; on April 20 of 2007, Mr. Yan Ganggang and Mr. Xie Rudong were elected as director and independent director of the board of directors of the Company respectively in 2006 Annual Shareholders’ General Meeting (ii) On Aug. 30 of 2007, Mr. Liu Sanhua resigned his posts of chairman of supervisory committee and supervisor in the 3rd Extraordinary Shareholders’ General Meeting 2007, in which Ms. Sun Ying was elected as supervisor of the Company; the 16th meeting of the 4th supervisory committee elected Ms. Sun Ying as the chairman of the 4th supervisory committee. (iii) In Oct. 2007, Mr. Liu Jun resigned his post of director. On Nov. 16 of 2007, Mr. Zhang Liqing was elected as director of the board of directors of the Company in the 5th Extraordinary Shareholders’ General Meeting 2007. (iv) On Nov. 16 of 2007, Ms. Sun Ying resigned her posts of chairman of supervisory committee and supervisor in the 5th Extraordinary Shareholders’ General Meeting 2007, in which Mr. Li Jiong was elected as supervisor of the supervisory committee of the Company; the 18th meeting of the 4th supervisory committee elected Mr. Yang hai as the chairman of supervisory committee. (v) On Nov. 16 of 2007, Mr. Li Jingqi resigned his post of chairman of the board of the directors in the 23rd meeting of the 4th board of directors, in which Mr. Zeng Nan was elected as chairman of the 4th board of the directors. -12- CSG Holding Co., Ltd. 2007 Annual Report II. Employee of the Company Categories Number of person Proportion % Production personnel 5,508 72.08 Technical personnel 970 12.69 Administrative personnel 784 10.26 Marketing personnel 264 3.46 Financial personnel 115 1.51 Total 7,641 100 There were 4,598 employees received college, polytechnic school or higher education, accounting 60.18% of the total employees. In the report period, there was no retiree who was paid by the Company. -13- CSG Holding Co., Ltd. 2007 Annual Report §5 Corporate Governance Structure I. Corporate Governance By strictly conforming to the requirements and standards of the relevant laws and regulations issued by the CSRC, the Company continuously improved the corporate governance structure, established a modern corporate system and standardized operations. In the report period, In accordance with the newly-promulgated regulations and laws such as Company Law, Securities Law of PRC and Guidelines on Articles of Listed Companies (Revision 2006), etc., the Company comprehensively revised its Articles of Associations, established and perfected the Rules of Procedure for Shareholders’ General Meeting, Rules of Procedure for Board of Directors, Rules of Procedure for Supervisory Committee; Management Rules of Raised Fund, Rules and Criteria for General Manager, Rules and Criteria for Secretary of Board, System of Independent Director, Rules and Criteria for Special Committee of Board, Management of Information Disclosure, and etc, which further standardized the operations of the Company. Furthermore, according to “Notice about Enforcing the Administration of Listed Companies (No. SJGSZ[2007])”, the Company performed a comprehensive self-examination on its administration, and established a self-examination report and rectification plan. In Oct. 2007, the Company improved its administration and corporate governance in accordance with the suggestions from the public opinions, and opinions from Shenzhen CSRC and Shenzhen Stock Exchange Department, and announced the report to the public. Now, the governance system of the Company is basically complete; the operational flows are normal; and the governance structure is standardized. These meet requirements of relevant regulatory documents issued by CSRC. In 2007, there is no situation that the Company disclosed private information to the substantial shareholders and actual controller II. Performance of independent directors From the date the independent directors took their positions, they implemented their duties according to relevant laws and regulations, actively attended the Board meeting and Shareholders’ General Meeting with responsible attitude, issued independent opinion on significant matters, and made active effects in order to protect the interests of the Company and ordinary shareholders. Particulars about independent directors’ presenting the Board meeting: No. of Independent No. of required No. of self commission No. of director attendance presence presence absence Note: Zhou Daozhi 2 1 1 0 Resigned in Mar. 2007 Yan Ganggang 2 2 0 0 Resigned his post of Independent Director in Mar 2007 Xie Rudong 10 7 3 0 Elected as Independent Director in Apr. 2007。 Long Long 12 12 0 0 － Zhang Jianjun 12 10 2 0 － -14- CSG Holding Co., Ltd. 2007 Annual Report III. Separation between the Company and its substantial shareholders in terms of business, personnel, assets, organization and finance The Company has been absolutely independent in business, personal, assets, organization and financial from its substantial shareholders ever since its establishment. The Company had an independent and complete business system and independent management capability. i. In terms of business: The Company owns independent purchase and supply system of the raw resources, complete production systems, independent sale system and customers. The Company is completely independent from the substantial shareholders in business. The substantial shareholders and their subsidiaries do not engage any identical business or similar business as the Company. ii. In terms of personnel: The Company is absolutely independent in the management of labor services, personnel and salaries. General managers, persons in charge of finance and other senior executives receive their payment from the Company and do not received any remuneration from the holding shareholders or hold any title therein. iii. In terms of assets: The Company possesses independent production system, auxiliary production system and complementary facilities. The intangible assets, such as industrial property rights, trademarks, patent & non-patent technologies, etc. solely belong to the Company. The Company has independent purchase and sales system. The assets of the Company invested by the substantial shareholders are all monetary assets. The assets of the Company are independent, the assets’ ownership and rights are clear. The operation and management of listed company is never occupied or dominated, and not even interfered by the holding shareholder. iv. In terms of organization: The Company is totally independent from its substantial shareholders in production, operation and administration. The Company has its own office and production sites. The substantial shareholders and their subsidiaries never instruct any operation plans and dictates related with the Company to the Company and subsidiaries, and never interfere with the independence of the operation and management of the Company in any form. v. In terms of finance: The Company has independent finance department and has established independent accounting system & financial management system. The Company has independent bank accounts. The Company has paid tax independently according to the laws. IV. Particulars on establishment and completeness of internal control system i. Brief introduction to internal control system of the Company According to prescription of related laws and regulations, the Company established and completed the Company Governance Structure，including Shareholders’ Meeting, Board of Directors, Supervisory Committee and Seniors Management Group. Moreover, the Board of the Directors sets up four special committees, including Strategic Committee, Auditing Committee, Nomination Committee and Remuneration and Appraisal Committee. The Company has set up an Auditing Department, and assigned internal supervisory staff to its subsidiaries. Meanwhile, an internal auditing and controlling system have been established. The operational activities which include sales, collection of account receivables, purchase, payment, cost and expense, fixed assets management, construction management, inventory management, capital management (including Investment and funding), financial -15- CSG Holding Co., Ltd. 2007 Annual Report report, information disclosure, human resource management, information system management and etc, are strictly carried out by the processes and procedures under the audit and internal control system, thus the risks are effectively controlled.. Furthermore, under monitoring of Audit Committee, the Board of Directors supervises the internal control of the Company system, and ensures it can be established, audited, improved and implemented. In the report period, in accordance with the newly-promulgated laws and regulations, the Company modified and improved the rules and procedures for shareholders’ general meeting, Board of Directors and Supervisory Committee. At the same time, under the implementation of administration improvement requirements from the CSRC, the Company enhanced and improved its operations and overall competivity. ii. Key internal control activities (i) Holding subsidiaries: The Company manages its holding subsidiaries strictly according to the related laws, regulations and relevant prescriptions. The Company also sets up corresponding assignment and performance assessment systems for its subsidiaries’ directors, supervisors and senior executors. And it establishes a set of operational management systems and requires managements of the subsidiaries stays within the management framework. Each functional department set up by the Company fully supervises the subsidiaries on aspects of human resource, operation, purchase, finance, production, project construction, and significant contract as well as law affairs. (ii) Related party transactions: The Company strictly conformed to the stock listing rules and regulations of the Shenzhen Stock Exchange for its related party transactions. The contract price of the related party transactions is on the basis of public bidding price, it is open and fair. (iii) External guarantee: In accordance with related laws and CSRC’s regulations for external guarantee of listed companies, the Company establishes Management Measures on External Guarantee which clearly states the approval authority and procedures, information disclosure, risk management and so on. In the report period, the Company did not offer any guarantee to any parties and individuals other than its own subsidiaries. For the guarantees made to the subsidiaries, the Company strictly followed the approval and information disclosure procedures. (iv) Usage of raised capital: In accordance with related regulations of raised fund management by CSRC, the Company establishes Management Rules on Raised Capital and uses the raised fund in pursuance of the purpose which approved by the shareholders’ general meeting. The Company uses a particular account to manage the raised fund, and only uses the fund according to the investment plan of target projects. Storage and usage of the raised fund from 2007 has been audited by public accountants, relevant audit report has been made. (v) Significant investment: For any significant investment the Company made, it must be legal, prudent, secure, and effective. The risks must be under controll, .The limit of the approval authority for the Board of Director and Shareholders’ General Meeting on significant investments is clearly stated in Articles of Association, and the Company has also made strict examination and decision making procedure. The Company focuses on its main business, there are no investments occurred apart from the core business.. A project with significant investment must be approved by the Strategic Committee of the Board first, and then the implementation takes place after it is approved by the Board or -16- CSG Holding Co., Ltd. 2007 Annual Report Shareholder meeting. (vi) Information disclosure: In accordance with security laws and regulations, the Company establishes Management Measures on Information Disclosure, the document details the principle, content, procedure and secrecy of information disclosure and defines responsibility investigation mechanism. The Company ensures the information disclosure to the investors is fair, accurate and in time. -17- and CSG Spandrel and Tempglass Co., Ltd. were moved to Dongguan Green Industrial Area, and their business and op Diagram for Company and Subsidiaries Structure and Proportion of Shar Architectu Note: In 2007, Shenzhen CSG Architectural Glass Co., Ltd., Shenzhen Wellight Coating Glass Co., Ltd., Shenzhen CSG Southern St Tianjin CSG Energy Conserving Glass Co., Ltd. 100％ Tianjin CSG Architectural Glass Co., Ltd. 100％ Dongguan CSG Architectural Glass Co., Ltd. Solar Energy Department 92％ 100％ 100％ Dongguan CSG PV-tech Co., Ltd. CSG Holding Co., Ltd. Dongguan CSG Solar Glass Co., Ltd. Yichang CSG silicon Co., Ltd. -18- 70％ 100％ 100％ Fine Glass Department Dongguan CSG Ceramics Technology Co., Ltd. Shenzhen CSG Structure Ceramics Co., Ltd. Shenzhen CSG Wellight Conductive Coating Co., Ltd, Dongguan CSG Architectural Glass Co., Ltd.. 75％ Shenzhen CSG Display Technology Co., Ltd. 100％ 100％ Float Glass Department Hainan Wenchang CSG Silica Sand Mine Co., Ltd. Hebei CSG Glass Co., Ltd. 75％ 100％ 75％ CSG Holding Co., Ltd. Chengdu CSG Glass Co., Ltd. (Float glass sector) Shenzhen CSG Float Glass Co., Ltd. Guangzhou CSG Glass Co., Ltd. CSG Holding Co., Ltd. 2007 Annual Report iii. Problems and improvement plan During the Special Campaign to Strengthen the Corporate Governance of Listed Companies, the Company has improved its corporate governance in accordance with the opinions from Shenzhen Security Supervisory Bureau and the suggestions from investors and public. In the report period, the Company hired professional organization to improve its internal control system. iv. Overall comment on internal control of the Company The internal control system of the Company is logical and complete, and it is feasible and effective in the actual operation. The work of internal control is a lasting project, and The Company will strictly follow the requirements in the Internal Control Guidelines for Listed Companies and keep improving its internal control system to ensure the Company secure operations and protection for the interest of shareholders. V. Evaluation and incentive mechanism for senior executives in the report year. The Board of Directors approved the incentive measure for outstanding achievement of management team based on total net profit after tax in the current year and annual return on equity as assessment basis. Namely, the management team could obtain the award only when the annual return on equity reached 8%. Otherwise, they could not take incentives of outstanding achievement. When the return on equity reached 8%, the management team would take the proportion of 6% based on the total net profit after tax as bonus. While the return on equity exceeded 8%, for every 1 percentage point increased over 8%, the proportion of bonus of outstanding achievement would increase by 0.2 percentage points accordingly based on proportion of 6%. In September of 2006, the Proposal (draft) on Stock Incentive Plan of CSG was examined and approved in the 12th meeting of the 4th Board of Directors. It is planed to grant the incentive persons with 50,000,000 options of A-share. This incentive plan is being examined and approved by CSRC. The plan can only be implemented after it is approved by the CSRC and the shareholders’ meeting of the Company. -19- CSG Holding Co., Ltd. 2007 Annual Report §6 Brief Introduction of Shareholders' General Meetings In the report period, The Company has held one Shareholder’s General Meetings and five Extraordinary Shareholders’ General Meetings. i. The Company held the 1st Extraordinary Shareholders’ General Meeting of 2007 on Mar. 1, 2007. The resolution of the meeting has been published on Security Times, China Securities Journal and Hong Kong Wen Wei Po dated Mar. 2, 2007. ii. The Company held the 2006 Shareholders’ General Meeting on Apr. 20, 2007. The resolution of the meeting has been published on Security Times, China Securities Journal and Hong Kong Wen Wei Po dated Apr. 21, 2007. iii. The Company held the 2nd Extraordinary Shareholders’ General Meeting on Jun. 15, 2007. The resolution of the meeting has been published on Security Times, China Securities Journal and Hong Kong Wen Wei Po dated Jun. 16, 2007. iv. The Company held the 3rd Extraordinary Shareholders’ General Meeting on Aug. 30, 2007. The resolution of the meeting has been published on Security Times, China Securities Journal and Hong Kong Wen Wei Po dated Aug. 31, 2007. v. The Company held the 4th Extraordinary Shareholders’ General Meeting on Oct. 10, 2007. The resolution of the meeting has been published on Security Times, China Securities Journal and Hong Kong Wen Wei Po dated Oct. 11, 2007. vi. The Company held the 5th Extraordinary Shareholders’ General Meeting on Nov. 16, 2007. The resolution of the meeting has been published on Security Times, China Securities Journal and Hong Kong Wen Wei Po dated Nov. 19, 2007. -20- CSG Holding Co., Ltd. 2007 Annual Report §7 Report of the Board of Directors I. Operation of the Company i. Reviews on the operation of the Company in the report period (i) Overall operation of the Company: In 2007, the production and operation of the Company continuously presented a stable growth trend. The float glass sector and the fine glass sector both made a best achievement in their profit history. Under the homogenous competition in the market, the Company strengthened its core competencies by putting more resources in R&D, and continuously improving production techniques and management, which at the same time reinforced the advantage of differentiation. Following the strategies of development, the Company further enhanced the main business, standardized the management and improved the administrative structure. At the same time, the Company made a significant improvement in its business layout and structure, resource integration, intellectual assets management and human resource, and all its economy indices had significant improved. In 2007, the Company realized revenue RMB 4.188 billion and net profit RMB 0.431 billion, which are 41.26% and 28.76% increase respectively compared to 2006. The constructions of new project had obvious achievement in 2007. The first phase of energy saving glass projects in Dongguan, Tianjin, Wujiang is completed respectively, and the trial production has been launched. The construction of Yichan poly-silicon project is carried on in schedule. The solar cell project in Dongguan is in the equipment installation and adjustment stage, it is expected to start the production in the first half of year 2008. After all completions, the operation of the new projects will guarantee a continuous development for the Company. Float glass business: In 2007, the float glass business recovered from the industrial downturn. However, it still faced pressure such as price increase in main raw materials, decrease in tax rebate of exporting and etc. The Company continuously persisted in using product differentiation to maintain its competitive advantage and price level, and kept the product yield at a high level through measures of enhancing internal management level, improving techniques, reducing energy consumption and staff training, which brought the float glass business of the Company a successful year. In 2007, the business realized RMB 234 million in net profit with 139% increase compared to last year. Furthermore, the Company successfully produced the ultra clear float glass with own intellectual property right in 2007. The succession of this product not only broke the technical monopolization from abroad, but its technology index also exceeded the international standards. Architectural glass business: Along with the promulgation and intensified supervision of various energy conservation policies and attention in environment protection, the market of engineering glass industry continuously maintained a favorable tendency in growth. -21- CSG Holding Co., Ltd. 2007 Annual Report Whereas, influenced by the pressures of price increasing of flat glass and intense market competition, and the removal of Shenzhen production plants to Dongguan, the profitability of architectural glass business was significantly affected. In order to deal with the changes in internal and external conditions, the Company took full use of its competitive advantage and market power to enhance the development and innovation of its energy-saving glass products, and reinforce its market exploitation. In 2007, the triple- layer Low-E glass was successfully produced by Chengdu CSG using its own assembly production line, which broke the technical monopolization from abroad. Meanwhile, the architectural department of the Company intensified its perfect management, improved production techniques, reduced quality cost, enhanced its existing capacity utilization ratio and etc. to offset the influences from both internal operation and market environment. With the completion of the energy saving glass projects in Tianjin, Dongguan, Wujiang, Chengdu, the architectural glass business of the Company will have a breakthrough on its production scale and profit, thus its leading position in the industry will be further strengthened. Fine glass business: Under the homogenous competition, the prices of ITO Conductive Glass and color filter dropped in 2007. In order to deal with the pressure of price fall from market competition, the fine glass department actively enlarged its production scale, and increased product yield and production proportion of high value-added products, thus the business still maintain its strong profitability. Solar energy business: Through production technique improvement, and one year operation in ultra clear solar glass project, the Company now can successfully produces high quality solar glass which can meet the advanced international standard. The Company now is the biggest manufacture of solar energy glass in China with 60% domestic market share. The project of poly-silicon in Yichang is tough, many problems occurred during the project implementation, but by working with great efforts, the project is being carried on in schedule. In expectation, the trail production will start in the second half of year 2008. For the solar cell project, all equipments are arrived and being installed. The production will be launched in the first half of year 2008. Along with the completion of these projects, the solar energy business will bring another pillar business to the Company. (ii) Main operating incomes and operations of the Company º Main operating incomes classified according to products: Unit: RMB 2007 2006 Product Operating income Cost of sales Operating income Cost of sales Float Glass 1,918,791,921 1,370,181,291 1,425,691,237 1,104,474,767 Architectural Glass 1,328,680,698 982,771,796 914,617,934 565,273,075 Fine Glass 547,454,387 310,765,118 424,736,082 243,069,275 Solar energy 168,989,353 105,663,953 － － Others 429,078,854 348,397,902 382,144,603 289,055,904 Elimination (229,135,367) (226,320,078) (195,590,790) (195,590,790) Total 4,163,859,846 2,891,459,982 2,951,599,066 2,006,282,231 -22- CSG Holding Co., Ltd. 2007 Annual Report º Main operating incomes classified according to locations: Unit: RMB Location Operating income in 2007 Percentage increased/decreased than 2006 Mainland, P.R.C. 3,131,921,600 52.68% Hong Kong, P.R.C 648,383,637 28.92% United States 46,842,949 -40.68% Australia 34,965,038 -4.06% Other locations 301,746,622 52.68% º Products which accounted over 10% of Sales: Unit: RMB Operating income Cost of sales Gross profit margin（%） Increase/ Increase/ Percentage Decrease Decrease Increased/Decreased Product 2007 than 2006 2007 than 2006 2006 than 2006 Float Glass 1,918,791,921 34.59% 1,370,181,291 24.06% 28.59% Increase 6.06% points Architectural Glass 1,328,680,698 45.27% 982,771,796 73.86% 26.03% Decrease 12.16% points Fine Glass 547,454,387 28.89% 310,765,118 27.85% 43.23% Increase 0.46% points º Major suppliers and customers: In the report period, the Company’s purchase amount from the top five suppliers was RMB 476.43 million in total, accounting 23 % of the total annual purchase; the sales to the top five customers was RMB 623.87 million in total, accounting 15% of the total annual sales. (iii) Significant changes in assets, expenses and the reason of change Unit: RMB’0000 Percentage Item 2007 2006 Change Reason Other receivables 10,719 2,494 330% Cash from equity sale was written as receivable item, due to the money was not arrived in the report period. Assets available-for-sale 4,363 488 794% Revaluation and reclassification on non-tradable shares of other companies held by the Company. Income tax 6,721 3,233 108% Increase in total profit causes the increase in income tax, and change in preferential income tax of 3 subsidiaries in Guangzhou (iv) Relevant data of cash flows and reason for change Unit: RMB’0000 Amount Item 2007 2006 Difference Reason Net cash flows from operating activities 110,231 80,079 30,152 Increase in sales. Cash received from disposal of investments 13,996 － 13,996 Cash received from equity sold. Cash received from capital contributions 138,656 4,075 134,581 Cash received from fund raised, and from minority investor’s fund to Chengdu CSG glass Co., Ltd.. -23- CSG Holding Co., Ltd. 2007 Annual Report (v) Analysis on performance of major shareholding subsidiaries º Float glass department: A. Guangzhou CSG Glass Co., Ltd., 75% equity is held by the Company, the registered capital is RMB 160 million. The main business includes production and sales of top grade float glass and specialized glass with production capacity of over 400 thousand tons per year. At the end of 2007, the total asset of the company was RMB 1.033 billion. In 2007, this company realized revenue of RMB 755 million and net profit of RMB 115 million. B. Shenzhen CSG Float Glass Co., Ltd. is a wholly owned subsidiary of the Company with registered capital of RMB 605.74 million. The main business includes research, production and sales of top grade float glass with production capacity of 300 thousand tons per year. At the end of 2007, the total asset of the company was RMB 1.352 billion. In 2007, this company realized revenue of RMB 581 million and net profit of RMB 47.62 million. C. Chengdu CSG Glass Co., Ltd., 75% equity is held by the Company, the registered capital is RMB 132.66 million. The main business includes production and sales of top grade float glass and specialized glass with production capacity of over 400 thousand tons per year. At the end of 2007, the total asset for the company was RMB 930 million. In 2007, this company realized revenue of RMB 723 million and net profit of RMB 180 million in net profit. D. Hebei CSG Glass Co., Ltd.(Note a) is a wholly owned subsidiary of the Company with registered capital of USD 33.06 million. The main business includes production and sales of top grade float glass and specialized glass with estimated production capacity of 490 thousand tons per year. This company is still under construction phase. E. Hainan Wenchang CSG Silica Sand Mine Co., Ltd. is a wholly owned subsidiary of the Company with registered capital of RMB 40 million. The main business includes production and sales of quartz sand. At the end of 2007, the total asset of the company was RMB 60.43 million. In 2007, the float glass department realized revenue of RMB 2.024 billion and net profit of RMB 0.234 billion in total. º Architectural glass department: A. Dongguan CSG Architectural Glass Co., Ltd. is a wholly owned subsidiary of the Company with registered capital of RMB 240 million. It mainly produces energy conservation Low-E coated glass and related compound-processed products. At the end of 2007, the total asset of the company was RMB 715 million. Shenzhen CSG Architectural Glass Co., Ltd., Shenzhen Wellight Coating Glass Co., Ltd., Shenzhen CSG Southern Star Glass Processing Co., Ltd., and CSG Spandrel and Tempglass Co., Ltd. are wholly owned by the Company. In the report period, these four subsidiaries were moved to Dongguan Green Industrial Area, and their business and -24- CSG Holding Co., Ltd. 2007 Annual Report operation were integrated with Dongguan CSG Architectural Glass Co., Ltd.. In 2007, these five subsidiaries realized revenue of RMB 620 million, and loss of RMB 22.04 million in total. B. Tianjin CSG Architectural Glass Co., Ltd. is a wholly owned subsidiary of the Company with registered capital of RMB 178 million. It mainly produces energy conservation Low-E coated glass and related compound-processed products. At the end of 2007, the total asset of the company was RMB 560 million. In 2007, this company realized revenue of RMB 585 million and net profit of RMB 100 million in net profit. C. Tianjin CSG Energy Conservation Glass Co., Ltd. is a wholly owned subsidiary of the Company with registered capital of RMB 128 million. It mainly produces energy conservation Low-E coated glass and related compound-processed products. This company is still in preparation to construct. D. Wujiang CSG North-east Architectural Glass Co., Ltd. is a wholly owned subsidiary of the Company with registered capital of RMB 320 million. It mainly produces energy conservation Low-E coated glass and related compound-processed products. This company is still in preparation to construct. E. China Southern Glass (Hong Kong) Limited is a wholly owned subsidiary of the Company with registered capital of HKD 86.44 million. The main business of this company is glass trading and equity investment. At the end of 2007, the total asset of the company was RMB 487 million. In 2007, this company realized revenue of RMB 208 million. F. China Southern Glass (Australia) Limited is a wholly owned subsidiary of the Company with registered capital of AUD 500 thousand. The main business of this company is glass trading. At the end of 2007, the total asset of the company was RMB 11.84 million. In 2007, this company realized revenue of RMB 50.08 million. In 2007, the architectural glass department realized revenue of RMB 1.246 billion and net profit of RMB 74.52 million in total. º Fine glass department: A. Shenzhen CSG Display Technology Co., Ltd., 75% equity is held by the Company, the registered capital is USD 9 million. The main business includes production and sales of ITO conductive glass with production capacity of 12 million pieces per year. At the end of 2007, the total asset of the company was RMB 314 million. In 2007, this company realized revenue of RMB 312 million and net profit of RMB 79.56 million. B. Shenzhen CSG Wellight Conductive Coating Glass Co., Ltd., 70% equity is held by the Company, the registered capital is USD 12.80 million. The main business includes production and sales of color filter with production capacity of 840,000 pieces per year. At the end of 2007, the total asset of the company was RMB 579 million. In 2007, this company realized revenue of RMB 267 million and net profit of RMB 78.24 million. C. Shenzhen CSG Structure Ceramics Co., Ltd. is a wholly owned subsidiary of the Company with registered capital of RMB 30 million. It mainly produces structural -25- CSG Holding Co., Ltd. 2007 Annual Report ceramic products. At the end of 2007, the total asset of the company was RMB 45.61 million. In 2007, this company realized revenue of RMB 33.85 million and net profit of RMB 6.17 million. D. Dongguan CSG Ceramics Technology Co., Ltd.(Note b) is a wholly owned subsidiary of the Company with registered capital of RMB 50 million. It mainly produces high-tech structural ceramic products.. The company is still in preparation to construct. E. Shenzhen CSG Electronic Co., Ltd., the main business in producing and selling of new types of electronic components. In Jan. 2008, the 25th meeting of the 4th Board of Directors of the Company examined and approved the matter of equity sale and transfer of Shenzhen CSG Electronic Co., Ltd. to Shenzhen Sunlord Electronic Co., Ltd. In 2007, the fine glass department realized revenue of RMB 649 million and net profit of RMB 128 million in total. º Solar energy department: A. Yichang CSG Silicon Co., Ltd., 92% equity is held by the Company, the registered capital is RMB 260 million. It produces high-purified poly-silicon materials. The production capacity in the 1st phase of the project is 1500 tons per year. The company is still in preparation to construct. B. Dongguan CSG Solar Glass Co., Ltd. is a wholly owned subsidiary of the Company with registered capital of RMB 100 million. It produces and sells solar glass products. The daily melting capacity is 250 tons in the 1st phase of project. At the end of 2007, the total asset of the company was RMB 412 million. In 2007, this company realized revenue of RMB 169 million and net profit of RMB 32.59 million. C. Dongguan CSG PV-tech Co., Ltd. is a wholly owned subsidiary of the Company with registered capital of RMB 100 million. It produces and sells solar cells and modules. The company is still in preparation to construct. Notes: The revenue of the above departments has eliminated the internal related transactions; the net profit and loss have eliminated the minority interest; the total assets includes the internal payments between the subsidiaries a. Hebei CSG Glass Co., Ltd. was established on Dec 6th of 2007. At the end of report period, the company is still in preparation to construct. b. Dongguan CSG Ceramics Technology Co., Ltd was established on Sep 13th of 2007. At the end of report period end, the company is still in preparation to construct. c. In 2007, approved by the 22nd meeting of the 4th Board of Directors, the Company sold the 100% equity of its wholly owned subsidiary: Shenzhen CSG Automotive Glass Co., Ltd to Xinyi International Investment Co., Ltd. The transfer was conducted on the 1st of Nov 2007, this company was excluded from the consolidated report of the Company after that. d. In 2007, the proposal of equity transfer of Shenzhen CSG Curtain Wall & PV Engineering Co., Ltd was approved by the 24th Meeting of the 4th Board of Directors. ii. Prospect for the future development of the Company (i) Growth trend of the industry and business Float glass industry is still facing the price pressure from heavy oil and alkali, and the -26- CSG Holding Co., Ltd. 2007 Annual Report pressure from domestic business environment under macro-economic control of the country. It is expected the float glass business in 2008 is steady; the market share of the top grade float glass will increase gradually. The growth of domestic economy and the promulgation of national energy conservation policies bring a large market for Low-E glass and energy-saving architectural glass. It is expected that the market demand for energy-saving glass will be relatively prosperous. Due to the wide use of information products such as mobile phone, GPS and digital album, the market of medium-and-small LCD will maintain its steady trend of growth. Meanwhile, the products such as the iPhone aroused the market demand for touch panel in 2007, it is expected that the market for medium-and-small touch panel will maintain a good trend in 2008. Under the global shortage of fossil energy and continuous environmental deterioration, the exploitation and use of the renewable resources receive more and more attention by many countries. Now, the short supply of poly-silicon material is still the obstacle for the development of solar energy business. Many domestic enterprises have invested in poly-silicon material production. Under the continuous increase and release of the productivity in poly-silicon, the development of the solar energy business will be brought to the right track in the next few years, which will further stimulate the growth of market demand. It can be foreseen the solar energy industry in China will have a fast growth in the coming years. (ii) Development strategy and 2008 operation plan of the Company Development strategy of the Company in the coming years is to build the core competencies and continuous growth ability in float glass, architectural glass, fine glass and solar energy businesses. For the business in glass, the Company is aiming to build a complete industry chain in order to guarantee the supply of top grade float glass for the rapid expending architectural glass business. At the same time, the Company will systematically design the industrial layout of float glass to match the industrial layout for architectural glass. For the fine glass sector, the Company will develop high value products with leading techniques to improve its market competitivity through research, innovation and tracing advanced techniques in the market. For the solar energy sector, the Company strategy is to build a complete industry chain. It will actively push forward the construction of the relevant projects, and aboratively build up its technical advantage and market position in the solar business. The main operating plans of the Company in 2008: º Managing, planning and operating elaborately and enhancing the comprehensive qualities and managerial skills of our staffs and teams to ensure the accomplishment of our construction and operation target in 2008. º Improving the process and system of the internal control of the Company, managing the risks effectively. º Continuously strengthening research and development, and encouraging self-innovation. -27- CSG Holding Co., Ltd. 2007 Annual Report º Intensifying the general budget management, ensuring the realization of every operation target, strictly implementing the system of accountability. º Popularizing the ERP system, and enhancing the level of information system. º Enhancing the satisfaction of both customers and employees; focusing on the training and development of the staffs to ensure the innovation and continuous development for the Company. (iii) Demand for capital, capital use plan and capital resources For year 2008, the Company requires about RMB 3 billion for its project investment plan, the capital resources are mainly from the Company’s own capital, private placement, and loans from financial institutions. (iv) Risks and mitigation plan The prices of primary raw materials for float glass industry still maintain at high level, and the architectural glass industry faces homogenous competition. In order to mitigate the risks and survive from the more and more drastic market competition, the Company is trying to reduce the cost of production by adopting the measures such as increasing its production scale, improving the product process and techniques, and developing new products. Under the tight monetary policy, the Company will face the pressure from increase in cost of fund. Therefore, the Company will strictly control the account receivables and inventories, improve the capital turnover, use secure and efficient financial instruments and adjust the debt structure to reduce the cost of fund. II. Investments in the report period i. Usage of raised funds In the report period, the Company privately offered 172,500,000 A-shares which raised RMB 1.38 billion (including issuing expense). The usages of raised fund are as follows: Unit: RMB’0000 Total raised fund Fund used in 2007 Fund used in total 138,000 70,998 70,998 Changes Is the in Fund Fund Profits Is it in earning Target project project required used generated Schedule as expected 1500T/Year poly-silicon project No 45,000 17,420 Constructing Yes － Wujian Low-E glass project No 30,000 12,478 Constructing Yes － Dongguan glass processing base No 35,000 28,500 (2,204) Yes － Tianjing Low-E glass project No 28,000 12,600 Constructing Yes － Total － 138,000 70,998 － － － Reasons of failure in meeting the N/A schedule and expected return Explanation of changing in project N/A Usage of remaining fund Unused fund is RMB 670.02 million, it will be continuously spent and invested in the above target projects. -28- CSG Holding Co., Ltd. 2007 Annual Report The progress of the projects is as follows: Project Project progress 1500T/Year poly-silicon project Construction is in progress, and purchase of equipments is mostly completed. It is expected to start the pre-production in the 2nd half of year 2008. Wujian Low-E glass project The equipment installation and adjustment have been implemented for the 1st phase of the project, and part of the equipment has entered the pre-production stage. The production is expected to be fully launched in the 2nd quarter of 2008. Dongguan glass processing base The removal of Shenzhen plant to Dongguan and the installation of new equipments are completed. The project has entered the pre-production stage. Tianjing Low-E glass project The equipment installation and adjustment have been implemented for the 1st phase of the project, and part of the equipment has entered the pre-production stage. The production is expected to be fully launched in the 2nd quarter of 2008. ii. Investment of non-raising fund Unit: RMB’0000 Project Amount Progress of project Earning Ultra clear solar glass 15,000 The project launched successfully at the end of Oct At the end of report period, project 2006, and commenced the operation in Feb 2007. The it realized net profit of yearly production capacity of ultra clear solar glass is RMB 32.59 million. over 6 million square meters. Ultra clear solar glass 25,800 Planning to build a production line of ultra clear solar In the report period, the expansion project glass with daily melting capacity of 250 tons, and glass project was still under tempering line with capacity of 5 million square meters construction. per year. The construction period of the project is 9 months. After the completion of the project, it can form production capacity of 6.25 million square meters top grade ultra clear solar float glass and 5 million square meters tempered solar glass every year. PV solar cell project 10,000 The equipments are all arrived and being installed. The In the report period, the production is expected to be launched in the first half project did not generate of year 2008. earning. Hebei CSG float glass 73,900 Planning to build two production line of top grade In the report period, the project specialized glass with daily melting capacity of 600 project was still under tons and 900. The construction period of the project is construction. 12 months. These two lines are expected to be ignited and launched in Aug. and Oct respectively. After the completion of the project, it can form production capacity of 490 thousand tons of top grade float glass every year. Chengdu CSG new 24,800 Planning to build a production line and its supporting The project was approved coated glass processing line. It mainly produces energy conservation in Jan. 2008, and been production line Low-E glass. The phase 1 of the project is expected to adjusted in Mar. 2008 by be completed in the middle of year 2008. After the the Board of Directors completion of the project, the yearly production capacity of Low-E compound-processed glass is 1.25 million square meters. Chengdu CSG new 45,900 Planning to build a new 900T/D production line for top The project was approved float glass grade float glass. It mainly produces 5-12mm top grade by the Board of production line float glass. The project is expected to be complete in Directors in Jan. 2008 the middle of year 2009. Total 195,400 － － -29- CSG Holding Co., Ltd. 2007 Annual Report III. Changes in accounting estimates According to the accounting policy, the Company has reviewed the estimated depreciation period and classification of the fixed assets during the year. The Company revised its estimates on the fixed assets depreciation period as follows. Initial estimates Current estimates Building 20 to 35 years 10 to 40 years Plant and machinery 10 to 20 years 10 to 16 years Motor vehicles and others 5 to 10 years 3 to 10 years The change was approved in the 17th meeting of the 4th Board of Directors on Apr. 24 2007. IV. Routine work of the Board of Directors i. The meeting and resolutions of the Board of Directors In the report period, the Company totally held 12 meetings. (i) On Feb. 5, 2007, the Company held 15th Meeting of the 4th Board of Directors. The resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated Feb.7, 2007. (ii) On Mar. 16, 2007, the Company held 16th Meeting of the 4th Board of Directors. The resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated Mar.20, 2007. (iii) On Apr. 20, 2007, the Company held 17th Meeting of the 4th Board of Directors. The resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated Apr. 24, 2007. (iv) On May. 28, 2007, the Company held 18th Meeting of the 4th Board of Directors. The resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated May. 30, 2007. (v) On Jul. 27, 2007, the Company held 19th Meeting of the 4th Board of Directors. The resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated Jul.31, 2007. (vi) On Aug. 10, 2007, the Company held 20th Meeting of the 4th Board of Directors. The resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated Aug.14, 2007. (vii)On Sep. 19, 2007, the Company held the Extraordinary Meeting of the 4th Board of Directors. The resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated Sep. 20, 2007. (viii) On Sep. 24, 2007, the Company held the Extraordinary Meeting of the 4th Board of Directors. The resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated Sep.25, 2007. -30- CSG Holding Co., Ltd. 2007 Annual Report (ix) On Oct 10, 2007, the Company held 21sh Meeting of the 4th Board of Directors. The resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated Oct 12, 2007. (x) On Oct. 29, 2007, the Company held 22nd Meeting of the 4th Board of Directors. The resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated Oct 31, 2007. (xi) On Nov. 16, 2007, the Company held 23rd Meeting of the 4th Board of Directors. The resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated Nov. 19, 2007. (xii)On Dec. 24, 2007, the Company held 24th Meeting of the 4th Board of Directors. In the meeting, The Board approved the proposal on equity transfer of Shenzhen CSG Curtain Wall & PV Engineering Co., Ltd, and agreed to transfer all the equity of the company to strategic investor. ii. Particulars about the implementation of the resolutions in Shareholders’ General Meeting by the Board of Directors. (i) The proposal on Private Offering of A-Shares was approved in the 1st Extraordinary Shareholders’ General Meeting in 2007. The Board of Directors accomplished share issuance according to the resolution from the shareholder meeting in Oct, and renewed the Company’s registered capital and Articles of Association of the Company. (ii) Shareholders’ General Meeting of 2006 passed the 2006 Profit Distribution Plan, which the dividends would be distributed to shareholders in cash at the rate of RMB 4.5 (including tax) for each 10 shares based on the total share capital 1,015,463,123 shares at the end of the year 2006.The Company published a dividend distribution notice on China Securities Journal, Securities Times and Hong Kong Wen Wei Pao on 12 June 2007, and the distribution has been accomplished. iii. The implementation of duty of the Audit Committee of the Board of Directors (i) Opinion and examination on the financial reports of the Company In accordance with the requirements of CSRC, the Audit Committee presented two audit opinions for the annual financial report of the Company in the report period. Before the entrance of the certified public accountants for annual audit, the Audit Committee issued the initial written opinion for the unaudited financial report. The committee agreed the report fairly reflected the significant financial situation and operation achievement of the Company. After the certified public accountants presented their initial audit opinion, the Audit Committee re-examined the financial report of the Company and presented a written opinion which agreed that the basis, conditions, principles and methods used in the report were in line with the regulations and laws and fairly reflected the financial situation on Dec 31st of 2007 and operation achievement in 2007 of the Company in significant aspects. (ii) Supervision on the certified public accountant -31- CSG Holding Co., Ltd. 2007 Annual Report Through negotiation with the certified public accountant, the Audit Committee arranged the audit work for the annual financial report in advance, and reported the audit schedule to the independent directors through the financial department of the Company. After the entrance of the registered accountants, the committee met the persons in charge of the audit. After communicating with the accountants, the committee realized the audit process and requirements from the accountants, and quickly feedback the information to the relevant departments of the Company, in order to ensure the annual audit and relevant information disclosure could be promoted according to the scheduled process. (iii) Summary report on the 2007 audit work of the CPA The year of 2007 is the first year the new accounting standards implements. As the audit institution of the Company in 2007, PricewaterhouseCoopers Zhong Tian CPAs Limited Company actively cooperated with the Company to organize training programs for the financial staffs of the Company to understand the new standards. The Audit Committee considers that the CPAs complete the 2007 annual audit on the financial reports of the Company as required. (iv) Proposal on the re-engagement of the CPAs The suggestion of retaining the public audit institution from the Audit Committee is as follow: The committee will use a rational selection process which will fairly and legally decided the 2008 audit institution. This will be report to the Board meeting and Shareholder meeting. iv. Performance of duty of the Remuneration and Appraisal Committee of the Board of Directors The Remuneration and Appraisal Committee of the Company examined the salaries of the independent directors and senior executives, it believed that it is in line with the laws, regulations and the remuneration appraisal system of the Company. The Company’s Stock incentive plan was approved by the 12th meeting of 4th Board of Directors in September 9, and it has been reported to the CSRC for approval, and it is in attention of the Remuneration and Appraisal Committee of the Company. V. Proposal of profit distribution preplan or share conversion from capital public reserve. According to the financial report audited by PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd., the net profit of the Company was RMB 300,694,520 (non-consolidated) in 2007. The Company took 10% of the net profit as stationary surplus reserve. The Board of Directors proposed to distribute the profit based on the total share capital 1,187,963,124 at the end of the year 2007, taking into accounts of the profits available for dividend of the Company as at 31 December 2007 and the dividend income committed by the subsidiaries of the Company amounting to RMB 254,920,429, to distribute every shareholder RMB 1.50 (including tax) for each 10 shares held. The above profit distribution preplan must be submitted to the 2007 Shareholders’ General Meeting of the Company for consideration. -32- CSG Holding Co., Ltd. 2007 Annual Report §8 Report of the Supervisory Committee I. Particular about working of the Supervisory Committee In the report period, Supervisory Committee of the Company held 7 meetings in total. i. The 12th meeting of the 4th Supervisory Committee was held on March. 16, 2007, the resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated March.20, 2007. ii. The 13th meeting of the 4th Supervisory Committee was held on Apr. 20, 2007, and the meeting examined and approved the 1st Quarterly Report of CSG Co., Ltd. of 2007. iii. The 14th meeting of the 4th Supervisory Committee was held on May. 28, 2007, and the meeting examined and approved the Self-examination Report and Rectification Plan on Corporate Governance of CSG and the Report of Special Campaign to Strengthen the Corporate Governance of CSG (amended in May of 2007) iv. The 15th meeting of the 4th Supervisory Committee was held on Aug. 10, 2007, and the resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated Aug.14, 2007. v. The 16th meeting of the 4th Supervisory Committee was held on Aug. 30, 2007, and the resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated Aug.31, 2007. vi. The 17th meeting of the 4th Supervisory Committee was held on Oct. 29, 2007, and the resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated Oct.31, 2007. vii. The 18th meeting of the 4th Supervisory Committee was held on Nov. 16, 2007, and the resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated Nov. 19, 2007. II. Independent opinion of the Supervisory Committee i. Operation according to law The Supervisory Committee of the Company knew and mastered the operation and financial situation of the Company through attending as nonvoting delegate and took part in the Shareholders’ General Meeting and the Board Meeting. The Supervisory Committee considered that the Board of the Company strictly performed its duties in accordance with the regulations of laws and rules of the State and Articles of Association of the Company in 2007, and its decision-making procedure was legal; the internal control system of the Company was complete and the operation was normative. The directors and senior executives of the Company had no behaviors of disobeying laws, regulations and Articles of Association of the Company or damaging the interests of the Company when executing -33- CSG Holding Co., Ltd. 2007 Annual Report their duties in the Company. ii. Financial inspection The Supervisory Committee of the Company believes that the Auditor’s Report issued by PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd. is true and reliable, and the financial report and auditor’s opinions of the Company truly reflect the financial situation and operative achievements of the Company. iii. Use of the raised funds In October of 2007, the Company raised funds of RMB 1.38 billion (including issuing expense) through private offering of A-shares. The actual amount used of the raised fund to the projects is consistent with the promised amount required by the projects. iv. Purchase and sales of assets During the report period, the transaction price for asset purchasing and selling is fair and reasonable. There are no insider dealings which harms the interests of shareholders and assets of the Company. v. Related party transactions The Company’s related party transactions in the report period were based on the market price, and followed the rules of market transactions. No actions which harmed the interests of listed companies were found. -34- CSG Holding Co., Ltd. 2007 Annual Report §9 Important Events I. In the report period, the Company has not been involved in any significant lawsuits or arbitrations. II. In the report period, the Company does not have any matters related to bankruptcy and reorganization. III. At the end of the report period, the equity of other companies held by the Company: Unit: RMB Proportion Book value Gains/ Changes in Stock Stock Initial of equity at the losses Owners’ Item in Share Code Abbr. Investment held period end in 2007 Equity accounting type 000504 CCID 17,650,512 0.91% 31,923,277 － 27,765,879 Available-for-sale Legal Media financial assets person share 600695 ST 2,000,000 0.13% 7,395,960 － 7,395,960 Available-for-sale Legal Dajiang financial assets person share 000566 Hainan 1,203,072 0.24% 4,307,204 － 3,586,484 Available-for-sale Legal Haiyao financial assets person share Total － 20,853,584 － 43,626,441 － 38,748,323 － - IV. Purchase and sales of assets and proceedings of the enterprise merger With approval from the 22nd meeting of the 4th Board of Directors, the Company sold the 100% equity of its wholly owned subsidiary: Shenzhen CSG Automotive Glass Co., Ltd to Xinyi International Investment Co., Ltd. The reference price for this equity sale is RMB 0.166 billion and, the income of RMB 29.28 million occurred from this transaction was written as investment income. This transaction helps the Company to optimize the resource allocation and improve the assets quality of the Company. The details about the transaction could be found in the Notice of Asset Selling and Complementary Notice of the Asset Selling published on Securities Times, China Securities journal, and Hong Kong Wen Wei Po dated on Oct. 31st of 2007 and Nov. 19th of 2007. V. Proceeding of option incentive In September of 2006, the Proposal (draft) on Stock Incentive Plan of CSG was examined and approved in the 12th meeting of the 4th Board of Directors. It is planed to grant the incentive persons with 50,000,000 options of A-share. This incentive plan is being examined and approved by CSRC. The plan can only be implemented after it is approved by the CSRC and the shareholders’ meeting of the Company. -35- CSG Holding Co., Ltd. 2007 Annual Report VI. Related party transactions happened during the report period Unit: RMB’0000 Related party 2007 Remarks Total Logistics (Shenzhen) Co., Ltd. 3,204 This accumulated amount of the related party transaction was the logistic services provided by the related party to some subsidiary companies of the Company. The agreed price was set based on the price from public bidding. VII.Significant contract and the implementation i. In the report period, neither has the Company entrusted, contracted or leased other companies’ assets, nor have other companies entrusted, contracted or leased the assets of the Company. ii. In the report period, the Company has not offered any guarantee to any external parties or individuals other than the Company’s own subsidiaries. The guarantees that the Company offered to its shareholding subsidiaries are as follows: Unit: RMB’0000 Guarantee of the Company for its controlling subsidiaries Total amount of guarantee for controlling subsidiaries in the report period 85,226 Balance of guarantee for controlling subsidiaries at the end of the report period 78,721 Particulars about the guarantee of the Company(Including the guarantee for the controlling subsidiaries) Total amount of guarantee 78,721 Proportion of the total guarantee in net assets of the Company (%) 19.65% Including: Total amount of the guarantee for shareholders, actual controller and correlated parties 0 The debts guarantee amount provided for the guarantee of which the assets-liability ratio exceeded 70% 16,846 Total amount of guarantee in net assets of the Company exceeded 50% 0 Total amount of guarantee aforesaid 16,846 iii. In the report period, the Company has not entrusted others or organizations to conduct assets management or loan. VIII. Commitment events Non-tradable shareholders of the Company committed in Explanations on Share Merger Reform of CSG Holding Co., Ltd: i. Since the date of the implementation of Share Merger Reform, no transaction or transfer is allowed in the market within 12 months. ii. When the original non-tradable shareholders, whose total stock exceeds 5% of the total shares of the Company, list and sell the original non-tradable shares on Shenzhen Stock Exchange under the expiration of the condition in item 1 above, the proportion of shares sold must not exceed 5% of the total shares of The Company in 12 months, and 10% of the total shares of the Company in 24 months. By the end of the report period, the original non-tradable shareholders of the Company -36- CSG Holding Co., Ltd. 2007 Annual Report have strictly carried out their promises. IX. Engagement of Certified Public Accountants In the report period, the Company consecutively engaged Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd. as the auditing organization of A share of the Company. Since the year 2002, the above two auditing organizations have provided auditing services for the Company for six continuous years. In the report period, the expense that the Company paid to the auditing organization of A-share is RMB 3.20 million. The other expenses, such as evection and living expenses, are conducted by themselves. X. Punishment and governance reform i. In the report period, none of the Company, the board of directors, supervisors, senior executives, and actual controllers were criticized or condemned by the CSRC, Stock Exchange Department and any other superior governing bodies. There is no situation that the Company received public criticize from the Stock Exchange Department. ii. According to the spirit of Notice on the Matters concerning Carrying out a Special Campaign to Strengthen the Corporate Governance of Listed Companies (SRCZ [2007] No.28) released by CSRC, and requirements in Notice on Carrying out a Special Campaign to Strengthen the Corporate Governance of Listed Companies in Shenzhen District (SZSRCZ [2007] No.14) released by Shenzhen Securities Regulatory Bureau SSRB, the Company established a special team for this campaign. The team performed a comprehensive inspection and self-examination on the Company’s governance structure, and published self-examination report and rectification plan on Jun 23rd of 2007. In August of 2007, SSRB made a spot examination on the result of the special campaign carried out by the Company, and released the Supervision Opinions on the Corporate Governance of CSG holding Co., Ltd (SZSRCZ [2007] No.44). The Company improved its Corporate Governance in accordance with the self-inspection, public opinions, and the opinion from the SSRB and published the CSG Governance Rectification Report in the Special Campaign on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated on Oct. 12, 2007. XI. Other events i. Equity sale of Shenzhen CSG Electronic Co., Ltd. With approval in the 25th meeting of the 4th Board of Directors, the Company sold its 100% equity (after partial asset divestiture) of its wholly controlled subsidiary: Shenzhen CSG Electronics Co., Ltd to Shenzhen Sunlord Electronics Co., Ltd.. The details for this transaction could be found in the announcement Proposal of Asset Sale published Notice of Planed Asset Sale published on Securities Times, China Securities and Hong Kong Wen Wei Po dated on Jan 16th of 2008. -37- CSG Holding Co., Ltd. 2007 Annual Report ii. Equity sale of Shenzhen CSG Curtain Wall & PV Engineering Co., Ltd. With approval in the 24th meeting of the 4th Board of Directors, the Company sold its 100% equity of its wholly controlled subsidiary: Shenzhen CSG Curtain Wall & PV Engineering Co., Ltd. to Shanghai Han Na Curtain Wall Technology Cp., Ltd. and Shanghai Lang Shuo Industrial Trading Co., Ltd.. In recent years, as the revenue and the profit increase along with the rapid growth of the Company, the proportion of Shenzhen CSG Curtain Wall & PV Engineering Co., Ltd. in the Company’s total revenue and profit is less than 1%, which makes this subsidiary less and less significant to the Company. The price of sale was calculated based on the total assets of the subsidiary plus the lending from the Company. The realization of this transaction can help the Company to allocate the resources in its significant business, which reinforces the Company’s competitive advantage and continuous development. iii. Particulars about the reception to investors in the report period. Date Place Method Name 2007.5.30 Conference room Interview Sealand Securities Co., Ltd.; Fortune Trust Investment Co., Ltd.; Yinhua Fund Management Co., Ltd. 2007.6.21 Conference room Interview Bisheng(Shanghai) Investment Consulting Co., Ltd. Dongguan Filiale 2007.6.28 Conference room Interview Qinhan Capital Management LLC 2007.6.29 Conference room Interview Nikko Asset Management Co., Ltd. 2007.7.5 Conference room Interview Driehuas Capital Management Llt 2007.7.17 Conference room Interview China Post & Capital Fund Management Co., Ltd. 2007.7.18 Conference room Interview Nomura International (Hong Kong) Ltd.; Dlibj Asset Management Co., Ltd. 2007.10.19 Conference room Interview Nikko Asset Management Co., Ltd.; Penghua Fund Management Co., Ltd.; China International Fund Management Co., Ltd.; Sinolink Securities Co., Ltd.; China International Capital Corporation Limited; China Universal Asset Management Co., Ltd.; Guangdong Leadmann Construction Materials & Decoration Co., Ltd. 2007.10.31 Conference room Interview Lord Abbett China 2007.11.9 Conference room Interview GMT Capital Corp.; Orient Securities Company Limited; China Alpha Investment management Limited 2007.11.13 Conference room Interview CSC International Holdings Ltd.; Pin An Securities Company Ltd. 2007.11.29 Conference room Interview Yunnan International Trust Co., Ltd.; BOC International Investment Managers; China Dragon Engine Fund; Fullgoal Fund Management Co., Ltd. 2007.12.7 Conference room Interview CAP Fund 2007.12.17 Conference room Interview Shenyin Wanguo Securities (H.K.) Ltd.; Diamond Head Capital Partners, LP Content discussed and materials supplied Introducing the disclosed information about operation and production of the Company. The material offered is the 2006 Annual Report. -38- CSG Holding Co., Ltd. 2007 Annual Report §10 Financial Reports Report of the Auditors PwC ZT Shen Zi (2008) No.10024 TO THE SHAREHOLDERS OF CSG HOLDING CO., LTD. We have audited the accompanying financial statements of CSG Holding Co., Ltd. (the “Company”) and its subsidiaries (together, the “Group”), which comprise the consolidated and company balance sheet as at 31 December 2007, and the consolidated and company income statement, the consolidated and company cash flow statement, the consolidated and company statement of changes in equity for the year then ended and notes to these financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation of these financial statements in accordance with the Enterprise Accounting Standard. This responsibility includes: (i) designing, implementing and maintaining internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error; (ii) selecting and applying appropriate accounting policies; (iii) 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. We conducted our audit in accordance with the China Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. -39- CSG Holding Co., Ltd. 2007 Annual Report 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 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 management, 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. Opinion In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company and the Group as of 31 December 2007, and of its financial performance and its cash flows for the year then ended and prepared in accordance with the Enterprise Accounting Standards. PricewaterhouseCoopers Zhong Tian Certified Public Accountant Kong Yu CPAs Limited Company Certified Public Accountant Sun Li Shanghai, the PRC 17 March 2008 -40- CSG Holding Co., Ltd. 2007 Annual Report CSG HOLDING CO., LTD. CONSOLIDATED AND COMPANY BALANCE SHEETS AS AT 31 DECEMBER 2007 (All amounts in Rmb Yuan unless otherwise stated) 31 December 31 December 31 December 31 December 2007 2006 2007 2006 ASSETS Note The Group The Group The Company The Company Current assets Cash at bank and on hand 7 (1) 1,278,194,239 538,770,847 607,076,960 190,814,911 Notes receivable 7 (2) 84,164,841 89,232,402 - - Accounts receivable 7 (3) 313,711,591 297,511,164 - - Advances to suppliers 7 (4) 25,383,094 13,182,984 3,571,268 - Interest receivable - - - 3,664,440 Dividends receivable - - 119,859,802 123,684,502 Other receivables 7 (5), 10 (1) 107,187,651 24,935,768 795,518,581 808,932,976 Inventories 7 (6) 325,139,590 321,493,894 - - Other current assets 7 (7) - 1,983,605 - - Total current assets 2,133,781,006 1,287,110,664 1,526,026,611 1,127,096,829 Non-current assets Available-for-sale financial assets 7 (8) 43,626,441 4,878,118 43,626,441 4,878,118 Long-term receivables 10 (3) - - 616,484,860 429,036,512 Long-term equity investments 7 (9), 10 (2) 4,200,000 10,965,062 2,300,325,729 1,885,954,032 Fixed assets 7 (10) 5,178,698,489 4,608,192,942 21,008,581 20,454,956 Construction in progress 7 (11) 791,877,561 614,851,194 - - Intangible assets 7 (12) 293,919,172 233,841,350 - - Goodwill 7 (13) 3,039,946 - - - Deferred tax assets 7 (24) 3,839,332 1,481,513 - - Other non-current assets 7 (14) - 15,000,569 - 15,000,569 Total non-current assets 6,319,200,941 5,489,210,748 2,981,445,611 2,355,324,187 TOTAL ASSETS 8,452,981,947 6,776,321,412 4,507,472,222 3,482,421,016 The accompanying notes form an integral part of these financial statements -41- CSG Holding Co., Ltd. 2007 Annual Report CSG HOLDING CO., LTD. CONSOLIDATED AND COMPANY BALANCE SHEETS AS AT 31 DECEMBER 2007 (CONTINUED) (All amounts in Rmb Yuan unless otherwise stated) 31 December 31 December 31 December 31 December 2007 2006 2007 2006 LIABILITIES AND OWNERS' EQUITY Note The Group The Group The Company The Company Current liabilities Short-term borrowings 7 (15) 2,014,621,320 1,842,610,786 1,067,199,380 1,072,319,150 Notes payable 7 (16) 284,555,735 319,481,628 - - Accounts payable 7 (17) 616,421,927 457,494,919 - - Advances from customers 7 (18) 71,698,511 60,171,835 - - Employee benefits payable 7 (19) 46,335,228 33,070,345 8,826,653 10,924,100 Taxes payable 7 (20) 57,438,795 31,752,687 439,915 - Interest payable 5,377,281 6,006,558 423,445 - Dividends payable 3,194,116 3,708,570 3,194,116 3,708,570 7 (21), 10 Other payables (4) 147,521,129 79,809,770 87,492,449 308,435,883 Current portion of non-current liabilities 7 (23) 331,624,057 214,276,949 - - Other non-current assets 7 (22) 20,208,284 21,086,247 - 1,621,486 Total current assets 3,598,996,383 3,069,470,294 1,167,575,958 1,397,009,189 Non-current liabilities Long-term borrowings 7 (23) 514,161,431 717,041,621 - - Deferred tax liabilities 7 (24) 7,558,595 - 4,643,214 - Other non-current liabilities 7 (25) 46,651,667 45,000,000 - - Total non-current liabilities 568,371,693 762,041,621 4,643,214 - Total liabilities 4,167,368,076 3,831,511,915 1,172,219,172 1,397,009,189 Owners' equity Paid-in capital 7 (26) 1,187,963,124 1,015,463,124 1,187,963,124 1,015,463,124 Capital surplus 7 (27) 1,802,280,532 578,135,709 1,812,007,435 578,402,326 Surplus reserve 7 (28) 359,176,856 329,107,404 359,176,856 329,107,404 Undistributed profits 653,330,647 708,873,702 (23,894,365) 162,438,973 Translation difference of foreign currency financial statements 4,262,959 929,916 - - Total equity attributable to equity holders of the Company 4,007,014,118 2,632,509,855 3,335,253,050 2,085,411,827 Minority interest 7 (30) 278,599,753 312,299,642 - - Total owners' equity 4,285,613,871 2,944,809,497 3,335,253,050 2,085,411,827 TOTAL LIABILITIES AND OWNER'S EQUITY 8,452,981,947 6,776,321,412 4,507,472,222 3,482,421,016 The accompanying notes form an integral part of these financial statements -42- CSG Holding Co., Ltd. 2007 Annual Report CSG HOLDING CO., LTD. CONSOLIDATED AND COMPANY INCOME STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in Rmb Yuan unless otherwise stated) 2007 2006 2007 2006 Items Note The Group The Group The Company The Company Revenue 7 (31) 4,187,962,628 2,964,816,212 72,000 72,000 Less: Cost of sales 7 (31) (2,909,573,117) (2,011,757,303) (3,708) (3,708) Tax and levies on operations 7 (32) (11,823,893) (6,442,552) - - Selling and distribution expenses (251,276,789) (196,442,484) - - General and administrative expenses (292,019,143) (214,205,227) (24,461,287) (20,403,730) Finance expenses – net 7 (33) (64,918,116) (87,982,201) 918,672 9,450,563 7 (34),10 Asset impairment losses (5) (43,302,258) (3,470,380) (13,720,000) - 7 (35), 10 Add: Investment income (6) 27,934,153 - 337,707,699 301,374,451 Operating profit 642,983,465 444,516,065 300,513,376 290,489,576 Add: Non-operating income 7 (36) 13,879,551 10,929,435 250,000 271,200 Less:：Non-operating expenses 7 (36) (22,395,934) (6,300,729) (68,856) (50,000) Total profit 634,467,082 449,144,771 300,694,520 290,710,776 Less: Income tax expenses 7 (37) (67,212,115) (32,330,631) - - Net profit 567,254,967 416,814,140 300,694,520 290,710,776 Attributable to equity holders of the Company 431,484,803 335,110,814 Minority interest 135,770,164 81,703,326 Earnings per share for the profit attributable to the shareholders of the Company during the year - basic 7 (38) 0.41 0.33 - diluted 7 (38) 0.41 0.33 The accompanying notes form an integral part of these financial statements -43- CSG Holding Co., Ltd. 2007 Annual Report CSG HOLDING CO., LTD. CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in Rmb Yuan unless otherwise stated) 2007 2006 2007 2006 Items Notes The Group The Group The Company The Company Cash flows from operating activities Cash received from sales of goods or rendering of services 3,958,963,853 2,906,052,135 - - Refund of taxes and levies 9,864,987 14,043,923 - - Cash received relating to other operating activities 34,342,585 80,301,911 10,902,424 31,965,572 Sub-total of cash inflows 4,003,171,425 3,000,397,969 10,902,424 31,965,572 Cash paid for goods and services (2,054,947,374) (1,567,384,497) - - Cash paid to and on behalf of employees (353,353,295) (267,112,610) (17,504,047) (13,799,475) Payments of taxes and levies (305,089,309) (189,004,706) (315,626) (375,129) Cash paid relating to other operating activities (187,465,932) (176,103,603) (48,197,591) (30,470,092) Sub-total of cash outflows (2,900,855,910) (2,199,605,416) (66,017,264) (44,644,696) Net cash flows from operating activities 7 (39) 1,102,315,515 800,792,553 (55,114,840) (12,679,124) Cash flows from investing activities Cash received from disposal of investments 7 (39) 139,960,519 - 65,242,370 120,000,000 Cash received from returns on investments - - 266,547,165 302,517,812 Net cash received from disposal of fixed assets, intangible assets and other long-term assets 1,348,194 32,000,464 - - Cash received relating to other investing activities 83,883,732 70,264,995 737,625,418 761,332,832 Sub-total of cash inflows 225,192,445 102,265,459 1,069,414,953 1,183,850,644 Cash paid to acquire fixed assets, intangible assets and other long-term assets (1,425,419,419) (1,137,044,698) (3,041,818) (2,552,683) Cash paid to acquire investments (128,775,559) (13,015,062) (583,100,834) (360,772,516) Cash paid relating to other investing activities (11,156,300) (38,576,000) (877,122,994) (1,382,720,736) Sub-total of cash outflows (1,565,351,278) (1,188,635,760) (1,463,265,646) (1,746,045,935) Net cash flows from investing activities (1,340,158,833) (1,086,370,301) (393,850,693) (562,195,291) Cash flows from financing activities Cash received from capital contributions 1,386,560,000 40,749,008 1,372,000,000 - Including: Cash received from capital contributions by minority shareholders of subsidiaries 14,560,000 40,749,008 - - Cash received from borrowings 4,367,493,598 3,404,467,814 2,053,806,260 1,197,919,150 Sub-total of cash inflows 5,754,053,598 3,445,216,822 3,425,806,260 1,197,919,150 Cash repayments of borrowings (4,073,028,994) (2,578,682,694) (2,074,348,620) (264,000,000) Cash payments for interest expenses and distribution of dividends or profits (652,976,268) (323,620,820) (480,214,538) (183,899,660) Including: Cash payments for dividends or profit to minority shareholders of subsidiaries (57,618,791) (43,627,832) - - Cash payments relating to other financing activities (3,200,000) (3,200,000) (3,200,000) (3,200,000) Sub-total of cash outflows (4,729,205,262) (2,905,503,514) (2,557,763,158) (451,099,660) Net cash flows from financing activities 1,024,848,336 539,713,308 868,043,102 746,819,490 Effect of foreign exchange rate changes on cash and cash equivalents (7,865,179) (1,432,095) (2,815,520) (83,609) Net increase in cash and cash equivalents 7 (39) 779,139,839 252,703,465 416,262,049 171,861,466 Add: Cash and cash equivalents at beginning of year 480,466,714 227,763,249 190,814,911 18,953,445 Cash and cash equivalent at end of year 7 (39) 1,259,606,553 480,466,714 607,076,960 190,814,911 The accompanying notes form an integral part of these financial statements -44- CSG Holding Co., Ltd. CSG HOLDING CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN OWNER'S EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in Rmb Yuan unless otherwise stated) Attributable to equity holders of the Company Translation difference of foreign currency Surplus Undistributed financial Items Note Paid-in capital Capital surplus reserves profits statements 7 (26) 7 (27) 7 (28) 1,015,463,124 575,835,467 350,456,259 534,031,692 140,705 Balance at 31 December 2005 - - (50,419,933) 51,585,636 - Effect of first-time adoption of the CAS 1,015,463,124 575,835,467 300,036,326 585,617,328 140,705 Balance at 1 January 2006 Movement for the year ended 31 December 2006 - - - 335,110,814 - Net profit - 2,300,242 - - 789,211 Gains or losses recognized directly in owners' equity - 2,300,242 - - - - Cash flow hedges - - - - 789,211 Translation difference of foreign currency financial statements - - - - - - Capital contribution and withdrawal by owners - - - - - - Contribution by minority shareholders - - - - - Acquisition of minority interests - - 29,071,078 (211,854,440) - - Profit distribution - - 29,071,078 (29,071,078) - - Appropriation to surplus reserves - - - (182,783,362) - Profit distribution to equity owners 1,015,463,124 578,135,709 329,107,404 708,873,702 929,916 -45- CSG Holding Co., Ltd. CSG HOLDING CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN OWNER'S EQUITY (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in Rmb Yuan unless otherwise stated) Attributable to equity holders of the Company Translation difference of foreign currency Surplus Undistributed financial Items Note Paid-in capital Capital surplus reserves profits statements 7 (26) 7 (27) 7 (28) Balance at 1 January 2007 1,015,463,124 578,135,709 329,107,404 708,873,702 929,916 Movement for the year ended 31 December 2007 Net profit - - - 431,484,803 - Gains or losses recognized directly in owners' equity - 32,121,504 - - 3,333,043 - cash flow hedges - (1,983,605) - - - Translation difference of foreign currency financial statements - - - - 3,333,043 Net changes in fair value of available-for-sale financial assets 34,105,109 Capital contribution and withdrawal by owners 172,500,000 1,192,023,319 - - - - Capital contribution by owners 172,500,000 1,199,500,000 - - - - acquisition of minority interests 9 - (7,476,681) - - - Profit distribution - - 30,069,452 (487,027,858) - - Appropriation to surplus reserves - - 30,069,452 (30,069,452) - - Profit distribution to equity owners - - (456,958,406) - Balance at 31 December 2007 1,187,963,124 1,802,280,532 359,176,856 653,330,647 4,262,959 The accompanying notes form an integral part of these financial statements -46- CSG Holding Co., Ltd. 2007 Annual Report CSG HOLDING CO., LTD. COMPANY STATEMENT OF CHANGES IN OWNER'S EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in Rmb Yuan unless otherwise stated) Surplus Undistributed Total owners' Items Note Paid-in capital Capital surplus reserves profits equity 7 (26) 7 (27) 7 (28) Balance at 31 December 2005 1,015,463,124 575,835,467 350,456,259 537,362,038 2,479,116,888 Effect of first-time adoption of the CAS - 2,566,859 (50,419,933) (453,779,401) (501,632,475) Balance at 1 January 2006 1,015,463,124 578,402,326 300,036,326 83,582,637 1,977,484,413 Movement for the year ended 31 December 2006 Net profit - - - 290,710,776 290,710,776 Profit distribution - - 29,071,078 (211,854,440) (182,783,362) Appropriation to surplus reserves - - 29,071,078 (29,071,078) - Profit distribution to equity owners - - - (182,783,362) (182,783,362) Balance at 31 December 2006 1,015,463,124 578,402,326 329,107,404 162,438,973 2,085,411,827 Balance at 1 January 2007 1,015,463,124 578,402,326 329,107,404 162,438,973 2,085,411,827 Movement for the year ended 31 December 2007 Net profit - - - 300,694,520 300,694,520 Gains or losses recognised directly in owners' equity - 34,105,109 - - 34,105,109 Net changes in fair value of available-for-sale financial assets - 34,105,109 - - 34,105,109 Capital contribution by owners 172,500,000 1,199,500,000 - - 1,372,000,000 Profit distribution - - 30,069,452 (487,027,858) (456,958,406) Appropriation to surplus reserves - - 30,069,452 (30,069,452) - Profit distribution to equity owners - - - (456,958,406) (456,958,406) Balance at 31 December 2007 1,187,963,124 1,812,007,435 359,176,856 (23,894,365) 3,335,253,050 The accompanying notes form an integral part of these financial statements -47- CSG Holding Co., Ltd. 2007 Annual Report CSG HOLDING CO., LTD. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) 1 General information CSG Holding Co Ltd (the “Company”) was incorporated in 1984 in Shenzhen, the People’s Republic of China (the “PRC”), known as China South Glass Company, as a joint venture enterprise by 香港招商局轮船股份有 限公司、深圳建筑材料工业集团公司、中国北方工业深圳公司 and 广东国际信托投资公司, with a registered capital of US dollar 500,000. In October 1991, as approved by the Shenzhen municipal government with document SFBF (1991) 828, China South Glass Company was reorganized as joint stock limited company, the registered capital was RMB71,232,550, with nominal value of RMB 1 per share. As approved by People’s Bank of China Shenzhen Branch with document No. SRYFZ (1991)087 and SRYFZ (1992) 010, the Company issued, by public offering, the domestic shares (“A shares”) of 20,300,000 shares and domestically listed foreign shares (“B shares) of 16,000,000, in October 1991 and January 1992, respectively. Both shares were listed in Shenzhen Stock Exchange in February 1992. The registered capital of the Company increased to RMB 107,532,550. As approved by China Security Regulatory Committee with document No. (1995) 16, State Planning Committee with document No. JWZ (1994) 1748 and State Administrative of Foreign Exchange with document No. (95) HZF191, the Company issued USD 45 million convertible bonds on Swiss between June and July 1995, of which convertible bonds amounting to USD 44 million had been converted into 75,411,268 B shares, the remaining balances were repaid upon maturity. The Company issued new capital of RMB 832,519,306 during the period from 1993 to 2005 by the means of warrants, bonus issue and capitalization of capital reserve. As approved by Shenzhen Municipal State Owned Assets Management and Supervisory Committee with document No. (2006) 190 “the Approval over the Share Restructuring Scheme by CSG Holding Co Ltd”, the Company went the share restructuring scheme. The shareholders of the non public shares offered to the listed A share shareholders 57,065,893 shares of non public shares, being 3.55 per 10 listed A shares, in return for the conversion of the non publics shares into listed A shares. Since 24 May 2006, the non public shares converted into listed A shares on Shenzhen Stock Exchange, of which, approximately 180,385,000 were still in lock up period which were set in the scheme as at 31 December 2007. As approved by China Security Regulatory Committee with document No. ZJFX (2007)231, the Company issued, by private placement, 172,500,000 A shares during the period from 20 September and 27 September 2007, at subscription price of RMB 8 per share. The registered capital of the Company increased to 1,187,963,124 upon the completion of the placement. Please refer to Note 7 (26) for the further information. The Company and its subsidiaries (collectively referred to the “Group”) are mainly engaged in the manufacturing and selling of floating glass, specialized glass, engineering glass, ITO glass, advanced electronics components and ceramics products, glass energy saving products, the installments of the glass curtain, real estate development and others. On 29 October 2007, the Company sold its 100% equity interests of Shenzhen CSG Automotive Glass Co Ltd, to Xinyi International Investments Limited. Please refer to Note 6 (2) for further information. The financial statements were authorized for issue by the board of directors on 17 March 2008. -48- CSG Holding Co., Ltd. 2007 Annual Report 2 Basis of preparation Before 31 December 2006, the Group prepared financial statements in accordance with the “Accounting System for Business Enterprises“ issued on 29 December 2000 and the Accounting Standards for Business Enterprises and other regulations applicable to the Group that were issued before 15 February 2006 (hereafter referred to as “Previous Accounting Standards and System”). On 1 January 2007, the Group adopted the Basic Standard and 38 specific standards of Accounting Standards for Business Enterprises issued by Ministry of Finance on 15 February 2006, Application Guidance of Accounting Standard for Business Enterprises, Interpretation of Accounting Standards for Business Enterprises and other regulations issued thereafter (hereafter referred to as “the Accounting Standard for Business Enterprises”, “China Accounting Standards” or “CAS”). The financial statements for the year ended 31 December 2007 are the Group’s first annual financial statements prepared in accordance with CAS. On 1 January 2007, the first-time adoption date of CAS, the Group made retrospective adjustments in accordance with the requirements relating to the first-time adoption of CAS stipulated in “Accounting Standard for Business Enterprises No. 38–First-time Adoption of Accounting Standards for Business” and ‘’ Interpretation No. 1 of Accounting Standards for Business Enterprises”. The comparative figures in respect of 2006 were retrospectively adjusted and restated to reflect these adjustments in accordance with CAS. The retrospective adjustments mainly include the following items: (1) The balance of the equity investment differences arising from a business combination involving enterprises under common control and the credit balance of the equity investment differences included in the long-term equity investment accounted for using equity method of accounting are fully derecognised. (2) The carrying amount of financial assets at fair value through profit or loss and available-for-sale financial assets is adjusted to fair value. (3) Deferred tax assets and deferred tax liabilities are recognised for the temporary differences arising from the difference between the carrying amount of assets and liabilities and their tax base, and for deductible losses and tax credits that can be carried forward to the future years. (4) The pre-operating expenses are expensed upon incurred. (5) The long-term equity investments in subsidiaries are adjusted retrospectively in the Company’s individual financial statements, as if it had been accounted for using cost method of accounting at initial recognition. The reconciliation from the consolidated owners’ equity as at 1 January and 31 December 2006 and the consolidated net profit for the year ended 31 December 2006 presented in accordance with Previous Accounting Standards and System to those presented in accordance with CAS is set out in Note 15. As at 31 December 2007, the Group had net current liabilities of RMB 1,465,215,377. The directors of the Company have assessed and are confident that the Group can continue as a going concern based on the such facts and conditions: a) the Group could generate the positive and ever growing operating cash flows; b) the Group has maintained good relationship with banks so the Group has never meet any difficulty in renewing banking facilities; and c) the Group is actively seeking other financing resources , including issuing short term finance bonds (Note 14(a)). In addition, as at 31 December 2007, the Group had unutilized banking facilities of approximately RMB 5.2 billion, which can meet its debt servicing and capital commitment requirements. Accordingly, the directors of the Company are satisfied that it is appropriate to prepare the consolidated financial statements of the Group on a going concern basis. -49- CSG Holding Co., Ltd. 2007 Annual Report 3 Statement of compliance with the Accounting Standards for Business Enterprises. The consolidated and the company’s financial statements for the year ended 31 December 2007 truly and completely present the financial position of the Group and the Company as of 31 December 2007 and of their financial performance and their cash flows for the year then ended in compliance with the Accounting Standards for Business Enterprises. 4 Summary of significant accounting policies and accounting estimates (1) Accounting period The Company’s accounting year starts on 1 January and ends on 31 December. (2) Recording currency The recording currency is Renminbi (RMB) (3) Foreign currency translation (a) Transactions and balances Foreign currency transactions are translated into RMB using the exchange rates prevailing at the dates of the transactions. At the balance sheet date, monetary items denominated in foreign currency are translated into RMB using the spot exchange rate at the balance sheet date. Exchange differences arising from these translations are recognised in profit or loss for the current period, except for those attributable to foreign currency borrowings that have been taken out specifically for the acquisition, construction or production of qualifying assets, which are capitalised as part of the cost of those assets. Non-monetary items denominated in foreign currency that are measured in terms of historical cost are translated at the balance sheet date using the spot exchange rate at the date of the transaction. (b) Group companies The results and financial position of all the group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; Except for undistributed profits, equity items are translated at the exchange rates prevailing at the dates of the transactions; (ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and (iii) all resulting exchange differences are recognised as a separate component of equity. Foreign currency cash flows and cash flows of overseas subsidiaries of the Company are translated at the exchange rates prevailing at the dates of the transactions. Effect of foreign exchange rate changes on cash and cash equivalents is presented separately. (4) Cash and cash equivalents For the purpose of the cash flow statement, cash comprises cash in hand and deposits held at call with bank. Cash equivalents refer to short-term and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. -50- CSG Holding Co., Ltd. 2007 Annual Report 4 Summary of significant accounting policies and accounting estimates (continued) (5) Financial assets Financial assets are classified into the following categories at initial recognition: financial assets at fair value through profit or loss, receivables, available-for-sale financial assets and held-to-maturity investments. The classification of financial assets depends on the Group’s intention and ability to hold the financial assets. (a) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for the purpose of selling in the short term, which are presented as financial assets held for trading on the balance sheet. (b) Receivables Receivables, including accounts receivable and other receivables, are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market (Note 4 (7)). (c) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other categories at initial recognition. Available-for-sale financial assets are included in other current assets in the balance sheet if management intends to dispose of them within 12 months of the balance sheet date. (d) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed maturity and fixed or determinable payments that management has the positive intention and ability to hold to maturity. Held-to-maturity investments with maturities less than 12 months of the balance sheet date are included in other current assets or current portion of non-current assets on the balance sheet. (e) Recognition and measurement Financial assets are recognised at fair value on the balance sheet when the Group becomes a party to the contractual provisions of the financial instrument. In the case of financial assets at fair value through profit or loss, related transaction costs are recognised in profit or loss for the current period. For other financial assets, transaction costs that are attributable to the acquisition of the financial assets are included in their initial recognition amounts. Financial assets are derecognised when the contractual rights to receive the cash flows from the financial assets have expired, or all substantial risks and rewards of ownership of the financial assets have been transferred to the transferee. Financial assets at fair value through profit or loss and available-for-sale financial assets are subsequently measured at fair value. Investments in equity instruments are measured at cost when they do not have a quoted market price in an active market and whose fair value cannot be reliably measured. Receivables and held-to-maturity investments are measured at amortised cost using the effective interest method. A gain or loss arising from a change in fair value of an available-for-sale financial asset is recognised directly in equity, except for impairment losses and foreign exchange gains and losses arising from the translation of monetary financial assets, until the financial asset is derecognised, at which time the cumulative gain or loss previously recognised in equity is recognised in profit or loss for the current period. Interests on available-for-sale investments in debt instruments are calculated using the effective interest method during the period in which such investments are held and are recognised in investment income. Cash dividends on available-for-sale investments in equity instruments are recognised in investment income when the investee declares the dividends. -51- CSG Holding Co., Ltd. 2007 Annual Report 4 Summary of significant accounting policies and accounting estimates (continued) (5) Financial assets (continued) (f) Impairment of financial assets The Group assesses the carrying amount of a financial asset other than that at fair value through profit or loss at each balance sheet date. If there is objective evidence that the financial asset is impaired, the Group shall determine the amount of any impairment loss. If an impairment loss on a financial asset carried at amortised cost has been incurred, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred). If there is objective evidence that the value of the financial asset recovered and the recovery is related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed and the amount of reversal is recognised in profit or loss. In the case of a significant or prolonged decline in the fair value of an available-for-sale financial asset, the cumulative loss arising from the decline in fair value that had been recognised directly in equity is removed from equity and recognised in impairment loss. For an investment in debt instrument classified as available-for-sale on which impairment losses have been recognised, if, in a subsequent period, its fair value increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the previously recognised impairment loss is reversed and recognised in profit or loss for the current period. For an investment in an equity instrument classified as available-for-sale on which impairment losses have been recognised, if, in a subsequent period, its fair value increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the previously recognised impairment loss is reversed and directly recognised in equity. Impairment losses incurred on an investment in an equity instrument not quoted in an active market and whose fair value cannot be reliably measured are not allowed to be reversed even if the value of the investment is recovered in a subsequent period. (6) Hedging activities The group designates certain derivatives as either: (i) hedges of the fair value of recognized assets or liabilities or a firm commitment (fair value hedge); or (ii) hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedge). The group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedging transaction. The group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Changes in the faire value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The group only applies fair value hedge accounting for hedging foreign exchange risk on payables for imported fixed asset is recognized in the income statement within ‘finances costs’. -52- CSG Holding Co., Ltd. 2007 Annual Report 4 Summary of significant accounting policies and accounting estimates (continued) (6) Hedging activities (continued) The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement within ‘other gains/ (losses) - net’. Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item affects profit or loss (for example, when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in the income statement within ‘finance costs’. The gain or loss relating to the ineffective portion is recognized in the income statement within ‘other gains/ (losses) - net’. (7) Receivables Receivables comprise accounts receivable and other receivables. Accounts receivable arising from sale of goods or rendering of services are initially recognised at fair value by the Group in accordance with the consideration receivable from the buyer under contract or agreement. Receivables are presented at amortised cost using the effective interest method net of provision for bad debts. Receivables that are individually significant are subject to individual impairment assessment, if there is objective evidence that the Group will not be able to collect the full amounts according to the original terms, a provision for impairment of the receivable is established at the difference between the carrying amount of the receivable and the present value of estimated future cash flows. Receivables that are not individually significant together with those receivables that have been individually evaluated for impairment and found not to be impaired are grouped on the basis of similar credit risk characteristics. The impairment losses for the current year are determined, considering the current conditions, on the basis of historical loss experience for the groups of receivables with the similar credit risk characteristics. When the Group transfers the accounts receivable to financial institutions without recourse, the difference between proceeds derived from the transaction, net of the carrying amounts of the accounts receivable and relevant taxes is recognised in profit or loss for the current period. (8) Inventories Inventories include manufacturing sector and real estate development sector, are stated at cost presented at the lower of cost and net realisable value. Manufacturing sector inventories include raw materials, work in progress, work in progress, finished goods and turnover materials. The real estate development sector inventories are properties held for sale, the cost comprised of land and construction costs. Cost is determined using the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour and an allocation of all production overhead expenditures incurred based on normal operating capacity. Turnover materials include low cost consumables and packaging materials, are expensed upon issuance. -53- CSG Holding Co., Ltd. 2007 Annual Report 4 Summary of significant accounting policies and accounting estimates (continued) (8) Inventories (continued) Provisions for declines in the value of inventories are determined when the carrying value of the inventories is higher than their net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs to completion and estimated costs necessary to make the sale and relevant taxes. The Group adopts the perpetual inventory system. (9) Long-term equity investments Long-term equity investments comprise the Company’s equity investments in its subsidiaries, the Group’s equity investments in its joint ventures and associates as well as the long-term equity investments where the Group does not have control, joint control or significant influence over the investees, and which are not quoted in an active market and whose fair value cannot be reliably measured. (a) Subsidiaries Subsidiaries are all entities over which the Group is able to control, i.e. has the power to govern the financial and operating policies so as to obtain benefits from their operating activities. The existence and effect of potential voting rights derived from the convertible bonds and warrants that are currently convertible or exercisable are considered when assessing whether the Group has control over the investee entity. The Company accounts for investments in subsidiaries using the cost method in its individual financial statements, and makes the appropriate adjustments using equity method when preparing the consolidated financial statements. Under the cost method of accounting, long-term equity investments are measured at the initial investment cost. Investment income is recognised when the investees declare cash dividends or profit distribution. Investment income is recognised only to the extent of the distributions received from accumulated profits of the investees arising after the investment was made. Cash dividends or distributions received in excess of such profits are regarded as a recovery of the initial cost of the investments. (b) Associates Associates are all entities over which the Group has significant influence on their financial and operating policies. Investments in associates are initially measured at the actual costs and subsequently accounted for using the equity method. Where the initial investment cost exceeds the Group’s share of the fair value of the investee’s identifiable net assets at the time of acquisition, the excess is included in the initial investment cost. Where the initial investment cost is less than the Group’s share of the fair value of the investee’s identifiable net assets at the time of acquisition, the difference is included in profit or loss for the current period and the cost of the long-term equity investment is adjusted accordingly. When using the equity method of accounting, the Group recognised the investment income based on its share of net profit or loss of the investee. The Group discontinues recognising its share of net losses of an investee after the carrying amount of long-term equity investment together with any long-term interests that, in substance, form part of the investor’s net investment in the investee are reduced to zero. However, if the Group has incurred obligations for additional losses and the conditions on recognition of provision are satisfied in accordance with the accounting standard on contingencies, the Group continues recognising the investment losses and the provision. -54- CSG Holding Co., Ltd. 2007 Annual Report 4 Summary of significant accounting policies and accounting estimates (continued) (9) Long-term equity investments (continued) (c) Other long-term equity investments Other long-term equity investments where the Group does not have control, joint control or significant influence over the investee, and which are not quoted in an active market and whose fair value cannot be reliably measured are accounted for using the cost method. (d) Impairment of long-term equity investments If the recoverable amount of a long-term equity investments is less than its carrying amount, the carrying amount of the investment is written down to its recoverable amount (Note 4 (15)). (10) Fixed assets Fixed assets comprise buildings, machinery and equipment, motor vehicles, computer and electronic equipment and office equipment. Fixed assets purchased or constructed by the Group are initially measured at cost at the time of acquisition. Subsequent expenditures incurred for a fixed asset are included in the cost of the asset when it is probable that economic benefits associated with the fixed asset will flow to the Group and its cost can be reliably measured. The carrying amount of those parts that are replaced is derecognised. All other subsequent expenditures are recognised in profit or loss in the period in which it is incurred. Fixed assets are depreciated using the straight-line method to allocate the cost of the assets to their estimated residual values over their estimated useful lives. For the fixed assets being provided for impairment loss, the related depreciation charge is prospectively determined based upon the adjusted carrying amounts over their remaining useful lives. The estimated useful lives, the estimated residual values expressed as a percentage of cost and the annual depreciation rates are as follows: Estimated useful lives Estimated residual Annual value depreciation rate Buildings 10-40 years 5%-10% 2.25%-9.5% Machinery and equipment 10-16 years 5%-10% 5.63%-9.5% Motor vehicles and others 3-10 years 5%-10% 9%-31.67% The estimated useful life, the estimated net residual value of a fixed asset and the depreciation method applied to the asset are reviewed, and adjusted if appropriate at least at each financial year-end (Note 4 (28)). If the recoverable amount of a fixed asset is less than its carrying amount, the carrying amount of the asset is written down to its recoverable amount (Note 4 (15)). A fixed asset classified as an asset held for sale is presented at the lower of the carrying amount and the fair value less costs to sell An excess of the original carrying amount over the fair value less the costs to sell is as accounted for as an asset impairment loss. The carry amount of a fixed asset is derecognised on disposal or when no future economic benefits are expected from its use or disposal. The amount of proceeds on sale, transfer, retirement or damage of a fixed asset net of its carrying amount and related taxes and expenses is recognised in profit or loss for the current period. -55- CSG Holding Co., Ltd. 2007 Annual Report 4 Summary of significant accounting policies and accounting estimates (continued) (11) Construction in progress Construction in progress is measured at actual cost. The actual cost comprises construction costs and other costs necessarily incurred to bring construction to get ready for its intended use. Borrowing costs that are eligible for capitalization are capitalized as part of the cost of assets until the assets are ready for their intended use. Construction in progress is transferred to fixed assets when the assets are ready for their intended use, and depreciation begins from the following month If the recoverable amount of construction in progress is less than its carrying amount, the carrying amount of the asset is written down to its recoverable amount (Note 4 (15)). (12) Intangible assets Intangible assets including land use rights, patents and non-proprietary technologies are measured at actual cost. (a) Land use rights Land use rights are amortised on the straight-line basis over the period of the land use rights. If it is impracticable to allocate the amount paid for the purchase of land use rights and buildings between the land use rights and the buildings on a reasonable basis, the entire amount is accounted for as fixed assets. (b) Patents Patents are amortised on a straight-line basis over periods as stipulated by the contracts. (c) Impairment of intangible assets If the recoverable amount of an intangible asset is less than its carrying amount, the carrying amount of the asset is written down to its recoverable amount (Note 4 (15)). (d) Periodical review of useful life and amortisation method The estimated useful life and amortization method for an intangible asset with an indefinite useful life is reviewed, and adjusted if appropriate at each financial year-end. (13) Research and development The expenditure on an internal research and development project is classified into expenditure on the research phase and expenditure on the development phase based on its nature and whether there is material uncertainty that the research and development activities can finally create an intangible asset. Expenditure on the research phase is recognised in profit or loss in the period in which it is incurred. Expenditure on the development phase is recognised as an intangible asset only if all of the following conditions are satisfied: -56- CSG Holding Co., Ltd. 2007 Annual Report 4 Summary of significant accounting policies and accounting estimates (continued) (13) Research and development (continued) • it is technically feasible to complete the intangible asset so that it will be available for use; • management intends to complete the intangible asset and use or sell it; • it can be demonstrated how the intangible asset will generate economic benefits; • adequate technical, financial and other resources to complete the development and the ability to use or sell the intangible asset; and • the expenditure attributable to the intangible asset during its development phase can be reliably measured. Other development expenditures that do not meet these conditions are recognised in profit or loss in the period in which they are incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalized expenditure on the development phase is presented as development costs in the balance sheet and recorded as intangible assets at the date the asset is ready for its intended use. If the recoverable amount of a development cost is less than its carrying amount, the carrying amount of the asset is written down to its recoverable amount. (14) Goodwill Goodwill refers to the excess of the cost of an equity investment in an investee over the interest in the fair value of the investee’s identifiable net assets at the date the investment is acquired, or the excess of the cost of a business combination involving enterprises not under common control over the interest in the fair value of the acquirees’ identifiable net assets acquired in the business combination at the acquisition date. Goodwill arising from a business combination is separately presented in consolidated financial statements. The excess of the cost of the equity investments in acquisitions of associates and joint ventures over the fair value of the Group’s share of the investees’ identifiable net assets at the time of the acquisition is included in the long-term equity investments. Goodwill arising from a business combination is tested for impairment annually at least. When performing the impairment test, the carrying amount of goodwill is allocated to asset groups or sets of asset groups that are expected to benefit from the synergies of the business combination. Impairment of assets groups or sets of asset groups refers to Note 4(15). Goodwill is presented at cost less the cumulative impairment loss at year-end. (15) Impairment of assets Goodwill that is separately presented in the financial statements is tested for impairment annually at least, irrespective of whether there is any indication that the assets may be impaired. A fixed asset, an intangible asset, an investment property under the cost model and a long-term equity investment are tested for impairment if there is any indication that an asset may be impaired at the balance date. If the result of the impairment test indicates that the recoverable amount of an asset is less than its carrying amount, a provision for impairment and an impairment loss are recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and the present value of the future cash flows expected to be derived from the asset. A provision for asset Impairment is determined and recognised on an individual asset basis. If it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of the group of assets to which the asset belongs is determined. A group of assets is the smallest group of assets that is able to generate independent cash inflows. -57- CSG Holding Co., Ltd. 2007 Annual Report 4 Summary of significant accounting policies and accounting estimates (continued) (15) Impairment of assets (continued) Once an impairment loss of these assets is recognised, it is not allowed to be reversed, even if the value of such asset is recovered in the subsequent periods. (16) Borrowing costs The borrowing costs that are directly attributable to the acquisition and construction of a fixed asset that necessarily takes a substantial period of time for acquisition and construction to get ready for its intended use are capitalized as part of the cost of the asset only when capital expenditures for the asset and borrowing costs have been incurred, and the activities of acquisition and construction necessary to prepare the asset for its intended use have commenced. The capitalization of borrowing costs ceases when the asset under acquisition or construction becomes ready for its intended use, the borrowing costs incurred thereafter are recognised in profit or loss for the current period. Capitalization of borrowing costs is suspended during extended periods in which the acquisition or construction of a fixed asset is interrupted abnormally and the interruption lasts for more than 3 months, until the acquisition or construction is resumed. (17) Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred, and subsequently stated at amortised costs using the effective interest method. Borrowings that will be repaid within 12 months (12 months included) after the balance sheet date are classified as the short-term borrowings, and the others are the long-term borrowings. (18) Employee benefits Employee benefits mainly include wages or salaries, bonuses, allowances and subsidies, staff welfare, social security contributions, housing funds, labour union funds, employee education funds and other expenditures incurred in exchange for service rendered by employees. Employee benefits are recognised as a liability in the accounting period in which an employee has rendered service, and as costs of assets or expenses to whichever the employee service is attributable. (19) Provisions Provisions for restructuring, product warranties and onerous contracts are recognised when the Group has a present obligation, and it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the obligation can be measured reliably. Provisions are not recognised for future operating losses. A provision is initially measured at the best estimate of the expenditure required to settle the related present obligation. Factors surrounding a contingency such as the risks, uncertainties and the time value of money shall be taken into account as a whole in reaching the best estimate of a provision. Where the effect of the time value of money is material, the best estimate is determined by discounting the related future cash outflows. The increase in the discounted amount of the provision arising from passage of time is recognised as interest expense. The carrying amount of provisions is reviewed at each balance sheet date and adjusted to reflect the current best estimate. -58- CSG Holding Co., Ltd. 2007 Annual Report 4 Summary of significant accounting policies and accounting estimates (continued) (20) Deferred tax assets and deferred tax liabilities Deferred tax assets and deferred tax liabilities are calculated and recognised based on the differences arising between the tax base of assets and liabilities and their carrying amount (temporary differences). The deductible losses that can be carried forward to deduct the taxable profit in subsequent years in accordance with the tax law are regarded as the temporary difference and for which a deferred tax asset is recognised. A deferred tax liability is not recognised for a temporary difference arising from the initial recognition of goodwill. For the temporary differences resulting from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit (or deductible loss), the resulting deferred tax assets and deferred tax liabilities are not recognised. At the balance sheet date, deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred tax assets are recognised for deductible temporary differences and deductible losses and tax credits to the extent that it is probable that the Group’s future taxable profit will be available against which the deductible temporary differences, deductible losses and tax credits can be utilised. Deferred tax assets and deferred tax liabilities are recognised for temporary differences arising from investments in subsidiaries, associates, and interests in joint ventures, except where the Group is able to control the timing of the reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future. (21) Revenue recognition The amount of revenue is determined in accordance with the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, rebates, discounts and returns. Revenue is recognised when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the Group and when specific criteria have been met for each of the Group’s activities as described below. (a) Sale of goods Sales of goods are recognised when the risk and rewards of the ownership of the products are transferred, usually occurrence with the timing when the Group has delivered products to the customers, and the Group cease to exercise the control and managing role over the products. The Group made the provision for products warranty granted to the customers based on the historical data. (b) Rendering of services The Group provides service to external customers. Revenue arising from provision of services is recognised using the percentage of completion method. The Group determines the stage of completion based on the proportion of costs incurred to date to the estimated total costs. (c) Use by others of enterprise assets Interest income is recognised on a time-proportion basis using the effective interest method. Lease income from an operating lease is recognised on a straight-line basis over the period of the lease. -59- CSG Holding Co., Ltd. 2007 Annual Report 4 Summary of significant accounting policies and accounting estimates (continued) (22) Leases A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. An operating lease is a lease other than a finance lease. Lease payments under an operating lease are recognised on a straight-line basis over the period of the lease, and are either capitalized as part of the cost of another related assets, or charged as an expense for the current period. (23) Profit distribution Proposed profit distribution is recognised as a liability in the period in which it is approved by the Board of Directors. (24) Preparation of consolidated financial statements The scope of consolidated financial statements includes the Company and its subsidiaries. Subsidiaries Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Significant Inter-company balances, transactions and unrealised gain on transactions between group companies are eliminated. The portion of a subsidiary’s equity that is not attributable to the parent is treated as minority interest and presented separately within owners’ equity in the consolidated balance sheet. When preparing the consolidated financial statements, if the accounting policies and the accounting period of a subsidiary are different from those of the Company, the Company will make necessary adjustments to the financial statements of the subsidiary in accordance with the Company’s accounting policies. When preparing the consolidated financial statements, for a subsidiary acquired in a business combination involving enterprises not under common control, its financial statements are adjusted based on the fair value of identifiable net assets at the acquisition date; for a subsidiary acquired in a business combination involving enterprises under common control, the assets, liabilities, operating results and cash flows of the subsidiary are included in the consolidated financial statements from the beginning of the earliest period of the reporting period, as if the business combination had incurred at the beginning of the earliest period of the reporting period. In addition, the subsidiary’s net profit earned before the acquisition date is separately presented in the consolidated income statement. Purchase of minority interests from minority shareholders of the subsidiaries Purchase from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the fair value of the identifiable net assets of the subsidiary. The difference between any consideration paid and the relevant share acquired of the carrying amount of the net assets of the subsidiary which were initially measured at the acquisition date of that subsidiary and subsequently measures on the same basis, after the recognition of the goodwill, is directly recorded in capital reserve, to the extent to the zero balance of the capital reserve. The remaining balance, if any, is directly charged to retained earnings. -60- CSG Holding Co., Ltd. 2007 Annual Report 4 Summary of significant accounting policies and accounting estimates (continued) (25) Segment reporting A business segment is a distinguishable component of the Group that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component of the Group that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments. The Group identifies business segments as the primary reporting format while geographical segments as the secondary reporting format respectively. The price of inter-segment transfers is determined by reference to the market price. Expenses indirectly attributable to each segment are allocated among the segments based on the proportion of segment revenue. (26) Discontinued operation Discontinued operation is a component of the Group that either has been disposed of or is classified as held for sale, and can be distinguished from other components within the Group in business operation and in preparation of financial statements. A component is classified as held for sale when all of following conditions are satisfied: (1) the Group has made a resolution on disposal of this component; (2) the Group has entered into an irrevocable agreement with the transferee to transfer the component; (3) the transfer will be completed within one year. (27) The determination of the fair value of financial instruments The fair value of a financial instrument that is traded in an active market is determined at the quoted price in the active market. The fair value of a financial instrument for which the market is not active is determined by using a valuation technique. Valuation techniques include using recent market transactions between knowledgeable, willing parties, reference to the current fair value of another instrument that is substantially the same, and discounted cash flow analysis. When a valuation technique is used to establish the fair value of a financial instrument, the valuation technique is whenever possible incorporate factors that market participants would consider, and less relies on the Group’s entity-specific factors. (28) Critical accounting estimates and judgments The Group continually evaluates critical estimates and key assumption based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (a) Critical accounting estimates and assumptions The critical accounting estimates and key assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below: Accounting estimates on impairment of fixed assets and land use rights The Group tested whether certain fixed assets and land use rights have suffered any impairment as there were indications that these assets might be impaired at the balance date. The recoverable amounts were determined by the fair value less cost to sell of these assets as the Group has not intention to recover the carrying amount of such assets through continuing use in future. -61- CSG Holding Co., Ltd. 2007 Annual Report 4 Summary of significant accounting policies and accounting estimates (continued) (28) Critical accounting estimates and judgments (continued) (a) Critical accounting estimates and assumptions (continued) If, as at 31 December 2008, the management revises the fair value estimates by 10% lower, the Group would have recognised a further impairment against these assets by RMB 1,171,800. If the fair value is higher than that management estimated, the impairment is not allowed to be reversed by the Group. (b) Changes in accounting estimates-Fixed asset depreciation period Pursuant to the board resolution passed during the 17th meeting of the fourth session of the board of directors of the Company held on 24 April 2007, considering the technology innovation, in order to more accurately reflect the estimated timing of the inflow economic benefit from the capital expenditures, the Group revisited the estimated useful lives of the fixes assets according to its accounting policy as follows. Previous estimated useful years Current estimated useful years Buildings 20 to 35 years 10 to 40 years Machinery and equipment 10 to 20 years 10 to 16 years Motor vehicles and others 5 to 10 years 3 to 10 years This change in accounting estimate was prospectively applied, with an effect to reduce the profit before the taxation by approximately RMB 22,290,000 for the year ended 31 December 2007. 5 Taxation The types and rates of taxes applicable to the Group during the current year are set out below: Type Tax rate Taxable basis Enterprise income tax 15 and 33% Taxable income Value added tax (“VAT”) 13% and 17% Taxable value added amount (Tax payable is calculated using the taxable sales amount multiplied by the effective tax rate less current period’s deductible VAT input ) Business tax 3% and 5% Taxable turnover The applicable enterprise income tax rate for the Company and the subsidiaries located in Shenzhen and Hainan Special Economic Zone is 15%. Certain subsidiaries located in Guangzhou, Tianjin and Dongguan qualifies as foreign investment production enterprise and was established in coastal economic open zone, their applicable enterprise income tax rate is 24%. Chengdu CSG Glass Co Ltd qualified as foreign investment enterprise in encouraged category and was established in western area, according to the tax incentive measures for the extending business to operate in the western regions implemented by the government. The other subsidiaries in mainland PRC are subject to 33% tax rate. The overseas subsidiaries are assessed under the governing tax jurisdiction. As at 31 December 2007, the tax privilege treatment enjoyed by the subsidiaries of the Group were described as below. -62- CSG Holding Co., Ltd. 2007 Annual Report 5 Taxation (continued) On 22 June 2005, Shenzhen CSG Floating Glass Co., Ltd was recognized as an advanced technology enterprise by Shenzhen Trade and Industry Bureau. With an approval from Shenzhen Local Tax Bureau (SDSWH (2005)128), that entity enjoys a half rate tax incentive from 2005 to 2007, the applicable enterprise tax rate is 7.5%. With an approval from Hainan Province Local Tax Bureau (QDSH92004)44, Hainan Wenchange CSG Silicon Sand Mine enjoys the exemption from enterprise income tax for two years starting from the firs profit marking year after offset the accumulated losses, and half rate for next three years. The first profit making year was 2003, the applicable enterprise income tax rate for current year was 7.5% As approved by Tianjin Wuqing District State Tax Bureau, Tianjin CSG Engineering Co Ltd enjoys the exemption from enterprise income tax for two years starting from the firs profit marking year after offset the accumulated losses, and half rate for next three years. The first profit making year was 2004, the applicable enterprise income tax rate for current year was 12%. With an approval from Guangzhou Huangpu State Tax Bureau (HGSSP (2006)2) , Guangzhou CSG Glass Co Ltd enjoys the exemption from enterprise income tax for two years starting from the firs profit marking year after offset the accumulated losses, and half rate for next three years and the exemption from the local enterprise income tax during the five years. The first profit making year was 2005, the applicable enterprise income tax rate for current year was 12%. With an approval from Chengdu Shuangliu County State Tax Bureau (SGSJM (2007)73) , Chengdu CSG Glass Co Ltd enjoys the exemption from enterprise income tax for two years starting from the first profit marking year after offset the accumulated losses, and half rate for next three years and the exemption from the local enterprise income tax during the five years. The first profit making year was 2006, the entity was subject to local enterprise income tax at rate of 3% for 2007. With an approval from Guangzhou Dongguan State Tax Bureau, Dongguan CSG Glass Co Ltd enjoys the exemption from enterprise income tax for two years starting from the first profit marking year after offset the accumulated losses, and half rate for next three years and the exemption from the local enterprise income tax during the five years. This year is the first profit making year and the entity is exempted from the tax. On 22 May 2005, Shenzhen CSG Monitor Technology Co Ltd was recognized as a Hi-tech enterprise by Shenzhen Technology and Information Bureau. With an approval from Shenzhen Shekou Local Tax Bureau (SDSSH (2007)6), that entity enjoys a half rate tax incentive from 2007 to 2009, the applicable enterprise tax rate is 7.5%. On 1 July 1998, Shenzhen CSG Structure Ceramics Co Ltd was recognized as a Hi-tech enterprise by Shenzhen Technology Bureau. With an approval from Shenzhen Local Tax Bureau (SDSSH (2006)414), that entity enjoys a half rate tax incentive from 2006 to 2008, the applicable enterprise tax rate is 7.5%. On 16 March 2007, the National People’s Congress approved the Corporate Income Tax Law of the People’s Republic of China (the “new CIT Law”), which is effective from 1 January 2008. According to Circular of the State Council on the Implementation of Transitional Preferential Enterprise Income Tax Policies (State Council Circular No. (2007) 39), the applicable corporate income tax rates for the enterprises currently enjoying a preferential tax rate at 15% will change to 25%, with a gradual phase in period of 5 years as followings: 2008: 18%, 2009: 20%, 2010: 22%, 2011: 24%, 2012: 25%. For the enterprises currently with the tax rate of 24% and 33% the applicable corporate income tax rate for 2007 is 25%. Following the new CIT Law, the grandfather rules and transition provisions for tax preferential treatments for the subsidiaries qualified as Hi Tech enterprise will be further finalized by the authorities. -63- CSG Holding Co., Ltd. 2007 Annual Report 6 Subsidiaries (1) The principal subsidiaries of the Company and the consolidation scope Place of Registered Nature of business and principal % voting right held by registration capital activities the Company (in ten Direct Indirect thousand Yuan) Shenzhen CSG Float Glass Co., Shenzhen, Ltd. the PRC 60,574 Floating Glass manufacturing 100% - Guangzhou, Guangzhou CSG Glass Co., Ltd. the PRC 16,000 Floating Glass manufacturing 75% - Chengdu, the Chengdu CSG Glass Co., Ltd. 13,266 Floating Glass manufacturing 75% - PRC Hainan Wen Chang CSG Silica Hainan, the Sand Mine Co., Ltd. PRC 4,000 Mining of silica sand 100% - Sichuan Luxian CSG Silica Sand Luxian, the Mine Co Ltd (Note 2) PRC 1,400 Floating Glass manufacturing 98% 1.5% Shenzhen CSG Wellight Coating Shenzhen, Production and selling of coated Glass Co., Ltd. the PRC 6,912 glass 90% 10% Shenzhen CSG Southern Star Glass Shenzhen, Processing Co., Ltd. the PRC 2,310 Processed glass 100% - Shenzhen CSG Architectural Glass Shenzhen, Co., Ltd. the PRC 3,200 Processed glass 100% - CSG Spandrel And Tempered glass Shenzhen, Co., Ltd. the PRC 1,500 Production of processed glass 100% - Tianjin CSG Architectural Glass Co., Tianjin, the Ltd. PRC 17,800 Processed glass 75% 25% China Southern Glass (Hong Kong) Limited Hong Kong HKD8,644 Trading and investment holding 100% - China Southern Glass (Australia) Pty Ltd. Australia AUD50 Glass product trading 100% - Shenzhen CSG Automotive Glass Shenzhen, Production of glass used for Co Ltd (Note 2) the PRC 14,000 automotive vehicles 100% - Shenzhen CSG Display Technology Shenzhen, Production of monitor display Co., Ltd. the PRC USD900 glass 75% - Shenzhen CSG Wellight Conductive Shenzhen, Coating Co., Ltd. the PRC USD1,280 Production of colorful filter glass 70% - Shenzhen CSG Structure Ceramics Shenzhen, Production of structural ceramic Co., Ltd. the PRC 3,000 products 100% - Shenzhen, Production of electronics Shenzhen CSG Electronic Co., Ltd. the PRC 5,000 ceramic products 100% - Shenzhen CSG Curtain Wall Shenzhen, Engineering Co., Ltd. the PRC 1,200 Curtain wall engineering 100% - Dongguan CSG Architectural Glass Dongguan, Co., Ltd. the PRC 24,000 Processed glass 75% 25% Dongguan CSG Solar Glass Co., Dongguan, Ltd. (a) the PRC 10,000 Production of solar glass 75% 25% Yichang, the Production of silicon related Yichang CSG Silicon Co., Ltd. (b) 26,000 materials 67% 25% PRC Wujiang CSG North-east Wujiang, the Architectural Glass Co., Ltd. (c) PRC 32,000 Processed glass 75% 25% Tianjin Energy Conservation Glass Tianjin, the Co., Ltd. (d) PRC 12,800 Production of specialized glass 75% 25% Shenzhen, Production of solar battery and Shenzhen CSG PV-tech Co., Ltd.(e) 4,000 applications 75% 25% the PRC Shenzhen, Production of solar battery and Dongguan CSG PV-tech Co., Ltd.(f) the PRC 10,000 applications 75% 25% Yongqing, the Hebei CSG Glass Co., Ltd.(g) PRC USD3,306 Production of specialized glass 75% 25% Dongguan CSG Ceramics Dongguan, Technology Co., Ltd.(h) the PRC 5,000 Production of ceramics products 100% - Hainan CSG Industrial Development Haikou, the Co., Ltd. PRC 3,000 Real estate development 100% - Beihai CSG Industrial Development Beihai, the Co., Ltd. PRC 2,000 Real estate development 65% 35% Tianjin CSG Industrial Development Tianjin, the Co., Ltd. PRC 2,000 Real estate development 75% 25% Sichuan CSG Industrial Chengdu, the Development Co., Ltd. PRC 4,000 Real estate development 100% - -64- CSG Holding Co., Ltd. 2007 Annual Report 6 Subsidiaries (continued) (a) The Group previously held 75% equity interests of Dongguan CSG Solar Glass Co Ltd. During the year, the Group has acquired the whole equity of Kenda Enterprises Limited, which held the 25% minority interests in Dongguan CSG Solar Glass Co Ltd. Upon the completion of the transaction, Dongguan CSG Solar Glass Co Ltd became the wholly owned subsidiary of the Group (note 9 (2)). (b) Yichang CSG Silicon Materials Co Ltd (“YC CSG”) was established on 1 August 2006 with an approval No. SWZESZ (2006) 4688. YC CSG had not yet started the commercial operation up to 31 December 2007. The Group previously held 75.75% equity interests of YC CSG. During the year, the Group has acquired the remaining 65% equity of Wise Channel Limited which is a minority shareholder of YC CSG, in addition to the 35% equity already owned by the Group. Upon the completion of the transaction, YC CSG became a 92% owned subsidiary of the Group (note 9 (3)). (c) Wujiang CSG Huadong Engineering Co Ltd was established on 27 October 2006, with an approval SWZSFZZ (2006)69056. It has not yet started the commercial operation up to 31 December 2007. (d) Tianjin Energy Conservation Glass Co., Ltd. was established on 26 September 2006, with an approval SWZJWZZ (2006)09022. It has not yet started the commercial operation up to 31 December 2007. (e) Shenzhen CSG Curtain Wall Engineering Co., Ltd. was established on 20 September 2006, with an approval SWZYSNHZZZ (2006)0019. It has not yet started the commercial operation up to 31 December 2007. (f) Dongguan CSG PV-tech Co., Ltd. was established on 23 February 2006, with an approval SWZYDHZZZ (2006)0001. It has not yet started the commercial operation up to 31 December 2007. (g) Hebei CSG Glass Co., Ltd. was established on 6 December 2007, with an approval SWZJZ (2007)0087. It has not yet started the commercial operation up to 31 December 2007. (h) Dongguan CSG Ceramics Technology Co., Ltd. was established on 13 September 2007. It has not yet started the commercial operation up to 31 December 2007. -65- CSG Holding Co., Ltd. 2007 Annual Report 6 Subsidiaries (continued) (2) The subsidiaries were disposed during the year (a) On 29 October 2007, the Company signed an agreement with an independent third party, Xinyi Investments Limited (“Xinyi”), selling to it the 100% equity interests of Shenzhen CSG Automotive Glass Co Ltd (“Auto Glass”) held by the Company. The consideration is RMB 228 million, all paid by cash, including approximately RMB 62 million due to the Group by Auto Glass to be assumed Xinyi. The relevant assets were hand over on 1 November 2007 and the Group ceased to consolidate Auto Glass since that date. The condensed financial information of Auto Glass was shown below. 1 November 2007 31 December 2006 (Date of transfer) Current asset Cash and bank 4,167,356 3,630,296 Other current asset 86,993,944 71,070,288 91,161,300 74,700,584 Long term asset 310,415,684 325,262,252 Total asset 401,576,984 399,962,836 Current liability 265,041,551 252,377,118 Owner’s equity 136,535,433 147,585,718 401,576,984 399,962,836 1 January 2007 to 31 October 2007 Revenue 189,945,772 Cost of sales and expenses (196,535,586) Total loss (6,589,814) Income tax expense (207,268) Net loss (6,797,082) The related cash flows for this disposal were shown in note 7(39) (a). (b) One of the subsidiary company Sichuan Luxian CSG Silica Sand Mine Co Ltd, has went into liquidation procedures this year, till the end of the issue of the financial statements, the related legal procedures has not yet been completed. The Group has made provision for the relevant assets (note 7 (10)). (c) One of the subsidiary company Wuhan CSG industrial Development Co., Ltd, has been liquidated, the related liquidation loss amounting to RMB1,345,970 has been charged to the current year’s income statement(Notes 7(35)). The subsidiary company did not carrying out any operating activities in the year 2006 and 2007. -66- CSG Holding Co., Ltd. 2007 Annual Report 7 Notes to the consolidated and the Company’s financial statements (1) Cash at bank and at hand 31 December 2007 31 December 2006 Cash on hand 162,224 205,274 Cash at bank 1,257,182,813 479,113,411 Other cash balances 20,849,202 59,452,162 1,278,194,239 538,770,847 Other cash balances include guarantee deposits for commercial papers accepted by the banks, mortgage loans, letter of credits, performance letters and credit card accounts. The cash and bank balances foreign currency portfolio is as follows: 31 December 2007 31 December 2006 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent HKD 100,493,967 0.9364 94,102,551 20,455,381 1.0047 20,551,521 USD 7,306,930 7.3046 53,374,201 4,398,538 7.8087 34,346,864 EUR 187,241 10.6669 1,997,281 1,088,525 10.2665 11,175,342 AUD 1,133,614 6.4036 7,259,211 602,572 6.1599 3,711,783 JPY 241,469 0.0641 15,478 558,569,695 0.0656 36,642,172 156,748,722 106,427,682 As at 31 December 2007 included in other cash balances are RMB 18, 587,686 restricted cash. (2006： 58,304,133) (2) Notes receivable 31 December 2007 31 December 2006 Trade acceptance notes 971,812 450,000 Bank acceptance notes 83,193,029 88,782,402 84,164,841 89,232,402 (3) Accounts receivable 31 December 31 December 2006 2007 Accounts receivable 304,201,696 323,478,895 Current year Current year additions write-off Less: provision for bad debts (6,690,532) (7,196,995) 4,120,223 (9,767,304) 297,511,164 313,711,591 -67- CSG Holding Co., Ltd. 2007 Annual Report 7 Notes to the consolidated and the Company’s financial statements (continued) (3) Accounts receivable (continued) Accounts receivable (continued) The ageing of accounts receivable and related provisions for bad debts are analysed below: 31 December 2007 31 December 2006 % of total Provision for % of total Provision for Amount balance bad debts Amount balance bad debts Within 1 year 311,122,571 96% (6,418,262) 295,664,447 97% (5,926,004) 1 to 2 years 9,839,707 3% (2,502,466) 6,665,106 2% (646,337) 2 to 3 years 1,967,422 1% (665,258) 1,166,981 1% (23,339) Over 3 year 549,195 - (181,318) 705,162 - (94,852) 323,478,895 100% (9,767,304) 304,201,696 100% (6,690,532) Accounts receivable are analysed by customers categories as follows: 31 December 2007 31 December 2006 % of total Provision for % of total Provision for Amount balance bad debts Amount balance bad debts Receivables that are individually significant 3,513,096 1% (3,164,099) 589,234 1% (589,234) Receivables not individually significant but with high risk in groups 319,965,799 99% (6,603,205) 303,612,462 99% (6,101,298) 323,478,895 100% (9,767,304) 304,201,696 100% (6,690,532) As At 31 December 2007, no balances included in above accounts receivable are due to the shareholders of the Company who hold over 5% shares with voting right. As at 31 December 2007, the aggregate amount of the Group’s five largest accounts receivable balances was RMB75,134,368, being 23% of the total accounts receivable balances, all aged within one year. The following balances were dominated in foreign currency. 31 December 2007 31 December 2006 Original Exchang RMB Original Exchang RMB currency e rate equivalent currency e rate equivalent HKD 32,596,402 0.9364 30,523,271 28,078,097 1.0047 28,210,064 USD 9,073,029 7.3046 66,274,848 15,436,554 7.8087 120,539,419 EUR 168,178 10.6669 1,793,938 567,866 10.2665 5,829,996 AUD 717,783 6.4036 4,596,395 539,957 6.1599 3,326,081 103,188,452 157,905,560 -68- CSG Holding Co., Ltd. 2007 Annual Report (4) Advance to suppliers The aging of advance to suppliers are within one year and substantively denominated in RMB. The group did not have any balances which were due to parties having 5% or above shareholdings in the Company. (5) Other receivable 31 December 31 December 2006 2007 Proceeds from disposal of a subsidiary (Note 7(39)(d)) - 84,042,141 Deposit to contractors 9,960,953 11,012,039 Payment on behalf of other parties 6,225,718 7,023,337 Staff advances 1,922,028 1,329,223 Others 8,528,015 6,905,292 26,636,714 110,312,032 Current year Current year addition Write-off Less: Provision for bad debts (1,700,946) (1,515,786) 92,351 (3,124,381) 24,935,768 107,187,651 The aging of other receivable and the related bad debts provision are analysed below: 31 December 2007 31 December 2006 % of % of total Provision for total Provision for Amount balance bad debts Amount balance bad debts Within 1 year 102,746,166 94% (237,183) 14,713,873 55% (363,582) 1 to 2 years 3,723,691 3% (1,534,822) 7,167,729 27% (139,209) 2 to 3 years 78,100 - (160) 1,875,713 7% (102) Over 3 years 3,764,075 3% (1,352,216) 2,879,399 11% (1,198,053) 110,312,032 100% (3,124,381) 26,636,714 100% (1,700,946) The group did not have any balances which were due to parties having 5% or above shareholdings in the Company. -69- CSG Holding Co., Ltd. 2007 Annual Report 7 Notes to the consolidated and the Company’s financial statements (continued) (5) Other receivable (continued) Other receivables are analysed by customers categories as follows: 31 December 2007 31 December 2006 % of total Provision for % of total Provision for Amount balance bad debts Amount balance bad debts Receivables that are individually significant 3,124,381 3% (3,124,381) 1,700,946 6% (1,700,946) Receivables not individually significant but with high risk in groups 107,187,651 97% - 24,935,768 94% - Others 110,312,032 100% (3,124,381) 26,636,714 100% (1,700,946) (6) Inventories 31 December 31 December 2006 2007 Cost - Raw materials 98,525,588 107,353,645 Work in progress 12,666,655 9,070,811 Finished goods 100,900,392 151,447,590 Turnover materials 38,812,269 39,771,874 Properties held for sale 122,936,015 49,271,112 373,840,919 356,915,032 Less: Provision for declines in the value of inventories Current year addition/ Current year (reversal) write-off Raw materials (347,744) (514,165) 281,785 (580,124) Work in progress (1,100,000) (410,000) 1,510,000 - Turnover materials (40,101) (7,790) 40,368 (7,523) Finished goods (50,859,180) 3,620,489 16,050,896 (31,187,795) (52,347,025) 2,688,534 17,883,049 (31,775,442) 321,493,894 325,139,590 (7) Other current assets The balances as at 31 December 2006 represented the fair value of the outstanding foreign exchange forward contracts which were entered by the Group for cash flow hedging purpose. There were no open foreign exchange forward contracts as at 31 December 2007. -70- CSG Holding Co., Ltd. 2007 Annual Report 7 Notes to the consolidated and the Company’s financial statements (continued) (8) Available-for-sale financial assets 31 December 2006 Changes in fair value 31 December 2007 Available-for-sale equity instruments 4,878,118 38,748,323 43,626,441 The equity instruments were all domestic shares listed in PRC. There was no significant impairment risk of the above available-for-sale equity instruments as at 31 December 2007. (9) Long-term equity investments 31 December 2007 31 December 2006 Associate (a) - 6,765,062 Other long-term equity investments (b) 4,644,997 4,644,997 4,644,997 11,410,059 Less: Provision for impairment of long-term equity investments (c) (444,997) (444,997) 4,200,000 10,965,062 The long-term equity investments of the Group are not subject to restriction on conversion into cash or restriction on remittance of investment income. (a) Joint ventures During the year, the equity interests held by the Group in that associate, Wise Channel Limited, increased from 35% to 100%, and consequently the Group has accounted for it as a subsidiary (Note 9 (3)). (b) Other long-term equity investment Name of investees 31 December 2007 31 December 2006 Beijing Wan Tong Industrial Co Ltd 4,200,000 4,200,000 Hai Nan Pearl River Construction Co Ltd 395,000 395,000 Hai Nan Heng Tong Industrial Co Ltd 49,997 49,997 4,644,997 4,644,997 (c) Provision for impairment of long-term equity investments 31 December 2007 31 December 2006 Hai Nan Pearl River Construction Co Ltd (395,000) (395,000) Hai Nan Heng Tong Industrial Co Ltd (49,997) (49,997) (444,997) (444,997) -71- CSG Holding Co., Ltd. 2007 Annual Report 7 Notes to the consolidated and the Company’s financial statements (continued) (10) Fixed assets Machinery and Motor vehicles Buildings equipment and others Total Cost 31 December 2006 1,075,760,963 4,270,512,876 191,485,875 5,537,759,714 Transfer from construction in progress 347,947,816 849,114,830 8,452,861 1,205,515,507 Other current year additions 2,544,961 13,513,917 23,496,783 39,555,661 Disposal of subsidiaries (note6(2)) (91,440,122) (321,270,255) (17,576,289) (430,286,666) Current year disposals (13,214,227) (23,815,767) (20,777,747) (57,807,741) 31 December 2007 1,321,599,391 4,788,055,601 185,081,483 6,294,736,475 Accumulated depreciation 31 December 2006 117,854,219 710,138,599 95,252,091 923,244,909 Current year depreciation 30,923,938 274,079,972 17,497,338 322,501,248 Disposal of subsidiaries (note6(2)) (18,077,557) (110,438,737) (4,185,314) (132,701,608) Current year disposals (3,947,982) (16,544,772) (18,846,377) (39,339,131) 31 December 2007 126,752,618 857,235,062 89,717,738 1,073,705,418 Provision for impairment loss 31 December 2006 4,291,087 1,648,266 382,510 6,321,863 Current year charges 19,883,029 17,247,511 147,471 37,278,011 Disposal of subsidiaries (note6(2)) - (933,027) (334,279) (1,267,306) 31 December 2007 24,174,116 17,962,750 195,702 42,332,568 Net book value 31 December 2007 1,170,672,657 3,912,857,789 95,168,043 5,178,698,489 31 December 2006 953,615,657 3,558,726,011 95,851,274 4,608,192,942 As at 31 December 2007, ownership certificates of buildings (“Buildings ownership Certificates”) for certain buildings of the Group with carrying amounts of approximately RMB 322, 777,071 (cost: RMB 372, 682,260) had not yet been obtained by the Group. After consultant made with the Company’s legal adviser, the Company’s directors are of the view that there is no legal restriction for the Group to apply for and obtain the Buildings Ownership Certificates and there will not be any significant adverse impact on the operations of the Group. As at 31 December 2007, ownership certificates of buildings (“Buildings ownership Certificates”) for certain buildings of the Group with carrying amounts of approximately RMB 619,422,604 (cost: RMB 651,899,151) had not yet been obtained by the Group because the land ownership certificates of the lands on which these buildings located had not obtained (note 7 (12)). As at 31 December 2007, the fixed assets with net book value of approximately RMB 2,272,000 (cost: approximately RMB 23,036,000) were fully depreciated but still in use. In 2007, depreciation expense of RMB304,993,701 (2006: RMB224,185,452) were charged in cost of goods sold, RMB 1,246,375 (2006: RMB1,092,030) in selling expenses and RMB16,261,172 (2006: RMB 14,008,589) in general and administrative expenses, respectively. -72- CSG Holding Co., Ltd. 2007 Annual Report 7 Notes to the consolidated and the Company’s financial statements (continued) (10) Fixed assets (continued) As at 31 December 2007, buildings with a net book value of RMB 10,272,832 (cost of RMB 10,733,774) had been pledged as security for long-term borrowings of RMB 17,417,040 (Note 7 (23)). As at 31 December 2007, the Group holds fixed assets to be disposed or being idled as follows: Carrying amount Fair value less Impairment made estimated disposal costs Machinery and equipment 16,398,000 1,349,000 15,584,000 Electronic equipment 23,181,000 10,423,000 12,758,000 Motor vehicles and others 620,000 481,000 139,000 40,199,000 12,253,000 28,481,000 -73- CSG Holding Co., Ltd. 7 Notes to the consolidated and the Company’s financial statements (continued) (11) Construction in progress Decem Current year Name of projects Bud additions Transfer to fixed a Disposal of su Tianjin Processed glass line 24,000,0 12,585,848 11,295,769 (23,881,617) - Chengdu Processed glass line 99,310,0 4,419,141 91,293,409 (94,358,102) - Colorful filter glass production line 185,700,3 100,299,618 47,588,847 (147,888,465) - Dongguan Engineering Glass 588,070,8 182,414,315 304,142,520 (418,560,284) - Dongguan Solar Energy Glass 306,635,4 236,569,028 104,834,795 (298,420,960) - Wujiang Energy-saving Glass 440,168,6 5,621,084 270,932,102 (330,000) - -74- CSG Holding Co., Ltd. Tiianjin Energy-saving Glass 384,000,0 8,546,001 253,981,506 (174,042,563) - Yichang Silicon products project 1,250,235,4 26,668,028 189,288,628 - - ITO production line phase 4 67,941, 26,604,193 23,630,268 (35,088,848) - Dongguan Ceramics products 80,600,0 - 25,390,514 - - Others 11,123,938 61,049,038 (12,944,668) (885,522) 614,851,194 1,383,427,396 (1,205,515,507) (885,522) Including: capitalized borrowing costs 7,293,837 16,523,237 (20,639,055) - Borrowing costs have been capitalized in 2007 at an average interest rate of 5.87% (2006: 5.61%). -75- CSG Holding Co., Ltd. 7 Notes to the consolidated and the Company’s financial statements (continued) (12) Intangible assets 31 December Current year Disposal of Current year Current year 31 D Original cost 2006 additions subsidiaries transfer out amortization Note 6(2) Land use rights 328,558,458 215,916,286 86,269,642 (11,945,105) - (7,112,335) 283 Patents 19,159,147 11,854,127 - - - (1,468,807) 10 Exploitation rights - 5,518,488 583,905 - (5,910,462) (191,931) Software 888,118 552,449 154,813 - (6,212) (295,686) 348,605,723 233,841,350 87,008,360 (11,945,105) (5,916,674) (9,068,759) 293 As at 31 December 2007, ownership certificates of land use right (“Land ownership Certificates”) for certain land use rights of the Gr RMB 86,026,564 had not yet been obtained by the Group. After consultant made with the Company’s legal adviser, the Company legal restriction for the Group to apply for and obtain the Buildings Ownership Certificates and there will not be any significant adve except one piece of land as described below. The Group has not yet obtained the Land Ownership Certificates for one piece of land which is located in Huangpu, Guangzho change the land to industry purpose has not been obtained by local government. The carrying amounts of operating facilities locat RMB 13,200,000. The board of directors is of view that the amount involved is not material, and all these facilities are not core pro will not bring any significant adverse effect on the Group’s operating or financial positions. During the year, research expenditure amounting to RMB 36,074,693 (2006: 20,020,245) charged to general and administrative exp -76- CSG Holding Co., Ltd. 2007 Annual Report 7 Notes to the consolidated and the Company’s financial statements (continued) (13) Goodwill Current year additions and balance as at 31 December 2007 Goodwill 3,039,946 The goodwill arose from the acquisition of the minority interests in Tianjin Engineering Glass Co Ltd (Note 9 (1))。 (14) Long-term prepaid expenses As at 31 December 2006, the balances represented the prepayments by the Group for the land use rights. (15) Short-term borrowings 31 December 2007 31 December 2006 Bank loans - unsecured 812,208,962 707,616,905 Bank loans – guaranteed (a) 407,692,358 334,993,881 Short term finance bonds (b) 794,720,000 800,000,000 2,014,621,320 1,842,610,786 (a) As at 31 December 2007, loans of the subsidiaries of the Group amounting to RMB 387,239,478 (2006: RMB 285,046,031) were guaranteed by the Company, of which, the minority shareholders provided a back to back guarantee to the Company amounting to 53,261,495 (2006: 55,150,700); loans of the subsidiaries of the Group amounting to RMB 20,452,880 (2006: RMB 49,947,850) were guaranteed by other subsidiaries. (b) On 7th March 2007, as approved by People’s Bank of China with document No, Yinfa [2006]89, the Company issued short term finance bond with a nominal amount of RMB 800,000,000, with an annual interest rate of 3.78% and repayable on 7 March 2008. Up to the date of issue of these consolidated financial statements, the short term finance bond has been fully redeemed. The following balances were dominated in foreign currency. 31 December 2007 31 December 2006 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent HKD 209,500,000 0.9364 196,175,800 206,700,000 1.0047 207,671,490 USD 123,035,556 7.3046 898,725,522 50,320,706 7.8087 392,939,296 1,094,901,322 600,610,786 The weighted average interest rate of short-term bank borrowings in 2007 is 5.60% per annum (2006: 5.42%). As of 31st December, 2007, the Group had unutilised balance of approximately RMB5,166,000,000 out of the available banking facilities granted from certain banks. -77- CSG Holding Co., Ltd. 2007 Annual Report 7 Notes to the consolidated and the Company’s financial statements (continued) (16) Notes payable 31 December 2007 31 December 2006 Trade acceptance notes 10,558,758 19,883,331 Bank acceptance notes 273,996,977 299,598,297 284,555,735 319,481,628 (17) Accounts payable The Group did not have any balances which were due to parties having 5% or above shareholdings in the Company. The following balances were dominated in foreign currency. 31 December 2007 31 December 2006 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent HKD 1,426,939 0.9364 1,336,186 2,596,082 1.0047 2,608,284 USD 7,762,922 7.3046 56,705,040 7,824,353 7.8087 61,098,025 EUR 3,482,483 10.6669 37,147,298 3,290,088 10.2665 33,777,688 JPY 357,907,720 0.0641 22,941,885 253,967,232 0.0656 16,660,250 118,130,409 114,144,247 (18) Advances from customers The Group did not have any balances which were due to parties having 5% or above shareholdings in the Company. The balances were substantively dominated in RMB. -78- CSG Holding Co., Ltd. 2007 Annual Report 7 Notes to the consolidated and the Company’s financial statements (continued) (19) Employee benefits payable 31 December Current year Current year 31 December 2006 additions reductions 2007 Wages and salaries, bonuses, allowances and subsidies 21,384,511 271,571,898 (260,119,021) 32,837,388 Staff welfare 507,112 14,443,430 (13,156,273) 1,794,269 Social security contributions 15,072 34,777,711 (33,701,288) 1,091,495 Housing funds - 3,202,665 (3,202,665) - Defined contribution pension scheme - 7,076,967 (6,769,944) 307,023 Labor union and employee education funds 1,633,650 6,445,785 (5,104,382) 2,975,053 Management bonus(a) 9,530,000 31,060,000 (33,260,000) 7,330,000 33,070,345 368,578,456 (355,313,573) 46,335,228 (a) Pursuant to the resolution in the 18th meeting of the third session board of directors of the Company on 28 January 2005, the board of directors adopted a management bonus scheme which is based on the annual return on net assets and the net profit for the year. During the year, a management bonus amounting to RMB 31,060,000 (2006: 23,260,000) were accrued and charged to income statements. (20) Taxes payable 31 December 2007 31 December 2006 Enterprise income tax payable 30,586,046 11,203,749 Value-added-tax payable 17,653,942 14,199,988 Business tax payable 2,291,720 2,922,222 Others 6,907,087 3,426,728 57,438,795 31,752,687 (21) Other payables 31 December 2007 31 December 2006 Guarantee deposits received from fixed assets vendors 48,956,158 15,422,411 Contracted labour costs 12,682,783 7,655,074 Temporary receipts 10,581,139 9,560,114 Accrued utilities expenses 16,486,304 9,021,014 Accrued sales commissions 12,589,954 10,787,807 Professional services 6,043,092 4,267,000 Others 40,181,699 23,096,350 147,521,129 79,809,770 The Groups did not have any balances which were due to parties holding 5% or above shareholdings of the Company. The balances were substantively dominated in RMB. -79- CSG Holding Co., Ltd. 2007 Annual Report 7 Notes to the consolidated and the Company’s financial statements (continued) (22) Other current liabilities 31 December 2007 31 December 2006 Provision (a) 20,208,284 20,073,146 Foreign exchange forward contracts (b) - 1,013,101 20,208,284 21,086,247 (a) The movement of the provisions during the year were as follows: 31 December Current year Current year 31 December 2006 additions reductions 2007 Restructuring (i) 11,188,500 5,128,100 (6,494,748) 9,821,852 Warranty (ii) 9,897,747 5,536,095 (5,597,979) 9,835,863 Litigations - 550,569 - 550,569 21,086,247 11,214,764 (12,092,727) 20,208,284 (i) As at 31 December 2007, following the plan to relocate certain engineering glass and ceramics production lines of the Group from Shenzhen to Dongguan, the Group has made the provision for the compensation to the staff who would be affected, according the relevant regulations and the announced compensation program of the Group. The amounts were included in the general and administrative expenses. (ii) The Group granted warranty for the products sold under certain contracts. As at 31 December 2007, certain claims were brought forward by the customers regarding the products quality faults. The Group has made the provision based on the historical claims and compensation data and the amounts were included in selling expenses. (b) As at 31 December 2006, the amounts represented the fair value of the foreign exchange forward contracts. (23) Long-term borrowings 31 December 2007 31 December 2006 Bank borrowings - Unsecured 364,170,096 262,466,007 - Guarantee (a) 464,198,352 648,859,033 - Pledge (b) 17,417,040 19,993,530 845,785,488 931,318,570 Less: current portion of long term borrowings (331,624,057) (214,276,949) - unsecured (123,662,845) - - Guarantee (a) (205,713,852) (212,970,839) - Pledge (b) (2,247,360) (1,306,110) 514,161,431 717,041,621 -80- CSG Holding Co., Ltd. 2007 Annual Report 7 Notes to the consolidated and the Company’s financial statements (continued) 23 Long-term borrowings (continued) (a) The loans were borrowed by subsidiaries and guaranteed by the Company, repayable between February 2008 and May 2014, of which, RMB 48,837,139 (2006: 120,127,249) were back to back guaranteed by the minority shareholders of the subsidiaries to the Company. (b) Long-term pledged borrowings were secured with pledge by the Group’s fixed assets with a net book value of RMB 10,272,832 (original cost of RMB 10,733,774) (Note 7 (10)). The principal is due for repayment during January 2008 to November 2011. The analysis of the long term bank loans by the banker is as follows: 31 December 2007 31 December 2006 China Construction Bank 318,866,616 370,379,007 Agriculture Bank of China 210,067,997 97,124,702 Bank of China 151,091,220 224,254,214 China Merchants Bank 122,114,670 119,214,805 Nanyang Commercial Bank 43,644,985 46,656,983 China Import and Export Bank - 50,000,000 Bank of Communication - 21,688,859 Industrial and Commercial Bank of China - 2,000,000 845,785,488 931,318,570 The analysis of long term borrowings by due date is as follows: The long-term borrowings are repayable as follows 31 December 2007 31 December 2006 Between 1 to 2 years 191,821,624 311,134,841 Between 2 to 5 years 303,566,839 405,906,780 Over 5 years 18,772,968 - 514,161,431 717,041,621 The following balances were dominated in foreign currency. 31 December 2007 31 December 2006 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent HKD 18,600,000 0.9364 17,417,040 19,900,000 1.0047 19,993,530 USD 75,482,360 7.3046 551,368,447 63,368,427 7.8087 494,825,036 568,785,487 514,818,566 The weighted average interest rate of long-term borrowings in 2007 is 5.82% per annum (2006: 5.49%). -81- CSG Holding Co., Ltd. 2007 Annual Report 7 Notes to the consolidated and the Company’s financial statements (continued) (24) Deferred tax assets and Deferred tax liabilities (a) Deferred tax assets 31 December 2007 31 December 2006 Deferred tax Deductible Deferred tax Deductible assets temporary assets temporary difference difference Provision for asset impairment 1,018,477 6,963,702 324,943 2,166,288 Pre-operating expenses 2,397,465 15,466,930 1,019,885 9,612,819 Contingent liabilities 423,390 3,266,370 - - Tax losses - - 136,685 911,233 3,839,332 25,697,002 1,481,513 12,690,340 (b) Deferred tax liabilities 31 December 2007 31 December 2006 Deferred tax Taxable Deferred tax Taxable liabilities temporary liabilities temporary difference difference Change in fair value of available-for- sale equity instruments 4,643,214 18,572,857 - - Others 2,915,381 33,227,506 - - 7,558,595 51,800,363 - - As disclosed in Note 5, the corporate income tax rate applicable to the Company and its subsidiaries from 1 January 2008 will be changed. Since deferred tax assets and deferred tax liabilities are determined using the tax rates that are expected to apply when the related assets are realized or the related liabilities are settled, the carrying amount of deferred tax assets and deferred tax liabilities that have been recognized before the issuance of new CIT law and are expected to be utilized after 1 January 2008 were adjusted by the Company using the then applicable tax rate. This event had no any material impact on the current year financial statements (Note 7 (37)). As at 31 December 2007, the Group did not recognize deferred tax assets amounting to approximately RMB 47,000,000 (2006: approximately 36,000,000) in respect of tax losses amounting to approximately RMB 189,000,000 (2006: approximately 133,800,000). The unused tax loss will expire from 2008 to 2012. -82- CSG Holding Co., Ltd. 2007 Annual Report 7 Notes to the consolidated and the Company’s financial statements (continued) (25) Other non-current liabilities 31 December 2007 31 December 2006 Deferred income 46,651,667 45,000,000 As at 31 December 2007, RMB45,000,000 (2006: 45,000,000) were paid to Yi Chang CSG Silicon Materials Co Ltd (“YI Chang Silicon”) by 宜昌市东山建设发展总公司 under the provisions of the investment contract signed between the Group and the Municipal Government of Yi Chang. The proceeds were designed for the construction of electricity transformer and the pipelines etc. Yi Chang Silicon is entitled to the ownership of the facilities. (26) Share capital 31 December New issues Other 31 December 2006 during the year movements 2007 (a) during the year Shares with restriction on disposals State and PRC legal person shares 349,069,409 172,500,000 (168,684,592) 352,884,817 Others 139,559 - (36,390) 103,169 Total of shares with restriction on disposals 349,208,968 172,500,000 (168,720,982) 352,987,986 Shares without restriction on disposals PRC public shares 217,675,337 - 168,720,982 386,396,319 Domestically listed foreign shares 448,578,819 - - 448,578,819 Total of shares without restriction on disposals 666,254,156 - 168,720,982 834,975,138 Total 1,015,463,124 172,500,000 - 1,187,963,124 (a) As approved by CSRC with document No ZJFXZ[2007]231, the Company issued new A shares, by a private placement (“Placement”), of 172,500,000 shares at the subscription price of RMB 8 per share. The total proceeds from the Placement is RMB 1,372,000,000, of which RMB 172,500,000 was credited to share capital, the remaining RMB 1,199,500,000 were credited to Capital Reserve. The new issue of shares has been verified by 天 职 国 际 会 计 师 事 务 所 有 限 公 司 which issued the No. TZSYZ[2007]187 capital verification report. The shares issued under this Placement were registered with Shenzhen Stock Exchange on 11 October 2007, with a locked up term of 36 months. The nominal value of the Domestic Shares is RMB 1, and of domestically listed foreign shares HKD 1. -83- CSG Holding Co., Ltd. 2007 Annual Report 7 Notes to the consolidated and the Company’s financial statements (continued) (27) Capital surplus 31 December Current year Current year 31 December 2006 additions reductions 2007 Capital premium (Note 7(26)) 578,402,326 1,199,500,000 - 1,777,902,326 Other capital surplus Change in fair value of available-for-sale financial assets - Gross (Note 7(8)) 38,748,323 38,748,323 - Deferred tax liability (Note 7(24)) (4,643,214) (4,643,214) Acquisition of minority interest (Note 9) (7,476,681) (7,476,681) Transfer from the balance of capital surplus recognised under previous accounting system (266,617) - (1,983,605) (2,250,222) 578,135,709 1,226,128,428 (1,983,605) 1,802,280,532 (28) Surplus reserve 31 December Current year Current year 31 December 2006 additions utilised 2007 Reserve fund 201,254,836 30,069,452 - 231,324,288 Enterprise Expansion Fund 127,852,568 - - 127,852,568 329,107,404 30,069,452 - 359,176,856 According to the Articles of Association of the Company and the Company Law of PRC, the Company has to appropriate 10% of its net profit after making good of the deficit of prior years to the statutory surplus reserve, until where the reserve balance has reached 50% of the paid in share capital of the Company. With the approval obtained form the relevant government authorities, the statutory surplus reserve can be utilized to offset any deficit or to increase the share capital of the Company, provided that the remaining balance of the reserve, after such utilizations, does not fall below 25% of the issued share capital balance. During the year 2007, the Company appropriate RMB 30,069,452 to the statutory surplus reserve out of its net profits (2006: RMB 29,071,078 at 10%). The appropriation to discretion surplus reserve is to be proposed by the board of the directors of the Company and approved by the annual general meeting of the shareholders. The discretion can be utilized to offset the deficit or increase the share capital. The Company did not appropriate to discretion surplus reserve during the year. -84- CSG Holding Co., Ltd. 2007 Annual Report 7 Notes to the consolidated and the Company’s financial statements (continued) (29) Profit distribution The directors resolved on 17 March 2008 that a dividend of RMB 1.50 for each 10 shares of issued shares as at 31 December 2007 which was 1,187,963,124 in total, with an aggregated amount of RMB 178, 194,469, is proposed, taking into accounts of the profits available for dividend of the Company amounting to RMB 254,920,429 as at 31 December 2007 and the dividend income committed by the subsidiaries of the Company. The proposed dividend is to be approved by the annual general meeting of the shareholders, and was not recognized as a liability as at 31 December 2007. (30) Minority Interests 31 December 2007 31 December 2006 Shenzhen CSG Wellight Conductive Coating Co., Ltd. 59,912,443 48,947,620 Shenzhen CSG Display Technology Co., Ltd. 46,722,374 42,185,949 Tianjin CSG Architectural Glass Co., Ltd. (Note 9 (1)) - 67,548,064 Guangzhou CSG Glass Co., Ltd. 72,233,673 58,240,354 Chengdu CSG Glass Co., Ltd. 80,004,484 49,964,593 Dongguan CSG Solar Glass Co., Ltd. (Note 9 (2)) - 19,721,692 Yichang CSG Silicon Co., Ltd. (Note 9 (3)) 19,726,779 25,691,370 278,599,753 312,299,642 (31) Revenue and cost of sales 2007 2006 Revenue from main operations (a) 4,163,859,846 2,951,599,066 Revenue from other operations (b) 24,102,782 13,217,146 4,187,962,628 2,964,816,212 (a) Revenue from main operations and cost of goods sold 2007 2006 Revenue Cost Revenue Cost Floating glass 1,918,791,92 1,370,181,2 1,425,691,2 1,104,474,76 Engineering glass 1,328,680,6 982,771,7 914,617,9 565,273,07 ITO glass 547,454,3 310,765, 424,736,0 243,069,27 Solar glass 168,989,3 105,663,9 - - Others 429,078,8 348,397,9 382,144,6 289,055,90 Elimination (229,135,3 (226,320,0 (195,590,7 (195,590,79 4,163,859,84 2,891,459,9 2,951,599,0 2,006,282,23 The sales to the Group’s top five customers were amounting to Rmb 623,872,766, account for 15% of the Group’s total sales. -85- CSG Holding Co., Ltd. 2007 Annual Report 7 Notes to the consolidated and the Company’s financial statements (continued) (31) Revenue and cost of sales (Continued) (b) Other revenue and cost 2007 2006 Revenue Cost Revenue Cost Sale of raw materials 20,994,710 18,053,553 8,109,678 4,465,725 Others 3,108,072 59,582 5,107,468 1,009,347 24,102,782 18,113,135 13,217,146 5,475,072 (32) Tax and levies on operations 2007 2006 Business tax 5,592,193 2,628,798 City maintenance and construction tax 1,462,604 916,929 Educational surcharge 541,287 1,099,537 Resources duty 1,709,280 1,317,320 Others 2,518,529 479,968 11,823,893 6,442,552 (33) Finance expenses – net 2007 2006 Interest expenses - Interests on borrowings 100,238,627 81,080,207 - Interests on convertible bonds 23,920,000 18,400,000 - Interests on discounting bank acceptance notes 20,651,194 8,986,269 144,809,821 108,466,476 Less: interest income (3,116,624) (3,063,698) Net exchange gains (80,538,619) (22,106,749) Others 3,763,538 4,686,172 64,918,116 87,982,201 (34) Impairment losses 2007 2006 Impairment losses for bad debts provision (Note 7(3) and (5)) 8,712,781 1,585,877 Impairment losses for declines in the value of inventories (Note 7(6)) (2,688,534) 1,100,000 Impairment losses for fixed asset (Note 7(10)) 37,278,011 784,503 43,302,258 3,470,380 -86- CSG Holding Co., Ltd. 2007 Annual Report 7 Notes to the consolidated and the Company’s financial statements (continued) (35) Investment income 2007 2006 Gain from disposal of a subsidiary (Note 7 (39) (d)) 29,280,123 - Gain from liquidation of subsidiary (Note 6 (2)(c)) (1,345,970) - 27,934,153 - (36) Non-operating income and expenses (a) Non-operating income 2007 2006 Gain on disposal of fixed assets 472,043 2,757,759 Government grant 8,961,133 6,239,212 Acquisition of minority interests (Note 9) 563,188 - Insurance claim 1,623,094 1,278,044 Others 2,260,093 654,420 13,879,551 10,929,435 (b) Non-operating expenses 2007 2006 Loss on disposal of fixed assets 15,931,134 5,647,582 Loss on disposal of intangible assets 4,087,143 - Others 2,377,657 653,147 22,395,934 6,300,729 (37) Income tax expenses 2007 2006 Current income tax 66,654,553 30,584,980 Deferred income tax 557,562 1,745,651 67,212,115 32,330,631 The reconciliation between the profit before income tax and income tax expenses is as follows: 2007 2006 Profit before income tax 634,467,082 449,144,771 Tax calculated at applicable tax rate 44,305,685 25,288,913 Effect of change in tax rate due to issuance of new CIT law (note 7(24)) (27,809) - Expenses not deductable for tax purpose 670,975 975,788 Tax losses not recognised as deferred tax asset 22,263,264 6,065,930 Income tax expenses 67,212,115 32,330,631 -87- CSG Holding Co., Ltd. 2007 Annual Report 7 Notes to the consolidated and the Company’s financial statements (continued) (38) Earning per share (a) Earnings per share - basic Basic earning’s per share is calculated by dividing the profit attributable to shareholders of the Company by the weighted average number of ordinary shares in issue during the year. 2007 2006 Consolidated profit attributable to shareholders of the Company 431,484,803 335,110,815 Weighted average number of ordinary shares in issue 1,058,588,124 1,015,463,124 Basic earnings per share 0.4 0.3 (b) Earnings per share - diluted The Company had not potential dilutive outstanding equity instruments issued as at 31 December 2007 and 2006, accordingly the diluted earnings per share are the same as basic ones. (39) Notes to consolidated cash flow statements (a) Reconciliation from the net profit to the cash flows from operating activities 2007 2006 Net profit 567,254,967 416,814,140 Add: Provisions for assets impairment 43,302,258 3,470,380 Depreciation of fixed assets 322,501,248 239,286,071 Amortization of intangible assets 9,068,759 6,993,956 Losses on disposal of fixed assets, intangible assets and other long-term assets 19,546,234 2,889,823 Finance expenses 54,443,007 76,431,564 Investment losses (27,934,153) - Negative goodwill recognized in income statement (Note 9) (563,188) - Decrease in deferred tax assets 557,562 1,745,650 Increase in inventories (31,715,810) (11,674,485) Increase in operating receivables (139,780,597) (48,309,137) Increase in operating payables 285,635,228 113,144,591 Net cash flows from operating activities 1,102,315,515 800,792,553 (b) Net increase in cash and cash equivalents 2007 2006 Cash at end of year 1,259,606,553 480,466,714 Less: cash at beginning of year (480,466,714) (227,763,249) Net increase in cash and cash equivalents 779,139,839 252,703,465 -88- CSG Holding Co., Ltd. 2007 Annual Report 7 Notes to the consolidated and the Company’s financial statements (continued) (39) Notes to consolidated cash flow statements (Continued) (c) Cash and cash equivalents 31 December 2007 31 December 2006 Cash in bank and on hand - Cash on hand 162,224 205,274 - Cash in bank 1,257,182,813 479,113,411 - Other 20,849,202 59,452,162 1,278,194,239 538,770,847 Less: restricted cash at bank (18,587,686) (58,304,133) Cash and cash equivalents at end of year 1,259,606,553 480,466,714 (d) Net proceeds from disposal of subsidiary As described in note 6(2) (a), the Group sold its 100% equity interest in Shenzhen CSG Automotive Glass Co Ltd during the year. The related cash flows from this disposal were shown as below. Amount Net assets of subsidiary 136,535,433 Plus: the amounts due to the Group 62,354,460 Gain on disposal 29,280,123 Disposal consideration 228,170,016 Less: proceeds receivable (84,042,141) Less: Cash and cash equivalents held by the subsidiary (4,167,356) Net cash received from the disposal 139,960,519 -89- CSG Holding Co., Ltd. 2007 Annual Report 8 Segment information (1) Primary reporting format - business segments (a) Segment information as at and for the year ended 31 December 2007 is as follows: Engineering Floating glass glass ITO glass Solar glass Others Elimination Total Revenue from external customers 1,715,651,509 1,343,344,063 547,454,387 161,579,960 419,932,709 - 4,187,962,628 Inter-segment revenue 204,308,701 6,326,941 - 7,486,469 11,013,256 (229,135,367) - Revenue 1,919,960,210 1,349,671,004 547,454,387 169,066,429 430,945,965 (229,135,367) 4,187,962,628 Less: Operating (3,484,200,78 expenses (1,547,110,145) (1,222,373,378) (372,875,663) (150,124,482) (418,037,199) 226,320,078 9) Segment results 372,850,065 127,297,626 174,578,724 18,941,947 12,908,766 (2,815,289) 703,761,839 Add: unallocated expenses (60,778,374) Operating profit 642,983,465 Segment assets 3,068,872,716 2,584,289,230 866,499,504 804,649,406 276,607,864 7,600,918,720 Add: unallocated assets 852,063,227 Total assets 8,452,981,947 Segment liabilities 427,207,643 528,606,304 112,582,022 145,889,328 52,012,524 1,266,297,821 Add: unallocated liabilities 2,901,070,255 Total liabilities 4,167,368,076 Depreciation and amortization 167,064,336 67,895,795 51,170,693 15,815,141 29,624,042 331,570,007 Provisions for asset impairment 32,301,571 7,072,753 2,647,188 505,369 775,377 43,302,258 Capital expenditures 57,808,066 989,277,428 75,368,891 345,997,631 41,539,401 1,509,991,417 -90- CSG Holding Co., Ltd. 2007 Annual Report 8 Segment information (continued) (b) Segment information as at and for the year ended 31 December 2006 is as follows: Engineering Floating glass glass ITO glass Solar glass Others Elimination Total Revenue from external customers 1,250,815,316 903,019,864 425,119,525 - 385,861,507 - 2,964,816,212 Inter-segment revenue 179,632,425 14,385,856 - - 1,572,509 (195,590,790) - Revenue 1,430,447,741 917,405,720 425,119,525 - 387,434,016 (195,590,790) 2,964,816,212 Less: Operating expenses (1,184,868,785) (737,059,613) (287,095,457) (1,078,617) (400,713,904) 195,590,790 (2,415,225,586) Segment results 245,578,956 180,346,107 138,024,068 (1,078,617) (13,279,888) - 549,590,626 Add: unallocated expenses (105,074,561) Operating profit 444,516,065 Segment assets 3,197,588,524 1,351,580,206 837,402,306 397,825,934 748,784,703 6,533,181,673 Add: unallocated assets 243,139,739 Total assets 6,776,321,412 Segment liabilities 430,519,276 301,128,821 75,505,391 95,485,627 120,008,050 1,022,647,165 Add: unallocated liabilities 2,808,864,750 Total liabilities 3,831,511,915 Depreciation and amortization 116,854,277 52,296,313 40,901,771 134,119 36,093,547 246,280,027 Provisions for asset impairment 640,494 174,558 163,611 - 2,491,717 3,470,380 Capital expenditures 346,638,705 305,592,177 161,215,266 - 2,491,721 1,164,895,856 (2) Secondary reporting format - geographical segments Revenue from external customers 2007 2006 Mainland PRC 3,156,024,382 2,064,478,512 Hong Kong 648,383,637 502,939,323 USA 46,842,949 78,963,506 Australia 34,965,038 36,446,535 Others 301,746,622 281,988,336 4,187,962,628 2,964,816,212 The assets are substantive located in Mainland PRC. -91- CSG Holding Co., Ltd. 2007 Annual Report 9 Acquisition of minority interests (1) Acquisition of Well Guide Limited On 18 September 2007, China South Glass (Hong Kong) Limited (CSG HK), a subsidiary of the Company, signed a agreement with Honest United Development Limited, a subsidiary of Shenzhen International Holdings Limited, to acquire the 100% share of Well Guide Limited (“Well Guide”) owned by it at a consideration of RMB 76,166,823. The transaction date of this acquisition was 7 November 2007, when the Company obtained the control over Well Guide. The sole asset on the books of Well Guide as at the transaction date was the 25% equity interests in Tianjin CSG Engineering Glass Co Ltd, a subsidiary of the Company. Upon the completion of the deal, the Group’s share in the equity of Tianjin CSG Engineering Glass Co Ltd increased from 75% to 100%. The difference between the purchase consideration and the fair value of the net assets acquired is as follows: Purchase consideration – paid by cash 76,166,823 Less: the share acquired of the fair value of the identifiable net assets (73,126,877) Differences – recognized as goodwill 3,039,946 The difference between the share acquired of fair value of the identifiable net assets and carrying amount of the net assets is as follows: Share acquired of the fair value of identifiable net assets (a) 73,126,877 Less: the share acquired of carrying amount of net assets (71,495,883) Differences – recognized in capital reserve 1,630,994 (a) The share acquired of the fair value of the identifiable net assets are as follows: Fair value Carrying amount Tangible assets 63,441,877 71,495,883 Customer relationship and long term contracts 9,685,000 - 73,126,877 71,495,883 The fair value of the assets was determined in accordance with a professional valuer’s report. (2) Acquisition of Kenda Enterprise Limited On 28 March 2007, CSG HK signed a agreement with Solo Power Limited to acquire the 100% share of Kenda Enterprise Limited (“Kenda”) owned by it at a consideration of HKD 24,000,000 (equivalent to RMB 23,776,800). The transaction date of this acquisition was 11 May 2007, when the Company obtained the control over Kenda. The sole asset on the books of Kenda as at the transaction date was the 25% equity interests in Dongguan CSG Solar Glass Co Ltd, a subsidiary of the Company. Upon the completion of the deal, the Group’s share in the equity of Tianjin CSG Engineering Glass Co Ltd increased from 75% to 100%. As at the transaction date, Dongguan CSG Solar Glass Co Ltd had not yet started the commercial operation. -92- CSG Holding Co., Ltd. 2007 Annual Report 9 Acquisition of minority interests (continued) (2) Acquisition of Kenda Enterprise Limited (continued) The difference between the purchase consideration and the fair value of the net assets acquired is as follows: Purchase consideration – paid by cash 23,776,800 Less: fair value of the identifiable net assets acquired (24,192,157) Differences – recognized as Non operating income (415,357) The difference between the fair value of the identifiable net assets acquired and carrying amount of the net assets is as follows: Fair value of identifiable net assets acquired 24,192,157 Less: carrying amount of net assets acquired (19,027,603) Differences – recognized in capital reserve 5,164,554 The fair value of the identifiable net assets, all tangible assets, was determined in accordance with a professional valuer’s report. (3) Acquisition of Wise Channel Limited On 30 March 2007, CSG HK signed a agreement with Fully Earn Investments Limited and Long Wisdom International Limited to acquire the 33% and 32% share of Wise Channel Limited (“Wise Channel”) owned by them, respectively, at a consideration of HKD 6,600,000 (equivalent to RMB 6,538,620) andHKD 6,400,000 (equivalent to RMB 6,340,480), respectively. The transaction date of this acquisition was 7 May 2007, when the Company obtained the control over Wise Channel. Upon the completion of the deal, the equity interests in Wise Channel owned by the Group increased from 35% to 100%. The sole asset on the books of Wise Channle as at the transaction date was the 25% equity interests in Yichang CSG Silicon Materials Co Ltd, a subsidiary of the Company. Upon the completion of the deal, the Group’s share in the equity of Yichang CSG Silicon Materials Co Ltd increased from 75.75% to 92%. As at the transaction date, Yichang CSG Silicon Materials Co Ltd had not yet started the commercial operation. The difference between the purchase consideration and the fair value of the net assets acquired is as follows: Purchase consideration – paid by cash 12,879,100 Less: share acquired of fair value of the identifiable net assets (13,026,931) Differences – recognized as non operating income (147,831) The difference between the fair value of the identifiable net assets and carrying amount of the net assets is as follows: Share acquired of fair value of the identifiable net assets 13,026,931 Less: share acquired of carrying amount of net assets (12,345,798) Differences – recognized as capital reserve 681,133 The fair value of the identifiable net assets, all tangible assets, was determined in accordance with a professional valuer’s report. -93- CSG Holding Co., Ltd. 2007 Annual Report 10 Notes to the parent company financial statements (1) Other receivables 31 December 2007 31 December 2006 Other receivables 796,328,925 809,743,320 Less: provision for bad debts (810,344) (810,344) 795,518,581 808,932,976 The ageing of receivables and related provisions for bad debts are analysed below: 31 December 2007 31 December 2006 % of Provision for % of Provision total bad debts total for bad Amount balance Amount balance debts Within 1 year 795,502,937 100% - 808,917,332 100% - Over 3 year 825,988 - (810,344) 825,988 - (810,344) 796,328,925 100% (810,344) 809,743,320 100% (810,344) The other receivables are analysed by categories as follows: 31 December 2007 31 December 2006 % of total Provision for Provisio % of total Provision for Provisio Amount balance bad debts n ratio Amount balance bad debts n ratio Receivables that are individually significant 825,988 - (810,344) 98% 825,988 - (810,344) 98% Receivables not individually significant but with high risk in groups 795,502,937 100% - - 808,917,332 100% - - Others 796,328,925 100% (810,344) - 809,743,320 100% (810,344) - As at 31 December 2007, included in the balances were the loans to subsidiary of RMB 627,825,381 (2006: RMB 806,666,405). (2) Long-term equity investments 31 December 2007 31 December 2006 Subsidiaries (a) 2,407,678,733 2,008,793,821 Other long-term equity investments (c) 4,200,000 4,200,000 2,411,878,733 2,012,993,821 Less: Provision for impairment of long-term equity investments (b) (111,553,004) (127,039,789) 2,300,325,729 1,885,954,032 The long-term equity investments of the Group are not subject to restriction on conversion into cash or restriction on remittance of investment income. -94- CSG Holding Co., Ltd. 2007 Annual Report 10 Notes to the parent company financial statements (continued) (2) Long-term equity investments (continued) (a) Subsidiaries 31 December Current year Current year 31 December Name of subsidiaries 2006 addition disposal 2007 Shenzhen CSG Southern Star Glass Processing Co., Ltd. 23,104,499 - - 23,104,499 Shenzhen CSG Architectural Glass Co., Ltd. 32,000,000 - - 32,000,000 Hainan CSG Industrial Development Co., Ltd. 31,874,472 - - 31,874,472 Wuhan CSG Industrial Development Co., Ltd. 43,812,873 - (43,812,873) - China Southern Glass (Australia) Pty Ltd. 3,200,555 - - 3,200,555 CSG Spandrel And Tempglass Co., Ltd. 15,000,000 - - 15,000,000 Shenzhen CSG Structure Ceramics Co., Ltd. 30,000,000 - - 30,000,000 Shenzhen CSG Curtain Wall Engineering Co., Ltd. 12,000,000 - - 12,000,000 Shenzhen CSG Electronic Co., Ltd. 50,000,000 - - 50,000,000 Shenzhen CSG Float Glass Co., Ltd. 605,736,250 - - 605,736,250 Shenzhen CSG Automotive Glass Co Ltd. 140,403,049 - (140,403,049) - Sichuan CSG Industrial Development Co., Ltd. 40,000,000 - - 40,000,000 Hainan Wen Chang CSG Silica Sand Mine Co., Ltd. 40,000,000 - - 40,000,000 Beihai CSG Industrial Development Co., Ltd. 13,000,000 - - 13,000,000 Tianjin CSG Industrial Development Co., Ltd. 15,000,000 - - 15,000,000 Shenzhen CSG Display Technology Co., Ltd. 55,867,928 - - 55,867,928 Tianjin Energy Conservation Glass Co., Ltd. 62,400,000 33,600,000 - 96,000,000 Shenzhen CSG Curtain Wall Engineering Co., Ltd. 7,500,000 - - 7,500,000 Shenzhen CSG Wellight Coating Glass Co., Ltd. 66,171,348 - - 66,171,348 Shenzhen CSG Wellight Conductive Coating Co., Ltd. 73,624,561 - - 73,624,561 Tianjin CSG Architectural Glass Co., Ltd. 133,500,000 - - 133,500,000 China Southern Glass (Hong Kong) Limited 10,103,926 71,560,834 - 81,664,760 Guangzhou CSG Glass Co., Ltd. 120,000,000 - - 120,000,000 Chengdu CSG Glass Co., Ltd. 99,514,360 - - 99,514,360 Sichuan Luxian CSG Silica Sand Mine Co Ltd. 13,720,000 - - 13,720,000 Dongguan CSG Architectural Glass Co., Ltd. 75,000,000 105,000,000 - 180,000,000 Dongguan CSG Solar Glass Co., Ltd. 60,000,000 15,000,000 - 75,000,000 Yichang CSG Silicon Co., Ltd. 52,260,000 121,940,000 - 174,200,000 Wujiang CSG North-east Architectural Glass Co., Ltd. 84,000,000 156,000,000 - 240,000,000 Dongguan CSG PV-tech Co., Ltd. - 30,000,000 - 30,000,000 Dongguan CSG Ceramics Technology Co., Ltd. - 50,000,000 - 50,000,000 Total 2,008,793,821 583,100,834 (184,215,922) 2,407,678,733 -95- CSG Holding Co., Ltd. 2007 Annual Report 10 Notes to the parent company financial statements (continued) (2) Long-term equity investments (continued) (b) Impairment for investments in subsidiaries 31 December Current year Current year 31 December Name of subsidiaries 2006 addition disposal 2007 Hainan CSG Industrial Development Co., Ltd. (31,874,472) - - (31,874,472) Wuhan CSG Industrial Development Co., Ltd. (29,206,785) - 29,206,785 - Sichuan CSG Industrial Development Co., Ltd. (40,000,000) - - (40,000,000) Tianjin CSG Industrial Development Co., Ltd. (15,000,000) - - (15,000,000) Beihai CSG Industrial Development Co., Ltd. (10,958,532) - - (10,958,532) Sichuan Luxian CSG Silica Sand Mine Co Ltd - (Note 2) (13,720,000) (13,720,000) (127,039,789) (13,720,000) 29,206,785 (111,553,004) (c) Other long-term equity investments 31 December 2007 31 December 2006 Beijing Wan Tong Industrial Co., Ltd. 4,200,000 4,200,000 (3) Long term receivables 31 December 2007 31 December 2006 Part of the investments in subsidiaries 616,484,860 429,036,512 As at 31 December 2007, certain subsidiaries of the Company, namely Sichuan CSG Industrial Development Co Ltd, Hainan CSG Industrial Development Co Ltd, Tianjin CSG Industrial Development Co Ltd, and Sichuan Luxian Silicon Sand Mine Co Ltd, had a deficit in equity. Their operations were mainly financed by the Company. Accordingly the Company has grouped the long term receivables due to them, which constituted part of the investment costs when perform impairment assessments, and recognized the losses exceeding the share capital of the subsidiaries to the extent to the receivables. As at 31 December 2007, the cost and the provisions made for the receivables due by these subsidiaries were RMB 206,586,321 and 176,417,529, respectively (2006: 219,269,948 and 143,085,299). (4) Other payables As at 31 December 2007, the balances included the amounts due to the subsidiaries of RMB62,271,726 (2006: 287,379,507). (5) Asset impairment losses 2007 2006 Impairment of long-term equity investments 13,720,000 - -96- CSG Holding Co., Ltd. 2007 Annual Report 10 Notes to the parent company financial statements (continued) (6) Investment income 2007 2006 Dividends income 346,973,393 307,578,657 Loss from Long-term equity investments in subsidiaries (33,332,230) (6,204,206) Gain from disposal of a subsidiary 25,412,506 - Loss from liquidation of subsidiary (1,345,970) - 337,707,699 301,374,451 11 Related parties and related party transactions (1) The parent company and subsidiaries The general information of the subsidiaries is set out in Note 5. The Company regard no entity is the parent company. (2) Nature of related parties that do not control are not controlled by the company Name of related parties Relationship with the Group Shenzhen International Holdings Limited (“Shenzhen Previously indirectly holding 21.57% shares of the International”) Company Total Logistics (Shenzhen) Co., Ltd. (“Total Logistics”) Subsidiary of Shenzhen International On 16 August 2007, Shenzhen International, through its two subsidiaries, 怡万实业发展(深圳)有限公司 and 新通产实业开发(深圳)有限公司, disposed its indirect share hold in the Company to 19.72%, and ceased to be a related party of the Company since that date. The related transactions shown below were up to that date. (3) Related party transactions (a) Pricing policies The related parties’ pricing policies on transportation provided to the group are based on market prices. (b) Transportation fee for the year 2007 2006 Total Logistics 20,849,228 33,422,692 (c) Key management compensation 2007 2006 Key management compensation 5,313,390 4,205,200 -97- CSG Holding Co., Ltd. 2007 Annual Report 11 Related parties and related party transactions (continued) (4) Payables to related parties Accounts payable 31 December 2007 31 December 2006 Total Logistics - 8,900,963 12 Commitments Capital commitments As at 31 December 2007, capital expenditures contracted for at the balance sheet date but not recognised in the financial statements are as follows: 2007 2006 Buildings, machinery and equipment 821,731,000 1,010,222,000 Investment – subsidiaries 241,490,000 - 1,063,221,000 1,010,222,000 13 Contingencies As at 31 December 2007, there were certain pending litigations against the Group with the amounts of RMB 8,500,000. The directors, after consultation with the Company’s legal advisors, are of the view that the proceeding is not expected to lead to any material loss to the Group. 14 Events subsequent to the balance sheet date (a) On 17 March 2008, the board of the directors resolved for issuance of short term finance bonds up to RMB 1.6 billion (the “Issuance”), repayable within one year since inception. The Issuance need to be approved by the annual general meeting of shareholders and the relevant governing authorities. (b) On 13 January 2008, the Group signed an agreement with 深圳顺络电子股份有限公司, to sell the 100% equity interests owned the Group in Shenzhen CSG Electronics Co Ltd, (“CSG Electronics”), at a consideration of RMB 124.47 million (including amounts of RMB 25.67 million due to the Group by CSG Electronics). On 26 January 2008, the Group signed an agreement with 上海汉纳幕墙科技有限公司 and 上海郎硕工贸有 限公, to sell the 100% equity interests owned by the Group in Shenzhen CSG Curtain Wall Co Ltd (“CSG Curtain Wall”). The consideration will be determined at the total of net assets of the said company and the loans to it by the Group at the transaction date. The selected financial information of the two entities is as follows: CSG Electronics CSG Curtain Wall Total assets 159,835,162 42,055,332 Liabilities 99,992,315 30,806,502 Equity 59,842,847 11,248,830 Revenue 64,470,466 79,946,154 Net profit / (loss) 7,221,523 (1,672,164) -98- CSG Holding Co., Ltd. 2007 Annual Report 14 Events subsequent to the balance sheet date (Continued) (c) The directors of certain subsidiaries of the Company resolved in February 2008, committing for the dividends committed to the Company in respect of 2007, with an aggregated amount of RMB 278,814,794. The actual dividends will be determined based on their annual financial statements audited by PricewaterhouseCoopers Zhong Tian CPAs Limited Company. 15 First-time adoption of CAS The reconciliation between the consolidated owners’ equity at the beginning and ending of 2006 and the consolidated net profit for the year ended 31 December 2006 presented in accordance with the previous Accounting Standards and System, and that presented in accordance with CAS is as follows: 1 January 2006 2006 31 December 2006 Consolidated Consolidated Consolidated owners’ equity net profit owners’ equity Amount presented in accordance with the Previous Accounting Standards and System 2,475,927,247 332,111,553 2,628,344,891 Transferred from minority interests 239,819,093 81,784,299 312,380,615 Equity investment difference Including: Credit balance of other equity investment difference accounted for using equity method of accounting 4,876,829 608,205 5,485,034 Pre-operating expenses (6,938,290) 4,055,734 (2,882,556) Deferred tax assets 3,227,164 (1,745,651) 1,481,513 Amount presented in accordance with CAS 2,716,912,043 416,814,140 2,944,809,497 16 Net profit after extra ordinary gains and losses 2007 2006 Net profit 567,254,967 416,814,140 Plus: losses on disposal of non-current assets 19,546,234 2,889,823 Less: Gain on disposal of subsidiary (29,280,123) - Other non-operating expenses-net (11,029,851) (6,734,026) Tax effects on extraordinary gain and losses (428,814) (39,517) Net profit before extraordinary gain to losses 546,062,413 412,930,420 - Attributable to Shareholder of the company 412,588,587 332,344,206 - Minority interests 133,473,826 80,586,214 The basis of preparation of net profit before extraordinary gains and losses reconciliation According to the Q&A on Disclosure of Information by Public Companies No 1 – Extraordinary gains and losses, extraordinary gain and losses are the gain and losses being resulted from the transactions/events which are not incurred by the operation of the entity, or, though incurred by the operation, the nature, amounts or the frequency of such transactions/events will lead to a misleading presentation of the normal performance and profitability of the operation of the entity. -99- CSG Holding Co., Ltd. 2007 Annual Report Supplemental information: Asset impairment Current year reduction 31 Current Current Current 31 December year year year write December 2006 additions reverse off Subtotal 2007 1. Provision for bad debt (8,391,478) (8,712,781) - 4,212,574 4,212,574 (12,891,685) Of which: Trade receivable (6,690,532) (7,196,995) - 4,120,223 4,120,223 (9,767,304) Other receivable (1,700,946) (1,515,786) - 92,351 92,351 (3,124,381) 2. Provision for inventory loss (52,347,025) (931,955) 3,620,489 17,883,049 21,503,538 (31,775,442) Of which: Manufacturing industry (1,487,845) (931,955) - 1,832,153 1,832,153 (587,647) Real estate (50,859,180) - 3,620,489 16,050,896 19,671,385 (31,187,795) 3. Provision for long term investment loss (444,997) - - - - (444,997) Of which: Long term investment (444,997) - - - - (444,997) 4. Provision for fixed asset impairment (6,321,863) (37,278,011) - 1,267,306 1,267,306 (42,332,568) Of which: Property (4,291,087) (19,883,029) - - - (24,174,116) Machinery (1,648,266) (17,247,511) - 933,027 933,027 (17,962,750) Transportation equipment (382,510) (147,471) - 334,279 334,279 (195,702) (67,505,363) (46,922,747) 3,620,489 23,362,929 26,983,418 (87,444,692) -100- CSG Holding Co., Ltd. 2007 Annual Report §11 Documents for Reference I. Original of Annual Report with the signature of legal representative; II. Financial statements with the signature and seal of the legal representative, chief financial officer (CFO) and manager of financial department. III. Original of the Auditor’s Report with the seal of Pricewaterhouse Coopers Zhongtian Certified Public Accountants and the signature and seal of the certified public accountant. IV. Original of the documents and public notices disclosed on the newspapers designated by the China Securities Regulatory Commission (CSRC) in the report period. Board of Directors of CSG Holding Co., Ltd. March 17 2008 -101-