南玻Ｂ(200012)2008年年度报告（英文版）

CSG HOLDING CO., LTD. 2008 ANNUAL REPORT Chairman of the Board: ZENG NAN March 2009 CSG Holding Co., Ltd. 2008 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. Director Zhang Liqing absent the meeting for reason of health, he authorized director Wu guobin to vote on his behalf. PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd issued standard and unqualified 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 2008 Annual Report is true and complete. This report is prepared both in Chinese and English. Should there be any inconsistency between the Chinese and English versions, the Chinese version shall prevail. 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 _______ 10 §5 Corporate Governance Structure ______________________________________________ 15 §6 Brief Introduction of Shareholders' General Meetings _____________________________ 18 §7 Report of the Board of Directors _______________________________________________ 19 §8 Report of the Supervisory Committee __________________________________________ 33 §9 Important Events ___________________________________________________________ 35 §10 Financial Reports __________________________________________________________ 40 §11 Documents for Reference ____________________________________________________ 106 -1- CSG Holding Co., Ltd. 2008 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 i Initial business registration date: September 10, 1984 ii Initial registration authority: Shenzhen Administration for Industry and Commerce iii Business license number: 440301501125544 iv Reference number of tax: 440301618838577 v Code of Organization Certificate: 61883857-7 vi 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. 2008 Annual Report §2 Financial Data Highlights I. Major accounting highlights as of the year 2008 Unit: RMB Operating profit 465,506,129 Total profit 502,035,458 Net profit attributable to equity holders of the Company 420,079,848 Net profit attributable to equity holders of the Company after extraordinary gains and losses 350,296,529 Net cash flows from operating activities 1,030,211,774 Items of extra ordinary gains and losses: Gains on disposal of non-current assets 1,093,136 Gains on disposal of subsidiary 36,072,182 Gains on disposal of available-for-sale financial assets 7,485,293 Net value of other non-operating expenses 35,436,193 Tax effects on extraordinary gains and losses (3,848,793) Extraordinary gains and losses of minority interests (6,454,692) Total: 69,783,319 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 (2006): 420,079,848 4,544,606,539 Adjustment in goodwill - (3,039,946) As reported under IAS: 420,079,848 4,541,566,593 -3- CSG Holding Co., Ltd. 2008 Annual Report III. Major accounting data over the past three years Unit: RMB Year 2006 Percentage change Before After Year 2008 Year 2007 between 2008 and 2007 adjustment adjustment Revenue 4,273,375,853 4,187,962,628 2.04% 2,951,599,066 2,964,816,212 Total profit 502,035,458 634,467,082 -20.87% 444,480,832 449,144,771 Net profit attributable to equity 420,079,848 431,484,803 -2.64% 332,111,553 335,110,814 holders of the Company Net profit attributable to equity 350,296,529 412,588,587 -15.10% 328,227,833 332,344,206 holders of the Company after extraordinary gains and losses Net cash flows from operating 1,030,211,774 1,102,315,515 -6.54% 806,665,961 800,792,553 activities Percentage change on 31 Dec 2006 31 Dec 2008 compared to Before After 31 Dec 2008 31 Dec 2007 31 Dec 2007 adjustment adjustment Total assets 10,376,061,066 8,452,981,947 22.75% 6,772,237,421 6,776,321,412 Total equity attributable to equity 4,544,606,539 4,007,014,118 13.42% 2,628,344,891 2,632,509,855 holders of the Company IV. Major financial indices over the past three years Unit: RMB 2006 Percentage change between Before After 2008 2007 2008 and 2007 adjustment adjustment Basic earnings per share 0.35 0.41 -14.63% 0.33 0.33 Diluted earnings per share 0.35 0.41 -14.63% 0.33 0.33 Basic earnings per share after extraordinary gains and 0.29 0.39 -25.64% 0.32 0.33 losses 9.24% 10.77% Decrease 1.53 percentage 12.64% 12.73% Fully diluted return on equity (%) points Weighted average return on equity (%) 9.77% 14.50% Decrease 4.73 percentage oints 13.01% 13.12% Fully diluted return on equity after extraordinary gains 7.71% 10.30% Decrease 2.59 percentage 12.49% 12.62% and losses (%) points Weighted average return on equity after extraordinary 8.14% 13.86% Decrease 5.72 percentage 12.86% 13.01% gains and losses (%) points Net cash flows from operating activities per share 0.83 0.93 -10.75% 0.79 0.79 Percentage change on 31 Dec 31 Dec 2006 31 Dec 31 Dec 2008 compared to 31 Dec Before After 2008 2007 2007 adjustment adjustment Total assets per share for equity holders of the 3.67 3.37 8.90% 2.59 2.59 Company -4- CSG Holding Co., Ltd. 2008 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 352,987,986 29.71% 49,140,000 -153,384,980 -104,244,980 248,743,006 20.11% 1) State-owned shares 0 0.00% 0 0 0 0 0.00% 2) State-owned legal person’s shares 142,050,949 11.96% 0 -51,213,389 -51,213,389 90,837,560 7.34% 3) Other domestic shares 210,937,037 17.76% 49,140,000 -102,171,591 -53,031,591 157,905,446 12.76% Including: - Domestic legal person’s shares 210,833,868 17.75% 0 -102,171,591 -102,171,591 108,662,277 8.78% - Domestic natural person’s shares 103,169 0.01% 49,140,000 0 49,140,000 49,243,169 3.98% 4) Foreign-owned shares 0 0 0 0 0 0 0 Including: - Foreign legal person’s shares 0 0 0 0 0 0 0 - Foreign natural person’s shares 0 0 0 0 0 0 0 II. Unrestricted shares 834,975,138 70.29% 0 153,384,980 153,384,980 988,360,118 79.89% 1) RMB Ordinary shares 386,396,319 32.53% 0 153,384,980 153,384,980 539,781,299 43.63% 2) Domestic listed foreign shares 448,578,819 37.76% 0 0 0 448,578,819 36.26% 3) Overseas listed foreign shares 0 0 0 0 0 0 0 4) Others 0 0 0 0 0 0 0 III. Total shares 1,187,963,124 100.00% 49,140,000 0 49,140,000 1,237,103,124 100.00% -5- CSG Holding Co., Ltd. 2008 Annual Report ii. The changes of restricted shares in the report period Unit: Share Amount Amount of Restricted converted restricted Restricted amount to shares amount Date of the Name of the restricted held in the tradables increased held at the Reason of be rest shareholders year-begin in 2008 in 2008 year-end restricted conversions China Ping An Trust & Investment 80,000,000 0 0 80,000,000 Due to Private － Co., Ltd. placement Citics Securities Co., Ltd. 80,000,000 0 0 80,000,000 Due to Private － placement Yiwan Industrial Development 62,542,790 50,773,156 0 11,769,634 Commitments 2008.6.11 (Shenzhen) Co., Ltd. from Share Merger Reform China Northern Industry Corporation 61,610,716 50,773,156 0 10,837,560 Commitments 2008.5.26 from Share Merger Reform Xing Tong Chan Industrial 55,045,799 50,773,156 0 4,272,643 Commitments 2008.6.11 Development (Shenzhen) Co., Ltd. from Share Merger Reform CIL Holdings Limited 6,250,000 0 0 6,250,000 Due to Private － placement Zhejiang Silicon Paradise Pengcheng 6,250,000 0 0 6,250,000 Due to Private － Venture & Investment Co., Ltd. placement 7 former non-tradable shareholders who 1,065,512 1,065,512 0 0 Commitments 2008.2.5 performed the Share Merger Reform from Share in 2006 (Note 1) Merger Reform 3 former non-tradable shareholders who 120,000 0 0 120,000 Commitments － didn’t performed the Share Merger from Share Reform in 2006 (Note 1) Merger Reform Zeng Nan 103,169 0 4,000,000 4,103,169 Senior executive (Note 2) shares and Stock Incentive Ke Haiqi 0 0 1,600,000 1,600,000 Stock Incentive (Note 2) Luo Youming 0 0 1,600,000 1,600,000 Stock Incentive (Note 2) Wu Guobin 0 0 1,600,000 1,600,000 Stock Incentive (Note 2) Zhang Fan 0 0 1,600,000 1,600,000 Stock Incentive (Note 2) Ding Jiuru 0 0 1,500,000 1,500,000 Stock Incentive (Note 2) 238 key staffs 0 0 37,240,000 37,240,000 Stock Incentive (Note 2) 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 1 February 2008. Note 2: According to Restricted A Share Incentive Plan, the Company has accomplished the grant for these restricted shares on 14 July 2008. The granted day of the restricted shares was 16 June 2008, the lockup period is 12 months since the bestowed day, and the 48 months afterwards are unlocking periods. If the unlocking conditions regulated in the incentive plan are satisfied in each unlocking period, the incentive staffs could apply to unlock 25% of the total amount of restricted shares after 12 months, 24 months, 36 months and 48 months respectively since the granted day. iii. Share issuance and listing over the past three years. (i) 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 share which raised RMB 1.38 billion (including the issuing expense) in total. The listing date of the new shares was Oct.15 -6- CSG Holding Co., Ltd. 2008 Annual Report 2007, and the restricted trading period was 36 months. After the private issuance, the total shares capital of the Company was increased to 1,187,963,124 shares from 1,015,463,124 shares, the restricted shares accounted for 29.71% in total shares. (ii) According to Restricted A Share Incentive Plan, the Company has accomplished the grant for these restricted shares on 14 July 2008. That is, the Company issued 49.14 million restricted A-shares in total to 244 specific employees privately, at price of RMB 8.58 per share, and raised fund of RMB 421,621,200. The granted day of the restricted shares was 16 June 2008, the lockup period is 12 months since the bestowed day, and the 48 months afterwards are unlocking periods. If the unlocking conditions regulated in incentive plan are satisfied in each unlocking period, the incentive staffs could apply to unlock 25% of the total amount of restricted shares respectively after 12 months, 24 months, 36 months and 48 months since the granted day. After the issuance, the total share capital of the Company was increased up to 1,237,103,124 shares from 1,187,963,124 shares; the restricted shares accounted for 20.11% in total shares. II. Particulars about the major shareholders and actual controller i. Particulars about the shareholders and shares held Total shareholders: 75,595 shareholders (including 40,339 shareholders of A-share, 35,256 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. - 80,000,000 6.47% 80,000,000 0 ② Citics Securities Co., Ltd. State-funded 80,000,000 6.47% 80,000,000 0 shareholder ③ Xing Tong Chan Industrial Development - 69,656,074 5.63% 4,272,643 0 (Shenzhen) Co., Ltd. ④ Yiwan Industrial Development (Shenzhen) - 63,459,830 5.13% 11,769,634 0 Co., Ltd. ⑤ China Northern Industries Corporation State-funded 61,610,716 4.98% 10,837,560 0 shareholder ⑥ Guotai Junan Securities (Hong Kong) Foreign-funded 41,044,547 3.32% 0 0 Limited shareholder ⑦ Bank of China - Harvest Theme Selected - 30,641,542 2.48% 0 0 Mixed Stock Fund ⑧ Gao-Ling Fund, L.P. Foreign-funded 18,238,145 1.47% 0 0 shareholder ⑨ China Construction Bank - Penghua Value - 18,001,714 1.46% 0 0 Advantageous Stock Fund ⑩ Industrial and Commercial Bank of China - - 12,008,334 0.97% 0 0 Rongtong Dynamic Pioneer Stock Fund -7- CSG Holding Co., Ltd. 2008 Annual Report Particulars about the shares held by the top ten unrestricted shareholders Unrestricted share held Type of Name of shareholder (Share) share ① Xing Tong Chan Industrial Development (Shenzhen) Co., Ltd. 65,383,431 A-share ② Yiwan Industrial Development (Shenzhen) Co., Ltd. 51,690,196 A-share ③ China Northern Industries Corporation 50,773,156 A-share ④ Guotai Junan Securities (Hong Kong) Limited 41,044,547 B-share ⑤ Bank of China - Harvest Theme Selected Mixed Stock Fund 30,641,542 A-share ⑥ Gao-Ling Fund,L.P. 18,238,145 B-share ⑦ China Construction Bank - Penghua Value Advantageous Stock Fund 18,001,714 A-share ⑧ Industrial and Commercial Bank of China - Rongtong Dynamic Pioneer Stock Fund 12,008,334 A-share ⑨ Agricultural Bank of China - Changsheng Tongde Theme Growth Stock Fund 11,190,011 A-share ⑩ Bank of China - Fortune SGAM Advanced Growth Stock Fund 9,590,000 A-share Statement on associated Among shareholders as listed above, Yiwan Industrial Development (Shenzhen) Co., Ltd. and relationship or consistent Xin Tong Chan Development (Shenzhen) Co., Ltd. are holding enterprises of Shenzhen action among the above International Holdings Limited. Except for this, It is unknown whether other shareholders belong shareholders: to related party or have associated relationship regulated by the Management Regulation of Information Disclosure on Change of Shareholding for Listed Companies. 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 company, and its affiliated companies, associated companies and jointly controlled companies, are mainly engaged in ancillaries service and construction in logistics, as well as investment, operation and management of related assets and projects. Because the development strategy of the company is to centralize resources on developing its main business - logistics industry and other relevant business, the company began to sell Southern Glass-A shares gradually from August 2007. By the end of year 2008, the proportion of the Company’s shares held by Shenzhen International Holdings Co., Ltd. decreased to 10.76%. The ownership strcuture between the actual controller and the Company is as follow: Shenzhen Investment Management Co. 40.92% Shenzhen International Holdings Co., Ltd. 100% 100% 100% Xin Tong Chan Industrial Development (Shenzhen) Co., Ltd. Yiwan Industrial Development (Shenzhen) Co., Ltd. 5.63% 5.13% CSG Holding Co., Ltd. Shenzhen Investment Management Co., Ltd. is a state-owner enterprise under Shenzhen -8- CSG Holding Co., Ltd. 2008 Annual Report Municipality, the State-owned Assets Supervision and Administration Commission of Shenzhen Municipality Government performed responsibilities of investors and supervisor. In accordance with the document SGZWei [2004] 223, Shenzhen Investment Management Co., Ltd., Shenzhen Construction Investment Holdings Co., Ltd. and Shenzhen Commerce & Trade Investment Holdings Co., Ltd. were incorporated in Shenzhen Investment Holdings Co., Ltd.. At present, Shenzhen Investment Management Co., Ltd. is being merged and liquidated. iii. There were no other corporate shareholders holding more than 10% of total shares in the Company. -9- CSG Holding Co., Ltd. 2008 Annual Report §4 Particulars about the Directors, Supervisors, Senior Executives and Employees I. Directors, supervisors and senior executives i. Basic information Shares Shares held at the held at the Reason for Name Title Gender Age Term year-begin year-end change Zeng Nan Chairman of the Male 64 2008/4～2011/4 137,559 4,137,559 Stock Board/ CEO Incentive Chen Chao Independent Director Male 53 2008/4～2011/4 - - Wang Tianguang Independent Director Male 35 2008/4～2011/4 - - Xie Rudong Independent Director Male 51 2008/4～2011/4 - - Li Jingqi Director Male 52 2008/4～2011/4 - - Yan Ganggang Director Male 49 2008/4～2011/4 - - Guo Yongchun Director Male 41 2008/4～2011/4 - - Zhang Liqing Director Male 42 2008/4～2011/4 28,700 28,700 (Note) (Note) Wu Guobin Director/ Vice Male 44 2008/4～2011/4 - 1,600,000 Stock President/ Secretary Incentive of the Board Yang Hai Chairman of the Male 47 2008/4～2011/4 - - Supervisory committee Zhang Dongjun Supervisor Male 36 2008/8～2011/4 - - Liu Yongsheng Supervisor Male 34 2008/4～2011/4 - - Ke Hanqi Vice President Male 43 2008/4～2011/4 - 1,600,000 Stock Incentive Luo Youming Chief Financial Male 46 2008/4～2011/4 - 1,600,000 Stock Officer Incentive Zhang Fan Vice president Male 43 2008/4～2011/4 - 1,600,000 Stock Incentive Ding Jiuru Vice president Male 46 2008/4～2011/4 - 1,500,000 Stock Incentive Note: 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 and other correlated companies. -10- CSG Holding Co., Ltd. 2008 Annual Report Receiving remuneration & allowance Name Name of the company Title in the company Term or not Li Jingqi Xing Tong Chan Industrial Director 2002/9 to now No Development (Shenzhen) Co., Ltd. Li Jingqi Yiwan Industrial Development Director 2003/12 to now No (Shenzhen) Co., Ltd. Li Jingqi Shenzhen International Holdings Co., Executive Director / 2006/8 to now Yes Ltd. President, Vice-Secretary of the Party Committee Guo Yongchun China Northern Industries General Manager of 2003/7 to now Yes Corporation Investment Department II Zhang Liqing China Ping An Trust & Investment Vice General Manager 2006/8 to now Yes Co., Ltd. Yang Hai Xing Tong Chan Industrial Director 2000/3 to now No Development (Shenzhen) Co., Ltd. Yang Hai Shenzhen International Holdings Co., Executive Director 2007.8 to now No Ltd. Zhang Dongjun Citics Securities Co., Ltd. Chief Supervisor of 2007/1 to now Yes Capital Operation Department (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. Chen Chao, took posts of Section Vice Chief of Department of Transportation, Secretary to Deputy Minister of Department of Transportation, Deputy General Manger of Zhongtong Group Industrial and Trade Company under the Department of Transportation, Chairman and General Manager of Xing Tong Chan Industrial Development (Shenzhen) Co., Ltd., Chairman and General Manager of Shenzhen Expressway Co., Ltd., Vice-chairman and President of Shenzhen International Holdings Co., Ltd, the Chairman of the Company. At present, he is the Secretary of Party Committee and Chairman of Shenzhen Tonge Group. Wang Tianguang, took posts of Section Vice Chief of Supervision Department of Listed Company in Shenzhen Securities Supervisory Bureau, General Manger of Investment Banking Department of China Galaxy Securities Co., Ltd. At present, he is the Deputy General Manager of Investment Banking Headquarters of Southwest Securities. 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 -11- CSG Holding Co., Ltd. 2008 Annual Report 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. 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 shareholder’s company and other related companies, he concurrently holds posts of Director of Shenzhen Expressway Company Ltd. Yan Ganggang, took 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 posts 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 shareholder’s company, he concurrently takes the post of Chairman of Chengdu Yinhe Dynasty Hotel Co. Ltd. Zhang Liqing, took 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 China Ping An Trust & Investment Co., Ltd. (corporate shareholder of the Company). Wu Guobin, took posts of Manager of Securities Department of the Company and Assistant to the General Manager of the Company. At present, he is Director, Vice-president and Secretary of Board of Directors in the Company. Yang Hai, took 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 shareholder’s company and other related companies, he concurrently holds posts of Chairman of the Board of Shenzhen Expressway Co., Ltd.. Zhang Dongjun, took posts of Planning and Financial Department, Brokerage Business Department of Citic Securities Co., Ltd.. At present, he is the Chief Supervisor of Capital Operation Department of Citic Securities Co., Ltd. (corporate shareholder of the Company). Liu Yongsheng, took posts of Supervisal of Audit Department of Skyworth Group, Manager of Audit Department of Shenzhen Mingwah Aohan High Technology Corporation Ltd., Manager of Financial Department of Nanjing Hongzhi Investment Management Consulting Co., Ltd.. At present, he is the Manager of Audit Department of -12- CSG Holding Co., Ltd. 2008 Annual Report the Company. Luo Youming, took 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 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 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 Assistant to the President of the Company. At present, he is Vice President of the Company. Ding Jiuru, took posts of Deputy General Manager, Chief Accountant of China North Industries Corporation; Director, Manager of Financial Department and Chief Economist 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 Total annual Shares bestowed due to remuneration equity incentive(in Name Title (RMB’0000) 10,000 shares) (Note 2) Zeng Nan Chairman of the Board / CEO 92.12 400 Cheng Chao (Note 1) Independent Director 7.5 - Wang Tianguang (Note 1) Independent Director 7.5 - Xie Rudong Independent Director 10 - Long Long (Note 1) Independent Director 2.5 - Zhang Jianjun (Note 1) Independent Director 2.5 - Wu Guobin Director/ Vice-president / 71.07 160 Secretary of Board of Directors Liu Yongsheng Supervisor 25.81 - Ke Hanqi Vice-president 71.07 160 Luo Youming Chief Financial Officer 71.07 160 Zhang Fan Vice-president 70.43 160 Ding Jiuru Vice-president 57.21 150 Total - 488.78 1,190 Note 1: For Long Long and Zhang Jianjun, the tenure of independent director expired in April 2008. At the same time, Chen Chao and Wang Tianguang were elected as the independent directors of the Company. Thus, in the report period, independent director’s allowances for Long Long and Zhang Jianjun were calculated from January to March 2008, for -13- CSG Holding Co., Ltd. 2008 Annual Report Chen Chao and Wang Tianguang were calculated from April 2008 Note 2: The shares granted by stock incentive plan were in the lockup period. Please refer “V. Matters on Stock Incentive” of “§9 Significant Matters” for details. (iii) The following directors and supervisors received no remuneration or allowance from the Company: Li Jingqi, Yan Ganggang, Guo Yongchun, Zhang Liqing, Yang Hai and Zhang Dongjun. iv. Changing of directors, supervisors and senior executives (i) In the report period, the tenure for 4th board of directors and supervisory committee of the Company expired. On 10 April 2008, a new session of board of directors and supervisors committee were elected in 2007 Annual Shareholders’ General Meeting. Directors in the 5th board of directors are Zeng Nan, Li Jingqi, Yan Ganggang, Guo Yongchun, Zhang Liqing, Wu Guobin, and independent directors are Chen Chao, Wang Tianguang and Xie Rudong. Supervisors in the 5th Supervisory Committee are Yang Hai, Li Jiong, and supervisor for employee representative is Liu Yongsheng. On 10 April 2008, Mr. Zeng Nan was elected as Chairman of the 5th board of directors in the 1st meeting of the 5th board of directors. At the same time, the board of directors engaged Mr. Zeng Nan as CEO and President of the Company, and Mr. Wu Guobin as Secretary of Board of Directors continually. And according to the nomination of Mr. Zeng Nan, Luo Youming was appointed as Chief Financial Officer, Ke Hanqi, Wu Guobin, Zhang Fan and Ding Jiuru were appointed as Vice-President. (ii) In August 2008, Mr. Li Jiong resigned his post of supervisor due to the reason of work. On 20 August 2008, Mr. Zhang Dongjun was elected as supervisor of the supervisory committee of the Company in the 2nd Extraordinary Shareholders’ General Meeting 2008. II. Employee of the Company Categories Number of person Proportion Production personnel 5,874 67.50% Technical personnel 1,337 15.36% Administrative personnel 820 9.42% Marketing personnel 533 6.12% Financial personnel 139 1.60% Total 8,703 100% There were 5,559 employees received college and secondary vocational school, accounting 63.87% of the total employees. In the report period, there was no retiree that the Company had the responsibility to pay. -14- CSG Holding Co., Ltd. 2008 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 order to further standardize the operation, the Company comprehensively revised Rules of Procedure of Shareholders’ Meeting, Rules of Procedure of the Board of Directors, Work System of Independent Directors, Working Instruction of General Manager, Working Instruction of Secretary of the Board of Directors, Management Measures for External Guarantee and Management Measures for Raised Capital in March 2008. In the report period, according to relevant regulations of Notice of CSRC [2008] No. 27 and Notice on Deeply Promote Relevant Work of Special Campaign of the Corporate Governance (SZJGSZi[2008] 62) issued by Shenzhen Securities Supervisory Bureau, the Company promoted to the special campaign of the corporate governance continually, composed and disclosed Reform Report of Special Campaign of the Corporate Governance and Self-inspection Summary on Capital Occupation of Related Parties. Through constant optimizing of the corporate governance, the construction of internal control of the Company has been strengthened further, the level of standard operation has been improved and the comprehensive competitive ability has been enhanced. Now, the governance system of the Company has been set up; the operational flows are standardized; and the governance structure is complete. These meet requirements of relevant regulatory documents issued by CSRC. In 2008, 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, attended the Board meeting and Shareholders’ General Meeting actively with responsible attitude, issued independent opinion on significant matters, and made active effects to protect the interests of the Company and ordinary shareholders. Particulars about independent directors’ presenting the Board meeting: -15- CSG Holding Co., Ltd. 2008 Annual Report Name of Times that Times of Times of Times Independent should be personal commission of director attend presence presence absence Note Chen Chao 8 8 0 0 Elected as Independent Director in April 2008. Wang Tianguang 8 8 0 0 Elected as Independent Director in April 2008. Xie Rudong 10 8 2 0 - Long Long 2 2 0 0 The tenure of independent director expired in April 2008. Zhang Jianjun 2 2 0 0 The tenure of independent director expired in April 2008. 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 -16- CSG Holding Co., Ltd. 2008 Annual Report 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 According to regulations of Basic Standard for Enterprises’ Internal Control united issued by Ministry of Finance and Shenzhen Stock Exchange and Guidance for Internal Control of Listed Company issued by Shenzhen Stock Exchange, the Company made Self-estimation Report of Internal Control 2008 (Details could be found in Juchao website). Opinions of independent directors on self-estimation report of internal control: In the year 2008, the Company established and perfected internal control system. This system strictly, sufficiently and effectively controlled the important activities including internal control of subsidiaries companies, related transaction, external guarantee, use of raised capital, significant investment, information disclosure etc., ensured effecting operation and management of the Company. This internal control system was rational and perfect. The self-estimation report of internal control reflected the conditions of internal control of the Company truly, objectively and completely. Opinions of supervisors on self-estimation report of internal control: The internal control organization of the Company was integrated, internal audit department and personnel were complete, which ensured sufficient and effective implementation and supervision of important activities of internal control. The self-estimation report of internal control reflected the conditions of internal control of the Company truly, objectively and completely. V. Appraisal 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 the year 2008, the Company has accomplished Restricted A Share Incentive Plan to middle and senior managements and other key staffs of the Company. the Company actually granted 49.14 million restricted A-shares to 244 specific employees, with the price of RMB 8.58 per share. The implementation of the incentive plan further perfected the incentive mechanism of the Company, promoted key staffs to work diligently, and ensured the realization of the development strategy and operation target of the Company. -17- CSG Holding Co., Ltd. 2008 Annual Report §6 Brief Introduction of Shareholders' General Meetings In the report period, The Company has held 1 Shareholder’s General Meetings and 2 Extraordinary Shareholders’ General Meetings. i. The Company held the 2007 Shareholders’ General Meeting on 10 April 2008. The resolution of the meeting has been published on Security Times, China Securities Journal and Hong Kong Wen Wei Po dated on 11 April 2008. ii. The Company held the 1st Extraordinary Shareholders’ General Meeting on 13 June 2008. The resolution of the meeting has been published on Security Times, China Securities Journal and Hong Kong Wen Wei Po dated on 16 June 2008. iii. The Company held the 2nd Extraordinary Shareholders’ General Meeting on 20 August 2008. The resolution of the meeting has been published on Security Times, China Securities Journal and Hong Kong Wen Wei Po dated on 21 August 2008. -18- CSG Holding Co., Ltd. 2008 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 2008, economic situation in overseas and domestic was complicated and volatile. Especially since the 4th quarter, as the global financial crisis has deepen further and the growth of entire domestic economy slowed down, market demand for many industry products and consumable shrank drastically and export order declined greatly, which made the operation environment extremely grim. Facing that situation, the Company responded actively: deepened fine management further, intensified cost control, strengthened R&D, insisted on self-innovation and differential operation. Meanwhile, the Company promoted construction of all projects completely and efficiently, enhanced building of internal control system, strengthen evaluation & control of various risks. Due to the appropriate measures, the Company still remained healthy growth in 2008. At end of the report period, the Company had realized revenue of RMB 4.273 billion, a raise of 2% compared with the same period of last year, and realized net profit of RMB 0.42 billion (deducted minority interest). If didn’t considering the impairment losses of Shenzhen float glass production line, the Company would realize net profit of RMB 568 million (deducted minority interest) in 2008, a raise of about 32% compared with the same period of last year. Flat glass industry department: In 2008, due to the detriment effects of economy, such as: great fluctuation in price of energy and raw materials, depression of real estate market and surplus capacity increased in domestic flat glass industry, the whole flat glass industry received losses and more than 40 float glass production lines glass stopped operation. In that market environment, the flat glass business department of the Company advanced its internal management actively, improved techniques to reduce energy consumption, promoted proficiency of employees. Meanwhile, based on the own technology advantages, a series of high added value products were developed, such as float ultra-white glass, European gray glass and F green glass, which guaranteed profitability of this industry under the grim market to some extent. As for solar ultra-white rolled glass project, yield of finished-product of this glass was stabilized and improved further through continuous technology reform, and core competence was enhanced. Although the operation environment was awful, flat glass business department still maintained profitability through the effort, and it outshined others in the entire flat glass industry. Architecture glass industry department: Although the market demand for architecture glass was influenced by external economic environment, architecture glass industry of the Company continued to present good tendency in 2008. As the capacity of Shenzhen and Dongguan factories had been integrated, and energy-saving glass projects in Tianjin and Wujiang has been finished and put into operation, the architecture glass industry -19- CSG Holding Co., Ltd. 2008 Annual Report department realized a considerable increase in capacity scale and profitable level. Facing the variable overseas and domestic environment, the architecture glass business department strengthened risk management, and made continuous improvement in market expansion, quality management, cost control and R&D of products. These measures resume and improve the gross profit of this industry effectively, and made a considerable profit of the Company. During the report period, single-silver Low-E glass and double-silver Low-E glass of architecture glass had reached international high standard. The trial production for three-silver products has been in preparation, that would further consolidate and strengthen its leadership in the industry. Fine glass and ceramics industry department: Although facing the pressure caused by continuous falling of product’s price and abolition of the preferential tax policy for high-tech enterprises, the fine glass and ceramics business department had maintained a stable performance in the previous three quarters through continuous innovation and increase in proportion of high value added products. In the 4th quarter, with further influence on real economy and market demand led by the financial crisis, market demand for display products dropped drastically and the industry was greatly influenced. Facing crisis and pressure, the fine glass and ceramics department responded actively, and reduced influence on production and sales brought by the financial crisis through strict control of procurement and inventory, adjustment of sales strategy timely. Solar energy industry department: With efforts from everyone of the Company, polysilicon project in Yichang had been put into trial operation successfully after overcoming various difficulties. At the end of December 2008, the first furnace of polysilicon materials with purity reaching solar energy standard was produced, and all the parameter reached demand for solar energy level basically. Production line of solar battery project had been got through completely and it’s available for volume production. Its photoelectric conversion ratio had reached advanced level in the industry. It created favor condition for the Company to build complete solar energy industry chain. (ii) Main operating incomes and operations of the Company h Main operating incomes classified according to industry: Unit: RMB 2008 2007 Industry Operating income Cost of sales Operating income Cost of sales Flat glass industry 2,288,309,459 1,761,831,571 2,087,771,748 1,475,835,718 Architectural glass industry 1,559,625,007 1,054,047,722 1,328,680,698 982,771,796 Fine glass industry 517,812,006 295,275,990 547,454,387 310,765,118 Solar energy industy 53,432,843 50,895,989 - - Others 39,513,427 25,030,628 429,078,854 348,397,902 Elimination (220,771,463) (220,771,463) (229,125,841) (226,310,552) Total 4,237,921,279 2,966,310,437 4,163,859,846 2,891,459,982 Note: Dongguan Solar Energy Glass Co., Ltd. Had already transferred from solar energy industry department to flat glass industry department in 2008. Data for 2007 had been adjusted. -20- CSG Holding Co., Ltd. 2008 Annual Report h Main operating incomes classified according to locations: Unit: RMB Location Operating income in 2008 Percentage increased/decreased than 2007 Mainland, P.R.C. 3,471,750,839 10.85% Hong Kong, P.R.C 427,916,741 -34.00% United States 31,823,255 -32.06% Australia 73,795,001 111.05% Other locations 232,635,443 -22.90% h Products which accounted over 10% of Sales: Unit: RMB Operating income Cost of sales Gross profit margin (%) Increase/ Increase/ Decrease Decrease than than Percentage Product 2008 2007 2008 2007 2008 Increased/Decreased than 2007 Flat Glass 2,288,309,459 9.61% 1,761,831,571 19.38% 23.01% Decrease 6.30 percentage points Architectural Glass 1,559,625,007 17.38% 1,054,047,722 7.25% 32.42% Increase 6.38 percentage points Fine Glass 517,812,006 -5.41% 295,275,990 -4.98% 42.98% Decrease 0.26 percentage points h Major suppliers and customers: In the report period, the Company’s purchase amount from the top five suppliers was RMB 547.12 million in total, accounting 26% of the total annual purchase; the sales to the top five customers was RMB 638.96 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 2008 2007 Change Reason Long-term equity investments 2,720 420 548% Share-join in Guangdong Golden Glass Technologies Limited. Deferred tax assets 6,144 384 1500% Mainly due to that deferred income tax should be confirmed due to time difference of tax payable arising from withdrawing fixed asset depreciation. Interest payable 2,096 538 290% Bank loans increased and interest withdrew for issuing short-term financing bond increased. Non-operating income 4,544 1,388 227% Various financial subsidy obtained by underlying companies increased. Details were available in Complementary Materials II, Financial Report. (iv) Items related to fair value measure Unit: RMB’0000 Current gains Accumulative and losses due fair value change Depreciation Amount at to change of fair calculated to withdrawn Amount at Item period-begin value equity this period period-end Financial assets 4,363 - -2,989 - 1,293 Including: Financial assets 4,363 - -2,989 - 1,293 available for sales Total 4,363 - -2,989 - 1,293 -21- CSG Holding Co., Ltd. 2008 Annual Report Notes: Financial assets available for sales of the Company all were A shares listed in domestic market, whose fair value change should be calculated into shareholders’ equity. The accumulative fair value change currently calculated into equity listed in the above table included the fair value change of RMB 7,138.7 thousand which was originally calculated into shareholders’ equity since part shares were sold and transferred in this period. Financial assets holding and financial liabilities bearing in terms of foreign currency: Unit: RMB’0000 Current gains Accumulative and losses due fair value change Depreciation Amount at to change of fair calculated to withdrawn Amount at Item period-begin value equity this period period-end Financial assets 10,319 - - -39 8,393 Including: loan and accounts 10,319 - - -39 8,393 receivable Financial liability 178,182 - - - 88,749 (v) Relevant data of cash flows and reason for change Unit: RMB’0000 Amount Item 2008 2007 Difference Reason Net cash flows from operating 103,021 110,232 -7,211 Projects of Tianjin Energy-saving, Wujiang CSG, activities Dongguan Photovoltaic and Hebei CSG were put into operation successively this year, operation capital was needed greatly so that cash flow arising from operating activities decreased compared with the same period of the last year. Cash paid to acquire fixed 268,357 142,542 125,815 Investment in fixed assets increased in this year. assets, intangible assets and other long-term assets Cash payments relating to other 61,510 320 61,190 Deposit for borrowing foreign currency increased. financing activities (vi) Analysis on performance of major shareholding subsidiaries h Flat glass industry department: A. Guangzhou CSG Glass Co., Ltd. (Note a) is a wholly owned subsidiary of the Company with registered capital is RMB 260 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 2008, the total asset of the company was RMB 954 million. In 2008, this company realized revenue of RMB 693 million and net profit of RMB 31.72 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 2008, the total asset of the company was RMB 1.23 billion. In 2008, this company realized revenue of RMB 583 million and loss of RMB 170 million (assets depreciation was withdrew). C. Chengdu CSG Glass Co., Ltd., 75% equity is held by the Company, the registered -22- CSG Holding Co., Ltd. 2008 Annual Report capital is RMB 246.66 million. The main business of flat glass industry in this company 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 2008, the total asset of flat glass industry in the company was RMB 813 million. In 2008, flat glass industry in the company realized revenue of RMB 605 million and net profit of RMB 112 million. D. Hebei CSG Glass Co., Ltd. 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. In the report period, the company has not realized income. E. Dongguan CSG Solar Glass Co., Ltd. Is a wholly owned subsidiary of the Company with registered capital of RMB 200 million. It produces and sells solar glass products. The daily melting capacity is 500 tons. At the end of 2008, the total asset of the company was RMB 757 million. In 2008, this company realized revenue of RMB 405 million and net profit of RMB 149 million. F. 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 2008, the total asset of the company was RMB 64.27 million. G. Jiangyou CSG Mine Develop Co., Ltd. (Note b) is a wholly owned subsidiary of the Company with registered capital of RMB 28 million. The main business includes production and sales of quartz sand. The company is still in preparation to construct. In 2008, the flat glass industry department realized revenue of RMB 2.284 billion and net profit of RMB 80.76 million in total. h Architectural glass industry 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 saving Low-E coated glass and related compound-processed products. At the end of 2007, the total asset of the company was RMB 886 million. In 2008, this company (architecture glass in Shenzhen included) realized revenue of RMB 631 million, and loss of RMB 104 million. 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 saving Low-E coated glass and related compound-processed products. At the end of 2008, the total asset of the company was RMB 501 million. In 2008, this company realized revenue of RMB 594 million and net profit of RMB 75.45 million. 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 saving Low-E coated glass and related compound-processed products. At the end of -23- CSG Holding Co., Ltd. 2008 Annual Report 2008, the total asset of the company was RMB 503 million. In 2008, this company realized revenue of RMB 259 million and net profit of RMB 53.88 million. 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 saving Low-E coated glass and related compound-processed products. At the end of 2008, the total asset of the company was RMB 613 million. In 2008, this company realized revenue of RMB 163 million and net profit of RMB 24.91 million. E. Chengdu CSG Glass Co., Ltd., architectural glass industry in this company mainly produces energy saving Low-E coated glass and related compound-processed products. At the end of 2008, the total asset of architectural glass industry in the company was RMB 238 million. In 2008, architectural glass industry in the company realized revenue of RMB 150 million and net profit of RMB 26.58 million. F. CSG (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 2008, the total asset of the company was RMB 657 million. In 2008, this company realized revenue of RMB 139 million. G. CSG (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 2008, the total asset of the company was RMB 13.42 million. In 2008, this company realized revenue of RMB 80.28 million. In 2008, the architectural glass industry department realized revenue of RMB 1.597 billion and net profit of RMB 288 million in total. h Fine glass and ceramics industry 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 2008, the total asset of the company was RMB 375 million. In 2008, this company realized revenue of RMB 282 million and net profit of RMB 64.79 million. B. Shenzhen CSG Wellight Conductive Coating Glass Co., Ltd., 70% equity is held by the Company, the registered capital is USD 17.80 million. The main business includes production and sales of color filter with production capacity of 90,000 pieces per month. At the end of 2008, the total asset of the company was RMB 666 million. In 2008, this company realized revenue of RMB 267 million and net profit of RMB 69.33 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 ceramic products. At the end of 2008, the total asset of the company was RMB 41.41 million. In 2008, this company realized revenue of RMB 31.96 million and net profit of RMB 4.69 million. D. Dongguan CSG Ceramics Technology Co., Ltd. is a wholly owned subsidiary of the -24- CSG Holding Co., Ltd. 2008 Annual Report Company with registered capital of RMB 50 million. It mainly produces high-tech structural ceramic products. E. Shenzhen New Sight Photoelectricity Technology Co., Ltd. (Note b), 72% equity is held by the Company, the registered capital is RMB 20 million. It mainly develops, products and sells cover glass, shielding glass and related products. The company is still in preparation. In 2008, the fine glass and ceramics industry department realized revenue of RMB 550 million and net profit of RMB 100 million in total. h Solar energy industry department: A. Yichang CSG Silicon Co., Ltd., 92% equity is held by the Company, the registered capital is RMB 492 million. It produces high-purified poly-silicon materials. The production capacity in the 1st phase of the project is 1500 tons per year. In the report period, the company has not realized income. B. 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. At the end of 2008, the total asset of the company was RMB 197 million. In 2008, this company realized revenue of RMB 54.01 million and loss of RMB 14.69 million. Notes: The revenue of the above departments has eliminated the internal related transactions; the net profit of the above departments have eliminated the minority interest. a. The Company held 75% equity of Guangzhou CSG Glass Co., Ltd. Originally. In this year, CSG (Hong Kong) Co., Ltd., the subsidiary company of the Company, purchased 25% equity of Guangzhou CSG Glass Co., Ltd. held by Success (Hong Kong) Co., Ltd.. After the accomplishment of equity transfer, the Company has held 100% equity of Guangzhou SG Glass Co., Ltd.. b. Jiangyou CSG Mine Develop Co., Ltd. and. Shenzhen New Sight Photoelectricity Technology Co., Ltd. were established in this year. ii. Prospect for the future development of the Company (i) Growth trend of the industry and business In 2009, the economic situation would be more difficult and the market demand would be uncertainty as international financial crisis will influence on the real economy further. Due to the close relationship between flat glass industry and real estate industry, changes in market demand would be too complicated to predict. Promoted by measures of energy-saving and environment-protection policy issued by the state, energy-saving and environment-protection architecture glass such as Low-E coated insulating glass would be still popular in market. Besides, projects of Asian Games, the World University Games, World Exposition and airport projects planned by the government to stimulate domestic economy would bring positive influence to this industry. Market demand for fine glass suffered a lot from international financial crisis. However, upgrade of terminal products of display fittings and application of 3G products would promote market demand for Touch Panel products. Influenced by financial crisis, solar PV industry in nation was seriously tested in the later -25- CSG Holding Co., Ltd. 2008 Annual Report half year of 2008. Most solar cell and module producers had to stop or reduce production due to influence of market demand and depreciation of Euro, which led to fall in price of poly-silicon. In the long term, regression of poly-silicon’s price would reduce cost in PV generation effectively, and promoted photovoltaic industry to develop more health. At present, some developed countries take development of new energy industry as a significant effective measure to respond to greenhouse effect, increase working posts and deal with financial crisis positively. Obama’s government also takes development of new energy industry to the altitude of national energy strategy and energy safety. Meanwhile, American fixes the hope of resuscitating American economy on renewable energy industry. As the shortage of the global fossil energy, the Company believes that renewable energy industry is in accordance with a long-term demand of human being. There is enormous room for growth of solar PV industry. (ii) Development strategy and 2009 operation plan of the Company Development strategy for future years of the Company is to concentrate on developing energy-saving and renewable energy industry, consolidate and reinforce technical advantage and market status in fields of energy-saving glass and solar PV products, earnestly build and improve core competence and sustainable development ability in industries of float glass, architecture glass, fine glass and solar energy. The main operating plans of the Company in 2009: h Plan, management and operation, building powerful management and employee team, advancing comprehensive management, ensuring to achieve the construction and operation target of 2009. h Responding to hard economic environment actively, strengthening the reserve of core techniques, optimizing internal management and getting ready for economy resumption. h Further strengthening general budget management, achieving targets of operation index, intensifying management of cost, expense and cash flow, strictly controlling expenditure of capital, account receivable and inventory, preventing operational risks. h Adjusting marketing strategy promptly to adapt to the change of economic situation, strengthening guidance and management on marketing, ensuring maximization use of production capacity. h Emphasizing self-innovation, encouraging innovation culture, continuing to improve R&D ability, increasing investment in R&D, make R&D conform to market, ensure to improve competitiveness of the Company continuously in this economy crisis, and ready for growth after the economy resumes. h Further perfecting internal governance, establishing scientific internal control system, to prevent risks actively. Continuing to strengthen internal audit and internal control, establishing long-term effective mechanism to fight against commercial bribe, punishing bribery in the Company strictly. (iii) Demand for capital, capital use plan and capital resources -26- CSG Holding Co., Ltd. 2008 Annual Report For year 2009, the Company requires about RMB 1.5 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 International financial crisis will further influence the market and financial environment in 2009. It is predicted that market demand for every industry of the Company will be affected. Facing the hard economic environment, the Company will insist on the market strategy of diversity operation, and respond to the crisis through strengthening R&D, controlling cost and preventing risks strictly, exploiting overseas and domestic market greatly in diversified levels, and enhancing respond ability. II. Investments in the report period i. Usage of raised funds The Company privately offered 172.5 million A-shares which raised RMB 1.372 billion (deducting issuing expense) in October 2007. In the report period, the usages of raised fund are as follows: Unit: RMB’0000 Total raised fund Fund used in 2008 Fund used in total 137,200 54,166 125,164 Changes in Fund Profits Is it in Target project project required Fund used generated Schedule 1500T/Year poly-silicon project No 45,000 15,544 -2,506 Yes Wujian Low-E glass project No 29,600 17,122 2,491 Yes Dongguan glass processing base No 35,000 6,500 10,393 Yes Tianjing Low-E glass project No 27,600 15,000 5,388 Yes Total - 137,200 54,166 - - 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 120.36 million, it will be continuously spent and invested in poly-silicon project in several times in year 2009. Other projects committed in Prospectus have been accomplished. The progress of the projects is as follows: Project Project progress 1500T/Year poly-silicon project The project was filled with materials and put into trial operation in November 2008. The first furnace of high-purity poly-silicon has been made out successfully in December. At present, the system runs normally. Various techniques parameters are optimized unceasingly in order to further improve finished-product rate and unceasingly reduce cost. Wujian Low-E glass project The 1st phase of project has been accomplished and put into operation in the 2nd quarter of 2008. The 2nd phase of project has been basically finished. Dongguan glass processing base The removal of Shenzhen plant to Dongguan and the installation of new equipments are completed. The project has been put into commercial operation.. Tianjing Low-E glass project The 1st phase of project has been accomplished and put into operation in the 2nd quarter of 2008. The 2nd phase of project has been basically finished. -27- CSG Holding Co., Ltd. 2008 Annual Report ii. Investment of non-raising fund Unit: RMB’0000 Project Amount Progress of project Earning Ultra white solar glass 25,800 This project has been ignited successfully and put into In the report period, the expansion project operation at the end of September 2008. At present, it project has not realized runs normally. income. PV solar cell project 10,000 At the end of report The project has been finished and put into operation in period, the loss of the the 2nd quarter of 2008. Yield of finished products and project was RMB 14.69 photoelectric conversion are reached in a good level. million. Hebei CSG float glass 73,900 This first line of the project has been successfully fired at In the report period, the project the end of October of 2008, and currently put into project has not realized operation. Construction for the second line has been income. finished. Chengdu CSG new 24,800 Planning to build a production line and its supporting In the report period, the float glass facilities. It mainly produces energy saving Low-E project is in preparation. production line glass. The 1st phase of the project will be completed at the end of year 2009. After the completion of the project, the yearly production capacity of Low-E compound-processed glass is 1.25 million square meters. At present, the project is in preparation. Chengdu CSG new 45,900 Planning to build a new 900T/D production line for top In the report period, the float glass grade float glass. It mainly produces 5-12mm top grade project is in preparation. production line float glass. The project is expected to be complete in the middle of year 2009. At present, the progress for the project is under control. Yichang CSG 160 69,500 Planning to build solar battery silicon piece processing In the report period, the MW silicon piece project with annual capacity of 160 MW. Considering project is in preparation. processing project the economy and market situation in overseas and domestic, this project has been postponed. Chengdu SG 6,694 Planning to build a waste-heat power plant with the total In the report period, the waste-heat generation capacity of 12 MW used with the waste heat project is in preparation. generation project emission from production line of Chengdu CSG Float Glass, which could provide 90% electricity used in production line of Chengdu CSG. It is predicted to finish the project in July 2009. Expansion project of 15,600 Planning to build a production line with annual capacity In the report period, the solar cell of 75 MW. Due to market situation, it is planned to project is in preparation. invest in one polysilicon battery line of 25 MW first that will matche another monocrystalline silicon battery line of 25 MW which has been put into operation. The 1st phase of 7,000 Building a base in processing quartz in Jiangyou city. The In the report period, the project of Jiangyou annual capacity of 1st phase of 300,000 tons, and will project is in preparation. Mine put into operation in 2010. TCO conductive glass 8,577 Planning to introduce a TCO glass product line while In the report period, the project applied in thin film solar cell with annual capacity of project is in preparation. 460,000 square meter (3450 tons per year). The production line is planned to put into operation in June 2009. Touch panel module 2,000 Planning to build multi-dot capacitance touch panel In the report period, the project module production line from 2.5’ to 5’. The capacity of project has not realized the project in the first round is 100K per month and part income. has been put into operation in January 2009. Total 289,771 - - -28- CSG Holding Co., Ltd. 2008 Annual Report III. In the report period, there is no change of accounting policy and accounting estimation of the Company. 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 10 meetings. (i) On 22 January 2008, the Company held 25th 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 on 24 January 2008. (ii) On 17 March 2008, the Company held 26th 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 on 19 March 2008. (iii) On 10 April 2008, the Company held 1st Meeting of the 5th Board of Directors. The resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated on 11 April 2008. (iv) On 14 April 2008, the Company held 2nd Meeting of the 5th Board of Directors. The resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated on 16 April 2008. (v) On 27 May 2008, the Company held the Extraordinary Meeting of the 5th Board of Directors. The resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated on 28 May 2008. (vi) On 13 June 2008, the Company held 3rd Meeting of the 5th Board of Directors. The resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated on 17 June 2008. (vii)On 14 July 2008, the Company held the Extraordinary Meeting of the 5th Board of Directors. The resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated on 15 July 2008. (viii) On 1 August 2008, the Company held 4th Meeting of the 5th Board of Directors. The resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated on 5 August 2008. (ix) On 17 October 2008, the Company held 5th Meeting of the 5th Board of Directors. The resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated on 21 October 2008. (x) On 24 December 2008, the Company held 6th Meeting of the 5th Board of Directors. The resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated on 25 December 2008. ii. Particulars about the implementation of the resolutions in Shareholders’ General Meeting by the Board of Directors. (i) Shareholders’ General Meeting of 2007 passed the 2007 Profit Distribution Plan, -29- CSG Holding Co., Ltd. 2008 Annual Report which the dividends would be distributed to shareholders in cash at the rate of RMB 1.5 (including tax) for each 10 shares based on the total share capital 1,187,963,124 shares at the end of the year 2007.The Company published a dividend distribution notice on China Securities Journal, Securities Times and Hong Kong Wen Wei Pao on 30 May 2008, and the distribution has been accomplished.. (ii) The 1st extraordinary shareholders’ meeting of 2008 passed Restricted A Share Incentive Plan of CSG. According to authorization endowed by Shareholders’ General Meeting, the Board of the Company has accomplished grant for these restricted shares in July 2008, and has been finished changing registered capital and amending Articles of Association. iii. The implementation of duty of the Audit Committee of the Board of Directors The Audit Committee of the Board of Directors of the Company is constituted with 5 directors, and 3 of them are independent directors. The convoker is independent director. During the report period, according to demands of CSRC and Shenzhen Stock Exchange, and regulations of Rules of Procedure of the Audit Committee of the Board of Directors, Procedure for Annual Report Work of the Audit Committee, the committee audited the internal audit report, financial report and internal control system of the Company periodically, diligently and faithfully. And performed the following duties: (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 31 December 2008 and operation achievement in 2008 of the Company in significant aspects. (ii) Supervision on the certified public accountant 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 2008 audit work of the CPAs PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd. conducted their work in strict accordance to Chinese audit standards; with attitude of earnest and -30- CSG Holding Co., Ltd. 2008 Annual Report responsibility, paid attention to communication with the management level and the Audit Committee; embodied strong specialty knowledge, professional nature and risk awareness. The CPAs successfully finished the 2008 annual audit work of financial reports of the Company and the audit quality is worthy of trust. (iv) Proposal on the re-engagement of the CPAs The Audit Committee suggests the Company to re-engage PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd. as the audit organization for the year 2009. iv. Performance of duty of the Remuneration and Appraisal Committee of the Board of Directors The Remuneration and Appraisal Committee of the Board of Directors is constituted with 5 directors. According to regulations of Rules of Procedure of The Remuneration and Appraisal Committee, the Remuneration and Appraisal Committee makes examination on the disclosed remuneration of the directors, supervisors and senior executives and thought it accorded with the relevant laws and regulations of the remuneration and appraisal system of the Company. The Company has accomplished the grant for restricted A shares on July 2008. During the period, the Remuneration and Appraisal Committee always focused on the promotion of the incentive plan, revised and perfected Draft of the Incentive Plan of A Restricted Shares, and formulated Appraisal Measures of Incentive Staffs of the Incentive Plan. In June 2008, the Remuneration and Appraisal Committee of the Board of Directors thought that, 256 incentive staffs all accorded with the conferring qualification, the operation index in 2007 of the Company reached relevant standards, the conferring qualification met the demand for conferring. The Remuneration and Appraisal Committee handed in the results to the board of directors to discuss. In December 2008, the Remuneration and Appraisal Committee of the Board of Directors thought that, there are totally 5 original incentive staffs had dismissed till 30 November 2008, and they did not accord with the qualification. According to relevant regulations of the Restricted A Share Incentive Plan, their restricted shares should be bought back and cancelled with the price of RMB 8.58 per share, and the results were handed into the board of directors to discuss. 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 parent company was RMB 318,635,020 in 2008. The Company took 10% of the net profit as stationary surplus reserve which was RMB 31,863,502. The Board of Directors proposed to distribute the profit based on the amount 1,224,150,624 shares (the total capital share at the end of the year 2008 deduct the share will be buy-back), taking into accounts of the profits available for dividend of the Company as at 31 December 2008 and the dividend income committed by the subsidiaries of the Company amounting to RMB 551,483,041, to distribute every shareholder RMB 1.00 (including tax) for each 10 shares held. -31- CSG Holding Co., Ltd. 2008 Annual Report The above profit distribution preplan must be submitted to the 2008 Shareholders’ General Meeting of the Company for consideration. VI. Cash dividends in the past three years Cash dividends amount Net profit attributed to equity holders (including tax) of the Company proportion 2007 178,194,469 431,484,803 41.30% 2006 456,958,406 335,110,814 136.36% 2005 182,783,362 318,659,665 57.36% -32- CSG Holding Co., Ltd. 2008 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 6 meetings in total. i. The 19th meeting of the 4th Supervisory Committee was held on 17 March 2008, the resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated on 19 March 2008. ii. The 1st meeting of the 5th Supervisory Committee was held on 10 April 2008, the resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated on 11 April 2008. iii. The 2nd meeting of the 5th Supervisory Committee was held on 14 April 2008, and the meeting examined and approved the 1st Quarter Report of CSG 2008. iv. The extraordinary meeting of the 5th Supervisory Committee was held on 14 July 2008, and the meeting examined and approved Self-inspection Summary on Capital Occupation of Related Parties of CSG. v. The 3rd meeting of the 5th Supervisory Committee was held on 1 August 2008, and the resolution of the meeting was published on Securities Times, China Securities Journal and Hong Kong Wen Wei Po dated on 5 August 2008. vi. The 4th meeting of the 5th Supervisory Committee was held on 17 October 2008, and the meeting examined and approved the 3rd Quarter Report of CSG 2008. 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 2008, 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 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 -33- CSG Holding Co., Ltd. 2008 Annual Report 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 In the report period, the Company did not have significant related transaction. -34- CSG Holding Co., Ltd. 2008 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 2008 Equity accounting type 000504 CCID 14,223,465 0.74% 6,958,068 5,796,619 -24,158,004 Available-for-sale Legal Media financial assets person share 000566 Hainan 714,917 0.14% 2,419,914 1,688,674 -1,887,290 Available-for-sale Legal Haiyao financial assets person share 600695 ST 2,000,000 0.13% 3,552,120 － -3,843,840 Available-for-sale Legal Dajiang financial assets person share Total - 16,938,382 - 12,930,102 7,485,293 -29,889,134 - - IV. Purchase and sales of assets and proceedings of the enterprise merger i Equity sale of Shenzhen CSG Electronic Co., Ltd. With approval from the 25th meeting of the 4th Board of Directors, the Company sold the 100% equities of its wholly owned subsidiary -- Shenzhen CSG Electronic Co., Ltd. to Shenzhen Sunlord Electronics Co., Ltd.. The reference price for this equity sale is RMB 123.03 million (including the amount RMB 26.4 million that CSG Electronic owed the Company), and the income of RMB 37 million occurred from this transaction was written as investment income. This transaction helped the Company to optimize the resource collocation and improve the assets quality of the Company. The details about the transaction could be found in the Notice of Planed Asset Sale published respectively on Securities Times, China Securities and Hong Kong Wen Wei Po dated on 16 January 2008. ii Equity sale of Shenzhen CSG Curtain Wall & PV Engineering Co., Ltd. With approval from the 24th meeting of the 4th Board of Directors, the Company sold the 100% equities of its wholly owned 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.. The reference price for this equity sale is RMB 20.20 million (including the amount RMB 9.66 million that CSG Curtain Wall -35- CSG Holding Co., Ltd. 2008 Annual Report owed 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 sustainable development. V. Proceeding of option incentive On 10 April 2008, Restricted A Share Incentive Plan has been examined and approved in the 1st meeting of the 5th Board of the Company. After that, according to the examination opinions of CSRC, the Company held Extraordinary Meeting of the 5th Board of Directors on 27 May 2008 to revise the incentive plan. CSRC has issued document with no comment for this incentive plan on 28 May 2008. Also, the plan has been approved by the 1st Temporary Shareholders’ General Meeting 2008 dated 13 June 2008. In the meeting, the Board of the Company was authorized to be responsible for the relevant proceedings of the restricted A share incentive plan. Till 14 July 2008, the Company has accomplished the grant for these restricted shares. The Company planed to grant 50.00 million restricted A-shares in total to 256 specific employees through private offering. In fact, the Company issued 49.14 million restricted A-shares in total to 244 specific employees privately, at price of RMB 8.58 per share. The granted day of the restricted shares is 16 June 2008. The validity period was 60 months from the grant date, with the first 12 months as lockup period, and the following 48 months as unlocking period. If the unlocking conditions regulated in incentive plan are satisfied in each unlocking period, the incentive staffs could apply to unlock 25% of the total amount of restricted shares respectively for four times. The raised fund is RMB 421,621,200 and this capital has been validated by the Validation Report (TZSYZi No.261 (2008)) issued by Vocation International CPA Co., Ltd.. Due to the implementation of the incentive plan, totally RMB 46,688,700 was calculated into administration expenses in 2008. This administration expenses was not actual cash out flow, and there was no influence to shareholders’ equity (net assets). Till 30 November 2008, the following 5 original incentive staffs Huang Haidong, Peng Liqun, Jiang Zhenan, Yang Wenzhong and Wang Tong had dismissed. According to relevant regulations of XI Changes and Stop of Restricted Shares Incentive Plan and XII Buyback and Cancellation Principles in Restricted A Share Incentive Plan, the Company held the 6th meeting of the 5th Board of Directors on 24 December 2008 and decided to buy back and cancel totally 890,000 A restricted shares (all has been lockup) of the 5 persons with the granted price of RMB 8.58 per share. According to audited data in 2008, the weighted average return on equity and weighted average return on equity after extraordinary gains and loses were respectively 9.77% and 8.14%, the annual average compound growth rate of the net profit after extraordinary gains and loses was -15.10% compared with that of 2007. The achievement index of the Company did not satisfied unlocking conditions in 2009. According to the regulations of incentive plan, the Company should buy back and cancel the 1st phase of restricted shares which were planned to unlock in 2009 from incentive staffs with the price of RMB 8.58 -36- CSG Holding Co., Ltd. 2008 Annual Report per share. Only get the approval form the Board of Directors, the repurchase of these restricted shares could be implemented. For details of the incentive plan, please refer to the relevant public notice published in China Securities, Securities Times and Hong Kong Wen Wei Po and Juchao Information website dated 14 April 2008, 28 May 2008, 16 June 2008, 17 June 2008, 14 July 2008, 25 December 2008 and 31 March 2009 respectively. VI. In the report period, there was no significant related transaction. VII. In the Company, it is never happen that large shareholders and related parties occupy the Company’s capital. PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd. provided special explanation on capital occupation of controlling shareholders and other related parties. (Details could be found on Juchao website.) VIII. 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 179,096 Balance of guarantee for controlling subsidiaries at the end of the report period 111,864 Particulars about the guarantee of the Company(Including the guarantee for the controlling subsidiaries) Total amount of guarantee 111,864 Proportion of the total guarantee in net assets of the Company (%) 24.61% 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% 40,000 Total amount of guarantee in net assets of the Company exceeded 50% 0 Total amount of guarantee aforesaid 40,000 iii. In the report period, the Company has not entrusted others or organizations to conduct assets management or loan. IX. Commitment events i. 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 -37- CSG Holding Co., Ltd. 2008 Annual Report 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 have strictly carried out their promises. ii. Additional commitments of the non-tradable shareholders in the report period. The original non-tradable shareholder Yiwan Industrial Development (Shenzhen) Co., Ltd. and Xing Tong Chan Industrial Development (Shenzhen) Co., Ltd. both are wholly-funded subsidiaries to Shenzhen International Holdings Limited (hereinafter Shenzhen International for short) listed in Hong Kong united stock exchange main board. Shenzhen International planed to sell A-shares of CSG amounted above 5% of the CSG group’s total shares within six months from 5 June 2008, the day releasing restricted condition of the stock. The price for sale is no less than 8 RMB per share. At the same time, Shenzhen International made commitment that it would strictly carry out related regulations of the Guiding Opinions on the Listed Companies’ Transfer of Original Shares Released from Trading Restrictions issued by CSRC during implementing share decreasingly-held plan and take information disclosure responsibility timely. By the end of the report period, the above non-tradable shareholders of the Company have strictly carried out their promises. X. 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 seven continuous years. In the report period, the expense that the Company paid to the auditing organization of A-share is RMB 2.98 million. The other expenses, such as evection and living expenses, are conducted by themselves. XI. Punishment and governance reform 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. XII. Particulars about purchase and sales of the Company’s shares In the report period, the shareholder of the Company -- Ping An Trust & Investment Co., Ltd. had behaviors as the regulations of Item 47 in Securities Law, that shareholders who held over 5% shares of listed company sells shares in 6 months after purchase-in or purchases-in in 6 months after selling out. The Board of Directors had put the profit produced from the aforesaid behaviors into the profit of the Company according to the -38- CSG Holding Co., Ltd. 2008 Annual Report regulation. Details could be found in relevant notice on China Securities, Securities Times, Hong Kong Wen Wei Po and Juchao website on 20 February 2008. XIII. Other events i. Short term finance bonds On 10 April 2008, the 2007 Annual Shareholders’ General Meeting of the Company approved the issuance of short term finance bonds up to RMB 1.6 billion repayable within one year since inception. On 21 August 2008, Registered Committee of National Association of Financial Market Institutional Investors held the 15th registered meeting of 2008, which decided to receive registration of short-term financing bond with the amount of RMB 1.6 billion and validity period till 21 August 2010. The short-term financing bond was mainly underwritten by China Construction Bank Corporation, issued publicly to institution investor of inter-bank bond market in the ways of bookkeeping file and allocated sale, and could be issued by stages in the registered validity period. Details could be found on China Bond Information Website (www.chinabond.com.cn) and China Money Website (www.chinamoney.com.cn). ii. Particulars about the reception to investors in the report period. Date Place Method Name 2008.1.24 Conference Interview SYWG BNP Paribas Asset Management Co., Ltd., United Securities Co., room Ltd. 2008.3.25 Conference Interview GF Securities Co., Ltd., GF Asset Management (Hong Kong) Co., Ltd., room Guotai Junan Securities, Great Wall Fund Management Co., Ltd., HuaAn Fund Management Co., Ltd., First State Cinda Fund Management Co. Ltd. 2008.5.22 Conference Interview China Post & Capital Fund Management Co., Ltd., Bank of Communications room Schroder Fund Management Co., Ltd 2008.5.23 Conference Interview Deutsche Securities Asia Limited., Standard Life Investment (Asia) Co., Ltd room 2008.5.27 Conference Interview Great Wall Security Co., Ltd., Galaxy Asset Management Co., Ltd., Fullgoal room Fund Management Co., Ltd., BOC International (China) Limited 2008.8.7 Conference Interview Shanghai Jinruida Assets Management Co., Ltd., GF Fund Management Co., room Ltd., Golden Eagle Fund Management Co., Ltd, Sealand Securities Co., Ltd. 2008.8.20 Conference Interview 40 funds and securities firms including China Asset Management Co., Ltd., room Penghua Fund Management Co., Ltd., Rongtong Management Co., Ltd., CCB Principal Asset Management Co.,Ltd., Fullgoal Fund Management Co., Ltd., AIG-Huatai Fund Management Co., Ltd. 2008.9.1 Conference Interview Absolute Asia Asset Management; Credit Suisse (HongKong) Limited room 2008.12.5 Conference Interview Standard Life, CCB International, Mirae Asset, UBS Asset room 2008.12.17 Xiamen Interview Presented investors of 2009 Investment Strategy Annual Conference of Xianglu Merchant Securities Hotel 2008.12.24 Conference Interview Shanghai Shenyin & Wanguo Securities Co., Ltd. room Content discussed and materials Introducing the disclosed information about operation and production of the supplied Company. The material offered is the 2007 Annual Report. -39- CSG Holding Co., Ltd. 2008 Annual Report §10 Financial Reports Report of the Auditors PwC ZT Shen Zi (2009) No. 10031 To the shareholders of CSG Holding Co., Ltd. We have audited the accompanying financial statements of CSG Holding Co., Ltd. (“CSG Company”) which comprise the consolidated and company balance sheets as at 31 December 2008, and the consolidated and company income statements, the consolidated and company cash flow statements and the consolidated and company statements of changes in equity for the year then ended and notes to these financial statements. Management’s Responsibility for the Financial Statements The management of CSG Company is responsible for the preparation of these financial statements in accordance with the Accounting Standards for Business Enterprises. This responsibility includes: (1) 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; (2) selecting and applying appropriate accounting policies; and (3) 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 Standards on Auditing. 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. 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. -40- CSG Holding Co., Ltd. 2008 Annual Report 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, the accompanying financial statements present fairly, in all material respects, the consolidated and company’s financial position of CSG Company as of 31 December 2008, and of their financial performance and their cash flows for the year then ended in accordance with the Accounting Standards for Business Enterprises PricewaterhouseCoopers Zhong Tian Certified Public Accountant Kong Yu CPAs Limited Company Certified Public Accountant Sun Li Shanghai, the PRC 27 March 2009 -41- CSG Holding Co., Ltd. 2008 Annual Report CSG HOLDING CO., LTD. CONSOLIDATED AND COMPANY BALANCE SHEETS AS AT 31 DECEMBER 2008 (All amounts in Rmb Yuan unless otherwise stated) 31 December 31 December 31 December 31 December 2008 2007 2008 2007 ASSETS Note Consolidated Consolidated Company Company Current assets Cash at bank and on hand 7(1) 1,033,779,912 1,278,194,239 783,242,506 607,076,960 Notes receivable 7(2) 116,042,491 84,164,841 - - Accounts receivable 7(3) 236,576,669 313,711,591 - - Advances to suppliers 7(4) 52,940,729 25,383,094 3,257,858 3,571,268 Dividends receivable - - 120,450,718 119,859,802 Other receivables 7(5), 15(1) 34,964,981 107,187,651 777,038,513 795,518,581 Inventories 7(6) 325,701,374 325,139,590 - - Total current assets 1,800,006,156 2,133,781,006 1,683,989,595 1,526,026,611 Non-current assets Available-for-sale financial assets 7(7) 12,930,101 43,626,441 12,930,101 43,626,441 Long-term receivables 15(3) - - 1,143,041,204 616,484,860 Long-term equity investments 7(8), 15(2) 27,200,000 4,200,000 2,791,009,616 2,300,325,729 Fixed assets 7(9) 5,543,400,908 5,178,698,489 19,265,605 21,008,581 Construction in progress 7(10) 2,620,093,574 791,877,561 - - Intangible assets 7(11) 307,948,344 293,919,172 1,841,813 - Goodwill 7(12) 3,039,946 3,039,946 - - Deferred tax assets 7(22) 61,442,037 3,839,332 - - Total non-current assets 8,576,054,910 6,319,200,941 3,968,088,339 2,981,445,611 TOTAL ASSETS 10,376,061,066 8,452,981,947 5,652,077,934 4,507,472,222 The accompanying notes form an integral part of these financial statements -42- CSG Holding Co., Ltd. 2008 Annual Report CSG HOLDING CO., LTD. CONSOLIDATED AND COMPANY BALANCE SHEETS AS AT 31 DECEMBER 2008 (CONTINUED) (All amounts in Rmb Yuan unless otherwise stated) 31 December 31 December 31 December 31 December 2008 2007 2008 2007 LIABILITIES AND OWNERS' EQUITY Note Consolidated Consolidated Company Company Current liabilities Short-term borrowings 7(13) 2,797,063,550 2,014,621,320 1,603,580,700 1,067,199,380 Notes payable 7(14) 289,673,653 284,555,735 - - Accounts payable 7(15) 743,432,885 616,421,927 - - Advances from customers 7(16) 94,964,995 71,698,511 - - Employee benefits payable 7(17) 40,005,228 46,335,228 2,710,000 8,826,653 Taxes payable 7(18) 56,000,228 57,438,795 78,062 439,915 Interest payable 20,962,915 5,377,281 4,754,642 423,445 Dividends payable 3,212,152 3,194,116 3,212,152 3,194,116 Other payables 7(19), 15(4) 228,839,483 147,521,129 230,117,203 87,492,449 Current portion of non-current liabilities 7(21) 83,968,751 331,624,057 - - Other non-current assets 7(20) 10,914,222 20,208,284 - - Total current assets 4,369,038,062 3,598,996,383 1,844,452,759 1,167,575,958 Non-current liabilities Long-term borrowings 7(21) 1,142,128,258 514,161,431 - - Special payables 2,100,000 - - - Deferred tax liabilities 7(22) 4,777,606 7,558,595 - 4,643,214 Other non-current liabilities 7(23) 45,000,000 46,651,667 - - Total non-current liabilities 1,194,005,864 568,371,693 - 4,643,214 Total liabilities 5,563,043,926 4,167,368,076 1,844,452,759 1,172,219,172 Owners' equity Paid-in capital 7(24) 1,237,103,124 1,187,963,124 1,237,103,124 1,187,963,124 Capital surplus 7(25) 2,067,761,896 1,802,280,532 2,107,751,509 1,812,007,435 Less：Treasury stock 7(24) (12,952,500) - (12,952,500) - Surplus reserve 7(26) 391,040,358 359,176,856 391,040,358 359,176,856 Undistributed profits 7(27) 863,352,524 653,330,647 84,682,684 (23,894,365) Difference on translation of foreign currency financial statements (1,698,863) 4,262,959 3,807,625,175 - Total equity attributable to equity holders of the Company 4,544,606,539 4,007,014,118 3,807,625,175 3,335,253,050 Minority interest 7(28) 268,410,601 278,599,753 - - Total owners' equity 4,813,017,140 4,285,613,871 3,807,625,175 3,335,253,050 TOTAL LIABILITIES AND OWNER'S EQUITY 10,376,061,066 8,452,981,947 5,652,077,934 4,507,472,222 The accompanying notes form an integral part of these financial statements -43- CSG Holding Co., Ltd. 2008 Annual Report CSG HOLDING CO., LTD. CONSOLIDATED AND COMPANY INCOME STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in Rmb Yuan unless otherwise stated) 2008 2007 2008 2007 Items Note Consolidated Consolidated Company Company Revenue 7(29) 4,273,375,853 4,187,962,628 72,000 72,000 Less: Cost of sales 7(29) (2,994,468,398) (2,909,573,117) (3,715) (3,708) Taxes and surcharges 7(30) (5,153,477) (11,823,893) - - Selling and distribution expenses (220,181,238) (251,276,789) - - General and administrative expenses (332,446,210) (292,019,143) (36,302,256) (24,461,287) Financial expenses – net 7(31) (77,935,725) (64,918,116) (6,271,048) 918,672 Asset impairment losses 7(32), 15(5) (221,242,151) (43,302,258) - (13,720,000) Add: Investment income 7(33), 15(6) 43,557,475 27,934,153 358,971,673 337,707,699 Operating profit 465,506,129 642,983,465 316,466,654 300,513,376 Add: Non-operating income 7(34) 45,438,958 13,879,551 2,189,914 250,000 Less: Non-operating expenses 7(34) (8,909,629) (22,395,934) (21,548) (68,856) Including: Loss on disposal of non-current assets (4,569,211) (19,546,234) - - Total profit 502,035,458 634,467,082 318,635,020 300,694,520 Less: Income tax expenses 7(35) (1,803,646) (67,212,115) - - Net profit 500,231,812 567,254,967 318,635,020 300,694,520 Attributable to equity holders of the Company 420,079,848 431,484,803 Minority interest 80,151,964 135,770,164 Earnings per share - Basic 7(36) 0.35 0.41 - Diluted 7(36) 0.35 0.41 The accompanying notes form an integral part of these financial statements -44- CSG Holding Co., Ltd. 2008 Annual Report CSG HOLDING CO., LTD. CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in Rmb Yuan unless otherwise stated) 2008 2007 2008 2007 Items Notes Consolidated Consolidated Company Company Cash flows from operating activities Cash received from sales of goods or rendering of services 4,266,066,586 3,958,963,853 - - Refund of taxes and surcharges 8,219,774 9,864,987 - - Cash received relating to other operating activities 50,130,113 34,342,585 25,736,624 10,902,424 Sub-total of cash inflows 4,324,416,473 4,003,171,425 25,736,624 10,902,424 Cash paid for goods and services (2,341,395,174) (2,054,947,374) - - Cash paid to and on behalf of employees (362,800,904) (353,353,295) (43,968,724) (17,504,047) Payments of taxes and surcharges (383,473,231) (305,089,309) (594,503) (315,626) Cash paid relating to other operating activities (206,535,390) (187,465,932) (26,065,785) (48,197,591) Sub-total of cash outflows (3,294,204,699) (2,900,855,910) (70,629,012) (66,017,264) Net cash flows from operating activities 7(37) 1,030,211,774 1,102,315,515 (44,892,388) (55,114,840) Cash flows from investing activities Cash received from disposal of investments 7(37) 223,614,373 139,960,519 309,389,960 65,242,370 Cash received from returns on investments - - 230,625,796 266,547,165 Net cash received from disposal of fixed assets, intangible assets and other long-term assets 3,188,862 1,348,194 - - Cash received relating to other investing activities 15,186,863 83,883,732 8,290,000 737,625,418 Sub-total of cash inflows 241,990,098 225,192,445 548,305,756 1,069,414,953 Cash paid to acquire fixed assets, intangible assets and other long-term assets (2,683,565,467) (1,425,419,419) (3,994,739) (3,041,818) Cash paid to acquire investments (108,142,086) (128,775,559) (528,929,039) (583,100,834) Cash paid relating to other investing activities (13,468,622) (11,156,300) - (877,122,994) Sub-total of cash outflows (2,805,176,175) (1,565,351,278) (532,923,778) (1,463,265,646) Net cash flows from investing activities (2,563,186,077) (1,340,158,833) 15,381,978 (393,850,693) Cash flows from financing activities Cash received from capital contributions 440,181,200 1,386,560,000 421,621,200 1,372,000,000 Including: Cash received from capital contributions by minority shareholders of subsidiaries 18,560,000 14,560,000 - - Cash received from borrowings 7,121,357,010 4,367,493,598 2,948,702,440 2,053,806,260 Sub-total of cash inflows 7,561,538,210 5,754,053,598 3,370,323,640 3,425,806,260 Cash repayments of borrowings (5,858,778,591) (4,073,028,994) (2,400,243,480) (2,074,348,620) Cash payments for interest expenses and distribution of dividends or profits (407,900,162) (652,976,268) (213,089,632) (480,214,538) Including: Cash payments for dividends or profit to minority shareholders of subsidiaries (54,088,128) (57,618,791) - - Cash payments relating to other financing activities (615,100,000) (3,200,000) (1,166,268,910) (3,200,000) Sub-total of cash outflows (6,881,778,753) (4,729,205,262) (3,779,602,022) (2,557,763,158) Net cash flows from financing activities 679,759,457 1,024,848,336 (409,278,382) 868,043,102 Effect of foreign exchange rate changes on cash and cash equivalents (11,468,076) (7,865,179) (145,662) (2,815,520) Net increase in cash and cash equivalents 7(37) (864,682,922) 779,139,839 (438,934,454) 416,262,049 Add: Cash and cash equivalents at beginning of year 1,259,606,553 480,466,714 607,076,960 190,814,911 Cash and cash equivalents at end of year 7(37) 394,923,631 1,259,606,553 168,142,506 607,076,960 The accompanying notes form an integral part of these financial statements -45- CSG Holding Co., Ltd. CSG HOLDING CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN OWNER'S EQUITY FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in Rmb Yuan unless otherwise stated) Attributable to equity holders of the Company Differen translat fo Less: cur Paid-in Capital Treasury Surplus Undistributed fina Items capital surplus stock reserves profits statem Note 7(24) 7(25) 7(24) 7(26) 7(27) Balance at 31 December 2006 1,015,463,124 578,135,709 - 383,667,414 650,148,728 929 Effect of first-time adoption of the CAS - - (54,560,010) 58,724,974 Balance at 1 January 2007 1,015,463,124 578,135,709 - 329,107,404 708,873,702 929 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 - Cash flow hedges - (1,983,605) - - - - Difference on translation of foreign currency financial statements - - - - - 3,333 - 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 - (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 -46- CSG Holding Co., Ltd. CSG HOLDING CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN OWNER'S EQUITY (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in Rmb Yuan unless otherwise stated) Attributable to equity holders of the Company Differen translat fo Less: cur Paid-in Capital Treasury Surplus Undistributed fin Items capital surplus stock reserves profits statem Note 7(24) 7(25) 7(24) 7(26) 7(27) Balanced at 1 January 2008 1,187,963,124 1,802,280,532 - 359,176,856 653,330,647 4,262 Movement for the year ended 31 December 2008 Net profit - - - - 420,079,848 Gains or losses recognized directly in owners' equity - (25,245,920) - - - (5,961 - Difference on translation of foreign currency financial statements - - - - - (5,961 - Net changes in fair value of available-for-sale financial assets - (25,245,920) - - - Share-based payment 49,140,000 318,668,911 (12,952,500) - - - Proceeds from restricted A share stock granted 49,140,000 372,481,200 - - - - Restricted A share stock cancelled or forfeited - (98,179,950) (12,952,500) - - - Value of employee services - 44,367,661 - - - Capital contribution and withdrawal by owners - (27,941,627) - - - - Capital contribution by owners - - - - - - Acquisition of minority interests 9 - (27,941,627) - - - Profit distribution - - - 31,863,502 (210,057,971) - Appropriation to surplus reserves - - - 31,863,502 (31,863,502) - Profit distribution to equity owners - - - - (178,194,469) Balanced at 31 December 2008 1,237,103,124 2,067,761,896 (12,952,500) 391,040,358 863,352,524 (1,698 The accompanying notes form an integral part of these financial statements -47- CSG Holding Co., Ltd. 2008 Annual Report CSG HOLDING CO., LTD. COMPANY STATEMENT OF CHANGES IN OWNER'S EQUITY FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in Rmb Yuan unless otherwise stated) Less: Capital Treasury Surplus Undistributed Total owners' Items Paid-in capital surplus stock reserves profits equity Note 7(24) 7(25) 7(24) 7(26) Balance at 31 December 2006 1,015,463,124 578,135,709 - 383,667,414 653,479,074 2,630,745,321 Effect of first-time adoption of the CAS - 266,617 - (54,560,010) (491,040,101) (545,333,494) 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 recognized 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 Balance at 1 January 2008 1,187,963,124 1,812,007,435 - 359,176,856 (23,894,365) 3,335,253,050 Movement for the year ended 31 December 2008 Net profit - - - - 318,635,020 318,635,020 Gains or losses recognized directly in owners' equity - (25,245,920) - - - (25,245,920) - Net changes in fair value of available-for-sale financial assets - (25,245,920) - - - (25,245,920) Share-based payment 49,140,000 320,989,994 (12,952,500) - - 357,177,494 - Proceeds from restricted A share stock granted 49,140,000 372,481,200 - - - 421,621,200 - Restricted A share stock cancelled or forfeited (98,179,950) (12,952,500) - - (111,132,450) - Value of employee services - 46,688,744 - - - 46,688,744 Profit distribution - - - 31,863,502 (210,057,971) (178,194,469) - Appropriation to surplus reserves - - - 31,863,502 (31,863,502) - - Profit distribution to equity owners - - - - (178,194,469) (178,194,469) Balance at 31 December 2008 1,237,103,124 2,107,751,509 (12,952,500) 391,040,358 84,682,684 3,807,625,175 The accompanying notes form an integral part of these financial statements -48- CSG Holding Co., Ltd. 2008 Annual Report CSG HOLDING CO., LTD. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (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 Securities Regulatory Committee with document (1995) No. 16, State Planning Committee with document JWZ (1994) No. 1748 and State Administrative of Foreign Exchange with document HZF (95) No. 191, 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 (2006) No. 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 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 26,997,837 were still in lock up period which were set in the scheme as at 31 December 2008. As approved by China Security Regulatory Committee with document ZJFX (2007) No. 231, the Company issued, by private placement, 172,500,000 A shares during the period from 20 September to 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. According to the Company’s restricted A share stock incentive scheme, the Company granted 49,140,000 A shares to employees through a non-public placement on 16 June 2008, at price of RMB 8.58 pre share. The registered capital of the Company increased to 1,237,103,124 -49- CSG Holding Co., Ltd. 2008 Annual Report upon the completion of the issuance (Note 7(24)). 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, ceramics products, energy saving glass, silicon related materials and solar battery; real estate development and property management, investment holding and others. In January 2008, the Company sold 100% equity interest in Shenzhen CSG Electronics Co., Ltd. (CSG Electronics) and Shenzhen CSG Curtain Wall Co., Ltd. (CSG Curtain Wall) to independent third parties (Note 6(2)). The financial statements were authorized for issue by the board of directors on 27 March 2009. 2 Basis of preparation The financial statements have been prepared in accordance with the Basic Standards and 38 Specific Standards of the Accounting standards for Business Enterprises issued by the Ministry of Finance on 15 February 2006, and the Application Guidance for Accounting Standards for Business Enterprises, Interpretation of Accounting Standards for Business Enterprises and other relevant regulations issued thereafter (hereafter referred to as ”the Accounting Standards for Business enterprises” or “CAS”). As at 31 December 2008, the Group had net current liabilities of RMB 2,569,031,906. The directors of the Company has assessed and are confident that the Group can continue as a going concern based on the following facts and conditions: a) the Group has been able to generate positive operating cash flows in prior years and expect to do so in the year ending 31 December 2009; b) the Group has maintained good relationship with banks so the Group has been able to successfully renew the bank facilities upon the expiry. In addition, as at 31 December 2008, the Group had unutilized banking facilities of approximately RMB 7.1 billion (Note 7(13)) (RMB 4.1 billion facilities expired one year), 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. 3 Statement of compliance with the Accounting Standards for Business Enterprises. The financial statements of the Company for the year ended 31 December 2008 truly and completely present the financial position as of 31 December 2008 and the operating results, cash flows and other information for the year then ended of the Group and the Company 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 -50- CSG Holding Co., Ltd. 2008 Annual Report The recording currency is Renminbi (RMB). (3) Measurement basis The Company measures at historical cost, except those measured at fair value, net realizable value and the recoverable amount. (4) Foreign currency translation (a) Foreign currency transactions 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 on 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. The effect of exchange rate changes on cash is presented separately in the cash flow statement. (b) Translation of foreign currency financial statements The asset and liability items in the balance sheets for overseas businesses are translated at the spot exchange rate on the balance sheet date. Among the owner’s equity items, the items other than “undistributed profits” are translated at the spot exchange rate of the transaction date. The income and expense items in the income statements of overseas businesses are translated at the spot exchange rate of the transaction date. The differences arising from the above translation are presented separately in the owner’s equities. The cash flows of overseas businesses are translated at the spot exchange rate on the date of the cash flows. The effect of exchange rate changes on cash is presented separately in the cash flow statement. (5) 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. (6) 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 -51- CSG Holding Co., Ltd. 2008 Annual Report 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, the related transaction costs occurred at the time of acquisition 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. 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 the fair value of financial assets at fair value through profit or loss is recognized in profit or loss. Interests and cash dividends received during the period in which such financial assets are held, as well as the gains or losses arising from the -52- CSG Holding Co., Ltd. 2008 Annual Report disposal of the assets are recognized in profit or loss for the current period. 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. When such financial asset is derecognised, 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 calculated using the effective interest method during the period in which such investments are held and cash dividends declared by the investee on available-for-sale investments in equity instruments are recognised as investment income in profit or loss. (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 amortized cost has been incurred, the amount of loss is measured at 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 recognized, the previously recognized impairment loss is reversed and the amount of reversal is recognized 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 recognized directly in equity is removed from equity and recognized in impairment loss. For an investment in debt instrument classified as available-for-sale on which impairment losses have been recognized, 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 recognized in profit or loss, the previously recognized impairment loss is reversed and recognized 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 recognized, 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 recognized in profit or loss, the previously recognized impairment loss is reversed and directly recognized in equity. If an impairment loss incurred on an investment in an equity instrument not quoted in an active market and whose fair value cannot be reliably measured, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows of similar financial assets, capitalized based on the returns ratio of the market at the same time. The impairment losses are not allowed to be reversed even if the value is recovered in a subsequent period. (7) Receivables Receivables comprise accounts receivable and other receivables. Accounts receivable arising from sale of goods or rendering of services are initially recognized at fair value of the -53- CSG Holding Co., Ltd. 2008 Annual Report contractual payments from the buyer. Receivables are presented at amortized cost using the effective interest method net of provision for bad debts. Receivables that are individually significant are subject to separate 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 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 recognized 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, finished goods and turnover materials. 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. The real estate development sector inventories are properties held for sale, the cost comprised of land and construction costs. Cost is determined using the actual cost. Provisions for declines in the value of inventories are determined at the carrying value of the inventories net of their net realizable value. Net realizable value is determined based on 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 long-term equity investments in its subsidiaries, the Group’s long-term 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. -54- CSG Holding Co., Ltd. 2008 Annual Report (a) Subsidiaries Subsidiaries are all investees over which the Company 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 (including that derived from the convertible bonds and warrants that are currently convertible or exercisable) is considered to determine whether the Group has control over the investee. Investments in subsidiaries are measured using the cost method in the Company’s financial statements, and adjusted using the equity method when preparing the consolidated financial statements. Long-term equity investments accounted for using the cost method are measured at the initial investment cost. Investment income is recognized in profit or loss for the cash dividends or profit declared by the investee. Such recognition is made only to the extent of the distributions received from accumulated net 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. Share-based payments granted to employees of the Company’s subsidiaries are settled by the Company’s equity instrument. Fare value of related service of these employees, is recognized as an increase in the investment in the subsidiaries within the period when employees provide their services. (b) 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. (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 fixed asset when it is probable that the 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 derecognized and all the other subsequent expenditures are recognized in profit or loss in the period in which they are 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: -55- CSG Holding Co., Ltd. 2008 Annual Report Estimated Estimated Annual useful lives residual 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. 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 . 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. Any excess of the carrying amount over the fair value less the costs to sell is provided for as impairment loss. The carrying amount of a fixed asset is derecognized 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 recognized in profit or loss for the current period. (11) Construction in progress Construction in progress is measured at actual cost. Actual cost comprises construction costs, other costs necessary to bring the fixed assets ready for their intended use. Borrowing costs that are eligible for capitalization incurred before 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 (12) Intangible assets Intangible assets including land use rights and, patents and exploitation rights are measured at actual cost. (a) Land use rights Land use rights are amortized 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 amortized on a straight-line basis over periods as stipulated by the contracts. (c) Exploitation rights -56- CSG Holding Co., Ltd. 2008 Annual Report Exploitation rights are amortized on permitted exploitation periods by the exploitation certificate. (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 recognized in profit or loss in the period in which it is incurred. Expenditure on the development phase is recognized as an intangible asset only if all of the following conditions are satisfied: • 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 the conditions above are recognized in profit or loss in the period in which they are incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period. Capitalized expenditure on the development phase is presented as development costs in the balance sheet and transferred to intangible assets at the date the asset is ready for its intended use. (14) Goodwill Goodwill is recognised at 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 as at the acquisition date. For purchase from minority interests occurring before 7 August 2008, the goodwill is recognized at the excess of the consideration paid and the relevant share acquired of the fair value of the identifiable net assets of the subsidiaries at the transaction dates. (15) Impairment of long-term assets Fixed assets, construction in progress, intangible assets with finite useful lives, investment properties measured using the cost model and long-term equity investments in subsidiaries, joint ventures and associates 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 the asset is less than its carrying amount, a provision for impairment -57- CSG Holding Co., Ltd. 2008 Annual Report and an impairment loss are recognized 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 recognized 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. Separately recognized goodwill is tested at least annually for impairment, irrespective of whether there is any indication that the asset may be impaired. During the test, the carrying value of goodwill is allocated to the related asset group or groups of asset group which is expected to benefit from the synergies of the business combination. If the result of the test indicates that the recoverable amount of an asset group or groups of asset group including the goodwill allocated is lower than its carrying amount, the corresponding impairment loss is recognized. The impairment loss is first deducted from the carrying amount of goodwill allocated to the asset group or groups of asset group, and then deducted from the carrying amount of the remaining assets of the asset group or groups of asset group pro rata with goodwill. Once the asset impairment loss mentioned above is recognized, it is not allowed to be reversed for the value 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 needs a substantially long period of time of acquisition and construction for its intended use commence to be capitalized and recorded as part of the cost of the asset when expenditures for the asset and borrowing costs have been incurred, and the activities relating to the acquisition and construction that are 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 recognized in profit or loss for the current period. Capitalization of borrowing costs is suspended during 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 cots using the effective interest method. Borrowings of which the period is within one year (one year included) are classified as the short-term borrowings, and the others are classified as 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. -58- CSG Holding Co., Ltd. 2008 Annual Report Employee benefits are recognized 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) Share Based Payment The Group has a share based payment plan in place, under which the entity received services from employees as consideration for equity instruments of the Group. Share-based payment plan is be classified as either equity-settled share-based payments or cash-settled share-based payments. For an equity-settled share-based payment, in return for employees’ services, if the right may be exercised immediately after the grant, the fair value of the equity instruments shall, on the day of granting, be recorded as cost or expense. Otherwise, the total amount expensed is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. (20) Provisions Provisions for restructuring, product warranties and onerous contracts are recognized 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 recognized 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 are 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 recognized as interest expense. The carrying amount of provisions is reviewed at each balance sheet date and adjusted to reflect the current best estimate. (21) Deferred tax assets and deferred tax liabilities Deferred tax assets and deferred tax liabilities are calculated and recognized based on the differences arising between the tax base of assets and liabilities and their carrying amount (temporary differences). Deferred tax asset is recognized for the deductible losses that can be carried forward to subsequent years for deduction of the taxable profit in accordance with the tax law. No deferred tax liability is recognized for a temporary difference arising from the initial recognition of goodwill. No deferred tax asset or deferred tax liability is recognized for the temporary differences resulting from the initial recognition of assets or liabilities due to a transaction other than a business combination, which affects neither accounting profit nor taxable profit (or deductible loss) 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 realized or the liability is settled. -59- CSG Holding Co., Ltd. 2008 Annual Report Deferred tax assets are only recognized for deductible temporary differences, deductible losses and tax credits to the extent that it is probable that taxable profit will be available in the future against which the deductible temporary differences, deductible losses and tax credits can be utilized. Deferred tax liabilities are recognized for temporary differences arising from investments in subsidiaries, joint ventures and associates, 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. When it is probable that the temporary differences arising from investments in subsidiaries, joint ventures and associates will be reversed in the foreseeable future and that the taxable profit will be available in the future against which the temporary differences can be utilized, the corresponding deferred tax assets are recognized. Deferred tax assets and deferred tax liabilities are offset when: • The deferred taxes are related to the same tax payer within the Group and same fiscal authority; and • That tax payer has a legally enforceable right to offset current tax assets against current tax liabilities. (22) 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 recognized when the economic benefits associated with the transaction will flow to the Group, the relevant revenue can be reliably measured and specific revenue recognition criteria have been met for each of the Group’s activities as described below: (a) Sale of goods Sales of goods are recognized 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 recognized 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) Transfer of asset use rights Interest income is recognized on a time-proportion basis using the effective interest method. -60- CSG Holding Co., Ltd. 2008 Annual Report (23) 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 capitalised as part of the cost of related assets, or charged as an expense for the current period. (24) Profit distribution Proposed profit distribution is recognised as a liability in the period in which it is approved by the shareholders’ meeting. (25) Preparation of consolidated financial statements The consolidated financial statements comprise the financial statements of the Company and its subsidiaries. Subsidiaries Subsidiaries are fully consolidated from the date on which the Group obtains control and are de-consolidated from the date that such control ceases. For a subsidiary acquired in a business combination involving enterprises under common control, it is included in the consolidated financial statements from the date when it, together with the Company, came under common control of the ultimate controlling party. The portion of the net profits realized before the combination date is presented separately in the consolidated income statement. The financial statements of subsidiaries are adjusted in accordance with the accounting policies and accounting period of the Company during the preparation of the consolidated financial statements, where the accounting policies and the accounting periods are inconsistent between the Company and subsidiaries. For subsidiaries acquired from a business combination involving enterprises not under common control, the individual financial statements of the subsidiaries are adjusted based on the fair value of the identifiable net assets at the acquisition date. All significant inter-group balances, transactions and unrealized profits are eliminated in the consolidated financial statements. The portion of a subsidiary’s equity and the portion of a subsidiary’s net profits and losses for the period not held by the Company are recognized as minority interests and presented separately in the consolidated balance sheet within equity and net profits respectively. Purchase of minority interests from minority shareholders of the subsidiaries Before 7 August 2008, purchase from minority interests results in goodwill, being the excess of the consideration paid and the relevant share acquired of the fair value of the identifiable net assets of the subsidiary, and the difference between the 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, is directly recorded in capital reserve, to the extent to the zero balance of the -61- CSG Holding Co., Ltd. 2008 Annual Report capital reserve. The remaining balance, if any, is directly charged to retained earnings. After the Ministry of Finance issued “CAS Interpretation No 2’ on 7 August 2008, the difference between the 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, is 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. (26) 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 and geographical segments as the secondary reporting format. (27) 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 the 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. (28) Determination of 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 prices of recent market transactions between knowledgeable, willing parties, reference to the current fair value of another financial asset that is substantially the same with this instrument, and discounted cash flow analysis. When a valuation technique is used to establish the fair value of a financial instrument, use market data as much as possible and avoid use of data that is particularly related to the Group. (29) Critical accounting estimates and judgments The Group continually evaluates the critical accounting estimates and key judgments applied based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The critical accounting estimates and key assumptions that have a significant risk of causing -62- CSG Holding Co., Ltd. 2008 Annual Report a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below: (i) Accounting estimates on impairment of fixed assets According to the accounting policy described in Note 4(15), the Group shall assess the recoverable amount of the fixed assets when there is any indicator that these fixed assets may be impaired at balance sheet date. In current year, the Group performed impairment testing on Shenzhen CSG Float Glass Co., Ltd. (CSG Shenzhen Float) as single cash-generating unit (Note 7(9)). The recoverable amount of the cash generating unit is determined by a valuer at its fair value less cost to sell. The Group has recognized impairment of RMB 196,000,000 for the cash generating unit (Note 7(9). If the estimated gross margin used in the calculation of the fare value is lower or higher than that currently used by the management, the Group would need to recognize more or less impairment loss of RMB 85,000,000, respectively. If the post-tax discount rate used in the calculation of the fair value higher or lower than that currently used by management, the Group would need to recognize more or less impairment loss of RMB 94,000,000 and RMB 121,000,000. (ii) Income taxes The Group is subject to income taxes in numerous jurisdictions. There are many transactions and events for which the ultimate tax determination is uncertain during the ordinary course of business. Significant judgment is required from the Group in determining the provision for income taxes in each of these jurisdictions. The Group recognizes income taxes in each jurisdiction based on estimates. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. 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 18% to 25% 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 -63- CSG Holding Co., Ltd. 2008 Annual Report 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. Under the New CIT Law, the subsidiaries which previously applied income tax rate of 24% or 33%, are subject to enterprise income tax rate of 25% from 1 January 2008. For the Company and its subsidiaries established in a special economic zone, which previously applied enterprise income tax rate of 15%, the enterprise income tax rate will increase gradually to 25% within 5 years and the applicable income tax rate in 2008 is 18%. Chengdu CSG Glass Co., Ltd. was 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 applicable tax rate is 15% before 2010. The overseas subsidiaries are assessed under the governing tax jurisdiction. As at 31 December 2008, the tax privilege treatment enjoyed by the subsidiaries of the Company were described as below. 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 first profit marking year after offset the accumulated losses, and half rate for next three years. The first profit making year was 2004 and the applicable enterprise income tax rate for current year was 12.5%. As approved by Tianjin Wuqing District State Tax Bureau (JSWQJM (2008) No. 317), Tianjin Energy Conservation 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. This year was the first profit making year and the entity was exempted from the tax. With an approval from Guangzhou Huangpu State Tax Bureau (HGSSP (2006) No. 2) , Guangzhou 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. The first profit making year was 2005 and the applicable enterprise income tax rate for current year was 12.5%. With an approval from Chengdu Shuangliu County State Tax Bureau (SGSJM (2007) No. 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. The first profit making year was 2006. As Chengdu CSG Glass Co., Ltd. enjoyed both tax privilege of western area and the half rate tax, the enterprise income tax rate applied for the entity in current year was 9% according to State Council Circular GF (2007) No. 39 ”Circular of the State Council on the Implementation of Transitional Preferential Enterprise Income Tax Policies” (2007: 3% of local enterprise income tax). With an approval from Guangdong 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. This year was the second profit making year and the entity was exempted from the tax. With an approval from Guangdong Dongguan State Tax Bureau, Dongguan CSG Architectural -64- CSG Holding Co., Ltd. 2008 Annual Report 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. This year was the first profit making year and the entity was exempted from the tax. With an approval from Guangdong Dongguan State Tax Bureau, Dongguang CSG PV-tech Co., Ltd. enjoys the exemption from enterprise income tax for two years and half rate for next three years. This year was the first year exempted from the tax. With an approval from Jiangsu Suzhou State Tax Bureau, Wujiang CSG North-east Architectural Glass Co., Ltd. enjoys the exemption from enterprise income tax for two years and half rate for next three years. This year was the first year exempted from the tax. -65- CSG Holding Co., Ltd. 2008 Annual Report 6 Subsidiaries (1) The principal subsidiaries of the Company and the consolidation scope Place of Registered Nature of business and % voting right held by registration capital principal activities the Company (in RMB ten thousand Yuan) Direct Indirect Shenzhen, the Shenzhen CSG Float Glass Co., Ltd. PRC 60,574 Floating Glass manufacturing 100% - Guangzhou, Guangzhou CSG Glass Co., Ltd. (Note (b)) the PRC 26,000 Floating Glass manufacturing 75% 25% Chengdu, the Floating Glass manufacturing and 75% - Chengdu CSG Glass Co., Ltd. PRC 24,666 Processed glass Hainan Wen Chang CSG Silica Sand Mine Hainan, the Co., Ltd. PRC 4,000 Mining of silica sand 100% - Sichuan Luxian CSG Silica Sand Mine Co., Luxian, the Ltd. PRC 1,400 Mining of silica sand 98% 1.5% Jiangyou CSG Mining Development Co., Ltd. Shenzhen, the (Note (a)) PRC 2,800 Mining of silica sand 100% - Shenzhen CSG Wellight Coating Glass Co., Shenzhen, the Ltd. PRC 6,912 Production and selling of coated glass 90% 10% Shenzhen CSG Southern Star Glass Shenzhen, the Processing Co., Ltd. PRC 2,310 Processed glass 100% - Shenzhen, the Shenzhen CSG Architectural Glass Co., Ltd. PRC 3,200 Processed glass 100% - Shenzhen, the CSG Spandrel And Tempered glass Co., Ltd. PRC 1,500 Production of processed glass 100% - Tianjin, the Tianjin CSG Architectural Glass Co., 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, the Shenzhen CSG Display Technology Co., Ltd. PRC USD900 Production of monitor display glass 75% - Shenzhen CSG Wellight Conductive Coating Shenzhen, the Co., Ltd. PRC USD1,780 Production of colorful filter glass 70% - Shenzhen V-Interface Technology Co.,Ltd Shenzhen, the (Note (a)) PRC 2,000 Development and production of moulds - 72% Shenzhen, the Production of structural ceramic Shenzhen CSG Structure Ceramics Co., Ltd. PRC 3,000 products 100% - Dongguan, the Dongguan CSG Architectural Glass Co., Ltd. PRC 24,000 Processed glass 75% 25% Dongguan, the Dongguan CSG Solar Glass Co., Ltd. PRC 20,000 Production of solar glass 75% 25% Yichang, the Yichang CSG Silicon Co., Ltd. PRC 49,200 Production of silicon related materials 67% 25% Wujiang CSG North-east Architectural Glass Wujiang, the Co., Ltd. PRC 32,000 Processed glass 75% 25% Tianjin, the Tianjin Energy Conservation Glass Co., Ltd. PRC 12,800 Production of specialized glass 75% 25% Shenzhen, the Production of solar battery and Shenzhen CSG PV-tech Co., Ltd (Note (c)) PRC 4,000 applications 75% 25% Shenzhen, the Production of solar battery and Dongguan CSG PV-tech Co., Ltd. PRC 10,000 applications 75% 25% Yongqing, the Hebei CSG Glass Co., Ltd. PRC USD3,306 Production of specialized glass 75% 25% Dongguan CSG Ceramics Technology Co., Dongguan, the Ltd. PRC 5,000 Production of ceramics products 100% - Tianjin, the Tianjin CSG Industrial Development Co., Ltd. PRC 2,000 Real estate development 75% 25% Sichuan CSG Industrial Development Co., Chengdu, the Ltd. PRC 4,000 Real estate development 100% - Haikou, the Hainan CSG Industrial Development Co., Ltd. PRC 3,000 Real estate development 100% - Beihai, the Beihai CSG Industrial Development Co., Ltd. PRC 2,000 Real estate development 65% 35% (a) All the subsidiaries mentioned above were incorporated by the Group. Among these subsidiaries, Jiangyou CSG Mining Development Co., Ltd. and Shenzhen V-Interface Technology Co., Ltd. are established in current year. -66- CSG Holding Co., Ltd. 2008 Annual Report (b) The Group previously held 75% equity interests in Guangzhou CSG Glass Co., Ltd. (Guangzhou CSG). In current year, China Southern Glass (Hong Kong) Limited (CSG HK), one subsidiary of the Company, acquired additional 25% share of Guangzhou CSG from its minority Shareholder, Success Vantage Hong Kong Limited. Upon the completion of the transaction, Guangzhou CSG became the wholly owned subsidiary of the Company (Note 9). (c) The Company has liquidated the subsidiary, Shenzhen CSG PV-tech Co., Ltd., which had no commercial operation in both 2007 and 2008. (2) The subsidiaries disposed during the year Place of Registered Nature of business and registration capital principal activities (in RMB thousand Yuan) Shenzhen CSG Electronic Co., Ltd. (Note Shenzhen, Production of electronics (a)) the PRC 50,000 ceramic products Shenzhen CSG Contain Wall Engineering Shenzhen, Production of specialized Co., Ltd.(Note (b)) the PRC 12,000 contain wall engineering (a) On 13 January 2008, the Company sold the 100% equity interest in CSG Electronic to 深圳顺 络电子股份有限公司 (“Shun Luo”) and ceased to consolidate CSG Electronic since that date (Note 7(37)). (b) On 26 January 2008, the Company sold the 100% equity interest in CSG Curtain Wall to 上海 汉纳幕墙科技有限公司 (“Han Na”) and 上海郎硕工贸有限公司 (”Lang Shuo”), and ceased to consolidate CSG Curtain Wall since that date (Note 7(37)). 7 Notes to the consolidated financial statements (1) Cash at bank and on hand 31 December 2008 31 December 2007 Cash on hand 62,510 162,224 Cash at bank 987,289,241 1,257,182,813 Other cash balances 46,428,161 20,849,202 1,033,779,912 1,278,194,239 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: -67- CSG Holding Co., Ltd. 2008 Annual Report 31 December 2008 31 December 2007 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent HKD 4,224,561 0.8819 3,725,640 100,493,967 0.9364 94,102,551 USD 7,108,860 6.8346 48,586,215 7,306,930 7.3046 53,374,201 EUR 21,561 9.6590 208,258 187,241 10.6669 1,997,281 AUD 1,740,819 4.7135 8,205,350 1,133,614 6.4036 7,259,211 JPY 234,167 0.0757 17,726 241,469 0.0641 15,478 60,743,189 156,748,722 As at 31 December 2008, time deposit of 128,700,000 is pledged with bank as the guarantee deposit of the short term loan of HKD 130,000,000, and time deposit of 486,400,000 is placed as the guarantee deposit of short term loan of USD 66,650,000 borrowed by CSG HK. (2) Notes receivable 31 December 2008 31 December 2007 Trade acceptance notes 21,251,812 971,812 Bank acceptance notes 94,790,679 83,193,029 116,042,491 84,164,841 (3) Accounts receivable 31 December 31 December 2007 2008 Accounts receivable 323,478,895 241,405,351 Subsidies Current year Current year Disposal additions reversals (Note 6(2)) Less: provision for bad debts (9,767,304) 160,292 3,472,094 1,306,236 (4,828,682) 313,711,591 236,576,669 The aging of accounts receivable and related provisions for bad debts are analysed below: 31 December 2008 31 December 2007 % of % of total Provision for total Provision for Amount balance bad debts Amount balance bad debts Within 1 year 238,626,946 99% (4,776,058) 311,122,571 96% (6,418,262) 1 to 2 years 2,041,433 1% (37,885) 9,839,707 3% (2,502,466) 2 to 3 years 474,027 0% (9,480) 1,967,422 1% (665,258) Over 3 year 262,945 0% (5,259) 549,195 0% (181,318) 241,405,351 100% (4,828,682) 323,478,895 100% (9,767,304) -68- CSG Holding Co., Ltd. 2008 Annual Report Accounts receivable are analysed by categories as follows: 31 December 2008 31 December 2007 % of Provision % of Provision total for bad Provision total for bad Provision Amount balance debts coverage Amount balance debts coverage Impairment evaluated individually - - - - 3,513,096 1% (3,164,099) 90% Impairment evaluated by group 241,405,351 100% (4,828,682) 2% 319,965,799 99% (6,603,205) 2% 241,405,351 100% (4,828,682) 2% 323,478,895 100% (9,767,304) 3% As at 31 December 2008, 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 2008, the aggregate amount of the Group’s five largest accounts receivable balances was RMB 57,947,143 (2007: RMB 75,134,368), being 24% (2007: 23%) of the total accounts receivable balances, all of which aged within one year. The following balances were dominated in foreign currency. 31 December 2008 31 December 2007 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent HKD 12,264,562 0.8819 10,816,117 32,596,402 0.9364 30,523,271 USD 9,403,425 6.8346 64,268,649 9,073,029 7.3046 66,274,848 EUR 803,593 9.6590 7,761,905 168,178 10.6669 1,793,938 AUD 112,784 4.7135 531,607 717,783 6.4036 4,596,395 JPY 7,293,000 0.0757 552,080 - - - 83,930,358 103,188,452 (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. -69- CSG Holding Co., Ltd. 2008 Annual Report (5) Other receivables 31 December 31 December 2007 2008 Proceeds from disposal of a subsidiary 84,042,141 - Deposit to contractors 11,012,039 25,971,532 Payment on behalf of other parties 7,023,337 2,279,763 Staff advances 1,329,223 2,615,200 Others 6,905,292 8,440,532 110,312,032 39,307,027 Current year Current year additions reductions Less: Provision for bad debts (3,124,381) (1,895,886) 678,221 (4,342,046) 107,187,651 34,964,981 The aging of other receivables and the related bad debts provision are analysed below: 31 December 2008 31 December 2007 % of % of total Provision for total Provision for Amount balance bad debts Amount balance bad debts Within 1 year 33,542,366 86% (625,350) 102,746,166 94% (237,183) 1 to 2 years 837,892 2% (271,514) 3,723,691 3% (1,534,822) 2 to 3 years 1,663,937 4% (1,493,750) 78,100 0% (160) Over 3 years 3,262,832 8% (1,951,432) 3,764,075 3% (1,352,216) 39,307,027 100% (4,342,046) 110,312,032 100% (3,124,381) The Group did not have any balances which were due to parties having 5% or above shareholdings in the Company. Other receivables are analyzed by categories as follows: 31 December 2008 31 December 2007 % of Provision % of Provision total for bad Provision total for bad Provision Amount balance debts coverage Amount balance debts coverage Impairment evaluated individually 3,675,738 9% (3,675,738) 100% 3,124,381 3% (3,124,381) 100% Impairment evaluated by group 35,631,289 91% (666,308) 2% 107,187,651 97% - - 39,307,027 100% (4,342,046) 11% 110,312,032 100% (3,124,381) 3% -70- CSG Holding Co., Ltd. 2008 Annual Report As at 31 December 2008, the aggregate amount of the Group’s five largest accounts receivable balances was RMB 26,101,132 (2007: RMB 92,491,018), being 66% (2007: 84%) of the total balance of other receivables, all of which aged within one year. Other receivable is substantively denominated in RMB. (6) Inventories 31 December 2007 31 December 2008 Cost - Raw materials 107,353,645 104,038,310 Work in progress 9,070,811 9,699,015 Finished goods 151,447,590 181,577,507 Turnover materials 39,771,874 38,203,435 Properties held for sale 49,271,112 36,625,242 356,915,032 370,143,509 Less: Provision for declines in the value of inventories Current year Current year additions reductions Raw materials (580,124) 506,740 - (73,384) Finished goods - (18,476,825) - (18,476,825) Turnover materials (7,523) (385,186) - (392,709) Properties held for sale (31,187,795) 1,932,541 3,756,037 (25,499,217) (31,775,442) (16,422,730) 3,756,037 (44,442,135) 325,139,590 325,701,374 (7) Available-for-sale financial assets 31 December 2008 31 December 2007 Available-for-sale equity instruments 12,930,101 43,626,441 The equity instruments were all domestic shares listed in PRC. They have measured at market price at the trading date closest to the balance sheet date. The relevant changes in fair value have been recognized in capital surplus (Note 7(25)). (8) Long-term equity investments 31 December 2008 31 December 2007 Other long-term equity investments (Note (a)) 27,644,997 4,644,997 Less: Provision for impairment of long-term equity investments (Note (b)) (444,997) (444,997) 27,200,000 4,200,000 -71- CSG Holding Co., Ltd. 2008 Annual Report 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) Other long-term equity investments Name of investees 31 December 2008 31 December 2007 Guangdong Golden Glass Technology Co., Ltd. (Note (i)) 23,000,000 - Beijing Wan Tong Industrial Co., Ltd. 4,200,000 4,200,000 Hainan Pearl River Construction Co., Ltd. 395,000 395,000 Hainan Heng Tong Industrial Co., Ltd. 49,997 49,997 27,644,997 4,644,997 (i) The Group owns 11.11% of equity interest in this entity. There is no significant assets impairment exposure as at 31 December 2008. (b) Provision for impairment of long-term equity investments 31 December 2008 31 December 2007 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) -72- CSG Holding Co., Ltd. 2008 Annual Report (9) Fixed asset Machinery and Motor vehicles Buildings equipment and others Total Cost 31 December 2007 1,321,599,391 4,788,055,601 185,081,483 6,294,736,475 Transfer from construction in progress 427,179,866 511,173,799 8,953,764 947,307,429 Other current year additions 10,075,868 17,278,067 25,180,749 52,534,684 Disposal of subsidiaries (Note 6(2)) (5,006,654) (97,495,531) (9,520,240) (112,022,425) Other current year disposals (19,527,902) (18,513,872) (14,462,987) (52,504,761) 31 December 2008 1,734,320,569 5,200,498,064 195,232,769 7,130,051,402 Accumulated depreciation 31 December 2007 126,752,618 857,235,062 89,717,738 1,073,705,418 Current year depreciation 42,347,406 285,382,824 15,012,470 342,742,700 Disposal of subsidiaries (Note 6(2)) (883,935) (36,594,466) (6,602,416) (44,080,817) Other current year disposals (818,416) (9,216,956) (2,714,427) (12,749,799) 31 December 2008 167,397,673 1,096,806,464 95,413,365 1,359,617,502 Provision for impairment loss 31 December 2007 24,174,116 17,962,750 195,702 42,332,568 Current year charges - 203,083,827 - 203,083,827 Disposal of subsidiaries (Note 6(2)) (16,049,476) (2,305,743) (28,184) (18,383,403) 31 December 2008 8,124,640 218,740,834 167,518 227,032,992 Net book value 31 December 2008 1,558,798,256 3,884,950,766 99,651,886 5,543,400,908 31 December 2007 1,170,672,657 3,912,857,789 95,168,043 5,178,698,489 As at 31 December 2008, buildings with a net book value of RMB 9,447,679 (cost of RMB 10,084,311) had been pledged as security for long-term borrowings of RMB 14,055,675 (2007: net book value of RMB 10,272,832, cost of RMB 10,773,774). As at 31 December 2008, ownership certificates of buildings (“Buildings ownership Certificates”) for certain buildings of the Group with carrying amounts of approximately RMB 523,097,256 (cost of RMB 583,525,650) (2007: carrying amount of RMB 322,777,071, cost of RMB 372,682,260) had yet been obtained by the Group. 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 2008, Buildings Ownership Certificates for certain buildings of the Group with carrying amounts of approximately RMB 774,999,186 (cost of RMB 812,517,184) (2007: carrying amount of RMB 619,422,604, cost of RMB 651,899,151) had yet been obtained by the Group because the land ownership certificates of the lands on which these buildings located had not been obtained (Note 7 (11)). At 31 December 2008, the fixed assets with net book value of approximately RMB 2,251,270, (cost of approximately RMB 23,036,000) (2007: Net book value of RMB 2,272,000, cost of RMB 23,026,000) were fully depreciated but still in use. -73- CSG Holding Co., Ltd. 2008 Annual Report In 2008, depreciation expense of RMB 318,652,070 (2007: RMB 304,993,701) were charged in cost of sales, RMB 1, 505,713 (2007: RMB 1,246,375) in selling expenses and RMB 22,584,917 (2007: RMB 16,261,172) in general and administrative expenses, respectively. (a) According to the accounting policy described in Note 4(15), the Group evaluated the recoverable amount of certain fixed assets in December 2008, on which there has been indication that such assets may be impaired. Based on the evaluation result, the Group recognized impairment loss of RMB 203,083,827 (2007: RMB 37,278,011) as follows: 31 December 2008 31 December 2007 Recognized individually 7,083,827 37,278,011 Recognized on cash-generating unit - Shenzhen CSG Float (Note (i)) 196,000,000 - 203,083,827 37,278,011 (i) The operation of Shenzhen CSG Float has been underperformed amid the heightened competition and higher capital expenditure. During the year, the Group has revised the business plan and performed the impairment test accordingly. The directors approved to adopt the valuation report by a third party valuer as at 30 November 2008. The recoverable amounts of the cash generating unit were determined at the fair value less cost of sales which was the higher than value in use, both were valued by the valuer. In determining the fair value, the expected cash flow method was used as there were no market prices available for the fixed assets employed by Shenzhen CSG Float which were specialized. The expected cash flow forecast was prepared based on the approved budget of Shenzehn CSG Float covering a five year period. Cash flow beyond the five year period is extrapolated using the estimated growth rates stated below. The key assumptions adopted are as follows: Estimated average gross margin (1) 21.5% Estimated average growth rate (2) 2.5% Discount rate (3) 11.15% (1) Budged gross margin determined based on the historical data and the market forecast. (2) Rate used to extrapolate cash flows beyond the budget period, determined based on the historical data and the market forecast. (3) Post tax rate applied to the cash flow projects. -74- CSG Holding Co., Ltd. (10) Construction in progress Transfer to fixed 31 December Current year assets during the Disposal of 31 December Name of projects Budget 2007 additions current year subsidiaries 2008 Sourc Yichang Silicon products project 1,237,103,542 215,956,656 731,005,661 (3,657,949) - 943,304,368 Intern fro Hebei Float glass project 864,165,084 8,974,326 716,463,728 (11,701,626) - 713,736,428 Intern fro Dongguan Solar glass project (Phase II) 363,395,000 12,981,316 306,938,722 (95,802,536) - 224,117,502 Intern fro Wujiang Energy-saving Glass 559,211,840 276,223,186 261,027,940 (353,155,465) - 184,095,661 Intern fro Tiianjin Energy-saving Glass 469,066,500 88,484,944 166,578,031 (91,656,816) - 163,406,159 Intern fro Dongguan engineering glass project 677,764,053 67,996,551 128,871,597 (92,951,914) - 103,916,234 Intern fro Chengdu Float glass project 423,043,944 - 117,706,128 (151,391) - 117,554,737 Intern fro Others 121,260,582 348,819,314 (298,229,732) (1,887,679) 169,962,485 791,877,561 2,777,411,121 (947,307,429) (1,887,679) 2,620,093,574 Including: capitalized borrowing costs 3,178,019 40,412,209 (7,807,524) - 35,782,704 Borrowing costs have been capitalized in 2008 at an average interest rate of 6.42% (2007: 5.87%). As at 31 December 2008, there is no significant impairment exposure on construction in progress. -75- CSG Holding Co., Ltd. (11) Intangible assets 31 December Current year Disposal of Current year Current y Original cost 2007 additions subsidiaries transfer out amortizat Land use rights 351,145,187 283,128,488 29,207,197 (6,251,437) (832,976) (9,064,4 Patents 11,215,596 10,385,320 - (2,991,331) - (1,126,8 Exploitation rights 3,548,500 - 3,548,500 - - (8,3 Others 2,025,925 405,364 1,765,016 - - (216,1 367,935,208 293,919,172 34,520,713 (9,242,768) (832,976) (10,415,7 As at 31 December 2008, ownership certificates of land use right (“Land ownership Certificates”) for certain land amounts of approximately RMB 83,749,919 had not yet been obtained by the Group. The Company’s directors restriction for the Group to apply for and obtain the Buildings Ownership Certificates and there will not be a operations of the Group, 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 Huangp permission for the change the land to industry purpose has not been obtained by local government. The ca located on that piece of land were approximately RMB 12,500,000. The board of directors is of view that the am these facilities are not core production facilities, accordingly, this condition will not bring any significant advers financial positions. During the year, research expenditure amounting to RMB 39,829,023 (2007: 36,074,693) charged to general and -76- CSG Holding Co., Ltd. 2008 Annual Report (12) Goodwill 31 December 2008 31 December 2007 Goodwill 3,039,946 3,039,946 (13) Short-term borrowings 31 December 2008 31 December 2007 Bank borrowings - Unsecured 901,292,785 812,208,962 - Guaranteed (Note (a)) 322,656,911 407,692,358 - Pledged (Note (b)) 573,113,854 Short term finance bonds (Note (c)) 1,000,000,000 794,720,000 2,797,063,550 2,014,621,320 (a) As at 31 December 2008, loans of certain subsidiaries of the Company amounting to RMB 322,656,911 (2007: RMB 387,239,478) were guaranteed by the Company, of which, the minority shareholders provided a back to back guarantee to the Company amounting to RMB 12,124,007 (2007: RMB 53,261,495). As at 31 December 2008, bank loan of RMB 20,452,880 borrowed by one subsidiary of the Company, Dongguan CSG Architectural Glass Co., Ltd., was guaranteed by Shenzhen CSG Float. (b) Bank loan of HKD130,000,000 (equivalent to RMB 114,645,700) (2007: Nil) is secured with pledge by the Company’s fixed deposit of RMB 128,700,000 (Note 7(11)). Bank loans of USD 66,650,000 (equivalents to RMB 458,468,154) (2007: Nil) are borrowed by CSG HK and are secured with pledge by the Company’s fixed deposit of RMB 486,400,000 (Note 7(1)). (c) As registered in by National Association of Financial Market Institutional Investors with document ZSXZ (2008) No, CP59, the Company is authorized to issue short term finance bond with a nominal amount of RMB 1,600,000,000, with the maturity of 21 August 2010. The Company has issued short term finance bonds with a nominal amount of RMB 1,000,000,000 on 10 September 2008, with an annual interest rate of 5.18% and maturity of 11 September 2010. The following balances were dominated in foreign currency. 31 December 2008 31 December 2007 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent HKD 130,000,000 0.8819 114,647,000 209,500,000 0.9364 196,175,800 USD 84,317,972 6.8346 576,279,611 123,035,556 7.3046 898,725,522 690,926,611 1,094,901,322 The weighted average interest rate of short-term borrowings in 2008 is 5.80% per annum (2007: 5.60%). -77- CSG Holding Co., Ltd. 2008 Annual Report As of 31 December, 2008, the Group had unutilized balance of approximately RMB 7,099,300,000 (including RMB 0.6 billion facility of short term finance bond) (2007: approximately RMB 5,166,000,000) out of the available facilities. (14) Notes payable 31 December 2008 31 December 2007 Trade acceptance notes 30,948,668 10,558,758 Bank acceptance notes 258,724,985 273,996,977 289,673,653 284,555,735 (15) 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 2008 31 December 2007 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent HKD 109,655 0.8819 96,704 1,426,939 0.9364 1,336,186 USD 5,817,090 6.8346 39,757,483 7,762,922 7.3046 56,705,040 EUR 2,199,440 9.6590 21,244,391 3,482,483 10.6669 37,147,298 JPY 387,118,200 0.0757 29,304,848 357,907,720 0.0641 22,941,885 AUD 44,440 4.7135 209,468 6.4036 90,612,894 118,130,409 (16) 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. 2008 Annual Report (17) Employee benefits payable 31 December Current year Current year 31 December 2007 additions reductions 2008 Wages and salaries, bonuses, allowances and subsidies 34,631,657 300,572,743 (301,652,697) 33,551,703 Social security contributions 1,091,495 40,689,699 (41,360,490) 420,704 Housing funds - 5,238,195 (5,238,195) - Defined contribution pension scheme 307,023 3,651,674 (3,943,764) 14,933 Labor union and employee education funds 2,975,053 5,248,941 (4,416,106) 3,807,888 Management bonus (Note (a)) 7,330,000 25,940,000 (31,060,000) 2,210,000 46,335,228 381,341,252 (387,671,252) 40,005,228 (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 25,294,000 (2007: RMB 31,060,000) were accrued and charged to income statements. (18) Taxes payable 31 December 2008 31 December 2007 Value-added-tax payable 25,705,477 17,653,942 Enterprise income tax payable 20,621,726 30,586,046 Business tax payable 1,154,943 2,291,720 Others 8,518,082 6,907,087 56,000,228 57,438,795 (19) Other payables 31 December 2008 31 December 2007 Repurchase of share (Note 7(24)) 111,132,450 - Guarantee deposits received from fixed assets vendors 46,666,516 48,956,158 Accrued utilities expense 18,374,403 16,486,304 Professional service 4,456,836 6,043,092 Temporary receipts 4,069,696 10,581,139 Accrued sales expense 3,089,159 12,589,954 Contracted labour costs 2,076,473 12,682,783 Others 38,973,950 40,181,699 228,839,483 147,521,129 The Groups did not have any balances which were due to parties holding 5% or above shareholdings of the Company. -79- CSG Holding Co., Ltd. 2008 Annual Report The balances were substantively dominated in RMB. (20) Other current liabilities 31 December 2007 31 December 2007 Provision 10,914,222 20,208,284 The movement of the provisions during the year is as follows: 31 December Current year Current year 31 December 2007 additions reductions 2008 Restructuring (Note (i)) 9,821,852 - (4,276,356) 5,545,496 Warranty (Note (ii)) 9,835,863 2,984,741 (7,451,878) 5,368,726 Litigations 550,569 - (550,569) - 20,208,284 2,984,741 (12,278,803) 10,914,222 (i) As certain engineering glass and ceramics production lines of the Group were relocated from Shenzhen to Dongguan, the Group made the provision for the compensation to the staff who would be affected, in accordance with relevant regulations and the announced compensation program of the Group. The amount was reviewed at the year end. (ii) The Group granted warranty for the products sold under certain contracts. As at 31 December 2008, 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. (21) Long-term borrowings 31 December 2008 31 December 2007 Bank borrowings -Unsecured 348,715,059 364,170,096 - Guarantee (Note (a)) 863,326,275 464,198,352 - Pledge (Note (b)) 14,055,675 17,417,040 1,226,097,009 845,785,488 (83,968,751) (331,624,057) Less: current portion of long-term borrowings - unsecured - (123,662,845) - guarantee (Note (a)) (78,948,425) (205,713,852) - pledge (Note (b)) (5,020,326) (2,247,360) 1,142,128,258 514,161,431 (a) The loans were borrowed by certain subsidiaries and guaranteed by the Company, repayable between February 2008 and May 2014, of which, RMB 55,205,000 (2007: RMB 48,837,139) were back to back guaranteed by the minority shareholders of the subsidiaries to the Company. -80- CSG Holding Co., Ltd. 2008 Annual Report (b) The borrowings were secured with pledge by the Group’s fixed assets with a net book value of RMB 9,447,679 (cost of RMB 10,084,311) (2007: Net book value of RMB 10,272,832, cost of RMB 10,733,774) (Note 7(9)). The principal is due for repayment during January 2009 to November 2011. The analysis of the long term bank loans by the banker is as follows: 31 December 2008 31 December 2007 China Construction Bank 563,715,059 318,866,616 China Merchants Bank 322,000,000 122,114,670 Industrial Bank Co., Ltd. 144,000,000 - China Agriculture Bank 137,989,540 210,067,997 Nanyang Commercial Bank 40,836,735 43,644,985 Bank of China 14,055,675 151,091,220 Industrial and Commercial Bank of China 3,500,000 - 1,226,097,009 845,785,488 The long-term borrowings are repayable as follows 31 December 2008 31 December 2007 Between 1 to 2 years 188,969,136 191,821,624 Between 2 to 5 years 705,659,122 303,566,839 Over 5 years 247,500,000 18,772,968 1,142,128,258 514,161,431 The following balances were dominated in foreign currency. 31 December 2008 31 December 2007 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent HKD 15,938,127 0.8819 14,055,834 18,600,000 0.9364 17,417,040 USD 13,445,020 6.8346 91,891,334 75,482,360 7.3046 551,368,447 105,947,168 568,785,487 The weighted average interest rate of long-term borrowings in 2008 is 6.17% per annum (2007: 5.82%). -81- CSG Holding Co., Ltd. 2008 Annual Report (22) Deferred tax assets and Deferred tax liabilities (a) Deferred tax assets 31 December 2008 31 December 2007 Deferred tax Deductible Deferred tax Deductible assets temporary assets temporary difference difference Provision for asset impairment 48,330,484 222,778,257 1,018,477 6,963,702 Pre-operating expenses 1,560,697 15,258,618 2,397,465 15,466,930 Accruals 4,963,807 19,855,228 - - Tax losses 6,417,634 27,926,589 - - Contingent liabilities 169,415 941,196 423,390 3,266,370 61,442,037 286,759,888 3,839,332 25,697,002 (b) Deferred tax liabilities 31 December 2008 31 December 2007 Deferred tax Taxable Deferred Taxable liabilities temporary tax temporary difference liabilities difference Change in fair value of available-for-sale equity instruments - - 4,643,214 18,572,857 Withholding Income tax (Note (i)) 4,777,606 95,552,120 2,915,381 33,227,506 4,777,606 95,552,120 7,558,595 51,800,363 (i) According to new CIT law, when the subsidiaries established in mainland China distributed profit to the subsidiaries established outside mainland China ,the subsidiaries in mainland China need to withhold Income tax according to the proportion of distributed profit. As at 31 December 2008, the Group did not recognize deferred tax assets amounting to approximately RMB 45,900,000 (2007: approximately RMB 47,000,000) in respect of tax losses amounting to approximately RMB 192,810,000 (2007: approximately RMB 189,000,000). The unused tax loss will expire from 2009 to 2013. (23) Other non-current liabilities 31 December 2008 31 December 2007 Deferred income 45,000,000 46,651,667 As at 31 December 2008, the balance represented amounts paid to Yi Chang CSG Silicon Materials Co., Ltd. (“Yichang 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 -82- CSG Holding Co., Ltd. 2008 Annual Report pipelines etc. Yichang Silicon is entitled to the ownership of the facilities. (24) Share capital Other 31 December New issues movements 31 December 2007 during the year during the year 2008 Shares with restriction on disposals - State and PRC legal person shares 352,884,817 - (153,384,980) 199,499,837 - Others (Note (a)) 103,169 49,140,000 - 49,243,169 352,987,986 49,140,000- (153,384,980) 248,743,006 Shares without restriction on disposals - PRC public shares 386,396,319 153,384,980 539,781,299 - Domestically listed foreign shares 448,578,819 - - 448,578,819 834,975,138 - 153,384,980 988,360,118 - Total 1,187,963,124 49,140,000 - 1,237,103,124 Other 31 December New issues movements 31 December 2006 during the year during the year 2007 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) 103,169 349,208,968 172,500,000 (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 - - 448,578,819 666,254,156 - 168,720,982 834,975,138 Total 1,015,463,124 172,500,000 - 1,187,963,124 The nominal value of the Domestic is RMB 1 and that of domestically listed foreign shares is HKD 1. -83- CSG Holding Co., Ltd. 2008 Annual Report (a) Shared based payment Quantity of A restricted Share Treasury Capital Item shares (share) capital Stock Reserve Balance at 1 January 2008 - - - - Granted in current year 49,140,000 49,140,000 - 372,481,200 Shares to be withdrawn due to resignation of employees (890,000) - (890,000) (6,746,200) Shares to be withdrawn due to vesting condition not met (12,062,500) - (12,062,500) (91,433,750) Value of employee service - - - 44,367,661 Balance at 31 December 2008 36,187,500 49,140,000 (12,952,500) 318,668,911 Pursuant to the restricted A share incentive scheme approved by the first special general meeting of the shareholders on 13 June 2008, the Company granted 49,140,000 share of restricted A share of the Company to certain qualified employees of the Group (“the Qualified Employee”) at a grant price of RMB 8.58 per share on 16 June 2008. The scheme will open for 60 months after the grant date of the restricted A share (“Grant Date”). The first twelve months following the Grant Date will be lock out period, in which the restricted A shares received by the Qualified Employees will be locked and cannot be transferred. The next 48 months are unlock period, the restricted A share can be transferred if certain vesting conditions are meet, by four batches of 25% each, starting at the end of first twelve months after the Grant Date. The vesting conditions under the Company’s restricted A share incentive scheme performance appraisal policy include: a) the lower of the weighted average returns on net assets and the pre-exceptional item weighed average returns on net assets is 10% higher or same in the preceding year; b) the average annualized growth rate of the net profit of the Group from 2007 is 10% higher or same; and c) the Qualified Employees remains in service and performance is satisfied. At the Grant Date, the fair value of the restricted A share is 6.63 per share, being determined on the market price of the Group’s A share on the Grant Date after deducting the considerations paid by the employees. The fair value of the share based payments will be recognized as the expenses over the vesting period. As at 27 March 2009, the board of the directors of the Company approved to re-acquire the first batch 25% restricted A shares from the Qualified Employees, totally to 12,062,500 shares, at grant prices, because the vesting condition of profit growth did not meet for the year ended 31 December 2008. The corresponding shares were presented as “treasury shares” on balance sheet. Same were the shares unvested by the Qualified Employees leaving the Group during the vesting period accounted. RMB 111,132,450 being total consideration for the re-acquisition of the shares, were recognized as liability as at 31 December 2008. Total employee compensation expense recognized under restricted A share incentive scheme -84- CSG Holding Co., Ltd. 2008 Annual Report for the current year was RMB 46,688,744, the corresponding amount was credited to equity, of which RMB 44,367,661 were attributed to the Company capital reserve, RMB 2,321,083 to monitory interests. (25) Capital reserve Current year Current year 31 December 2007 additions reductions 31 December 2008 Capital premium 1,777,902,326 - - 1,777,902,326 Change in fair value of available-for-sale financial assets - Gross 38,748,323 - (29,889,134) 8,859,189 - Deferred tax liability (Note 7(22)) (4,643,214) - 4,643,214 - Share based payment (Note 7(24)) - Proceeds from restricted A share stock granted - 372,481,200 - 372,481,200 - Value of employee services 44,367,661 - 44,367,661 - Restricted A share stock cancelled and forfeited - (98,179,950) (98,179,950) Acquisition of minority interest (Note 9) (7,476,681) - (27,941,627) (35,418,308) Transfer from the balance of capital surplus recognized under previous accounting system (2,250,222) - - (2,250,222) 1,802,280,532 416,848,861 (151,367,497) 2,067,761,896 31 December Current year Current year 31 December 2006 additions reductions 2007 Capital premium 578,402,326 1,199,500,000 - 1,777,902,326 Change in fair value of available-for-sale financial assets - Gross - 38,748,323 - 38,748,323 - Deferred tax liability - (4,643,214) - (4,643,214) Acquisition of minority interest - (7,476,681) - (7,476,681) Transfer from the balance of capital surplus recognized 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 -85- CSG Holding Co., Ltd. 2008 Annual Report (26) Surplus reserve 31 December Current year Current year 31 December 2007 additions reductions 2008 Reserve fund 231,324,288 31,863,502 - 263,187,790 Enterprise Expansion Fund 127,852,568 - - 127,852,568 359,176,856 31,863,502 - 391,040,358 31 December Current year Current year 31 December 2006 additions reductions 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 2008, the Company appropriate RMB 31,863,502 to the statutory surplus reserve out of its net profits (2007: RMB 30,069,452 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. (27) Undistributed profit The directors resolved on 27 March 2009 that a dividend of RMB 1.00 for each 10 shares of outstanding shares, deducting the shares to be cancelled as at 31 December 2008, which was 1,224,415,062 in total, with an aggregated amount of 551,483,041, is proposed, taking into accounts of the profits available for dividend of the Company as at 31 December 2008 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 2008. The shareholder resolved on 11 April 2008 that a dividend of RMB 1.50 for each 10 shares of outstanding shares as at 31 December 2007 which was 1,187,963,124 in total, with an aggregated amount of 178,194,469, is distributed. Undistributed profit of the Group includes the surplus reserve of the subsidiaries attributable to the Group amounting to RMB 304,715,177 (2007: RMB 246,248,922), which includes current year’s surplus reserve attributable to the Group amounting to RMB 62,008,513 (2007: -86- CSG Holding Co., Ltd. 2008 Annual Report RMB 56,499,485). (28) Minority interests Each company’s minority interests disclosed as follows: 31 December 2008 31 December 2007 Shenzhen CSG Wellight Conductive Coating Co., Ltd. 70,733,783 59,912,443 Shenzhen CSG Display Technology Co., Ltd. 45,594,004 46,722,374 Guangzhou CSG Glass Co., Ltd. (Note 9) - 72,233,673 Chengdu CSG Glass Co., Ltd. 115,550,246 80,004,484 Yichang CSG Silicon Co., Ltd. 36,532,568 19,726,779 268,410,601 278,599,753 (29) Revenue and cost of sales 2008 2007 Revenue from main operations 4,237,921,279 4,163,859,846 Revenue from other operations 35,454,574 24,102,782 4,273,375,853 4,187,962,628 2008 2007 Cost of sales from main operations 2,966,310,437 2,891,459,982 Cost of sales from other operations 28,157,961 18,113,135 2,994,468,398 2,909,573,117 (a) Revenue from main operations and cost of goods sold 2008 2007(Restated) Revenue Cost Revenue Cost Floating glass 2,288,309,459 1,761,831,571 2,087,771,748 1,475,835,718 Engineering glass 1,559,625,007 1,054,047,722 1,328,680,698 982,771,796 ITO glass 517,812,006 295,275,990 547,454,387 310,765,118 Solar glass 53,432,843 50,895,989 - - Others 39,513,427 25,030,628 429,078,854 348,397,902 Elimination (220,771,463) (220,771,463) (229,125,841) (226,310,552) 4,237,921,279 2,966,310,437 4,163,859,846 2,891,459,982 The sales to the Group’s top five customers were amounting to RMB 638,985,470 (2007: RMB 623,872,766), account for 15% of the Group’s total sales (2007:15%). The Group reorganized Dongguan CSG Solar Glass Co., Ltd. to the segment of Floating Glass this year. The relevant comparatives have been restated. -87- CSG Holding Co., Ltd. 2008 Annual Report (b) Other revenue and cost 2008 2007 Revenue Cost Revenue Cost Sale of raw materials 30,143,624 27,107,522 20,994,710 18,053,553 Others 5,310,950 1,050,439 3,108,072 59,582 35,454,574 28,157,961 24,102,782 18,113,135 (30) Tax and surcharges 2008 2007 Business tax 1,277,834 5,592,193 City maintenance and construction tax 906,590 1,462,604 Educational surcharge 384,862 541,287 Resources duty 1,443,300 1,709,280 Others 1,140,891 2,518,529 5,153,477 11,823,893 (31) Finance expenses – net 2008 2007 Interest expenses - Interests on borrowings 137,994,767 100,238,627 - Interests on short term finance bonds 20,187,183 23,920,000 - Interests on discounting bank acceptance notes 11,222,897 20,651,194 169,404,847 144,809,821 Less: interest income (9,692,987) (3,116,624) Net exchange gains (94,318,414) (80,538,619) Others 12,542,279 3,763,538 77,935,725 64,918,116 (32) Impairment losses 2008 2007 Provision for bad debts provision 1,735,594 8,712,781 Provision for declines in the value of inventories 16,422,730 (2,688,534) Impairment losses for fixed assets 203,083,827 37,278,011 221,242,151 43,302,258 -88- CSG Holding Co., Ltd. 2008 Annual Report (33) Investment income 2008 2007 Gain from available-for-sale financial assets 7,485,293 - Gain from disposal of a subsidiary (Note 7(37)) 36,072,182 29,280,123 Gain from liquidation of subsidiary - (1,345,970) 43,557,475 27,934,153 (34) Non-operating income and expenses (a) Non-operating income 2008 2007 Gain on disposal of fixed assets 5,662,347 472,043 Government grants (Note (i)) 37,400,568 8,961,133 Acquisition of minority interests - 563,188 Insurance claim 586,771 1,623,094 Others 1,789,272 2,260,093 45,438,958 13,879,551 (i) Government grants include tax refund, compensation on interest of bank borrowings and other supporting funds received from the local government by certain subsidiaries. (b) Non-operating expenses 2008 2007 Loss on disposal of fixed assets 4,569,211 15,931,134 Loss on disposal of intangible assets - 4,087,143 Donation (Note (i)) 3,000,000 13,500 Others 1,340,418 2,364,157 8,909,629 22,395,934 (i) Donation was made for the earthquake of Wenchuan, Sichuan. (35) Income tax expenses 2008 2007 Current income tax 57,544,126 66,654,553 Deferred income tax (55,740,480) 557,562 1,803,646 67,212,115 The reconciliation from income tax calculated based on applicable tax rate and total profit presented in the consolidated financial statements to the income tax expenses is as follows: -89- CSG Holding Co., Ltd. 2008 Annual Report 2008 2007 Total profit 502,035,458 634,467,082 Income tax expenses calculated at applicable tax rates 7,602,538 44,305,685 Effect of change in tax rates (11,401,296) (27,809) Expenses not deductable for tax purpose 8,524,762 670,975 Utilization of previously unrecognized tax losses (1,205,205) - Tax loss for which no deferred income tax asset was recognised 6,023,561 22,263,264 Utilization of previously unrecognized deferred tax assets (2,163,067) - Tax refund for purchase of domestic fixed assets (5,577,647) - Income tax expenses 1,803,646 67,212,115 (36) Earnings per share (a) Earnings per share - basic Basic earnings 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. 2008 2007 Consolidated profit attributable to shareholders of the Company 420,079,848 431,484,803 Weighted average number of ordinary shares in issue 1,208,438,124 1,058,588,124 Basic earnings per share 0.35 0.41 (b) Earnings per share - diluted The Company had no potential dilutive outstanding equity instruments issued as at 31 December 2008 and 2007, accordingly the diluted earnings per share are the same as basic ones. -90- CSG Holding Co., Ltd. 2008 Annual Report (37) Notes to consolidated cash flow statements (a) Reconciliation from the net profit to the cash flows from operating activities 2008 2007 Net profit 500,231,812 567,254,967 Add: Provisions for assets impairment 221,242,151 43,302,258 Depreciation of fixed assets 342,742,700 322,501,248 Amortization of intangible assets 10,415,797 9,068,759 (Gain)/Losses on disposal of fixed assets and intangible assets (1,093,136) 19,546,234 Finance expenses 75,086,433 54,443,007 Investment income (43,557,475) (27,934,153) Negative goodwill recognized in income statement - (563,188) (Increase)/Decrease in deferred tax assets (57,602,705) 557,562 Decrease in deferred tax liability 1,862,225 - Increase in inventories (23,766,866) (31,715,810) Increase in operating receivables (49,964,617) (139,780,597) Increase in operating payables 7,926,711 285,635,228 Value of employee service relating to share based payment 46,688,744 - Net cash flows from operating activities 1,030,211,774 1,102,315,515 (b) Net (decrease)/increase in cash and cash equivalents 2008 2007 Cash at end of year 394,923,631 1,259,606,553 Less: cash at beginning of year (1,259,606,553) (480,466,714) Net (decrease)/increase in cash and cash equivalents (864,682,922) 779,139,839 (c) Cash and cash equivalents 31 December 2007 31 December 2006 Cash at bank and on hand - Cash on hand 62,510 162,224 - Cash at bank 987,289,241 1,257,182,813 - Other cash balances 46,428,161 20,849,202 1,033,779,912 1,278,194,239 Less: restricted cash (638,856,281) (18,587,686) 394,923,631 1,259,606,553 -91- CSG Holding Co., Ltd. 2008 Annual Report (d) Cash received from disposal of investments Net cash flow from disposal of CSG Electronic (Note (i)) 116,177,062 Net cash flow from disposal of CSG Curtain Wall (Note(ii)) 15,102,671 Net cash received from the disposal of Shenzhen CSG Automotive Glass Co., Ltd. during last year 84,042,141 Net cash received from disposal of available-for-sale financial assets 8,292,499 223,614,373 (i) On 13 January 2008, the Company signed an agreement with Shun Luo, an independent third party, selling to it the 100% equity interest in CSG Electronics held by the Company. The consideration is approximately RMB 123 million, all paid by cash, including balance of approximately RMB 26.4 million due to the Group by CSG Electronics. The legal procedures of the transaction have been completed. The Group ceased to consolidate CSG Electronics since 13 January 2008. Related cash flows from this disposal is shown as below: Net assets of the subsidiary 59,842,847 Plus: the amounts due to the Group 26,400,127 Gain on disposal 36,788,301 Disposal consideration 123,031,275 Less: cash and cash equivalents held by the subsidiary (6,854,213) Net cash received from the disposal 116,177,062 The condensed financial information of CSG Electronic as at 31 December 2007 or for the year ended is as follows: 2007 Total assets 159,835,162 Liability 99,992,315 Equity 59,842,847 Revenue 64,470,466 Net profit 7,221,523 (ii) On 26 January 2008, the Company signed an agreement with Han Na and Lang Shuo, both of which are independent third parties, selling to them the 100% equity interests in CSG Curtain Wall held by the Company. The consideration is approximately RMB 20.2 million, all paid by cash, including approximately RMB 9.66 million due to the Group by CSG Curtain Wall. The legal procedures of transaction have been completed. The Group ceased to consolidate CSG Curtain Wall since 26 January 2008. The related cash flows from this disposal were shown as below: Net assets of the subsidiary 11,248,830 Plus: The amounts due to the Group 9,663,737 Less: Loss on disposal (716,119) Disposal consideration 20,196,448 Less: Cash and cash equivalents held by the subsidiary (5,093,777) Net cash received from the disposal 15,102,671 -92- CSG Holding Co., Ltd. 2008 Annual Report The condensed financial information of CSG Curtain Wall as at 31 December or for the year then ended is as follows: 2007 Total assets 42,055,332 Liability 30,806,502 Equity 11,248,830 Revenue 79,946,154 Net loss (1,672,164) (e) Cash received relating to other operating activities 2008 2007 Freight expenses 128,344,986 137,655,098 Eatery expenses 18,237,842 18,613,011 Traveling expenses 16,502,694 13,946,552 Office expenses 16,422,841 11,630,295 Others 27,027,027 5,620,976 206,535,390 187,465,932 -93- CSG Holding Co., Ltd. 2008 Annual Report 8 Segment information Inter-segment transfers are measured by reference to the market price. Expenses indirectly attributable to each segment are allocated among the segments based on the proportion of segment revenue. (1) Primary reporting format - business segments (a) Segment information as at and for the year ended 31 December 2008 is as follows: Engineering Floating glass glass ITO glass Solar Others Elimination Total Revenue from external customers 2,081,883,077 1,580,336,434 517,812,006 54,007,910 39,336,426 - 4,273,375,853 Inter-segment revenue 210,146,377 10,208,683 - - 416,403 (220,771,463) - Revenue 2,292,029,454 1,590,545,117 517,812,006 54,007,910 39,752,829 (220,771,463) 4,273,375,853 Less: Operating expenses (2,182,594,088) (1,291,633,333) (353,799,286) (92,447,326) (40,618,772) 220,771,463 (3,740,321,342) Segment results 109,435,366 298,911,784 164,012,720 (38,439,416) (865,943) - 533,054,511 Less: Unallocated expenses (67,548,382) Operating profit 465,506,129 Segment assets 4,393,287,059 2,727,626,677 1,031,037,063 1,185,088,636 116,435,131 9,453,474,566 Add: Unallocated assets 922,586,500 Total assets 10,376,061,066 Segment liabilities 645,157,086 495,108,672 122,929,309 102,777,203 32,974,896 1,398,947,166 Add: Unallocated liabilities 4,164,096,760 Total liabilities 5,563,043,926 Depreciation and amortization 183,084,689 104,889,933 56,158,098 4,677,372 4,348,405 353,158,497 Provisions for asset impairment 212,873,111 2,435,489 (297,383) 7,254,140 (1,023,206) 221,242,151 Capital expenditures 1,205,692,852 615,583,539 163,490,159 824,852,810 54,847,158 2,864,466,518 -94- CSG Holding Co., Ltd. 2008 Annual Report (1) Primary reporting format - business segments (Cont’d) (b) Segment information as at and for the year ended 31 December 2007(restated) is as follows: Engineering Floating glass glass ITO glass Solar Others Elimination Total Revenue from external customers 1,877,231,469 1,343,344,063 547,454,387 - 419,932,709 - 4,187,962,628 Inter-segment revenue 211,785,644 6,326,941 - - 11,013,256 (229,125,841) - Revenue 2,089,017,113 1,349,671,004 547,454,387 - 430,945,965 (229,125,841) 4,187,962,628 Less: Operating expenses (1,678,705,852) (1,222,373,378) (372,875,663) (18,519,249) (418,037,199) 226,310,552 (3,484,200,789) Segment results 410,311,261 127,297,626 174,578,724 (18,519,249) 12,908,766 (2,815,289) 703,761,839 Less: unallocated expenses (60,778,374) Operating profit 642,983,465 Segment assets 3,479,837,652 2,584,289,230 866,499,504 393,684,470 276,607,864 7,600,918,720 Add: unallocated assets 852,063,227 Total assets 8,452,981,947 Segment liabilities 501,643,763 528,606,304 112,582,022 71,453,208 52,012,524 1,266,297,821 Add: unallocated liabilities 2,901,070,255 Total liabilities 4,167,368,076 Depreciation and amortization 180,507,609 67,895,795 51,170,693 2,371,868 29,624,042 331,570,007 Provisions for asset impairment 32,806,011 7,072,753 2,647,188 929 775,377 43,302,258 Capital expenditures 162,854,990 989,277,428 75,368,891 240,950,707 41,539,401 1,509,991,417 The Group reorganized Dongguan CSG Solar Glass Co., Ltd. to the segment of Floating glass in current year. Related comparatives have been restated. (2) Secondary reporting format - geographical segments Revenue from external customers 2008 2007 Mainland PRC 3,507,205,413 3,156,024,382 Hong Kong 427,916,741 648,383,637 USA 31,823,255 46,842,949 Australia 73,795,001 34,965,038 Others 232,635,443 301,746,622 4,273,375,853 4,187,962,628 -95- CSG Holding Co., Ltd. 2008 Annual Report The assets are substantive located in Mainland PRC. 9 Acquisition of minority interest Acquisition of 25% equity interest in Guangzhou CSG On 19 June 2009, CSG HK signed an agreement with Success Hong Kong Limited to acquire 25% equity interests in Guangzhou CSG at a consideration of RMB 85,075,698. Upon the completion of the deal, the Group’s share in the equity of Guangzhou CSG increased from 75% to 100%. The acquisition date was 19 August 2008, being the date when Guangzhou CSG completed change of business registration. The difference between the purchase consideration and the share in the carrying amount of net assets acquired is as follows: Purchase consideration - paid by cash 85,075,698 Less: Share in the carrying amount of net assets acquired (57,134,071) Difference (debited the capital reserve) 27,941,627 10 Related parties and related party transactions (1) The parent company and subsidiaries The general information of the subsidiaries is set out in Note 6. The Company regard no entity is the parent company. (2) Related party transactions Except for those mentioned in former sections, the significant transactions between the Company and the subsidiaries are as below: (a) Interest charged to subsidiaries 2008 2007 Chengdu CSG Glass Co., Ltd. 8,273,565 2,543,545 Guangzhou CSG Glass Co., Ltd. 7,093,108 2,327,174 China Southern Glass (Hong Kong) Limited 1,693,228 3,104,757 Shenzhen CSG Float Glass Co., Ltd. 1,101,825 1,163,587 Shenzhen CSG Wellight Conductive Coating Co., Ltd. - 709,818 Yichang CSG Silicon Co., Ltd. - 226,140 Tianjin CSG Architectural Glass Co., Ltd. - 537,041 Sichuan CSG Industrial Development Co., ltd. - 3,800,698 Shenzhen CSG Automotive Glass Co., Ltd (Note (i)) - 358,027 18,161,726 14,770,787 The interest charged to subsidiaries is measured by reference to bank loan interest rate at -96- CSG Holding Co., Ltd. 2008 Annual Report corresponding period. (b) Interest expense and surcharges of short term finance bonds allocated to subsidiaries 2008 2007 Chengdu CSG Glass Co., Ltd. 3,254,167 7,242,200 Guangzhou CSG Glass Co., Ltd. 3,953,667 8,966,533 Shenzhen CSG Float Glass Co., Ltd. 4,744,166 4,483,267 Shenzhen CSG Wellight Conductive Coating Co., Ltd. 3,360,333 130,000 Tianjin CSG Architectural Glass Co., Ltd. 1,551,000 2,069,200 Dongguan CSG Solar Glass Co., Ltd. 1,779,000 - Shenzhen CSG Display Technology Co., Ltd. 988,333 - Wujiang CSG Glass Co. Ltd. 98,833 - Shenzhen CSG Automotive Glass Co Ltd. (Note(i)) - 1,136,133 19,729,499 24,027,333 The Company allotted the proceeds from issuance of short term finance bonds to certain subsidiaries according to the circular and related interest expenses and surcharges were allocated to these subsidiaries based on the effective interest rate accordingly. (i) Shenzhen CSG Automotive Glass Co., Ltd. has been disposed to the third party on 29 October 2007 and ceased to be a related party of the Company since that date. The related transactions shown above were up to that date. (c) Guarantee provided for subsidiaries The guarantee information of the company is listed as below: 2008 2007 Hebei CSG Glass Co., Ltd. 400,000,000 - Yichang CSG Silicon Co., Ltd. 254,000,000 544,924 Wujiang CSG North-east Architectural Glass Co., Ltd. 121,489,540 115,774,272 Chengdu CSG Glass Co., Ltd. 82,036,026 206,839,639 Shenzhen CSG Wellight Conductive Coating Co., Ltd. 80,000,000 - Guangzhou CSG Glass Co., Ltd. 64,000,000 201,380,520 Tianjin Energy Conservation Glass Co., Ltd. 53,944,085 79,946,643 Tianjin CSG Architectural Glass Co., Ltd. 52,338,400 76,217,747 Shenzhen CSG Float Glass Co., Ltd. 40,836,735 108,002,175 Dongguan CSG Architectural Glass Co., Ltd. 27,338,400 28,122,710 Shenzhen CSG Display Technology Co., Ltd. 10,000,000 - Dongguan CSG Solar Glass Co., Ltd. - 34,609,200 1,185,983,186 851,437,830 -97- CSG Holding Co., Ltd. 2008 Annual Report (d) Key management compensation 2008 2007 Payroll 4,887,800 5,313,390 Value of employee service relating to share based payment (Note 7(24)) 11,514,944 - 16,402,744 5,313,390 (3) Receivables from and payables to related parties (a) Other receivables 31 December 2008 31 December 2007 Shenzhen CSG Float Glass Co., Ltd. 212,142,286 136,622,844 Shenzhen CSG Wellight Conductive Coating Co., Ltd. 171,895,039 200,000 Guangzhou CSG Glass Co., Ltd. 127,092,765 264,801,186 Chengdu CSG Glass Co., Ltd. 108,476,010 214,662,124 Dongguan CSG Solar Glass Co., Ltd. 92,489,908 200,000 Shenzhen CSG Display Technology Co., Ltd. 37,772,279 - Tianjin CSG Architectural Glass Co., Ltd. 13,336,463 2,517,699 Dongguan CSG Architectural Glass Co., Ltd. 5,582,896 2,627,287 Wujiang CSG North-east Architectural Glass Co., Ltd. 4,688,620 893,791 Dongguan CSG PV-tech Co., Ltd. 1,752,710 529,186 Hebei CSG Glass Co., Ltd. 1,423,236 72,855 Sichuan Luxian CSG Silica Sand Mine Co., Ltd. 575,029 575,029 Tianjin Energy Conservation Glass Co., Ltd. 441,695 114,102 Dongguan CSG Ceramics Technology Co., Ltd. 142,117 - Sichuan CSG Industrial Development Co., Ltd. 90,000 50,000 Hainan CSG Industrial Development Co., Ltd. 31,400 31,400 China Southern Glass (Hong Kong) Limited (904,838) 149,326 Shenzhen CSG Architectural Glass Co., Ltd. - 1,230,670 Shenzhen CSG Wellight Coating Glass Co., Ltd. - 679,085 Shenzhen CSG Curtain Wall Engineering Co., Ltd. - 1,388,370 Shenzhen CSG PV-tech Co., Ltd. - 480,427 777,027,615 627,825,381 The ending balance includes proceeds from issuance of short term finance bonds allocated to certain subsidiaries totaling RMB 791,820,000 (2007: RMB 673,471,000). -98- CSG Holding Co., Ltd. 2008 Annual Report (b) Long term receivables 31 December 2008 31 December 2007 Chengdu CSG Glass Co., Ltd. 250,455,159 52,347,704 Guangzhou CSG Glass Co., Ltd. 190,154,676 29,817,174 Tianjin Energy Conservation Glass Co., Ltd. 179,900,000 29,900,000 Dongguan CSG Architectural Glass Co., Ltd. 168,601,200 103,709,932 Shenzhen CSG Float Glass Co., Ltd. 121,086,538 96,573,027 Hainan CSG Industrial Development Co., Ltd. 105,858,697 109,415,326 Dongguan CSG Solar Glass Co., Ltd. 68,890,024 71,561,002 Wujiang CSG North-East Architectural Glass Co., Ltd. 55,900,000 - Sichuan CSG Industrial Development Co., Ltd. 48,684,003 50,793,712 Sichuan Luxian CSG Silica Sand Mine Co., Ltd. 36,060,000 42,100,000 Dongguan CSG PV-tech Co., Ltd. 34,104,099 4,263,245 China Southern Glass (Hong Kong) Limited 29,197,885 33,713,541 Shenzhen CSG Wellight Conductive Coating Co., Ltd. 22,266,726 64,000,000 Tianjin CSG Industrial Development Co., Ltd. 4,277,283 4,277,284 China Southern Glass (Australia) Pty Ltd. 1,379,671 1,379,671 Hebei CSG Glass Co., Ltd. - 32,403,000 Shenzhen CSG Curtain Wall Engineering Co., Ltd. (Note (i)) - 3,810,575 Shenzhen CSG Electronic Co., Ltd. (Note (i)) - 62,837,196 1,316,815,961 792,902,389 Less: Provision for bad debts (173,774,757) (176,417,529) 1,143,041,204 616,484,860 (i) As described in Note 6(2), the equity interest in these two entities has been disposed to third parties on 13 January 2008 and 26 January 2008 respectively and they have been ceased to be related parties of the Company from the disposal dates. -99- CSG Holding Co., Ltd. 2008 Annual Report (c) Other payables 31 December 2008 31 December 2007 Shenzhen CSG Architectural Glass Co., Ltd. 71,217,734 - Shenzhen CSG Southern Star Glass Processing Co., Ltd. 10,671,211 - Shenzhen CSG Structure Ceramics Co., Ltd. 8,644,736 20,009,013 Jiangyou CSG Mining Development CO., Ltd. 5,000,000 - Hainan Wen Chang CSG Silica Sand Mine Co., Ltd. 2,942,309 - Beihai CSG Industrial Development Co., Ltd. 2,041,468 2,041,468 Shenzhen CSG Wellight Coating Glass Co., Ltd. 685,429 - Yichang CSG Silicon Co., Ltd. 564,196 - Shenzhen CSG Spandrel And Tempglass Co., Ltd. 33,855 - Shenzhen CSG Float Glass Co., Ltd. - 17,931,524 Shenzhen CSG Display Technology Co., Ltd. - 6,473,846 Dongguan CSG Ceramics Technology Co., Ltd. - 20,815,875 101,800,938 67,271,726 11 Commitments Capital commitments As at 31 December 2008, capital expenditures contracted for at the balance sheet date but not recognized in the financial statements are as follows: 2008 2007 Buildings, machinery and equipment 839,819,471 821,731,000 Investment 28,560,000 241,490,000 868,379,471 1,063,221,000 12 Contingencies As at 31 December 2008, the Group has no significant contingency liability. 13 Events subsequent to the balance sheet date Commitment of subsidiary’s dividend distribution The directors of certain subsidiaries of the Company resolved in March 2009, committing for the dividends appropriated to the Company in respect of 2008, with an aggregated amount of RMB 466,800,357. The actual dividends will be determined based on their annual financial statements audited. -100- CSG Holding Co., Ltd. 2008 Annual Report 14 Net profit after extra ordinary gains and losses 2008 2007 Net profit 500,231,812 567,254,967 Add/(Less): Losses/(Gains) on disposal of non-current assets (1,093,136) 19,546,234 Net gain on disposal of subsidiaries (36,072,182) (29,280,123) Net gain on the disposal of available-for-sale finance assets (7,485,293) - Other non-operating income and expenses - net (35,436,193) (11,029,851) Tax effects on extraordinary gain and losses 3,848,793 (428,814) Net profit before extraordinary gains and losses 423,993,801 546,062,413 - Attributable to shareholders of the Company 350,296,529 412,588,587 - Minority interest 73,697,272 133,473,826 (1) 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 [2008], extraordinary gains and losses are the gains 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. 15 Notes to the Company’s financial statements (1) Other receivables 31 December 2008 31 December 2007 Other receivables 777,848,857 796,328,925 Less: provision for bad debts (810,344) (810,344) 777,038,513 795,518,581 The ageing of receivables and related provisions for bad debts are analyzed below: 31 December 2008 31 December 2007 Amount % of total rovision for bad Amount % of total Provision for balance debts balance bad debts Within 1 year 777,038,513 100% - 795,502,937 100% - Over 3 year 810,344 0% (810,344) 825,988 0% (810,344) 777,848,857 100% (810,344) 796,328,925 100% (810,344) The other receivables are analyzed by categories as follows: -101- CSG Holding Co., Ltd. 2008 Annual Report 31 December 2008 31 December 2007 % of % of total Provision for Provisio total Provision for Provisio Amount balance bad debts n ratio Amount balance bad debts n ratio Impairment evaluated individually 810,344 0% (810,344) 100% 825,988 0% (810,344) 98% Impairment evaluated by group 777,038,513 100% - - 795,502,937 100% - - 777,848,857 100% (810,344) 0% 796,328,925 100% (810,344) 0% As at 31 December 2008, included in the balances were the loans to subsidiaries of RMB 777,027,615 (2007: RMB 627,825,381) (2) Long-term equity investments 31 December 2008 31 December 2007 Subsidiaries (Note (a)) 2,880,721,620 2,407,678,733 Other long-term equity investments (Note (c)) 21,841,000 4,200,000 2,902,562,620 2,411,878,733 Less: Impairment provision for investments in subsidiaries (Note (b)) (111,553,004) (111,553,004) 2,791,009,616 2,300,325,729 The long-term equity investments of the Group are not subject to restriction on conversion into cash or restriction on remittance of investment income. -102- CSG Holding Co., Ltd. 2008 Annual Report (a) Subsidiaries 31 December Current year Current year 31 December Name of subsidiaries 2007 addition disposal 2008 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 China Southern Glass (Australia) Pty Ltd. 3,200,555 338,675 - 3,539,230 Shenzhen 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 1,818,490 - 607,554,740 Sichuan CSG Industrial Development Co., Ltd. 40,000,000 - - 40,000,000 Hainan Wen Chang CSG Silica Sand Mine Co., Ltd. 40,000,000 557,556 - 40,557,556 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 2,572,477 - 58,440,405 Tianjin Energy Conservation Glass Co., Ltd. 96,000,000 1,421,950 - 97,421,950 Shenzhen CSG PV-tech 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 1,527,907 - 75,152,468 Tianjin CSG Architectural Glass Co., Ltd. 133,500,000 1,421,951 - 134,921,951 China Southern Glass (Hong Kong) Limited 81,664,760 793,467 - 82,458,227 Guangzhou CSG Glass Co., Ltd. 120,000,000 76,662,313 - 196,662,313 Chengdu CSG Glass Co., Ltd. 99,514,360 3,875,117 - 103,389,477 Sichuan Luxian CSG Silica Sand Mine Co Ltd. 13,720,000 - - 13,720,000 Dongguan CSG Architectural Glass Co., Ltd. 180,000,000 3,059,685 - 183,059,685 Dongguan CSG Solar Glass Co., Ltd. 75,000,000 56,229,468 - 131,229,468 Yichang CSG Silicon Co., Ltd. 174,200,000 158,575,161 - 332,775,161 Wujiang CSG North-east Architectural Glass Co., Ltd. 240,000,000 2,136,554 - 242,136,554 Dongguan CSG PV-tech Co., Ltd. 30,000,000 46,248,259 - 76,248,259 Dongguan CSG Ceramics Technology Co., Ltd. 50,000,000 1,202,296 - 51,202,296 Hebei CSG Glass Co., Ltd. - 178,443,502 - 178,443,502 Jiangyou CSG Mining Development Co., Ltd. - 5,658,059 - 5,658,059 Total 2,407,678,733 542,542,887 (69,500,000) 2,880,721,620 (b) Impairment provision for investments in subsidiaries 31 December Current year Current year 31 December Name of subsidiaries 2007 addition disposal 2008 Hainan CSG Industrial Development Co., Ltd. (31,874,472) - - (31,874,472) 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 (13,720,000) - - (13,720,000) (111,553,004) - - (111,553,004) -103- CSG Holding Co., Ltd. 2008 Annual Report (c) Other long-term equity investments 31 December 2008 31 December 2007 Beijing Wan Tong Industrial Co., Ltd. 4,200,000 4,200,000 Guangdong Godden Glass Technologies Ltd. 17,641,000 - 21,841,000 4,200,000 (3) Long term receivables 31 December 2008 31 December 2007 Substantive long-term investments in subsidiaries 1,143,041,204 616,484,860 As at 31 December 2008, the balance included long term receivables due from 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. with an aggregation of RMB 194,879,983 (2007: RMB 206,586,321). As these subsidiaries had a deficit in equity and their operations were mainly financed by the Company, the Company, when performing impairment assessments, recognized the deficit in equity as investment losses to extent to the long term receivables which actually constituted part of the investment costs in these subsidiaries. As at 31 December 2008, the provisions made for the receivables due by these subsidiaries were RMB 173,774,757 (2007: RMB 206,586,321). (4) Other payables 31 December 2008 31 December 2007 Subsidiaries 101,800,938 67,271,726 Liabilities relating to stock withdrawn 111,132,450 - Others 17,183,815 20,220,723 230,117,203 87,492,449 (5) Asset impairment losses 2008 2007 Impairment of long-term equity investments - 13,720,000 -104- CSG Holding Co., Ltd. 2008 Annual Report (6) Investment income 2008 2007 Dividends declared of associates under cost method of accounting 307,454,776 346,973,393 Investment income on disposal of subsidiaries 41,388,832 25,412,506 Gain on disposal of available-for-sale financial assets 7,485,293 - Investment loss on liquidation of subsidiaries - (1,345,970) Investment loss on subsidiaries 2,642,772 (33,332,230) 358,971,673 337,707,699 Supplemental information: Asset impairment Current year reduction Current year 31 December Current year Current year write off/ 31 December 2007 additions reverse Transfer out Subtotal 2008 1. Provision for bad debt (12,891,685) (1,735,594) - 5,456,551 5,456,551 (9,170,728) Of which: Trade receivable (9,767,304) 160,292 - 4,778,330 4,778,330 (4,828,682) Other receivable (3,124,381) (1,895,886) - 678,221 678,221 (4,342,046) 2. Provision for inventory loss (31,775,442) (18,355,271) 1,932,541 3,756,037 5,688,578 (44,442,135) Of which: Manufacturing industry (587,647) (18,355,271) - - - (18,942,918) Real estate (31,187,795) - 1,932,541 3,756,037 5,688,578 (25,499,217) 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 (42,332,568) (203,083,827) - 18,383,403 18,383,403 (227,032,992) Of which: Property (24,174,116) - - 16,049,476 16,049,476 (8,124,640) Machinery (17,962,750) (203,083,827) - 2,305,743 2,305,743 (218,740,834) Transportation equipment and others (195,702) - - 28,184 28,184 (167,518) (87,444,692) (223,174,692) 1,932,541 27,595,991 29,528,532 (281,090,852) -105- CSG Holding Co., Ltd. 2008 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. 27 March 2009 -106-