THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares in CATIC Shenzhen Holdings Limited, you should at once hand this circular with the enclosed forms of proxy and confirmation slips to the purchaser or transferee, or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for shares or any other securities of the Company.
(a joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 00161) VERY SUBSTANTIAL ACQUISITIONS AND CONNECTED TRANSACTIONS INVOLVING ISSUE OF PERPETUAL SUBORDINATED CONVERTIBLE SECURITIES AND POTENTIAL AMENDMENTS TO THE ARTICLES OF ASSOCIATION AND POTENTIAL CONTINUING CONNECTED TRANSACTIONS Financial Adviser to the Company
Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders
A letter from the Independent Board Committee is set out on pages 100 to 101 of this circular. A letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 102 to 128 of this circular. Notices convening the EGM and the Class Meetings to be held on Wednesday, 8 February 2012 at 10:00 a.m., 11:00 a.m. and 11:30 a.m., respectively at Level 25, Hangdu Building, CATIC Zone, Shennan Road Central, Futian District, Shenzhen, the PRC are set out on pages EGM-1 to EGM-4, HCM-1 to HCM-4, DCM-1 to DCM-4 of this circular. Forms of proxy for use by the Shareholders at the EGM and Class Meetings (or any adjournment thereof) are enclosed with this circular. Whether or not you intend to attend the said meetings, you are requested to complete the respective form of proxy in accordance with the instructions printed thereon and return the same to the legal address of the Company at Level 25, Hangdu Building, CATIC Zone, Shennan Road Central, Futian District, Shenzhen, the PRC (for holders of Domestic Shares) or to the H Share registrar of the Company, Hong Kong Registrars Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong (for holders of H Shares) as soon as possible and in any event not less than 24 hours before the time appointed for the holding of the relevant meetings. Completion and return of the respective form of proxy will not prevent you from attending and voting in person at the EGM and the Class Meetings (or any adjournment thereof) should you so wish.
23 December 2011 CONTENTS
Page
DEFINITIONS ...... 1
LETTER FROM THE BOARD ...... 9
LETTER FROM THE INDEPENDENT BOARD COMMITTEE ...... 100
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ...... 102
APPENDIX I — FINANCIAL INFORMATION OF THE GROUP ...... I-1
APPENDIX II — FINANCIAL INFORMATION OF THE TARGET GROUP ...... IIA-1
APPENDIX III — UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP ...... III-1
APPENDIX IV — PROPERTY VALUATION REPORT OF THE ENLARGED GROUP ...... IV-1
APPENDIX V — MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP ...... V-1
APPENDIX VI — MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP ...... VI-1
APPENDIX VII — GENERAL INFORMATION ...... VII-1
NOTICE OF THE EGM ...... EGM-1
NOTICE OF THE H SHARES CLASS MEETING ...... HCM-1
NOTICE OF THE DOMESTIC SHARES CLASS MEETING ...... DCM-1
–i– DEFINITIONS
In this circular, the following expressions have the following meanings unless the context requires otherwise:
“2010 Acquisition” the proposed acquisition of certain companies by the Company from AVIC International, Shenzhen Company and Beijing Raise Science Company Limited, respectively, pursuant to three acquisition agreements dated 30 November 2010, details of which are set out in the circular of the Company dated 31 December 2010
“Acquisition Agreement 1” the acquisition agreement entered into between the Company and AVIC International dated 16 November 2011 in relation to the acquisition of the Sale Interests 1
“Acquisition Agreement 2” the acquisition agreement entered into between the Company and Shenzhen Company dated 16 November 2011 in relation to the acquisition of the Sale Interests 2
“Acquisition Agreement 3” the acquisition agreement entered into between the Company and Shenzhen Company dated 16 November 2011 in relation to the acquisition of the Sale Interests 3
“Acquisitions” the acquisitions by the Company of the Sale Interests from the Vendors pursuant to the Agreements
“Agreements” the Acquisition Agreement 1, the Acquisition Agreement 2 and the Acquisition Agreement 3
“associate(s)” has the meaning ascribed to it under the Listing Rules
“Aviation Industry” Aviation Industry Corporation of China (中國航空工 業集團公司), an enterprise owned by the whole people (全民所有制企業) established in the PRC, and as at the Latest Practicable Date, it held 62.52% of the equity interest in AVIC International
–1– DEFINITIONS
“AVIC International” AVIC International Holding Corporation (中國航空技 術國際控股有限公司), a limited liability company established in the PRC, as at the Latest Practicable Date, it owned 100% of the equity interest in Shenzhen Company, and its equity interest was owned as to 62.52% by Aviation Industry, 14.31% by Zhong Jin Chuang Xin (Tianjin) Investment Company Limited (中津創新（天津）投資有限公司), 14.31% by National Council for Social Security Fund of the People’s Republic of China and 8.86% by AVIC CCB Aviation Industry Equity Investment (Tianjin) Company Limited) (中航建銀航空產業股權投資（天津） 有限公司)
“Bi Te Communication” Shenzhen AVIC Bi Te Communication Technology Company Limited (深圳市中航比特通訊技術有限公司), a limited liability company established in the PRC, and as at the Latest Practicable Date, its equity interest was owned as to 51% by Shenzhen Company, 29% by Zhaoqing City Jin Ye Investment Development Company Limited (肇慶市金葉投資發展有限公司), 10% by Wang Yue (王岳), 9.7% by Xun Wei Kong Jian Information Techonlogy (Beijing) Company Limited (尋味空間信息技術(北京)有限公司), 0.1% by Hu Bin (胡賓), 0.1% by Chen Haitao (陳海濤), 0.05% by He Tao (何濤) and 0.05% by Dong Weihua (董衛華)
“Board” the board of Directors
“Chengdu Ya Guang” Chengdu Ya Guang Electronic Company Limited (成 都亞光電子股份有限公司), a limited liability company established in the PRC, and as at the Latest Practicable Date, its equity interest was owned as to 55.91% by Shenzhen Company, 14.57% by Chengdu Chuang Xin Risk Investment Company Limited (成都 創新風險投資公司), 8.42% by Zhong Tie Er Ju Group Company Limited (中鐵二局集團有限公司), 2.77% by Yi Chang Ming Ke United Commercial Trading Company Limited (宜昌明科聯合商貿有限公司), 5.35% by Chen Meidong (陳梅冬), 4.47% by Zhou Rong (周蓉), 4.44% by Cai Hongbing (才泓冰), 1.58% by Yang Zhiwen (羊稚文), 1.01% by Peng Dongmei (彭冬梅), 0.84% by Wang Li (王立), 0.11% by Cao Junbo (曹軍波), 0.11% by Wang Zhonglu (王忠祿), 0.11% by Zhang Liguang (張麗光), 0.09% by Li Jiuyin (李久銀), 0.07% by Yang Jian (楊健), 0.07% by He Fang (何放) and 0.07% by Ye Fei (葉飛)
–2– DEFINITIONS
“Chengdu Ya Guang Associated the subsidiaries and investment companies of Companies” Chengdu Ya Guang, details of which are set out in the paragraph headed “Information of the Target Group” in the section headed “Letter from the Board” in this circular
“Class Meetings” the respective class meetings of the holders of H Shares and the holders of Domestic Shares of the Company to be convened and held on Wednesday, 8 February 2012 for the purposes of considering and, if thought fit, approving, among other things, the Acquisitions and the transactions contemplated under the Agreements
“Company” CATIC Shenzhen Holdings Limited (深圳中航集團股 份有限公司), a joint stock limited company established in the PRC whose H Shares are listed on the Stock Exchange
“connected person(s)” has the meaning ascribed to it under the Listing Rules
“Consideration 1” RMB1,311,110,000 (equivalent to approximately HK$1,618,654,321), being the total consideration for the acquisition of the Sale Interests 1
“Consideration 2” RMB637,920,000 (equivalent to approximately HK$787,555,556), being the total consideration for the acquisition of the Sale Interests 2
“Consideration 3” RMB6,328,302,570 (equivalent to approximately HK$7,812,719,222), being the total consideration for the acquisition of the Sale Interests 3
“controlling has the meaning ascribed to it under the Listing Rules shareholder(s)”
“Conversion Price” initially RMB3.56 (equivalent to approximately HK$4.40) per Conversion Share (subject to adjustment pursuant to the terms of PSCS)
“Conversion Share(s)” the new Domestic Share(s) to be allotted and issued to holders of the PSCS upon the conversion of the PSCS
“CSRC” China Securities Regulatory Commission (中國證券監 督管理委員會)
–3– DEFINITIONS
“Domestic Share(s)” domestic share(s) of nominal value of RMB1.00 each in the capital of the Company
“EGM” the extraordinary general meeting of the Company to be convened and held on Wednesday, 8 February 2012 for the purposes of considering and, if thought fit, approving, among other things, the Acquisitions and the transactions contemplated under the Agreements
“Enlarged Group” the Group as enlarged by the Acquisitions
“Group” the Company and its subsidiaries
“Guizhou CATIC Resources” Guizhou CATIC Resources Company Limited (貴州中 航資源有限公司), a limited liability company established in the PRC, and as at the Latest Practicable Date, its equity interest was owned as to 90% by AVIC International and 10% by Shenzhen CATIC Resources Co., Ltd. (深圳中航資源有限公司) (which is a wholly-owned subsidiary of the Company)
“Guizhou CATIC Resources the investment company of Guizhou CATIC Associated Company” Resources, details of which are set out in the paragraph headed “Information of the Target Group” in the section headed “Letter from the Board” in this circular
“H Share(s)” overseas listed foreign invested share(s) of nominal value of RMB1.00 each in the capital of the Company, which are listed on the Stock Exchange and subscribed for and traded in HK$
“Hong Kong” The Hong Kong Special Administrative Region of the People’s Republic of China
“Independent Board an independent committee of the Board comprising Committee” all independent non-executive Directors, namely, Ms. Wong Wai Ling, Mr. Wu Wei and Mr. Liu Xian Fa, to advise the Independent Shareholders in respect of the Acquisitions and the transactions contemplated under the Agreements
–4– DEFINITIONS
“Independent Financial Anglo Chinese Corporate Finance, Limited, a licensed Adviser” corporation to carry out type 1 (dealing in securities), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO, and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Acquisitions and the transactions contemplated under the Agreements
“Independent Shareholders” Shareholders other than AVIC International, Shenzhen Company and their respective associates
“Last Trading Day” 16 November 2011, being the last trading day of the H Shares on the Stock Exchange immediately prior to the entering into of the Agreements
“Latest Practicable Date” 20 December 2011, being the latest practicable date prior to printing of this circular for the purpose of ascertaining certain information referred to in this circular
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Lutong Company” AVIC Lutong Company Limited (中航路通實業有限公 司), a limited liability company established in the PRC, and as at the Latest Practicable Date, its equity interest was owned as to 50% by AVIC International and 50% by China National Aero-Technology Guangzhou Company Limited (中國航空技術廣州有限 公司); pursuant to the acquisition agreement entered into between the Company and AVIC International dated 30 November 2011, the Company agreed to acquire, among other, the entire equity interest of China National Aero-Technology Guangzhou Company Limited (中國航空技術廣州有限公司), details of the same are set out in circular of the Company dated 31 December 2010
“PRC” or “China” the People’s Republic of China, and for the purpose of this circular, excluding Hong Kong, the Macau Special Administrative Region of the People’s Republic of China and Taiwan
–5– DEFINITIONS
“Project Engineering Company” AVIC-INTL Project Engineering Company (中航國際 成套設備有限公司), a limited liability company established in the PRC, and as at the Latest Practicable Date, its entire equity interest was owned by AVIC International
“PSCS” the PSCS 1, the PSCS 2 and the PSCS 3
“PSCS 1” the perpetual subordinated convertible securities in the amount of RMB1,311,110,000, convertible into 368,289,325 Conversion Shares at the initial Conversion Price, to be issued by the Company to AVIC International upon completion of the Acquisition Agreement 1 and the transactions contemplated thereunder to satisfy Consideration 1
“PSCS 2” the perpetual subordinated convertible securities in the amount of RMB637,920,000, convertible into 179,191,011 Conversion Shares at the initial Conversion Price, to be issued by the Company to Shenzhen Company upon completion of the Acquisition Agreement 2 and the transactions contemplated thereunder to satisfy Consideration 2
“PSCS 3” the perpetual subordinated convertible securities in the amount of RMB6,328,302,570, convertible into 1,777,613,081 Conversion Shares at the initial Conversion Price, to be issued by the Company to Shenzhen Company upon completion of the Acquisition Agreement 3 and the transactions contemplated thereunder to satisfy Consideration 3
“Rainbow Department Store” Rainbow Department Store Co., Ltd. (天虹商場股份有 限公司), a joint stock limited company established in the PRC and whose shares are currently listed on the Shenzhen Stock Exchange, as at the Latest Practicable Date, approximately 39.52% of its equity interest was owned by Shenzhen Company
“Rainbow Department Store the subsidiaries and investment companies of Associated Companies” Rainbow Department Store, details of which are set out in the paragraph headed “Information of the Target Group” in the section headed “Letter from the Board” in this circular
–6– DEFINITIONS
“Sale Interests” the Sale Interests 1, the Sale Interests 2 and the Sale Interests 3
“Sale Interests 1” 100% equity interest in Shanghai Company, 50% equity interest in Lutong Company, 90% equity interest in Guizhou CATIC Resources and 100% equity interest in Project Engineering Company
“Sale Interests 2” 55.91% equity interest in Chengdu Ya Guang and 51% equity interest in Bi Te Communication
“Sale Interests 3” 316,257,000 shares of Rainbow Department Store, representing approximately 39.52% equity interest in Rainbow Department Store
“SASAC” State-owned Assets Supervision and Administration Commission of the State Council (國務院國有資產監督 管理委員會)
“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Shanghai Company” China National Aero-Technology Corporation Shanghai Limited Liability Company (中國航空技術上 海有限公司), a limited liability company established in the PRC, and as at the Latest Practicable Date, its entire equity interest was owned by AVIC International
“Shanghai Company Associated the subsidiaries and investment companies of Companies” Shanghai Company, details of which are set out in the paragraph headed “Information of the Target Group” in the section headed “Letter from the Board” in this circular
“Share(s)” share(s) of the Company
“Shareholder(s)” holder(s) of the Shares
“Shenzhen Company” AVIC International Shenzhen Company Limited (中國 航空技術深圳有限公司), a limited liability company established in the PRC, a controlling shareholder of the Company, and as at the Latest Practicable Date, its entire equity interest was owned by AVIC International
–7– DEFINITIONS
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Target Companies” Shanghai Company, Lutong Company, Guizhou CATIC Resources, Project Engineering Company, Chengdu Ya Guang, Bi Te Communication and Rainbow Department Store
“Target Group” the Target Companies and their respective subsidiaries
“Vendors” AVIC International and Shenzhen Company
“HK$” Hong Kong dollars, the lawful currency of Hong Kong
“RMB” Renminbi, the lawful currency of the PRC
“%” per cent.
In this circular, the English names of the PRC entities are translation of their Chinese names, and are included herein for identification purpose only. In the event of any inconsistency, the Chinese names shall prevail.
Unless otherwise specified in this circular, amounts denominated in RMB have been converted into Hong Kong dollars at HK$1.00 to RMB0.81 for illustration purpose only. No representation has been made by the Company that any amount have been, could have been or could be converted at the above rate or at any other rates or at all.
–8– LETTER FROM THE BOARD
(a joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 00161)
Executive Directors: Legal Address: Mr. Wu Guang Quan Level 25, Hangdu Building Mr. You Lei CATIC Zone Mr. Lai Wei Xuan Shennan Road Central Mr. Sui Yong Futian District Mr. Liu Rui Lin Shenzhen Mr. Xu Dong Sheng PRC
Non-executive Directors: Principal Place of Business in Hong Kong: Mr. Cheng Bao Zhong Suites 2001-2005 Mr. Qiu Shen Qian 20th Floor, Jardine House Mr. Li Cheng Ning 1 Connaught Place, Central Mr. Wang Bin Bin Hong Kong
Independent Non-executive Directors: Website: Ms. Wong Wai Ling www.avic161.com Mr.WuWei Mr. Liu Xian Fa
23 December 2011
To the Shareholders
Dear Sir or Madam,
VERY SUBSTANTIAL ACQUISITIONS AND CONNECTED TRANSACTIONS INVOLVING ISSUE OF PERPETUAL SUBORDINATED CONVERTIBLE SECURITIES AND POTENTIAL AMENDMENTS TO THE ARTICLES OF ASSOCIATION AND POTENTIAL CONTINUING CONNECTED TRANSACTIONS
INTRODUCTION
References are made to the announcement of the Company dated 21 November 2011.
On 16 November 2011, the Company entered into the Acquisition Agreement 1 with AVIC International and the Acquisition Agreement 2 with Shenzhen Company, respectively, pursuant to which the Company has conditionally agreed to acquire and AVIC International and Shenzhen Company have, respectively, conditionally agreed to
–9– LETTER FROM THE BOARD sell the Sale Interests 1 and the Sale Interests 2 at a consideration of RMB1,311,110,000 (equivalent to approximately HK$1,618,654,321) and RMB637,920,000 (equivalent to approximately HK$787,555,556), respectively.
On 16 November 2011, the Company also entered into the Acquisition Agreement 3 with Shenzhen Company, pursuant to which the Company has conditionally agreed to acquire and Shenzhen Company has conditionally agreed to sell the Sale Interests 3 at a consideration of RMB6,328,302,570 (equivalent to approximately HK$7,812,719,222).
The net profit of the Target Group attributable to the holders of the equity interests proposed to be acquired under the Acquisitions was RMB301,446,000 for the financial year ended 31 December 2010 and RMB155,701,000 for the six months ended 30 June 2011. As at 30 June 2011, the equity of the Target Group attributable to the holders of the equity interests proposed to be acquired under the Acquisitions was RMB2,724,497,000. These figures were unaudited and aggregated from the unaudited figures of each of the Target Companies.
The purpose of this circular is to provide you with further details relating to, among other things, (i) further details of the Acquisitions and the transactions contemplated under the Agreements; (ii) the advice of the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Acquisitions and the transactions contemplated under the Agreements; (iii) the advice and recommendation of the Independent Board Committee to the Independent Shareholders in respect of the Acquisitions and the transactions contemplated under the Agreements; (iv) notices of the EGM and the Class Meetings, at which resolutions will be proposed to consider and, if thought fit, approve the Acquisitions and the transactions contemplated under the Agreements; and (v) information as required by the Listing Rules.
(A) VERY SUBSTANTIAL ACQUISITIONS AND CONNECTED TRANSACTIONS
(1) The Acquisition Agreement 1
Date:
16 November 2011
Parties:
Purchaser: the Company
Vendor: AVIC International
AVIC International owns the entire equity interest in Shenzhen Company, which is a controlling shareholder of the Company. AVIC International is a state-owned enterprise of the PRC. As the comprehensive platform under Aviation Industry, AVIC International’s core businesses consist of international aviation trading, trading and logistics, luxurious goods and retail, real estate and hotel, electronics technology, and resources investment and development.
–10– LETTER FROM THE BOARD
Assets to be Acquired
The Sale Interests 1 (being 100% equity interest in Shanghai Company, 50% equity interest in Lutong Company, 90% equity interest in Guizhou CATIC Resources and 100% equity interest in Project Engineering Company), free from encumbrances and together with all rights now or thereinafter attached thereto.
Details regarding Shanghai Company, Lutong Company, Guizhou CATIC Resources and Project Engineering Company and their respective associated companies (where applicable) are set out in the paragraph headed “Information of the Target Group” below.
Consideration 1 and Payment Terms
Consideration 1 is RMB1,311,110,000 (equivalent to approximately HK$1,618,654,321). Consideration 1 was determined after arm’s length negotiations between the Company and AVIC International on normal commercial terms with reference to a number of factors including, among other things:
(1) financial condition of the Target Companies comprising the Sale Interests 1, especially the book value of the newly established Target Companies comprising the Sale Interests 1, and the earning of the stably operating Target Companies comprising the Sale Interests 1;
(2) market environment and comparables, which the Company believes to be undervalued;
(3) future prospect of the Target Companies comprising the Sale Interests 1, including the application of advanced technology, the synergy of the Acquisitions, the expected enhancement to the Company’s position in the market and competitiveness upon completion of the Acquisition Agreement 1 and the transactions contemplated thereunder;
(4) the strong background of AVIC International, including its historical records and global reputation, competitive advantage in government project, the domestic and global distribution networks, etc.; and
(5) confidence in the economy of and related industries in the PRC.
The Directors are of the view that Consideration 1 is fair and reasonable and in the interest of the Company and the Shareholders as a whole.
Upon completion of the Acquisition Agreement 1 and the transactions contemplated thereunder, Consideration 1 shall be satisfied by the Company issuing to AVIC International the PSCS 1 in the amount of RMB1,311,110,000 (equivalent to approximately HK$1,618,654,321), convertible into 368,289,325 Conversion Shares at the initial Conversion Price of RMB3.56 (equivalent to approximately HK$4.40) per Conversion Share.
–11– LETTER FROM THE BOARD
(2) The Acquisition Agreement 2
Date:
16 November 2011
Parties:
Purchaser: the Company
Vendor: Shenzhen Company
Shenzhen Company is a promoter and a controlling shareholder of the Company, and a state-owned enterprise of the PRC. Shenzhen Company is an industrial investment platform for non-aeronautical business within AVIC International.
Assets to be Acquired
The Sale Interests 2 (being 55.91% equity interest in Chengdu Ya Guang and 51% equity interest in Bi Te Communication), free from encumbrances and together with all rights now or thereinafter attached thereto.
Details regarding Chengdu Ya Guang, its associated companies and Bi Te Communication are set out in the paragraph headed “Information of the Target Group” below.
Consideration 2 and Payment Terms
Consideration 2 is RMB637,920,000 (equivalent to approximately HK$787,555,556). Consideration 2 was determined after arm’s length negotiations between the Company and Shenzhen Company on normal commercial terms with reference to a number of factors including, among other things:
(1) financial condition of the Target Companies comprising the Sale Interests 2, especially the book value and the earning of the stably operating Target Companies comprising the Sale Interests 2;
(2) market environment and comparables, which the Company believes to be undervalued;
(3) future prospect of the Target Companies comprising the Sale Interests 2, including the application of advanced technology, patents, software and military qualifications, the synergy of the Acquisitions, the expected enhancement to the Company’s position in the market and competitiveness upon completion of the Acquisition Agreement 2 and the transactions contemplated thereunder;
–12– LETTER FROM THE BOARD
(4) the strong background of AVIC International, of which Shenzhen Company is a wholly-owned subsidiary, including its historical records and global reputation, competitive advantage in government project, the domestic and global distribution networks, etc.; and
(5) confidence in the economy of and related industries in the PRC.
The Directors are of the view that Consideration 2 is fair and reasonable and in the interest of the Company and the Shareholders as a whole.
Upon completion of the Acquisition Agreement 2 and the transactions contemplated thereunder, Consideration 2 shall be satisfied by the Company issuing to Shenzhen Company the PSCS 2 in the amount of RMB637,920,000 (equivalent to approximately HK$787,555,556), convertible into 179,191,011 Conversion Shares at the initial Conversion Price of RMB3.56 (equivalent to approximately HK$4.40) per Conversion Share.
Conditions Precedent to the Acquisition Agreement 1 and the Acquisition Agreement 2
Completion of the Acquisition Agreement 1, the Acquisition Agreement 2 and the respective transactions contemplated thereunder is conditional upon, among other things, fulfillment of each of the following conditions:
(a) the Acquisition Agreement 1, the Acquisition Agreement 2 and the respective transactions contemplated thereunder (including issue of the PSCS 1 and the PSCS 2, and allotment and issue of the Conversion Shares upon conversion of the PSCS 1 and the PSCS 2) being approved by the Board, and at general meeting and class meetings of the Company by the Shareholders, respectively;
(b) AVIC International and Shenzhen Company having completed all proper internal decision-making procedures in relation to the Acquisition Agreement 1, the Acquisition Agreement 2 and the respective transactions contemplated thereunder (including issue of the PSCS 1 and the PSCS 2) in accordance with their respective articles of association;
(c) the Acquisition Agreement 1, the Acquisition Agreement 2 and the respective transactions contemplated thereunder (including issue of the PSCS 1 and the PSCS 2) being approved by the SASAC;
(d) having obtained all necessary consents and approvals from, and having made all filings with, any relevant governmental or regulatory authorities in the PRC, Hong Kong or elsewhere for the entering into and the performance of the Acquisition Agreement 1, the Acquisition Agreement 2 and the respective transactions contemplated thereunder; and
(e) satisfaction of all of the conditions of each of the Acquisition Agreement 1 and the Acquisition Agreement 2 (save and except this provision).
–13– LETTER FROM THE BOARD
As at the Latest Practicable Date, the Acquisition Agreement 1, the Acquisition Agreement 2 and the transactions contemplated thereunder have been approved by the Board, and the Acquisition Agreement 2 and the transactions contemplated thereunder have also been approved by the shareholder and the board of directors of Shenzhen Company.
If any of the above conditions is not fulfilled before 31 December 2012 (or such later date as the parties may agree in writing), the Acquisition Agreement 1 and the Acquisition Agreement 2 shall be terminated simultaneously, and none of the Company, AVIC International nor Shenzhen Company may initiate any claim against other parties pursuant to the Acquisition Agreement 1 and/or the Acquisition Agreement 2 thereafter (except for antecedent breach).
(3) The Acquisition Agreement 3
Date:
16 November 2011
Parties:
Purchaser: the Company
Vendor: Shenzhen Company
Assets to be Acquired
The Sale Interests 3 (being 316,257,000 shares of Rainbow Department Store, representing approximately 39.52% equity interest in Rainbow Department Store), free from encumbrances and together with all rights now or thereinafter attached thereto.
Shares of Rainbow Department Store is currently listed on the Shenzhen Stock Exchange. Upon the initial public offering of shares of Rainbow Department Store on 1 June 2010, Shenzhen Company has undertaken not to transfer or entrust the management of shares of Rainbow Department Store held by it prior to the initial public offering of Rainbow Department Store for a period of 36 months after the listing of shares of Rainbow Department Store, that is, from 1 June 2010 to 31 May 2013, and that Rainbow Department Store shall not repurchase such shares. The Company has undertaken to Shenzhen Company that, subject to the terms and conditions of the Acquisition Agreement 3, it will comply with and perform such undertakings in respect of the Sale Interests 3.
–14– LETTER FROM THE BOARD
As advised by the legal advisers of the Company as to PRC laws, pursuant to the Listing Rules of the Shenzhen Stock Exchange《深圳證券交易所股票上市規則》 ( ), upon the application of an initial public offering of an issuer to the Shenzhen Stock Exchange, the shareholder with a controlling stake and the actual controller shall undertake that, for a period of 36 months after the listing of shares on the Shenzhen Stock Exchange, it shall not transfer or entrust the management of shares of such issuer directly or indirectly held by it and issued prior to the initial public offering, and the issuer shall not repurchase any such shares which was directly or indirectly held by such shareholder with a controlling stake or the actual controller and issued prior to the initial public offering; after one year following the listing of shares of such issuer, upon application of the shareholder with a controlling stake or the actual controller and with the consent of the Shenzhen Stock Exchange, the aforesaid undertaking may be waived under specified circumstances, among other things, that there exists actual control relations between the transferor and the transferee, or both of them were under the control of the same controller.
Pursuant to the aforesaid requirements and the usual requirements of the Shenzhen Stock Exchange and as advised by the legal advisers of the Company as to PRC laws, the Company is required to comply with the selling restriction undertaking by Shenzhen Stock Exchange until 31 May 2013 (i.e. 36 months from 1 June 2010, being the date on which listing of Rainbow Department Store commenced on the Shenzhen Stock Exchange).
Details regarding Rainbow Department Store and its associated companies are set out in the paragraph headed “Information of the Target Group” below.
Consideration 3 and Payment Terms
Consideration 3 of RMB6,328,302,570 (equivalent to approximately HK$7,812,719,222) (calculated on the basis of RMB20.01 per share of Rainbow Department Store) was determined after arm’s length negotiations between the Company and Shenzhen Company on normal commercial terms. The consideration of RMB20.01 per share of Rainbow Department Store represents approximately 90% of the arithmetic mean of the daily weighted average price of Rainbow Department Store as quoted on the Shenzhen Stock Exchange for the last 30 consecutive trading days of the Shenzhen Stock Exchange prior to the entering into of the Acquisition Agreement 3.
The Directors are of the view that Consideration 3 is fair and reasonable and in the interest of the Company and the Shareholders as a whole.
Upon completion of the Acquisition Agreement 3 and the transactions contemplated thereunder, Consideration 3 shall be satisfied by the Company issuing to Shenzhen Company the PSCS 3 in the amount of RMB6,328,302,570 (equivalent to approximately HK$7,812,719,222), convertible into 1,777,613,081 Conversion Shares at the initial Conversion Price of RMB3.56 (equivalent to approximately HK$4.40) per Conversion Share.
–15– LETTER FROM THE BOARD
Conditions Precedent to the Acquisition Agreement 3
Completion of the Acquisition Agreement 3 and the transactions contemplated thereunder is conditional upon, among other things, fulfillment of each of the following conditions:
(a) the Acquisition Agreement 3 and the transactions contemplated thereunder (including issue of the PSCS 3 and allotment and issue of the Conversion Shares upon conversion of the PSCS 3) being approved by the Board, and at general meeting and class meetings of the Company by the Shareholders respectively;
(b) Shenzhen Company having completed all proper internal decision-making procedures in relation to the Acquisition Agreement 3 and the transactions contemplated thereunder (including issue of the PSCS 3) in accordance with its articles of association;
(c) the Acquisition Agreement 3 and the transactions contemplated thereunder (including issue of the PSCS 3) being approved by the SASAC;
(d) the Shenzhen Stock Exchange waiving the selling restrictions undertaking by Shenzhen Company in respect of the Sale Interests 3 pursuant to the Listing Rules of the Shenzhen Stock Exchange;
(e) the CSRC waiving the obligation of the Company for a general offer of shares of Rainbow Department Store arising out of the acquisition of the Sale Interests 3;
(f) trading in the shares of Rainbow Department Store on the Shenzhen Stock Exchange not being revoked or withdrawn, and the shares of Rainbow Department Store continuing to be traded on the Shenzhen Stock Exchange; and
(g) having obtained all necessary consents and approvals from, and having made all filings with, any relevant governmental or regulatory authorities in the PRC, Hong Kong or elsewhere for the entering into and performance of the Acquisition Agreement 3 and the transactions contemplated thereunder.
As at the Latest Practicable Date, each of the Board, the shareholder and the board of directors of Shenzhen Company has approved the Acquisition Agreement 3 and the transaction contemplated thereunder. The Shenzhen Stock Exchange has waived the selling restrictions undertaking by Shenzhen Company as set out in paragraph (d) above on 25 November 2011.
If any of the above conditions is not fulfilled before 31 December 2012 (or such later date as the Company and Shenzhen Company may agree in writing), the Acquisition Agreement 3 shall be terminated, and none of the Company nor Shenzhen Company may initiate any claim against the other party pursuant to the Acquisition Agreement 3 thereafter (except for antecedent breach).
–16– LETTER FROM THE BOARD
Completion of the Agreements
Completion of the Acquisition Agreement 1, the Acquisition Agreement 2 and the transactions contemplated thereunder is interconditional and shall take place simultaneously. The Acquisition Agreement 3 and the transactions contemplated thereunder shall be independent from the Acquisition Agreement 1, the Acquisition Agreement 2 and the transactions contemplated thereunder.
PSCS
The PSCS will be issued by the Company to AVIC International and Shenzhen Company, respectively, upon completion of the Agreements and the transactions contemplated thereunder pursuant to the terms and conditions under the respective Agreements. The principal terms of the PSCS are summarised as follows:
Issuer: The Company
Target subscribers: AVIC International and Shenzhen Company
Aggregate principal RMB8,277,332,570 (equivalent to approximately amount of the HK$10,218,929,099) PSCS:
Status and The PSCS constitutes direct, unsecured and subordination: subordinated obligations of the Company and ranks pari passu without any preference or priority among themselves
In the event of winding-up of the Company, the rights and claims of holder(s) of the PSCS shall (i) rank ahead of those persons whose claims are in respect of any class of share capital of the Company, (ii) be subordinated in right of payment to claims of all other present and future preference creditors of the Company, and (iii) rank pari passu with holder(s) of other perpetual subordinated convertible securities of the Company, if any, from time to time
Issue price of the 100% of the principal amount of the PSCS PSCS:
Form: The PSCS will be issued in registered form
Distribution(s): Receive distribution(s) from and including the date of issue of the relevant PSCS at the rate of distribution payable annually in arrears on 31 July each year, subject to the terms of the PSCS
–17– LETTER FROM THE BOARD
Rate of distribution: 1% per annum on any outstanding principal amount
Optional deferral of The Company may, at its sole discretion, elect to defer distribution(s): a distribution pursuant to the terms of the PSCS
Issue date: Upon the delivery of the Sale Interests 1 and the Sale Interests 2 and the registration of the Sale Interests 1 and the Sale Interests 2 under the Company’s name in the Administration of Industry and Commerce Bureau having been completed, the PSCS 1 and PSCS 2 certificates would be issued to AVIC International and Shenzhen Company pursuant to the terms of the relevant perpetual subordinated convertible securities, upon which the PSCS 1 and the PSCS 2 shall be considered as issued
Upon the delivery of the Sale Interests 3 and the registration of the Sale Interests 3 under the Company’s name having been completed, the PSCS 3 certificates would be issued to Shenzhen Company pursuant to the terms of the PSCS 3, the PSCS 3 shall be considered as issued
Maturity date: There is no maturity date
Conversion period: Conversion of the PSCS into Conversion Shares may take place at any time from the date of issue of the relevant PSCS, subject to relevant terms as provided for in the terms of the PSCS
Conversion Price: Initially RMB3.56 (equivalent to approximately HK$4.40) per Conversion Share, subject to adjustment as provided for in the terms of the PSCS
Restriction on Holder(s) of the PSCS may convert such portion of the conversion: PSCS on condition that (i) the conversion would not cause the Company to contravene provisions of the Listing Rules, including but not limited to the minimum public float requirement under the Listing Rules; and (ii) the conversion would comply with all applicable laws and regulations (including but not limited to the Listing Rules and The Hong Kong Code on Takeovers and Mergers)
–18– LETTER FROM THE BOARD
Fractional shares: Any conversion shall relate to 100 Domestic Shares or the multiple(s) thereof, and cash payment will be made by the Company to holder(s) of the PSCS in respect of any fraction relating to less than 100 Domestic Shares
Conversion Price The Conversion Price shall be subject to adjustment adjustment: for bonus issues, conversion of capital reserve and other dilutive events
Issuer’s option for On or at any time after 12 months following the date compulsory of issue of the relevant PSCS, the Company may, at its conversion: sole discretion and pursuant to the terms of the PSCS, elect to convert the relevant PSCS in whole or in part into Conversion Shares, subject to the provisions of restriction on conversion set out in the terms of the PSCS
Voting: Holder(s) of the PSCS will not be entitled to receive notice of, attend or vote at general meetings (including class meetings) of the Company by virtue of its being a holder of the PSCS
Transferability: Subject to the terms of the PSCS, including the pre-emption right set out below, and compliance with all applicable laws and regulations (including but not limited to the Listing Rules and The Hong Kong Code on Takeovers and Mergers) and laws and regulations in respect of state-owned assets, holder(s) of the PSCS may transfer the PSCS to other third parties by delivering the certificate(s) issued in respect of such PSCS, with the duly completed and signed form of transfer and registration as set out in the terms of the PSCS, to the registrar of the Company or any securities registration office specified by the Company. New certificate(s) will be issued to the transferee
–19– LETTER FROM THE BOARD
Pre-emption right: Upon any proposed transfer of the PSCS in whole or in part by holder(s) of the PSCS, the Company will, on equal terms, be entitled to a pre-emption right in respect of such PSCS that the holder(s) of the PSCS intends to transfer. The holder(s) of the PSCS should give 15-day prior written notice to the Company, whereas the Company should, subject to the requirements of the Listing Rules, decide its willingness to purchase as soon as possible and give a written reply to the holder(s) of the PSCS within 10 days. If the Listing Rules or any applicable laws and regulations prohibit the Company or its designated entities from electing to purchase the PSCS and/or from completing the purchase and cancellation of the PSCS in a specified period, the latest time for exercise of the pre-emption right may be postponed accordingly. If the Company elects not to purchase, or fails to complete the purchase after electing to purchase, the holder(s) of the PSCS may, subject to compliance with all applicable laws and regulations and the terms of the PSCS, transfer those PSCS to other third parties as approved by the Company
Conversion Shares
An aggregate of 2,325,093,417 Conversion Shares will be allotted and issued by the Company upon full conversion of the PSCS at the initial Conversion Price. Assuming there is no change in the issued share capital of the Company from the Latest Practicable Date and up to the date of allotment and issue of the Conversion Shares, the aggregate number of the Conversion Shares represents:
(a) approximately 345.29% of the issued share capital of the Company as at the Latest Practicable Date; and
(b) approximately 77.54% of the issued share capital of the Company as enlarged by the allotment and issue of the Conversion Shares upon full conversion of the PSCS at the initial Conversion Price after completion of the Acquisitions.
The Conversion Shares, when allotted and issued, will rank pari passu in all respects among themselves, and with the Domestic Shares then in issue on the day of allotment and issue of the Conversion Shares, and be entitled to all dividends and other rights attached to the Domestic Shares from the date of allotment.
–20– LETTER FROM THE BOARD
Conversion Price
The initial Conversion Price of RMB3.56 (equivalent to approximately HK$4.40) per Conversion Share was determined after arm’s length negotiations among the Company, AVIC International and Shenzhen Company, and represents:
(a) a premium of 10.00% over the closing price of HK$4.00 per H Share as quoted on the Stock Exchange on the Last Trading Day; and
(b) a premium of approximately 22.22% over the average closing price of HK$3.60 per H Share as quoted on the Stock Exchange for the last 5 consecutive trading days up to and including the Last Trading Day.
INFORMATION OF THE TARGET GROUP
The structure and details of the Target Group and their respective associated companies as at the Latest Practicable Date and immediately before completion of the Acquisitions, are set out below:
Graph 1 – Current structure of the Target Group
Aviation Industry
62.52%
AVIC International
50% 100% 90% 100% 100%
Guizhou Project Lutong Shanghai Shenzhen CATIC Engineering Company Company Company Resources Company
51% 55.91% 39.52%
Shanghai Guizhou CATIC Company Chengdu Rainbow Resources Bi Te Associated Ya Department Associated Communication Guang Companies Company Store (Note 1) (Note 2)
The Target Group Chengdu Rainbow Department Ya Guang Store Associated Associated Companies Companies (Note 3) (Note 4)
–21– LETTER FROM THE BOARD
Notes:
1. Shanghai Company Associated Companies mean:
(A) its subsidiaries as follows:
(i) Shanghai Aviation Hydraulic Machinery Company Limited (holding 75% of equity interest) (The other shareholder is Premandex Industries Limited (holding 25% of equity interest)) (Remark A);
(ii) Shanghai Gao Hang Industrial Company Limited (holding 75% of equity interest) (The other shareholder is CATIC H.K. Limited (holding 25% of equity interest));
(iii) Shanghai AVIC Auto Insurance Equipment Company Limited (holding 95% of equity interest) (The other shareholder is Shanghai Qingpu Tian Tian Le Industries Company Limited (holding 5% of equity interest)) (Remark E);
(iv) Shanghai Park Guesthouse Company Limited (holding 50% of equity interest) (The other shareholders are GREENSIDE INTERNATIONAL LIMITED (holding 40% of equity interest) and Shanghai Long Hua Real Estate Company Limited (holding 10% of equity interest));
(v) AVIC International Hangzhou Company Limited (holding 100% of equity interest);
and its subsidiary as follows:
(a) Zhejiang CATIC Economics and Trade Company Limited (holding 100% of equity interest);
and its investment companies as follows:
(a) Xi’an Lu Lu Tong Auto Modification Company Limited (holding 20% of equity interest) (Remark B);
(b) Zhejiang Tape Cartridge Factory (holding 40% of equity interest) (Remark B); and
(c) Zhejiang AVIC Knitwear Business Department (holding 20% of equity interest) (Remark B);
(vi) AVIC Ding Heng Ship Building Company Limited (holding 60% of equity interest) (The other shareholders are Top Steady Shipping Co., Ltd. (holding 15.68% of equity interest), Shanghai Ding Heng Shipping Company Limited (holding 9.90% of equity interest), Zhang Jiang Han Century Venture Capital Company Limited (holding 8% of equity interest) and Yangzhou Ding Hang Shipping Consulting Company Limited (holding 6.42% of equity interest));
(vii) United Kingdom China Products Company Limited (holding 100% of equity interest) (Remark B);
(viii) Shanghai Hao Shi Wei International Trading Company Limited (holding 100% of equity interest);
(ix) Shanghai CATIC Real Estate Development Company Limited (holding 100% of equity interest); and
–22– LETTER FROM THE BOARD
(B) its investment companies as follows:
(i) Shanghai Bao Ding Investment Company Limited (holding 0.4% of equity interest);
(ii) Shen Yin Wan Guo Securities Company Limited (holding 0.12% of equity interest);
(iii) Changjiang Economic United Development Company Limited (holding 1.08% of equity interest);
(iv) Shanghai Yue Guan Mechanical and Electrical Equipment Company Limited (holding 10% of equity interest);
(v) JINCHENG MOTORCYCLE EGYPT CO (holding 24% of equity interest) (The other shareholders are Jincheng Group Import-Export Company Limited (holding 66% of equity interest) and GHANDOUR BROTHERS CO. (holding 10% of equity interest)); and
(vi) Guotai Junan Investment Management Company Limited (holding 0.08% of equity interest).
2. Guizhou CATIC Resources Associated Company mean:
(A) its investment company as follows:
(i) Guizhou Zhongtiehang Logistics Company Limited (holding 20% of equity interest) (The other shareholders are Guizhou Gui Tie Logistics Company Limited (holding 45% of equity interest) and China Railway Materials Chengdu Company Limited (holding 35% of equity interest)).
3. Chengdu Ya Guang Associated Companies mean:
(A) its subsidiaries as follows:
(i) Chengdu Ya Rui Electronic Company Limited (holding 100% of equity interest);
(ii) Chengdu Ya Guang Investment Management Company Limited (holding 100% of equity interest);
(iii) Chengdu Xin Hua Xin Chemical Engineering Material Company Limited (holding 58.2% of equity interest) (The other shareholder is Chengdu Jiang Hai Long Investment Company Limited (holding 41.8% of equity interest));
and its subsidiary as follows:
(a) Sichuan Jing Yan Trading Company Limited (holding 100% of equity interest);
and its investment companies as follows:
(a) Chengdu Xin Hua Xin Logistics Company Limited (holding 50% of equity interest) (The other shareholder is Chengdu Jiang Hai Long Investment Company Limited (holding 15% of equity interest), Chengdu Yin Feng Heng Investment Company Limited (holding 25% of equity interest) and Sichuan Run Lin Industries Company Limited (holding 10% of equity interest));
–23– LETTER FROM THE BOARD
and its investment company as follows:
i. Chongqing Jiang Shun Logistics Company Limited (holding 30% of equity interest);
(b) Chengdu Xin Hua Xin Petrochemical Company Limited (holding 50% of equity interest) (The other shareholders are Chengdu Quan Yuan Technology Company Limited (holding 20% of equity interest), Yang Yawen (holding 20% of equity interest), Xu Hong (holding 5% of equity interest) and Chen Peng (holding 5% of equity interest));
and its subsidiary as follows:
i. Sichuan Xin Hua Xin Petrochemical Company Limited (holding 70% of equity interest) (The other shareholder is Yang Honglan (holding 30% of equity interest));
(iv) Hong Kong Yaguang Trading Development Co., Limited (holding 58% of equity interest) (The other shareholder is Jiang Wei (holding 42% of equity interest));
(v) Shenzhen Ya Guang Bank Union Technology Company Limited (holding 95.24% of equity interest) (The other shareholder is Sichuan Ya Guang Electronic Engineering Company Limited (holding 4.76% of equity interest));
and its subsidiary as follows:
(a) Shenzhen Lian Hong Electrical Equipment Company Limited (holding 100% of equity interest);
(vi) Zetex (Chengdu) Electronics Company Limited (holding 67.36% of equity interest) (The other shareholder is Chinatex Limited (holding 32.64% of equity interest)) (Remark C);
(vii) Sichuan Xin Hong Mobile Communications Equipment Company Limited (holding 75% of equity interest) (The other shareholder is Tai He Communication Hong Kong Company Limited (holding 25% of equity interest)) (Remark D);
(viii) Chengdu Xin Hong Mobile Communications Equipment Company Limited (holding 100% of equity interest);
(ix) Hebi Starwave Communications Equipment Company Limited (holding 62.65% of equity interest) (The other shareholders are Starwave Technologies, Inc. (holding 21.03% of equity interest), Xi’an High Technology Industry Risk Investment Company Limited (holding 15.52% of equity interest) and Xi’an Xing Bo Technology Investment Company Limited (holding 0.79% of equity interest)) (Remark C);
and its investment company as follows:
(a) Chengdu Starwave New Communications Equipment Company Limited (holding 40% of equity interest) (The other shareholder is Xi’an Starwave Communications Equipment Company Limited (holding 60% of equity interest, see Note 3(A)(x));
–24– LETTER FROM THE BOARD
(x) Xi’an Starwave Communications Equipment Company Limited (holding 62.65% of equity interest) (The other shareholders are Starwave Technologies, Inc. (holding 21.03% of equity interest), Xi’an High Technology Industry Risk Investment Company Limited (holding 15.52% of equity interest) and Xi’an Xing Bo Technology Investment Company Limited (holding 0.80% of equity interest)) (Remark C);
and its subsidiary as follows:
(a) Chengdu Starwave New Communications Equipment Company Limited (holding 60% of equity interest) (The other shareholder is Hebi Starwave Communications Equipment Company Limited (holding 40% of equity interest, see Note 3(A)(ix));
(B) its investment companies as follows:
(i) Chengdu Hua Guang Rui Xin Microelectronics Company Limited (holding 50% of equity interest) (The other shareholders are Mianyang Lei Di Chuang Microelectronic Technology Company Limited (holding 30% of equity interest), Wang Ren (holding 11% of equity interest), Xue Shicheng (holding 2% of equity interest), Zhou Jing (holding 2% of equity interest), Yang Shirun (holding 1% of equity interest), Zhao Xi (holding 1% of equity interest), Liu Dongmei (holding 1% of equity interest), Shi Lingtao (holding 1% of equity interest), Zhu Shigui (holding 0.5% of equity interest) and Zhao Shiyong (holding 0.5% of equity interest));
(ii) Da Er Technology (Chengdu) Company Limited (holding 5% of equity interest) (The other shareholder is Da Er Hong Kong Holdings Company Limited (holding 95% of equity interest)); and
(iii) Chengdu Ya Guang Mechanical and Electrical Equipment Company Limited (holding 49% of equity interest) (Remark D).
4. Rainbow Department Store Associated Companies mean:
(A) its subsidiaries as follows:
(i) Shenzhen Rainbow Investment Development Company Limited (holding 100% of equity interest);
and its subsidiaries as follows:
(a) Xiamen Rainbow Shopping Mall Company Limited (holding 100% of equity interest);
and its subsidiary as follows:
i. Fuzhou Rainbow Department Store Company Limited (holding 100% of equity interest); and
(b) Suzhou Rainbow Shopping Mall Company Limited (holding 100% of equity interest);
and its subsidiary as follows:
i. Changzhou Rainbow Shopping Mall Company Limited (holding 100% of equity interest); and
–25– LETTER FROM THE BOARD
(c) Zhejiang Rainbow Department Store Company Limited (holding 100% of equity interest);
and its subsidiaries as follows:
i. Huzhou Rainbow Department Store Company Limited (holding 100% of equity interest);
ii. Jiaxing Rainbow Department Store Company Limited (holding 100% of equity interest); and
(d) Beijing Rainbow Commercial Management Company Limited (holding 100% of equity interest);
and its subsidiary as follows:
i. Beijing Fashion Rainbow Department Store Company Limited (holding 100% of equity interest); and
(e) Dongguan Rainbow Shopping Mall Company Limited (holding 100% of equity interest);
(f) Dongguan Rainbow Industry and Trade Company Limited (holding 100% of equity interest);
(g) Nanchang Rainbow Shopping Mall Company Limited (holding 100% of equity interest);
and its subsidiary as follows:
i. Ganzhou Rainbow Department Store Company Limited (holding 100% of equity interest); and
(h) Changsha Rainbow Department Store Company Limited (holding 100% of equity interest);
(i) Shenzhen Wei Tian Home Electrical Appliance Repair and Maintenance Company Limited (holding 100% of equity interest);
(ii) Shenzhen Rainbow Real Estate Company Limited (holding 100% of equity interest);
and its subsidiaries as follows:
(a) Jian Rainbow Shopping Mall Company Limited (holding 100% of equity interest); and
(b) Nanchang Rainbow Properties Company Limited (holding 100% of equity interest);
(iii) Huizhou Rainbow Shopping Mall Company Limited (holding 100% of equity interest);
(iv) Shenzhen Jun Shang Department Store Company Limited (holding 100% of equity interest);
–26– LETTER FROM THE BOARD
(v) Shenzhen Gongming Rainbow Department Store Company Limited (holding 100% of equity interest); and
(vi) Shenzhen Le Di Clothing Company Limited (holding 60% of equity interest) (The other shareholder is Origo Brand Management Company Limited (holding 40% equity interest)).
Remarks:
(A) Deregistered.
(B) An Impairment loss was fully provided and was written off.
(C) These companies are subsidiaries of the respective Target Company as a result of the Target Company, directly or indirectly, holds more than half of the share capital/equity interests in these companies. These companies are consolidated either as joint venture or associated company in the accounts of the respective Target Company.
(D) In the progress of deregistration.
(E) Such 95% of equity interest in Shanghai AVIC Auto Insurance Equipment Company Limited has been listed for sale in the PRC. It is expected that the sale will be completed by the end of 2011.
(F) Certain percentage figures included in the notes above have been subject to rounding adjustment.
Principal Businesses of the Target Group
The Target Group is principally engaged in trading and logistics, electronic information and the retail sector. The businesses principally carried on by each Target Company and their respective associated companies (where applicable) are set out as follows:
Shanghai Company (and Shanghai Company Associated Companies) is principally engaged in manufacturing and trading of chemical tankers and trading of air separation equipment, etc and commodity trading.
Lutong Company is principally engaged in trading and logistics of bearings and insulating films.
Guizhou CATIC Resources (and Guizhou CATIC Resources Associated Company) is principally engaged in trading and logistics of coal.
Project Engineering Company is principally engaged in trading business of complete set of equipment and general contracting of governmental projects (Note).
Chengdu Ya Guang (and Chengdu Ya Guang Associated Companies) is principally engaged in development, production and sales of microwave circuit and microwave devices, and trading of chemical materials.
Bi Te Communication is principally engaged in development and production of military electronic communication system and products.
–27– LETTER FROM THE BOARD
Rainbow Department Store (and Rainbow Department Store Associated Companies) is principally engaged in operating department stores business and franchising concessionaires, food and household appliances sales in the PRC.
Note: Export of large-scale complete sets of equipment refers to the international public tender invitation and negotiation projects out of China regarding large-scale complete sets of equipment, including supply, design, installation, construction and after-sales service of equipment. The government projects take overseas governmental authorities as the customers, covering government and public utilities, energy, transportation, engineering, communications equipment and other fields.
Project Engineering Company will gradually take over the pertinent business of the Complete Set of Equipment Division of AVIC International, who has previously completed, among others, the following projects: power plant projects in Turkey, road and bridge building projects and mobile hospitals in Zambia, engineering machinery, higher education and drilling projects in Kenya, power plant project in Egypt, and container inspection equipment projects in Guinea, etc.
A. Trade Logistics
The Target Group’s trading and logistics business, including bulk trade, complete sets of equipment and trade-supporting logistics business, is principally performed by Shanghai Company (including, among others, its wholly-owned subsidiary, AVIC International Hangzhou Company Limited (“Hangzhou Company”)), Lutong Company, Guizhou CATIC Resources and Project Engineering Company in Shanghai, Hangzhou, Guangzhou, Chengdu, Guizhou, Jiangxi, etc. The bulk trade business mainly covers coal, bearings, insulating film and other products, and the complete sets of equipment business mainly cover vessels and air separation plants, and logistics business refers to the logistics services based on trade.
The business model of trade logistics of the Target Group is to make use of the geographic and industrial demand as well as the price difference to achieve a rapid flow of goods and value-adding in the process. The value chain includes the following three aspects: (1) supply of products: obtaining the proper products at the proper time with a low price and ensuring the continuity and exclusiveness of the supply of goods; (2) transportation and storage of products: delivering the products (including) at lower cost with higher efficiency and shorter cycle; (3) sales channels, development maintenance and distribution services: maintaining the relationship with downstream customers. The nature of and the key to profitability of the Target Group’s trade logistics business are to control capital flow and logistics. To the extent permitted by the applicable laws and regulations, pricing regarding the Target Group’s trade logistics business is determined based on relevant market supply and demand of relevant products.
–28– LETTER FROM THE BOARD
The Target Group’s trade logistics business mainly covers import and export trade. The trading business involving freight on board (FOB) and payment by letter of credit starts with importer inquiry and exporter offer. After signing the purchase contract, the importer will apply for letters of credit, charter ship, book booth and take out insurance. The exporter, upon receipt of the letter of credit, will stock and package goods, and take care of customs clearance and shipping. Subsequently, the exporter will buy bills of lading, and with which it negotiates payment with the bank. After payment is made by the bank, the exporter will settle exchange, and the importer will buy exchange and redeem the bills of lading. After receiving the goods, the importer will make declaration and formally examines the goods.
Business flow of import and export trade of Target Group
FOB (Freight On Board) Enquiry of importer Quotation of exporter CNF (Cost and Freight) CIF (Cost Insurance and Freight)
Negotiation and signing of purchase agreement (Following illustration is based on FOB and Payment through letter of credit (L/C)
Fulfillment of contract Fulfillment of contract by importer by exporter
Exporter receives Apply for issuance of L/C the letter of credit
Stocks and packaging
Renting of ship and Customs clearance slot booking Loading on board
Negotiation with bank with bill Contract of insurance of loading (B/L) for payment
Checking and payment by the bank
Buying exchange and Settlement of redeeming B/L from bank foreign currency
Receipt of goods and reporting to customs
Examination
Delivery of goods
–29– LETTER FROM THE BOARD
1. Bulk trade
1.1 Coal
The coal business of the Target Group is performed mainly by Guizhou CATIC Resources. Currently principally engaged in the coal trade, Guizhou CATIC Resources has obtained the Coal Business Qualification Certificate from the Guizhou CATIC Provincial Bureau of Energy. Guizhou CATIC Resources started its coal business in September 2010, and it had procured 128,700 tons of coals and sold 118,700 tons of them by the end of 2010. Since Guizhou CATIC Resources has involved in such business for a short time, its current market share is comparatively small.
Guizhou CATIC Resources runs its business under the traditional mode of purchase and sale, which, specifically, can be divided into the mode of direct purchase-and-sale and the mode of sale after purchase, washing and sorting. The main products of Guizhou CATIC Resources are thermal coal, clean coal and chemical coal, each of them accounting for approximately 79%, 11% and 10% of the sales of Guizhou CATIC Resources in 2010, respectively.
The competitive advantage of Guizhou CATIC Resources is that Guizhou is rich in resources, and as the coal production capacity is further released, the outbound volume will increase. Geographically, Guizhou is advantageously adjacent to five provinces which are in shortage of coal. In view of the rapid economic development in the future, it is expected that coal demand will rapidly increase and that from Guizhou will further increase.
Major suppliers and customers of coal business of Guizhou CATIC Resources
Commencement Major suppliers date Location Core business
Zhijin Clean Coal Co., Ltd. of 2010 Zhijin County, Coal washing, Guizhou Guizhou sorting and sales Zhijin Tongyuan Resource 2010 Zhijin County, Coal sales Trade Co., Ltd. of Guizhou Guizhou Qianxi Hongyida Coal Co. 2010 Qianxi County, Coal washing, Ltd. Guizhou sorting and sales Liupanshui Shengfeng Coal 2010 Liupanshui, Coal washing, Management Co., Ltd. of Guizhou sorting and Guizhou sales Liupanshui Fulida Co., Ltd. 2010 Liupanshui, Coal washing and of Guizhou Guizhou sorting
–30– LETTER FROM THE BOARD
Commencement Major customers date Location Core business
Guizhou Qianxi Power Plant 2010 Qianxi County, Electricity Guizhou generation Nayong power plant of 2010 Nayong County, Electricity Guizhou Guizhou generation Dafang power plant in 2010 Dafang County, Electricity Guizhou Guizhou generation Xinyu Iron and Steel Co., Ltd. 2010 Xinyu City, Steel Jiangxi Liuzhou Chemical Industry 2010 Liuzhou Chemical Co., Ltd. industry
Guizhou CATIC Resources, entrenched in Guizhou, will set up a Southern Coal Logistics and Trading Center in Guiyang to provide modern logistics services for coal supply and demand, and thus integrate and indirectly control the coal resources; it intends extend its business into Sichuan, Hunan, Guangxi, Guangdong and other peripheral regions, to coordinately develop coal trade, e-trading center, and coal logistics. To this end, Guizhou CATIC Resources proposes to establish a coal trade e-commerce platform and information management platform, as well as a logistics base as physical delivery warehouse.
The business model planned by Guizhou CATIC Resources
Coal circulation via a third party
Processing, storage and transport service provider: Storage railway, port, vehicle etc.
Coal processing, storage Coal Coal Coal supply Coal production Trade service provider: consumption (coal mine) information network, (consumer) trade center financial services, etc.
Information flow, capital flow, flow of exchange, flow of logistic The circulation between coal production (first party) and coal consumption (second party)
–31– LETTER FROM THE BOARD
1.2 Bearing
The bearing business of the Target Group is mainly conducted by Lutong Company.
The main upstream of the bearing business of Lutong Company is bearing manufacturer, and the downstream of railway bearing are rolling stock factory and repair factory; the downstream of universal bearing are the manufacturers in need of industrial bearings and bearings dealers. The bearing business of Lutong Company involves OEM-aided design, import procurement, storage, logistics and distribution, channeled sales and retail, of which, OEM means Original Equipment Manufacturer, while “OEM-aided design” here specifically means the downstream trader (i.e., Lutong Company) participate in the production of upstream bearing manufacturers to ensure the products meet customers needs. The general bearings and rail bearings business of Lutong Company are mainly marketed domestically. The railway bearing business of Lutong Company ranks highly in the imported bearing market segments, enjoying competitive advantage from its close relationship with China South Locomotive and China CNR. On the other hand as Lutong Company is still a new player starting its common bearing business, its market position has not been formed. It relies on the competitive advantage of the supply from trademark like NTN to rapidly expand the company’s future sales. Since its establishment, Lutong Company has sold more than 4,883 sets of railway bearings, and more than 160,000 sets of common bearings.
The flow chart of bearing business of Lutong Company
Direct sales (retail)
Storage OEM aided design Import Logistic procurement distribution
Channel sales
–32– LETTER FROM THE BOARD
Lutong Company has established a long term cooperative relationship with Japan NTN Corporation, the major supplier of bearing business on which Lutong Company relies heavily. Lutong is the first level agent of NTN. Lutong Company supplies imported bearings to the HSR projects, the harmony bullet train projects, freight trains, and urban rail transit trains. The majors customers of railway bearings products include rolling stocks and maintenance depots under China South Locomotive and China CNR, while those of common bearings are the big regional dealers and manufacturing companies in great demand.
The major suppliers and customers of bearing business of Lutong Company
Commencement Major suppliers date Location Core business
NTN China Co., Ltd. 2011 Shanghai Bearing Sales Amsted Rail International Inc 2011 United States Rail freight bearing manufacture and sale of
Commencement Major customers date Location Core business
Chengdu Locomotive & 2011 Chengdu, Sichuan Manufacture of Rolling Stock Co., Ltd of railway CSR locomotives Beijing Feb. 7th Rail 2011 Beijing Rail Transportation equipment transportation Co., Ltd. equipment manufacturing
1.3 Insulating film
The insulating film business of the Target Group is mainly taken care of by Lutong Company.
Insulating films are widely used in aviation, rail, electronics and other industries. The major upstream industry is the film manufacturing and the downstream is the manufacturer needing insulating films. Similar to the bearing business of Lutong Company, its insulating film business covers OEM-aided design, import procurement, storage, logistics and distribution and marketing. Lutong Company provides products of quality at a relatively lower price, compared to its major competitors. Since its establishment, Lutong Company has sold over 2,412.23 kg insulating film in total.
–33– LETTER FROM THE BOARD
Lutong Company is now drawing the experience from the sales of railway bearing to gradually improve the sales network and expand the business. Lutong Company is the exclusive agent of APICAL, one of the world’s largest trademark of insulating films. Lutong’s insulating film market is mainly domestic, and its major customers are manufacturers in want of large amount of insulating film in the airlines, railways, oil, wind power, electronics, iron and steel smelting industry and alike.
Major supplier and customers of insulating film business of Lutong Company
Commencement Major supplier date Location Core business
KANEKA 2011 United States Insulating film production
Commencement Major customers date Location Core business
Yueyang Zhihai Cable and 2011 Yueyang, Hunan Cable and Electromagnetic electromagnetic Co., Ltd. manufacturing Jiangsu Jujye Cable Industry 2011 Zhenjiang, Cable Co., Ltd. Jiangsu Manufacturing Jiangsu Tongguang 2011 Haimen, Jiangsu Electronic cable Optoelectronic Cable Co., manufacturing Ltd.
Considering the development of China’s high-speed railway and airline market, the demand for insulating film is expected to gradually increase in the next five years and the market potential of high-end imported insulating film is especially large. Although it has not been long since Lutong Company started the insulating film business and it is still in the market cultivation period, but relying on strong support of the customer resources within the aviation industry and factored brands, its business is promising.
–34– LETTER FROM THE BOARD
2. Complete set of equipment
The Target Group’s complete set of equipment business is mainly operated by Project Engineering Company and Shanghai Company.
Export of large-scale complete sets of equipment refers to the international public tender invitation and negotiation projects out of China in regarding large-scale complete sets of equipment, including equipment supply, design, installation, construction and after-sales service. Compared with general export, the projects of complete sets of equipment are characterised by large amount, long industrial chain, and large profit margins. They are the equipment projects and the capital projects of independent intellectual property rights, but their development cycle and construction period are very long.
Project Engineering Company was established on 28 April 2011. It will gradually take over the pertinent business of the Complete Set of Equipment Division1 of AVIC International, and is expected to expand the export of large compete sets centered around EPC (Engineering, Procurement, Construction) while maintaining the focus on governmental projects. Project Engineering Company was established recently is in the preparation stage and so far has not realised any revenue as of 30 June 2011.
2.1. Vessel
The Target Group’s vessel business is mainly conducted by Shanghai Company. Shanghai Company started the vessel trading business in 2007 and, when it merged AVIC Ding Heng Ship Building Company Limited (“AVIC Dingheng”) in July 2010, is also engaged in the chemical tanker business.
The main model of the Target Group’s vessel business is the innovative development model EPC (Engineering, Procurement, Construction). The Target Group is now setting up the vessel design center to build the core competitiveness of vessel design and debugging, in order to promote the vessel construction and assembly. Through the capital operation and project management, it formed strategic partnership of material procurement and ship building. Thanks to the interrelation among the three aspects of the EPC, a desirable situation has been achieved where design brings along trade, construction brings along marketing, and finance innovation supports the sustainable development.
1 The Complete Set of Equipment Division of AVIC International is engaged in governmental engineering project contracting (EPC) and related complete set exports. The government project customers are overseas governmental authorities. Good communication with foreign governmental authorities will be maintained during the project development and operation process. Such kind of projects involves a lot of relationships, complex operation mode, long development cycle, less market-orientation. Historically, the projects of complete set business include: power plant projects in Turkey, road and bridge projects and mobile hospitals in Zambia, engineering machinery, higher education and drilling projects in Kenya, power plant project in Egypt, and container inspection equipment projects in Guinea, involving government and public utilities, energy, transportation, engineering, communications equipment and other fields. After years of accumulation, the division enjoys a good reputation and customer base in Africa, the Middle East, Central Asia, Southeast Asia and other traditional advantageous regions.
–35– LETTER FROM THE BOARD
The model of the Target Group’s vessel business
EPC business innovation model
Engineering : vessel Procurement Construction basic design, detailed project management commission design, production design
Realize business appreciation, and develop its own features in business development, risk management, resources utilization, operation model innovation etc.
Speaking of the vessel trading agency business, Shanghai Company delivered a 3,600 DWT tanker both in February and August 2010, brought in US$30.19 million revenue of export.
AVIC Dingheng, a subsidiary of Shanghai Company is principally engaged in the construction, repair and sales of high-end chemical tankers (especially stainless steel chemical tankers), small and medium sized LPG/LNG gas carriers and other ships of special business, and its vessels are mainly used for the transportation of liquid petrochemical products, liquefied petroleum gas, natural gas, and ethylene. As of 30 June 2011, a 12,000 CBM multi-purpose gas carrier has been delivered by AVIC Dingheng, and seven chemical tankers are under construction, with a total deadweight of about 51,600 tons, and a total price of about US$162 million. The orders received in 2010 for four new vessels totaling US$67.70 million, including a multi-purpose vessel of 7,850 tons and 3 LEG/LPG/LNG series vessels of 6,500m3 have been put into work in December 2010. The vessels under construction are the 6500m3 chemical tanker, the 7,850 T multi-purpose vessel, the 8,500 tons stainless steel chemical tanker, and the 12,000 CBM multi-gas carriers.
–36– LETTER FROM THE BOARD
The major suppliers and customers of the vessel business of AVIC Dingheng
Commencement Major suppliers date Location Core business
China Aviation Industry 2010 Shanghai Ship Supply and Marketing Shanghai Corporation Jiangsu Yaye Material Trading 2010 Nanjing, Jiangsu Ship Co., Ltd. Caterpillar Motoren GmbH & 2010 Germany Marine main Co. Ltd engine Nantong Yangtze River Pipe 2010 Nantong,Jiangsu Ship Co., Ltd. AVIC International Steel 2011 Ningbo, Zhejiang Steel Trade Co., Ltd.
Commencement Major customers date Location Core business
IMSkaugen 2007 Norway Shipping Johnt Essberger 2008 Germany Shipping Anthony Veder Group 2010 Netherlands Shipping State Company for Maritime 2010 Iraq Shipping Transport
Shanghai Company sets the followings as its general target for the vessel consumers market: make efforts to seek orders from U.S. and European markets, maintain the scale and stabilize the income; gain orders from the emerging market as the main growth point; through partial financing actively seek government projects, and gain new orders and high returns through exporting buyer’s credit and making use of other financing modes.
Taking the vessel business as its core, Shanghai Company will fully integrate and take the advantages of the regional economy, overseas marketing network, financing channels, ship design, construction bases and alike in order to shift from the agent and business operator to service vessel owner which provides overall solutions to vessel projects covering design, construction, trade, lease/finance, investment, transport, information services, equipment facilities, ship repair and other aspects.
–37– LETTER FROM THE BOARD
2.2 Air separation plant (ASP)
The ASP business of the Target Group is mainly taken care of by the Hangzhou Company, subsidiary of Shanghai Company. The complete sets of equipment exported include cryogenic air separation plant, PSA air separation plants and hydrogen production equipment used for air separation and provision of oxygen, argon, nitrogen and so on to steel mills, petrochemical companies.
Hangzhou Company, since 2001 when it signed the contract for exporting the first set of air separation plant to Turkey, has signed contracts at the price of US$27.7 million for exporting a total of 16 air separation plant as of 30 June 2011, of which 9 have been delivered and 5 are in the process,. Its products have been exported to Turkey, Burma, Algeria, Turkmenistan and Iran and now gradually penetrating into to Russia, Yemen, Egypt, UAE, Ukraine, Azerbaijan and other countries. In the Turkish market, the air separation plants of Hangzhou Company account for 70% of the total share, an absolute advantage.
The major suppliers and customers of Hangzhou Company
Commencement Major suppliers date Location Core business
Dongguan Aokangde Sihong 2004 Dongguan, Textile and Knitting Co., Ltd. Guangdong apparel production Zhongtai Manufacturing Co., 2004 Yongkang, Commodity Ltd. of Yongkang, Zhejiang Zhejiang producers Huabiao Machinery Co., Ltd. 2004 Cixi, Zhejiang Mechanical parts of Cixi, Zhejiang production Xinmingli Lighting Co., Ltd. 2005 Yueqing, Zhejiang Lighting of Yueqing, Zhejiang, production Kaifeng Air Separation Group 2002 Kaifeng, Henan Oxygenerator Co., Ltd. of Henan equipment
Commencement Major customers date Location Core business
Cangsheng Photovoltaic 2010 Wuxi, Jiangsu Electrical Technology (China) Co., equipment Ltd. trade Sihong Holding (Group) Co., 1997 Hong Kong Apparel trade Ltd. MACMA 2005 Hong Kong Commodity trade SUNTEC 2006 France Mechanical parts PASARGAD STEEL CO., PJS 2008 Iran Oxygenerator
–38– LETTER FROM THE BOARD
Hangzhou Company will make full use of the good reputation and industry experience of the air separation plant business, as well as its absolute share of in the Turkey new project market, to radiate the surrounding area. Currently, the Hangzhou Company is running the air separation plant business under the EPC mode and accumulating industrial experience. It considers the BOT mode featuring lower risk and stable returns for export, or the domestic projects to enter the gas market. Namely from “selling cow” to the “selling milk”, it will change from the direct provision of equipment to the provision of gas, in order to provide a complete gas solution for iron and steel, smelting, coal chemical industry, electric power, aerospace, medical and other industries.
B. Electronic information
The electronic information business of the Target Group is operated by Bi Te Communication and Chengdu Ya Guang, of which Bi Te Communication is mainly engaged in the development and production of electronic communication systems and products, while Chengdu Ya Guang is mainly engaged in the development, production and sales of microwave circuits, microwave devices for the military and civilian markets.
1. Electronic communication system
As the China navy changes its military strategic principle in the new era, promotion of digitization, intelligentialization and integration of information transmission system and the development of seamless communications of whole frequency domain, time domain, and space domain (空域), will become the development trend of the naval communications system in the new century. The new-generation IP integrated communication platform of Bi Te Communication can greatly meet the needs of vessel communications, as well as of radar network, positioning systems.
So far, the major products (technologies) under the electronic communication systems business of Bi Te Communication, including vessel optical fiber broadband transmission switching system, base command and dispatching system, engine data sampling system, airborne time synchronizer, integrated multimedia remote terminal, new type of shortwave station fixed control system, air force emergency command vehicle and integrated active and passive plasma lightning rejection system, have been used in various armaments in China armed force, of which the vessel optical broadband transmission switching system had passed the initial sample review presided over by the Department of Communications of Naval Command in November 2001, and the first vessel equipment contract was signed in December 2003. One, two and five sets were sold respectively from 2008 to 2010, bringing in RMB12.26 million, RMB17.39 million and RMB51.62 million. At the same time, Bi Te Communication has embarked on the technology development switching from military products to civil products.
Bi Te Communication purchases goods at order point (i.e. it defines the order point, order quantity or order cycle, and highest stock level of every variety according to the demand for each variety and the lead time of order, establishes stock inspection mechanism, inspects stock, delivers the goods ordered at the order point and decides the order batch based on the required standard). In production, Bi Te Communication adopts socialized production mode. In addition to the major steps which affect the product
–39– LETTER FROM THE BOARD quality such as system debugging, software development, and complete machine function testing and experiment, most of the processing work and auxiliary equipment, parts and materials that constitute the product are outsourced or purchased. As most of the products are for military use, the purchase and order are planned and strictly controlled by the state. As a result, the major mode of product sales is planned order which accounts for 70% of the sales amount. In addition, Bi Te Communication attaches the importance of expanding production application scope and works to develop sales other than those planned.
Major suppliers and customers of Bi Te Communication’s electronic communication system
Commencement Major suppliers date Location Core business
Shenzhen Hengyingtian 2010 Shenzhen, Integrated circuit Industry Co., Ltd. Guangdong manufacturing No. 23 Research Institute of 2005 Tianjin Manufacturing of China Electronic optical Technology Corporation connector and Group optical cable Beijing Haihang Tonglian 2004 Beijing Manufacturing of Opto-electrical Technology air sockets Development Co., Ltd. Shenzhen Xunyao Electronics 2006 Shenzhen, Manufacturing of Co., Ltd. Guangdong integrated circuit Shenzhen Furuike Industry 2004 Shenzhen, Machine Co., Ltd. Guangdong processing
Commencement Major customers date Location Core business
Hudong China Shipyard 2003 Shanghai Vessel manufacturing Huangpu Shipyard 2007 Shenzhen, Vessel Guangdong manufacturing No.4808 Factory of the 2008 Qingdao, Vessel Chinese People’s Liberation Shandong manufacturing Army 716th Research Institute of 2010 Lianyungang, Dispatching desk China Shipbuilding Jiangsu manufacturing Industry Corporation No. 28 Research Institute of 2010 Nanjing, Jiangsu Dispatching desk China Electronics manufacturing Technology Group
–40– LETTER FROM THE BOARD
Production management flow chart for the electronic communication system of Bi Te Communication
Based on Production plan contract/customer Management department requirements N
Approve GM
Y Production Production preparation Production department ckecklist preparation
Single board debugging Put in production Production department and inspection record Defect Process q Quality control N Inspection point of the key Quality management department process iv e goods exam
u Y al i ty s Complete machine/system Debugging Production department debugging u per
Y i vi nat
s N i i on and control Test report Finished product on Quality management department inspection Y
Customer N Quality certificate Quality management department Y confirmation
Installation document, packaging checklist, Packaging Production department enclosed document and resume
N Inspection Quality management department Y Lead sealing
Handle warehouse Production department formalities
Quality management department Delivery Production department
–41– LETTER FROM THE BOARD
Production process flow chart for the electronic communication system of Bi Te Communication
Preparation of labor, funds and resources
Raw material purchase Outsourcing of printed circuit boards Outsourcing of structural parts
Test 1 Test 1
Raw material warehouse
Preparation of printed circuit Preparation boards and component of wire
Outward assembly Further processing Check of single board of wire
Test 1 Quality inspection record Key Single board debugging
Semi-finished product warehouse
Complete machine assembly
Complete machine debugging
Complete machine Check sophistication check
Complete Quality machine testing inspection record Legends：
Finished product warehouse Material preparation
Preparation complete machine Test packaging material and accessories Operation
Check Packaging Warehouse
Key process Delivery
In the aspect of electronic communication system, Bi Te Communication already has 7 registered software, such as dispatching software V1.2 for command and dispatching system, SDH622 optical transmission board control software V1.0, network management software V1.0 for optical broadband transmission and switching system, Ethernet control board software V1.0 for optical broadband transmission and switching system, data collection display system software, MPU board software for optical broadband transmission and switching system.
–42– LETTER FROM THE BOARD
2. Microwave circuit and components
With a history of 46 years, Chengdu Ya Guang is a professional manufacturer which develops and manufactures small-signal/switching triode, microwave diode and microwave hybrid integrated circuit/microwave detector. It advocates leading technology and high added value. In the area of microwave hybrid integrated circuit, its frequency mixer, power divider, front-end receiver and control circuit reach the domestic highest level. The millimeter wave circuit reaches the national advanced level. In the areas of microwave diode and small-signal/switching triode, both equipment and technology rank front row in the country.
The military product demand for microwave circuit of Chengdu Ya Guang is high. This helps Chengdu Ya Guang to keep batches of orders and face the needs of research and development. In the field of microwave components, more than 95% in the market are imported, which leaves a huge market space for Chengdu Ya Guang. Advocating the guiding concept of “taking users as the guidance, innovation as the core and technological reform as the foundation and promoting development through application”, adhering to the policies of giving priority to military products while taking into account the civilian goods and sticking to the development road featured by high technology, high added value and scale are the advantages of Chengdu Ya Guang. Chengdu Ya Guang is the only domestic factory which produces microwave diode, accounting for 30% shares of China’s microwave diode market. As a manufacturer which producing military-used electronic components, microwave components and microwave circuit, Chengdu Ya Guang is one of the top three units in China, together with the No. 13 Research Institute of CETC and No. 55 Research Institute of CETC, which is known as “two institutes and one factory”.
The product range of microwave circuit and components covers all the solid state microwave circuits except antenna in the microwave system, including microwave diode, microcircuit, microwave hybrid integrated circuit and microwave monolithic integrated circuit and other major auxiliary products given to all the domestic manufacturers of military machine. The microwave circuit is widely used in communication, radar, remote control and telemetering, electronic countermeasure, aviation, electronics, mobile communication, radio and TV, transportation and public communication. The demand for microwave circuit is high and growing rapidly. In 2009, Chengdu Ya Guang’s sold 724,200 units of microwave circuits and components. In 2010, as the product structure changed, it sold 563,500 units of microwave circuits and components.
–43– LETTER FROM THE BOARD
Major suppliers and customers of Chengdu Ya Guang microwave circuit and components
Commencement Major suppliers date Location Core business
Agilent More than 10 years US Microwave testing equipment R/S More than 10 years Germany Microwave testing equipment M/A-com More than 10 years US Semiconductor chip and microwave components Hittite More than 10 years US Microwave semiconductor components Analog Devices More than 10 years US Semiconductor components
Commencement Major customers date Location Core business
No. 14 Research More than 10 years Nanjing, Microwave circuit Institute of CETC Jiangsu and components Sichuan Jingyan 2007 Chengdu, Chemicals Trading Co., Ltd. Sichuan No. 10 Research More than 10 years Chengdu, Microwave circuit Institute of CETC Sichuan and components No. 29 Research More than 10 years Chengdu, Microwave circuit Institute of CETC Sichuan and components Changfeng More than 10 years Lanzhou, Microwave circuit State-owned Gansu and components Machine Factory No. 36 Research More than 10 years Jiaxing, Microwave circuit Institute of CETC Zhejiang and components No. 504 Institute of More than 10 years Xi’an, Microwave circuit China Aerospace Shaanxi and components Science and Technology Corporation Guizhou Aerospace More than 10 years Guiyang, Microwave circuit Electronic Guizhou and components Technology Co., Ltd.
–44– LETTER FROM THE BOARD
Chengdu Ya Guang has four patents, including X wave high-precision digital attenuator, broadband microwave high-power limiter, S wave MCM four-digit phase shifter switch unit and stripline resonator and microwave film material electromagnetic parameters testing device.
The period of “12th Five-Year Plan” is crucial to the development of China’s national defense industry. During this period, a new breakthrough will be seen in a batch of world-level military components in China’s national defense industry. China’s national defense industry will make a breakthrough in a group of major military components and bring these components to the world level. At the same time, Chengdu Ya Guang will face a situation of different features: (1) The rapid development of the new and high technology which takes electronic information technology as the representative and the varied technological innovations will push the sustainable and rapid growth of the national economy; (2) The development of international situation and new war mode highlights the importance of electronic information, which provides wider development and application space for military electronic components; (3) The domestic demand for military goods will sustain at a high level and the market of electronic products for military use will have a huge development potential; (4) The electronic information technology will develop towards high frequency (high speed), digitalization, intellectualization, miniaturization and low cost, which direct the development of electronic information industry. Chengdu Ya Guang is fully aware of the opportunities and challenges to be brought by the situation change, and has proposed key development projects for microwave diode, crystal triode, microwave circuit and components.
C. Retailing of general merchandise
Rainbow Department Store is principally engage for the retailing of the general merchandise of Target Group. It is a well known domestic chain department store and one of the chain department stores which has the most stores in China. Since its establishment in 1984, Rainbow Department Store has been engaged in retailing business, its principal business has not changed so far. Rainbow Department Store has been listed as one of the Chinese top 100 chain enterprises for 10 years, as well as the chain department store which has the highest sales and most stores in Shenzhen and Guangdong regions. In 2010, it went public in Shenzhen Stock Exchange with the stock code of 002419.
So far, it has set up 41 self-operated chain department stores in the name of “Rainbow” in 14 cities, such as Shenzhen, Xiamen, Nanchang, Fuzhou, Changsha, Hangzhou, Suzhou, Beijing and Changzhou with a total business area of more than one million square meters; in addition, it established one self-operated chain department store in the name of “Dreams-on” with a business area of 37,800 square meters; three department stores are managed in the form of franchising.
–45– LETTER FROM THE BOARD
The 42 Self-operated chain department stores
Time of No. Department store establishment City
1 Rainbow Department Store, Jiangda, Nanchang 2002.6 Nanchang 2 Rainbow Department Store, Zhongshan Road, 2007.4 Nanchang Nanchang 3 Rainbow Department Store, Honggu, Nanchang 2009.8 Nanchang 4 Rainbow Department Store, Huiteng, Xiamen 2003.4 Xiamen 5 Xiamen Daxiyang Rainbow Department Store 2007.1 Xiamen 6 Huizhou Rainbow Department Store 2005.8 Huizhou 7 Huiyang Rainbow Department Store 2009.9 Huiyang 8 Rainbow Department Store, Xiaoshan, Hangzhou 2008.12 Hangzhou 9 Rainbow Department Store, Huzhou 2010.9 Huzhou 10 Rainbow Department Store, Liyang 2011.1 Liyang 11 Rainbow Department Store, Jiaxing 2006.3 Jiaxing 12 Rainbow Department Store, Fuzhou 2006.7 Fuzhou 13 Rainbow Department Store, Furong, Changsha 2008.12 Changsha 14 Rainbow Department Store, Jinji Lake, Suzhou 2009.4 Suzhou 15 Rainbow Department Store, Xuanwu, Beijing 2009.4 Beijing 16 Guozhan Rainbow Department Store, Beijing 2010.4 Beijing 17 Fumin Rainbow Department Store 2002.11 Shenzhen 18 Chuangye Rainbow Department Store 2002.11 Shenzhen 19 Longhuatian Rainbow Department Store 2002.11 Shenzhen 20 Changxing Rainbow Department Store 2003.1 Shenzhen 21 Longxin Rainbow Department Store 2003.12 Shenzhen 22 Dreams-on Department Store 2010.11 Shenzhen 23 Shuanglong Rainbow Department Store 2005.2 Shenzhen 24 Shajing Rainbow Department Store 2004.5 Shenzhen 25 Buji Rainbow Department Store 2004.5 Shenzhen 26 Dongmen Rainbow Department Store 2005.6 Shenzhen 27 Jianjin Rainbow Department Store 2006.1 Shenzhen 28 Songgang Rainbow Department Store 2006.1 Shenzhen 29 Xili Rainbow Department Store 2006.1 Shenzhen 30 Guanglan Rainbow Department Store 2007.1 Shenzhen 31 Shennan Rainbow Department Store 2007.11 Shenzhen 32 Minzhi Rainbow Department Store 2007.11 Shenzhen 33 Huohai Rainbow Department Store 2007.11 Shenzhen 34 Shahe Rainbow Department Store 2008.6 Shenzhen 35 Guomao Rainbow Department Store 2008.12 Shenzhen 36 Henggang Rainbow Department Store 2010.12 Shenzhen 37 Rainbow Department Store, Dongzong, 2004.9 Dongguan Dongguan
–46– LETTER FROM THE BOARD
Time of No. Department store establishment City
38 Rainbow Department Store, Changping, 2005.8 Dongguan Dongguan 39 Rainbow Department Store, Chang’an, Dongguan 2007.12 Dongguan 40 Rainbow Department Store, Huangjiang, 2010.4 Dongguan Dongguan 41 Rainbow Department Store, Huojie, Dongguan 2010.8 Dongguan 42 Gongming Rainbow Department Store, Shenzhen 2010.4 Shenzhen
Rainbow Department Store is principally engaged in retailing general merchandise and has developed itself into chain store from single store model. It adopts dual brand strategy – “Rainbow” and “Dreams-on”. The positioning of the brand “Rainbow” lies in middle and high-end department store. It aims to pass the core value of “amiability, trust and life” onto customers with the slogan – “share the happiness of life”. Residents with middle and high income in the economically developed regions are the target group. The operation mode is made according to the different customer demands with slight difference in the market positioning strategies between community department store and urban department store. In the strategy of the brand “Rainbow”, the department stores located in the urban area are used to build the commercial standing, while those located in the communities are used to maintain the market share. Generally, cluster development is applied to fully bring into play the scale advantage of chain-store operation. The positioning of the brand “Dreams-on” lies in high-end department store. It aims to pass the core value of “enterprising, successful and graceful” onto customers with the slogan of “endless achievement”. In the strategy of the brand “Dreams-on”, the purpose of this brand is to expand the company’s development space, satisfy the market’s high-end consumption needs, enhance the company’s attractiveness to high-end brand suppliers, and improve the company’s overall market status according to the competition strategy and high-end market needs development. In 2010, the existing Rainbow Department Plaza in Shenzhen has been upgraded to “Dreams-on” Department Store.
Rainbow Department Store is the pioneer of the composite mode of “department store + supermarket + X”. It improves the status and role of supermarket and other related business patterns in the department store and enhances the level of the supermarket to allow it to share the customers with the department store. In addition, it makes a flexible arrangement for the “X” part (such as appliance, furniture, and catering, etc.) according to the customer demands and the competitor situation. The flexible business composite mode adopted by Rainbow Department Store strengthens the synergistic effect among business patterns and offers “one-stop” service to meet the customers’needs.
–47– LETTER FROM THE BOARD
Rainbow Department Store has two operation modes – “concessionaire mode” and “self-operated sale mode”. It sells general merchandise, supermarket products and electrical appliance. The general merchandise are generally sold in the concessionaire while the supermarket products and electrical appliance are sold in both self-operated outlets and concessionaires. (1) Concessionaire (franchising) mode is the mainstream operation mode in China’s department industry as well as a cooperative operation mode between Rainbow Department Store and suppliers. In this mode, Rainbow Department Store is responsible for providing place, formulating marketing plan and service regulations and maintaining customer relation, while the supplier is responsible for product distribution, display and promotion and field service. In addition, supplier is also responsible for setting up its brand outlet in Rainbow Department Store’s designated place, designing, decorating, arranging, repairing, maintaining the outlet according to the Rainbow Department Store’s requirements and hiring salesmen. Product purchase and sales and stock management are also the responsibilities of the supplier. The products still belong to the supplier before they are sold and Rainbow Department will not take any risks regarding price falling or loss. After the products are sold, the gain of sales is allocated based on the contracted proportion in turnover. (2) Self-operated sale mode means the products are resold by Rainbow Department Store upon purchase. The profit of this mode comes from the purchase and sale price differential of the products. Supermarket goods and electrical appliance are the two main product categories in Rainbow Department Store’s self-operated sale mode. In sales pricing, Rainbow Department Store fixes the price and ensures the effective implementation of product pricing policy based on the research of the change of the market price and self-positioning, and through the standardized price management procedure system and market price supervision mechanism. According to the agreement made between Rainbow and supplier, supplier can decide the retail price of the products and services sold or offered in the outlet and submit the price to the Rainbow Department Store for auditing and record. For the products of self-operated sale, Rainbow Department Store will conduct a market investigation on their prices regularly and pay special attention to the highly sensitive prices, such as food price and prices for daily goods. To ensure the prices are competitive in the market, Rainbow Department Store reaches a consensus with the some suppliers in the purchase contracts that Rainbow Department Store shall enjoy the same treatment while they are giving special offer or conducting other promotion activities in other department stores in the same city, and when the retail prices of the products of self-operated sale in the market change, Rainbow Department Store shall adjust the retail prices and purchase prices with the supplier.
–48– LETTER FROM THE BOARD
Information of the purchase made by Rainbow Department Store with the five largest suppliers in the latest three years
Proportion of Purchase main business Year amount cost (RMB10,000)
2010 60,610.2 6.07% 2009 55,465.0 8.59% 2008 54,978.8 10.59%
Information of the purchase made by Rainbow Department Store with the affiliated parties in 2010
2010 Proportion of the similar Company name Item Pricing policy Amount transactions (RMB10,000)
Shenzhen Fiyta Holdings Product of the Market price 1,329.9 0.17% Ltd. department store Shenzhen Harmony Product of the Market price 3,046.6 0.39% World Watch Center department store Shenzhen Company Product of the Market price 3.77 0.00% department store Shenzhen CATIC Trade Product of the Market price 196.4 0.03% Co., Ltd. department store
Rainbow Department Store will adhere to the development principle of “effective expansion and sustainable development” and follow the development layout strategy of “promoting rapid development in South China, Southeast China and Central China, maintaining steady development in East China and North China and extending the business to Southwest China and Northwest China”. It will continue to implement the dual brand strategy and gradually form the business mode of “taking tangible chain retain as the core and e-commerce and brand agency as the wings”.
–49– LETTER FROM THE BOARD
LEGAL AND REGULATORY REQUIREMENTS
Set out below are the summary of relevant laws and regulations in the PRC relating to the business principally carried out by members of the Target Group:
I. Regulations on the Trade Logistics Business
1. The Rules for Record Filing and Registration of External Trade Operators
According to the Foreign Trade Law of the People’s Republic of China (PRC)《中華人民共和國對外貿易法》 ( ) passed by the Standing Committee of the National People’s Congress of the PRC which became effective from 1 July 2004 and the Measures for the Record Filing and Registration of Foreign Trade Operators《對外貿易經營者備案登記辦法》 ( ) promulgated by the Ministry of Commerce which took effect on 1 July 2004, foreign trade operators that engage in the import and export of goods or technology shall proceed with the record filing and registration with the administrative department (except for those not required for the record filing and registration as stipulated by the PRC laws, administrative regulations and Ministry of Commerce (MOFCOM) or delegated institution MOFCOM.)
2. Licensing the Import and Export of Goods
According to the Foreign Trade Law of the PRC《中華人民共和國對外 ( 貿易法》) and the Administration Measures on goods import license《貨物進 ( 口許可證管理辦法》) promulgated by the Ministry of Commerce which became effective on 1 January 2005 and the Administration Measures on goods export license《貨物出口許可證管理辦法》 ( ) promulgated by the MOFCOM which became effective from 1 July 2008, it is permitted in the PRC to freely import and export goods and technology unless otherwise required by the laws and administrative regulations. The PRC imposes the administration of import licence on those goods limited for import and the administration of export licence on those goods limited for export.
3. The Declaration Registration Certificate of the Customs for the Consignor or Consignee of Imported or Exported Goods
According to the Provisions of the Custom of the PRC for the Administration of Registration of Declaration Entities《中華人民共和國海關 ( 對報關單位註冊登記管理規定》) promulgated by the General Administration of Customs which became effective from 1 June 2005, consignors or consignees of imported or exported goods shall register with the customs of the place where it is located. After registering with customs authorities, consignors or consignees of imported or exported goods may handle their own declarations at any customs port or any locality where customs supervisory affairs are handled within the customs territory of the PRC.
–50– LETTER FROM THE BOARD
4. Qualification for Engaging in Coal Operation
According to the Measures for Administration of Coal Operation (《煤炭經營監管辦法》) promulgated by the National Development and Reform Commission, which became effective on 26 January 2005, the PRC has in place a system to probe into the qualification for engaging in coal operation by those enterprises engaged in the wholesale and retailing of raw coal and related processed products as well as the processing and distribution of civilian-typed coal products. Those enterprises engaged in the establishment of coal operation shall be subject to investigation of qualification for coal operations.
5. Operating License for Hazardous Chemicals
Pursuant to the Measures for the Administration of Operating Licenses for Hazardous Chemicals《危險化學品經營許可證管理辦法》 ( ) and the Safety Administration of Hazardous Chemicals《危險化學品安全管理條例》 ( ) promulgated by the National Economic and Trade Commission, the PRC authority administers the licensing system of operation and sales of hazardous chemicals. An entity that engages in the operation and sales of hazardous chemicals shall obtain the operating license for hazardous chemicals (hereinafter referred as “Operating License”) according to the law and apply for registration with the Administration for Industry and Commerce based on the Operating License in compliance with the law. There are two types of Operating License: Type A and Type B. An entity which obtained Type A Operating License shall be engaged in the operation and sales of highly toxic chemicals and other hazardous chemicals. An entity which obtained Type B Operating License shall only be engaged in the operation and sales of hazardous chemicals other than highly toxic chemicals.
II. Regulations on the Electronic Manufacturing Business
According to the Measures for the Implementation of the Scientific Research and Production Licensing of Arms and Equipment《武器裝備科研生產許可實施辦 ( 法》) promulgated by the Ministry of Industry and Information Technology of the People’s Republic of China, which became effective on 10 May 2010, an entity that engages in the activities of the scientific research and production of arms and equipment under the Catalogue of Scientific Research and Production Licensing of Arms and Equipment shall obtain the production license; that without the license of Scientific Research and Production of Arms and Equipment shall not engages in the activities of scientific research and production of arms and equipment under the licensing catalogue. However, those which are approved by the State Council and the Central Military Commission as well as those which are specialized in the activities of scientific research and production of arms and equipment shall be excluded.
–51– LETTER FROM THE BOARD
III. Regulations on the retailing business
According to the relevant laws and regulations, relevant permits must be obtained in respect of engaging in the sales of specific commodities in the PRC:
1. Tobacco Sales Permit
According to Law of the PRC on Tobacco Monopoly《中華人民共和國煙 ( 草專賣法》) passed by the Standing Committee of the National People’s Congress of the PRC which became effective from 1 January 1992, the Regulation for the Implementation of the law of the PRC on Tobacco Monopoly《中華人民共和國煙草專賣法實施條例》 ( ) promulgated by the State Council which took effect on 3 July 1997, and the Measures for the Administration of Tobacco Monopoly Licenses《煙草專賣許可證管理辦法》 ( ) promulgated by the National Economic and Trade Commission which implemented from 7 March 2007, the citizens, corporate or other bodies which are engaged in the production, wholesale, retailing and import and export business of tobacco monopoly commodities shall apply the tobacco sales permit with the competent authorities responsible for the administration of tobacco monopoly. There are four types of permit including Tobacco Monopoly Manufacturing Business Permit (煙草專賣生產企業許可證), Tobacco Monopoly Wholesale Business Permit (煙草專賣批發企業許可證), Special Tobacco Monopoly Business Permit (特種煙草專賣經營企業許可證) and Tobacco Monopoly Retail Business Permit (煙草專賣零售許可證).
2. Record Filing of the Alcohol Circulation Registration
According to the Measures for the Administration of Alcohol Circulation《酒類流通管理辦法》 ( ) promulgated by the Ministry of Commerce which became effective on 1 January 2006, entities or individuals that engage in the wholesale and retailing of alcohols shall, within 60 days after obtaining the business license, complete the record filing and registration procedures with the industry and commerce administration department which shares the same grade with the competent authority in the registration place.
3. Salt Retail Permit
According to the Regulations for the Management of Salt Industry promulgated by the State Council which took effect on 2 March 1990 and the relevant local regulations in respect to the management of salt industry, entities that engage in retail of salt shall obtain the salt retail permit.
–52– LETTER FROM THE BOARD
4. Operation Permit for Publications
According to the Regulations on the Administration of the Publications Market《出版物市場管理規定》 ( ) promulgated by the General Administration of Press and Publication of the PRC (“GAPP”) which became effective on 1 July 2004, an enterprise that engages in publication retailing business shall apply for the Operation Permit for Publications (出版物經營許可證) with the local government of country level responsible for the administration of press and publication.
5. Audiovisual Products Operation Permit
Pursuant to the Regulations on the Administration of Audio-visual Products《音像製品管理條例》 ( ) promulgated by the State Council which took effect on 19 March 2011, an enterprise that engages in audiovisual retailing business shall apply for the Operation Permit for Audiovisual Products (音像 製品經營許可證) with the local government of country level responsible for the administration of publication.
6. Drugs Operation Permit
Pursuant to the Drug Administration Law of the PRC《中華人民共和國 ( 藥品管理法》) passed by the Standing Committee of the National People’s Congress of the PRC which became effective from 1 December 2001, the establishment of a drug retailer shall be subject to approval and be granted the Drugs Operation Permit (藥品經營許可證) from the local drug regulatory department or above the county level and complete the registration with the industry and commerce administration department upon the issue of Drugs Operation Permit.
IV. Medical Device Distribution Enterprise License《醫療器械經營企業許可證》 ( )
According to the Regulations for the Supervision and Administration of Medical Devices《醫療器械監督管理條例》 ( ) which took effect on 1 April 2000 and Rules on Administration of License for Business Dealing in Medical Equipment (《醫療器械經營企業許可證管理辦法》) passed by State Council which took effect on 9 August 2004, enterprises that engage in the medical devices activities shall file with the drug regulatory authorities of people’s government of provinces, autonomous regions and municipalities. Enterprises that engage in the operation of the second and third types of medical devices shall be subject to the inspection and approval by the drug regulatory authorities of people’s government of provinces, autonomous regions and municipalities and be issued the Medical Device Distribution Enterprise License《醫療器械經營企業許可證》 ( ).
–53– LETTER FROM THE BOARD
LICENCES, APPROVAL AND SIMILAR RIGHTS
Set out below are the key licences, approval or similar rights acquired by members of the Target Group for carrying on its existing businesses:
Name of Companies Certificates Particulars Expiry Date
Chengdu Ya Guang Class II Confidential Quality Unit – 14 October 2015 License (二級保密資格單位證書) Military Product Quality System Design, development, production and 27 May 2012 License service of semiconductor triode, microwave diode, microwave integrated circuit and its components. Equipment Manufacturer Registered – February 2014 Certificate (裝備承制單位註冊證書) Certification of Manufactory Microwave control circuit production 15 May 2012 Production Line of QPL Military line passed the accreditation. Electronics Elements (軍用電子元器件 製造廠生產線認證) (note 1) License for the Scientific Research and Scientific research and production task 28 June 2012 Production of Military Electronic profession: 4 Equipment (軍工電子裝備科研生產 許可證) (note 1) Security and Protection Engineering First class 14 April 2012 Enterprise Qualification Certificate (安防工程企業資質證書) (note 1) Design, Installation, Maintenance and First class 1 June 2012 Operation of Public Security Technology Prevention System in Sichuan Province (note 1) Operation License for Hazardous Wholesale (only for transactions of 23 February 2013 Chemicals (危險化學品經營許可證) notes and no storage for physical objects and samples) Operating License for Hazardous Wholesale and retail 27 January 2013 Chemicals (危險化學品經營許可證) Quality Management System September 2013 Certificate (質量管理體系認證證書) Certificate for China Compulsory KZF8C burglar-alarm control units 14 February 2016 Product Certification (中國國家強制 性產品認證證書) Certificate for China Compulsory Security technology product-intrusion 28 December 2014 Product Certification (中國國家強制 detector (indoor Doppler microwave 性產品認證證書) detector, active infrared intrusion detector, indoor passive infrared detector, integrated microwave and passive infrared intrusion detector)
–54– LETTER FROM THE BOARD
Name of Companies Certificates Particulars Expiry Date
Chengdu Xin Hua Xin Operation License for Hazardous Engaged in the business of hazardous 24 February 2012 Petrochemical Company Chemicals (危險化學品經營許可證) chemicals Limited (note 1) Certificate of Filing for Operation of Group 3: methylbenzene, acetone, 16 June 2012 non-pharmaceutical and Easily methyl ethyl ketone Produced Toxic Chemicals (非藥品類易制毒化學品經營備案證明) (note 1)
Shenzhen Ya Guang Bank Union Qualification Certificate of Design, Design, construction and maintenance 25 June 2012 Technology Company Limited Construction and Maintenance of the security technology system (設計、施工、維修資格證) (note 1) Quality Management System Design, construction and service of the 21 March 2012 Certificate (質量管理體系認證證書) security system and the quality (note 1) management system established conform with the Standard: GB/T19001-2000 (idt ISO9001:2000)
Rainbow Department Store Hygiene Permit (衛生許可證) (note 1) Wholesale of health food (only for the 30 October 2012 health food under the brand name of “康富來”#) Operation License for Publications Retail sales of books and publications 31 December 2012 (出版物經營許可證) (note 1) Operation License for Audio-visual Retail sales of audio-visual products 23 April 2020 Products (音像製品經營許可證)
Huizhou Rainbow Shopping Mall Market Registration Dry and fresh vegetables, dry and – Company Limited fresh fruit, poultry, grain (including paddy, corn, rice, wheat), meat, foodstuff, seafood, egg, fat and oil, general merchandise, plastic, cultural and entertainment products, clothing retail Guangdong Province Alcohol Retail Engaged in alcohol retail business – Permit (廣東省酒類零售許可證) Hygiene Permit (衛生許可證) Health food retail 30 May 2014 Food Hygiene Permit (食品衛生許可證) Food retail 13 May 2013 Table Salt Retail Permit Retail sales of small packets of iodic – (食鹽零售許可證) table salt
Beijing Rainbow Commercial Hygiene Permit (衛生許可證) – 15 September 2013 Management Company Limited Alcohol Circulation Registration Retail of baijiu (白酒), beer, wine, – (酒類流通備案登記表) huangjiu (黃酒), fruit wine, imported wine, other wines
–55– LETTER FROM THE BOARD
Name of Companies Certificates Particulars Expiry Date
Beijing Fashion Rainbow Food Hygiene Permit (食物衛生許可證) Health food operation 11 April 2014 Department Store Company Food Circulation Permit Retail of packed food, unpacked food 12 April 2013 Limited (食品流通許可證) (including cooked food; on-the-spot production; roasted goods, main meal) Alcohol Circulation Registration Retail of baijiu (白酒), beer, wine, – (酒類流通備案登記表) huangjiu (黃酒), fruit wine, imported wine, other wines
Suzhou Rainbow Shopping Mall Hygiene Permit (衛生許可證) Shopping Mall service; beauty service; 17 March 2014 Company Limited children entertainment activity; sports activity Food Circulation Permit Operation Project: Packed food and 18 July 2014 (食品流通許可證) unpacked food, milk products (including formulated baby milk powder); Operation Mode: Retail Medical Device Operation Enterprise Business Scope: Three types of medical 12 July 2014 Permit (醫療器械經營企業許可證) device: soft contact lenses and solution Cigarette Monopoly Permit Cigarette, Cigar 30 April 2015 (煙草專賣零售許可證)
Changsha Rainbow Department Table Salt Retail Permit Sales District: Tianxin District (天心區); 18 June 2012 Store Company Limited (食鹽零售許可證) (Note 1) Procurement Channel: 長沙市鹽業公司 Hunan Province Alcohol Retail Sales of Alcohol – Registration (湖南省酒類零售備案 登記表)
Fuzhou Rainbow Department Operation License for Publications Retail sales of electronic publications 31 December 2012 Store Company Limited (出版物經營許可證) (Note 1) Operation License for Publications Books and retail 31 December 2012 (出版物經營許可證) (Note 1) Alcohol Circulation Registration Retail (supermarket) of baijiu (白酒), – (酒類流通備案登記表) beer, wine, huangjiu (黃酒), fruit wine, imported wine, other wines Operation License for Audio-visual Retail sales of audio-visual products 31 December 2012 Products (音像製品經營許可證) (Note 1)
–56– LETTER FROM THE BOARD
Name of Companies Certificates Particulars Expiry Date
Jiaxing Rainbow Department Pollutants Discharge Permit Pollutants Control Facilities: Oil-Free 30 July 2013 Store Company Limited (排放污染物許可證) Treatment Facilities; Sewage Discharge: into network of sewage pipeline in city Cigarette Monopoly Sales Permit Cigarette, Cigar 26 September 2012 (煙草專賣零售許可證) (Note 1)
Dougguan Rainbow Shopping Operation License for Audio-visual Retail sales of domestic audio-visual 30 December 2019 Mall Company Limited Products (音像製品經營許可證) products Food Hygiene Permit (食物衛生許可證) Food retail and sales and production of 16 November 2012 (Note 1) preserved meat, roasted meat, Chinese assorted pastries, Western cakes (including decorated cake), Chinese fastfood (excluding cold dish, roasted, preserved and cooked meat), soya bean milk, tea and noodles Guangdong Province Alcohol Retail Authorized category: alcohol 12 November 2013 Permit (廣東省酒類零售許可證) Cigarette Monopoly Sales Permit Cigarette retail 11 November 2014 (煙草專賣零售許可證) Table Salt Retail Permit Purchase and retail of table salt 13 August 2015 (食鹽零售許可證) according to law Hygiene License for Public Place Licensed Project: Shopping Mall 19 December 2012 (公共場所衛生許可證) (Note 1) RMB Operation Circulation Permit –– (經營流通人民幣許可證) GD FDA Hygiene Permit (衛生許可證) Health food retail 17 April 2013
Xiamen Rainbow Shopping Mall Cigarette Monopoly Sales Permit Shop retail (Cigarette, Cigar) 31 December 2013 Company Limited (煙草專賣零售許可證) Xiamen Shi Alcoholic Products Retail Baijiu (白酒), imported white wine, – Registration (廈門市酒類商品 fruit wine, imported fruit wine, beer, 零售登記證) imported beer, health wine, Huangjiu (黃酒), imported whisky, imported brandy
–57– LETTER FROM THE BOARD
Name of Companies Certificates Particulars Expiry Date
Shanghai Company Certificate of Custom Import and Operating general goods importation 13 March 2014 Export Clearance and Registration and exportation excluding those 16 (海關進出口貨物收發貨人報關註冊 exportation goods and 12 登記證書) importation goods that only open to government designated organizations. Operating the Sino-foreign joint venture, “Three-plus-one” business, techniques importation and exportation, counter trade and transit trade, contractor for oversea engineering work and projects under international tender in China; import and export of equipment and material required by the aforesaid oversea projects; the dispatch of workers required for the implementation of the aforesaid overseas projects (with regard to the operations subject to administrative permission, operate the business based on the relevant operation permit) Registration Form of Record for –– Foreign Trade Operators (對外貿易經營者備案登記表)
Shanghai Gao Hang Industrial Road Transport License Operation Scope: General forwarding 28 February 2012 Company Limited (道路運輸經營許可證) (Note 1) Certificate of Import and Export – 17 February 2014 Clearance and Registration (進出口貨物收發貨人報關註冊 登記證書) Registration Form of Record for –– Foreign Trade Operators (對外貿易經營者備案登記表)
Shanghai Hao Shi Wei Registration Form of Record for Registration Record – International Trading Company Foreign Trade Operators Limited (對外貿易經營者備案登記表)
–58– LETTER FROM THE BOARD
Name of Companies Certificates Particulars Expiry Date
AVIC International Hangzhou Certificate of PRC Custom Import and Operating import and export business 23 September 2014 Company Limited Export Clearance and Registration of devices and meters, motorbikes, (中華人民共和國海關進出口貨物 chemical raw materials (excluding 收發貨人報關註冊登記證書) dangerous goods), pin, textile products, general merchandise, photographic equipments, art crafts; Operating the “Three-plus-one” business, counter trade, transit trade, approved barter trade, chemical fibre and metal materials, electronic calculators and auxiliary equipment; investing in the development of the new products; transforming aviation industry from military use to civil use, etc. Registration Form of Record for –– Foreign Trade Operators (對外貿易經營者備案登記表) Medical Device Operation Enterprise Class III: Medical electronic device 15 July 2014 Permit (醫療器械經營企業許可證) (other than implantable pace-maker and implantable medical transmission device), medical ultrasound and related equipment. High frequency device, reconciliation of medical high frequency instrument, clinical diagnosis instruments, equipment and instruments in operation room, emergency room and consulting room; Class II: medical optical instruments, equipment and basic device instruments, antiseptic and sterilizing equipment and instruments
AVIC Ding Heng Ship Building Certificate of Custom Import and – 18 October 2012 Company Limited Export Clearance and Registration (中華人民共和國海關進出口貨物 收發貨人報關註冊登記證書) (note 1)
–59– LETTER FROM THE BOARD
Name of Companies Certificates Particulars Expiry Date
Bi Te Communication Military Product Quality System – 9 June 2013 License License for the Scientific Research – December 2012 and Production of Military Electronic Equipment (裝備承製 單位科研生產許可證) (note 2) Class II Confidential Quality – 20 October 2010 Unit License (二級保密資格單位 證書) (note 2) Equipment Manufacturer Registered Marine, land, military scientific June 2010 Certificate (武器裝備科研生產許 production certificate 可證) (note 2)
Guizhou CATIC Resources Coal Operation Certificate Wholesale of coal operation 10 March 2013
Note:
1 The relevant members of the Target Group confirmed that they would apply for the extension and/or renewal upon the expiry of the relevant licenses. They are not aware of any possible adverse effects on the applications, and confirmed that the relevant conditions have been fulfilled. It is expected that the relevant licenses can be extended and/or renewed.
2 The relevant members of the Target Group confirmed that they passed the on-site examination for applying the extension of the relevant licenses. They are not aware of any possible adverse effects on the applications, and confirmed that the relevant conditions have been fulfilled. It is expected that the relevant licenses can be extended and/or renewed.
As advised by the legal advisers of the Company as to PRC laws, respective members of the Target Group have obtained all necessary licences, approval for operating its existing businesses.
–60– LETTER FROM THE BOARD
MANAGEMENT TEAM OF THE TARGET GROUP
Set out below is the list of the management team of the Target Group, who will be responsible for the operations of the new businesses of the Enlarged Group after completion of the Acquisitions:
Shanghai Company
Mr. Sun Yan (孫燕), aged 48, has graduated from BeiHang University. Mr. Sun joined China National Aero-Technology Import & Export Corporation in 1985. He was stationed in the aviation technology branch in the West Europe Trade Centre in Germany (德國西歐貿易中心) as the project manager between 1987 and 1990, and was assigned the project manager of the civil product department (民品部)inCATIC Corporation (中航技總公司) and the project manager of CATIC Beijing Company Limited after his return to China. Since 1993, he was the vice director and the director of the business department and later the director of the import department in CATIC Beijing Company Limited and acted as the assistant of the general manager since 1997. He took the position of deputy general manager in CATIC Beijing Company Limited between 2000 and 2010. Since March 2010, Mr. Sun has been reassigned as the deputy general manager in Shanghai Company and has acted as the general manager since September in the same year.
Lutong Company
Mr. Ma Jun (馬駿), aged 46, has graduated from the School of Business and Management (經營管理系) of the Zengzhou Institute of Aeronautical Industry Management. Mr. Ma joined AVIC International Guangzhou Company Limited as an office clerk in business and management department. He was the vice manager and deputy manager of business and management department, manager of the service department, manager of the import department, manager of international trading sixth section, assistant general manager and vice general manager. Mr. Ma is the general manager of Lutong Company since February 2011.
Guizhou CATIC Resources
Mr. Zuo Wenqing (左文清), aged 49, has graduated from the Mechanical Engineering Department (電機系) of the Guizhou Institute of Technology in September 1983 specializing in industrial electric automation (電氣自動化), and has completed the Executive Master of Business Administration (EMBA) Series of Courses from Guanghua School of Management, Peking University (北大光華管理學 院高層經理碩士研修班). Between 1983 to 1994, Mr. Zuo was the technician, engineer, vice workshop supervisor, workshop supervisor and branch-plant manager. From 1996 to October 2007, he was the general manager of the Guiyang Hengfeng Metals Company Limited (貴陽恒豐金屬材料有限責任公司). He served as the general manager of the Guizhou Liu Zhi An Jia Zhai Coal Company Limited (貴州六枝安家 寨煤業有限公司), general manager of the Xiao Jia Wan Coal Company Limited (貴州 普定肖家灣煤業有限公司) and the assistant general manager of the Shenzhen CATIC Resources Company Limited (深圳中航資源有限公司) from 2007 to 2008. Mr. Zuo is the general manager of Guizhou CATIC Resources since December 2008.
–61– LETTER FROM THE BOARD
Chengdu Ya Guang
Mr. He Fang (何放), aged 49, has studied in the University of Electronic Science and Technology of China and has graduated with a bachelor degree of semiconductor device (半導體器件). He entered the 970 Laboratory (970廠研究所)as the engineer in 1990 for the research and production of the Schottky device (肖特基 器件). Since 1993, he has been the vice director of the company laboratory, the director of the second laboratory (研究二所) of Chengdu Ya Guang and the deputy chief engineer, the chief engineer, the general manager and the legal representative of the company. He has become the member of the party committee, the general manager and the chief engineer of Chengdu Ya Guang since August 2009.
Bi Te Communication
Mr. Wang Yue (王岳), aged 54, has graduated from information engineering department (資訊工程系) of the Huazhong University of Science and Technology in 1982 with a bachelor degree in communication. He served as the vice president of the research department in Wuhan Binhu Machinery Factory (武漢市濱湖機械廠)in March 1983. From 1999 to September 2002, Mr. Wang was the vice general manager of Shenzhen Fenghua Telecom Co.,Ltd. He is the general manager of Bi Te Communication since 2002.
Project Engineering Company
Ms. Zhang Yan (張焱), aged 44, graduated from the BeiHang University with a bachelor degree of industrial foreign trading in July 1990. She has obtained an MBA from the Nanyang Technological University (南洋理工大學) in 1996. Between August 1990 and June 1993, Ms. Zhang was the project manager of the export department and the secretary of the managerial department in the parent company. Between June 1993 and September 1996, she acted as the project manager of Singapore Bao Wang Company (新加坡寶旺公司). Ms. Zhang took the positions of the deputy director and the director of the market development office of the export department and also the vice manager of the export department in the parent company from September 1996 to January 2003 and further towards May 2008. Between May 2008 and May 2011, she was the standing deputy general manager of the Complete Set of Equipment Division (成套事業部) in the parent company and has been the legal representative of the Project Engineering Company since May 2011.
Rainbow Department Store
Mr. Lai Wei Xuan (賴偉宣), aged 47, has graduated from the Guanghua School of Management in the Peking University with an EMBA and has become a senior accountant. Mr. Lai Wei Xuan has been the financial director of AVIC International Shenzhen Company Limited, the assistant administrative manager of Hong Kong Wei Ke Company Limited (香港衛科有限公司), the manager assistant, the vice manager and the manager of the export management department in AVIC International Shenzhen Company Limited, the manager and the general manager assistant of the import and export management department of Shenzhen AVIC
–62– LETTER FROM THE BOARD
Commercial Trading Company (深圳中航商貿公司), the deputy general manager of Rainbow Department Stores Co., Ltd., the deputy general manager, the director and the party secretary of AVIC International Shenzhen Company Limited, the vice chairman of Shenzhen Fiyta Holdings Limited, the vice chairman of Tian Ma Microelectronics Company Limited, the director of Shanghai Tian Ma Microelectronics Company Limited (上海天馬微電子有限公司) and the vice chairman of Shenzhen Shennan Circuit Co., Ltd. He is now an executive director of CATIC Shenzhen Holdings Limited and a director and the general manager of Rainbow Department Stores Co., Ltd.
Key Financial Information Summary for the Target Group
Set out below is the unaudited key financial information of the Target Companies (and its associated companies) prepared in accordance with the International Financial Reporting Standards:
(1) Shanghai Company
For the year For the year ended ended 31 December 31 December 2009 2010 (RMB’000) (RMB’000)
Revenue (including continued and discontinued operations) 1,386,972 2,351,613 Net profit before tax and extraordinary items 110,850 121,936 Net profit/(loss) after tax and extraordinary items 1,176 (1,876) Net profit attributable to holders of equity interests proposed to be acquired 74,324 79,757 Net assets attributable to holders of equity interests proposed to be acquired 471,764 548,554
–63– LETTER FROM THE BOARD
(2) Lutong Company (Note 1)
For the year For the year ended ended 31 December 31 December 2009 2010 (RMB’000) (RMB’000)
Revenue – – Net profit before tax and extraordinary items – – Net profit after tax and extraordinary items – – Net profit attributable to holders of equity interests proposed to be acquired – – Net assets attributable to holders of equity interests proposed to be acquired – –
Note 1: Lutong Company was established on 1 February 2011, and there are no track records and net assets in 2009 and 2010.
(3) Guizhou CATIC Resources
For the year For the year ended ended 31 December 31 December 2009 2010 (RMB’000) (RMB’000)
Revenue – 40,384 Net loss before tax and extraordinary items (139) (3,956) Net loss after tax and extraordinary items (139) (3,956) Net loss attributable to holders of equity interests proposed to be acquired (125) (3,560) Net assets attributable to holders of equity interests proposed to be acquired 8,870 83,695
–64– LETTER FROM THE BOARD
(4) Project Engineering Company (Note 2)
For the year For the year ended ended 31 December 31 December 2009 2010 (RMB’000) (RMB’000)
Revenue – – Net profit before tax and extraordinary items – – Net profit after tax and extraordinary items – – Net profit attributable to holders of equity interests proposed to be acquired – – Net assets attributable to holders of equity interests proposed to be acquired – –
Note 2: Project Engineering Company was established on 28 April 2011, and there are no track records and net assets in 2009 and 2010.
(5) Chengdu Ya Guang
For the year For the year ended ended 31 December 31 December 2009 2010 (RMB’000) (RMB’000)
Revenue 2,101,279 3,998,504 Net profit before tax and extraordinary items 139,584 108,143 Net profit after tax and extraordinary items 111,350 86,731 Net profit attributable to holders of equity interests proposed to be acquired 48,020 43,433 Net assets attributable to holders of equity interests proposed to be acquired 468,309 488,388
–65– LETTER FROM THE BOARD
(6) Bi Te Communication
For the year For the year ended ended 31 December 31 December 2009 2010 (RMB’000) (RMB’000)
Revenue 17,386 51,615 Net (loss)/profit before tax and extraordinary items (186) 19,465 Net (loss)/profit after tax and extraordinary items (186) 18,060 Net (loss)/profit attributable to holders of equity interests proposed to be acquired (95) 9,200 Net assets attributable to holders of equity interests proposed to be acquired 13,169 22,369
(7) Rainbow Department Store
For the year For the year ended ended 31 December 31 December 2009 2010 (RMB’000) (RMB’000)
Revenue 3,708,914 4,533,657 Net profit before tax and extraordinary items 386,521 576,252 Net profit after tax and extraordinary items 279,136 420,443 Net profit attributable to holders of equity interests proposed to be acquired 115,747 172,456 Net assets attributable to holders of equity interests proposed to be acquired 258,560 1,190,531
Upon completion of the transactions contemplated under the Acquisition Agreement 1 and the Acquisition Agreement 2, Shanghai Company, Lutong Company (Note), Guizhou CATIC Resources, Project Engineering Company, Chengdu Ya Guang and Bi Te Communication will become subsidiaries of the Company, and the results of these companies will be consolidated into the accounts of the Enlarged Group.
–66– LETTER FROM THE BOARD
Upon completion of the transactions contemplated under the Acquisition Agreement 3, Rainbow Department Store will become an associate of the Company.
Note: Upon the completion of the acquisition agreement entered into between the Company and AVIC International dated 30 November 2010, the Company would own 100% equity interest in China National Aero-Technology Guangzhou Company Limited (中國航空技術 廣州有限公司) which, in turns, owned 50% equity interest in Lutong Company. Together with the 50% equity interest of Lutong Company to be acquired by the Company under the Acquisition Agreement 1, Lutong Company will become a wholly-owned subsidiary of the Company after completion of the said acquisition.
The structure of the Target Group after completion of the Acquisitions is set out below:
Graph 2 – Structure of the Target Group after completion of the Acquisitions
The Company
50% 100% 100% 100% 51% 55.91% 39.52%
Guizhou Project Bi Te Rainbow Lutong Shanghai Chengdu Ya CATIC Engineering Communic- Department Company Company Guang Resources Company ation Store
Shanghai Guizhou Chengdu Rainbow CATIC Department Company Ya Guang Resources Store Associated Associated Associated Associated Companies Companies Companies (Note 1) Company (Note 3) (Note 2) (Note 4)
The Target Group
For the notes to Graph 2, please refer to Graph 1.
PROPERTY INTERESTS OF THE TARGET GROUP
LCH (Asia-Pacific) Surveyors Limited, an independent professional surveyor, has valued the property interests of the Target Group as at 31 October 2011 and is of the opinion that the property interests are valued at an aggregate amount of RMB3,992.2 million as at 31 October 2011. The full text of the letter, summary of values and valuation certificates with regard to such property interests are set forth in Appendix IV to this circular.
–67– LETTER FROM THE BOARD
The table below shows the reconciliation of property interests of the Target Group from its unaudited consolidated financial statement as at 30 June 2011 to the unaudited net asset value of the property interests of the Target Group as at 31 October 2011:
RMB’000 (100% interest)
Valuation as at 31 October 2011 3,992,200
Net book value as at 30 June 2011 2,960,730 (Note 1) Less: – Disposal 283,678 – Depreciation 34,352 Addition: 69,959 Net book value as at 31 October 2011 2,712,659
Valuation surplus 1,279,541 (Note 2)
Notes:
1. This figure includes RMB1,515.892 million for property interests of Rainbow Department Store and its subsidiaries.
2. This figure includes RMB1,145.517 million for property interests of Rainbow Department Store and its subsidiaries.
3. Rainbow Department Store would become an associate of the Company upon the completion of the transactions contemplated under the Acquisition Agreement 3.
REASONS FOR AND BENEFITS OF THE ACQUISITIONS
The Company is a diversified strategic investment holding company. It is principally engaged in the manufacturing and sales of liquid crystal displays, printed circuit boards, luxurious timepieces and mineral resources in the PRC, and in the hotel and property operation business. Following the 2010 Acquisition where the Company proposed to acquire 12 companies from the controlling shareholder of the Company and its associates, it is expected that the business of the Group will be expanded into the businesses of trading and logistics, overseas construction and commercial property industry. Details of the 2010 Acquisition are set out in the circular of the Company dated 31 December 2010.
The acquisition of various trading and logistics companies will further enlarge the foundation of the Group in the trading and logistics business sectors. Project Engineering Company will gradually take over the government project and complete sets of equipment projects of the Complete Set of Equipment Division of AVIC International, and thereby become the only corporate platform of complete equipment business of AVIC International. Historically, the Complete Set of Equipment Division of AVIC International has engaged in numerous international government projects and has exported various kinds of complete equipments. After years of accumulation, the Division has established good reputation and customer base in Africa, the Middle East, Central Asia and Southeast Asia region and other traditional market regions.
–68– LETTER FROM THE BOARD
The trading and logistic of asphalt will be one of the major business of Lutong Company. The Company believes that the acquisition of Lutong Company will expand the asphalt business of the Group in the future. The acquisition of Chengdu Ya Guang and Bi Te Communication contemplated under the Acquisition Agreement 2 will expand the existing electronic manufacturing business of the Group to military and industrial sectors, which are complementary to the original business of liquid crystal displays, printed circuit boards, etc. The acquisition of Rainbow Department Store, a premier department store in the PRC, together with the existing luxurious watches business of the Group, will constitute the luxurious goods and retail business sector of the Company and further create synergies.
The Acquisitions would enable the Company to further refine its business position, expand its businesses portfolio and create synergy among the various industries in which the Group has invested or will invest. It aligns with the business development strategy of the Company, and reflects the strategic initiative of the continual acquisition of high-quality assets by the Company from its controlling shareholder and its associates. The Directors, including the independent non-exective Directors, believe that the terms of the Acquisitions and the transactions contemplated under the Agreements are fair and reasonable and in the interests of the Company and the Shareholders as a whole.
As at the Latest Practicable Date, the Company and the Board have no concrete agreement, arrangement, understanding, intention, negotiation about any disposal, termination or scaling-down of the existing businesses of the Group.
The Company insists on the development strategy of moderate diversification combined with specification of business units. While expanding the core business units such as trading and logistics, high-end consumption, electronic production and real estate, the Company may consider to dispose, terminate or scaling-down the other non-core business.
The Company will further maintain the diversification of business portfolio, focus on the professionalisation of business units and continue to create better value for the Shareholders.
THE FINANCIAL AND TRADING PROSPECT OF THE ENLARGED GROUP
Financial effect of the Acquisitions
The financial impacts of the Acquisitions are set out in Appendix III to this circular. As for the pro forma financial information and its basis of preparation of the group enlarged by the Acquisitions, please refer to Appendix III to this circular.
The financial impacts are stated as if the Acquisitions had taken place on 30 June 2011 for the unaudited pro forma consolidated balance sheet and on 1 January 2010 for the unaudited pro forma consolidated income statement and the unaudited pro forma consolidated cash flow statement. The completion of the Acquisition Agreement 1 and the Acquisition Agreement 2 is interconditional and transactions contemplated thereunder shall take place simultaneously. The Acquisition Agreement 3 and the transactions contemplated thereunder is independent from Acquisition Agreement 1, Acquisition
–69– LETTER FROM THE BOARD
Agreement 2 and the transactions contemplated thereunder. Therefore, there are three possible scenarios with regard to the completion of Acquisitions, namely:
Scenario-1: the acquisitions pursuant to the Acquisition Agreement 1, the Acquisition Agreement 2 and the Acquisition Agreement 3;
Scenario-2: the acquisitions pursuant to the Acquisition Agreement 1 and the Acquisition Agreement 2;
Scenario-3: the acquisition pursuant to the Acquisition Agreement 3.
Scenario-1
Under scenario-1, upon the completion of the Acquisitions, Shanghai Company, Project Engineering Company and Guizhou CATIC Resources will become wholly-owned subsidiaries of the Group, while Chengdu Ya Guang and Bi Te Communication will become non-wholly owned subsidiaries of the Company, Lutong Company will become a joint venture of the Company, and Rainbow Department Store will become an associate company of the Company.
(1) The impacts to the equity
On 30 June 2011, the unaudited total equity of the Company and the unaudited equity attributable to the equity holders of the Company amounted to RMB5,190,961,000 and RMB1,998,431,000, respectively. As shown in the unaudited pro forma financial information set out in Appendix III to this circular, had the Acquisitions completed on 30 June 2011, the total equity and the equity attributable to the equity holders of the Company as at 30 June 2011 would have been RMB13,750,918,000 and RMB9,874,797,000, respectively. Such increase was primarily due to the PSCS issued in the Acquisitions.
(2) The impacts to the earnings
In 2010, the Group recorded an audited revenue and the profit attributable to the equity holders of the Company of RMB6,964,551,000 and RMB193,561,000, respectively. As shown in the unaudited pro forma financial information of the group as enlarged by the Acquisitions set out in Appendix III in this circular, had the Acquisitions completed on 1 January 2010, the revenue and the profit attributable to the equity holders of the Company would have been RMB13,212,026,000 and RMB483,441,000, respectively. Therefore, given the historical financial performance of the Group, it is expected that the Acquisitions will enhance the income base of the group as enlarged by the Acquisitions.
(3) The impacts to the assets to liabilities ratio
On 30 June 2011, the unaudited total assets and total liabilities of the Group amounted to RMB18,050,241,000 and RMB12,859,280,000, respectively. As shown in the unaudited pro forma financial information of the group as enlarged by the Acquisitions
–70– LETTER FROM THE BOARD set out in Appendix III to this circular, had the Acquisitions completed on 30 June 2011, total assets and total liabilities of the group as enlarged by the Acquisitions would have been RMB33,768,783,000 and RMB20,017,865,000, respectively, representing a decrease in the assets to liabilities ratio from the original approximately 71.24% to approximately 59.28%. It was primarily due to the fact that the consideration paid by the Company would be recognised as equity in accounting.
Scenario-2
Under scenario-2, upon the completion of the acquisitions pursuant to the Acquisition Agreement 1 and the Acquisition Agreement 2, Shanghai Company, Project Engineering Company and Guizhou CATIC Resources will become wholly-owned subsidiaries of the Group, while Chengdu Ya Guang and Bi Te Communication will become non-wholly owned subsidiaries of the Company, and Lutong Company will become a joint venture of the Company.
(1) The impacts to the equity
On 30 June 2011, the unaudited total equity of the Company and the unaudited equity attributable to the equity holders of the Company amounted to RMB5,190,961,000 and RMB1,998,431,000, respectively. As shown in the unaudited pro forma financial information set out in Appendix III to this circular, had the acquisitions pursuant to the Acquisition Agreement 1 and the Acquisition Agreement 2 completed on 30 June 2011, the total equity and the equity attributable to the equity holders of the Company as at 30 June2011 would have been RMB7,422,615,000 and RMB3,546,494,000, respectively. Such increase was primarily due to the PSCS 1 and the PSCS 2 issued in the acquisitions under the Acquisition Agreement 1 and the Acquisition Agreement 2.
(2) The impacts to the earnings
In 2010, the Group recorded an audited revenue and profit attributable to the equity holders of the Company of RMB6,964,551,000 and RMB193,561,000, respectively. As shown in the unaudited pro forma financial information of the group as enlarged by the Acquisitions set out in Appendix III to this circular, had the acquisitions pursuant to the Acquisition Agreement 1 and the Acquisition Agreement 2 completed on 1 January 2010, the revenue and profit attributable to the equity holders of the Company would have been RMB13,212,026,000 and RMB331,359,000, respectively. Therefore, given the historical financial performance of the Group, it is expected that the Acquisition Agreement 1 and the Acquisition Agreement 2 will enhance the income base of the group as enlarged by the Acquisitions.
(3) The impacts to the assets to liabilities ratio
On 30 June 2011, the unaudited total assets and total liabilities of the Group amounted to RMB18,050,241,000 and RMB12,859,280,000, respectively. As shown in the unaudited proforma financial information of the group as enlarged by the Acquisitions set out in Appendix III to this circular, had the acquisitions pursuant to the Acquisition Agreement 1 and the Acquisition Agreement 2 completed on 30 June 2011, total assets and
–71– LETTER FROM THE BOARD total liabilities of the group as enlarged by the Acquisitions would have been RMB27,440,480,000 and RMB20,017,865,000, respectively, representing a slight increase in the assets to liabilities ratio from the original approximately 71.24% to approximately 72.95%.
Scenario-3
Under scenario-3, upon the completion of the acquisition pursuant to the Acquisition Agreement 3, Rainbow Department Store will become an associate company of the Company.
(1) The impacts to the equity
On 30 June 2011, the unaudited total equity of the Company and the unaudited equity attributable to the equity holders of the Company amounted to RMB5,190,961,000 and RMB1,998,431,000, respectively. As shown in the unaudited pro forma financial information set out in Appendix III to this circular, had the acquisition pursuant to the Acquisition Agreement 3 completed on 30 June 2011, the total equity and the equity attributable to the equity holders of the Company as at 30 June 2011 would have been RMB11,519,264,000 and RMB8,326,734,000, respectively. Such increase was primarily due to the PSCS 3 issued in the acquisition pursuant to the Acquisition Agreement 3.
(2) The impacts to the earnings
In 2010, the Group recorded an audited revenue and profit attributable to the equity holders of the Company of RMB6,964,551,000 and RMB193,561,000, respectively. As shown in the unaudited pro forma financial information of the group as enlarged by the Acquisitions set out in Appendix III to this circular, had the acquisition pursuant to the Acquisition Agreement 3 completed on 1 January 2010, the revenue and profit attributable to the equity holders of the Company would have been RMB6,964,551,000 and RMB345,643,000, respectively. Therefore, given the historical financial performance of the Group, it is expected that the acquisition pursuant to the Acquisition Agreement 3 will enhance the income base of the group as enlarged by the Acquisitions.
(3) The impacts to the asset to liability ratio
On 30 June 2011, the unaudited total assets and total liabilities of the Group amounted to RMB18,050,241,000 and RMB12,859,280,000, respectively. As shown in the unaudited proforma financial information of the group as enlarged by the Acquisitions set out in Appendix III to this circular, had the acquisition pursuant to Acquisition Agreement 3 completed on 30 June 2011, total assets and total liabilities of the group as enlarged by the Acquisitions would have been RMB24,378,544,000 and RMB12,859,280,000, respectively, representing a decrease in the asset to liability ratio from the original approximately 71.24% to approximately 52.75%. It was primarily due to the fact that the consideration paid by the Company would be recognised as equity in accounting.
–72– LETTER FROM THE BOARD
The financial and trading prospect of the Enlarged Group
According to the statistics from the WTO, the PRC has become the largest export country across the world, followed by the second largest export country, the United States, since 2009. In 2010, the total imports and exports of the PRC further increased 34.7% significantly, and its global imports and exports proportion also increased at the same time. The Enlarged Group will capture the opportunities by fully utilizing the sub-organizations and business network around the world, as well as extensively developing various trading businesses by leaning against the sound international reputation of AVIC International, the cooperation with the governments and the auxiliary logistic facilities.
As the electronic information industry is gaining more and more important presence and growing rapidly among the national economic development in the PRC, the income proportion from the exports of products accounted for 37.5% of the national exports. In 2010, the sales income from electronic information industry of above national standard had a year-on-year growth of 29.5%, and the industrial added value grew by 16.9%. Subsequent to the completion of the Acquisitions, the existing electronic information operations of the Company will be further developed towards the high-end professional areas, expanding to the aviation, aerospace and military areas to achieve remarkable results as the existing operations such as LCD and printed circuits did. The Enlarged Group will fully acknowledge the opportunities and challenges brought by the changes of trends, capitalize on the advantages and resources such as its high-end technologies, patents, software and military achievements, to enhance the market position and competitiveness upon the completion of the Acquisitions.
Since 1995, having benefited from the factors such as the national economic growth, an increase in the national income and the acceleration of urbanization, the retailing industry in the PRC grew rapidly, such that the total retail volume of the domestic social consumer products grew at a CAGR of approximately 14.4%. Under the control of a series of policies of “triggering domestic demand” by the government, the retailing industry grew even faster in 2010, representing a growth of 18.4% compared to that of last year. The Enlarged Group will capture the opportunities from the transformation of economy and uplift in consumption in the PRC, capitalise on the synergy created by department stores and watch and luxurious items, strengthen the ultimate network advantages and enhance the value of the brand.
The Directors anticipate that as the international trading regions fully recover and the economy of the PRC favors, the Enlarged Group will encounter a more favorable market outlook. The Acquisitions will enlarge the base of the Company in the trading and logistics industry, the electronic information industry and the retailing industry, so as to build up a more diversified business combination and enhance the capability against risks. Facing the opportunities from the rebound of the economy within and without the nation, the Group will continue to consolidate its existing competitive advantages to develop its existing operations based on its strategies, and at the same time capitalise the opportunity of this acquisition to build up new advantages, ensuring the continuous and steady development of the Company.
–73– LETTER FROM THE BOARD
The Group will also continue to emphasize its horizontal management structures, turning its subsidiaries into professional enterprises equipped with competitive advantage in the industry. The Board and the core management of the Company will endeavor its strategic management and resources allocation.
The key unaudited financial figures as if the Acquisitions had taken place on 30 June 2011 for the consolidated balance sheet figures and on 1 January 2010 for the consolidated income statement figures, which have been extracted from Appendix III Scenario-I, are set out below:
As at 31 December As at 2010 30 June 2011 RMB’000 RMB’000
Turnover 13,212,026 – Profit before income tax 851,694 – Profit after income tax 682,397 – Net profit attributable to the equity holders of the Company 483,441 – Total equity – 13,750,918
Interests attributable to the equity holders of the Company – 9,874,797
–74– LETTER FROM THE BOARD
EFFECT OF THE ACQUISITIONS ON THE SHAREHOLDING STRUCTURE
Assuming there is no change in the issued share capital of, and the shareholding in, the Company from the Latest Practicable Date other than the allotment and issue of Conversion Shares upon conversion of the PSCS pursuant to the Agreements, the shareholding structure of the Company (a) as at the Latest Practicable Date; (b) immediately after completion of the Acquisition Agreement 1 and the Acquisition Agreement 2 (assuming full conversion of the PSCS 1 and the PSCS 2 at the initial Conversion Price); (c) immediately after completion of the Acquisition Agreement 3 (assuming full conversion of the PSCS 3 at the initial Conversion Price); and (d) immediately after completion of the Acquisitions (assuming full conversion of the PSCS at the initial Conversion Price) will be as follows:
Immediately after completion of the Immediately after Acquisition Agreement 1 completion of the and the Acquisition Acquisition Agreement 3 Immediately after Agreement 2 (assuming (assuming full completion of the full conversion of the conversion of the Acquisitions (assuming PSCS 1 and the PSCS 2 at PSCS3atthe full conversion of the PSCS the initial Conversion initial Conversion Price), at the initial Conversion As at the Latest Price), for illustration for illustration Price), for illustration Practicable Date purpose only (Note 4) purpose only (Note 4) purpose only (Note 4) Number of Approximate Number of Approximate Number of Approximate Number of Approximate Name of the Shareholders Shares % Shares % Shares % Shares %
Domestic Shares AVIC International (Notes 1 and 2) – – 368,289,325 30.17% – – 368,289,325 12.28%
Shenzhen Company (Notes 1 and 3) 395,709,091 58.77% 574,900,102 47.09% 2,173,322,172 88.67% 2,352,513,183 78.46%
H Shares Public Shareholders 277,657,999 41.23% 277,657,999 22.74% 277,657,999 11.33% 277,657,999 9.26%
Total 673,367,090 100% 1,220,847,426 100% 2,450,980,171 100% 2,998,460,507 100%
Notes:
1. Aviation Industry owns 62.52% of the equity interest in AVIC International, which in turn owns 100% of the equity interest in Shenzhen Company. Hence, Aviation Industry is deemed, or taken to be, interested in all Shares held by AVIC International and Shenzhen Company.
2. AVIC International owns 100% of the equity interest in Shenzhen Company. Hence, AVIC International is deemed, or taken to be, interested in all Shares held by Shenzhen Company. Mr. Wu Guang Quan, chairman of the Company and an executive Director, is currently the general manager of AVIC International. He does not own any Share, or any equity interest in AVIC International.
3. Mr. Wu Guang Quan, an executive Director, is currently the chairman of the board of directors of Shenzhen Company. Mr. You Lei, an executive Director, is currently the general manager of Shenzhen Company. None of them own any Share or any equity interest in Shenzhen Company.
4. For illustration purpose only. According to the terms of the PSCS, the conversion rights under the PSCS may only be exercised by the holder(s) of PSCS if, among others, conversion of the PSCS would not cause the public float of the Company to fall below the minimum percentage as prescribed under the Listing Rules.
–75– LETTER FROM THE BOARD
The Acquisitions will not result in any change of control of the Company.
5. Under the 2010 Acquisition, as consideration for acquisition of certain equity interests, the Company agreed, upon completion of the 2010 Acquisition yet to take place, (i) issue to AVIC International 437,264,906 Domestic Shares at an issue price of RMB3.15 and perpetual subordinated convertible securities in the amount of not more than RMB1,886,947,936 convertible into not more than 543,789,031 Domestic Shares at the initial conversion price of RMB3.47; (ii) issue to Shenzhen Company perpetual subordinated convertible securities in the amount of not more than RMB119,094,910 convertible into not more than 34,321,000 Domestic Shares at the initial conversion price of RMB3.47; and (iii) issue to Beijing Raise perpetual subordinated convertible securities in the amount of not more than RMB1,182,822,947 convertible into not more than 340,871,166 Domestic Shares at the initial conversion price of RMB3.47. Details of the 2010 Acquisition are set out in the circular of the Company dated 31 December 2010.
As set out in the announcement of the Company dated 15 July 2011 in relation to, among others, further development in relation to the 2010 Acquisition, the 2010 Acquisition was approved by the independent Shareholders at the extraordinary general meeting of the Company and the class meeting of the holders of H Shares held on 16 February 2011, and the filing of the valuation reports in relation to the 2010 Acquisition had been permitted by the SASAC, and the Company had received written approval from the SASAC, stating its consent in principle to the 2010 Acquisition. As at the Latest Practicable Date, seven of the target companies that the Company proposed to acquire under the 2010 Acquisition have completed the registration procedures with the relevant Industry and Commerce Administrative Bureau with the rest of the target companies under the 2010 Acquisition are undergoing the registration procedures. The Company expects to complete the 2010 Acquisition when all the target companies have completed the registration procedures.
–76– LETTER FROM THE BOARD
INDUSTRY OVERVIEW
1. Trade logistics
Since the 21st century, as the dependence on the international market further increases under the context of the economic growth of all countries, rapid growth has been witnessed in the trades of global goods and service. According to the WTO statistics, the world imports and exports in 2010 reached US$30.6 trillion, an increase of 21% compared with 2009. In China, the imports and exports reached US$3 trillion, an increase of 34.7% compared with 2009, of which the exports went up by 31.3% to US$1.6 trillion and the imports went up by 38.7% to US$1.4 trillion. In the same year, Chinese shares in global exports and imports rose from 9.6% in 2009 to 10.4% and from 7.9% in 2009 to 9.1% respectively, both of which are higher than those of Germany. China has become the largest exporter and the second largest importer after the US in the world. In 2011, as the demands in the international market recover and the demands in the domestic market continue to increase, from January to June, Chinese exports reached US$874.3 billion, an increase of 24.0% compared with the same period last year, and the imports reached US$829.37 billion, an increase of 27.6% compared with the same period last year. At the same period, the trade surplus reduced by 18.2% to US$44.93 billion.
China’s imports and exports in the first half from 1995 to 2011 (US$100 million)
35,000
29,728 30,000
25,633 25,000 13,948 21,737 22,073
20,000 11,326 17,604 17,037 9,560 10,056 15,000 14,219 7,915 11,546 8,294 6,600 10,000 8,510 5,612 6,208 14,307 15,779 4,743 5,097 4,128 12,178 12,017 5,000 3,252 3,240 3,606 2,952 9,689 8,743 2,809 2,899 2,251 2,436 7,620 1,424 1,402 1,657 5,933 1,321 1,388 3,256 4,382 1,488 1,511 1,828 1,837 1,949 2,492 2,661 0 19951996199719981999 2000 2001 2002 20032004 2005 2006 2007 2008 2009 2010 2011 Exports Imports （First Half） Source: Ministry of Commerce
–77– LETTER FROM THE BOARD
1.1 Bulk trade: Coal and bearing
Coal: Coal is one of the most important energies in the world. According to the data from 2011 BP World Energy Statistics, the world’s consumption of primary energy amounted to 12 billion tons of oil equivalent, of which coal accounted for 29.6%. China is the largest coal producer in the world. In 2010, the domestic output of raw coal was 1.8 billion tons of oil equivalent, accounting for 48.3% output of the world’s raw coal. As the largest coal consumption country in the world, in 2010, China consumed 1.71 billion tons of oil equivalent which were 70.5% of the total consumption of the domestic primary energy and 48.2% of the total consumption of the world coal. For a long time in the future, China will not change its coal-based energy structure. Contrary to the distribution of industry, the coal resource is mostly found in north or west China rather than south or east China. Guizhou is the largest province reserving coal resource in southwest region with its coal reserve amounting to the total reserve of the nine provinces located in the south of the Yangtze River. It is the 5th largest coal reserve place and one of the largest coal bases in China and is known as the “coal sea in the south of the Yangtze River”. In 2010, China’s output of raw coal was 3.24 billion tons, of which the output in Guizhou was around 160 million tons, accounting for nearly 5% of the total national output.
China’s energy consumption percentage in 2010
Water and electricity 6.7% Recycle energy Nuclear energy 0.5% Oil 0.7% 17.6%
Natural gas 4.0%
Coal 70.5%
Source: 2011 BP World Energy Statistics
–78– LETTER FROM THE BOARD
Guizhou’s output of raw coal and proportion of these outputs in China from 2000 to 2010 (10,000 tons)
18,000 7% 16,000 6% 14,000 5% 12,000 10,000 4% 8,000 3% 6,000 2% 4,000 2,000 1% 0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Guizhou’s output of raw coal growth rate
Source: State Statistics Bureau
Bearing: Bearing is known as the “joint of the machine”. It is a basic part widely used in the modern machine and equipment. The bearing industry has more than 100 years of history in the world. In China, after going through over 60-year construction and development, the industry has reached a large production scale and gradually occupied the low and middle markets or partial high-end market of miniature bearing and small bearing. Up to 2009, China’s output of bearing ranked the third in the world while America and the EU still occupied the major share of the global bearing market. According to the statistics of China Bearing Industry Association, up to 2009, China had 1,750 enterprises of considerable scale in the bearing industry. The sales revenue in the bearing industry of the whole year was RMB92 billion and the output of the bearing was 11 billion. In 2010, rapid growth was witnessed in the domestic bearing industry with the exports sharply increased. Though the final statistical data from China Bearing Industry Association has not been released, according to the previous statistical data, it is generally expected that the main business income in the industry in 2010 will go up by about 30.4% to RMB120 billion and the bearing output of the whole year is expected to reach 15 billion, an increase of 36.4% compared with last year
China’s output and sales revenue of bearing from 2000 to 2010
1,400 150 160 1,200 1,200 140 110 120 1000 880 100 920 90 100 800 760 620 71 80 600 520 58 445 49 60 400 271 292 32 40 240 22 250 25 28 200 20 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E
Sales revenue (RMB 100 million) Output (100 million) Source: China Bearing Industry Association
–79– LETTER FROM THE BOARD
1.2 Complete equipment: Vessel (chemical tanker or special ships) and air separation plant
Vessel: Under the impact of short supply in shipping, the increase in freight rate and the aging of vessel age structure, the world’s vessel market began to bounce back from 2002 and entered a new round of growth. The accomplished shipbuilding output began to grow yearly and even grew in 2009 under the global recession. In 2010, the global accomplished shipbuilding output continued to keep growing to reach 146.07 million deadweight tons, an increase of 19.7% compared with the same period of last year. During this year, another 120.60 million deadweight tons were ordered, an increase of 185.8% compared with the same period of last year. In recent years, as China’s shipbuilding industry rises up, the world’s main vessel market has begun to shift to China from Japan and Korea. In 2010, China’s share in the vessel market further increased. According to the statistics of Clarkson Research Services Limited, the accomplished shipbuilding output, orders newly received, and orders held in China accounted for 41.9%, 48.5% and 40.8% respectively of those in the world market. It is the first time that all of these three indicators exceed those of Korea and top the list in the world.
The world’s three major indicators in the shipbuilding industry from 2004 to 2010
70,000 57,710 60,000 50,149 48,884 47,260 50,000 40,000 30,426 22,017 24,090 30,000 21,954 15,438 14,607 20,000 10,253 7,129 14,160 12,203 7,440 7,820 9,771 12,060 10,000 6,021 7,387 4,219 0 2004 2005 2006 2007 2008 2009 2010
Accomplished shipbuilding output Orders newly received around the world Orders held around the world
Source: Ministry of Industry and Information Technology, China Association of the National Shipbuilding Industry, and Clarkson Research Services Limited
Structurally, according to the deadweight tons, bulk carrier, container ship and oil tanker are the three most widely used ships in the global ship market. Of these three, oil tanker plays a key role in the shipbuilding industry, accounting for 40% of the shipbuilding delivery (based on deadweight tons) in the past 20 years. Bulk carrier which is divided into large bulk carrier and small bulk carrier has also been crucial to the shipbuilding industry. In the past 20 years, bulk carrier accounts for 1/3 of the shipbuilding delivery. As the global merchandise trade grows, the proportion of trade containerization increases, more and more trade goods are packed in containers, and the speed of globalization accelerates, container ship plays an increasingly important role in the shipbuilding industry.
–80– LETTER FROM THE BOARD
In the industry, such ships as chemical tanker and small or medium-sized liquefied gas carrier play less important role in the shipbuilding industry. Though the building scale is small, high technical level and added value are required. High-end chemical tanker and small or medium-sized liquefied gas carrier are featured by small tonnage, individualization, small batches of delivery and high single-ship added value. They are often made by medium-sized shipyards which have relatively strong technical, management and capital capacities. Generally, small and larger-sized shipyards will not make these ships. As the global demands for such materials like chemicals and liquid gas are on steady and rapid increase, the demand for special ships, the most economical and convenient transport means, increases steadily. The overheating shipbuilding market in the previous stage causes many shipyards to concentrate their work on making bulk carriers and container ships, which slow down the R&D and construction cycle of chemical tankers and small liquid gas carrier, forming a gap between supply and demand. In the future, it is expected that the segmentation of the special ship building industry will have a relatively good prospect.
Air separation plant: Air separation plant takes air as the raw material and put the air into liquid air through compression cycle and deep refrigeration before separating the oxygen, nitrogen, argon and other inert gases from the liquid air through rectification. This plant manufacturing industry was formed to satisfy the demands for different industrial gases required by the metallurgical industry and chemical industry, etc.
The market concentration of air separation plant manufacturing industry is relatively high. The well-known transnational enterprises manufacturing this plant in the countries outside China include Linde AG and Air Liquide. In China, there are more than ten enterprises engaged in this manufacturing, including Hang Yang Limited, Kaifeng Air Separation Group Co., Ltd., Sichuan Air Separation Plant (Group) Co., Ltd. and other domestic-funded enterprise and such joint ventures like Air Liquide (Hangzhou) Ltd., Co. and Linde (Hangzhou) Co., Ltd. or foreign-owned enterprises.
China is a latecomer to the air separation plant manufacturing industry. In the 1950s, China’s air separation and liquification plant industry was born. After that, with the development of the domestic industries like metallurgical industry and chemical industry and on the basis of the foreign advanced technology, China’s air separation plant began to develop towards large size through independent R&D and cooperative development. Now, China is able to make 60,000-graded air separation plant. According to the statistical data from the Yearbook of Air Separation Plant Industry, up to 2008, the air separation plant output which is calculated by taking the amount of oxygen generated as the statistical criteria was 3.538 million m3/h which was 21.2 times higher than 167,000 m3/h in 2000.
Before 2005, China’s productivity growth in the steel industry was the main impetus for the development of air separation plant manufacturing industry. After 2005, chemical industry and industrial gas industry has become the major growth point of the demand for air separation plant. The rapid development of China’s chemical industry and industrial gas industry not only increase the demand for air separation plant, but also improve the requirements of large air separation plant. In China, the air separation plant manufacturing industry will enjoy rapid development.
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2. Electronic information
Electronic information industry plays an important role in China’s national economic development. In 2010, the revenues and number of employees of the electronic information manufacturers of considerable scale accounted for 9.1% and 9.7% of the domestic industry respectively. The exports of electronic information products accounted for 37.5% of the domestic exports. Electronic information industry becomes more prominent as a pillar industry in the national economy. After 2004, though the scale of this industry kept growing, the growing speed slowed down. Up to 2010, the sales revenue from the electronic information enterprises of considerable sale was RMB7.8 trillion, an increase of 29.5% on a year-on-year basis and 8.6 percentage points lower than 38.1% in 2004. The industrial added value from the product manufacturers of considerable scale rose by 16.9%, 29.7 percentage points lower than 46.6% in 2004.
Sales revenues and growth rates from enterprises of considerable scale from 2004 to 2010
9 45% 38.1% 7.8 31.6% 36% 5.9 6.1 28.3% 6 24.1% 5.1 27% 18.4% 3.5 4.3 14.8% 18% 3 2.7 3.4% 9%
0 0% 2004 2005 2006 2007 2008 2009 2010
Scale (RMB 1 trillion) Growth speed
Source: Ministry of Industry and Information Technology
As the same of the industrial scale development, after 2004, China’s imports and exports in the electronic information industry maintained rapid growth, but the growth speed slowed down as a whole. In 2009, under the impact of the financial crisis, the negative growth was seen. In 2009, the volume of imports and exports of China’s electronic information industry totaled US$771.9 billion, dropped by 12.8% compared with the same period of last year and 54.4 percentage points compared with 41.6% in 2004; the exports were US$457.2 billion, dropped by 12.5% compared with the same period of last year and 58.5 percentage points compared with 46.0% in 2004.
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Imports and exports of China’s electronic information industry from 2004 to 2010
46.0% 41.6% 12,000 35.7% 50% 10,128 29.2% 33.3% 26.2% 25.8% 8,854 40% 9,000 23.5% 7,919 29.3% 27.9% 30% 6,517 5,912 20% 6,000 4,887 8,047 5,218 4,595 4,572 10% 3,884 3,640 -10.6% 2,682 13.6% 0% 3,000 2,075 10.0% -12.4% -10% 0 -20% 2004 2005 2006 2007 2008 2009 2010
Total volume of imports and exports (US$100 million) Exports (US$100 million) Increase in total volume of imports and exports compared Increase in exports compared with with the same period of last year the same period of the year
Source: Ministry of Industry and Information Technology
For the integrated circuit field, during the “11th Five-Year Plan”, China’s output of integrated circuit increases by 20.1% annually from 26.11 billion to 65.3 billion and the sales revenue increases by 15.4% annually from RMB70.21 billion to RMB144.02 billion. During this period, China’s annual growth in the integrated circuit industry is 10 percentage points higher than the average growth of the global integrated circuit industry, making China one of the fastest development regions in the integrated circuit industry in the world. The sales revenue of the domestic integrated circuit accounts for 4.5% in 2005 of that in the world to 8.6% in 2010, and the output accounts for nearly 10% of that in the world. China’s international status improves continuously.
Up to 2010, 332 integrated circuit design enterprises and 145 integrated circuit producers were recognized by the Ministry of Industry and Information Technology and the Development and Reform Commission, of which 4 enterprises was included in the Top 100 Electronic Information Enterprises List. The sales revenues of more than 60 design enterprises exceed RMB100 million with the highest one reaching RMB4.5 billion.
On January 28, 2011, the Circular of the State Council on Printing and Distributing the Policies to Further Encourage the Development of the Software Industry and Integrated Circuit Industry (G.F[2011] No. 4), was released which is the first policies introduced by the country to support the new and high industry development at the beginning year of the “12th Five-Year Plan”. The supporting policies for fiscal tax, financing and investment, R&D, import and export, talents, intellectual property right and market are reinforced and the support range is expanded from integrated circuit design and chip manufacturing to the whole industrial chain which includes closed-test, material, equipment and instrument. The policies implementation will surely further promote the long-term sustainable development of Chinese integrated circuit industry.
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3. Retailing of general merchandise
Since the 1990s, under the benefits from national economic growth, resident income improvement and urbanization acceleration, China’s retailing industry has been under a rapid development cycle with the market scale increased sustainably and rapidly. From 1995 to 2010, the total retail sales of the domestic social consumer goods rose from RMB2.062 trillion to RMB15.455 trillion with the composite annual growth rate of about 14.4%. Under a package of policies implemented to “stimulate the domestic demand” in 2010, the retailing industry is on a rapid growth and go up by 18.4% compared with last year. After the price is taken off, a growth of 14.8% is achieved.
The total retails sales of China’s social consumer goods from 1995 to 2010 (RMB1 trillion)
20 30% 15.5 25% 15 12.5 20% 10.8 10 15% 8.0 6.7 5.6 7.6 10% 4.2 4.8 5 3.4 3.8 2.1 2.5 2.7 5% 2.9 3.1 0 0% 19951996199719981999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: State Statistics Bureau
With the adjustment of the global economic pattern, the concentration of the retail market begins to shift. China is now the retail market which enjoys the world’s fastest growth with its status in the world’s retail market improved continuously. It has become the third largest consumption market after America and Japan. Though China has been the world third largest retail market, the retail sales per capita are relatively low. In 2010, it was US$1,705, a figure lagging far behind that of the development county as well as the world’s average level. At the same time, the relatively low retail sales per capita in China also indicates that, along with the growing of Chinese economy in the future, the development space of the domestic retail industry will become wider.
In China, department stores play a dominant role in the traditional retailing industry. With the rapid growth of GDP and the expansion of the domestic retailing industry, the development pattern of the retailing industry becomes diversified. Large supermarkets, outlets, and convenience stores were established one after another. At the same time, more and more retail enterprises adopt cross-business (including business combination, same below) comprehensive operation mode. To adapt to the market development change and gradually shift to modern trend, part of the enterprises engaged in general merchandise which have strong ability to adapt to the change continue to improve their abilities in brand operation, marketing and satisfying customer’s individual demand, which inject fresh vigor to China’s general merchandise industry. According to the comparative analysis made by CCAGM on the sales amount, number of shopping plazas, business area and number of employees of the chain department stores above the norm, out of the five main businesses in the retail industry including
–84– LETTER FROM THE BOARD department store, supermarket, outlet, warehouse-type shopping center and convenience store, department store enjoys the most steady growth within the industry as well as the second largest development business except outlet.
RISK FACTORS
I. Macroeconomic risks
The uncertainty of world economic recovery
The following businesses like trade logistics, electronic information, and retail business in target group feature a strong dependence on macroeconomic fundamentals in the world, and macroeconomic fluctuations will have an impact on domestic and foreign product demand and related investment, thus affecting its operating results. Because currently there are still instability and uncertainty of world economic recovery widespread, the sustainability of global economic growth is facing serious challenges. World Bank has lowered the forecast of the global and U.S. economic growth in its semi-annual report in 2011, respectively from 3.3% and 2.8% forecasted at the beginning to 3.2% and 2.6%, which indicates weak performance of world economic growth. Since August 2011, the U.S. and Europe debt crises bring more uncertainties to the economic recovery in Europe, even the world in the future.
The uncertainty of China’s economic growth
In complex domestic and international economic situations, economic growth in China is slowing down, and the future is still variable. From early 2010 to October 2011, to control the inflation, the People’s Bank of China has increased interest rates for five time consecutively, and raised the deposit reserve ratio for twelve times to recover ample banking sector liquidity. Meanwhile, in order to control the bubble risk in the real estate industry, Chinese government introduces a series of regulatory policies to curb high housing prices. According to the data released by China National Bureau of Statistics, during the first half of 2011, national-scale industrial added value grows 14.3% on the year-on-year basis, dropping 3.3 percentage points over the same period last year; national real estate investment rises 32.9% on the year-on-year basis, down 5.2 percentage points over the same period last year; gross domestic product (GDP) grows 9.6% on the year-on-year basis, down 1.5 percentage points over the same period last year. In exports, due to weak economic recovery of the U.S., EU and other major trading partners of China, coupled with continuous RMB appreciation since mid-2010, China’s export growth during the first half of 2010 accounts only to 24.0%, lower than 35.2% over the same period last year. On the other hand, the consumption, which Chinese government highly hopes to develop as economic engine, shows weak growth, as in the first half of 2011, total retail sales of social consumer goods grow 16.8% on the year-on-year basis, down 1.4 percentage points over the same period last year. The above data shows that, although China’s overall economy maintains steady and rapid growth, the growth speed has slowed compared with that of last year, and the growth momentum is slightly insufficient.
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In addition, since 2011, China consumer price index (CPI) continues to rise, up 6.5% in July, marking a new high within 37 months, and later, CPI lowers slightly, but still stays 6.1% high as of September. In the future, how to ensure economic growth and control inflation in China would still be one of the challenges faced by Chinese macroeconomic policy. According to the forecast in “China Quarterly Update” released by World Bank on 28 April 2011, China’s GDP growth in 2011 will fall from 9.8% in 2010 to 9.3%, with annual CPI up to 5%; and in 2012, China’s GDP growth will continue to fall to 8.7%.
Risk of exchange rate fluctuation
From 21 July 2005 onwards, China reforms Renminbi exchange rate formation mechanism, and implements floating exchange rate system regulated and managed based on market supply and demand with reference to a basket of currencies. RMB exchange rate fluctuations would be impacted by domestic and international economic, political, and monetary supply and demand situations, featuring the uncertainty. China, has restarted foreign exchange reform from 21 June 2010, to 30 June 2011, RMB cumulative appreciated by 5.2%. Part of the businesses in Target Group is involved in import and export trades, subject to foreign currency settlement in foreign sales and purchase, and therefore with RMB appreciation, export cost of products and services in target group will rise and bring about some pressure to the competitiveness of products, and moreover it will also lead to the risk of RMB-calculated income lower than the contract signature date along with the risk of exchange losses of cash and liquid assets held in the form of foreign currency due to RMB appreciation; under RMB devaluation, book accounts payable and deposit receivable liabilities of target group will be subject to the risk of exchange losses.
Risk of loan interest rate fluctuation
Interest-bearing debt financing is one of important ways for target group, so any interest rate change in China will affect financing costs of target group. On 6 July 2011, People’s Bank of China announces, from 7 July 2011 on, to increase benchmark deposit and lending rates of financial institutions by 0.25 percentage points, with short-term lending rates between 6 months and 1 year up to 6.56%. This is the fifth interest rate increase in China since it restarts rate hike cycle in October 2010, also the 3rd interest rate increase since 2011. It is not guaranteed that the PRC will not further raise interest rates in the future, so it may increase the Target Group’s financing costs.
II. Risk of trade logistics business
Risk of ship business impacted by global shipping market
In 2008, after the outbreak of global financial crisis, global shipping market has been shrinking rapidly, which directly results in plummeted new ship orders and prices. Changes in the overall market environment directly affect development prospects of ship business of target group. Although this group is mainly positioned
–86– LETTER FROM THE BOARD in special ships like chemical tanker, and the business suffers from relatively small impact, it still faces the risk and pressure of falling prices.
Risk of ship business dependent on chemical trade growth in China and the world
Influenced by the factors including supply and demand of transport capability, freight, charter rates and ship value have fluctuated in the past supply and demand of transport capability of chemical tanker would be mainly impacted by the demands of liquid petroleum products, liquefied petroleum gas, natural gas, ethylene and other chemicals from China and the world. In the long term, sustained economic growth in China and the world will promote the demand growth in chemicals. However, in 2008 the global economic recession has led to sharp fall in import and export volume and prices of the chemicals, and it is not guaranteed that chemical demand will be maintained, or continue to grow, or will not be reduced. Reduced demand in China and the world may lead to the reduced demand of special ships like high-end chemical tankers and liquefied gas carriers mainly engaged by the Target Group, and thus it will bring about adverse impact on the business, financial condition and operation results of the Target Group.
Risk of overall excessive capacity in ship industry
Ship industry is one of three industries with excess capacity highlighted by Ministry of Industry & Information Technology of PRC (the other two are the steel industry and cement industry). At present, China needs ship of about only 50 million tons a year, but the ship production capacity has reached 66 million tons or so. Under the condition of the decline of international cargo and vessel demand, excess capacity in ship business will become particularly important. Due to overall excess capacity, shipbuilding industry in China may reduce the amount of new orders in the future, new ship prices may fall, and ship price fall may further reduce the profit margins in ship business of the Target Group.
Risk of standard improvement in ship industry
As ship regulatory agencies continue to attach importance to ship safety and marine environmental protection, international ship codes are constantly updated and upgraded. Each introduction of new codes may often be more demanding to the shipbuilding industry, so shipbuilding enterprises need to continuously improve technical level to meet the requirements of new codes, which will increase the fixed assets investment, design investment and production costs, and extend the shipbuilding cycle. Although target group has prepared for current new codes, more and higher standard codes on shipbuilding industry developed in the future, if proper, will lead to certain risks to the operations of Target Group.
Risk of price fluctuation in steel raw material
Steel is the main raw material for ship building, accounting for major part of total shipbuilding costs. Steel price is jointly impacted by the following uncontrollable factors like iron ore price, coke price, steel labor costs, supply and
–87– LETTER FROM THE BOARD demand in domestic steel market, economic cycles, and national monetary and fiscal policies. If steel price rapidly grows in a certain period of time, and it is difficult for target group to transfer all increased costs to its customers without affecting the demands, revenue and profitability of the Target Group will be compromised.
Risks of periodicity and price fluctuation in coal industry
Coal industry is the traditional cyclical industry, and there are demand increase and oversupply alternating frequently in domestic and international coal market and related product market. This supply and demand fluctuation would be caused by many factors out of the control of Target Group. These factors include, but are not limited to: economic and political conditions in the world and China, competition from other energy sources, along with growth rate and expansion speed of some industries with higher coal demand (electricity and iron and steel industry, etc.). In 2008, coal price has been seen a sharp fluctuation, and since 2009, as China introduces a series of macroeconomic stimulus policies, the economy remarkably rebounds, and industrial growth continues to expand, resulting in strong energy demand, and restorative growth of domestic coal prices; in early 2010, domestic coal prices have been restored to the level of early 2008, and after that, as of October 2011, domestic coal prices have totally maintained steady rising trend. Influenced by a variety of periodic and aperiodic factors, future coal prices may still be volatile, and the fluctuation of coal prices will result in significant impact on coal business results of target group.
Risk of coal trading scale subject to transport bottlenecks
With China’s rapid economic development, total coal demand in the country constantly increases, and domestic trade continuously grows. However, due to railway construction lagged behind in some areas, whereas the coal mainly relies on the railway, the bottlenecks in coal transportation have become increasingly prominent. Coal trade in target group is currently positioned in Guizhou province, and the regional lag transportation infrastructure may limit the development of its business, and result in adverse effect to operation performance of target group.
Risk in coal industry policy
Coal production, circulation and other links have always been under strict government supervision and control. Especially since 2007, national authorities have issued “Coal industry policy”, “11th Five-Year Plan in coal industry”, “Notice on Continuing a Moratorium on Accepting Application of Coalmine Exploration Permits”, “Notice on 11th Five-Year Plan in coal mine safety production” and other macro-control policies on coal industry, highlighted “industry integration, production control”, and then further promoted the integration of coal industry in order to optimize the industry structure. Changes in coal industry policies may lead to the re-shuffle of the industry of coal production, processing and trading, and bring the uncertainty in business development of target group.
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Risk in bearing customer concentration
Main customers engaged in rail bearings business of target group include locomotive and coach wagon factories and maintenance plants under China South Locomotive and China CNR Corporation Limited, and its business advantages of competitiveness mainly come from the long-term relationship established with these two customers. If the two major business customers show any greater volatility, or the cooperation relations with target group deteriorate, rail bearing business in target group will be materially and adversely affected.
Risk of fierce competition in the bearing market
The Target Group faces more intense competition in general bearing market, where challenging main competitors include five first level dealers of NTN brand bearings in the country and other well-known bearing brand dealers. Current competitive advantages of target group are mainly attributed to sales network resources and customer base formed in general bearing trade in many years. But if target group can not consolidate or develop competitive advantages, facing fierce competition, operating performance of its general bearing will be subject to greater negative impact.
Risk of changes in overseas business environment
Projects of many complete sets of equipments of target group are located in developing countries, economically underdeveloped areas, and areas with complex international relations, where the local politics and economics are instable. And there are great differences among local cultural practices, political systems and situations, the levels of economic development and economic policies, natural environments, foreign policies and others as well. The political instability in Middle East and Africa has limited the project development of target groups, to some extent, in the regions, and may have a negative impact on operating results and financial conditions of target group in the future.
Risk in customer credit
The Target Group normally grants its customers with certain credit period. When the sales rise, the amount of accounts receivable from the customer will increase. If any customer of target group fails to timely pay or does not pay purchase money, financial condition and operation results could be materially and adversely affected.
Risk in international payment
The Target Group may, during international collection, encounter letter of credit fraud, political instability in countries where the payer stays, and limited payment channels under state sanctions, which will result in default of payment, losses of operating income or cash flow deterioration.
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Risk in relatively short business establishment period
Part of enterprises under target group are established in the last two years, and part of the businesses are even brand new areas to target group, therefore the company is lack of comparable historical data; not all company management could be with relevant experience, so it takes time to integrate, and to move into stable development period for the company.
III. Risk in electronic information business
Fierce competition faced by the business of electronic communication systems and microwave circuits and devices
Bi Te Communication (being part of the Target Group) is mainly engaged in development and production of military electronic communication system, and facing challenge from fierce competitors like No.28 and No.15 Research Institutes under China Electronics Technology Group Corporation, 716th Research Institute under CSIC and other domestic academies, which are generally large, strong in technical force, and close to the military customers. Although Bi Te Communication is relatively small, it possesses comparative advantage in the innovation, rapid response capability and intellectual property of core technology.
Chengdu Ya Guang (being part of the Target Group) mainly specializes in microwave circuits and devices, and faces the fierce competition domestically and internationally. Its main domestic rivals include 13th and 55th Research Institutes under China Electronics Technology Group Corporation; and foreign competitors include U.S. M / A-COM Inc. and SKYWORDS Company. Chengdu Ya Guang possesses relative comparative advantages mainly in leading proprietary technology, production process and strong research and development capabilities in the country.
If Bi Te Communication and Chengdu Ya Guang can not consolidate their own advantages and develop the businesses in fierce competition in the future, they may face the risks of decline in market share, and target group performance will be adversely affected.
Risk in cancellation of access system of military product
If the country cancels the military product access system (license system, confidentiality systems, and military quality assurance system etc.), many enterprises, unqualified in military service currently, will be gradually involved in the military product market, and occupy market share of military products, leading to more intense market competition, and bringing more difficult marketing of target group, and the profitability of electronic information business in target group will be materially and adversely affected. However, due to current relatively high access system of military enterprises, the market competition above will not be apparent immediately.
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Risk of cancellation of preferential corporate income tax
Currently, the enterprises engaging in military electronics information business under the Target Group generally receive 15% preferential rate of corporate income tax. If such preferential policy is canceled in the future, and the rate of corporate income tax is changed to 25%, the profitability of the Target Group will be adversely affected.
IV. Risk in department store retail business
Risk in consumer demand fluctuation and preference change
Department store retail business is obviously affected by the economy performance, and in a recession period, consumers tend to reduce shopping; in period of economic growth, consumer spending power is stronger. In the event of domestic economic slowdown, decline in resident income level or purchasing power, and uncertainty of expected economic outlook, may affect consumer spending trends, which leads to the fluctuations in market demand, and brings adverse effect to operating results and future expansion plans of retail business of target group.
In addition, department store retail mainly focuses on individual commodities, and constantly adjusts product structure based on changes in consumer preferences. There are some uncertainties regarding whether market position and product brand portfolio in various stores under the Target Group can accurately satisfy consumer preferences. If the Target Group can not accurately predict and grasp the market demand and trends in consumer shopping habits, it may encounter the risks of customer loss and then decline in operating performance.
Risk of fierce competition in department store retail industry
The concentration of department store retail market is low, and the competition is more sufficient. Particularly, after China joins the World Trade Organization in 2001 and abolishes the restrictions in business area and holding proportion of foreign investment in December 2004, there are more foreign-funded retail enterprises emerging in the industry, which increases market competition. Currently, the enterprises, directly competed with retail business of target group, would be mainly subject to major department stores and large supermarkets in Shenzhen and Pearl River Delta region. Although the Target Group possesses relatively comparative advantages in Shenzhen and Pearl River Delta region, competitive impact from large department stores with similar position, could not be avoided as to retail business of the Target Group. In addition, domestic department store chain is still in the stage of vigorous development, and with cross-regional expansion of domestic competitors and gradual access by large foreign department stores and retail companies, the Target Group will face more and more widespread and intense competitions.
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Risk in relative concentration management
As of the end of 2010, the Target Group has set up 39 “Rainbow” department stores of direct sales and managed 3 franchise stores in the following cities, Shenzhen, Xiamen, Dongguan, Nanchang, Fuzhou, Changsha, Hangzhou, Suzhou, Beijing and 3 other cities. “Rainbow” brand stores are concentrated in the southern China region, where there are 28 stores (Shenzhen, Dongguan, and Huizhou), accounting for 66.7%, and only in Shenzhen there are 20 stores, accounting for 47.6%. In 2010, main business income from Shenzhen accounts for 64.2% of total revenue of main business of Rainbow Department Store under the Target Group. In the event of any fluctuation in social retail demand in southern China, especially Shenzhen due to any reason, financial conditions and operation results of the Target Group will be materially and adversely affected.
Risk in cross-regional department store retail business
Department store retail business of the Target Group has achieved a leading position in Shenzhen and Pearl River Delta region, successfully entered into Fujian Province and Jiangxi Province, and started to move into Yangtze River Delta and North China. Because of large regional differences for retail development in China, the consumers in different regions will show quiet difference in regional culture, consumption capacity and consumer preferences, and target group will continue to face, in cross-regional business, the challenges in site selection accuracy, product mix, brand optimization and marketing. In addition, as the chain scale continues to expand, the number of shopping malls, asset size and business scale will be expanded accordingly, and higher requirements will be attached to daily operation and management. If target group can not adjust and improve the management system immediately, it may be likely to face risks in management and control.
Risk of seasonal fluctuations in department store retail
In normal years, business revenues and profits in domestic department store retail industry would show seasonal fluctuations. Influenced by Lunar New Year, National Day, New Year and other holidays, the period from September to next February would usually be the peak season of consumption for domestic retail market, and industry sales revenue and profits in this phase would be higher; the period from March to August is usually the off-season, and industry sales and profits in this phase would be lower than the peak season. This seasonal variation may bring about uncertain impact on quarterly retail operating results in target group.
Risk in product liability
According to the “Product Quality Law of PRC”, the seller shall bear the liability for compensation in case of any personal injury or property damage to others due to defective product from the seller fault. Under the provisions, if target group-owned stores sell out defective goods (including concessionaire products), the consumer can claim compensation to the producer or target group. If target
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group or counter providers are liable for damages of consumers according to the laws, it may bring some losses to target group, and lead to negative impact on the reputation of target group.
Risk in the lag of construction of warehousing and distribution system
Because of highly specialized department store retail warehousing and distribution, and significant quantity differences in peak season and off-season, the enterprises in the industry, to improve the efficiency of warehousing and distribution, must guarantee management integration in procurement, sales, distribution and service. Department store chain shows more stringent service requirements in warehousing and distribution, and on-time delivery and guaranteed quality and quantity would be key points in warehousing and distribution. Rainbow Department Store has features of relatively smaller existing warehousing and distribution centers, limited warehousing and distribution capacity, and insufficient satisfaction for business development. As chain business scale of target group continues to expand, higher requirements will be put forward to procurement supply and warehousing distribution, and if target group can not timely strengthen construction and management of warehousing and distribution system, it will face certain business risks.
V. Risk in group expansion due to this acquisition
Uncertainty in prerequisite formation
The prerequisite set out in acquisition agreement includes overall approval of this transaction by SASAC, and having obtained; all necessary consents, approvals and reporting obtained and made by acquisition parties on their own with any relevant governmental or regulatory authorities in China, Hong Kong or elsewhere. As the prerequisite is involved in the decision from a third party, the acquisition accomplishment is uncertain.
Increased difficulty in management and internal control faced by the Enlarged Group
If the Acquisitions is completed, the Enlarged Group will enter new business areas, and due to expanded business scale, the corresponding organization and management will be more complicated than the status quo, and existing management team will be challenged. Also internal control measures shall be improved to be consistent with expanded main business, or it will bring adverse effect to operation results and financial conditions due to internal control deficiencies. After the acquisition, management teams in various target companies will remain stable in order to play their professional skills and management experience advantages, while the Board will also consider to increase board members with relevant management experience to ensure new business units will be better managed and controlled.
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VI. Other risks
Risk in personnel turnover
The operations of target group rely on its senior management with necessary expertise and services provided by specialist employees. For example, because complete set of air separation equipment features complex technology theory and process, rational product design and advanced manufacturing technology would be the key to product acceptance by customers, and related product will be designed across multiple disciplines, so a large number of professional and technical personnel are required. Design and production of military electronic communication system and microwave circuits and devices are also technology-intensive manufacturing operations, with higher value-added product technology; technical innovation would be critical element driving business growth and development of electronic information for target group, and core technical staffs play key role in technological innovation. The personnel stability will function significantly in technological achievement creation and technology leakage prevention in the Target Group.
Therefore, the future success of the Target Group depends largely on full participation of such personnel, and the capability of the Enlarged Group to retain such employees and to hire skilled staff. The Enlarged Group may need to provide higher salary and other benefits to attract and retain key management and technical staff. If most of key personnel resigns, and the group fails to find qualified alternative candidates, it may have a material adverse impact on the operation of target group. In addition, with growth and expansion of the Enlarged Group, it may need to hire and retain other skilled personnel. If the Enlarged Group is unable to attract and retain qualified personnel, its business and future growth may be adversely affected.
Risk in force majeure
Natural disasters like earthquakes, typhoons, tsunamis and unexpected public health events in China or in the other places will lead to a significant adverse effect operating atmosphere and environment where target group locates, and will bring damage to the property and impact to the personnel of target group, affect normal production and operation, and even influence investment and residential willingness of home buyers along with commercial residential and commercial property sales. Force majeure event may materially and adversely affect business and profitability of the Enlarged Group.
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Political, economic and social environments in China
As an enterprise group whose principal businesses are operated in China, the business of the Enlarged Group is largely limited by economic, political, legal and social constraints in China. Among them, any changes to the laws and regulations, the enactment of new tax laws, foreign exchange and remittance restrictions as well as rate or tariff adjustments are likely to adversely affect business operations and profitability of the Target Group.
The Company depends on its ultimate controlling shareholder, whose interests may not be aligned with those of the H Shareholders
After completion of the Acquisitions and assuming full conversion of the PSCS subject to the terms of the PSCS and compliance with applicable rules (including the maintenance of minimum public float under the Listing Rules) and on the basis that there is no other change in the issued share capital of the Company, AVIC International and Shenzhen Company will, in aggregate, hold 75% of issued share capital of the Company. Certain of the Directors are also executives of the Vendors. Through voting rights, the Vendors will be able to have a huge influence on the Company’s major business decisions or control major business decisions, including but not limited to the Company’s policy, strategy and management. Interests of the controlling shareholder may not be consistent with the interests of the Company or the Shareholders, and it may adversely affect business operations to the Enlarged Group.
The findings, extracted from official government publications or other sources, and other statistics in this circular are not necessarily reliable
The findings and certain other statistics in this circular are extracted from various official government publications, and other sources believed by the Group to be reliable in general. However, neither the Group nor any of its consultants has prepared or independently verified the related information, and there is no guarantee over the quality or reliability of the source data. The Group does not make any authenticity statement with respect to such findings and statistics, which may be not necessarily consistent with other data prepared at home and abroad. However, the Group, during the disclosure from circular restatement or extraction from official government publications, has taken reasonable care. As the error may occur in data extraction error, or invalid data collection methods or publication information disparity with market practice, these findings and statistics may be inaccurate, and may be also not compared with facts and statistics prepared in other economic systems. In addition, there is no guarantee that the related data would not be restated or prepared in line with the same criteria or accuracy in other jurisdictions.
–95– LETTER FROM THE BOARD
The Company may not be able to make required disclosure to its auditors and/or the public
In light of the businesses engaged by certain members of the Target Group, there may be occasions where certain information (including statements or documentations) would be classified as state secret of to PRC under the PRC laws, including the provision of the Law of the PRC on the Guarding State Secrets (中華人 民共和國保守國家秘密法), rendering such disclosure be in violation of laws. In such event, the Company and/or any member of the Enlarged Group may not be able to provide the required disclosure of the Group to the public, there may further be circumstances where qualified opinion from auditors may be issued in the event the Group is unable to provide sufficient and appropriate audit evidence if such information requested are so classified as state secret.
Summary
The Acquisitions will increase the level of risk faced by the Enlarged Group. Shareholders should carefully consider information set out in this circular, including the risks and uncertainties set out above, when considering the Acquisitions and the transactions contemplated under the Agreements, and in investing in the Shares.
IMPLICATIONS UNDER THE LISTING RULES
As the relevant applicable percentage ratios calculated pursuant to the Listing Rules in respect of the Acquisitions, in aggregate, exceed 100%, the Acquisitions constitute very substantial acquisitions of the Company and are subject to, among other things, the shareholders’ approval requirement under Chapter 14 of the Listing Rules.
As at the Latest Practicable Date, Shenzhen Company is a controlling shareholder of the Company holding 395,709,091 Domestic Shares, representing approximately 58.77% of the issued share capital of the Company, and AVIC International owns 100% of the equity interest in Shenzhen Company. Therefore, AVIC International and Shenzhen Company are connected persons of the Company under Chapter 14A of the Listing Rules and hence, the Acquisitions also constitute connected transactions of the Company under Chapter 14A of the Listing Rules, and are subject to, among other things, the independent shareholders’ approval requirement under Chapter 14A of the Listing Rules.
As at the Latest Practicable Date, the Vendors and their respective associates held an aggregate of 395,709,091 Domestic Shares, representing approximately 58.77% of the issued share capital of the Company. The Vendors and their respective associates are required to abstain from voting at the EGM and the Class Meetings as a result of having a material interest in the Acquisitions and the transactions contemplated under the Agreements. To the best of the Directors’ knowledge, information and belief after having made all reasonable enquiries, none of the Shareholders are required to abstain from voting at the EGM or the Class Meetings other than the Vendors and their respective associates.
–96– LETTER FROM THE BOARD
No Director has any material interest in the Acquisitions and the transactions contemplated under the Agreements, and no Director was required to abstain from voting in the meeting of the Board approving the Acquisitions and the transactions contemplated under the Agreements.
(B) POTENTIAL AMENDMENTS TO THE ARTICLES OF ASSOCIATION
The Company’s current share capital structure is set out in Article 24 and Article 27 of its articles of association. The share capital of the Company shall increase after the issue of any of the Conversion Shares (upon conversion of the PSCS). The Company will seek the Shareholders’ authorisation in making appropriate amendments to the articles of association of the Company to reflect the corresponding changes and will comply with the articles of association of the Company and the Listing Rules as and when appropriate upon conversion of the PSCS. Further announcement will be made by the Company if it has been notified of any proposed conversion of the PSCS.
(C) POTENTIAL CONTINUING CONNECTED TRANSACTIONS
The Target Group has historically been involved (and will continue to be involved) in transactions with the Vendors (or their associates). The Target Group expects to enter into framework agreement(s) with the Vendors (or their associates) in order to set out the basic content of the transactions which the members of the Target Group will continue to engage in with the Vendors (or their associates) after completion of the Acquisitions.
As the Vendors (or their associates) are connected persons of the Company, and the Target Group will become part of the Enlarged Group upon completion of the Acquisitions, transactions between the Target Group and the Vendors (or their associates) will also constitute continuing connected transactions for the Enlarged Group. It is expected that such continuing connected transactions may include, among other things, sale and purchase transactions, financial assistance and provision of services.
The Company will comply with the Listing Rules, where applicable, in relation to the potential continuing connected transactions and their framework agreement(s).
INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER
An Independent Board Committee comprising Ms. Wong Wai Ling, Mr. Wu Wei and Mr. Liu Xian Fa, being all independent non-executive Directors, has been established to advise the Independent Shareholders in respect of the Acquisitions and the transactions contemplated under the Agreements. None of the members of the Independent Board Committee has any material interest in the Acquisitions and the transactions contemplated under the Agreements. The letter from the Independent Board Committee is set out on pages 100 to 101 of this circular.
The Company has also appointed Anglo Chinese Corporate Finance, Limited as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Acquisitions and the transactions contemplated under the Agreements. The letter from the Independent Financial Adviser is set out on pages 102 to 128 of this circular.
–97– LETTER FROM THE BOARD
EGM AND CLASS MEETINGS
The EGM will be convened by the Company at Level 25, Hangdu Building, CATIC Zone, Shennan Road Central, Futian District, Shenzhen, the PRC on Wednesday, 8 February 2012 at 10:00 a.m., at which resolutions will be proposed to consider and, if thought fit, approve the Acquisitions and the transactions contemplated under the Agreements. Notice convening the EGM is set out on pages EGM-1 to EGM-4 of this circular.
The class meeting for holders of H Shares and the class meeting for holders of Domestic Shares will be convened by the Company at Level 25, Hangdu Building, CATIC Zone, Shennan Road Central, Futian District, Shenzhen, the PRC on Wednesday, 8 February 2012 at 11:00 a.m. (or immediately after the conclusion or adjournment of the EGM which will be held at the same place and on the same date) and 11:30 a.m. (or immediately after the conclusion or adjournment of the EGM and the class meeting for the holders of H Shares which will be held at the same place and on the same date), respectively, at which resolutions will be proposed to consider and, if thought fit, approve the Acquisitions and the transactions contemplated under the Agreements. Notices convening the Class Meetings are set out on pages HCM-1 to HCM-4 and pages DCM-1 to DCM-4 of this circular, respectively.
The forms of proxy for use at the EGM and the Class Meeetings are enclosed with this circular. Whether or not you are able to attend (if you are so entitled to) the meetings, you are requested to complete the forms of proxy in accordance with the instructions printed thereon and return them as soon as possible to the Company’s legal address at Level 25, Hangdu Building, CATIC Zone, Shennan Road Central, Futian District, Shenzhen, the PRC (for holders of Domestic Shares), or the H Share Registrar of the Company, Hong Kong Registrars Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong (for holders of H Shares) as soon as possible and in any event not later than 24 hours before the time appointed for holding the relevant meeting.
Shareholders and potential investors are reminded that the Acquisitions are subject to, among other things, fulfillment of certain conditions set out in the paragraphs headed “Conditions Precedent to the Acquisition Agreement 1 and the Acquisition Agreement 2” and “Conditions Precedent to the Acquisition Agreement 3” above. There is no assurance by the Company that any of the conditions to the Acquisitions will be fulfilled, and the Acquisitions may or may not proceed. Shareholders and potential investors should exercise caution when dealing in the H Shares.
–98– LETTER FROM THE BOARD
RECOMMENDATION
The Directors, including the independent non-executive Directors, believe that (i) the Acquisition Agreement 1, and the Acquisition Agreement 2 and the transactions contemplated thereunder are fair and reasonable, and are in the interests of the Company and the Shareholders as a whole; and (ii) the Acquisition Agreement 3 and the transactions contemplated thereunder are fair and reasonable, and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors, including the independent non-executive Directors, recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM and Class Meetings to approve the Acquisitions and the transactions contemplated under the Agreements.
By Order of the Board CATIC Shenzhen Holdings Limited Wu Guang Quan Chairman
–99– LETTER FROM THE INDEPENDENT BOARD COMMITTEE
(a joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 00161)
23 December 2011
To the Independent Shareholders
Dear Sir or Madam,
VERY SUBSTANTIAL ACQUISITIONS AND CONNECTED TRANSACTIONS INVOLVING ISSUE OF PERPETUAL SUBORDINATED CONVERTIBLE SECURITIES AND POTENTIAL AMENDMENTS TO THE ARTICLES OF ASSOCIATION AND POTENTIAL CONTINUING CONNECTED TRANSACTIONS
Reference is made to the circular of CATIC Shenzhen Holdings Limited dated 23 December 2011 (the “Circular”), of which this letter forms part. Unless the context otherwise requires, terms defined in the Circular shall have the same meanings when used in this letter.
We have been appointed as members of the Independent Board Committee to advise the Independent Shareholders as to whether the terms of the Acquisitions and the transactions contemplated under the Agreements are fair and reasonable, and to make recommendation as to whether the Independent Shareholders should vote in favour of the resolutions to be proposed at the EGM and the Class Meetings to consider and, if thought fit, approve the Acquisitions and the transactions contemplated under the Agreements.
Anglo Chinese Corporate Finance, Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the Acquisitions and the transactions contemplated under the Agreements.
Your attention is drawn to the letter from Board (as set out on pages 9 to 99 of this Circular) and the letter of advice from the Independent Financial Adviser (as set out on pages 102 to 128 of this Circular).
– 100 – LETTER FROM THE INDEPENDENT BOARD COMMITTEE
Having taken into account the advice of the Independent Financial Adviser and the terms of the Agreements, we are of the view that (i) the terms of the Acquisition Agreement 1 and the Acquisition Agreement 2 and the transactions contemplated thereunder are fair and reasonable so far as the Independent Shareholders are concerned, and are in the interests of the Company and the Independent Shareholders as a whole and (ii) the terms of the Acquisition Agreement 3 and the transactions contemplated thereunder are fair and reasonable so far as the Independent Shareholders are concerned, and are in the interests of the Company and the Independent Shareholders as a whole. We therefore recommend that the Independent Shareholders to vote in favour of all the resolutions to be proposed at the EGM and the Class Meetings to approve the Acquisitions and the transactions contemplated under the Agreements.
Yours faithfully, Independent Board Committee of CATIC Shenzhen Holdings Limited Wong Wai Ling Wu Wei Liu Xian Fa Independent Non-Executive Directors
– 101 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
The following is the text of the letter from Anglo Chinese to the Independent Board Committee and the Independent Shareholders, prepared for the purpose of inclusion in this circular.
40th Floor, Two Exchange Square, 8 Connaught Place, Central, Hong Kong. www.anglochinesegroup.com
To the Independent Board Committee and the Independent Shareholders
23 December, 2011
Dear Sirs,
VERY SUBSTANTIAL ACQUISITIONS AND CONNECTED TRANSACTIONS INVOLVING ISSUE OF PERPETUAL SUBORDINATED CONVERTIBLE SECURITIES
INTRODUCTION
We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Acquisitions and the transactions contemplated under the Agreements. Details of which, amongst other things, are set out in the letter from the Board contained in the circular of the Company dated 23 December 2011, of which this letter forms part. Terms defined in this circular shall have the same meanings when used in this letter unless the context requires otherwise.
Reference is made to the announcement of the Company dated 21 November 2011. On 16 November 2011, the Company entered into the Acquisition Agreements 1 with AVIC International and Acquisition Agreement 2 with Shenzhen Company respectively, pursuant to which the Company has conditionally agreed to acquire and AVIC International and Shenzhen Company have conditionally agreed to sell the Sale Interests 1 and Sale Interests 2 at a consideration of RMB1,311 million (equivalent to approximately HK$1,619 million) and RMB638 million (equivalent to approximately HK$788 million), respectively.
Consideration 1 and Consideration 2 will be satisfied by the Company issuing to AVIC International the PSCS 1 and to Shenzhen Company the PSCS 2, convertible into 368,289,325 Conversion Shares and 179,191,011 Conversion Shares, respectively, at the initial Conversion Price of RMB3.56 (equivalent to approximately HK$4.40) per Conversion Share. Upon completion of the Acquisition Agreement 1 and Acquisition Agreement 2 and assuming full conversion of PSCS 1 and PSCS 2, AVIC International and Shenzhen Company will be respectively interested in approximately 30.17% and 47.09% of the issued share capital of the Company, as enlarged by the issue of the Conversion Shares.
– 102 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
The Company also entered into the Acquisition Agreements 3 with Shenzhen Company on 16 November 2011, pursuant to which the Company has conditionally agreed to acquire and Shenzhen Company have conditionally agreed to sell the Sale Interests 3 at a consideration of approximately RMB6,328 million (equivalent to approximately HK7,813 million).
Consideration 3 will be satisfied by the Company issuing to Shenzhen Company the PSCS 3, convertible into 1,777,613,081 Conversion Shares at the initial Conversion Price. Upon completion of the Acquisition Agreement 3 and assuming full conversion of the PSCS 3 at the initial Conversion Price, Shenzhen Company will be interested in approximately 88.67% of the issued share capital of the Company, as enlarged by the issue of the Conversion Shares. Upon completion of the Acquisitions and assuming full conversion of the PSCS at the initial Conversion Price, AVIC International and Shenzhen Company will be respectively interested in approximately 12.28% and 78.46% of the issued share capital of the Company, as enlarged by the issue of the Conversion Shares.
As the relevant applicable percentage ratios calculated pursuant to the Listing Rules in respect of the Acquisitions, in aggregate, exceed 100%, the Acquisitions constitute very substantial acquisitions of the Company under Chapter 14 of the Listing Rules. As at the Latest Practicable Date, Shenzhen Company is a controlling shareholder of the Company holding 395,709,091 Domestic Shares, representing approximately 58.77% of the issued share capital of the Company and AVIC International owns 100% of the equity interest in Shenzhen Company. AVIC International and Shenzhen Company are connected persons of the Company under Chapter 14A of the Listing Rules and hence, the Acquisitions also constitute connected transactions of the Company under Chapter 14A of the Listing Rules, and are subject to, among other things, the independent shareholders’ approval requirement under Chapter 14A of the Listing Rules.
An Independent Board Committee comprising all independent non-executive Directors has been formed to advise the Independent Shareholders in respect of the Acquisitions and the transactions contemplated under the Agreements.
Votes of the Independent Shareholders at the EGM and the Class Meetings shall be taken by poll. As at the Latest Practicable Date, AVIC International, Shenzhen Company and their respective associates hold an aggregate of 395,709,091 Domestic Shares, representing approximately 58.77% of the issued share capital of the Company, and will abstain from voting at the EGM and the Class Meetings as they have a material interest in the Acquisitions and the transactions contemplated under the Agreements. Save for the approval from the Independent Shareholders at the EGM and the Class Meetings, the Acquisitions and the transactions contemplated under the Agreements are also subject to the conditions precedent as set out on pages 13 to 14 and 16 of this circular.
BASIS OF OUR OPINION
In formulating our opinion, we consider that we have reviewed sufficient and relevant information and documents and have taken reasonable steps as required under Rule 13.80 of the Listing Rules including the notes thereto to reach an informed view and to provide a reasonable basis for our recommendation. We have relied on the information,
– 103 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER statements, opinion and representations contained or referred to in this circular and all information and representations which have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so at the date hereof. We have also assumed that all statements of belief, opinion and intention of the Directors as set out in the letter from the Board contained in this circular were reasonably made after due and careful inquiry. We have also sought and obtained confirmation from the Company that no material facts have been omitted from the information provided and referred to in this circular.
The Directors confirmed that they have provided us with all currently available information and documents which are available under present circumstances to enable us to reach an informed view and we have relied on the accuracy of the information contained in this circular so as to provide a reasonable basis of our opinion. We have no reason to suspect that any material facts or information, which is known to the Company, have been omitted or withheld from the information supplied or opinions expressed in this circular nor to doubt the truth and accuracy of the information and facts, or the reasonableness of the opinions expressed by the Company and the Directors which have been provided to us. We have not, however, carried out any independent verification on the information provided to us by the Directors, nor have we conducted any form of independent in-depth investigation into the business and affairs or the prospects of the Company, the Target Companies or any of their respective subsidiaries or associates.
Apart from normal professional fees for our services to the Company in connection with this appointment, no arrangement exists whereby we will receive any benefits from the Company or any of its associates.
PRINCIPLE FACTORS AND REASONS CONSIDERED
In formulating and giving our opinion to the Independent Board Committee and the Independent Shareholders in respect of the Acquisitions and the transactions contemplated under the Agreements, we have taken into account the following principal factors:
Background of the Acquisitions
1. Business and financial information of the Group
The Company is a diversified strategic investment holding company. The Group is mainly engaged in the manufacturing and sales of liquid crystal displays (“LCD”), printed circuit boards (“PCB”), luxurious timepieces and mining resources, hotel operation and property development in the PRC. Following the 2010 Acquisition, it is expected that the business of the Group will be expanded into the businesses trading and logistics, overseas construction and commercial property industry. Details of the said acquisition agreements dated 30 November 2010 are set out in the circular of the Company dated 31 December 2010.
– 104 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
Tabularised below is a summary of the audited and unaudited consolidated financial results of the Group as extracted from the Company’s annual report 2010 and interim report 2011:
Consolidated income statement
For the six months ended 30 June For the year ended 31 December (RMB’000) 2011 2010 2010 2009 2008 2007 2006 (unaudited) (unaudited) (audited) (audited) (audited) (audited) (audited)
Revenue 4,588,143 2,925,394 6,964,551 5,092,883 4,077,074 3,357,210 2,629,794 Profit/(loss) before taxation 149,765 92,872 454,888 (288,849) 5,919 398,607 211,367 Profit/(loss) after taxation 114,979 70,238 342,590 (288,780) (41,665) 338,084 180,362 Profit/(loss) attributable to equity holders of the Company 20,860 19,454 193,561 (165,566) 1,282 231,654 123,095 Basic earnings per share attributable to equity holders of the Company (RMB) 0.0310 0.0289 0.2874 (0.2458) 0.0019 0.3642 0.1924
Consolidated balance sheet
As at 30 June As at 31 December (RMB’000) 2011 2010 2009 2008 2007 2006 (unaudited) (audited) (audited) (audited) (audited) (audited)
Total equity 5,190,961 4,948,449 3,824,337 3,695,238 4,124,524 1,760,834
Equity attributable to equity holders of the Company 1,998,431 1,977,482 1,698,513 1,872,783 2,105,156 1,297,354 Equity per share attributable to equity holders of the Company (RMB) 2.95 2.94 2.52 2.76 3.10 2.03
As shown above, the Group maintained steady growth on revenue in the past five financial years and recorded profit attributable to equity holders of the Company in each financial year except for 2009. For the year ended 31 December 2009, the Group recorded loss attributable to equity holders of the Company of approximately RMB166 million, as the global financial crisis adversely affected the Group overall operating performance. The Group’s operations improved and record profits for the financial year ended 2010 and six months ended 30 June 2011. For the six months ended 30 June 2011, the Group recorded consolidated revenue of approximately RMB4,588 million, representing an increase of approximately 56.84% over the same period of 2010. For the year ended 31 December 2010, the Group recorded consolidated revenue from continuing operations of approximately RMB6,965 million, representing an increase of approximately 36.75% over the previous year. Profit attributable to equity holders of the Company was approximately RMB21 million for the six months ended 30 June 2011, representing an increase of approximately 7.23% over the same period of 2010. Profit attributable to equity holders of the Company was approximately RMB194 million for the year ended 31 December 2010, turned around from a loss of approximately RMB166 million for 2009.
– 105 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
The manufacturing and sales of LCD, PCB and timepieces are the principal business sectors that contributed majority of the Group’s revenue since early 2000. The operation of the Company had expanded into property investment and resources business during 2008 but the scale was relatively small.
As stated in the Company’s annual report 2010, facing the complex and volatile market, economic and policy environment and opportunities from industry recovery after the financial crisis, the Group’s principal activities recorded a good performance in 2010, of which, the LCD business responded quickly to market demand, actively promoted the product mix adjustment and development of key clients, obtained substantial increase in annual operation revenue and earnings and turned losses into gains; “aggressive marketing” strategy adopted in PCB business achieved notable success; the packaging substrate and electronics assembly businesses were progressing smoothly and achieving sustained and rapid growth in profitability; the luxurious wrist watches business continued to grow rapidly, the “VIOLA TRICOLOR” multi-brand system had achieved initial success and the sales channel of luxurious watches was expanded quickly; in resource business, the production technical innovation of potassium fertilisers was completed on schedule and the project was pushed forward steadily; the modernisation and renovation of Guangdong International Building were basically completed at the end of the year and it is expected that its trial operation will start in April 2011. The revenue and profit/(loss) after taxation of the Group by activities based on the Company’s annual report 2010 are as follows:
Consolidated income statement
Revenue Profit/(loss) after taxation For the year For the year ended 31 December ended 31 December (RMB ’000) 2010 2009 2010 2009
LCD 3,321,736 2,181,111 150,028 (290,779) PCB 1,578,891 1,167,939 148,710 101,761 Timepieces 1,700,608 1,153,803 53,538 43,772 Resources 189,529 433,682 (7,363) (80,795) Property 126,042 124,308 46,270 26,425 Others 47,745 32,040 (48,593) (89,164)
Total 6,964,551 5,092,883 342,590 (288,780)
As stated in the Company’s interim report 2011, faced with a complex and volatile world market and emerging circumstances in domestic economy, the Group strived to ensure growth in core business during the six months ended 30 June 2011. The LCD business recorded steady growth by capturing the opportunities of increase in market demands and restructuring product and customer structures; the “aggressive marketing” strategy adopted in the PCB business achieved notable success in promoting stable progresses across multiple business fields; as for luxurious wrist watch business, the overall improvements in the Group’s market competitiveness and profitability have resulted in impressive growth; the resources
– 106 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER business recorded significant growth in operating revenue as a result of the upward trend of potassium fertiliser prices and the growth of operation of the fertiliser business department; Guangdong International Building has completed the renovation and modernization project, and the “Crowne Plaza Hotel Guangzhou City Centre” has started operation since June 2011. From an overall perspective, the Group’s operating results for the first half of 2011 recorded a significant growth over the previous year. The unaudited revenue and profit/(loss) after taxation of the Group for the six months ended 30 June 2010 and 2011 by activities are classified as follows:
Consolidated income statement
Revenue Profit/(loss) after taxation For the six months For the six months ended 30 June ended 30 June (RMB ’000) 2011 2010 2011 2010
LCD 2,076,773 1,419,791 67,952 57,881 PCB 997,799 664,925 90,962 72,630 Timepieces 1,189,052 759,025 68,250 32,295 Resources 216,796 4,632 (38,568) (42,115) Property 84,056 54,326 (39,764) (9,861) Others 23,667 22,695 (33,853) (40,592)
Total 4,588,143 2,925,394 114,979 70,238
2. Business and financial information of the Target Group
The Target Group is principally engaged in trading and logistics, electronic manufacturing and the retail sector. For the convenience of analysis in our letter, we have divided the Sale Interests into two sectors, retail business and non-retail business. In respect of the acquisition of 39.52% equity interest in Rainbow Department Store, given the assets and investments of Rainbow Department Store are mostly retail related and Consideration 3 for such equity accounts for approximately 76.45% of the aggregate consideration for the Acquisitions, Sales Interest 3 is being grouped as retail business (the “Retail Business”). In respect of the acquisition of 100% equity interest in Shanghai Company, 50% equity interest in Lutong Company, 90% equity interest in Guizhou CATIC Resources, 100% equity interest in Project Engineering Company, 55.91% equity interest in Chengdu Ya Guang and 51% equity interest in Bi Te Communication (being effectively all targets under Sale Interest 1 and Sale Interest 2), given such acquisitions are interconditional and their respective assets and investments are diversified into various sectors including, among others, trade logistics and manufacturing and the sum of Consideration 2 and Consideration 3 accounts for the remaining approximately 23.55% of the aggregate consideration for the Acquisitions, Sale Interest 1 and Sale Interest 2 are being grouped as non-retail business (the “Non-Retail Business”).
– 107 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
i. Retail Business
Rainbow Department Store was established in the PRC as a joint stock limited company. The company is currently listed on the Shenzhen Stock Exchange with market capitalisation of approximately RMB14.52 billion as at the Latest Practicable Date. Rainbow Department Store is principally engaged in, among others, operating department stores business and franchising concessionaires, food and household appliances sales in the PRC. It has set up 41 self-operated chain department stores in the name of “Rainbow” in 14 cities, such as Shenzhen, Xiamen, Nanchang, Fuzhou, Changsha, Hangzhou, Suzhou, Beijing and Changzhou with a total business area of 1.005 million square meters. It established one self-operated chain department store in the name of “Dreams-on” with a business area of 37,800 square meters. In addition, three department stores are managed in the form of franchising.
Tabularised below is a summary of the audited financial results of Rainbow Department Store as extracted from financial statements audited by PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, which are prepared in accordance with International Financial Reporting Standards, for each of the three years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011:
Consolidated income statement
For the six months For the year ended 30 June ended 31 December (RMB ’000) 2011 2010 2010 2009 2008 (audited) (unaudited) (audited) (audited) (audited)
Revenue 2,736,729 2,170,461 4,533,657 3,708,914 3,563,766 Profit before taxation 431,639 273,934 576,252 386,521 335,005 Profit after taxation 317,534 201,472 436,376 292,883 269,939 Profit attributable to equity holders of Rainbow Department Store 317,599 201,472 436,376 292,883 269,939
Consolidated balance sheet
As at 30 June As at 31 December (RMB ’000) 2011 2010 2009 2008 (audited) (audited) (audited) (audited)
Total assets 7,185,064 7,166,034 3,933,402 3,022,668 Total liabilities 4,094,313 4,153,557 3,279,152 2,521,301 Total equity 3,090,751 3,012,477 654,250 501,367 Equity attributable to equity holders of Rainbow Department Store 3,090,016 3,012,477 654,250 501,367
– 108 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
As shown above, the operation of the Retail Business was profitable and shown growth for each of the three years ended 31 December 2008, 2009 and 2010. For the six months ended 30 June 2011, the Retail Business recorded profit attributable to equity holders of Rainbow Department Store of approximately RMB318 million. For the six months ended 30 June 2011, revenue and profit attributable to equity holders of Rainbow Department Store increased by approximately 26.09% and 57.64% respectively as compared to the same period of the previous year. The increase was mainly attributable to the new opening of two stores, namely Liyang Rainbow and Yong’an Rainbow during the first half of 2011. For the year ended 31 December 2010, revenue and profit attributable to the equity holders of Rainbow Department Store increased by approximately 22.24% and 48.99% respectively as compared to the previous year. The significant increase was contributed by the new opening of the five “Rainbow” direct-operated chained department stores, namely Huangjiang Rainbow, Guozhan Rainbow, Houjie Rainbow, Huzhou Rainbow and Henggang Rainbow by Rainbow Department Store. In addition, the total assets and equity attributable to equity holders of the Retail Business maintained a significant growth over the past few years.
For further details of financial information and background of the companies comprising the Retail Business, please refer to pages 45 to 49 in the letter from the Board in this circular and Appendix II and Appendix VI to this circular.
ii. Non-Retail Business
Companies comprising the Non-Retail Business are non-listed companies established in the PRC with limited liability. Project Engineering Company and Lutong Company were newly established in April 2011 and February 2011, respectively. As at the Latest Practicable Date, Shanghai Company and Project Engineering Company are 100% owned by AVIC International; Guizhou CATIC Resources is 90% and Lutong Company is 50% owned by AVIC International respectively; Chengdu Ya Guang is 55.91% and Bi Te Communication is 51% owned by Shenzhen Company, respectively.
Shanghai Company (and the Shanghai Company Associated Companies) is principally engaged in manufacturing and trading of chemical tankers, trading of air separation equipment and commodity trading. Lutong Company is principally engaged in trading and logistics of bearings and insulating films. Guizhou CATIC Resources (and the Guizhou CATIC Resources Associated Company) is principally engaged in trading and logistics of coal. Project Engineering Company is principally engaged in trading business of complete set of equipment and general contracting of governmental projects. Chengdu Ya Guang (and the Chengdu Ya Guang Associated Companies) is principally engaged in development, production and sales of microwave circuit and microwave devices, and trading of chemical materials. Bi Te Communication is principally engaged in development and production of military electronic communication system and products.
– 109 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
The business segments engaged by the companies under the Non-Retail Business are quite diverse. As there is no combined financial statements being prepared in respect of the Non-Retail Business, tabularised below is the summation of the financial results of Shanghai Company, Project Engineering Company, Guizhou CATIC Resources, Lutong Company, Chengdu Ya Guang and Bi Te Communication according to their respective audited financial statements for each of the three years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011, details of which are set out in Appendix II to this circular. Project Engineering Company and Lutong Company were newly established in 2011, as such, financial results were only available for both companies for the six months ended 30 June 2011. The figures below are only an arithmetic summation of the financial results of the companies comprising the Non-Retail Business for illustration purpose only and should not be viewed as a consolidated financial statement or pro-forma financial information of the Non-Retail Business:
Income statement
For the six months ended 30 June For the years ended 31 December (RMB ’000) 2011 2010 2010 2009 2008
Aggregate revenue 5,350,013 2,674,892 6,257,429 3,350,857 2,529,621 Aggregate profit attributable to equity holders of the Non-Retail Business 30,186 48,278 128,830 122,124 71,924
Balance sheet
As at 30 June As at 31 December (RMB ’000) 2011 2010 2009 2008
Aggregate equity attributable to equity holders of the Non-Retail Business 1,503,163 1,145,621 962,112 855,493
As shown above, the operation of the Non-Retail Business as a whole remained profitable for each of the three years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011 and equity attributable to holders of the Non-Retail Business maintained stable growth over the same periods.
–110– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
For each of the three years ended 31 December 2008, 2009, 2010 and the six months ended 30 June 2011, the businesses operated under the Non-Retail Business can be broadly divided into four main segments, namely, trading, ship building, manufacturing and sales, and logistics. These four key segments contributed over 97% of the aggregate revenue of the Non-Retail Business as shown below:
Revenue
For the six months ended 30 June For the year ended 31 December (RMB ’000) 2011 2010 2010 2009 2008
Trading 4,718,969 2,449,108 5,457,819 2,967,875 2,145,364 Ship building 309,505 – 198,683 – – Manufacturing and Sales 193,016 186,530 415,170 295,499 269,625 Others 128,523 39,254 185,757 87,483 114,632
Subtotal (continuing operation) 5,350,013 2,674,892 6,257,429 3,350,857 2,529,621 Logistics (discontinued operation) 68,449 88,467 184,687 154,780 104,245
Total 5,418,462 5,349,784 12,514,858 6,701,714 5,059,242
The revenue contribution from trading was mainly derived from the trading business of coal, bearings, insulating films, chemical materials and complete sets of equipment operated by Guizhou CATIC Resources, Chengdu Ya Guang, Lutong Company, Project Engineering Company and Shanghai Company. The revenue contribution from ship building was mainly derived from Shanghai Company. The revenue contribution from manufacturing and sales was mainly derived from the manufacturing and sales business of electronics and telecommunication products operated by Chengdu Ya Guang and Bi Te Communication. The revenue contribution from logistics business was mainly derived from Shanghai Company and the disposal of such business has been completed on 18 July 2011.
For further details of financial information and background of the companies comprising the Non-Retail Business, please refer to pages 28 to 45 in the letter from the Board in this circular and Appendix II and Appendix VI to this circular.
Principal terms of the Acquisitions
1. The consideration
The aggregate consideration for the Sale Interests amounted to approximately RMB8,277 million (equivalent to approximately HK$10,219 million), among which
– 111 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER the summation of Consideration 1 and Consideration 2 for the Non-Retail Business is approximately RMB1,949 million (equivalent to approximately HK$2,406 million) and Consideration 3 for the Retail Business is approximately RMB6,328 million (equivalent to approximately HK$7,813 million). Completion of the Acquisition Agreement 1, the Acquisition Agreement 2 and the respective transactions contemplated thereunder is inter-conditional and shall take place simultaneously. The Acquisition Agreement 3 and transactions contemplated thereunder shall be independent from the Acquisition Agreement 1, the Acquisition Agreement 2 and the transactions contemplated thereunder, respectively.
i. Basis of the consideration
The Consideration 1, Consideration 2 and Consideration 3 were determined after the arm’s length negotiation by the parties based on normal commercial terms. Consideration 1 and Consideration 2 for the Non-Retail Business were determined with reference to a number of factors which includes (i) financial conditions especially the book value of the newly established Target Companies, and earnings of the stably operating Target Companies; (ii) market environment and comparables; (iii) future prospect of the Target Companies; (iv) strong background of AVIC International, of which Shenzhen Company is a wholly-owned subsidiary; and (v) confidence in the economy and related industries of China. For the Retail Business, Consideration 3 was determined as 90% of the arithmetic mean of the daily weighted average price of Rainbow Department Store as quoted on the Shenzhen Stock Exchange for the last 30 consecutive trading days prior to the date of Acquisition Agreement 3.
ii. Payment method
Pursuant to the Agreements, the consideration will be satisfied by the Company by issuing the PSCS convertible into 2,325,093,417 Conversion Shares at the initial Conversion Price of RMB3.56 (equivalent to approximately HK$4.40) per Conversion Share, among which the PSCS 1 convertible to 368,289,325 Conversion Shares will be issued to AVIC International and the PSCS 2 and the PSCS 3 convertible to 1,956,804,092 Conversion Shares will be issued to Shenzhen Company. As at 30 June 2011, the cash and cash equivalents of the Group was approximately RMB1,409 million, which is far less than the total consideration. Such payment method will allow the Group to complete the Acquisitions of considerable size without deploying its internal cash resources.
–112– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
We understand from the Company that apart from the PSCS, the Company has also considered other financing methods such as bank borrowing or issue of Shares. However, bank borrowing will generate additional finance cost which the Group could not afford and will also increase the gearing ratio of the Group substantially and hence affect adversely the cash flow position of the Group. Given the public float of the Company will be diluted to 25% upon completion of the 2010 Acquisition, in order to comply with the Listing Rules, the Company could not directly issue Domestic Shares to AVIC International and Shenzhen Company as the consideration for the Acquisitions which will further reduce the public float. In addition, according to the Company, as CSRC has suspended the approval of any placement of new shares of any listed company involved in real estate business, the Company could not raise funds by issuing new Shares that will also cause immediate dilution to the shareholding of existing shareholders. Therefore, the Company considers using the PSCS to finance the Acquisitions is more suitable.
2. PSCS
Pursuant to the Agreements, the PSCS will be issued by the Company to AVIC International and Shenzhen Company respectively, upon completion of the Acquisitions.
i. Conversion price
The initial Conversion Price of RMB3.56 (equivalent to approximately HK$4.40) per Conversion Share represents:
(a) a premium of 10.00% over the closing price of HK$4.00 per H Share as quoted on the Stock exchange on the Last Trading Day;
(b) a premium of approximately 22.22% over the average closing price of approximately HK$3.60 per H Share as quoted on the Stock exchange for the 5 consecutive trading days up to and including the Last Trading Day;
(c) a premium of approximately 27.91% over the average closing price of approximately HK$3.44 per H Share as quoted on the Stock exchange for the 10 consecutive trading days up to and including the Last Trading Day;
(d) a premium of approximately 31.34% over the average closing price of approximately HK$3.35 per H Share as quoted on the Stock exchange for the 30 consecutive trading days up to and including the Last Trading Day;
–113– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
(e) a premium of approximately 26.80% over the average closing price of approximately HK$3.47 per H Share as quoted on the Stock exchange for the 60 consecutive trading days up to and including the Last Trading Day;
(f) a premium of approximately 27.54% over the average closing price of approximately HK$3.45 per H Share as quoted on the Stock exchange for the 90 consecutive trading days up to and including the Last Trading Day;
(g) a premium of approximately 38.80% over the closing price of HK$3.17 per H Share as quoted on the Stock exchange on the Latest Practicable Date; and
(h) a premium of approximately 20.68% over the Group’s unaudited equity per Share attributable to equity holders of the Company of approximately RMB2.95, calculated based on the Group’s unaudited consolidated equity attributable to equity holders of the Company of approximately RMB1,998 million and 673,367,090 Shares as at 30 June 2011.
The chart below illustrates the movement of the daily closing prices of the Shares during a period starting from 16 November 2010, being one year prior to the signing of the Agreements, up to and including the Latest Practicable Date (the “Review Period”):
Price (HK$) Closing price of the Share Initial Conversion Price
6
5
4
3
2
1
0 16-Nov- 16-Dec- 16-Jan- 16-Feb- 16-Mar- 16-Apr- 16-May- 16-Jun- 16-Jul- 16-Aug- 16-Sep- 16-Oct- 16-Nov- 16-Dec- 2010 2010 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011
Source: Bloomberg
During the Review Period, the closing prices of the Shares ranged from HK$2.87 per Share to HK$4.00 per share. The average closing price during the Review Period was approximately HK$3.39 per share. As shown in the chart above, the initial Conversion Price of HK$4.40 per Share is above the closing prices of the Shares during the Review Period.
–114– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
The PSCS will be subject to adjustment for bonus issues, conversion of capital reserve and other dilutive events.
Based on the above, we consider the Conversion Price, which represents a premium over the prevailing closing price of H Shares and the equity per H Share, is fair and reasonable and in the interest of the Company and the Shareholders as a whole.
ii. Distribution rate
The PSCS carries a fix distribution rate of 1% per annum on any outstanding principal amount. The Company may at its sole discretion elect to defer a distribution pursuant to the terms of the PSCS.
Based on our review of the Company’s borrowing costs, we noted that the distribution rate of 1% under the PSCS is significantly lower than the best rates it can borrow from the market. As at 30 June 2011, the Group’s bank loans included short-term loans of approximately RMB2,755 million with annual interest rates ranging from 2.27% to 6.06% and long-term loans of approximately RMB5,825 million with annual interest rates ranging from 3.96% to 6.40%. As at 31 December 2010, the Group had current borrowings totalling approximately RMB2,350 million (2009: approximately RMB2,310 million) with weighted average annual interest rate of 4.66% (2009: 4.22%), and non-current borrowings totalling approximately RMB5,671 million (2009: RMB4,792 million) with weighted average annual interest rate of 4.95% (2009: 4.88%).
Based on the above discussion, we consider that the Enlarged Group will not suffer from excessive financial burden in relation to the payment of the fixed distribution of the PSCS. Besides, the Company may, as its sole discretion, elect to defer a distribution which gives more flexibility to the Company on the timing of payment. We are therefore of the view that the distribution rate of 1% per annum is fair and reasonable.
iii. Restriction on conversion
Holder(s) of the PSCS may convert such portion of the PSCS on condition that (i) the conversion would not cause the Company to contravene provisions of the Listing Rules including but not limited to the minimum public float requirement; and (ii) the conversion would comply with all applicable laws and regulations including but not limited to the Listing Rules and The Hong Kong Code on Takeovers and Mergers.
iv. Company’s option for compulsory conversion
On or after first anniversary of the date of issue of the PSCS, the Company may, at its sole discretion and pursuant to the terms of the PSCS, elect to convert the PSCS in whole but not in part into Conversion Shares, subject to the provision of restriction on conversion referred in the paragraph
–115– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
immediately above. As the Company will have the right, but not obligation, to force the conversion of the PSCS, we are of the view that the option is favourable to the Company.
v. Pre-emption right
Prior to the holders of PSCS transferring the PSCS, the holders must notify the Company their intention to transfer the PSCS in writing. Following the receipt of such notice, the Company may elect to purchase and cancel all or some of the PSCS at the price specified in the notice. If the Company does not elect to purchase, or fails to complete the purchase after so elected, the holders of PSCS may transfer those PSCS to other third parties as approved by the Company in accordance with the terms of the PSCS. As the Company will have the pre-emption right, but not obligation, to purchase and cancel the PSCS proposed to be transferred, we are of the view that the right is favourable to the Company.
Further details of the PSCS are contained on pages 17 to 20 in the letter from the Board in this circular. Independent Shareholders are advised to read the relevant sections carefully.
Comparable Companies
As mentioned in previous section, we classified the Sale Interests into Retail Business and Non-Retail Business. We have based on such classification to conduct comparable company analysis to assess the fairness and reasonableness of the considerations for the Acquisitions.
1. Retail Business
To assess the fairness and reasonableness of the Consideration 3, we have compared the consideration of RMB20.01 per share of Rainbow Department Store with the historical price performance of the shares of Rainbow Department Store. The chart below illustrates the movement of the daily closing prices of the shares of Rainbow Department Store during the Review Period:
Price Closing price Consideration per share (RMB)
60
50
40
30
20
10
0 16- 16- 16- 16- 16- 16- 16- 16- 16- 16- 16- 16- 16- 16- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep - Oct- Nov- Dec- 2010 2010 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011
Source: Bloomberg
–116– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
During the Review Period, the closing prices of the shares of Rainbow Department Store ranged from RMB18.07 per share to RMB51.35 per share. The average closing price of the shares of Rainbow Department Store during the Review Period was approximately RMB31.97 per share. As shown in the chart above, the consideration of RMB20.01 per share is mainly below the closing prices of the shares of Rainbow Department Store during the Review Period. The share price of Rainbow Department Store dropped suddenly on 29 April 2011 due to the payment of dividend of RMB0.6 per share, the issue of bonus shares on the basis of 5 bonus shares for every 10 outstanding ordinary share and the transfer of reserve to common shares on the basis of 5 shares for every 10 outstanding ordinary share. On 29 April 2011, being the ex-dividend date, the total share number of Rainbow Department Store increased from 400.1 million to 800.2 million.
To assess the fairness and reasonableness of the Consideration 3, we have also searched for companies listed on the Stock Exchange, Shanghai Stock Exchange and Shenzhen Stock Exchange, which are mainly engaged in operating department stores in the PRC with market capitalisation ranging from HK$5,000 million to HK$31,000 million, which we considered is a size range comparable to that of Rainbow Department Store based on the consideration of RMB20.01 per share. To the best of our knowledge and as far as we are aware of, there are 17 companies which is an exhaustive list of retail companies comparable to the Retail Business in terms of their size and geographical location. Independent Shareholders should note that the information of the comparable companies below is for information and reference only.
We have reviewed commonly used valuation ratios implied by the closing prices of the comparable companies on the Latest Practicable Date, including price to earning ratio and price to book ratio, which we consider appropriate for this comparison purpose.
The net profit attributable to equity holders of Rainbow Department Store was approximately RMB436 million for the year ended 31 December 2010 and the book value attributable to the equity holders of Rainbow Department Store was approximately RMB3,090 million as at 30 June 2011. The adjusted market capitalisation of Rainbow Department Store calculated based on the total share number of shares of Rainbow Department Store as at the Last Trading Date and the consideration of RMB20.01 per share of Rainbow Department Store was approximately RMB16,012 million (equivalent to HK$19,768 million). Based on the adjusted market capitalisation of Rainbow Department Store, the implied price to earning ratio and the price to book ratio implied by the Retail Business was
–117– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER approximately 36.69 times and 5.18 times, respectively. Such valuation ratios are within the range of those comparable companies as tabularised below:
Price to Stock Market Operation earning Price to Company name Stock code exchange capitalisation location ratio book ratio (HK$ million) (times) (times)
Golden Eagle Retail Group 3308 Hong Kong 30,760 PRC 22.59 6.23 Ltd Parkson Retail Group Ltd 3368 Hong Kong 25,323 PRC 18.79 4.00 Beijing Wangfujing 600859 Shanghai 19,133 PRC 27.59 3.69 Department Store (Group) Co Ltd Chongqing Department 600729 Shanghai 16,195 PRC 11.11 5.05 Store Co Ltd Intime Department Store 1833 Hong Kong 15,808 PRC 13.82 2.15 (Group) Co Ltd Wenfeng Great World Chain 601010 Shanghai 10,264 PRC 18.34 6.32 Development Corp Hefei Department Store 000417 Shenzhen 9,686 PRC 15.23 3.43 GroupCoLtd Wuhan Department Store 000501 Shenzhen 9,462 PRC 21.53 3.86 GroupCoLtd Maoye International 848 Hong Kong 9,056 PRC 12.31 1.37 Holdings Ltd Beijing Capital Retailing 600723 Shanghai 7,942 PRC 17.76 2.92 GroupCoLtd Hunan Friendship & Apollo 002277 Shenzhen 7,424 PRC 20.85 3.20 Commercial Co Ltd Guangzhou Friendship Co 000987 Shenzhen 7,250 PRC 16.36 3.55 Ltd Shanghai Xujiahui 002561 Shenzhen 6,303 PRC 24.17 6.07 Commercial Co Ltd Yinchuan Xinhua 600785 Shanghai 5,677 PRC 18.24 3.96 Department Store Co Ltd Xian Kaiyuan Investment 000516 Shenzhen 5,056 PRC 29.55 3.48 GroupCoLtd Beijing Hualian Department 000882 Shenzhen 5,040 PRC 63.72 1.41 Store Co Ltd Changchun Eurasia Group 600697 Shanghai 5,034 PRC 26.64 4.33 Co Ltd Maximum 30,760 63.72 6.32 Minimum 5,034 11.11 1.37 Average 11,495 22.27 3.83 Median 9,056 18.79 3.69
–118– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
Price to Stock Market Operation earning Price to Company name Stock code exchange capitalisation location ratio book ratio (HK$ million) (times) (times)
Comparable companies Maximum 19,133 63.72 6.32 listed in the PRC Minimum 5,034 11.11 1.41 Average 8,805 23.93 3.95 Median 7,424 20.85 3.69
Adjusted Price to Stock market Operation earning Price to Stock code exchange capitalisation location ratio book ratio (HK$ million) (times) (times)
Rainbow Department Store 002419 Shenzhen 19,767.90 PRC 36.69 5.18
Source: Bloomberg
i. Price to earning ratio analysis
As illustrated above, the average and median of price to earning ratios of all comparable companies is approximately 22.27 times and 18.79 times, respectively. The implied price to earning ratio of the Retail Business of approximately 36.69 times is within the range of price to earning ratios of all comparable companies and also within the range of price to earning ratios of the comparable companies listed in the PRC. In view of the decline in the stock market recently which reduced the pricing multiples of the comparable companies as at the Latest Practicable Date, the implied price to earning ratio of the Retail Business is higher than the average and the median price to earning ratio of all comparable companies and those of the comparable companies listed in the PRC.
ii. Price to book ratio analysis
As illustrated above, the average and median of price to book ratios of the comparable companies is approximately 3.83 times and 3.69 times, respectively. The implied price to book ratio of the Retail Business of approximately 5.18 times is within the range of price to book ratios of comparable companies, but higher than the average and the median price to book ratio of comparable companies. The price to book ratios of comparable companies which hold properties to operate the retail business will be lower than those of comparable companies which mainly rent properties to operate the retail business.
Based on our experience, the valuation of companies listed in the PRC is generally higher than comparable companies listed on the Stock Exchange. As Rainbow Department Store itself is a company listed on the Shenzhen Stock
–119– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
Exchange, taken into account of the volatility of the stock market in recent months, we consider the consideration for the Retail Business is fair and reasonable given the implied price to earning ratio of the Retail Business is within the range of price to earning ratios of the comparable companies listed in the PRC.
2. Non-Retail Business
Companies comprising the Non-Retail Business are engaged in various industries, among others, shipbuilding, manufacturing of microwave circuit and microwave devices; development and production of military electronics communication system and products; trading of coal, bearings, insulating films, chemical materials and complete sets of equipments; and commodity trading. In addition, there are many companies being held by the Non-Retail Business as investment companies. As the Acquisition Agreement 1 and the Acquisition Agreement 2 are interconditional, we think it is more appropriate to analyse the acquisition of the Non-Retail Business as a whole rather than analyse each business sector comprising the Non-Retail Business. In addition, Sale Interests 1 and Sale Interests 2 can be viewed as a bundle deal with no consideration being assigned for each business sector. Therefore, to assess the fairness and reasonableness of the considerations for the Non-Retail Business, it is impracticable to select comparable companies which are similar to each of the businesses under the Non-Retail Business. Given the nature of business structure of the Non-Retail Business is similar to that of a conglomerate, we have searched for companies which are directly or indirectly owned by the state of the PRC and are principally engaged in diversified operations in the PRC from (i) constituents of Hang Seng China-Affiliated Corporations Index; and (ii) a list generated by Bloomberg for companies listed on the Stock Exchange under the sector of diversified operations. To the best of our knowledge and as far as we are aware of, there are 7 companies which is an exhaustive list of conglomerates in the PRC comparable to the Non-Retail Business in terms of business nature and geographical segment. We noticed that most of the comparable companies based on our selecting criteria have market capitalisation substantially larger than the size of the Non-Retail Business in terms of consideration, but given they are directly or indirectly owned by the state of the PRC and principally engaged in diversified operations in the PRC, we consider they can provide a benchmark for the Non-Retail Business. Independent Shareholders should note that the information of the comparable companies below is for information and reference only.
We have reviewed commonly used valuation ratios implied by the closing prices of the comparable companies on the Latest Practicable Date, including price to earning ratio and price to book ratio, which we consider appropriate for this comparison purpose. In addition, as the market capitalisation of the Company is similar to the size of the Non-Retail Business in terms of consideration and the Company itself is also involved in diversified operation in the PRC, we also added the Company as an alternative comparison to assess the fairness and reasonableness of the considerations for the Acquisitions.
– 120 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
The net profit attributable to holders of the Non-Retail Business was approximately RMB129 million for the year ended 31 December 2010 and the book value of the Non-Retail Business attributable to the equity holders was approximately RMB1,503 million as at 30 June 2010. Based on the summation of Consideration 1 and Consideration 2 of approximately RMB1,949 million (equivalent to approximately HK$2,406 million), the price to earning ratio and the price to book ratio implied by the Non-Retail Business was approximately 15.13 times and 1.30 times, respectively. Such valuation ratios are within the range of those comparable companies as tabularised below:
Price to Market Operation earning Price to Company name Stock code capitalisation location ratio book ratio (HK$ million) (times) (times)
China Merchants Holdings 144 55,674 The PRC and 7.08 1.32 (International) Company Hong Kong Limited CITIC Pacific Limited 267 48,173 The PRC, 4.80 0.66 Hong Kong and overseas Guangdong Investment Limited 270 29,170 The PRC, and 10.00 1.43 Hong Kong Shanghai Industrial Holdings 363 22,729 The PRC, 5.82 0.70 Limited Hong Kong and overseas Beijing Enterprises Holdings 392 49,769 The PRC 18.23 1.37 Limited Fosun International Limited 656 25,044 The PRC, 3.38 0.63 Hong Kong and overseas Tianjin Development Holdings 882 4,142 The PRC and Not 0.45 Limited Hong Kong applicable Maximum 55,674 18.23 1.43 Minimum 4,142 3.38 0.45 Average 33,529 8.22 0.94 Median 29,170 6.45 0.70
Price to Operation earning Price to Consideration location ratio book ratio (HK$ million)
Non-Retail Business 2,406 The PRC and 15.13 1.30 overseas The Company 161 2,135 The PRC, 8.93 0.87 Hong Kong and overseas
Source: Bloomberg
– 121 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
i. Price to earning ratio analysis
As illustrated above, the average and median of price to earning ratios of the comparable companies is approximately 8.22 times and 6.45 times, respectively. The implied price to earning ratio of the Non-Retail Business of approximately 15.13 times is within the range of price to earning ratios of comparable companies. In view of the decline in the stock market recently which reduced the pricing multiples of the comparable companies as at the Latest Practicable Date, the implied price to earning ratio of the Non-Retail Business is higher than the average and the median price to earning ratio of comparable companies and that of the Company.
ii. Price to book ratio analysis
As illustrated above, the average and median of price to book ratios of the comparable companies is approximately 0.94 times and 0.70 times, respectively. The implied price to book ratio of the Retail Business of approximately 1.30 times is within the range of price to book ratios of comparable companies. For the same reason mentioned above, the implied price to book ratio of the Non-Retail Business is higher than the average and the median price to book ratio of comparable companies and that of the Company.
Taken into account of the growth potential of the Non-Retail Business and the volatility of the stock market in recent months, we consider the consideration for the Non-Retail Business is fair and reasonable given the implied price to earning ratio of the Non-Retail Business is within the range of price to earning ratios of the comparable companies.
3. Conclusion
Based on the above, we consider that the implied consideration represented by the PSCS for the Sale Interests is fair and reasonable to the Company as a whole. We have also analysed the financial impacts to the Company before and after completion of the Acquisitions under the section headed “POSSIBLE FINANCIAL EFFECTS” below.
Changes in shareholding structure of the Company
Assuming there is no change in the issued share capital of, and the shareholding in, the Company from the Latest Practicable Date other than the allotment and issue of the Conversion Shares upon full conversion of the PSCS 1 and PSCS 2 at the initial Conversion Price, immediately after completion of the Acquisition Agreement 1 and the Acquisition Agreement 2, AVIC International and Shenzhen Company will be respectively interested in approximately 30.17% and 47.09% of the issued share capital of the Company, as enlarged by the issue of the
– 122 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
Conversion Shares, and the public float will decrease to 22.74%. Nevertheless, there is restriction on the conversion of the PSCS to maintain the minimum public float.
Assuming there is no change in the issued share capital of, and the shareholding in, the Company from the Latest Practicable Date other than the allotment and issue of the Conversion Shares upon full conversion of the PSCS 3 at the initial Conversion Price, immediately after completion of the Acquisition Agreement 3, Shenzhen Company will be interested in approximately 88.67% of the issued share capital of the Company, as enlarged by the issue of the Conversion Shares, and the public float will decrease to 11.33%. Nevertheless, there is restriction on the conversion of the PSCS to maintain the minimum public float.
Assuming there is no change in the issued share capital of, and the shareholding in, the Company from the Latest Practicable Date other than the allotment and issue of the Conversion Shares upon full conversion of the PSCS at the initial Conversion Price, immediately after completion of the Acquisitions, AVIC International and Shenzhen Company will be respectively interested in approximately 12.28% and 78.46% of the issued share capital of the Company, as enlarged by the issue of the Conversion Shares, and the public float will decrease to 9.26%. Nevertheless, there is restriction on the conversion of the PSCS to maintain the minimum public float.
Further details of the potential change in shareholding structure of the Company are illustrated on pages 75 to 76 in this circular.
Reasons for the Acquisitions
The Company is a diversified strategic investment holding company. The Group is currently engaged mainly in the manufacturing and sales of LCD, PCB, luxurious timepieces and mining resources, hotel operation and property development in the PRC. Upon completion of the 2010 Acquisition, it is expected that the business of the Group will be expanded into the businesses trading and logistics, overseas construction and commercial property industry. Further to the 2010 Acquisition, the Acquisitions reflect the strategic initiative of the continual acquisition of high-quality assets by the Company from its controlling shareholder and its associates, by means of expansion of the Group’s existing retail, trading and logistics, and electronic production segments.
Lutong Company and Project Engineering Company are newly established in 2011. For the period from their respective establishment date to 30 June 2011, both Lutong Company and Project Engineering Company recorded operating loss. However, the Company believes that the acquisition of Lutong Company, the major business of which is trading and logistics of asphalt, will expand the asphalt business of the Group in the future. According to the Company, Project Engineering Company will gradually take over the government project and complete sets of equipment projects of the Complete Set of Equipment Division of AVIC International, and thereby become the only corporate platform of complete equipment business of AVIC International. Historically, the Complete Set of
– 123 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
Equipment Division of AVIC International has engaged in numerous international government projects and has exported various kinds of complete equipments. After years of accumulation, the division has established good reputation and customer base in Africa, the Middle East, Central Asia and Southeast Asia region and other traditional market regions.
The acquisition of Chengdu Ya Guang and Bi Te Communication will expand the existing electronic manufacturing business of the Group to military and industrial sectors, which are complementary to the original business of LCD, PCB, etc. The acquisition of Rainbow Department Store, a premier department store in the PRC, together with the existing luxurious watches business of the Group, will constitute the luxurious goods and retail business sector of the Company and further create synergies.
The Acquisitions will expand the Group’s retail sector through the acquisition of the Retail Business, which is a profitable business that will improve the Group’s income source and strengthen the Group’s position to capture the growth potential of the retail sector in the PRC. The acquisition of the Non-Retail Business will broaden the Company’s existing manufacturing and trading platform with more variety of products and services, and therefore would create synergy with the current businesses of the Company and provide the Group with opportunities for continuous development. The Acquisitions will further enlarge the business scale of the Company in terms of revenue and assets, increase its competitiveness in terms of profitability and increase the Company’s value.
Having considered the above, we are of the view that the Acquisitions will enable the Group to enlarge its business scale, enhance the profitability and sustainable development of the Company and further increase the investment value of the Company. We concur with the Directors that the Acquisitions and the transactions contemplated under the Agreements are in the interests of the Company and its shareholders as a whole.
POSSIBLE FINANCIAL EFFECTS
The following analysis is based on the audited and unaudited consolidated financial statements of the Company for the financial year ended 31 December 2010 and the six months ended 30 June 2011 and the unaudited pro forma consolidated statements of the Enlarged Group as set out in Appendix III to this circular. Independent Shareholders should note that all three scenarios of the unaudited pro forma consolidated statements have not taken into account of the effects from the 2010 Acquisition. Upon completion of the transactions contemplated under the Acquisition Agreement 1 and the Acquisition Agreement 2, Shanghai Company, Guizhou CATIC Resources, Project Engineering Company, Chengdu Ya Guang and Bi Te Communication will become subsidiaries of the Company, and the results of which will be consolidated into the accounts of the Enlarged Group, while Lutong Company will become a joint venture of the Company. Upon completion of the transactions contemplated under the Acquisition Agreement 3, Rainbow Department Store will become an associate of the Company.
– 124 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
Unaudited pro forma consolidated financial information of the Enlarged Group
Tabularised below is a summary of the unaudited pro forma consolidated financial information of the Enlarged Group as extracted from the unaudited pro forma consolidated statements of the Enlarged Group as set out in Appendix III to this circular:
Scenario-1: the acquisitions pursuant to Acquisition Agreement 1, Acquisition Agreement 2 and Acquisition Agreement 3 had taken place on 30 June 2011 for the unaudited pro forma consolidated balance sheet and on 1 January 2010 for the unaudited pro forma consolidated income statement
For the year ended 31 December (RMB ’000) 2010
Revenue 13,212,026 Profit attributable to equity holders of the Company 483,441
As at (RMB ’000) 30 June 2011
Total assets 33,768,783 Total liabilities 20,017,865 Total borrowings 12,583,557 Total equity 13,750,918 Equity attributable to equity holders of the Company 9,874,797
Scenario-2: only the acquisitions pursuant to Acquisition Agreement 1 and Acquisition Agreement 2 had taken place on 30 June 2011 for the unaudited pro forma consolidated balance sheet and on 1 January 2010 for the unaudited pro forma consolidated income statement
For the year ended 31 December (RMB ’000) 2010
Revenue 13,212,026 Profit attributable to equity holders of the Company 331,359
– 125 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
As at (RMB ’000) 30 June 2011
Total assets 27,440,480 Total liabilities 20,017,865 Total borrowings 12,583,557 Total equity 7,422,615 Equity attributable to equity holders of the Company 3,546,494
Scenario-3: only the acquisitions pursuant to Acquisition Agreement 3 had taken place on 30 June 2011 for the unaudited pro forma consolidated balance sheet and on 1 January 2010 for the unaudited pro forma consolidated income statement
For the year ended 31 December (RMB’000) 2010
Revenue 6,964,551 Profit attributable to equity holders of the Company 345,643
As at (RMB ’000) 30 June 2011
Total assets 24,378,544 Total liabilities 12,859,280 Total borrowings 8,579,614 Total equity 11,519,264 Equity attributable to equity holders of the Company 8,326,734
Effects on equity
According to the Company’s interim report 2011, the unaudited consolidated equity attributable to equity holders of the Company was approximately RMB1,998 million as at 30 June 2011, equity per share attributable to equity holders of the Company was approximated RMB2.95. According to the unaudited pro forma consolidated balance sheet of the Enlarged Group, as at 30 June 2011, equity attributed to the equity holders of the Company was approximately RMB9,875 million under scenario-1, RMB3,546 million under scenario-2 and RMB8,327 million under scenario-3.
Assuming there is no change in the issued share capital of, and the shareholding in, the Company from the Latest Practicable Date and there is no conversion of the PSCS, equity per Share attributed to equity holders of the Company would increase to approximately RMB14.66 under scenario-1, representing an increase of approximately 396.95%; equity per Share attributed to equity holders of the Company would increase to approximately RMB5.27 under scenario-2, representing an increase of approximately 78.64%; equity per Share attributed to equity holders of the Company would increase to approximately RMB12.37 under scenario-3, representing an increase of approximately 319.32%.
– 126 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER
Assuming there is no change in the issued share capital of, and the shareholding in, the Company from the Latest Practicable Date other than the issue of Conversion Shares upon full conversion of the PSCS at the initial Conversion Price, equity per Share attributed to equity holders of the Company would increase to approximately RMB3.29 under scenario-1, representing an increase of approximately 11.53%. Assuming there is no change in the issued share capital of, and the shareholding in, the Company from the Latest Practicable Date other than the issue of Conversion Shares upon full conversion of the PSCS 1 and PSCS 2 at the initial Conversion Price, equity per Share attributed to equity holders of the Company would decrease to approximately RMB2.90 under scenario-2, representing a slight decrease of approximately 1.69%. Assuming there is no change in the issued share capital of, and the shareholding in, the Company from the Latest Practicable Date other than the issue of Conversion Shares upon full conversion of the PSCS 3 at the initial Conversion Price, equity per Share attributed to equity holders of the Company would increase to approximately RMB3.40 under scenario-3, representing an increase of approximately 15.25%.
Effects on earnings
The Group recorded profit attributable to equity holders of the Company of approximately RMB194 million and basic earnings per share attributable to equity holders of the Company of approximately RMB0.29 for the year ended 31 December 2010. According to the unaudited pro forma consolidated income statement of the Enlarged Group, for the year ended 31 December 2010, the profit attributable to equity holders of the Company was approximately RMB483 million under scenario-1, RMB331 million under scenario-2 and RMB346 million under scenario-3. The Acquisitions would therefore significantly improve the Group’s profitability if the Target Group were consolidated under the Group’s financial statements.
Assuming there is no change in the issued share capital of, and the shareholding in, the Company from the Latest Practicable Date and there is no conversion of the PSCS, earnings per Share attributable to equity holders of the Company would increase to approximately RMB0.72 under scenario-1, representing an increase of approximately 148.28%; earnings per Share attributable to equity holders of the Company would increase to approximately RMB0.49 under scenario-2, representing an increase of approximately 68.97%; earnings per Share attributed to equity holders of the Company would increase to approximately RMB0.51 under scenario-3, representing an increase of approximately 75.86%.
Assuming there is no change in the issued share capital of, and the shareholding in, the Company from the Latest Practicable Date other than the issue of Conversion Shares upon full conversion of the PSCS at the initial Conversion Price, earnings per Share attributable to equity holders of the Company was approximately RMB0.16 under scenario-1, representing a decrease of approximately 44.83%. Assuming there is no change in the issued share capital of, and the shareholding in, the Company from the Latest Practicable Date other than the issue of Conversion Shares upon full conversion of the PSCS 1 and PSCS 2 at the initial Conversion Price, earnings per Share was approximately RMB0.27 under scenario-2, representing a slight decrease of approximately 6.90%. Assuming there is no change in the issued share capital of, and the shareholding in, the Company from the Latest Practicable Date other than the issue of Conversion Shares upon
– 127 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER full conversion of the PSCS 3 at the initial Conversion Price, earnings per Share was approximately RMB0.14 under scenario-3, representing a decrease of approximately 51.72%.
Effects on gearing and working capital
As at 30 June 2011, the Group’s total borrowings was approximately RMB8,580 million and the gearing ratio, calculated as total borrowings divided by equity attributable to equity holders of the Company, was approximately 429.32%. According to the unaudited pro forma consolidated balance sheet of the Enlarged Group, as at 30 June 2011, the total borrowings of the Enlarged Group was RMB12,584 million under scenario-1 and scenario-2 and approximately RMB8,580 million under scenario-3, and the gearing ratio was approximately 127.43% under scenario-1, approximately 354.82% under scenario-2 and approximately 103.04% under scenario-3. We are of the view that the Acquisitions will significantly decrease the gearing ratio of the Group after completion of the Acquisitions.
The Group had cash and cash equivalents of approximately RMB1,409 million and working capital of approximately RMB871 million as at 30 June 2011. The Group will not incur any significant cash outflow pursuant to the Agreements. According to the unaudited pro forma consolidated balance sheet of the Enlarged Group, as at 30 June 2011, the Enlarged Group had cash and cash equivalents of approximately RMB2,144 million under scenario-1 and scenario-2 and approximately RMB1,409 million under scenario-3, working capital of approximately RMB1,183 million under scenario-1 and scenario-2 and approximately RMB871 million under scenario-3. We are of the view that the Acquisitions will significantly enhance the cash position and working capital position of the Group under scenario-1 and scenario-2 and will not have any adverse impact on the cash position and working capital position of the Group under scenario-3.
RECOMMENDATION
We have considered the above principal factors and reasons and particularly (i) the strategic rationale of the Acquisitions; (ii) the terms and the consideration as discussed above; and (iii) the possible financial effects to the Group. Based on the above principal factors and reasons, we consider that the Agreements are on normal commercial terms, and the entering of the Agreements is fair and reasonable and in the interest of the Company and the Independent Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM and Class Meetings to approve the Acquisitions.
Yours faithfully, for and on behalf of Anglo Chinese Corporate Finance, Limited Michael Fok Director
– 128 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Set out below is a summary of the audited consolidated income statement and financial position for the years ended 31 December 2008, 2009 and 2010 as extracted from the annual reports of the Company for the respective years and unaudited condensed consolidated interim financial statements of the Group for the six months ended 30 June 2011 as extracted from the 2011 interim reports of the Company.
Results Summary
Six months Year ended 31 December ended 30 June 2010 2009 2008 2011 2010 Restated Restated Restated (RMB’000) (RMB’000) (RMB’000) (RMB’000) (RMB’000)
Revenue and Profit: Revenue 6,964,551 5,092,883 4,077,074 4,588,143 2,925,394
(Loss)/profit before taxation 454,888 (288,849) 5,919 149,765 92,872 (Loss)/profit after taxation 342,590 (288,780) (41,665) 114,979 70,238
Attributable to: Profit attributable to equity holders of the Company 193,561 (165,566) 1,282 20,860 19,454 Non-controlling interests 149,029 (123,214) (42,947) 94,119 50,784
Basic (losses)/earnings per share for profit attributable to equity holders of the Company (RMB) 0.2874 (0.2458) 0.0019 0.0310 0.0289 Dividends per share attributable to equity holders of the Company (RMB) – – – 0.03 –
– I-1 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Assets Summary
As at As at 31 December 30 June 2010 2009 2008 2011 Restated Restated (RMB’000) (RMB’000) (RMB’000) (RMB’000)
Total assets 17,267,413 13,626,354 11,795,652 18,050,241 Total liabilities 12,318,964 9,802,017 8,100,414 12,859,280 Total equity 4,948,449 3,824,337 3,695,238 5,190,961
Equity attributable to equity holders of the Company 1,977,482 1,698,513 1,872,783 1,998,431 Non-controlling interests 2,970,967 2,125,824 1,822,455 3,192,530
Net assets per share attributable to equity holders of the Company (RMB) 2.94 2.52 2.76 2.95
Note: The Group adopted the cost model in subsequent measurement under IAS 40, ’Investment property’, to account for its investment properties. On 1 January 2009, the Group changed to adopt fair value model. Figures as at and for the year ended 31 December 2007 and 31 December 2008 have been restated as required.
– I-2 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONSOLIDATED BALANCE SHEET As at 31 December 2010
As at 31 December 2010 2009 Note RMB’000 RMB’000
ASSETS Non-current assets Land use rights 7 719,271 700,246 Mining rights 8 534,029 541,154 Goodwill 9 5,240 5,240 Property, plant and equipment 10 6,697,911 5,014,841 Investment properties 11 1,129,129 1,022,221 Construction-in-progress 12 893,546 1,005,292 Investments in associates 14 794,349 568,917 Available-for-sale financial assets 16 27,579 35,998 Deferred income tax assets 17 105,751 177,551 Other non-current assets 18 82,458 197,008
10,989,263 9,268,468
Current assets Inventories 19 1,976,667 1,173,143 Trade and other receivables 20 2,414,513 1,552,101 Pledged bank deposits 21 158,725 575,831 Cash and cash equivalents 22 1,728,245 1,056,811
6,278,150 4,357,886
Total assets 17,267,413 13,626,354
EQUITY Capital and reserves attributable to the Company’s equity holders
Share capital 23 673,367 673,367 Share premium 23 354,513 354,513 Other reserves 24 439,020 353,612 Retained earnings 510,582 317,021
1,977,482 1,698,513 Non-controlling interests 2,970,967 2,125,824
Total equity 4,948,449 3,824,337
– I-3 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
As at 31 December 2010 2009 Note RMB’000 RMB’000
LIABILITIES Non-current liabilities Borrowings 25 5,671,172 4,792,476 Deferred income tax liabilities 17 346,143 335,839 Deferred income on government grants 26 535,359 241,037 Other non-current liabilities 27 114,327 135,164
6,667,001 5,504,516
Current liabilities Trade and other payables 28 3,267,087 1,940,799 Borrowings 25 2,350,486 2,310,325 Current income tax liabilities 34,390 46,377
5,651,963 4,297,501
Total liabilities 12,318,964 9,802,017
Total equity and liabilities 17,267,413 13,626,354
Net current assets 626,187 60,385
Total assets less current liabilities 11,615,450 9,328,853
– I-4 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
COMPANY BALANCE SHEET As at 31 December 2010
As at 31 December 2010 2009 Note RMB’000 RMB’000
ASSETS Non-current assets Property, plant and equipment 10 9,308 10,463 Investments in subsidiaries 13 1,634,011 1,554,011 Investments in associates 14 298,198 298,198 Available-for-sale financial assets 16 1,400 1,400
1,942,917 1,864,072
Current assets Trade and other receivables 20 156,127 163,089 Cash and cash equivalents 22 20,203 44,615
176,330 207,704
Total assets 2,119,247 2,071,776
EQUITY Capital and reserves attributable to the Company’s equity holders
Share capital 23 673,367 673,367 Share premium 23 354,513 354,513 Other reserves 24 70,001 70,001 Accumulated losses (514,241) (446,218)
Total equity 583,640 651,663
– I-5 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
As at 31 December 2010 2009 Note RMB’000 RMB’000
LIABILITIES Non-current liabilities Borrowings 25 1,100,000 914,000
Current liabilities Trade and other payables 28 235,607 426,113 Borrowings 25 200,000 80,000
435,607 506,113
Total liabilities 1,535,607 1,420,113
Total equity and liabilities 2,119,247 2,071,776
Net current liabilities (259,277) (298,409)
Total assets less current liabilities 1,683,640 1,565,663
– I-6 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2010
Year ended 31 December 2010 2009 Note RMB’000 RMB’000
Revenue 6 6,964,551 5,092,883 Cost of sales 31 (5,459,142) (4,261,671)
Gross profit 1,505,409 831,212 Distribution costs 31 (429,871) (361,237) Administrative expenses 31 (725,739) (591,030) Fair value gain on investment properties 11 74,406 65,617 Other income 29 220,721 105,381 Other gains-net 30 72,074 8,301
Operating profit 717,000 58,244 Finance income 33 20,773 8,661 Finance costs 33 (344,113) (367,145)
Finance costs – net (323,340) (358,484)
Share of profit of associates 14 61,228 11,391
Profit/(loss) before income tax 454,888 (288,849) Income tax (charge)/credit 35 (112,298) 69
Profit for the year 342,590 (288,780)
Profit/(loss) attributable to: Equity holders of the Company 193,561 (165,566) Non-controlling interests 149,029 (123,214)
342,590 (288,780)
Earnings per share attributable to the equity holders of the Company during the year (RMB per share) – basic 37 0.2874 (0.2458)
– diluted 37 0.2874 (0.2458)
Dividends 38 ––
– I-7 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME As at 31 December 2010
Year ended 31 December 2010 2009 Note RMB’000 RMB’000
Profit/(loss) for the year 342,590 (288,780)
Other comprehensive income/(loss): Fair value gains on available-for-sale financial assets-gross of tax 16 – 6,620 Fair value gains on available-for-sale financial assets-tax 17 – (1,323) Fair value adjustment on disposal of available-for-sale financial assets-gross of tax 16 – (8,160) Fair value adjustment on disposal of available-for-sale financial assets-tax 17 – 1,632 Transfer of owner-occupied property to investment property 11 17,403 – Currency translation differences (3,769) – Share of fair value losses from available-for-sale financial assets of the associate, net of tax 14 (1,796) (2,347) Reversal of revaluation surplus on the disposal of assets of the associate, net of tax 14 – (2,956)
Other comprehensive income/(loss) for the year, net of tax 11,838 (6,534)
Total comprehensive income/(loss) for the year, net of tax 354,428 (295,314)
Attributable to: – Equity holders of the Company 193,261 (171,418) – Non-controlling interests 161,167 (123,896)
Total comprehensive income/(loss) for the year 354,428 (295,314)
– I-8 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2010
Non- Share Share Treasury Other Retained controlling capital premium shares reserves earnings interests Total (Note 24) Note RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Group Balance at 1 January 2009 678,909 357,849 (6,026) 359,464 482,587 1,822,455 3,695,238 Comprehensive income Lossfortheyear ––––(165,566)(123,214)(288,780) Other comprehensive income/(loss) Fair value gain from available-for-sale financial assets-gross of tax 16 – – – 2,959 – 3,661 6,620 Fair value gain from available-for-sale financial assets-tax 17 – – – (591) – (732) (1,323) Fair value adjustment on disposal of available-for-sale financial assets-gross of tax 16 – – – (3,646) – (4,514) (8,160) Fair value adjustment on disposal of available-for-sale financial assets-tax 17 – – – 729 – 903 1,632 Share of fair value losses from available-for-sale financial assets of the associate 14 – – – (2,347) – – (2,347) Reversal of revaluation surplus on the disposal of assets of the associate 14 – – – (2,956) – – (2,956)
Total other comprehensive loss – – – (5,852) – (682) (6,534)
Total comprehensive loss – – – (5,852) (165,566) (123,896) (295,314)
Transactions with owners Capital contributed by non-controlling interests –––––441,639441,639 Repurchase of H shares – – (2,852) – – – (2,852) Cancellation of H shares (5,542) (3,336) 8,878 –––– Dividendsfor2008 –––––(14,374)(14,374)
Total transactions with owners (5,542) (3,336) 6,026 – – 427,265 424,413
Balance at 31 December 2009 673,367 354,513 – 353,612 317,021 2,125,824 3,824,337
– I-9 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Non- Share Share Treasury Other Retained controlling capital premium shares reserves earnings interests Total (Note 24) Note RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Balance at 1 January 2010 673,367 354,513 – 353,612 317,021 2,125,824 3,824,337 Comprehensive income Profit for the year ––––193,561149,029342,590 Other comprehensive income/(loss) Gain on transfer of owner-occupied property to investment property 11 – – – 5,265 – 12,138 17,403 Share of fair value losses from available-for-sale financial assets of the associate 14 – – – (1,796) – – (1,796) Currency translation differences – – – (3,769) – – (3,769)
Total other comprehensive income/(loss) – – – (300) – 12,138 11,838
Total comprehensive income/(loss) – – – (300) 193,561 161,167 354,428
Transactions with owners Transactions with non-controlling interests 24 – – – 85,708 – 365,371 451,079 Non-controlling interest arising on business combinations 41 –––––110,000110,000 Disposal of subsidiaries –––––(25,733)(25,733) Capital contributed by non-controlling interests 39 –––––252,000252,000 Dividendsfor2009 –––––(17,662)(17,662)
Total transactions with owners – – – 85,708 – 683,976 769,684
Balance at 31 December 2010 673,367 354,513 – 439,020 510,582 2,970,967 4,948,449
– I-10 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Share Share Treasury Other Accumulated capital premium shares reserves losses Total (Note 24) Note RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
COMPANY Balance as at 1 January 2009 678,909 357,849 (6,026) 70,001 (338,625) 762,108 Comprehensive income Loss for the year ––––(107,593) (107,593) Transactions with owners Repurchase of H shares 23 – – (2,852) – – (2,852) Cancellation of shares 23 (5,542) (3,336) 8,878–––
Total transactions with owners (5,542) (3,336) 6,026 – – (2,852)
Balance as at 31 December 2009 673,367 354,513 – 70,001 (446,218) 651,663
Balance as at 1 January 2010 673,367 354,513 – 70,001 (446,218) 651,663
Comprehensive income Loss for the year ––––(68,023) (68,023)
Balance as at 31 December 2010 673,367 354,513 – 70,001 (514,241) 583,640
– I-11 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONSOLIDATED STATEMENT OF CASH FLOW For the year ended 31 December 2010
Year ended 31 December 2010 2009 Note RMB’000 RMB’000
Cash flows from operating activities Cash generated from operations 39 588,688 570,949 Interest paid (346,906) (344,143) Income tax paid (65,764) (41,752)
Net cash generated from operating activities 176,018 185,054
Cash flows from investing activities Purchase of property, plant and equipment (486,168) (349,876) Purchase of mining rights (14,945) (14,988) Purchase of land use rights (25,635) (30,763) Additions to construction-in-progress (1,650,010) (1,040,128) Proceeds from disposal of property, plant and equipment 11,966 6,846 Proceeds from disposal of construction-in-progress 1,255 – Proceeds from disposal of other non-current assets 1,487 – Proceeds from disposal of investment properties – 9,641 Proceeds from disposal of available-for-sale financial assets – 11,930 Additions to associates (134,000) – Net proceeds from disposal of subsidiaries 39 132,795 – Purchase of available-for-sale financial assets (10,501) (29,600) Government grants received 26 399,004 116,630 Interest received 20,773 8,661 Dividend received – 2,486 Additions to other non-current assets 100,477 (15,597) Net change of pledged bank deposits 310,516 (509,993)
Net cash used in investing activities (1,342,986) (1,834,751)
– I-12 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Year ended 31 December 2010 2009 Note RMB’000 RMB’000
Cash flows from financing activities Repurchase of H shares 23 – (2,852) Proceeds from borrowings 3,966,771 7,834,192 Repayments of borrowings (2,937,771) (6,498,104) Capital contribution to subsidiaries from non-controlling interests 39 703,079 441,639 Dividends paid to non-controlling interests of subsidiaries (17,662) (14,374) Government subsidy received 21,164 41,634 Net change of pledged bank deposits 106,590 30,000
Net cash generated from financing activities 1,842,171 1,832,135
Net increase in cash and cash equivalents 675,203 182,438
Cash and cash equivalents at beginning of year 1,056,811 874,373 Currency translation differences (3,769) –
Cash and cash equivalents at end of year 1,728,245 1,056,811
– I-13 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
NOTES TO THE FINANCIAL STATEMENTS
1 GENERAL INFORMATION
CATIC Shenzhen Holdings Limited (the “Company”) was established as a joint stock limited company in the People’s Republic of China (the “PRC”) and its shares have been listed on the Main Board of The Stock Exchange of Hong Kong Limited. The Company and its subsidiaries (hereinafter collectively referred to as the “Group”) are principally engaged in the manufacture and sales of liquid crystal displays, printed circuit boards, watches and clocks, mining resources, and also engaged in property development and hotel operation business.
The office address of the Company is 25/F, Hangdu Building, CATIC Zone, Shennan Road Central, Futian District, Shenzhen, the PRC.
The consolidated financial statements have been approved for issue on 15 March 2011.
2 BASIS OF PREPARATION
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of investment properties. The accounting policies and bases adopted in the preparation of these financial statements differ from those used in the statutory accounts of the Group which are prepared in accordance with the Accounting Standards for Business Enterprises (2006) of the People’s Republic of China (“CAS2006”).
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.
Changes in accounting policy and disclosures:
(a) Amendment to standard that is not effective in 2010 but has been early adopted by the Group
IAS 24 (Revised) “Related party disclosures" (effective from 1 January 2011). The amendment introduces an exemption from all of the disclosure requirements of IAS 24 for transactions among government-related entities and the government. Those disclosures are replaced with a requirement to disclose: (i) the name of the government and the nature of their relationship; (ii) the nature and amount of any individually-significant transactions; and (iii) the extent of any collectively-significant transactions qualitatively or quantitatively. It also clarifies and simplifies the definition of a related party. The Group has early adopted the government-related entity exemption retrospectively.
(b) New and amended standards and interpretations adopted by the Group
The following new standards and amendments and interpretations to standards are mandatory for the first time for the financial year beginning 1 January 2010.
Effective for accounting periods beginning on or after
IFRS 3 (Revised) Business Combinations 1 July 2009 IAS 27 (Revised) Consolidated and separate financial 1 July 2009 statements
– I-14 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(c) New and amended standards, and interpretations mandatory for the first time for the financial year beginning 1 January 2010 but not currently relevant to the Group (although they may affect the accounting for future transactions and events)
Effective for accounting periods beginning on or after
IAS 1 (Amendment) Presentation of financial statements 29 November 2010 IAS 17 (Amendment) Lease 1 July 2009 IFRIC 17 Distribution of non-cash assets to 1 July 2009 owners IFRIC 18 Transfers of assets from customers 1 July 2009 IFRIC 9 (Amendment) Reassessment of embedded 1 July 2009 derivatives and IAS 39, Financial instruments: Recognition and measurement IFRIC 16 Hedges of a net investment in a 1 July 2009 foreign operation IAS 36 (Amendment) Impairment of assets 1 January 2010 IFRS 2 (Amendment) Group cash-settled share-based 1 January 2010 payment transactions IFRS 5 (Amendment) Non-current assets held for sale and 1 January 2010 discontinued operation
(d) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group
Effective for accounting periods beginning on or after
IFRS 9 Financial instruments 1 January 2013 IAS 32 (Amendment) Classification of rights issues 1 February 2010 IFRSs (Amendment) Third improvements to IFRSs (2010) 1 January 2011 IFRIC – Int 19 Extinguishing financial liabilities 1 July 2010 with equity instruments IFRIC – Int 14 Prepayments of a minimum funding 1 January 2011 (Amendment) requirement IAS 12 (Amendment) Income taxes 1 January 2012 IFRS 7 (Amendment) Financial instruments: Disclosures 1 July 2011
3 PRINCIPAL ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
(a) Consolidation
The consolidated financial statements include the financial statements of the Company and all of its subsidiaries made up to 31 December 2010.
– I-15 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(i) Business combination involving entities under common control
For business combination under common control, the consolidated financial statements incorporate the financial statements of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party.
The net assets of the combining entities or businesses are combined using the existing book values from the controlling parties’ perspective. No amount is recognised in consideration for goodwill or excess of acquirers’ interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party’s interest.
The consolidated income statement includes the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under the common control, where there is a shorter period, regardless of the date of the common control combination.
The comparative amounts in the consolidated financial statements are presented as if the entities or businesses had been combined at the previous balance sheet date or when they first came under common control, whichever is shorter.
A uniform set of accounting policies is adopted by those entities. All intra-group transactions, balances and unrealised gains on transactions between combining entities or businesses are eliminated on consolidation.
(ii) Subsidiaries
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights or has de facto control. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. De facto control exists where the Group owns less than 50% of the voting shares in an entity, but is deemed to have control for reasons other than potential voting rights, contract or other statutory means. For example, control is achievable if the balance of other shareholdings is dispersed and the other shareholders have not organised their interests in such a way that they exercise more votes than the Group.
Except for business combinations applying business combination involving entities under common control as detailed in Note (i) above, subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.
– I-16 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes direct attributable costs of investment. The results of subsidiaries are accounted for by the company on the basis of dividend and receivable.
The excess of the consideration transferred the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the statement of comprehensive income.
Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.
(iii) Transactions with non-controlling interests
The group treats transactions with non-controlling interests as transactions with equity owners of the group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
When the group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.
(iv) Associates
Associates are all entities over which the group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The group’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss.
The group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
– I-17 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Unrealised gains on transactions between the group and its associates are eliminated to the extent of the group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the group.
Dilution gains and losses arising in investments in associates are recognised in the income statement.
In the Company’s balance sheet the investments in associated companies are stated at cost less provision for impairment losses (Note 3(k)). The results of associated companies are accounted for by the Company on the basis of dividend received and receivable.
(b) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board of directors that makes strategic decisions.
(c) Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Renminbi (“RMB”), which is the functional currency for the Company and presentation currency for the Group, respectively.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges or qualifying net investment hedges.
Foreign exchange gains and losses that related to borrowings and cash and cash equivalents are presented in the income statement within ‘finance income or cost’. All other foreign exchange gains and losses are presented in the income statement within ‘other gains – net’.
Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in the amortised cost are recognised in profit or loss, and other changes in the carrying amount are recognised in equity.
Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation difference on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale are included in the other reserves in equity.
– I-18 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(iii) Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
– Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
– Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
– All resulting exchange differences are recognised in other comprehensive income.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
(d) Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
Depreciation of property, plant and equipment is provided using the straight-line method over their estimated useful lives, after deducting the estimated residual value. The estimated useful lives are as follows:
Buildings 20 to 35 years Equipment and machinery 5 to 10 years Motor vehicles 5 to 6 years Mining structures* 10 to 20 years
* Mining structures comprise the main and auxiliary mine shafts and underground tunnels.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 3(k)).
Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are recognised within other gains-net, in the income statement.
– I-19 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(e) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in ‘intangible assets’. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose identified according to operating segment.
(f) Mining rights
Mining rights are stated at cost less accumulated amortization and accumulated impairment losses. Amortisation of mining rights is calculated on unit of production method basis.
(g) Investment properties
Investment property, principally comprising office buildings, is held for long-term rental yields and is not occupied by the Group. Investment property is initially measured at cost, including related transaction costs. After initial recognition at cost investment properties are carried at fair value, representing open market value determined at each reporting date by external valuers. Fair value is based on active property market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If the information is not available, the group uses alternative valuation methods such as recent prices on less active markets or discounted cash flow projections. Changes in fair values are recorded in the income statement as part of a valuation gain or loss in other income.
(h) Land use rights
Land use rights are up-front payments to acquire long-term interests in land. These payments are stated at cost and amortised over the remaining period of the leases on a straight-line basis.
(i) Computer software
Acquired computer software programmes are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over the estimated useful lives of 5 to 10 years on a straight-line basis.
Cost associated with developing or maintaining computer software programmes which do not generate economic benefits are recognised as expense as incurred.
(j) Construction-in-progress
Construction-in-progress represents plant and other property, machinery and equipment under construction and is stated at cost. This includes the costs of construction, the costs of plant and machinery, and interest charges arising from borrowings used to finance these assets during the period of construction or installation and testing. All other borrowing costs are expensed. When the assets concerned are available for use, the costs are transferred to property, plant and equipment and depreciated in accordance with the policies as stated above.
– I-20 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(k) Impairment of investments in subsidiaries, associates and non-financial assets
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
(l) Financial assets
The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivable and available-for-sale. The classification depends on the purposes for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
(i) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets.
(ii) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables comprise ‘trade and other receivables’ and ‘cash and cash equivalents’ in the balance sheet (Note 3(n) and Note 3(o)).
(iii) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.
Management determines the appropriate classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis.
Regular way purchases and sales of financial assets are recognised on the trade-date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss is initially recognised at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method.
– I-21 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Gains or losses arising from changes in the fair value of the financial assets at fair value, through profit or loss category are presented in the income statement within other gains-net, in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the income statement as part of other income when the Group’s right to receive payments is established.
When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as ‘other gains-net’.
As the range of reasonable fair value estimates of available-for-sale financial assets for unlisted securities, which cannot be measured reliably, is significantly wide and the probabilities of the various estimates cannot be reasonably assessed, the Group account for all its available-for-sale financial assets for unlisted securities, which cannot be measured reliably, at cost.
(m) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average method. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
(n) Trade and other receivables
Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.
(o) Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, overdrafts.
(p) Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
Where any group company purchases the Company’s equity share capital, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received (net of any directly attributable incremental transaction costs and the related income tax effects) is included in equity attributable to the Company’s equity holders.
– I-22 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(q) Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
(r) Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
(s) Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
– I-23 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(t) Retirement benefit costs
The Group participates in a retirement and medical insurance scheme organised by Municipal Social Security Administration Bureau (“MSSAB”). Pursuant to the relevant provisions, the Group is required to make monthly contributions in respect of the above insurance scheme to MSSAB based on the monthly salaries of its employees. The Group’s contributions under the scheme are charged to the income statement as incurred. Apart from the above monthly contributions, the Group does not have other significant commitments to benefits of its employees.
Pursuant to the above social insurance scheme, MSSAB undertakes to assume the retirement benefit obligations of existing and future retired employees of the Group.
(u) Research and development
Research expenditure is recognised as an expense as incurred. Cost incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and its cost can be measured reliably. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight-line basis over its useful life, not exceeding five years.
(v) Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight line basis over the period of the lease.
(w) Provisions
Provisions for environmental restoration, restructuring costs and legal claims are recognised when: the group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.
– I-24 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(x) Contingent liabilities
A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group; or a present obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or the amount of the obligation cannot be measured with sufficient reliability. A contingent liability is not recognised in financial statement, but to be disclosed by the Group, unless the possibility of an outflow of resources embodying economic benefits is remote.
(y) Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sales of goods in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminated sales within the Group.
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
(i) Sales of goods
Sales of goods are recognised when a group entity has delivered products to the customer. The customer has accepted the products and collectability of the related receivables is reasonably assured.
(ii) Rental income
Rental income from investment properties leased out under an operating lease is recognised in the income statement on a straight-line basis over the term of the lease.
(iii) Hotel operations
Revenue from hotel operations is recognised in the accounting period in which the services are rendered.
(iv) Interest income
Interest income is recognised on a time-proportion basis using the effective interest method.
(v) Dividend income
Dividend income is recognised when the right to receive payment is established.
– I-25 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(z) Borrowing costs
The borrowing costs that are directly attributable to the acquisition and construction of a property, plant and equipment 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 capitalisation 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 income statement. Capitalisation of borrowing costs is suspended when the acquisition or construction of a property, plant and equipment is interrupted abnormally and the interruption lasts for more than 3 months, until the acquisition or construction is resumed.
For a borrowing that is specifically for the purpose of obtaining a qualifying asset, the amounts of borrowing costs eligible for capitalisation are the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of these borrowings.
For the other borrowings related to acquisition, construction and production of a qualifying asset, the amount of borrowing costs eligible for capitalisation shall be the lower of the actual borrowing costs incurred and the amount of qualifying asset not financed by specific borrowings multiplying capitalisation rate. The capitalisation rate is the weighted average interest rate of these borrowings.
(aa) Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders.
(bb) Government grants
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.
Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs they are intended to compensate.
Government grants relating to property, plant and equipment are included in non-current liabilities as deferred income on government grants and are credited to the income statement on a straight-line basis over the expected lives of the related assets.
(cc) Financial guarantee
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. After initial recognition, an issuer of such a contract shall measure it at the higher of the best estimate of the obligation and the amount initially recognised less, when appropriate, cumulative amortisation calculated to recognise the fee income earned on a straight line basis over the life of the guarantee contract.
– I-26 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
4 FINANCIAL RISK MANAGEMENT
The group’s activities expose it to a variety of financial risks: market risk (including currency risk, price risk, fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the group’s financial performance.
(a) Market risk
(i) Foreign exchange risk
The Group’s activities are principally conducted in RMB. Although majority of the Group’s assets and liabilities are denominated in RMB, the Group is still subject to foreign exchange risk arising from future commercial transactions and recognised assets and liabilities which are denominated in non-RMB, including US dollars, Japanese Yen, Euro and HK dollars. The Group currently does not have a foreign currency hedging policy. In addition, the conversion of RMB into foreign currencies is subject to the rules and regulations of foreign exchange controls promulgated by the PRC government.
The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the respective balance sheet dates are as follows:
31 December 31 December 2010 2009 RMB’000 RMB’000
Assets USD 800,214 527,585 HKD 26,795 39,465 EUR 43,519 2,508 JPY 9,034 8,209 KRW 5,559 5,087
Total 885,121 582,854
Liabilities USD 1,648,791 571,490 HKD 16,034 14,794 EUR 6,893 10,132 JPY 176,587 90,492 KRW 1,481 1,050
Total 1,849,786 687,958
– I-27 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
The following table shows the sensitivity analysis of a 1% increase in RMB against the relevant foreign currencies. The sensitivity analysis includes only foreign currency denominated monetary items and adjusts their translation at the year end for the respective changes in rate.
2010 2009 RMB’000 RMB’000
1% appreciation in exchange rate against US Dollar Increase in the profit for the year 8,486 439
1% appreciation in exchange rate against Hong Kong Dollar Decrease in the profit for the year 156 247
1% appreciation in exchange rate against Euro (Decrease)/increase in the profit for the year (1,831) 381
1% appreciation in exchange rate against Japanese Yen Increase in the profit for the year 1,816 823
(ii) Price risk
The Group is not exposed to equity securities and commodity price risks.
(iii) Cash flow and fair value interest rate risk
The Group’s interest-rate risk arises from borrowings. Borrowings issued at variable rates expose the Group to cash flow interest-rate risk. Borrowings issued at fixed rates expose the Group to fair value interest-rate risk. The Group currently has not used any interest rate swap arrangements but will consider hedging interest rate risk should the need arise.
The table below summaries the impact of changes in interest rate as at 31 December 2010 with all other variables held at constant on the Group’s profit for the year.
Interest rate 10% higher 10% lower (Decrease)/increase in profit for the year RMB’000 RMB’000
Borrowings at variable rates Charged/(credited) to finance costs (net of amounts to be capitalised as construction in progress) (21,428) 21,428
The interest rates and terms of repayment of borrowings of the Group are disclosed in Note 25.
– I-28 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(iv) Credit risk
The Group is exposed to credit risk in relation to its trade and other receivables.
The carrying amounts of trade and other receivables represent the Group’s maximum exposure to credit risk in relation to financial assets. The top 5 customers accounted for more than 32% of the balance of trade and other receivables as at 31 December 2010 (2009: 36%).
The Group normally grants credit terms of not more than 30 to 90 days to existing customers without collaterals. Aging analysis of the Group’s trade receivables is disclosed in Note 20. Management makes periodic collective assessment as well as individual assessment on the recoverability of trade and other receivables based on historical payment records, the length of the overdue period, the financial strength of the debtors and whether there are any disputes with the relevant debtors. The Group’s historical experience in collection of trade and other receivables falls within the recorded allowances and the directors are of the opinion that adequate provision for uncollectible receivables has been made.
(v) Liquidity risk
The board of directors of the Group manage the liquidity risk by maintaining sufficient cash to meet the normal operating commitments and sourcing adequate funding through banking credit facilities, including short-term and long-term bank loans.
The table below analyses the Group’s and Company’s non-derivative financial liabilities into relevant maturity grouping based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant.
Less than 1 Between 1 Between 2 Over 5 year and 2 years and 5 years years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Group At 31 December 2010 Borrowings 2,641,545 2,535,430 3,201,733 705,087 9,083,795 Trade and other payables 3,267,087 – – – 3,267,087 Other non-current liabilities 3,525 5,427 84,738 34,169 127,859
Total 5,912,157 2,540,857 3,286,471 739,256 12,478,741
Less than 1 Between 1 Between 2 Over 5 year and 2 years and 5 years years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 31 December 2009 Borrowings 2,700,979 799,894 4,529,039 500,248 8,530,160 Trade and other payables 1,940,799 – – – 1,940,799 Other non-current liabilities – 8,560 91,267 35,337 135,164
Total 4,641,778 808,454 4,620,306 535,585 10,606,123
– I-29 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Less than 1 Between 1 Between 2 Over 5 year and 2 years and 5 years years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Company At 31 December 2010 Borrowings 253,460 958,257 187,629 – 1,399,346 Trade and other payables 235,607 – – – 235,607
Total 489,067 958,257 187,629 – 1,634,953
Less than 1 Between 1 Between 2 Over 5 year and 2 years and 5 years years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 31 December 2009 Borrowings 134,670 50,270 1,064,810 – 1,249,750 Trade and other payables 426,113 – – – 426,113
Total 560,783 50,270 1,064,810 – 1,675,863
The carrying amounts of the Group’s current financial assets, including cash and cash equivalents, trade and other receivables and the Group’s current financial liabilities including trade and other payables and current borrowings approximate their fair values due to their short maturities.
The nominal values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar financial instruments.
(b) Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new shares or sell assets to reduce debt.
Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including ‘current and non-current borrowings’ as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the consolidated balance sheet plus net debt.
– I-30 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
The gearing ratios at 31 December 2010 and 2009 are as follows:
2010 2009 RMB’000 RMB’000
Total borrowings (Note 25) 8,021,658 7,102,801 Less: cash and cash equivalents (Note 22) (1,728,245) (1,056,811)
Net debt 6,293,413 6,045,990 Total equity 4,948,449 3,824,337
Total capital 11,242,862 9,870,327
Gearing ratio 56% 60%
The decrease in the gearing ratio in 2010 is mainly due to the additional contribution of non-controlling interests of Shenzhen Shennan Circuit Company Limited (“Shennan Circuit”), amounting to RMB48,314,000 and private placement of Fiyta of RMB402,765,000 (Note 24(a)).
The Group has no financial instrument stated at fair value as at 31 December 2010.
5 CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
(a) Estimated impairment of receivables
The Group makes provision for impairment of receivables based on an assessment of the recoverability of trade and other receivables with reference to the extent and duration that the amount will be recovered. Provisions are applied to trade and other receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of potential impairment requires the use of judgement and estimates. Where the expectation is different from the original estimate, such difference will impact the carrying value of trade and other receivables and doubtful debt expenses in the period in which such estimate has been changed.
(b) Estimation of mineral resources reserves
Mineral resources reserves and the amortisation method are key factors in the calculation of amortisation of mining rights. Mineral resources reserves are also an important element in testing for impairment. Changes in mineral resources reserves will affect amortisation recorded in the financial statements for mining rights. A reduction in proven developed reserves will increase amortisation charges. Proven reserve estimates are subject to revision, either upward or downward, based on new information, such as from changes in economic factors, including product prices, contract terms, evolution of technology or development plans.
– I-31 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(c) Carrying value of mining rights and property, plant and equipment
Mining rights and property, plant and equipment are carried at cost less accumulated amortisation and depreciation. These carrying amounts are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In estimating the recoverable amounts of assets, various assumptions, including future cash flows to be associated with the mining rights and depreciation and discount rates, are made. If future events do not correspond to such assumptions, the recoverable amounts will need to be revised, and this may have an impact on the Group’s results of operations or financial position. Management considered that there was no impairment charge required to be made to the carrying value of the mining rights and property, plant and equipment as at 31 December 2010.
(d) De facto control in certain subsidiaries
Following a new share issue of Tianma Microelectronics Co. Ltd. (the “Tianma”), a subsidiary of the Group, and the implementation of a share segregation reform scheme of Shenzhen Fiyta Holdings Limited (the “Fiyta”), another subsidiary of the Group, in prior years and the non-public offering to particular investors of Fiyta (Note 24(a)), the Group’s equity interests held in these two subsidiaries fell below 50%. However, the Group is able to control the key operational and financial decisions of these two companies. As such, the directors of the Company consider that the Group has maintained de facto control in these subsidiaries despite its equity interests in these two subsidiaries are below 50% and the Group continues to report them as subsidiaries.
(e) Investment property valuation
The Group’s certain investment properties are located in areas where there are no active property market, in such cases, the fair value is estimated by discounted cash flow method, which involves a number of key assumptions, including market rents, occupancy rates, discounts rates. The assumptions require the use of judgement and estimates. Where the expectation is different from the original estimate, such difference will impact the carrying value of investment and fair value gain/loss on investment property in the period in which such estimate has been changed.
(f) Recognition of deferred income tax assets
Significant judgement is required in determining the provision for income tax. There are many transactions and calculations for which the ultimate determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the income tax and deferred tax provision in the period in which such determination is made.
Deferred tax assets relating to certain temporary differences and tax losses are recognised when management considers to be probable that future taxable profit will be available against which the temporary differences or tax losses can be utilised. The outcome of their actual utilisation may be different.
– I-32 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
6 SEGMENTAL INFORMATION
The chief operating decision-makers have been identified as the board of directors of the Company. Management has determined the operating segments based on the reports reviewed by the board of directors that are used to make strategic decisions.
The board considers the business from a product perspective. The Group is organised into eight business segments:
• Clocks and watches manufacture – manufacture and sales of mechanical and quartz timepieces
• Clocks and watches retailing – retailing sales of branded quartz timepieces
• Liquid crystal displays – manufacture and sales liquid crystal displays
• Printed circuit boards – manufacture and sales of printed circuit boards
• Cable television equipment – manufacture and sales of cable television equipment
• Investment properties – rental services under operating leases
• Hotel management – operating hotels and provide related services
• Resources – mining and sales of minerals
– I-33 – The segment information provided to the board of directors for the reportable segments for the year ended 31 December 2010 is as follows: GROUP THE OF INFORMATION FINANCIAL I APPENDIX
An analysis of the Group’s segmental information is as follows:
Clocks and watches Clocks and Liquid crystal Printed circuit Cable television Investment Unallocated Manufacturing watches Retailing displays boards equipment properties Hotel Mining resources corporate items Total 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Revenue 249,770 188,665 1,450,838 965,138 3,321,736 2,181,111 1,578,891 1,167,939 47,745 32,040 126,042 115,929 – 8,379 189,529 433,682 – – 6,964,551 5,092,883
Results Segment results 36,026 24,044 73,185 48,307 138,355 (232,490) 150,809 105,795 1,040 1,291 44,825 54,562 (226) (1,356) (43,086) (83,399) (51,129) (37,809) 349,799 (121,055) Other income (Note 29) 486 1,298 1,020 5,734 166,668 30,959 36,102 30,667 874 1,681 7,132 7,461 (1,198) (2,310) 2,451 30,761 7,186 (870) 220,721 105,381 Other gains-net (Note 30) ––––44–––––––––72,030 – – 8,301 72,074 8,301 Fair value gain on investment properties (Note 11) ––––––––––74,406 65,617 ––––––74,406 65,617
Operating profit/(loss) 36,512 25,342 74,205 54,041 305,067 (201,531) 186,911 136,462 1,914 2,972 126,363 127,640 (1,424) (3,666) 31,395 (52,638) (43,943) (30,378) 717,000 58,244 Finance costs, net (Note 33) (1,108) (52) (32,432) (21,443) (116,472) (141,633) (16,335) (13,702) (880) (2,540) (12,318) (34,085) (40,773) (39,782) (34,199) (35,253) (68,823) (69,994) (323,340) (358,484) Share of results of associates (Note 14) ––––(1,822) –––––––––––63,050 11,391 61,228 11,391 Income tax (charge)/credit (Note 35) (5,825) (2,792) (17,814) (11,324) (36,745) 52,385 (21,866) (20,999) 89 (615) (25,578) (23,698) – 16 (4,559) 7,096 – – (112,298) 69
Profit/(loss) for the year 29,579 22,498 23,959 21,274 150,028 (290,779) 148,710 101,761 1,123 (183) 88,467 69,857 (42,197) (43,432) (7,363) (80,795) (49,716) (88,981) 342,590 (288,780)
Other information Segment assets 731,233 293,751 1,275,882 896,947 7,773,091 6,619,922 2,161,610 1,525,035 47,037 38,896 1,011,781 1,052,748 1,063,066 951,305 1,648,878 1,621,588 760,486 57,245 16,473,064 13,057,437 Investments in associates (Note 14) – – 1,000 – 177,809 –––––350–––10,500 – 604,690 568,917 794,349 568,917
Total assets 731,233 293,751 1,276,882 896,947 7,950,900 6,619,922 2,161,610 1,525,035 47,037 38,896 1,012,131 1,052,748 1,063,066 951,305 1,659,378 1,621,588 1,365,176 626,162 17,267,413 13,626,354
Total liabilities 77,788 33,950 269,140 160,899 5,480,835 4,542,497 1,344,585 871,798 44,073 36,919 2,116,962 1,245,855 99,159 812,162 1,126,784 997,351 1,759,638 1,100,586 12,318,964 9,802,017 -4– I-34 – Capital expenditure 25,900 19,681 41,385 35,212 1,263,398 901,609 299,886 125,890 602 129 11,586 13,009 304,706 45,871 406,398 84,964 13 977 2,353,874 1,227,342
Non-cash expenses – Depreciation of property, plant and equipment (Note 31) 16,226 16,334 25,239 16,764 313,573 305,907 104,055 83,043 375 339 13,799 519 – 6,479 44,366 34,416 1,169 1,041 518,802 464,842
– Amortisation of land use rights (Note 31) – 461 – – 6,956 3,738 450 337 – – 494 – – – 348 177 – – 8,248 4,713
– Provision for/(reversal of) bad debts (Note 31) 595 321 1,926 – 3,108 46,244 9,850 797 162 225 397 1,011 – – (4,547) 11,993 – – 11,491 60,591
– (Reversal of)/provision for inventory obsolescence (Note 31) 5,857 (923) 412 – (18,532) 9,372 (2,669) 1,486 (46) (144) ––––––––(14,978) 9,791 APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Reportable segments’ assets are reconciled to total assets as follows:
2010 2009 RMB’000 RMB’000
Segment assets 16,415,974 13,000,192 Unallocated: Investments in associates 794,349 568,917 Available-for-sale financial assets 27,579 2,098 Cash and cash equivalents 20,203 44,615 Property, plant and equipment 9,308 10,463 Other current assets – 69
Total assets per balance sheet 17,267,413 13,626,354
Reportable segments’ liabilities are reconciled to total liabilities as follows:
2010 2009 RMB’000 RMB’000
Segment liabilities 10,848,194 8,701,431 Unallocated: Borrowings 1,300,000 994,000 Other payables 170,770 106,586
Total liabilities per balance sheet 12,318,964 9,802,017
The Group entities are principally domiciled in the PRC. The result of its revenue from external customers in PRC and other countries and districts are disclosed below:
2010 2009 RMB’000 RMB’000
Revenue Mainland China 4,653,966 3,136,651 Hong Kong 880,287 1,352,916 Europe and America 660,038 364,668 East and Southeast Asia 770,260 235,650 Other countries – 2,998
Total revenue per income statement 6,964,551 5,092,883
Revenue is allocated based on the country in which customers are located.
– I-35 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
2010 2009 RMB’000 RMB’000
Total assets Mainland China 16,057,688 12,979,684 Hong Kong 361,838 55,339 Europe and America 45,912 15,553 East and Southeast Asia 7,626 6,861
16,473,064 13,057,437 Investments in associates 794,349 568,917
Total assets per balance sheet 17,267,413 13,626,354
Total assets are allocated based on where the assets are located.
2010 2009 RMB’000 RMB’000
Capital expenditure Mainland China 2,346,076 1,226,333 Hong Kong 7,763 980 Europe and America 35 29
2,353,874 1,227,342
Capital expenditure is allocated based on where the assets are located.
Revenue consists of the followings:
2010 2009 RMB’000 RMB’000
Analysis of revenue by category Sales of goods 6,841,227 4,968,575 Rental income 123,324 115,929 Hotel operating income – 8,379
Total revenue per income statement 6,964,551 5,092,883
– I-36 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
7 LAND USE RIGHTS
Group 2010 2009 RMB’000 RMB’000
Net book value at 1 January 700,246 687,277 Additions 25,635 30,763 Acquisition of subsidiary (Note 41) 34,591 – Amortisation (21,447) (17,794) Disposal of subsidiaries (Note 39) (19,754) –
Net book value at 31 December 719,271 700,246
Representing by nature: Investment properties 13,208 13,702 Other properties 706,063 686,544
719,271 700,246
Amortisation charges of RMB8,248,000 (2009: RMB4,713,000) and RMB13,199,000 (2009: RMB13,081,000) were included in the administrative expenses and capitalized in construction in process for the year respectively.
The Group’s land use rights are situated in the mainland China and the respective land use rights were granted by the Town Planning and Land Administration Bureau for periods of 30-50 years from the date of grant.
As at 31 December 2010, certain bank borrowings were secured by the land use rights of Guangdong International Building Industrial Co., Ltd. (“GIB Company”) at the net book value of approximately RMB470,140,000 (2009: RMB482,724,000) and the land use rights of Shanghai Tianma Microelectronics Co., Ltd. (“Shanghai Tianma”) at the net book value of approximately RMB119,715,000 (2009: RMB122,336,000). Details of the secured borrowings are in Note 25.
8 MINING RIGHTS
Group 2010 2009 RMB’000 RMB’000
Net book value at 1 January 541,153 569,488 Additions 14,945 – Acquisition of subsidiary (Note 41) 65,256 – Disposal of subsidiaries (Note 39) (75,529) – Amortisation (11,796) (28,334)
Net book value at 31 December 534,029 541,154
– I-37 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Change of accounting estimate:
From 1 January 2010, the Group changed the amortisation method of mining rights from straight line method to unit of production method. Management expected that the future production volume of mineral resources will fluctuate largely with the change of the way of resources exploitation and the market condition. The board of directors of the Group believe that the unit of production method will reflect more fairly of the patterns of consumption of the future economic benefits. As a result of the change of accounting estimate, the amortisation charge in current year decreased by RMB16,850,000.
Amortisation charges of RMB10,027,000 (2009: RMB24,183,000) and RMB1,769,000 (2009: RMB4,151,000) were included in the cost of goods sold and administrative expenses in the consolidated income statement for the year respectively.
As of 31 December 2010, the mining rights of the Group mainly comprise the following:
– The mining rights of the phosphorus mine of a net book value of RMB219,776,000 (2009: RMB215,930,000) has a site area of approximately 2.4553 sq. km. It is located in Dongchuan District, Kunming Prefecture of Yunnan Province, the PRC.
– The mining rights of a potassium mine of a net book value of RMB247,466,000 (2009: RMB258,395,000) has a site area of approximately 284,526sq. km. It is located in Lenghu District, Haixi Prefecture of Qinghai Province, the PRC.
– The mining rights of a phosphorus mine of a net book value of RMB66,787,000 (2009: Nil) has a site area of approximately 6.85 sq. km. It is located in Dongchuan District, Kunming Prefecture of Yunnan Province, the PRC.
9 GOODWILL
Group RMB’000
Year ended 31 December 2009 Opening and closing net book amount 5,240
Year ended 31 December 2010 Opening and closing net book amount 5,240
The goodwill was arisen from the acquisition of Qinghai CATIC Resources Company Limited (“Qinghai CATIC Resources”) in 2008. The recoverable amount of Qinghai CATIC Resources has been determined based on a value-in-use calculation, which uses cash flow projection based on a financial forecast approved by management covering five-year period.
Management determined the estimated gross margin based on past performance and its expectations for the market development. The weighted average growth rate of 15% (2009: 17%), which is consistent with the forecasts included in the industry reports. The discount rate of 12% (2009: 12%) is pre-tax and reflects specific risks relating to business operated by Qinghai CATIC Resources. The directors of the Company consider that no impairment charge was required after performing the impairment assessment.
– I-38 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
10 PROPERTY, PLANT AND EQUIPMENT
Group
2010 Machinery and Motor Mining Buildings equipment vehicles structures Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Year ended 31 December 2010 Cost At beginning of year 2,360,468 3,845,643 65,817 134,573 6,406,501 Transfer from construction- in-progress (Note 12) 641,394 1,363,771 2,761 9,432 2,017,358 Acquisition of subsidiary (Note 41) – 8,541 194 – 8,735 Additions 92,383 278,938 10,854 71,244 453,419 Transfer to investment properties (Note 11) (17,658) – – – (17,658) Transfer to construction- in-progress (Note 12) (232,324) (6,945) – – (239,269) Disposal of subsidiaries (Note 39) (1,325) (4,462) (1,784) (14,160) (21,731) Other disposals (44,111) (44,269) (4,120) (1,244) (93,744)
At end of year 2,798,827 5,441,217 73,722 199,845 8,513,611
Accumulated depreciation At beginning of year 307,551 1,039,796 37,701 6,612 1,391,660 Charge for the year 116,196 390,500 6,495 5,611 518,802 Transfer to construction in progress (Note 12) (7,349) (2,016) – – (9,365) Transfer to investment property (Note 11) (7,477) – – – (7,477) Disposal of subsidiaries (Note 39) (87) (784) (489) (926) (2,286) Other disposals (42,548) (28,248) (3,926) (912) (75,634)
At end of year 366,286 1,399,248 39,781 10,385 1,815,700
Net book amount At end of year 2,432,541 4,041,969 33,941 189,460 6,697,911
At beginning of year 2,052,917 2,805,847 28,116 127,961 5,014,841
– I-39 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
2009 Machinery and Motor Mining Buildings equipment vehicles structures Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Year ended 31 December 2009 Cost At beginning of year 2,347,208 3,648,000 62,471 125,669 6,183,348 Transfer from construction- in-progress (Note 12) 80,070 51,057 – 100 131,227 Reclassification (64,659) 64,659 – – – Cost adjustment (88,716) – – – (88,716) Transfer from investment properties (Note 11) 44,107 – – – 44,107 Additions (Note 40) 51,428 127,071 6,205 8,804 193,508 Transfer to investment properties (Note 11) (3,964) – – – (3,964) Disposals (5,006) (45,144) (2,859) – (53,009)
At end of year 2,360,468 3,845,643 65,817 134,573 6,406,501
Accumulated depreciation At beginning of year 232,167 697,762 32,434 5,939 968,302 Reclassification (4,015) 4,015 – – – Charge for the year 86,105 370,821 7,519 673 465,118 Transfer to investment properties (Note 11) (1,721) – – – (1,721) Disposals (4,985) (32,802) (2,252) – (40,039)
At end of year 307,551 1,039,796 37,701 6,612 1,391,660
Net book amount At end of year 2,052,917 2,805,847 28,116 127,961 5,014,841
At beginning of year 2,115,041 2,950,238 30,037 119,730 5,215,046
– I-40 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
The Company
2010 Machinery and Motor Buildings equipment vehicles Total RMB’000 RMB’000 RMB’000 RMB’000
Year ended 31 December 2010 Cost At beginning of year 21,925 1,634 4,107 27,666 Additions – 12 – 12 Disposal (2,925) – – (2,925)
At end of year 19,000 1,646 4,107 24,753
Accumulated depreciation At beginning of year 13,161 244 3,798 17,203 Charge for the year 855 42 270 1,167 Disposal (2,925) – – (2,925)
At end of year 11,091 286 4,068 15,445
Net book amount At end of year 7,909 1,360 39 9,308
At beginning of year 8,764 1,390 309 10,463
The Company
2009 Machinery and Motor Buildings equipment vehicles Total RMB’000 RMB’000 RMB’000 RMB’000
Year ended 31 December 2009 Cost At beginning of year 21,925 657 4,107 26,689 Additions – 977 – 977
At end of year 21,925 1,634 4,107 27,666
Accumulated depreciation At beginning of year 12,303 58 3,798 16,159 Charge for the year 858 186 – 1,044
At end of year 13,161 244 3,798 17,203
Net book amount At end of year 8,764 1,390 309 10,463
At beginning of year 9,622 599 309 10,530
The buildings, plant and equipment and other properties of the Group were stated at historical cost.
– I-41 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
The Group
Depreciation charge was capitalised or expensed in the following categories:
2010 2009 RMB’000 RMB’000
Cost of goods sold 427,696 383,074 Administrative expenses 71,244 68,374 Distribution costs 19,315 13,394 Construction in progress 547 276
518,802 465,118
The Group’s buildings are all situated in the mainland China.
As at 31 December 2010, certain bank borrowings were secured by the buildings of Tianma Microelectronics Co., Ltd. (“Tianma”) at the net book value of approximately RMB141,847,000 (2009: RMB146,682,000), the buildings, equipment and machinery of Shanghai Tianma at the net book value of approximately RMB678,245,000 (2009: RMB680,902,000), and the buildings of GIB Company at the net book value of approximately RMB578,196,000 (2009: RMB223,850,000). Details of the secured borrowings are in Note 25.
As at 31 December 2010, title certificates of buildings with net book value of RMB980,339,000 (2009: RMB535,357,000) were still in the progress of being obtained.
11 INVESTMENT PROPERTIES
Group 2010 2009 RMB’000 RMB’000
At fair value
Opening balance at 1 January 1,022,221 992,838 Transfer from property, plant and equipment 27,584 2,243 Additions 4,918 8,265 Net gain from fair value adjustment 74,406 65,617 Transfer to property, plant and equipment (Note 10) – (44,107) Disposals – (2,635) Closing balance at 31 December 1,129,129 1,022,221
(a) Amounts recognised in profit and loss for investment properties are as follows:
2010 2009 RMB’000 RMB’000
Rental income 126,042 115,929 Direct operating expenses from property that generated rental income (41,222) (19,449) Direct operating expenses from property that did not generate rental income (36,879) (28,439)
47,941 68,041
– I-42 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(b) Valuation basis
The 2010 revaluations were based on independent assessments made by China United Assets Appraisal Co., Ltd. The valuations represented the fair value amounts for which the properties could be exchanged between willing parties in an arm’s length transaction, based on current prices in an active property market for similar properties in the same location and condition and subject to similar leases.
(c) Non-current assets pledged as security
As at 31 December 2010, certain bank borrowings were secured by the investment properties of the GIB Company at the fair value of approximately RMB626,759,000 (2009: RMB576,749,000) for the GIB Company, a subsidiary of the Group. Details of the secured borrowings are in Note 25.
(d) Leasing arrangements
Certain investment properties have been leased to tenants under long-term operating leases with rentals payable monthly.
Minimum lease receivables under non-cancellable operating leases of investment properties not recognised in the financial statements are as follows:
2010 2009 RMB’000 RMB’000
Not later than one year 67,659 56,801 Later than one year and not later than five years 58,175 79,867
125,834 136,668
Present value of the lease receivables 111,833 117,447 Financial income 14,001 19,221
125,834 136,668
The investment properties of the Group are situated in the PRC.
(e) In 2010, owner-occupied property with net book value of RMB10,181,000 was transferred to investment properties. As at the date of transfer, the fair value of the property amounted to RMB27,583,000. The difference between the fair value and net book value at the transfer date of RMB17,403,000 was recorded in other comprehensive income.
– I-43 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
12 CONSTRUCTION-IN-PROGRESS
Group 2010 2009 RMB’000 RMB’000
At beginning of year 1,005,292 160,038 Transfer from property, plant and equipment (Note 10) 229,904 – Acquisition from subsidiary (Note 41) 68,382 – Additions (Note (a)) 1,640,996 979,209 Transfer to property, plant and equipment (Note 10) (2,017,358) (131,227) Disposal of subsidiaries (Note 39) (32,414) – Disposals (1,256) (2,728)
At end of year 893,546 1,005,292
(a) Included in the additions are mainly costs incurred for the construction of production plants, modernisation and renovation projects.
(b) Bank loan interest capitalised in the construction in progress in 2010 amounted to RMB62,724,000 (2009: RMB8,364,000) and the capitalised interest rate was 4.13% (2009: 5.11%).
13 INVESTMENTS IN SUBSIDIARIES
Company 2010 2009 RMB’000 RMB’000
Investments at cost: – shares in listed companies 432,838 352,838 – unlisted equity interests 1,212,223 1,212,223 – impairment (11,050) (11,050)
1,634,011 1,554,011
As at 31 December 2010, the market value of shares in listed companies approximated RMB5,978,508,000 (2009: RMB3,198,346,000).
As at 31 December 2010, the Company had equity interests in the following major subsidiaries which, in the opinion of the directors, materially contribute to the net results of the Group or constitute a material portion of the assets or liabilities of the Group (all incorporated/established and operated in the PRC):
Date of incorporation/ Type of Name of subsidiary establishment Attributable equity interest Registered capital legal entity Principal activities 2010 2009 Direct Indirect Direct Indirect
Tianma Microelectronics 8 November 1983 45.62% – 45.62% – RMB574,237,500 Joint stock Manufacture and Co., Ltd. (“Tianma”) company sales of liquid Note (a) (listed on the crystal displays Shenzhen Stock Exchange)
– I-44 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Date of incorporation/ Type of Name of subsidiary establishment Attributable equity interest Registered capital legal entity Principal activities 2010 2009 Direct Indirect Direct Indirect
Shenzhen Shennan 3 July 1984 88.35% – 95% – RMB139,800,000 Limited liability Manufacture and Circuit Co., Ltd. company sales of printed (“Shennan Circuit”) circuit boards
Shenzhen Fiyta Holdings 30 March 1990 41.49% – 44.69% – RMB280,548,479 Joint stock Manufacture and Limited (“Fiyta”) company (listed sales of watches Note (a) on the Shenzhen and clocks Stock Exchange)
Shenzhen Maiwei Cable 3 August 1991 60% – 60% – RMB20,000,000 Contractual joint Manufacture and TV Equipments Co., venture sales of electronic Ltd. (“Maiwei”) components of cable television appliances
Shenzhen CATIC 17 September 2007 100% – 100% – RMB500,000,000 Wholly owned Resources business Resources Co., Ltd company (“CATIC Resources”)
Guangdong International 31 January 2009 75% – 75% – RMB416,459,417 Contractual joint Hotel and property Building Industrial Co., venture operations Ltd. (“GIB Company”)
Shanghai Tianma 7 April 2007 21% 30% 21% 30% RMB515,000,000 Contractual joint Manufacture and Microelectronics Co., venture sales of liquid Ltd. (“Shanghai crystal displays Tianma”)
Qinghai CATIC Resources 16 May 2007 – 100% – 100% RMB550,000,000 Wholly owned Potassium Resource Co., Ltd. (“Qinghai company business CATIC Resource”)
Chengdu Tianma 11 September 2008 – 30% – 30% RMB1,200,000,000 Contractual joint Manufacture and Microelectronics venture sales of liquid Co., Ltd (“Chengdu crystal displays Tianma”) (Note (a))
Yunnan Hongfu Fertilizer 15 September 2010 – 51% – – RMB108,793,654 Contractual joint Phosphorus Company Limited venture Resource (“Yunnan Hongfu”) business
Notes:
(a) The Group’s equity interests held in these subsidiaries are below 50%. However, the Group controls the key operational and financial decisions of these subsidiaries. As such, the directors of the Company consider that the Group have de facto control over these subsidiaries and report them as subsidiaries of the Group.
– I-45 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
14 INVESTMENTS IN ASSOCIATES
Group Company 2010 2009 2010 2009 RMB’000 RMB’000 RMB’000 RMB’000
At beginning of year 568,917 565,313 298,198 298,198 Capital injection (a) 134,000 – – – Transfer from available for sale financial assets (Note 16)(a) 32,000 – – – Dividends received – (2,484) – – Reversal of revaluation surplus on disposal of assets of the associate (Note 24) – (2,956) – – Share of fair value loss from available-for-sale financial assets of the associate (Note 24) (1,796) (2,347) – – Share of profits of associates 61,228 11,391 – –
At end of year 794,349 568,917 298,198 298,198
(a) Tianma, a subsidiary of the Group, had contributed RMB134,000,000, as paid up capital of its associate, Wuhan Tianma Microelectronics Company Limited during the year.
As at 31 December 2010, the Group had direct interests in the following major associates:
Principal activities/ Date of place of incorporation/ Attributable incorporation and Name of associate establishment equity interest Registered capital Type of legal entity operation 2010 2009
CASTIC-SMP Machinery 15 November 1986 50% 50% USD1,595,000 Contractual joint Manufacture and Corporation Limited venture sales of dry cleaning machines, PRC
Shenzhen Shenrong 17 January 1989 30% 30% RMB3,404,000 Contractual joint Manufacture and Engineering Plastics venture sales of plastic Co., Ltd. casings, PRC
Shenzhen CAERO Digital 26 February 2005 39.51% 39.51% RMB10,000,000 Contractual joint Research and Display Inc. (“CAERO”) venture development and sales of digital displays, PRC
Wuhan Tianma 17 November 2008 10% 10% RMB400,000,000 Contractual joint Manufacture, Microelectronics Co. Ltd. venture research and sales (“Wuhan Tianma”) (a) of liquid crystal displays
Shenzhen CATIC Real Estate 29 May 1985 22.35% 22.35% RMB222,320,472 Joint Stock Company Property developing Co., Ltd (Listed on the and construction, Shenzhen Stock investment, Exchange) retailing and hotel operation, PRC
– I-46 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Principal activities/ Date of place of incorporation/ Attributable incorporation and Name of associate establishment equity interest Registered capital Type of legal entity operation 2010 2009
Huangshi Raece Technology 29 June 2010 20% 20% RMB30,000,000 Contractual joint Research and Co., Ltd venture development and sales of digital displays, PRC
(a) The Group has significant influence in Wuhan Tianma as Tianma, a subsidiary of the Group, could appoint 1 out of a total number of 5 directors in the board of directors of Wuhan Tianma.
The Group’s share of the results of its principal associates and its share of the assets (including liabilities) are as follows:
Place of % incorporation and Authorised/ Interest Name kind of legal entity Registered capital Paid up capital 2010 held Profit/ Assets Liabilities Revenue (Loss) RMB’000 RMB’000 RMB’000 RMB’000
CASTIC-SMP Machinery The PRC, Limited RMB7,861,000 RMB7,861,000 42,660 18,108 46,835 2,174 50% Corporation Limited Liability company
Shenzhen Shenrong The PRC, Limited RMB3,600,000 RMB3,600,000 9,709 3,062 14,219 692 30% Engineering Plastics Co., Liability company Ltd.
Shenzhen CAERO Digital The PRC, Limited RMB12,910,000 RMB12,910,000 3,370 478 498 – 39.51% Display Inc. Liability company
Wuhan Tianma The PRC, Limited RMB160,000,000 RMB160,000,000 356,703 198,678 – (1,568) 10% Microelectronics Liability company Co. Ltd.
Shenzhen CATIC Real Estate The PRC, Joint Stock RMB222,320,472 RMB222,320,472 1,775,732 1,247,556 875,974 60,184 22.35% Co., Ltd Company (Listed on the Shenzhen Stock Exchange)
Huangshi Raece Technology The PRC, Joint RMB30,000,000 RMB30,000,000 6,414 668 59 (254) 20% Co., Ltd Venture
2,194,588 1,468,550 937,585 (61,228)
As at 31 December 2010, the market value of shares of Shenzhen CATIC Real Estate Co., Ltd. approximated to RMB743,920,000 (2009: RMB613,248,000).
– I-47 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
15 FINANCIAL INSTRUMENTS BY CATEGORY
The Group:
At 31 December 2010
Assets as per consolidated balance sheet
Available- for-sale Loans and financial receivables assets Total RMB’000 RMB’000 RMB’000
Available-for-sale financial assets (Note 16) – 27,579 27,579 Trade receivables (Note 20) 1,470,678 – 1,470,678 Notes receivables (Note 20) 185,820 – 185,820 Cash and cash equivalents (Note 21 and 22) 1,886,970 – 1,886,970
Total 3,543,468 27,579 3,571,047
Liabilities as per consolidated balance sheet
Other financial liabilities at amortised cost RMB’000
Bank borrowings (Note 25) 8,021,658 Trade and other payables (excluding salary and staff welfare payable) (Note 28) 3,149,236 Other non-current liabilities (Note 27) 114,327
Total 11,285,221
31 December 2009
Assets as per consolidated balance sheet
Available- for-sale Loans and financial receivables assets Total RMB’000 RMB’000 RMB’000
Available-for-sale financial assets (Note 16) – 35,998 35,998 Trade receivables (Note 20) 853,823 – 853,823 Notes receivables (Note 20) 324,514 – 324,514 Cash and cash equivalents (Note 21 and 22) 1,632,642 – 1,632,642
Total 2,810,979 35,998 2,846,977
– I-48 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Liabilities as per consolidated balance sheet
Other financial liabilities at amortised cost RMB’000
Bank borrowings (Note 25) 7,102,801 Trade and other payables (excluding salary and staff welfare payable) (Note 28) 1,828,711 Other non-current liabilities (Note 27) 135,164
Total 9,066,676
The Company:
At 31 December 2010
Assets as per balance sheet
Available- for-sale Loans and financial receivables assets Total RMB’000 RMB’000 RMB’000
Available-for-sale financial assets (Note 16) – 1,400 1,400 Other receivables (Note 20) 156,127 – 156,127 Cash and cash equivalents (Note 22) 20,203 – 20,203
Total 176,330 1,400 177,730
Liabilities as per balance sheet
Other financial liabilities at amortised cost RMB’000
Bank borrowings (Note 25) 1,300,000 Trade and other payables (excluding salary and staff warfare payable) (Note 28) 233,119
Total 1,533,119
– I-49 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
At 31 December 2009
Assets as per balance sheet
Available- for-sale Loans and financial receivables assets Total RMB’000 RMB’000 RMB’000
Available-for-sale financial assets (Note 16) – 1,400 1,400 Other receivables (Note 20) 163,089 – 163,089 Cash and cash equivalents (Note 22) 44,615 – 44,615
Total 207,704 1,400 209,104
Liabilities as per balance sheet
Other financial liabilities at amortised cost RMB’000
Bank borrowings (Note 25) 994,000 Trade and other payables (excluding salary and staff welfare payable) (Note 28) 423,124
Total 1,417,124
16 AVAILABLE-FOR-SALE FINANCIAL ASSETS
Group Company 2010 2009 2010 2009 RMB’000 RMB’000 RMB’000 RMB’000
Investments in shares of unlisted companies 30,659 39,078 1,400 1,400 Less: provision for impairment losses (3,080) (3,080) – –
27,579 35,998 1,400 1,400
All available-for-sale financial assets are all denominated in RMB.
– I-50 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
The movements of available-for-sale financial assets during the year are as follows:
Group Company 2010 2009 2010 2009 RMB’000 RMB’000 RMB’000 RMB’000
At beginning of year 35,998 11,091 1,400 1,400 Additions 23,581 29,447 – – Transfer (Note 14) (32,000) – – – Net gains transferred to equity, gross of tax – 6,620 – – Disposal of an available-for-sale financial asset-cost – (3,000) – – Gain on disposal of available-for-sale financial assets – (8,160) – –
At end of year 27,579 35,998 1,400 1,400
17 DEFERRED INCOME TAX
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The analysis of deferred tax assets and liabilities is as follows:
Group Company 2010 2009 2010 2009 RMB’000 RMB’000 RMB’000 RMB’000
Deferred tax assets: – to be recovered after more than 12 months 45,791 109,727 – – – to be recovered within 12 months 59,960 67,824 – –
105,751 177,551 – – Deferred tax liabilities: – to be settled after more than 12 months (346,143) (335,839) – –
Deferred tax liabilities – net (240,392) (158,288) – –
– I-51 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
The net movements on the deferred income tax account are as follows:
Group Company 2010 2009 2010 2009 RMB’000 RMB’000 RMB’000 RMB’000
Beginning of the year (158,288) (195,867) – – (Charged)/credited to the income statement (Note 35) (63,254) 30,062 – – Effect of changes in tax rates (Note 35) 4,733 7,208 – – Reversal of deferred tax liabilities recognised on fair value gains from available-for-sale financial assets – 1,632 – – Tax credited directly to comprehensive income – (1,323) – – Disposal of subsidiaries (Note 39) (929) – – – Acquisition of subsidiaries (Note 41) (22,654) – – –
End of year (240,392) (158,288) – –
The income tax charge/(credit) are detailed in Note 35.
Deferred tax assets:
Group Company Provision Fair for value impairment loss on losses assets on trade Provision acquired and for from other inventory business Tax receivables obsolescence acquisition losses Others Total Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2009 31,119 14,185 43,180 16,257 15,643 120,384 – (Charged)/credited to the income statement (1,768) (3,163) (3,006) 34,783 30,321 57,167 –
At 31 December 2009 29,351 11,022 40,174 51,040 45,964 177,551 –
(Charged)/credited to the income statement (4,485) 680 (40,174) (27,648) 756 (70,871) – Disposal of subsidiaries (Note 39) ––––(929)(929)–
At 31 December 2010 24,866 11,702 – 23,392 45,791 105,751 –
– I-52 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Deferred tax liabilities:
Group Fair value Fair value losses/(gains) gain on of assets available- acquired Fair value Accelerated for-sale from change on tax financial business investment depreciation assets acquisition properties Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2009 (117) (309) (259,737) (56,088) (316,251) (Charged)/credited to income statement 85 – 397 (20,379) (19,897) Reversal of deferred tax liabilities recognised on fair value gains from available-for-sale investment – 1,632 – – 1,632 Tax credited directly to comprehensive income – (1,323) – – (1,323)
At 31 December 2009 (32) – (259,340) (76,467) (335,839)
(Charged)/credited to income statement (99) – 33,776 (21,327) 12,350 Acquisition of subsidiary (Note (41)) – – (22,654) – (22,654)
At 31 December 2010 (131) – (248,218) (97,794) (346,143)
The potential deferred tax assets not recognised in the accounts were related to:
2010 2009 RMB’000 RMB’000
Tax losses carried forward 213,891 166,392
Deferred income tax assets had not been recognised as it is not probable that taxable profit will be made available to utilize the deductible tax losses and temporary differences in the foreseeable future.
According to the provisional regulations on PRC Enterprise Income Tax No. 11, tax losses of the PRC companies can be carried forward to offset future assessable profit for a period of 5 years.
– I-53 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
The expiry date of deferred tax assets not accounted for in respect of tax losses carried forward is as follows:
2010 2009 RMB’000 RMB’000
Expire within 1 year 1,705 3,246 Expire in1–2years 18,170 1,705 Expire in2–3years 84,436 18,170 Expire in3–4years 55,435 87,836 Expire in4–5years 54,145 55,435
213,891 166,392
18 OTHER NON-CURRENT ASSETS
Group Company 2010 2009 2010 2009 RMB’000 RMB’000 RMB’000 RMB’000
Prepayments for equipment – 148,103 – – Computer software 55,519 22,682 Others 26,939 26,223 – –
82,458 197,008 – –
19 INVENTORIES
Group 2010 2009 RMB’000 RMB’000 Inventories – cost Raw materials 431,797 233,779 Work-in-progress 264,254 97,883 Finished goods 1,366,075 937,810
2,062,126 1,269,472
Less: provision for write-down of inventories Raw materials (42,308) (43,926) Work-in-progress (4,901) (5,898) Finished goods (38,250) (46,505)
(85,459) (96,329)
Inventories – net 1,976,667 1,173,143
The cost of inventories recognized as expense and included in cost of sales amounted to RMB4,361,266,000 (2009: RMB3,232,131,000) (Note 31).
– I-54 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
20 TRADE AND OTHER RECEIVABLES
Group Company 2010 2009 2010 2009 RMB’000 RMB’000 RMB’000 RMB’000
Trade receivables 1,638,015 1,014,270 – – Less: provision for impairment of receivables (167,337) (160,447) – –
Trade receivables – net 1,470,678 853,823 – – Notes receivables 185,820 324,514 – – Prepayments 290,981 46,157 – – Excess of input over output value added tax 273,238 156,937 – – Others 193,796 170,670 156,127 163,089
2,414,513 1,552,101 156,127 163,089
The Group’s credit terms on sales of goods ranged from 30 to 90 days. The aging analysis of trade receivables is as follows:
Group 2010 2009 RMB’000 RMB’000
Current 659,756 338,266 30-60 days 357,255 145,102 60-90 days 148,332 58,456 over 90 days 472,672 472,446
1,638,015 1,014,270 Less: provision for impairment losses (167,337) (160,447)
1,470,678 853,823
The carrying amounts of the Group’s trade receivables are denominated in the following currencies:
Group 2010 2009 RMB’000 RMB’000
RMB 1,062,143 790,922 USD 512,437 199,990 HKD 14,228 17,517 EUR 38,553 4,337 JPY 7,588 – Other currencies 3,066 1,504
1,638,015 1,014,270
– I-55 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Movements on the provision for impairment of trade receivables are as follows:
Group 2010 2009 RMB’000 RMB’000
At 1 January 160,447 94,914 Provision for receivable impairment 14,519 69,140 Receivables written off during the year as uncollectible (1,090) – Receivables reversed during the year (6,539) (3,607)
At 31 December 167,337 160,447
As at 31 December 2010, trade receivables of RMB188,950,000 (2009: RMB60,275,000) were past due but not impaired. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group does not hold any collateral over these balances. The aging analysis of these trade receivables is as follows:
2010 2009 RMB’000 RMB’000
Up to 180 days 132,066 21,780 181 to 360 days 42,221 32,669 Over 360 days 14,663 5,826
188,950 60,275
As at 31 December 2010, trade receivables of RMB283,722,000 (2009: RMB412,171,000) were impaired and provided for. The amount of the provision was RMB167,337,000 as at 31 December 2010 (2009: RMB160,447,000).
The additions and reversal of provision for impaired receivables have been included in administrative expenses. Amount charged to the allowance account are generally written off when there is no expectation of recovering additional cash.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security.
The aging analysis of note receivables is as follows:
Group 2010 2009 RMB’000 RMB’000
Less than 30 days 51,114 81,727 30-60 days 38,423 94,263 60-90 days 39,988 77,373 over 90 days 56,295 71,151
185,820 324,514
The carrying amount of current trade receivables and other receivables approximated their fair values.
– I-56 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
21 PLEDGED BANK DEPOSITS
Certain bank balances had been pledged for the following reasons and these deposits will be released upon the settlement of the repayment of the bank loan and the use of credit amount.
2010 2009 RMB’000 RMB’000
Collateral for bank borrowings 23,736 549,159 Guarantee deposits for issuance of credit letter 134,509 26,672 Others 480 –
158,725 575,831
22 CASH AND CASH EQUIVALENTS
The balance of the Group’s cash and cash equivalents are analysed as follows:
Group Company 2010 2009 2010 2009 RMB’000 RMB’000 RMB’000 RMB’000
Cash at bank and on hand 1,728,245 1,056,811 20,203 44,615
23 SHARE CAPITAL AND SHARE PREMIUM
Number of share Capital Total Domestic Number Ordinary Share Shares H Shares of shares shares premium Total (thousands) (thousands) (thousands) (RMB’000) (RMB’000) (RMB’000) Note (b) Note (c) Note (a) Note (a) Note (d)
As at 1 January 2009 395,709 283,200 678,909 678,909 357,849 1,036,758 Cancellation of shares – (5,542) (5,542) (5,542) (3,336) (8,878)
As at 31 December 2009 and 2010 395,709 277,658 673,367 673,367 354,513 1,027,880
Notes:
(a) As at 31 December 2010, the total issued and registered number of ordinary shares is 673,367,000 shares (2009: 673,367,000 shares) with a par value of RMB1 per share (2009:RMB1 per share). All issued shares are fully paid.
(b) On 20 June 1997, the Company was established by the issuance of 400,000,000 ordinary domestic shares (“Domestic Shares”) of RMB1 each to China National Aero-Technology Shenzhen Company Limited, in exchange for its interests in certain subsidiaries, associates and properties. These Domestic Shares are non-circulated shares.
– I-57 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(c) On 22 September 1997, the Company issued additional 242,000,000 H Shares of RMB1 each by way of placement and public offer at a price of HKD1.73 each. These H Shares have been listed on The Stock Exchange of Hong Kong Limited since 29 September 1997.
The Company repurchased 6,000,000 shares of its H Shares on the Stock Exchange of Hong Kong Limited in August 2006. The total amount paid to acquire the H Shares was HKD9,702,000 (an equivalent of RMB10,093,000) which was deducted from shareholders’ equity.
(d) On 27 December 2007, the Company issued 42,909,090 H shares of par value RMB1 each by way of placement at a price of HKD 6.00 each. The excess of net consideration for newly issued H Shares over the par value of the shares had been recognized in share premium amounting to RMB196,744,000. Pursuant to the approval of the State-owned Assets Supervision and Administration Commission of the State Council (“State Assets Commission”) dated 10 May 2007, the State Assets Commission has approved, as part of the above share issue, the transfer of the 4,290,909 of Domestic Shares held by China National Aero-Technology Shenzhen Company Limited (the “CATIC Shenzhen Company”) to the National Social Security Fund Council of the PRC as H Shares.
(e) In 2009, the Company repurchased 1,898,000 shares of its H share amounting to RMB2,852,000. All these shares had been cancelled as of 31 December 2009, and the premium associated with shares repurchased and cancelled amounting to RMB3,336,000 had been offset against the share premium account.
– I-58 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
24 OTHER RESERVES
Transfer Available- of owner- for-sale occupied Statutory financial property general assets to Currency Capital reserve revaluation investment translation reserve fund reserve property differences Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Group Balance as at 1 January 2009 273,491 70,001 15,972 – – 359,464 Fair value losses from available-for-sale financial assets, net of tax – – 2,368 – – 2,368 Fair value adjustment on disposal of available-for-sale financial assets, gross of tax – – (3,646) – – (3,646) Fair value adjustment on disposal of available-for-sale financial assets, tax – – 729 – – 729 Reversal of revaluation surplus on the disposal of assets of the associate (Note 14) (2,956) ––––(2,956) Share of fair value losses from available-for-sale financial assets of the associate (Note 14) (2,347) ––––(2,347)
Balance as at 31 December 2009 268,188 70,001 15,423 – – 353,612
Balance as at 1 January 2010 as per above 268,188 70,001 15,423 – – 353,612 Gain on transfer of owner-occupied property to investment property – – – 5,265 – 5,265 Changes in ownership interests in subsidiaries without loss of control (Note (a)) 85,708 ––––85,708 Currency translation difference ––––(3,769) (3,769) Share of fair value losses from available-for-sale financial assets of the associate (Note 14) (1,796) ––––(1,796)
Balance as at 31 December 2010 352,100 70,001 15,423 5,265 (3,769) 439,020
– I-59 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Statutory general reserve fund RMB’000
Company Balance as at 1 January 2009, 31 December 2009 and 2010 70,001
According to the Company Law of the PRC and the Articles of Association of the Company, when distributing net profit each year, the Company shall set aside 10% of its net profit as reported in the PRC statutory accounts for the statutory general reserve fund (except where the fund has reached 50% of the Company’s registered share capital). This reserve cannot be used for purposes other than those for which they are created and are not distributable as cash dividends.
Statutory general reserve fund
The statutory general reserve fund may be converted into share capital provided it is approved by a resolution at a shareholders’ general meeting and the balance of the statutory general reserve fund does not fall below 25% of the registered share capital.
The directors of the Company did not propose the appropriation to the statutory general reserve fund for the year ended 31 December 2010 (2009: nil) as the Company incurred losses for the years ended 31 December 2010 and 2009 respectively.
(a) Transaction with non-controlling interests
On 30 December 2010, Fiyta issued 31,230,480 shares to raise the total funds of RMB482,765,000 by the private placement. The Company subscribed 4,996,876 shares at consideration of RMB80,000,000. After the completion of the transaction, the Company’s equity interest in Fiyta decreased from 44.69% to 41.49%, without losing the control over Fiyta. The effect of changes in the ownership interest of Fiyta on the equity attributable to owners of the Company during the year is summarized as follows:
Consideration received from non-controlling interests 402,765,000 Less: Carrying amount of non-controlling interests disposed of from deemed disposal (309,020,000)
Gain on disposal recorded within equity 93,745,000
On 8 June 2010, the non-controlling shareholders of Shennan Circuit subscribed 6.65% shares in Shennan Circuit at consideration of RMB48,314,000; the effect of changes in the ownership interests of Shennan Circuit on the equity attributable to owners of the Company during the year is as follows:
Consideration received from non-controlling interests 48,314,000 Less: Carrying amount of non-controlling interests disposed of from deemed disposal (56,350,000)
Loss on disposal charged against within equity (8,036,000)
Total net gain on disposal arising from transactions with non-controlling interests recorded within equity through transaction with non-controlling interests is RMB85,708,000.
– I-60 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
25 BORROWINGS
Borrowings include bank borrowings and other borrowings which are analysed as follows:
Group Company 2010 2009 2010 2009 RMB’000 RMB’000 RMB’000 RMB’000
Non-current Bank borrowings – pledged (a) 2,592,548 2,598,422 – – – guaranteed (b) 3,143,793 2,524,105 914,000 914,000 – unsecured 457,440 – 186,000 – Less: current portion of non–current borrowings (522,609) (330,051) – –
5,671,172 4,792,476 1,100,000 914,000 Current Bank borrowings – pledged (c) 71,537 212,626 – – – guaranteed (d) 1,247,000 1,337,000 200,000 80,000 – unsecured 509,340 430,648 – – Current portion of non–current bank borrowings 522,609 330,051 – –
2,350,486 2,310,325 200,000 80,000
Total borrowings 8,021,658 7,102,801 1,300,000 994,000
(a) The Group’s non-current bank borrowings and current portion of non-current bank borrowings of RMB1,020,000,000 (2009:RMB680,000,000) made to GIB Company are secured by the land use rights (Note 7), buildings (Note 10), construction in progress (Note 11) and investment properties of GIB Company (Note 11).
The Group’s non-current bank borrowings and current portion of non-current bank borrowings of RMB1,572,548,000 (2009: RMB1,918,422,000) made to Shanghai Tianma are secured by the plant buildings and equipment (Note 10) and land use rights (Note 7) of Shanghai Tianma and are co-guaranteed by all the shareholders on pro rata basis of shareholding percentage.
(b) The Group’s non-current bank borrowings of RMB1,404,793,000 (2009: RMB895,105,000) made to Chendu Tianma are guaranteed by Chengdu Tianma’s shareholders of Chengdu Industrial Group Co., Ltd. and Chengdu Hi-Tech Investment Group Co., Ltd.
The Company’s non-current bank borrowing of RMB914,000,000 (2009: RMB914,000,000) are guaranteed by CATIC Shenzhen Company, immediate holding company of the Company.
The Company provided a long-term guarantee for a loan of RMB180,000,000 (2009: RMB90,000,000) in favour of Fiyta, a long-term guarantee for a loan of RMB535,000,000 (2009: RMB505,000,000) in favour of CATIC Resources, a long-term guarantee for a loan of RMB110,000,000 (2009: RMB120,000,000) in favour of GIB Company.
– I-61 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(c) The Group’s current bank borrowing of RMB48,000,000 (2009: RMB43,100,000) made to Tianma are secured by the buildings and equipment and machinery of Tianma (Note 10).
As at 31 December 2010, bank deposits of RMB23,736,000 (2009: RMB549,159,000) were pledged for the current bank borrowing of RMB23,537,000 (2009: RMB169,526,000) (Note 21).
(d) The Company provided an one-year guarantee for a loan of RMB600,000,000 (2009: RMB555,000,000) in favour of Fiyta, an one year guarantee for a loan of RMB185,000,000 (2009: RMB145,000,000) in favour of CATIC Resources, an one-year guarantee for a loan of RMB162,000,000 in favour of Tianma, an one-year guarantee for a loan of RMB41,000,000 (2009: RMB234,000,000) in favour of Shanghai Tianma. The Company did not provide loan guarantee for GIB Company (2009: RMB200,000,000) and Maiwei (2009: RMB5,000,000) i n the current year. Tianma provided an one-year guarantee for a loan of RMB59,000,000 (2009: RMB118,000,000) in favour of Shanghai Tianma. A current bank loan of RMB200,000,000 (2009: RMB80,000,000) of the Company is guaranteed by CATIC Shenzhen Company, an immediate holding company of the Company.
The carrying amounts of the borrowings are denominated in the following currencies:
Group Company 2010 2009 2010 2009 RMB’000 RMB’000 RMB’000 RMB’000
RMB 6,498,400 5,570,760 1,300,000 994,000 USD 1,513,564 1,519,644 – – EUR – 3,072 – – HKD 9,694 9,325 – –
8,021,658 7,102,801 1,300,000 994,000
The exposure of the borrowings to interest-rate changes and the contractual repricing dates at the balance sheet dates are as follows:
Group Company 2010 2009 2010 2009 RMB’000 RMB’000 RMB’000 RMB’000
Within 1 year 2,350,486 2,310,325 200,000 80,000 Between 1 and 2 years 1,956,065 536,308 914,000 – Between 2 and 5 years 3,076,600 3,826,771 186,000 914,000
Wholly repayable within 5 years 7,383,151 6,673,404 1,300,000 994,000 Over 5 years 638,507 429,397 – –
8,021,658 7,102,801 1,300,000 994,000
– I-62 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
The maturity of non-current bank and other borrowings is as follows:
Group Company 2010 2009 2010 2009 RMB’000 RMB’000 RMB’000 RMB’000
Between 1 and 2 years 1,956,065 536,308 914,000 – Between 2 and 5 years 3,076,600 3,826,771 186,000 914,000
Wholly repayable within 5 years 5,032,665 4,363,079 1,100,000 914,000 Over 5 years 638,507 429,397 – –
Total 5,671,172 4,792,476 1,100,000 914,000
(a) The effective interest rates at the balance sheet dates are as follows:
Group 2010 2009 RMB USD EUR HKD RMB USD EUR HKD
Bank borrowings 5.26% 3.27% – 2.98% 5.97% 3.33% 1.56% 1.08%
Company 2010 2009 RMB RMB
Bank borrowings 5.13% 5.68%
(b) The interest rate exposure of the borrowings of the Group and the Company are as follows:
Group Company 2010 2009 2010 2009 RMB’000 RMB’000 RMB’000 RMB’000
Borrowings at floating rates 5,432,232 3,718,147 – – Borrowings at fixed rates 2,589,426 3,384,654 1,300,000 994,000
Total 8,021,658 7,102,801 1,300,000 994,000
– I-63 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
26 DEFERRED INCOME ON GOVERNMENT GRANTS
The amounts represented various subsidies granted by and received from local government authorities in the PRC for subsidising the research and development projects of the Group. The movements are as follows:
Group 2010 2009 RMB’000 RMB’000
At 1 January 241,037 70,523 Receipt of grants (a) 399,004 185,390 Credit to income statement during the year (104,682) (14,876)
At 31 December 535,359 241,037
(a) The amount mainly represented subsidies granted by local government authorities in the PRC to Tianma amounting to RMB317,197,000 (2009: RMB174,154,000).
As at 31 December 2010, the balance of deferred income on government grants included government grants for financing and subsidising acquisition of property, plant and equipment; and for compensating costs incurred for research and development of new product amounted to RMB291,389,000 (2009: RMB141,756,000) and RMB243,970,000 (2009: RMB99,281,000) respectively.
27 OTHER NON-CURRENT LIABILITIES
Group 2010 2009 RMB’000 RMB’000
Payable for purchase of mining rights – 19,860 Payable to the immediate holding company (a) 100,000 100,000 Others 14,327 15,304
114,327 135,164
(a) Shennan Circuit, a subsidiary of the Group, borrowed RMB75,000,000 and RMB25,000,000 from CATIC Shenzhen Company the immediate holding company in October 2009. The amounts are unsecured, interest bearing at rate 3.48% and 4.70% and repayable in October 2014 and October 2016 respectively (Note 42(c)).
28 TRADE AND OTHER PAYABLES
Group Company 2010 2009 2010 2009 RMB’000 RMB’000 RMB’000 RMB’000
Trade payables 1,500,742 763,746 – – Salary and staff welfare payable 117,851 112,088 2,488 2,989 Accruals and other payables (a) 1,648,494 1,064,965 233,119 423,124
3,267,087 1,940,799 235,607 426,113
– I-64 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(a) The amount include RMB196,500,000 payable to CATIC Shenzhen Company, the immediate holding company of the Group. The amount is unsecured, repayable in December 2011 and the interest rate are 5.56%, 5.56% and 5.81% for RMB60,000,000, RMB120,000,000 and RMB16,500,000 respectively.
At 31 December 2010, the ageing analysis of the trade payables is as follows:
Group Company 2010 2009 2010 2009 RMB’000 RMB’000 RMB’000 RMB’000
Current 903,608 456,462 – – 30-60 days 267,785 189,375 – – 60-90 days 143,637 75,049 – – Over 90 days 185,712 42,860 – –
1,500,742 763,746 – –
The carrying amounts of the Group’s trade payables are denominated in the following currencies:
Group Company 2010 2009 2010 2009 RMB’000 RMB’000 RMB’000 RMB’000
RMB 1,303,760 581,951 – – USD 36,693 93,406 – – JPY 150,710 – – – HKD 1,399 4,859 – – Other currencies 8,180 83,530 – –
1,500,742 763,746 – –
29 OTHER INCOME
2010 2009 RMB’000 RMB’000
Financial subsidy (a) 7,529 36,885 Sales of by-products 35,959 48,537 Government grants 104,682 14,876 Management fee, net 7,072 – Technical service fee from an associate, net 59,887 – Income from maintenance of timepieces 4,509 4,273 (Loss)/profit from disposal of property, plant and equipment and investment properties (Note 39) (3,545) 882 Others 4,628 (72)
220,721 105,381
(a) The amount represented financial subsidy received/receivable from the local finance bureau of Qinghai Province for certain value-added-tax paid by CATIC Resources for the year.
– I-65 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
30 OTHER GAINS – NET
2010 2009 RMB’000 RMB’000
Gain on disposal of subsidiaries (Note 39) 72,030 – Gain on disposal of available-for-sale financial assets – 8,160 Others 44 141
72,074 8,301
31 EXPENSES BY NATURE
2010 2009 RMB’000 RMB’000
Changes in inventories of finished goods and work in progress (Note 19) 594,636 (74,667) Raw materials and consumables used (Note 19) 3,766,630 3,306,798 Employee benefits expenses (Note 34) 792,112 628,756 Repairs and maintenance expenditure 92,752 77,186 Research and development expenditure 157,608 81,849 (Reversal of)/provision for inventory obsolescence (14,978) 9,791 Provision for bad debts 11,491 60,591 Depreciation of property, plant and equipment (Note 10) 518,802 464,842 Amortisation of land use rights (Note 7) 8,248 4,713 Amortisation of mining rights (Note 8) 11,796 28,334 Amortisation of computer software and other non-current assets 12,766 11,347 Operating lease rentals in respect of office buildings 84,776 75,595 Business tax and other levies 51,760 79,394 Auditors’ remuneration 23,809 10,752 Utility expenses 202,621 168,418 Transportation 97,833 116,953 Travelling expenses 28,044 20,916 Entertainment 23,638 16,210 Office expenses 36,091 24,290 Other expenses 114,317 101,870
Total cost of sales, distribution expenses and general and administrative expenses 6,614,752 5,213,938
– I-66 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
32 DIRECTORS’ AND SENIOR EXECUTIVES’ EMOLUMENTS
(a) Directors’ emoluments
The remunerations of the directors for the year ended 31 December 2010 are set out below:
Employer’s contribution Discretionary to pension Fee Salary bonuses schemes Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Name of directors: Mr. Wu Guang Quan – 324 926 124 1,374 Mr. You Lei – 432 968 113 1,513 Mr. Lai Wei Xuan – 610 557 23 1,190 Mr. Sui Yong – 286 964 91 1,341 Mr. Cheng Bao Zhong – 286 964 89 1,339 Mr. Liu Rui Lin – 610 720 25 1,355 Mr. Xu Dong Sheng – 610 1,055 – 1,665 Mr. Wang Bao Ying – 263 637 78 978 Mr. Liu Xian Fa 50 – – – 50 Mr. Wu Wei 132 – – – 132 Ms. Wong Wai Ling 132 – – – 132 Ms. Wang Xin 50 – – – 50
364 3,421 6,791 543 11,119
The remunerations of the directors for the year ended 31 December 2009 are set out below:
Employer’s contribution Discretionary to pension Fee Salary bonuses schemes Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Name of directors: Mr. Wu Guang Quan – 324 740 107 1,171 Mr. You Lei – 300 1550 – 1,850 Mr. Lai Wei Xuan – 324 740 120 1,184 Mr. Sui Yong – 265 784 78 1,127 Mr. Cheng Bao Zhong – 265 784 77 1,126 Mr. Liu Rui Lin – 300 800 – 1,100 Mr. Xu Dong Sheng – 300 1050 – 1,350 Mr. Wang Bao Ying – 230 570 77 877 Mr. Poon Chiu Kwok 60 – – – 60 Mr. Liu Xian Fa 50 – – – 50 Ms. Wong Wai Ling 132 – – – 132 Mr. Wu Wei 72 – – – 72 Ms.Wang Xin 27 – – – 27
341 2,308 7,018 459 10,126
Directors’ fees disclosed above include RMB314,000 (2009: RMB314,000) paid to independent non-executive directors.
– I-67 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
None of the directors waived any emoluments during the year (2009: Nil).
(b) Five highest paid individuals
All of the five highest paid individuals in the Group for the years of 2010 and 2009 are directors of the Company whose emoluments are reflected in the analysis presented above. The emoluments fell within the following bands:
2010 2009
Emolument bands HKD1,000,001-HKD1,500,000 – 4 HKD1,500,001-HKD2,000,000 5 1
33 FINANCE COSTS – NET
2010 2009 RMB’000 RMB’000
Interest expenses – bank borrowings wholly repayable within 5 years 382,083 350,382 – borrowings from related party repayable on demand 7,548 346 – discounted bills 472 2,661 Less: interest capitalised (62,724) (8,364)
327,379 345,025 Net foreign exchange (gain)/loss on financing activities (88) 6,970 Others 16,822 15,150
Finance costs 344,113 367,145 Interest income – bank deposits (20,773) (8,661)
Net finance costs 323,340 358,484
Bank loan interest capitalized in the construction in progress amounted to RMB62,724,000 (2009: RMB8,364,000) during 2010. The capitalized interest rate was 4.13% (2009: 5.11%).
34 EMPLOYEE BENEFIT EXPENSES
2010 2009 RMB’000 RMB’000
Wages, salaries and bonuses 672,912 539,472 Welfare, medical and other expenses 67,368 66,818 Social security costs 51,832 49,397
792,112 655,687
– I-68 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
The Group has participated in employee social security plans enacted in the PRC, which cover pension, medical and other welfare benefits. The plans are organised and administered by the governmental authorities. Pursuant to the relevant provisions, the Group is required to make monthly contributions in respect of retirement insurance and health insurance to governmental authorities, equivalent to 19% and 9% respectively based on the monthly salaries of its employees, of which, the Group bears 14% and 7% respectively, and the employees bear the rest. The Group has no further obligation beyond the contribution.
35 INCOME TAX CHARGE/(CREDIT)
Pursuant to the relevant income tax law of PRC, the subsidiaries of the Group established in the PRC were subject to income tax at a rate of 25% unless preferential rates were applicable.
For the Company and certain subsidiaries established in Shenzhen special economic zone, the original enterprise income tax rate is 15%. Accordance with the relevant provision of the Corporate Income Tax law, the corporate income tax rate of the Company and certain subsidiaries will transit to 25% in five years from 2009 to 2012. The corporate income tax rate was 22% in 2010.
In addition, certain companies of the Group are Sino-foreign joint ventures which are entitled to full exemption from PRC income tax for two years and a 50% reduction in the next three years starting from the first profit-making year after offsetting available tax losses carried forward from prior years.
Two subsidiaries of the Group, Fiyta and Maiwei were established in Shenzhen Special Economic Zone before 16 March 2009. They were entitled to a preferential income tax rate of 22% in 2010 (2009: 20%).
Qinghai CATIC Resource was established in Haixi Prefecture of Qinghai Province. It was eligible for preferential tax policies applicable for the development of western regions in the PRC, and entitled to a preferential income tax rate of 15 % in 2010 (2009: 15%).
Shenzhen Tianma, Shanghai Tianma and Shennan Circuit were qualified as High and New Technology Enterprises in the PRC and were entitled to a preferential income tax rate of 15% in 2010 (2009: 15%).
Income tax charged/(credited) for the year represents:
2010 2009 RMB’000 RMB’000
Current enterprise income tax 53,777 37,201 Deferred income taxes related to the origination and reversal of temporary differences (Note 17) 63,254 (30,062) Deferred income taxes resulting from change in the tax rates (Note 17) (4,733) (7,208)
112,298 (69)
– I-69 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
The tax on the Group’s profit/(loss) before taxation differs from the theoretical amount that would arise using the tax rates of the home country of the Company and its subsidiaries as follows:
2010 2009 RMB’000 RMB’000
Profit/(loss) before income tax 454,888 (288,849)
Tax calculated at the tax rates applicable to the Company and its subsidiaries ranging from 15% to 25% (2009: 15% to 25%) 66,211 (46,340) Deferred income taxes resulting from change in the tax rates (Note 17) (4,733) (7,208) Tax effect on unrecognised tax losses 47,499 42,508 Tax effect of subsidiaries which were entitled to exemption or reduction of income tax – 9,230 Expenses not deductible for tax purpose 3,583 4,019 Income not subject to tax (15,147) (2,278) Research and development expenses eligible for additional deduction (4,544) – Tax effect of temporary differences for which no deferred income tax assets was recognised 18,656 – Others 773 –
Tax charge/(credit) 112,298 (69)
36 LOSS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
The loss attributable to equity holders of the Company is dealt with in the financial statements of the Company to the extent of RMB68,023,000 (2009: RMB107,593,000).
37 EARNINGS PER SHARE
Basic and diluted earnings per share are calculated by dividing the profit/(loss) attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.
2010 2009
Profit/(loss) attributable to equity holders of the Company (RMB’000) 193,561 (165,566) Weighted average number of ordinary shares in issue (thousands) 673,557 673,557 Basic and diluted earnings/(losses) per share (RMB per share) 0.2874 (0.2458)
There are no potential dilutive shares as at 31 December 2010 and 2009. Therefore the basic and diluted earnings per share were the same.
38 DIVIDENDS
At the board of directors’ meeting held on 15 March 2011, the board did not propose a final dividend for the year ended 31 December 2010 (2009: Nil). There was no interim dividend for the year ended 31 December 2010 (2009: Nil).
– I-70 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
39 CASH GENERATED FROM OPERATIONS
Reconciliation of profit/(loss) for the year to cash generated from operations:
2010 2009 RMB’000 RMB’000
Profit/(loss) before income tax 454,888 (288,849) Adjustments for Depreciation of property, plant and equipment 518,802 464,842 Amortisation of mining rights 11,796 28,334 Amortisation of land use rights 8,248 4,713 Other amortisation charges 12,766 11,347 Fair value gain on investment property (74,406) (65,617) Deferred income on government grants (104,682) (14,876) Gain from sale of available-for-sale financial assets – (8,160) Loss on disposal of property, plant and equipment 3,545 6,124 Gain on disposal of investment properties – (7,006) Interest income (20,773) (8,661) Interest expenses 344,113 345,025 Share of profit of associates, net of tax (61,228) (11,391) Gain of disposal of subsidiaries (72,030) – Financial subsidy (7,529) (36,885)
Changes in working capital 1,013,510 418,940
(Increase)/decrease in inventories (792,654) 12,348 Increase in trade and other receivables (848,936) (216,782) Increase in trade and other payables 1,216,768 356,443
Cash generated from operations 588,688 570,949
In the cash flow statement for the year ended 31 December 2010, capital contribution to subsidiaries from non-controlling interests comprises:
2010 2009 RMB’000 RMB’000
Chengdu Tianma 252,000 411,600 Fiyta (Note 24) 402,765 11,340 Shennan Circuit (Note 24) 48,314 18,699
703,079 441,639
– I-71 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
In the cash flow statement for the year ended 31 December 2010, proceeds from sales of property, plant and equipment and investment properties comprise:
2010 2009 RMB’000 RMB’000
Net book value of property, plant and equipment disposed (Note 10) 18,110 12,970 Fair value of investment properties disposed (Note 11) – 2,635
18,110 15,605 Proceeds from disposal of property, plant and equipment and other non-current assets 14,565 6,846 Proceeds from disposal of investment properties – 9,641
14,565 16,487 (Loss)/profit from disposal of property, plant and equipment and investment properties (Note 29) (3,545) 882
In the cash flow statement for the year ended 31 December 2010, proceeds from disposal of subsidiaries comprise:
On 26 May 2010, the Group disposed 67% interest in Guizhou Liu Zhi An Jia Zhai Coal Company Limited (“Anjiazhai”) to a third party, the cash flows from the disposal are as follows:
RMB’000
Consideration received – Cash consideration 124,505 Less: Cash and cash equivalents held by Anjiazhai (1,656)
Net cash received from disposal 122,849
The net assets of Anjiazhai are as follows:
On disposal 31 December date 2009 RMB’000 RMB’000
Current assets 5,022 25,590 Non-current assets 124,935 101,159 – Land use rights (Note 7) 14,234 – – Mining rights (Note 8) 65,053 66,828 – Property, plant and equipment (Note 10) 19,270 19,353 – Construction in progress (Note 12) 25,449 14,049 – Deferred income tax (Note 17) 929 929 Current liabilities (32,118) (21,189) Non-current liabilities (19,860) (19,860)
Net assets 77,979 85,700
– I-72 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
The revenue, expenses and net loss from 1 January 2010 to date of disposal are as follows:
RMB’000
Revenue – Less: Cost of sales (2,128) Loss before tax (2,128) Less: Income tax –
Net loss (2,128)
On 26 May 2010, the Group disposed 67% interest in Guizhou Pu Ding Xiao Jia Wan Coal Company Limited (“Xiaojiawan”) to a third party, the cash flows from the disposal are as follows:
RMB’000
Consideration received – Cash consideration 50,095 Less: Cash and cash equivalents held by Anjiazhai (40,149)
Net cash received from disposal 9,946
The net assets of Xiaojiawan are as follows:
On disposal 31 December date 2009 RMB’000 RMB’000
Current assets 40,357 18,450 Non-current assets 23,136 5,933 – Land use rights (Note 7) 5,520 – – Mining rights (Note 8) 10,476 – – Property, plant and equipment (Note 10) 175 147 – Construction in progress (Note 12) 6,965 5,917 Current liabilities (38,993) (14)
Net assets 24,500 44,500
Xiaojiawan did not recognise any revenue, expenses or profit from 1 January 2010 to the date of disposal.
The total net cash received from disposal of subsidiaries is RMB132,795,000.
– I-73 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
40 COMMITMENTS
(a) Capital commitments
Capital commitments at the balance sheet date but not yet incurred are as follows:
Group Company 2010 2009 2010 2009 RMB’000 RMB’000 RMB’000 RMB’000
Contracted but not provided for
Purchase of property, plant and equipment 621,130 658,892 – – Purchase of land use right – 1,987 – – Investment in available-for-sale financial assets – 128,000 – – Investment in subsidiaries: – Chengdu Tianma Microelectronics Company Limited 72,000 180,000 – – – Guizhou Puding Xiaojiawan Coal Industry Co., Ltd – 41,700 – –
693,130 1,010,579 – –
Group Company 2010 2009 2010 2009 RMB’000 RMB’000 RMB’000 RMB’000
Authorised but not contracted for
Property, plant and equipment (Note (a)) 1,548,341 1,464,159 – – Hotel modernisation and renovation 21,629 228,606
1,569,970 1,692,765
(a) The amount represents the costs for the construction of the production plants and equipments of Tianma, Shennan Circuit, Fiyta and CATIC Resources amounted to RMB327,780,000 (2009 RMB1,464,159,000), RMB380,000,000 (2009: Nil), RMB503,000,000 (2009: Nil) and RMB337,561,000 (2009: Nil) respectively.
(b) Operating lease commitments
The Group had commitments under non-cancellable operating leases in respect of office premises as follows:
2010 2009 RMB’000 RMB’000
Not later than one year 42,122 36,517 Later than one year and not later than five years 137,140 201,665
179,262 238,182
– I-74 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
41 BUSINESS COMBINATIONS
On 15 September 2010, CATIC Resources acquired 51% of the equity interests in Yunnan Hongfu Fertilizer Company Limited (“Yunnan Hongfu”). Its principal activities are explorating and processing of phosphorous resources. At the acquisition date, the fair value of the net assets of Yunnan Hongfu amounted to RMB114,490,000 and there is no goodwill arising from the business combination. As a result of the acquisition, the Group has expanded its production capacity of the mining resources segment.
RMB’000
Consideration: – Cash 114,490
Acquisition-related cost (included in administrative expenses in the consolidated income statement for the year ended 31 December 2010) 310
Recognised amounts of identifiable assets acquired, liabilities assumed
At acquisition date RMB’000
Cash and cash equivalents 114,793 Prepayment 6,161 Other receivable 800 Available-for-sale financial assets 500 Property, plant and equipment (Note 10) 8,735 Construction-in-progress (Note 12) 68,382 Land use rights (Note 7) 34,591 Mining rights (Note 8) 65,256 Deferred income tax liabilities (Note 17) (22,654) Trade and other payable (52,074)
Total identifiable net assets 224,490
Non-controlling interests (110,000)
Goodwill –
Outflow of cash to acquire business, net of cash acquired: – cash in subsidiary acquired 114,793 – cash consideration (114,490)
Cash inflow on acquisition 303
The non-controlling interest is measured at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets.
No revenue was recognized by Yunnan Hongfu since 15 September 2010. Yunnan Hongfu contributed loss of RMB1,179,000 over the period from 15 September 2010 to 31 December 2010.
Had Yunnan Hongfu been consolidated from 1 January 2010, the consolidated statement of comprehensive income would share loss of RMB1,438,000.
– I-75 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
42 SIGNIFICANT RELATED PARTY TRANSACTIONS
The Group is controlled by CATIC Shenzhen Company, a state-controlled company established in the PRC which owns 58.77% of the Company’s shares. The remaining 41.23% of the shares are widely held. The directors regard CATIC Shenzhen Company and Aviation Industry Corporation of China as the immediate holding company and ultimate holding company of the Group respectively.
Related parties include the Company’s holding company, ultimate holding company, its subsidiaries, other state-controlled enterprises and their subsidiaries directly or indirectly controlled by the PRC government, corporations in which the Company is able to control or exercise significant influence, key management personnel of the Company, holding company and its ultimate holding company and their close family members.
In addition to the related party information shown elsewhere in the financial statements, the following is a summary of significant related party transactions entered into in the ordinary course of business between the Group and its related parties and the balances arising from related party transactions:
(a) Transactions with related parties
Group 2010 2009 RMB’000 RMB’000 Transactions with the holding company and fellow subsidiaries
Revenue:
Sales of goods 253,943 28,000 Rental income 10,485 7,575 Management fee 10,223 – Technical service fee 87,948 –
362,599 35,575
Purchase of good and service:
Purchases of goods 143,267 17,611 Purchases of equipment – 108,690 Purchases of services 96,878 37,395
240,145 163,696
Transactions with government related entities:
The Company is a state-owned enterprise ultimately controlled by the PRC government. The PRC government controls a significant portion of the productive assets and entities in the PRC. The transactions between the Company and other PRC government controlled entities are related party transactions. These transactions mainly include depositing cash in and obtaining borrowings from certain stated-owned banks. Nearly all of the Company’s cash were deposited in and all of the borrowings were borrowed from state-owned banks during the year.
– I-76 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(b) Balances with related parties
The balances with related parties companies are non-interest bearing and repayable on demand.
Group 2010 2009 RMB’000 RMB’000
Balances with fellow subsidiaries Accrual and other payables 443,783 24,178 Other receivables 262,421 36,729
(c) Borrowings
Group 2010 2009 RMB’000 RMB’000
Borrowings from the holding company At beginning of the year (Note i) 192,000 – Proceeds from borrowings (Note ii) 196,500 192,000 Repayment of borrowings (Note i) (92,000) –
At end of the year 296,500 192,000
(i) As detailed in Note 27, a subsidiary of the Group obtained a loan from the immediate holding company with a year end balance of RMB100,000,000.
(ii) In 2010, the Company borrowed a total loan amounts of RMB196,500,000 (2009: RMB192,000,000) from the immediate holding company. The amounts are unsecured, repayable in December 2011 with the interest rate ranging from 5.56% to 5.81% (2009: 5.56% to 5.81%).
43 SUBSEQUENT EVENTS
(a) On 30 November 2010, the Company entered into three acquisition agreements (“the Sale Interest 1”, “the Sale Interest 2”, ”the Sale Interest 3”) with AVIC International Holding Company (“AVIC International”), Catic Shenzhen Company, immediate holding company, and Beijing Raise Technology Company Limited (“Beijing Raise”) (collectively “the Vendors”), respectively. AVIC International is the immediate holding company of Catic Shenzhen Company, and Beijing Raise is a subsidiary of Aviation Industry Corporation of China, the ultimate holding company of AVIC International.
Pursuant to acquisition agreement with AVIC International, the Company has conditionally agreed to acquire and AVIC International have conditionally agreed to sell the Sale Interest 1, which represents 100% equity interests in AVIC International Beijing Company Limited, 100% equity interests in AVIC International Xiamen Company Limited, 100% equity interests in AVIC International Guangzhou Company Limited, 97.5% equity interests in AVIC International Trade & Economic Company Limited, 100% equity interests in AVIC International Engineering Company Limited and 40% equity interests in AVIC International Vanke Company Limited (“AVIC Vanke”).
Pursuant to acquisition agreement with Catic Shenzhen Company, the Company has conditionally agreed to acquire and Catic Shenzhen Company have conditionally agreed to sell the Sale Interest 2 held by Catic Shenzhen Company, which represents 100% equity interests in Shenzhen Aero Fasteners MFG Company Limited.
– I-77 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Pursuant to acquisition agreement with Beijing Raise, the Company has conditionally agreed to acquire and Beijing Raise have conditionally agreed to sell the Sale Interest 3 held by Beijing Raise, which represents 20% equity interests in AVIC Vanke, 90% equity interests in Beijing Zhonghang Rixin Management and Investment Company Limited, 60% equity interests in Chengdu AVIC Raise Real Estate Company Limited, 40% equity interests in Wuxi AVIC Raise Real Estate Company Limited, 50% equity interests in Shenyang AVIC Raise Real Estate Company Limited and 51% equity interests in Xi’an AVIC Raise Xi Kong Real Estate Company Limited.
Pursuant to the above acquisition agreements, the consideration shall be satisfied by the Company by allotting and issuing 437,264,906 shares at the price of RMB3.15 per share; and/or issuing the permanent subordinated convertible security convertible into not more than 918,981,497 shares at the initial conversion price of RMB3.47 per share, to AVIC International, Catic Shenzhen Company and Beijing Raise, respectively upon the completion of the acquisition.
On 16 February 2011, the Shareholders’ General Meeting of the Company approved the transactions mentioned as above, but they are subject to final approval to be obtained from the State-owned Assets Supervision and Administration Commission State Council of the PRC.
(b) Pursuant to a Board of Directors resolution on 18 November 2009, a substantial assets restructuring plan was proposed by Tianma for acquisition of non-controlling interests by way of issuing of new shares by Tianma to the other shareholders of Shanghai Tianma including CATIC Shenzhen Holdings Limited. The transaction was not approved by the Review Committee of Merger, Acquisition and Reorganization of Listed Companies (上市 公司併購重組委員會) of China Securities Regulatory Commission (“CSRC”) in December 2010. Subsequent to the year ended 31 December 2010, the board of directors of the Tianma has decided to continue and re-activate this substantial assets restructuring project. Tianma will supplement, amend and improve the substantial assets restructuring application materials in accordance with the requirements of CSRC and the comments of the Review Committee of Merger, Acquisition and Reorganization of CSRC, and will re-submit the amended application materials to CSRC for its review as soon as possible.
(c) On 25 February 2011, Tianma and Shenzhen CATIC Opto-electronics, a subsidiary of Catic Shenzhen Company, has entered into an entrusted management agreement (the “Agreement”), pursuant to which Shenzhen CATIC Opto-electronics has entrusted Tianma to manage its rights as shareholder of NEC LCD Technologies, Ltd. for a term of one year. The entrustment fee payable by Shenzhen CATIC Opto-electronics to Tianma is RMB1,000,000.
– I-78 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONDENSED CONSOLIDATED INTERIM BALANCE SHEET
Unaudited Audited 30 June 31 December 2011 2010 Note RMB’000 RMB’000
ASSETS Non-current assets Land use rights 707,706 719,271 Mining rights 529,779 534,029 Goodwill 5,240 5,240 Property, plant and equipment 7,215,504 6,697,911 Investment properties 1,105,319 1,129,129 Construction-in-progress 556,890 893,546 Investments in associates 795,569 794,349 Available-for-sale financial assets 28,079 27,579 Deferred income tax assets 115,175 105,751 Other non-current assets 114,534 82,458
11,173,795 10,989,263
Current assets Inventories 2,577,537 1,976,667 Trade and other receivables 7 2,688,104 2,414,513 Pledged bank deposits 202,165 158,725 Cash and cash equivalents 1,408,640 1,728,245
6,876,446 6,278,150
Total assets 18,050,241 17,267,413
– I-79 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Unaudited Audited 30 June 31 December 2011 2010 Note RMB’000 RMB’000
EQUITY Capital and reserves attributable to equity holders of the Company Share capital 673,367 673,367 Share premium 354,513 354,513 Other reserves 439,109 439,020 Retained earnings 531,442 510,582
1,998,431 1,977,482
Non-controlling interests 3,192,530 2,970,967
Total equity 5,190,961 4,948,449
LIABILITIES Non-current liabilities Borrowings 5,824,596 5,671,172 Deferred income tax liabilities 346,283 346,143 Deferred income on government grants 568,250 535,359 Other non-current liabilities 114,327 114,327
6,853,456 6,667,001
Current liabilities Trade and other payables 8 3,233,156 3,267,087 Borrowings 2,755,018 2,350,486 Current income tax liabilities 17,650 34,390
6,005,824 5,651,963
Total liabilities 12,859,280 12,318,964
Total equity and liabilities 18,050,241 17,267,413
Net current assets 870,622 626,187
Total assets less current liabilities 12,044,417 11,615,450
– I-80 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT
Unaudited Six months ended 30 June 2011 2010 Note RMB’000 RMB’000
Revenue 6 4,588,143 2,925,394 Cost of sales (3,646,252) (2,306,000)
Gross profit 941,891 619,394
Distribution costs (275,852) (178,091) Administrative expenses (427,754) (284,632) Other gains – net 94,837 95,736
Operating profit 333,122 252,407
Finance income 10,094 6,873 Finance costs (202,756) (168,203) Share of post-tax profit of associates 9,305 1,795
Profit before income tax 149,765 92,872
Income tax expense 10 (34,786) (22,634)
Profit for the period 6 114,979 70,238
Profit attributable to: – equity holders of the Company 20,860 19,454 – non-controlling interests 94,119 50,784
114,979 70,238
RMB RMB per share per share Earnings per share for profit attributable to the equity holders of the Company – basic 11 0.0310 0.0289 – diluted 11 0.0310 0.0289
Dividends 12 0.03 –
– I-81 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME
Unaudited Six months ended 30 June 2011 2010 Note RMB’000 RMB’000
Profit for the period 114,979 70,238 Other comprehensive income Currency translation differences 648 –
Total comprehensive income for the period 115,627 70,238
Total comprehensive income attributable to: – equity holders of the Company 21,508 19,454 – non-controlling interests 94,119 50,784
115,627 70,238
– I-82 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
Unaudited Attributable to equity holders of the Company Non- Share Share Other Retained controlling Total capital premium reserves earnings Total interests equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Balance as at 1 January 2010 673,367 354,513 353,612 317,021 1,698,513 2,125,824 3,824,337
Profit for the period ended 30 June 2010 – – – 19,454 19,454 50,784 70,238 Capital contribution by non-controlling interests –––––300,314 300,314 Dividends relating to 2009 –––––(1,685) (1,685)
Balance at 30 June 2010 673,367 354,513 353,612 336,475 1,717,967 2,475,237 4,193,204
Balance as at 1 January 2011 673,367 354,513 439,020 510,582 1,977,482 2,970,967 4,948,449
Profit for the period ended 30 June 2011 – – – 20,860 20,860 94,119 114,979 Other comprehensive income for the period ended 30 June 2011 – – 648 – 648 – 648 Capital contributed by non-controlling interests –––––168,000 168,000 Transactions with non-controlling interests – – (559) – (559) (18,443) (19,002) Dividends relating to 2010 –––––(22,115) (22,115)
Balance at 30 June 2011 673,367 354,513 439,109 531,442 1,998,431 3,192,530 5,190,961
– I-83 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONDENSED CONSOLIDATED INTERIM CASH FLOW STATEMENT
Unaudited Six months ended 30 June 2011 2010 RMB’000 RMB’000
Cash flows from operating activities: – Cash (used in)/generated from operations (184,654) 668,834 – Interest paid (197,939) (115,352) – Income tax paid (46,474) (10,547)
Cash flows (used in)/generated from operating activities (429,067) 542,935
Cash flows from investing activities: – acquisition of subsidiaries, net of cash acquired – 59 – additions to property, plant and equipment and construction in progress (512,589) (1,414,254) – additions to leasehold land and land use rights (823) (36,111) – additions to assets classified for sale – (41,805) – proceeds from disposal of property, plant and equipment 510 30,397 – additions to available-for-sale financial assets (500) (67,080) – government grants received – 108,655 – interest received 10,094 6,873 – dividends received 685 – – additions to other non-current assets (32,076) (8,505) – decrease in pledged bank deposits 16,560 14,939
Cash flows from investing activities (518,139) (1,406,832)
Cash flows from financing activities: – proceeds from borrowings 2,069,055 1,202,118 – repayments of borrowings (1,508,313) (284,530) – capital contribution to subsidiaries from non-controlling interests 168,000 300,314 – dividends paid to non-controlling interests of subsidiaries (22,115) (1,685) – government subsidy received – 21,136 – transaction with non-controlling interests (19,107) – – (increase)/decrease in pledged bank deposits (60,000) 134,243
Cash flows from financing activities 627,520 1,371,596
Net (decrease)/increase in cash and cash equivalents (319,686) 507,699 Cash and cash equivalents at start of period 1,728,245 1,056,811 Exchange gains on cash and bank overdrafts 81 –
Cash and cash equivalents at end of period 1,408,640 1,564,510
– I-84 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
1. GENERAL INFORMATION
CATIC Shenzhen Holdings Limited (the “Company”) was established as a joint stock limited company in the People’s Republic of China (the “PRC”) and its shares have been listed on the Main Board of The Stock Exchange of Hong Kong Limited. The Company and its subsidiaries (hereinafter collectively referred to as the “Group”) are principally engaged in the manufacture and sales of liquid crystal displays, printed circuit boards, watches and clocks, mining resources, cable television equipment, hotel operation business and property development in the PRC.
The office address of the Company is 25/F, Hangdu Building, CATIC Zone, Shennan Road Central, Futian District, Shenzhen, PRC.
This condensed consolidated interim financial information is presented in RMB thousands, unless otherwise stated. This condensed consolidated interim financial information was approved for issue on 19 August 2011.
This condensed consolidated interim financial information has not been audited.
Key events
In July 2011, the Company has received written approval from the Administration Commission of the State Council stating its consent in principle to the acquisition whereby the Company has conditionally agreed to acquire certain equity interests in 12 companies from AVIC International Holding Co., Ltd., CATIC Shenzhen Co., Ltd. and Beijing Raise Science Co., Ltd.
On 25 February 2011, Tianma Microelectronics Co., Ltd. (“Tianma”) and Shenzhen CATIC Opto-electronics Co., Ltd. entered into an entrusted management agreement.
On 17 May 2011, Shanghai Tianma Microelectronics Co., Ltd. and Xiamen Tianma Microelectronics Co., Ltd. entered into an entrusted management agreement.
The board of Tianma decided to continue to proceed with the substantial asset restructuring at a board meeting, and therefore resubmitted the amended and perfected application materials to China Securities Regulatory Commission for review.
2. BASIS OF PREPARATION
This unaudited condensed consolidated interim financial information for the half year ended 30 June 2011 has been prepared in accordance with International Accounting Standards (the “IAS”) 34, ‘Interim financial reporting’. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2010, which have been prepared in accordance with International Financial Reporting Standards (the “IFRS”).
3. ACCOUNTING POLICES
The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2010, as described in those annual financial statements.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.
– I-85 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(a) New and amended standards adopted by the Group
The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2011.
• Amendment to IAS 34 ‘Interim financial reporting’ is effective for annual periods beginning on or after 1 January 2011. It emphasises the existing disclosure principles in IAS 34 and adds further guidance to illustrate how to apply these principles. Greater emphasis has been placed on the disclosure principles for significant events and transactions. Additional requirements cover disclosure of changes to fair value measurement (if significant), and the need to update relevant information from the most recent annual report. The change in accounting policy only results in additional disclosures.
(b) Amendments and interpretations to existing standards effective in 2011 but not relevant to the Group:
• Amendment to IAS 32 ‘Classification of rights issues’ is effective for annual periods beginning on or after 1 February 2010. This is not currently applicable to the Group, as it has not made any rights issue.
• Amendment to IFRIC – Int-14 ‘Prepayments of a minimum funding requirement’ is effective for annual periods beginning on or after 1 January 2011. This is not currently relevant to the Group, as it does not have a minimum funding requirement.
• IFRIC – Int 19 ‘Extinguishing financial liabilities with equity instruments’ is effective for annual periods beginning on or after 1 July 2010. This is not currently applicable to the Group, as it has no extinguishment of financial liabilities replaced with equity instruments currently.
• Third improvements to International Financial Reporting Standards (2010) were issued in May 2010 by IASB, except for amendment to IAS 34 ‘Interim financial reporting’ as disclosed in note 3(a) and the clarification to allow the presentation of an analysis of the components of other comprehensive income by item within the notes, all are not currently relevant to the Group. All improvements are effective in the financial year of 2011.
(c) The following new standards and amendments to standards have been issued but are not effective for the financial year beginning 1 January 2011 and have not been early adopted:
• IFRS 9 ‘Financial instruments’ addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not applicable until 1 January 2013 but is available for early adoption.
There will be no impact on the Group’s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss, and the Group does not have any such liabilities. The derecognition rules have been transferred from IAS 39 ‘Financial instruments: Recognition and measurement’ and have not been changed.
– I-86 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
• IAS 12 (Amendment) ‘Deferred tax: Recovery of underlying assets’ introduces an exception to the principle for the measurement of deferred tax assets or liabilities arising on an investment property measured at fair value. IAS 12 requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. The amendment introduces a rebuttable presumption that an investment property measured at fair value is recovered entirely by sale. The amendment is applicable retrospectively to annual periods beginning on or after 1 January 2012 with early adoption permitted.
• IFRS 7 (Amendment) ‘Disclosures – Transfers of financial assets’ introduces new disclosure requirement on transfers of financial assets. Disclosure is required by class of asset of the nature, carrying amount and a description of the risks and rewards of financial assets that have been transferred to another party yet remain on the entity’s balance sheet. The gain or loss on the transferred assets and any retained interest in those assets must be given. In addition, other disclosures must enable users to understand the amount of any associated liabilities, and the relationship between the financial assets and associated liabilities. The disclosures must be presented by type of ongoing involvement. For example, the retained exposure could be presented by type of financial instrument (such as guarantees, call or put options), or by type of transfer (such as factoring of receivables, securitisations or securities lending). The amendment is applicable to annual periods beginning on or after 1 July 2011 with early adoption permitted.
4. ESTIMATES
The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2010.
5. FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.
The interim condensed consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements as at 31 December 2010.
There have been no changes in the risk management policies since year end.
6. SEGMENT INFORMATION
The chief operating decision-maker has been identified as the board of directors. The board of directors considers the business from product perspective and reviews the Group’s internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.
– I-87 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
The revenue and profit/(loss) after taxation of the Group for the six months ended 30 June 2011 by activities are classified as follows:
Profit/(loss) after Revenue taxation 2011 2010 2011 2010 RMB’000 RMB’000 RMB’000 RMB’000
LCD 2,076,773 1,419,791 67,952 57,881 PCB 997,799 664,925 90,962 72,630 Timepieces 1,189,052 759,025 68,250 32,295 Resources 216,796 4,632 (38,568) (42,115) Hotel 23,830 – (57,681) (156) Investment properties 60,226 54,326 17,917 (9,705) Others 23,667 22,695 337 243 Unallocated items* – – (34,190) (40,835)
Total 4,588,143 2,925,394 114,979 70,238
* The amount represented various expenses incurred by the head office mainly including unallocated interest expenses, administrative expenses and investment losses of the Company.
7. TRADE AND OTHER RECEIVABLES
As at 30 June 31 December 2011 2010 RMB’000 RMB’000
Trade receivables 1,984,843 1,638,015 Less: provision for impairment of receivables (173,800) (167,337)
Trade receivables – net 1,811,043 1,470,678 Notes receivables 154,595 185,820 Prepayments 255,050 290,981 Excess of input over output value added tax 297,206 273,238 Others 170,210 193,796
2,688,104 2,414,513
– I-88 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
The Group’s credit terms on sale of goods ranged from 30 to 90 days. At 30 June 2011 and 31 December 2010, the ageing analyses of the trade receivables are as follows:
As at 30 June 31 December 2011 2010 RMB’000 RMB’000
Trade receivables Current 767,567 659,756 30 – 60 days 356,775 357,255 60 – 90 days 241,942 148,332 Over 90 days 618,559 472,672
1,984,843 1,638,015
Less: provision for impairment losses (173,800) (167,337)
1,811,043 1,470,678
8. TRADE AND OTHER PAYABLES
As at 30 June 31 December 2011 2010 RMB’000 RMB’000
Trade payables 2,031,358 1,500,742 Salary and staff welfare payable 93,570 117,851 Accruals and other payables 1,108,228 1,648,494
3,233,156 3,267,087
At 30 June 2011, the ageing analyses of the trade payables are as follows:
As at 30 June 31 December 2011 2010 RMB’000 RMB’000
Trade payables Current 1,148,927 903,608 30 – 60 days 492,080 267,785 60 – 90 days 195,109 143,637 Over 90 days 195,242 185,712
2,031,358 1,500,742
– I-89 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
9. OPERATING PROFIT
The following items have been charged the operating profit during the period:
Six months ended 30 June 2011 2010 RMB’000 RMB’000
Provision for impairment of inventory 9,764 2,939 Provision for impairment of trade receivables 2,290 1,974 Amortisation of land use rights 8,526 4,527 Amortisation of mining rights 4,250 10,156 Amortisation of other non-current assets 36,279 24,717 Depreciation of fixed assets 328,390 215,053 Loss on disposal of property, plant and equipment 320 145
10. INCOME TAX EXPENSE
Pursuant to the relevant income tax law of PRC, the subsidiaries of the Group established in the PRC are subject to income tax at a rate of 25% unless preferential rates are applicable.
For the Company and certain subsidiaries established in Shenzhen Special Economic Zone, the original enterprise income tax rate was 15%. In accordance with the relevant provision of the Corporate Income Tax law, the corporate income tax rate of the Company and certain subsidiaries will transit to 25% in five years from 2009 to 2012. The corporate income tax rate for current period was 22%.
For certain subsidiaries of the Group, which were qualified as High and New Technology Enterprises in the PRC, were entitled to a preferential income tax rate of 15% in 2011.
Six months ended 30 June 30 June 2011 2010 RMB’000 RMB’000
Current income tax 44,070 20,373 Deferred income tax (credit)/expense (9,284) 2,261
34,786 22,634
11. EARNINGS PER SHARE
Basic and diluted earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period.
Six months ended 30 June 30 June 2011 2010
Profit attributable to equity holders of the Company (RMB’000) 20,860 19,454 Weighted average number of ordinary shares in issue (thousands) 673,367 673,367 Basic and diluted earnings per share (RMB per share) 0.0310 0.0289
There were no potential dilutive shares as at 30 June 2011 and 2010.
– I-90 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
12. DIVIDENDS
The directors proposed an interim dividend of RMB3 cents per share, amounting to RMB20,201,000, for the period ended 30 June 2011. The proposal will come to effect after it is passed by the extraordinary general meeting (date to be decided). The Company will further announce the date of the extraordinary general meeting and suspension share transfer registration.
13. COMMITMENTS
(a) Capital commitments
Capital commitments at the balance sheet date but not yet incurred are as follows:
As at 30 June 31 December 2011 2010 RMB’000 RMB’000
Contracted but not provided for
Purchase of property, plant and equipment 756,713 621,130 Investment in subsidiaries: – Chengdu Tianma – 72,000
756,713 693,130
As at 30 June 31 December 2011 2010 RMB’000 RMB’000
Authorised but not contracted for
Property, plant and equipment 477,380 1,509,970 Hotel modernisation and renovation 22,060 60,000
499,440 1,569,970
(b) Operating lease commitments
The Group has commitments under non-cancellable operating leases in respect of office premises as follows:
As at 30 June 31 December 2011 2010 RMB’000 RMB’000
Not later than one year 26,504 42,122 Later than one year and not later than five years 140,995 137,140
167,499 179,262
– I-91 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
14. RELATED PARTY TRANSACTIONS
The Group is controlled by CATIC Shenzhen Company, a state-controlled company established in the PRC which owns 58.77% of the Company’s shares. The remaining 41.23% of the shares are widely held. The directors regard CATIC Shenzhen Company and Aviation Industry Corporation of China as the holding company and ultimate holding company of the Group respectively.
Related parties include the Company’s holding company, ultimate holding company, its subsidiaries, other state-controlled enterprises and their subsidiaries directly or indirectly controlled by the PRC government, corporations in which the Company is able to control or exercise significant influence, key management personnel of the Company, holding company and its ultimate holding company and their close family members.
In addition to the related party information shown elsewhere in the financial statements, the following is a summary of significant related party transactions entered into in the ordinary course of business between the Group and its related parties and the balances arising from related party transactions:
(a) Transactions with related parties
Six months ended 30 June 2011 2010 RMB’000 RMB’000
Transactions with the holding company and fellow subsidiaries
Revenue:
Sales of goods 209,967 114,193 Rendering of services 21,001 13,823
230,968 128,016
Purchases of goods and services 138,380 14,269
Transactions with government related entities
The Company is a state-owned enterprise ultimately controlled by the PRC government. The PRC government controls a significant portion of the productive assets and entities in the PRC. The transactions between the Company and other PRC government controlled entities are related party transactions. These transactions mainly include depositing cash in and obtaining borrowings from certain stated-owned banks. Nearly all of the Company’s cash were deposited in and all of the borrowings were borrowed from state-owned banks during the year.
– I-92 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(b) Balances with related parties
The balances with related parties companies are non-interest bearing and repayable on demand.
As at 30 June 31 December 2011 2010 RMB’000 RMB’000
Balances with fellow subsidiaries Accrual and other payables 361,833 443,783 Trade and other receivables 181,434 262,421
Amount due to the holding company 283,200 296,500
– I-93 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
INDEBTEDNESS
Among the target companies of the 2010 Acquisition, CATIC Beijing Company Limited (“Beijing Company”), China National Aero-Technology Guangzhou Company Limited (“Guangzhou Company”), China National Aero-Technology Import & Export Xiamen Corporation (“Xiamen Company”), CATIC International Trade and Economic Development Ltd (“TED Company”), China National Aero-Technology International Engineering Corporation Limited (“International Engineering Company”), Shenzhen Aero Fasteners MFG Company Limited (“Hang Biao Company”), Beijing Zhonghang Rixin Management and Investment Company Limited (“Beijing Ruixin”), Chengdu Avic Raise Real Estate Company Limited (“Chengdu Raise”), Xi’an Avic Raise Xi Kong Real Estate Company Limited (“Xi’an Xi Kong”) and Wuxi AVIC Raise Real Estate Company Limited (“Wuxi Raise”) would become subsidiaries of the Company upon the completion of the 2010 Acquisition. Beijing Company, Guangzhou Company, Xiamen Company, TED Company, International Engineering Company, Hang Biao Company, Beijing Ruixin, Chengdu Raise, Xi’an Xi Kong, Wuxi Raise and their respective subsidiaries, if any, are collectively referred to in this indebtedness statement as the “Target Group of the 2010 Acquisition”.
Among the target companies of the Acquisitions, Shanghai Company, Project Engineering Company, Bi Te Communication, Guizhou CATIC Resources and Chengdu Ya Guang would become subsidiaries of the Company upon the completion of the Acquisitions. Upon completion of the acquisition pursuant to the Acquisition Agreement 1, the Company would have 50% equity interest in Lutong Company. Upon the completion of the 2010 Acquisition, the Company would own 100% equity interest in China National Aero-Technology Guangzhou Company Limited, which owned the other 50% equity interest in AVIC Lutong. Together with the 50% equity interest of Lutong Company to be acquired by the Company under the Acquisition Agreement 1, Lutong Company would become a wholly-owned subsidiary of the Company. For the purpose of the indebtedness, Shanghai Company, Lutong Company, Project Engineering Company, Bi Te Communication, Guizhou CATIC Resources and Chengdu Ya Guang and their respective subsidiaries, if any, are collectively referred to in this indebtedness statement as the “Target Group of the Acquisitions”.
– I-94 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Borrowings
As at the close of business on 31 October 2011, being the latest practicable date for the purpose of this indebtedness statement, the Group has total borrowings of RMB8,794,502,000, the Target Group of the 2010 Acquisition have total borrowings of RMB3,810,406,000 and the Target Group of the Acquisitions have total borrowings of RMB4,936,257,000, details of which are as follows:
The Target Group of The Target Group of The Group the 2010 Acquisition the Acquisitions Total Secured Unsecured Total Secured Unsecured Total Secured Unsecured Total Secured Unsecured Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Non-current Bank borrowings 3,930,321 824,500 4,754,821 27,000 246,127 273,127 90,000 – 90,000 4,047,321 1,070,627 5,117,948 Finance lease liabilities ––––––7,866 – 7,866 7,866 – 7,866
3,930,321 824,500 4,754,821 27,000 246,127 273,127 97,866 – 97,866 4,055,187 1,070,627 5,125,814
Current Bank borrowings 2,824,800 1,241,329 4,066,129 1,221,896 2,200,383 3,422,279 4,400,488 422,500 4,822,988 8,447,184 3,864,212 12,311,396 Related party borrowings ––––115,000 115,000 ––––115,000 115,000 Finance lease liabilities ––––––15,403 – 15,403 15,403 – 15,403
2,824,800 1,241,329 4,066,129 1,221,896 2,315,383 3,537,279 4,415,891 422,500 4,838,391 8,462,587 3,979,212 12,441,799
Total 6,755,121 2,065,829 8,820,950 1,248,896 2,561,510 3,810,406 4,513,757 422,500 4,936,257 12,517,774 5,049,839 17,567,613
Among the secured bank borrowings of Group, an amount of RMB1,020,000,000 was secured by investment properties, an amount of RMB5,735,121,000 was guaranteed by related parties.
Among the secured bank borrowings of the Target Group of the 2010 Acquisition, an amount of RMB124,500,000 was secured by land use rights and buildings, an amount of RMB174,252,000 was secured by bank deposits and the rest of RMB950,144,000 was guaranteed by related parties.
Among the secured bank borrowings of the Target Group of the Acquisitions, an amount of RMB225,000,000 was secured by land use rights and buildings, an amount of RMB3,719,871,000 was secured by bank deposits and the rest of RMB545,617,000 was guaranteed by related parties. The finance lease liabilities of RMB23,269,000 was guaranteed by related parties.
– I-95 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Save as disclosed above or intra-group liabilities, the group as enlarged by the Acquisitions and the 2010 Acquisition did not have any outstanding debt securities issued and outstanding or authorised or otherwise created but unissued, term loans, other borrowings or indebtedness in the nature of borrowing including bank overdrafts, liabilities under acceptances (other than normal trade bills), acceptance credits, material hire purchase commitments, mortgages and charges, material contingent liabilities and guarantees outstanding at the close of business on 31 October 2011.
The Directors have confirmed that there has not been any material change in the indebtedness of the group as enlarged by the Acquisitions and the 2010 Acquisition since 31 October 2011 and up to the Latest Practicable Date.
WORKING CAPITAL
Taking into account the expected completion of the 2010 Acquisition and the Acquisitions and the financial resources available to the group as enlarged by the Acquisitions and the 2010 Acquisition, including the internally generated funds and the available banking facilities, the directors of the Company are of the opinion that the group as enlarged by the Acquisitions and the 2010 Acquisition has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of this circular.
MATERIAL ADVERSE CHANGES
The Directors confirm that there has been no material adverse change in the financial or trading position of the Group since 31 December 2010, the date to which the latest published audited financial statements of the Group were made up.
– I-96 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
The following is the text of the report on Guizhou CATIC Resources received from the Company’s reporting accountant, PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.
23 December 2011
The Directors CATIC Shenzhen Holdings Limited
Dear Sirs,
We report on the financial information of Guizhou CATIC Resources Company Limited (the “Guizhou CATIC Resources Company”) which comprises the balance sheets of Guizhou CATIC Resources Company as at 31 December 2008, 2009 and 2010 and 30 June 2011, and the income statements, the statements of comprehensive income, the statements of changes in equity and the cash flow statements of Guizhou CATIC Resources Company for the period from 1 December 2008 (date of incorporation) to 31 December 2008 and for the years ended 31 December 2009 and 2010 and the six months ended 30 June 2011 (the “Relevant Periods”) and a summary of significant accounting policies and other explanatory information. This financial information has been prepared by the directors of CATIC Shenzhen Holdings Limited (the “Company”) and is set out in Sections I to III below for inclusion in Appendix IIA to the circular of the Company dated 23 December 2011 (the “Circular”) in connection with the proposed acquisition of Guizhou CATIC Resources Company by the Company.
Guizhou CATIC Resources Company was incorporated in the People’s Republic of China (the “PRC”) on 1 December 2008 as a company with limited liability under the Company Law of the PRC.
As at the date of this report, Guizhou CATIC Resources Company has direct interests in an associate as set out in Note 8 of Section II below.
The statutory financial statements of Guizhou CATIC Resources Company for each of the years ended 31 December 2008, 2009 and 2010 were audited by RSM China Certified Public Accountants (“中瑞岳華會計師事務所有限公司”) pursuant to separate terms of engagement with Guizhou CATIC Resources Company.
– IIA-1 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
The directors of Guizhou CATIC Resources Company during the Relevant Periods are responsible for the preparation and fair presentation of the financial statements of Guizhou CATIC Resources Company in accordance with the Accounting Standards for Business Enterprises of the People’s Republic of China and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
For the purpose of this report, the directors of the Company have prepared the financial statements of Guizhou CATIC Resources Company for the Relevant Periods (the “Underlying Financial Statements”) in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (the “IASB”). The Underlying Financial Statements were audited by PricewaterhouseCoopers Zhong Tian CPAs Limited Company (“普華永道中天會計師事務所有限公司”) in accordance with International Standards on Auditing issued by the International Auditing and Assurance Standards Board (“IAASB”) pursuant to separate terms of engagement with the Company.
The directors of the Company are responsible for the preparation of the Underlying Financial Statements that gives a true and fair view in accordance with IFRSs.
The financial information has been prepared based on the Underlying Financial Statements, with no adjustment made thereon.
Directors’ Responsibility for the Financial Information
The directors of the Company are responsible for the preparation of the financial information that gives a true and fair view in accordance with IFRSs and accounting policies adopted by the Company and its subsidiaries (together, the “Group”) as set out in the audited annual consolidated financial statements of the Company for the year ended 31 December 2010 as set out in Appendix I to the Circular.
Reporting Accountant’s Responsibility
Our responsibility is to express an opinion on the financial information and to report our opinion to you. We carried out our procedures in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the Hong Kong Institute of Certified Public Accountants.
Opinion
In our opinion, the financial information gives, for the purpose of this report, a true and fair view of the state of affairs of Guizhou CATIC Resources Company as at 31 December 2008, 2009 and 2010 and 30 June 2011 and of the results and cash flows of Guizhou CATIC Resources Company for the Relevant Periods then ended.
– IIA-2 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
Review of stub period comparative financial information
We have reviewed the stub period comparative financial information set out in Section I to III below included in Appendix II to the Circular which comprises the income statement, the statement of comprehensive income, the statement of changes in equity and the cash flow statement of Guizhou CATIC Resources Company for the six months ended 30 June 2010 and a summary of significant accounting policies and other explanatory information (the “Stub Period Comparative Financial Information”).
The directors of the Company are responsible for the preparation and presentation of the Stub Period Comparative Financial Information in accordance with the accounting policies set out in Note 3 of Section II below and the accounting policies adopted by the Group as set out in the audited annual consolidated financial statements of the Company for the year ended 31 December 2010 as set out in Appendix I to the Circular.
Our responsibility is to express a conclusion on the Stub Period Comparative Financial Information based on our review. We conducted our review in accordance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the IAASB. A review of the Stub Period Comparative Financial Information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the Stub Period Comparative Financial Information, for the purpose of this report, has not been prepared, in all material respects, in accordance with the accounting policies set out in Note 3 of Section II below.
– IIA-3 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
I FINANCIAL INFORMATION OF GUIZHOU CATIC RESOURCES COMPANY
The following is the financial information of Guizhou CATIC Resources Company prepared by the directors of the Company as at 31 December 2008, 2009 and 2010 and 30 June 2011 and for each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2010 and 2011 (the “Financial Information”).
(A) BALANCE SHEETS
At At 31 December 30 June Note 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Assets Non-current assets Property, plant and equipment 6 – 7 1,743 2,627 Intangible assets 7 – – 27 25 Investment in an associate 8 – – 10,000 10,000 Other non-current assets 9 – – 445 1,492
– 7 12,215 14,144
Current assets Inventories 10 – – 3,662 12,479 Trade and other receivables 11 – 9,001 68,062 262,142 Cash and cash equivalents 12 9,994 847 21,092 68,515
9,994 9,848 92,816 343,136
Total assets 9,994 9,855 105,031 357,280
Equity Paid-in capital 13 10,000 10,000 100,000 100,000 Accumulated losses 14 (6) (145) (4,101) (7,056)
Total equity 9,994 9,855 95,899 92,944
– IIA-4 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
At At 31 December 30 June Note 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Liabilities
Current liabilities Trade and other payables 16 – – 9,132 64,336 Borrowings 15 – – – 200,000
– – 9,132 264,336
Total liabilities – – 9,132 264,336
Total equity and liabilities 9,994 9,855 105,031 357,280
Net current assets 9,994 9,848 83,684 78,800
Total assets less current liabilities 9,994 9,855 95,899 92,944
– IIA-5 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
(B) INCOME STATEMENTS
Period from 1 December 2008 (date of incorporation) to 31 Year ended Six months ended December 31 December 30 June Note 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Revenue – – 40,384 – 267,385 Cost of sales 18 – – (38,282) – (259,753)
Gross profit – – 2,102 – 7,632
Other income ––––30 Selling and marketing costs 18 – – (1,422) – (4,070) Administrative expenses 18 (6) (139) (4,117) – (4,401)
Operating loss (6) (139) (3,437) – (809)
Finance income 19 – – 210 – 259 Finance costs 19 – – (729) – (2,405)
Finance costs – net 19 – – (519) – (2,146)
Loss before income tax (6) (139) (3,956) – (2,955)
Income tax expense 20 –––––
Loss for the year/period (6) (139) (3,956) – (2,955)
Distributions –––––
Earnings per share 21 N/A N/A N/A N/A N/A
– IIA-6 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
(C) STATEMENTS OF COMPREHENSIVE INCOME
Period from 1 December 2008 (date of incorporation) to 31 Year ended Six months ended December 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Loss for the year/period (6) (139) (3,956) – (2,955)
Other comprehensive income, net of tax –––––
Total comprehensive loss for the year/period (6) (139) (3,956) – (2,955)
– IIA-7 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
(D) STATEMENTS OF CHANGES IN EQUITY
Attributable to the equity owners of Guizhou CATIC Resources Company Paid-in Accumulated capital losses Total equity RMB’000 RMB’000 RMB’000
Balance at 1 December 2008 (date of incorporation) – – –
Loss for the period – (6) (6)
Transactions with equity owners: Capital contribution 10,000 – 10,000
Balance at 31 December 2008 10,000 (6) 9,994
Loss for the year – (139) (139)
Balance at 31 December 2009 10,000 (145) 9,855
Loss for the year – (3,956) (3,956)
Transactions with equity owners: Capital contribution 90,000 – 90,000
Balance at 31 December 2010 100,000 (4,101) 95,899
Loss for the period – (2,955) (2,955)
Balance at 30 June 2011 100,000 (7,056) 92,944
Attributable to the equity owners of Guizhou CATIC Resources Company Paid-in Retained Unaudited capital earnings Total equity RMB’000 RMB’000 RMB’000
Balance at 1 January 2010 10,000 (145) 9,855
Loss for the period – – –
Balance at 30 June 2010 10,000 (145) 9,855
– IIA-8 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
(E) CASH FLOW STATEMENTS
Period from 1 December 2008 (date of incorporation) to 31 Year ended Six months ended December 31 December 30 June Note 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Cash flows from operating activities Cash generated from/ (used in) operations 23 (6) (9,140) (56,909) 8,650 (148,279) Interest paid – – (729) – (2,405)
Net cash generated from/ (used in) operating activities (6) (9,140) (57,638) 8,650 (150,684)
Cash flows from investing activities Investment in an associate 8 – – (10,000) – – Purchase of property, plant and equipment – (7) (1,854) (677) (1,105) Purchase of intangible assets – – (28) (17) – Additions to other non-current assets – – (445) – (1,047) Interest received – – 210 – 259 Net cash used in investing activities – (7) (12,117) (694) (1,893)
Cash flows from financing activities Proceeds from capital contribution by owner 10,000 – 90,000 – – Proceeds from borrowings ––––250,000 Repayment of borrowings ––––(50,000)
Net cash generated from financing activities 10,000 – 90,000 – 200,000
Net increase/(decrease) in cash and cash equivalents 9,994 (9,147) 20,245 7,956 47,423 Cash and cash equivalents at beginning of the year/period 12 – 9,994 847 847 21,092
Cash and cash equivalents at end of the year/period 9,994 847 21,092 8,803 68,515
– IIA-9 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
II NOTES TO THE FINANCIAL INFORMATION
1. GENERAL INFORMATION
Guizhou CATIC Resources Co., Ltd (the “Guizhou CATIC Resources Company”) was set up on January 2008. Its shareholdings are detailed in note 25. The Guizhou CATIC Resources Company is principally engaged in trading of coal products.
Guizhou CATIC Resources Company is a limited liability company incorporated in the People’s Republic of China (the “PRC”). The address of its registered office is No.86, Lijiang Road, Guiyang, Guizhou Province.
The Financial Information of Guizhou CATIC Resources Company is presented in RMB, unless otherwise stated.
2. BASIS OF PREPARATION
The Financial Information has been prepared in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (the “IASB”). The Financial Information has been prepared under the historical cost convention.
The preparation of the Financial Information in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying Guizhou CATIC Resources Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Financial Information are disclosed in Note 5.
Changes in accounting policy and disclosures:
The following new standards and amendments to standards have been issued and are mandatory for Guizhou CATIC Resources Company’s accounting periods beginning on or after 1 January 2012 or later periods, and Guizhou CATIC Resources Company has not early adopted them:
• IFRS 9 ’Financial instruments’ addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not applicable until 1 January 2013 but is available for early adoption. This new standard is not expected to have a material impact on Guizhou CATIC Resources Company’s financial statements.
• IFRS 10, ’Consolidated financial statements’ builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. Guizhou CATIC Resources Company is yet to assess IFRS 10’s full impact and intends to adopt IFRS 10 no later than the accounting period beginning on or after 1 January 2013.
• IFRS 12, ’Disclosures of interests in other entities’ includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. Guizhou CATIC Resources Company is yet to assess IFRS 12’s full impact and intends to adopt IFRS 12 no later than the accounting period beginning on or after 1 January 2013.
• IFRS 13, ’Fair value measurement’, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. Guizhou CATIC Resources Company is yet to assess IFRS13’s full impact and intends to adopt IFRS 13 no later than the accounting period beginning on or after 1 January 2012.
– IIA-10 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
• IFRS 7 (Amendment) ’Disclosures – Transfers of financial assets’ introduces new disclosure requirement on transfers of financial assets. Disclosure is required by class of asset of the nature, carrying amount and a description of the risks and rewards of financial assets that have been transferred to another party yet remain on the entity’s balance sheet. The gain or loss on the transferred assets and any retained interest in those assets must be given. In addition, other disclosures must enable users to understand the amount of any associated liabilities, and the relationship between the financial assets and associated liabilities. The disclosures must be presented by type of ongoing involvement. The amendment is applicable to annual periods beginning on or after 1 July 2011 with early adoption permitted. This new amendment is not expected to have a material impact on Guizhou CATIC Resources Company’s financial statements.
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on Guizhou CATIC Resources Company.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1 Associates
Associates are all entities over which Guizhou CATIC Resources Company has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisition.
Guizhou CATIC Resources Company’s share of post-acquisition profit or loss is recognised in the income statement, and its share of post acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment.
3.2 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board of directors that makes strategic decisions.
Guizhou CATIC Resources Company’s revenue and profit are generated from trading of coal products in the PRC, and all assets of Guizhou CATIC Resources Company are located in the PRC. Therefore, the directors consider no segmental information is necessary to be disclosed.
Guizhou CATIC Resources Company has a number of customers in the PRC. In periods set out below, certain customers, all located in PRC, accounted for greater than 10% of Guizhou CATIC Resources total revenues:
For the year ended For the period ended Year 31 December 2010 30 June 2011 % of total % of total Customer Amount revenue Amount revenue RMB’000 RMB’000
Customer A 7,812 19% 36,867 14% Customer B 10,245 25% 13,270 5% Customer C 9,134 23% 12,259 5% Customer D 5,119 13% 5,808 2% Customer E – – 52,159 20% Customer F – – 26,187 10%
– IIA-11 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
3.3 Functional and presentation currency
Items included in the financial statements of Guizhou CATIC Resources Company are measured using the currency of the primary economic environment in which Guizhou CATIC Resources Company operates (’the functional currency’). The Financial Information are presented in Renminbi (“RMB’’), which is Guizhou CATIC Resources Company’s functional and presentation currency.
3.4 Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment loss. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to Guizhou CATIC Resources Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
Depreciation on property, plant and equipment is calculated using the straight-line method to allocate their costs to their residual values over their estimated useful lives, as follows:
Electronic equipment 3 years Motor vehicles 5 years Leasehold improvement 3 years Machinery and other equipment 5-10 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with carrying amount and are charged to the income statement.
3.5 Impairment of non-financial assets
Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
3.6 Financial assets
3.6.1 Classification
Guizhou CATIC Resources Company classifies its financial assets in the following categories: loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
– IIA-12 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. Guizhou CATIC Resources Company’s loans and receivables comprise ’trade and other receivables’ (Note 3.10) and ’cash and cash equivalents’ (Note 3.11) in the balance sheet.
3.6.2 Recognition and measurement
Regular way purchases and sales of financial assets are recognised on the trade-date – the date on which Guizhou CATIC Resources Company commits to purchase or sell the asset.
3.7 Offsetting financial instruments
Financial instruments are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amount and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
3.8 Impairment of financial assets
Assets carried at amortised cost
Guizhou CATIC Resources Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ’loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
The criteria that Guizhou CATIC Resources Company uses to determine that there is objective evidence of an impairment loss include:
• Significant financial difficulty of the issuer or obligor;
• A breach of contract, such as a default or delinquency in interest or principal payments;
• Guizhou CATIC Resources Company, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;
• It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;
• The disappearance of an active market for that financial asset because of financial difficulties; or
• Observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including: (i) adverse changes in the payment status of borrowers in the portfolio; (ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.
Guizhou CATIC Resources Company first assesses whether objective evidence of impairment exists.
– IIA-13 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
For loans and receivables category, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The asset’s carrying amount of the asset is reduced and the amount of the loss is recognised in the income statement. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, Guizhou CATIC Resources Company may measure impairment on the basis of an instrument’s fair value using an observable market price.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the income statement.
3.9 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost represents invoiced value on purchase, transportation fee and other direct costs, and is calculated on a weighted-average basis. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
3.10 Trade and other receivables
Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.
3.11 Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held at call with banks.
3.12 Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
3.13 Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless Guizhou CATIC Resources Company has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.
3.14 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other
– IIA-14 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in associates.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
3.15 Employee pension obligations
The full-time employees of Guizhou CATIC Resources Company are covered by various government-sponsored pension plans under which the employees are entitled to a monthly pension based on certain formulas. The relevant government agencies are responsible for the pension liability to these retired employees. Guizhou CATIC Resources Company contributes on a monthly basis to these pension plans. Under these plans, Guizhou CATIC Resources Company has no obligation for post-retirement benefits beyond the contributions made. Contributions to these plans are expensed as incurred.
3.16 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of Guizhou CATIC Resources Company’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts.
Guizhou CATIC Resources Company recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of Guizhou CATIC Resources Company’s activities as described below. Guizhou CATIC Resources Company bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
(a) Sales of goods
Sales of goods are recognised when Guizhou CATIC Resources Company has delivered products to the customer, the customer has accepted the products and collectability of related receivables is reasonably assured.
– IIA-15 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
(b) Interest income
Interest income is recognised using the effective interest method. When a loan and receivable is impaired, Guizhou CATIC Resources Company reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loan and receivables are recognised using the original effective interest rate.
3.17 Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.
4. FINANCIAL RISK MANAGEMENT
4.1 Financial risk factors
Guizhou CATIC Resources Company’s activities expose it to a variety of financial risks: market risk (including currency risk, price risk, and cash flow and fair value interest risk), credit risk and liquidity risk. Guizhou CATIC Resources Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on Guizhou CATIC Resources Company ’s financial performance.
(a) Market risk
(i) Foreign exchange risk
Guizhou CATIC Resources Company is not exposed to foreign exchange risk as Guizhou CATIC Resources Company operates principally in the PRC and holds no foreign currency denominated monetary assets or monetary liabilities.
(ii) Price risk
Guizhou CATIC Resources Company is not significantly exposed to price risk as Guizhou CATIC Resources Company has no financial instruments that subject to change of commodity prices or equity price.
(iii) Cash flow and fair value interest rate risk
Guizhou CATIC Resources Company’s interest-rate risk arises from borrowings. Borrowings issued at variable rates expose the Group to cash flow interest-rate risk. Borrowings issued at fixed rates expose the Group to fair value interest-rate risk.
Guizhou CATIC Resources Company does not use any derivative contracts to hedge its exposure to interest rate risk. However, management will consider hedging significant interest rate exposures should the need arise.
Guizhou CATIC Resources Company does not significantly exposed to interest rate risk as Guizhou CATIC Resources Company has no long term borrowings.
– IIA-16 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
(b) Credit risk
The credit risk of Guizhou CATIC Resources Company mainly arises from cash and cash equivalents, and trade and other receivables (except for prepayments to suppliers and staff advances). The carrying amounts of these balances represent Guizhou CATIC Resources Company’s maximum exposure to credit risk in relation to financial assets.
Substantially all of Guizhou CATIC Resources Company’s cash and cash equivalents are held in state-owned financial institutions located in the PRC, which management believes are of high credit quality. None of cash and cash equivalents and trade and other receivables of Guizhou CATIC Resources Company that were fully performing has been renegotiated during each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011.
Guizhou CATIC Resources Company has policies in place to ensure that products are sold to customers with appropriate credit history and Guizhou CATIC Resources Company performs periodic credit evaluations of its customers. Normally Guizhou CATIC Resources Company does not require collaterals from trade debtors.
The balance due from following customers accounted for more than 5% of Guizhou CATIC Resources’ total balance of trade receivables for each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011.
Six months Year ended 31 December ended 2008 2009 2010 2011 RMB’000 % RMB’000 % RMB’000 % RMB’000 %
Trade receivables: Customer A – – – – 3,612 29% 7,218 7% Customer B – – – – 3,669 30% 6,623 6% Customer C – – – – 695 6% 3,516 3% Customer D – – – – 2,786 23% – – Customer E – – – – 1,541 12% – – Customer F – – – – – – 7,422 7% Customer G 21,039 20% Customer H 23,325 23% Customer I 7,946 8% Customer J – – – – – – 22,274 22%
Total – – – – 12,303 100% 99,363 96%
(c) Liquidity risk
Guizhou CATIC Resources Company adopts prudent liquidity risk management which includes maintaining sufficient bank balances and cash, and having available funding through an adequate amount of committed credit facilities.
– IIA-17 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
The table below analyses Guizhou CATIC Resources Company’s financial liabilities into relevant maturity groupings based on the remaining period at the end of each reporting period to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Less than 1 year RMB’000
As at 31 December 2008 and December 2009 –
As at 31 December 2010 Trade and other payables (excluding payroll payable, other taxes payable and advance from customers) 834
As at 30 June 2011 Borrowings (principal amount plus interest) 200,388 Trade and other payables (excluding payroll payable, other taxes payable and advance from customers) 48,073
248,461
4.2 Capital risk management
Guizhou CATIC Resources Company’s objectives when managing capital are to safeguard Guizhou CATIC Resources Company’s ability to continue as a going concern in order to provide returns for owners and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, Guizhou CATIC Resources Company will monitor the operating cash flow generated from operations and available banking facilities to match its capital expenditures and dividend outflow payments.
Guizhou CATIC Resources Company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and bank balances. Total capital is calculated as ’equity’ as shown in the balance sheet plus net debt.
– IIA-18 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
Guizhou CATIC Resources Company’s strategy was to maintain a solid capital base with gearing ratio within 60% to support the operations and development of its business in the long term. The table below analyses Guizhou CATIC Resources Company’s capital structure at 31 December 2008, 2009, 2010 and 30 June 2011:
At At 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Total borrowings – – – 200,000 Less: cash and cash equivalents (9,994) (847) (21,092) (68,515)
Net debt (9,994) (847) (21,092) 131,485
Total equity 9,994 9,855 95,899 92,944
Total capital – 9,008 74,807 224,429
Gearing ratio NA NA NA 59%
4.3 Fair value estimation
Guizhou CATIC Resources Company has no assets and liabilities that are measured at fair value at the end of each reporting period.
4.4 Financial instruments by category
Loan and receivables At 31 December At 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Assets Trade and other receivables (excluding prepayments) – 9,001 25,575 129,943 Cash and cash equivalents 9,994 847 21,092 68,515
Total 9,994 9,848 46,667 198,458
Other financial liabilities at amortised cost At 31 December At 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Liabilities Borrowings – – – 200,000 Trade and other payables (excluding payroll payable, other taxes payable and advances from customers) – – 834 48,073
Total – – 834 248,073
– IIA-19 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Guizhou CATIC Resources Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
5.1 Income tax and deferred income tax
Significant judgement is required in determining the provision for income tax. There are many transactions and calculations for which the ultimate determination is uncertain during the ordinary course of business. Where the final outcome of these matters is different from the amounts that were initially recorded, such difference will impact the income tax and deferred income tax provision in the period in which such determination is made.
Deferred tax assets relating to certain temporary differences and tax losses are recognised when management considers to be probable that future taxable profit will be available against which the temporary differences or tax losses can be utilised. The outcome of their actual utilisation may be different.
5.2 Estimated impairment of receivables
Guizhou CATIC Resources Company makes provision for impairment of receivables based on an assessment of the recoverability of trade and other receivables with reference to the extent and duration that the amount will be recovered. Provisions are applied to trade and other receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of potential impairment requires the use of judgement and estimates. Where the expectation is different from the original estimate, such difference will impact the carrying value of trade and other receivables and doubtful debt expenses in the period in which such estimate has been changed.
– IIA-20 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
6. PROPERTY, PLANT AND EQUIPMENT
Machinery Electronic Motor and other Leasehold equipment vehicles equipment improvement Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 31 December 2008 Cost – – – – – Accumulated depreciation – – – – –
Net book amount – – – – –
Year ended 31 December 2009 Opening net book amount – – – – – Additions 7 – – – 7
Closing net book amount 7 – – – 7
At 31 December 2009 Cost 7 – – – 7 Accumulated depreciation – – – – –
Net book amount 7 – – – 7
Year ended 31 December 2010 Opening net book amount 7 – – – 7 Additions 175 1,457 81 141 1,854 Depreciation (22) (83) (5) (8) (118)
Closing net book amount 160 1,374 76 133 1,743
At 31 December 2010 Cost 182 1,457 81 141 1,861 Accumulated depreciation (22) (83) (5) (8) (118)
Net book amount 160 1,374 76 133 1,743
Six months ended 30 June 2011 Opening net book amount 160 1,374 76 133 1,743 Additions 103 965 37 – 1,105 Depreciation (32) (157) (9) (23) (221)
Closing net book amount 231 2,182 104 110 2,627
At 30 June 2011 Cost 285 2,422 118 141 2,966 Accumulated depreciation (54) (240) (14) (31) (339)
Net book amount 231 2,182 104 110 2,627
– IIA-21 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
Depreciation expenses for the years ended 31 December 2008, 2009 and 2010 and six months ended 30 June 2010 and 2011 have been charged to income statement as below:
Period from 1 December 2008 (date of incorporation) to 31 Year ended Six months ended December 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Administrative expenses – – 118 – 203 Selling and marketing expenses – – – – 18
– – 118 – 221
7. INTANGIBLE ASSETS
Computer software RMB’000
At 1 December 2008 (date of incorporation), 31 December 2008 and 31 December 2009 Cost – Accumulated amortisation –
Net book amount –
Year ended 31 December 2010 Opening net book amount – Additions 28 Amortisation charge (1)
Closing net book amount 27
At 31 December 2010 Cost 28 Accumulated amortisation (1)
Net book amount 27
Year ended 30 June 2011 Opening net book amount 27 Amortisation charge (2)
Closing net book amount 25
– IIA-22 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
Computer software RMB’000
At 30 June 2011 Cost 28 Accumulated amortisation (3)
Net book amount 25
Amortisation expense has been charged to the income statements as follows:
Period from 1 December 2008 (date of incorporation) to 31 Year ended Six months ended December 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Administrative expenses – – 1 – 2
8. INVESTMENT IN AN ASSOCIATE
At 31 December At 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Beginning of the year/period – – – 10,000 Additions – – 10,000 –
End of the year/period – – 10,000 10,000
Investment in an associate represents the investment in Guizhou Zhongtiehang Logistics Company Limited (the “Zhongtiehang Logistics Company”). The Zhongtiehang Logistics Company was established on 23 December 2010. The registered capital of the Zhongtiehang Logistics Company was RMB50,000,000. Guizhou CATIC Resources Company invested RMB10,000,000 and representing 20% of its equity interest. As the Zhongtiehang Logistics Company is still in pre-operating stage, there is no profit or loss incurred.
Guizhou CATIC Resources Company’s share of the results of the Zhangtiehang Logistics Company and its share of the assets (including liabilities) are as follows:
% Financial year/ Place of Principal Profit or interest period ended establishment activities Assets Liabilities Revenue loss held RMB’000 RMB’000 RMB’000 RMB’000
31 December 2010 Guiyang, PRC Logistics services 32,500–––20% 30 June 2011 Guiyang, PRC Logistics services 50,000–––20%
– IIA-23 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
9. OTHER NON-CURRENT ASSETS
Other non-current assets represent the costs to be capitalized into the cost of investment of the company which will be engaged in providing logistic services for coal trading.
10. INVENTORIES
At At 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Finished goods – – 3,662 12,479
The cost of inventories recognised as expenses and included in “cost of sales” amounted to RMB nil, RMB nil, RMB38,282,000, RMB nil and RMB259,753,000 for each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2010 and 2011, respectively.
11. TRADE AND OTHER RECEIVABLES
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade receivables Trade receivables – – 12,303 103,181
Other receivables Prepayments to suppliers – – 42,487 132,199 Notes receivable – – 13,000 20,671 Deposits – 1 180 2,515 Staff advances – – 92 1,576 Amounts due from related parties (Note 24) – 9,000 – 2,000
Other receivables – 9,001 55,759 158,961
Total trade and other receivables – 9,001 68,062 262,142
The carrying amounts of Guizhou CATIC Resources Company’s trade and other receivables at 31 December 2008, 2009 and 2010 and 30 June 2011 approximate their fair values.
Trade debtors are generally granted credit terms within 3 months. Ageing analysis of trade receivables are as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Within 3 months – – 12,303 103,181
– IIA-24 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
At 31 December 2008, 2009, 2010 and 30 June 2011, trade receivables of RMB nil, RMB nil, RMB12,303,000 and RMB103,181,000, respectively, were fully performing.
At 31 December 2008, 2009, 2010 and 30 June 2011, Guizhou CATIC Resources Company considered that no bad debt provision should be made for trade and other receivables.
12. CASH AND CASH EQUIVALENTS
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Cash at bank and on hand 9,994 847 21,092 68,515 Less: restricted cash ––––
9,994 847 21,092 68,515
Cash and cash equivalents are denominated in RMB.
13. PAID-IN CAPITAL
RMB’000
As at 1 December 2008 (date of incorporation), 31 December 2008 and 31 December 2009 10,000 Capital contribution by AVIC International Holding Corporation (Note 24) 90,000
As at 31 December 2010 and 30 June 2011 100,000
14. ACCUMULATED LOSSES
RMB’000
At 1 December 2008 (date of incorporation) – Loss for the period (6)
At 31 December 2008 (6) Loss for the year (139)
At 31 December 2009 (145) Loss for the year (3,956)
At 31 December 2010 (4,101) Loss for the period (2,955)
At 30 June 2011 (7,056)
Unaudited At 1 January 2010 (145) Loss for the period –
At 30 June 2010 (145)
– IIA-25 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
15. BORROWINGS
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Current Bank borrowings – Secured (a) – – – 200,000
(a) The borrowings are guaranteed by Avic International Holding Corporation (Note 25).
(b) The carrying amounts of bank borrowings are denominated in RMB.
(c) The effective interest rates (per annum) at the balance dates are as follows:
31 December 31 December 31 December 30 June 2008 2009 2010 2011
Current borrowings – – – 6.99%
(d) The carrying amounts of borrowings approximate their fair values.
16. TRADE AND OTHER PAYABLES
As at As at 31 December 30 June 2008 2009 2010 2011 RMB ’000 RMB ’000 RMB ’000 RMB ’000
Trade payables Amounts due to third parties – – 810 47,607
Other payables Accrued payroll expenses – – 463 411 Accrued expenses – – – 388 Advances from customers – – 6,956 14,632 Other taxes payable – – 879 1,220 Amounts due to related parties (Note 24) –––33 Others – – 24 45
– – 8,322 16,729
Total trade and other payables – – 9,132 64,336
The carrying amounts of trade and other payables approximate their fair values.
– IIA-26 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
The aging analysis of the trade payables, based on the invoice date, is as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Within 3 months – – 810 47,607
17. EMPLOYEE BENEFIT EXPENSES
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Wages and salaries – – 1,228 – 2,695 Contribution to pension plans (a) ––55–96 Welfare, medical and other expenses – – 69 – 105
– – 1,352 – 2,896
(a) The employees of Guizhou CATIC Resources Company participate in various retirement benefit plans organised by the relevant municipal government in the PRC to which Guizhou CATIC Resources Company is required to make monthly contributions which are calculated on certain percentage of the average employee salary as agreed by local municipal government to the scheme to fund the retirement benefits of the employees.
(b) Director’s emoluments:
Two of the directors of Guizhou CATIC Resources Company in the year 2010 and three directors in the period ended 30 June 2011 received emoluments for their services provided to Guizhou CATIC Resources Company during the Relevant Periods. Enrolments of other directors were paid by immediate holding company of Guizhou CATIC Resources Company during the relevant periods of which the amounts were considered by directors as mentioned.
The remuneration of directors of Guizhou CATIC Resources Company that received emoluments for their services provided to Guizhou CATIC Resources Company is set out below:
No remuneration was paid for the years ended 31 December 2008, 2009 and six months ended 30 June 2010 (unaudited).
– IIA-27 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
For the year ended 31 December 2010:
Employer’s contribution Discretionary Other to pension Name of director Fees Salary bonuses benefits scheme Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Cao Jiang –––––– Ying Zhihui –––––– Zuo Wenqing – 269 – – 30 299 Wang Mingchuan –––––– Chen Shuhuo –––––– Sheng Fan –––––– Liu Xiangzhi –––––– WangLi –37––643
– 306 – – 36 342
For the six months ended 30 June 2011:
Employer’s contribution to Discretionary Other pension Name of director Fees Salary bonuses benefits scheme Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Cao Jiang –––––– Ying Zhihui –––––– Zuo Wenqing – 150 – – 26 176 Wang Mingchuan –––––– Chen Shuhuo –––––– Sheng Fan –––––– Liu Xiangzhi – 253 – – 25 278 Wang Li – 59 – – 14 73
– 462 – – 65 527
No directors received any emoluments from Guizhou CATIC Resources Company as an inducement to join or leave Guizhou CATIC Resources Company or compensation for loss of office during the Relevant Periods.
– IIA-28 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
(c) Five highest paid individuals
The five individuals whose emoluments were the highest in Guizhou CATIC Resources Company include nil, nil, two, nil (unaudited) and three directors for the year ended 31 December 2008, 2009, and 2010 and six months ended 30 June 2010 and 2011, whose emoluments are reflected in the analysis presented above. The emoluments payable to the remaining five, five, three, five (unaudited) and two individuals for the years ended 31 December 2008, 2009 and 2010 and six months ended 30 June 2010 and 2011 are as follows:
Period from 1 December 2008 to Year ended 31 December 31 December Six months ended 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Basic salaries, bonuses, allowances and benefits in kind – – 522 – 629
The emoluments fell within the following bands:
No. of individuals Year ended 31 December Six months ended 30 June 2008 2009 2010 2010 2011 (unaudited)
Emolument bands – Under HKD1,000,000 ––5–5
18. EXPENSES BY NATURE
Period from 1 December 2008 (date of incorporation) Year ended to 31 December 31 December Six months ended 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Goods purchased – – 41,944 – 268,570 Changes in inventories – – (3,662) – (8,817) Employee benefit expenses (Note 18) – – 1,352 – 2,896 Transportation expenses – – 890 – 2,661 Entertainment expenses – – 590 – 1,062 Warehouse expenses – – 413 – 638 Rental expenses – – 63 – 464 Depreciation and amortisation (Note 6) ––118–221 Start-up costs 6 139 1,557 – – Others – – 556 – 529
Total cost of sales, selling and marketing costs and administrative expenses 6 139 43,821 – 268,224
– IIA-29 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
19. FINANCE COSTS – NET
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Interest expenses – Bank borrowings ––––2,063 – Other borrowings – – 729 – 342
Finance costs – – 729 – 2,405
Interest income – Interest income on short-term bank deposits – – (154) – (165) – Other interest income – – (56) – (94)
Finance income – – (210) – (259)
Finance costs – net – – 519 – 2,146
20. INCOME TAX EXPENSE
Period from 1 December 2008 (date of incorporation) Year ended to 31 December 31 December Six months ended 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Current income tax –PRCincometax–––––
Pursuant to the income tax law of PRC, Guizhou CATIC Resources Company is subject to income tax at a rate of 25%.
– IIA-30 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
The tax on Guizhou CATIC Resources Company’s loss before tax differs from the theoretical amount that would arise using the tax rates of the Company as follows:
Period from 1 December 2008 (date of incorporation) to 31 December Year ended 31 December Six months ended 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Loss before income tax (6) (139) (3,956) – (2,955) Tax calculated at applicable tax rate (2) (35) (989) – (739) Tax losses for which no deferred income tax asset was recognised 2 35 989 – 739
Income tax expense –––––
The tax losses for which deferred tax assets are not recognised will expire in the following years:
31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
2012 ––––– 2013 66666 2014 – 139 139 – 139 2015 – – 3,956 – 3,956 2016 ––––2,955
6 145 4,101 6 7,056
21. EARNINGS PER SHARE
No earning per share is presented as Guizhou CATIC Resources Company is not a company registered with share capital and the calculation of earnings per share is not relevant for Guizhou CATIC Resources Company.
– IIA-31 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
22. CASH GENERATED FROM OPERATIONS
Period from 1 December 2008 (date of incorporation) Year ended to 31 December 31 December Six months ended 30 June Note 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Loss before income tax (6) (139) (3,956) – (2,955) Adjustments for: – Interest income 20 – – (210) – (259) – Interest expenses 20 – – 729 – 2,405 – Depreciation of property, plant and equipment 6 ––118–221 – Amortisation of intangible assets 7 ––1–2
Changes in working capital: – Trade and other receivables – (9,000) (59,061) 8,653 (194,080) – Inventories – – (3,662) – (8,817) – Trade and other payables – (1) 9,132 (3) 55,204
Cash generated from/ (used in) operations (6) (9,140) (56,909) 8,650 (148,279)
23. COMMITMENTS
Operating lease commitments
The future aggregate minimum lease expense under non-cancellable operating leases in respect of land and buildings is payable as follows:
At At 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
No later than one year – – 591 1,381 Later than 1 year and no later than 5 years – – 500 3,288
– – 1,091 4,669
– IIA-32 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
24. RELATED PARTY TRANSACTIONS
Prior to September 2010, Guizhou CATIC Resources Company was wholly owned by Shenzhen AVIC Resources Company Ltd. (the “Shenzhen Resources Company”).
In September 2010, AVIC International Holding Corporation (the “AVIC International”) contributed additional capital of RMB90,000,000 into Guizhou CATIC Resources Company. AVIC International has since owned 90% of Guizhou CATIC Resources Company’s equity interest and became its parent company. The directors regard AVIC International and Aviation Industry Corporation of China as its holding company and ultimate holding company respectively.
(a) Transactions with related parties
The following transactions were carried out with related parties:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Transactions with Shenzhen Resources Company Loan to Shenzhen Resources Company (Note 11) – 9,000 – – –
Transactions with AVIC International Borrowing obtained from AVIC International ––––50,000
Interest expenses charged ––––33
Bank loan guaranteed by AVIC International (Note 15) ––––200,000
Deposits paid to AVIC International for its guarantee of bank loan (Note 11) ––––2,000
The loan to Shenzhen Resources Company of RMB9,000,000 was unsecured, interest free and repaid in 2010.
The borrowings from AVIC International of RMB50,000,000 were unsecured, carried an interest rate of 5.454% per annum, and repaid during the six months ended 30 June 2011.
Deposits paid to AVIC International for its guarantee of bank loan will be recoverable upon the repayment of bank loan.
– IIA-33 – APPENDIX IIA FINANCIAL INFORMATION OF THE TARGET GROUP
(b) Balance with related parties
The balances with related parties were as follows:
At At 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Other receivables due from related parties: – Shenzhen Resources Company (Note 11) – 9,000 – – – AVIC International (Note 11) – – – 2,000
– 9,000 – 2,000
Other payables due to related parties: – AVIC International (Note 16) –––33
(c) Key management compensation
Period from 1 December 2008 (date of incorporation) Year ended to 31 December 31 December Six months ended 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Salaries and other short-term employee benefits – – 694 – 1,117
(d) Transactions with government related entities
Guizhou CATIC Resources Company is a state-owned enterprise ultimately controlled by the PRC government. The PRC government controls a significant portion of the productive assets and entities in the PRC. The transactions between Guizhou CATIC Resources Company and other PRC government controlled entities are related party transactions. These transactions mainly include depositing cash in certain state-owned banks, obtaining borrowings from certain state-owned banks and sales to the state-owned companies. Nearly all of Guizhou CATIC Resources Company’s cash were deposited in state-owned banks and nearly all customers of Guizhou CATIC Resources Company are state-owned companies during the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2010 and 2011.
25. EVENTS AFTER THE END OF REPORTING PERIOD
No significant events occurred subsequent to 30 June 2011 and up to the date of this report.
III SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by Guizhou CATIC Resources Company in respect of any period subsequent to 30 June 2011 and up to the date of this report. No distribution has been made by Guizhou CATIC Resources Company in respect of any period subsequent to 30 June 2011 and up to the date of this report.
Yours faithfully,
PricewaterhouseCoopers Certified Public Accountants Hong Kong
– IIA-34 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
The following is the text of the report on Chengdu Ya Guang received from the Company’s reporting accountant, PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.
23 December 2011
The Directors CATIC Shenzhen Holdings Limited
Dear Sirs,
We report on the financial information of Chengdu Ya Guang Electronics Company Limited (the “Chengdu Ya Guang Company”) and its subsidiaries (together, “the Chengdu Ya Guang Group”) which comprises the consolidated and company balance sheets of Chengdu Ya Guang Company as at 31 December 2008, 2009 and 2010 and 30 June 2011, and the consolidated income statements, the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated cash flow statements of Chengdu Ya Guang Company for each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011 (the “Relevant Periods”), and a summary of significant accounting policies and other explanatory information. The financial information has been prepared by the directors of CATIC Shenzhen Holdings Limited (the “Company”) and is set out in Sections I to III below for inclusion in Appendix IIB to the circular of the Company dated 23 December 2011 (the “Circular”) in connection with the proposed acquisition of Chengdu Ya Guang Company by the Company.
Chengdu Ya Guang Company was incorporated in the People’s Republic of China (the “PRC”) in March 1993 as a company with limited liability under the Company Law of the PRC. Prior to that day, Chengdu Ya Guang Company was a state-owned enterprise which was established in 1965.
As at the date of this report, Chengdu Ya Guang Company has direct interests in the subsidiaries, a joint venture and associates as set out in Note 10, 11 and 12 of Section II below. All companies now comprising Chengdu Ya Guang Group have adopted 31 December as their financial year end date.
– IIB-1 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
The statutory financial statements of Chengdu Ya Guang Company for the year ended 31 December 2008 were audited by Shenzhen Pengcheng Certified Public Accountants Co., Ltd. (“深圳鵬城會計師事務所有限公司”) pursuant to separate terms of engagement with Chengdu Ya Guang Company. The statutory financial statements of Chengdu Ya Guang Company for each of the years ended 31 December 2009 and 2010 were audited by BDO China Li Xin Da Hua Certified Public Accountants Co., Ltd. (“立信大華會 計師事務所有限公司”) pursuant to separate terms of engagement with Chengdu Ya Guang Company.
The directors of Chengdu Ya Guang Company during the Relevant Periods are responsible for the preparation and fair presentation of the company and consolidated financial statements of Chengdu Ya Guang Company in accordance with the Accounting Standards for Business Enterprises of the PRC, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
For the purpose of this report, the directors of the Company have prepared the consolidated financial statements of Chengdu Ya Guang Group for the Relevant Periods (the “Underlying Financial Statements”) in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (the “IASB”). The Underlying Financial Statements were audited by PricewaterhouseCoopers Zhong Tian CPAs Limited Company (“普華永道中天會計師事務 所有限公司”) in accordance with International Standards on Auditing issued by the International Auditing and Assurance Standards Board (“IAASB”) pursuant to separate terms of engagement with the Company.
The directors of the Company are responsible for the preparation of the Underlying Financial Statements that gives a true and fair view in accordance with IFRSs.
The financial information has been prepared based on the Underlying Financial Statements, with no adjustment made thereon.
Directors’ Responsibility for the Financial Information
The directors of the Company are responsible for the preparation of the financial information that gives a true and fair view in accordance with IFRSs and accounting policies adopted by the Company and its subsidiaries (together, the “Group”) as set out in the audited annual consolidated financial statements of the Company for the year ended 31 December 2010 as set out in Appendix I to the Circular.
Reporting Accountant’s Responsibility
Our responsibility is to express an opinion on the financial information and to report our opinion to you. We carried out our procedures in accordance with the Auditing Guideline 3.340 "Prospectuses and the Reporting Accountant" issued by the Hong Kong Institute of Certified Public Accountants.
– IIB-2 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Opinion
In our opinion, the financial information gives, for the purpose of this report, a true and fair view of the state of affairs of Chengdu Ya Guang Company and of Chengdu Ya Guang Group as at 31 December 2008, 2009 and 2010 and 30 June 2011 and of the results and cash flows of Chengdu Ya Guang Group for each of the Relevant Periods then ended.
Review of stub period comparative financial information
We have reviewed the stub period comparative financial information set out in Section I to III below included in Appendix II to the Circular which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement of Chengdu Ya Guang Group for the six months ended 30 June 2010 and a summary of significant accounting policies and other explanatory information (the “Stub Period Comparative Financial Information”).
The directors of the Company are responsible for the preparation and presentation of the Stub Period Comparative Financial Information in accordance with the accounting policies set out in Note 2 and Note 3 of Section II below and accounting policies presently adopted by the Group as set out in the audited annual consolidated financial statements of the Company for the year ended 31 December 2010 as set out in Appendix I to the Circular.
Our responsibility is to express a conclusion on the Stub Period Comparative Financial Information based on our review. We conducted our review in accordance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the IAASB. A review of the Stub Period Comparative Financial Information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the Stub Period Comparative Financial Information, for the purpose of this report, has not been prepared, in all material respects, in accordance with the accounting policies set out in Note 2 and Note 3 of Section II below.
– IIB-3 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
I FINANCIAL INFORMATION OF CHENGDU YA GUANG GROUP
The following is the financial information of Chengdu Ya Guang Group prepared by the directors of the Company as at 31 December 2008, 2009 and 2010 and 30 June 2011 and for each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011 and 2010 (the “Financial Information”).
(A) CONSOLIDATED BALANCE SHEETS
As at As at 31 December 30 June Note 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Assets Non-current assets Land use rights 7 31,783 30,969 30,164 29,762 Goodwill 36 14,101 14,101 14,101 14,101 Property, plant and equipment 8 116,645 243,196 323,401 308,866 Construction in progress 9 160,409 107,505 39,797 41,576 Investment in a joint venture 11 17,598 19,214 22,002 20,262 Investments in associates 12 16,308 20,593 55,309 70,716 Available-for-sale financial assets 13 600 – – 3,254 Deferred income tax assets 25 31,655 24,433 26,707 22,861 Other non-current assets 14 65,740 33,657 32,235 39,315
454,839 493,668 543,716 550,713
Current assets Inventories 15 219,970 417,741 1,022,293 846,525 Trade and other receivables 16 524,639 594,731 899,981 1,334,417 Pledged bank deposits 17 86,653 396,736 1,035,269 2,410,611 Cash and cash equivalents 18 310,983 226,615 177,708 184,652
1,142,245 1,635,823 3,135,251 4,776,205
Total assets 1,597,084 2,129,491 3,678,967 5,326,918
Equity and liabilities Equity attributable to owners of the parent Paid-in capital 19 68,651 68,651 68,651 68,651 Other reserves 20 81,030 88,467 96,177 96,064 Retained earnings 635,566 680,495 708,698 715,468
785,247 837,613 873,526 880,183
Non-controlling interests 61,896 82,442 78,620 93,675
Total equity 847,143 920,055 952,146 973,858
– IIB-4 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
As at As at 31 December 30 June Note 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Liabilities Non-current liabilities Early retirement benefit obligations 22 (b) 9,308 8,578 8,112 7,879 Other non-current liabilities 23 146,303 144,949 142,434 143,391
155,611 153,527 150,546 151,270
Current liabilities Borrowings 21 30,000 328,496 1,151,063 2,607,456 Trade and other payables 24 531,330 690,711 1,407,919 1,587,036 Current income tax liabilities 31,208 35,972 16,827 6,832 Early retirement benefit obligations 22 (b) 1,792 730 466 466
594,330 1,055,909 2,576,275 4,201,790
Total liabilities 749,941 1,209,436 2,726,821 4,353,060
Total equity and liabilities 1,597,084 2,129,491 3,678,967 5,326,918
Net current assets 547,915 579,914 558,976 574,415
Total assets less current liabilities 1,002,754 1,073,582 1,102,692 1,125,128
– IIB-5 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
(B) BALANCE SHEETS OF CHENGDU YA GUANG COMPANY
As at As at 31 December 30 June Note 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Assets Non-current assets Land use rights 7 27,825 27,101 26,376 26,014 Property, plant and equipment 8 109,660 234,685 232,940 220,655 Construction in progress 9 76,462 21,565 39,598 41,501 Investments in subsidiaries 10 114,570 155,300 155,305 154,543 Investment in a joint venture 11 16,290 16,290 16,290 16,290 Investments in associates 12 925 – 5,590 5,590 Available-for-sale financial assets 13 600 – – 3,254 Deferred income tax assets 25 20,576 21,274 20,810 18,683 Other non-current assets 14 65,740 33,657 32,235 39,315
432,648 509,872 529,144 525,845 Current assets Inventories 15 68,794 92,904 111,260 131,784 Trade and other receivables 16 375,914 412,353 452,409 506,659 Pledged bank deposits 17 5,196 9,760 5,196 2,598 Cash and cash equivalents 18 287,938 174,576 147,855 76,396
737,842 689,593 716,720 717,437
Total assets 1,170,490 1,199,465 1,245,864 1,243,282
Equity and liabilities Equity attributable to owners of the parent Paid-in capital 19 68,651 68,651 68,651 68,651 Other reserves 20 78,026 84,660 92,950 92,950 Retained earnings 20 636,675 660,148 691,066 681,277
Total equity 783,352 813,459 852,667 842,878
– IIB-6 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
As at As at 31 December 30 June Note 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Liabilities Non-current liabilities Retirement and other supplemental benefit obligations 22 (b) 9,308 8,578 8,112 7,879 Other non-current liability 23 146,303 144,949 142,434 143,391
155,611 153,527 150,546 151,270
Current liabilities Borrowings 21 30,000 40,000 – 30,000 Trade and other payables 24 169,303 160,420 233,381 219,141 Current income tax liabilities/(prepaid) 30,432 31,329 8,804 (473) Retirement and other supplemental benefit obligations 22 (b) 1,792 730 466 466
231,527 232,479 242,651 249,134
Total liabilities 387,138 386,006 393,197 400,404
Total equity and liabilities 1,170,490 1,199,465 1,245,864 1,243,282
Net current assets 506,315 457,114 474,069 468,303
Total assets less current liabilities 938,963 966,986 1,003,213 994,148
– IIB-7 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
(C) CONSOLIDATED INCOME STATEMENTS
Six months ended Year ended 31 December 30 June Note 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Revenue 6 1,144,245 2,101,279 3,998,504 1,690,806 3,743,449 Cost of sales 29 (1,004,909) (1,868,742) (3,825,040) (1,610,699) (3,656,765)
Gross profit 139,336 232,537 173,464 80,107 86,684 Distribution costs 29 (29,615) (36,306) (41,997) (16,774) (24,426) Administrative expenses 29 (61,507) (81,943) (69,034) (52,318) (35,831) Other income 26 23,527 22,597 19,314 6,947 3,000 Other gains – net 27 3,724 3,257 451 396 –
Operating profit 75,465 140,142 82,198 18,358 29,427 Finance income 30 5,081 6,847 51,979 3,879 74,025 Finance costs 30 (13,981) (9,031) (29,131) (7,180) (25,471)
Finance income/(costs) – net (8,900) (2,184) 22,848 (3,301) 48,554
Share of profits of a joint venture 11 821 1,616 2,788 1,505 2,255 Share of profits/(losses) of associates 12 (16) 10 309 (198) 407
Profit before income tax 67,370 139,584 108,143 16,364 80,643
Income tax expense 31 (8,601) (28,909) (21,502) (2,001) (17,627)
Profit for the year/period 58,769 110,675 86,641 14,363 63,016
– IIB-8 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Six months ended Year ended 31 December 30 June Note 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Profit attributable to Equity holders of Chengdu Ya Guang Company 57,728 85,888 77,684 19,826 47,961 Non-controlling interests 1,041 24,787 8,957 (5,463) 15,055
58,769 110,675 86,641 14,363 63,016
Earnings per share attributable to equity holders of Chengdu Ya Guang Company (expressed in RMB per share) – Basic and diluted 32 0.84 1.25 1.13 0.29 0.70
Distributions 33 34,325 34,325 41,191 41,191 41,191
– IIB-9 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
(D) CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Six months ended Year ended 31 December 30 June Note 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Profit for the year/period 58,769 110,675 86,641 14,363 63,016
Other comprehensive loss for the year/period, net of tax: Current translation differences – – (46) – (113)
Total comprehensive income for the year/period, net of tax 58,769 110,675 86,595 14,363 62,903
Total comprehensive income attributable to: Equity holders of Chengdu Ya Guang Company 57,728 85,888 77,638 19,826 47,848 Non-controlling interests 1,041 24,787 8,957 (5,463) 15,055
Total comprehensive income for the year/period 58,769 110,675 86,595 14,363 62,903
– IIB-10 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
(E) CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Equity holders of Chengdu Ya Guang Company Non- Share Other Retained controlling Total Note capital reserves earnings Sub-total interests equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2008 68,651 38,862 618,071 725,584 16,155 741,739
Comprehensive income: Profit for the year – – 57,728 57,728 1,041 58,769
Transactions with owners: Capital contributed by non-controlling interests 20 (d) ––––44,700 44,700 Distributions 33 – – (34,325) (34,325) – (34,325) Capital injection 20 – 36,260 – 36,260 – 36,260 Transfer to other reserves – 5,908 (5,908) – – –
Total transactions with owners – 42,168 (40,233) 1,935 44,700 46,635
At 31 December 2008 68,651 81,030 635,566 785,247 61,896 847,143
Comprehensive income: Profit for the year – – 85,888 85,888 24,787 110,675
Transactions with owners Capital contributed by non-controlling interests 20 (c) ––––6,470 6,470 Disposal of subsidiary 34 ––––(573) (573) Purchase of non-controlling interests 20 (c) – 803 – 803 (1,003) (200) Distributions 33 – – (34,325) (34,325) (9,135) (43,460) Transfer to other reserves – 6,634 (6,634) – – –
Total transactions with owners – 7,437 (40,959) (33,522) (4,241) (37,763)
At 31 December 2009 68,651 88,467 680,495 837,613 82,442 920,055
– IIB-11 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Equity holders of Chengdu Ya Guang Company Non- Share Other Retained controlling Total Note capital reserves earnings Sub-total interests equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As at 1 January 2010 68,651 88,467 680,495 837,613 82,442 920,055
Comprehensive income: Profit for the year – – 77,684 77,684 8,957 86,641 Currency translation differences – (46) – (46) – (46)
Total comprehensive income – (46) 77,684 77,638 8,957 86,595
Transactions with owners: Capital contributed by non-controlling interests 20 (d) ––––44 Purchase of non-controlling interests 20 (c) – (534) – (534) 134 (400) Distributions 33 – – (41,191) (41,191) (12,917) (54,108) Transfer to other reserves – 8,290 (8,290) – – –
Total transactions with owners – 7,756 (49,481) (41,725) (12,779) (54,504)
As at 31 December 2010 68,651 96,177 708,698 873,526 78,620 952,146
Comprehensive income: Profit for the period – – 47,961 47,961 15,055 63,016 Currency translation differences – (113) – (113) – (113)
Total comprehensive income – (113) 47,961 47,848 15,055 62,903
Transactions with owners: Distributions 33 – – (41,191) (41,191) – (41,191)
As at 30 June 2011 68,651 96,064 715,468 880,183 93,675 973,858
– IIB-12 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Unaudited Equity holders of Chengdu Ya Guang Company Non- Paid-in Other Retained controlling Total Note capital reserves earnings Sub-total interests equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
(Unaudited) At 1 January 2010 68,651 88,467 680,495 837,613 82,442 920,055
Comprehensive income: Profit/(loss) for the period – – 19,826 19,826 (5,463) 14,363
Transactions with owners: Distributions 33 – – (41,191) (41,191) – (41,191)
At 30 June 2010 68,651 88,467 659,130 816,248 76,979 893,227
– IIB-13 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
(F) CONSOLIDATED CASH FLOW STATEMENTS
Six months ended Year ended 31 December 30 June Note 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Cash flows from operating activities Cash generated from/(used in) operations 34 72,514 5,873 17,184 164 266 Interest paid (12,529) (10,686) (31,321) (7,048) (33,537) Income tax paid (21,564) (16,924) (42,650) (23,019) (23,775)
Net cash generated from/(used in) operating activities 38,421 (21,737) (56,787) (29,903) (57,046)
Cash flows from investing activities Addition to land of use rights 7 (4,037) –––– Acquisition of a subsidiary, net of cash acquired 36 2,747 –––– Net cash received from disposal of subsidiaries 34 – 6,660 – – – Dividends received ––––3,995 Purchases of property, plant and equipment 8 (10,196) (7,861) (9,204) (5,709) (2,664) Additions to construction-in-progress (49,172) (45,096) (34,325) (18,743) (8,858) Proceeds from disposal of property, plant and equipment 34 77 254 2,186 1,398 740 Government subsidy received 24,215 1,625 2,986 131 2,282 Interest received 5,081 5,903 18,176 1,080 20,143 Proceeds from disposal of associates 12 – 3,030 20,925 20,925 – Proceeds from disposal of available-for-sale financial assets – 600 – – – Additions to available-for-sale financial assets 13 ––––(3,254) Additions to associates (15,400) (18,200) (55,000) (5,000) (15,000) Increase /(decrease) of deposit for bank borrowing – (179,252) (706,327) 7,085 (1,284,347)
Net cash used in investing activities (46,685) (232,337) (760,583) 1,167 (1,286,963)
– IIB-14 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Six months ended Year ended 31 December 30 June Note 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Cash flows from financing activities Increase of borrowings 35,000 428,396 1,222,863 61,800 2,260,377 Decrease of borrowings (50,000) (129,900) (400,296) (111,635) (803,983) Dividends paid to equity holders (34,325) (34,325) (41,191) (41,191) (41,191) Dividends paid to non-controlling interests – (9,135) (12,917) – – Other borrowings – (91,800) – – (64,250) Contributions from non-controlling interests 20 44,700 6,470 4 – –
Net cash (used in)/generated from financing activities (4,625) 169,706 768,463 (91,026) 1,350,953
Net increase/(decrease) in cash and cash equivalents (12,889) (84,368) (48,907) (119,762) 6,944 Cash and cash equivalents at beginning of year/period 323,872 310,983 226,615 226,615 177,708
Cash and cash equivalents at end of year/period 18 310,983 226,615 177,708 106,853 184,652
– IIB-15 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
II NOTES TO THE FINANCIAL INFORMATION
1. GENERAL INFORMATION
Chengdu Ya Guang Electronics Co., Ltd. (the “Chengdu Ya Guang Company”) and its subsidiaries (together, the “Chengdu Ya Guang Group”) are principally engaged in manufacturing and sale of semiconductor devices and trading of chemical materials.
Chengdu Ya Guang Company a limited liability company incorporated in the People’s Republic of China (the “PRC”). The address of its registered office is No. 66 of Donghong Road, Chenghua District, Chengdu, Sichuan Province.
The financial information of Chengdu Ya Guang Group (the “Financial Information”) is presented in RMB, unless otherwise stated.
2. BASIS OF PREPARATION
The Financial Information has been prepared in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (the “IASB”). The Financial Information has been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets.
The preparation of the Financial Statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying Chengdu Ya Guang’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial information are disclosed in Note 5.
Changes in accounting policy and disclosures:
The following new standards and amendments to standards have been issued and are mandatory for the Chengdu Ya Guang Group’s accounting periods beginning on or after 1 January 2012 or later periods, and the Chengdu Ya Guang Group has not early adopted them:
• IFRS 9 ‘Financial instruments’ addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not applicable until 1 January 2013 but is available for early adoption. This new standard is not expected to have a material impact on Chengdu Ya Guang Group’s financial statements.
• IFRS 10, ‘Consolidated financial statements’ builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. Chengdu Ya Guang Group is yet to assess IFRS 10’s full impact and intends to adopt IFRS 10 no later than the accounting period beginning on or after 1 January 2013.
• IFRS 11, “Joint Arrangements” and the consequential amendment to IAS 28, “Investments in Associates” (effective for annual periods beginning on or after 1 January 2013). IFRS 11 refines that joint arrangements are limited to joint operations and joint ventures only. The existing policy choice of proportionate consolidation for jointly controlled entities has been eliminated. Equity accounting is mandatory for participants in joint ventures. Entities that participate in joint operations will follow accounting much like that for joint assets or joint operations today. The existing IAS 28 was extended as “Investments in Associates and Joint Ventures” as a result of the compulsory requirement for equity accounting for all investments in joint ventures under IFRS 11. The new standard is not expected to have a significant impact to Chengdu Ya Guang Group.
– IIB-16 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
• IFRS 12, ‘Disclosures of interests in other entities’ includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. Chengdu Ya Guang Group is yet to assess IFRS 12’s full impact and intends to adopt IFRS 12 no later than the accounting period beginning on or after 1 January 2013.
• IFRS 13, ‘Fair value measurement’, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. Chengdu Ya Guang Group is yet to assess IFRS13’s full impact and intends to adopt IFRS 13 no later than the accounting period beginning on or after 1 January 2012.
• IAS 12 (Amendment) ‘Deferred tax: Recovery of underlying assets’ introduces an exception to the principle for the measurement of deferred tax assets or liabilities arising on an investment property measured at fair value. IAS 12 requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. The amendment introduces a rebuttable presumption that an investment property measured at fair value is recovered entirely by sale. The amendment is applicable retrospectively to annual periods beginning on or after 1 January 2012 with early adoption permitted. This new amendment is not expected to have a material impact on Chengdu Ya Guang Group’s financial statements.
• IFRS 7 (Amendment) ‘Disclosures – Transfers of financial assets’ introduces new disclosure requirement on transfers of financial assets. Disclosure is required by class of asset of the nature, carrying amount and a description of the risks and rewards of financial assets that have been transferred to another party yet remain on the entity’s balance sheet. The gain or loss on the transferred assets and any retained interest in those assets must be given. In addition, other disclosures must enable users to understand the amount of any associated liabilities, and the relationship between the financial assets and associated liabilities. The disclosures must be presented by type of ongoing involvement. The amendment is applicable to annual periods beginning on or after 1 July 2011 with early adoption permitted. This new amendment is not expected to have a material impact on Chengdu Ya Guang Group’s financial statements.
• IAS 19 (Amendment), “Employee Benefits” (effective for annual period beginning on or after 1 January 2013). The issuance of the standard completes improvements to the accounting requirements for pensions and other post-employment benefits and the following important improvements have been made:
Eliminating an option to defer the recognition of gains and losses, known as the ‘corridor method’, improving comparability and faithfulness of presentation, streamlining the presentation of changes in assets and liabilities arising from defined benefit plans, including requiring remeasurements to be presented in other comprehensive income, thereby separating those changes from changes that many perceive to be the result of an entity’s day-to-day operations.
Enhancing the disclosure requirements for defined benefit plans, providing better information about the characteristics of defined benefit plans and the risks that entities are exposed to through participation in those plans. The new standard is not expected to have a significant impact to Chengdu Ya Guang Group.
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on Chengdu Ya Guang Group.
– IIB-17 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1 Consolidation
(a) Subsidiaries
Subsidiaries are all entities (including special purpose entities) over which Chengdu Ya Guang Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether Chengdu Ya Guang Group controls another entity. Chengdu Ya Guang Group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. De-facto control may arise in circumstances where the size of Chengdu Ya Guang Group’s voting rights relative to the size and dispersion of holdings of other shareholders give Chengdu Ya Guang Group the power to govern the financial and operating policies, etc.
Subsidiaries are fully consolidated from the date on which control is transferred to Chengdu Ya Guang Group. They are deconsolidated from the date that control ceases.
Chengdu Ya Guang Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by Chengdu Ya Guang Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Chengdu Ya Guang Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets.
Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.
Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes direct attributable costs of investment. The results of subsidiaries are accounted for by Chengdu Ya Guang Company on the basis of dividend and receivable.
Any contingent consideration to be transferred by Chengdu Ya Guang Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.
– IIB-18 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Inter-company transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from inter-company transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by Chengdu Ya Guang Group.
(b) Change in ownership interests in subsidiaries without change of control
Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
(c) Disposal of subsidiaries
When Chengdu Ya Guang Group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if Chengdu Ya Guang Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
(d) Associates and joint venture
Associates are all entities over which Chengdu Ya Guang Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights.
Joint ventures exist where Chengdu Ya Guang Group has a contractual arrangement with one or more parties to undertake economic activities which are subject to joint control.
Investments in associates and joint venture are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisition. Chengdu Ya Guang Group’s investment in associates and joint ventures includes goodwill identified on acquisition, net of any accumulated impairment loss.
If the ownership interest in an associate and joint venture is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.
Chengdu Ya Guang Group’s share of post-acquisition profit or loss is recognised in the income statement, and its share of post acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When Chengdu Ya Guang Group’s share of losses in an associate and joint venture equals or exceeds its interest in the associate and joint venture, including any other unsecured receivables, Chengdu Ya Guang Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate and joint venture.
– IIB-19 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Chengdu Ya Guang Group determines at each reporting date whether there is any objective evidence that the investment in the associate and joint venture is impaired. If this is the case, Chengdu Ya Guang Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount adjacent to ’share of profit/(loss) of an associate’ in the income statement.
Profits and losses resulting from upstream and downstream transactions between Chengdu Ya Guang Group and its associates and joint venture are recognised in Chengdu Ya Guang Group’s financial statements only to the extent of unrelated investor’s interests in the associates. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by Chengdu Ya Guang Group.
Dilution gains and losses arising in investments in associates and a joint venture are recognised in the income statement.
In Chengdu Ya Guang Company’s balance sheet, the investments in associates and a joint venture are stated at cost less provision for impairment losses (Note 11 and Note 12). The results of associates and joint venture are accounted for by Chengdu Ya Guang Company on the basis of dividend received and receivable.
3.2 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the management that makes strategic decisions.
3.3 Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of Chengdu Ya Guang Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The Financial Information are presented in Renminbi (“RMB”), which is Chengdu Ya Guang Company’s functional and Chengdu Ya Guang Group’s presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within “finance income or cost”. All other foreign exchange gains and losses are presented in profit or loss within “other gains – net”.
Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available for sale, are included in other comprehensive income.
– IIB-20 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
(c) Chengdu Ya Guang Group companies
The results and financial position of all Chengdu Ya Guang Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
(a) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(b) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and
(c) all resulting exchange differences are recognised in other comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
3.4 Land use rights
Land use rights are up-front payments to acquire long-term interests in land. These payments are stated at cost and amortised over the remaining period of the leases on a straight-line basis.
3.5 Property, plant and equipment
Buildings comprise mainly factories and offices. Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
The cost of self-constructed items of property, plant and equipment includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of overhead and borrowing costs.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to Chengdu Ya Guang Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
Depreciation on property, plant and equipment is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:
Buildings 20 years Machinery and equipment 5-10 years Motor vehicles 5 years Electronic and other equipment 5 years
– IIB-21 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Construction in progress represents buildings or leasehold improvements on which construction work has not been completed and property, plant and equipment pending installation. It is carried at cost which includes construction expenditures and other direct costs less any impairment losses. On completion, construction in progress is transferred to the appropriate categories of property, plant and equipment at cost less accumulated impairment losses. No depreciation is provided for construction in progress until they are completed and available for use.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised as ’Other gains – net’ in the income statement.
3.6 Intangible assets
Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over Chengdu Ya Guang Group’s interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling interest in the acquiree.
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash generating units (“CGUs”), or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.
Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised immediately as an expense and is not subsequently reversed.
3.7 Impairment of investments in subsidiaries, associates and non-financial assets
Assets that have an indefinite useful life − for example, goodwill or intangible assets not ready to use − are not subject to amortisation and are tested annually for impairment. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
– IIB-22 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
3.8 Financial assets
3.8.1 Classification
Chengdu Ya Guang Group classifies its financial assets in the following categories: loans and receivables and available-for-sale financial assets. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
(a) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. Chengdu Ya Guang Group’s loans and receivables comprise “trade and other receivables”, “restricted cash” and “cash and cash equivalents” in the balance sheet (Notes 3.12 and 3.13).
(b) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the reporting period.
3.8.2 Recognition and measurement
Regular way purchases and sales of financial assets are recognised on the trade-date – the date on which Chengdu Ya Guang Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and Chengdu Ya Guang Group has transferred substantially all risks and rewards of ownership. Loans and receivables are subsequently carried at amortised cost using the effective interest method.
Changes in the fair value of monetary and non-monetary securities classified as available for sale are recognised in other comprehensive income.
When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as ’Other gains and losses’.
Interest on available-for-sale securities calculated using the effective interest method is recognised in the income statement as part of other income. Dividends on available-for-sale equity instruments are recognised in the income statement as part of other income when the group’s right to receive payments is established.
3.9 Offsetting financial instruments
Financial instruments are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amount and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
– IIB-23 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
3.10 Impairment of financial assets
(a) Assets carried at amortised cost
Chengdu Ya Guang Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ’loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
The criteria that Chengdu Ya Guang Group uses to determine that there is objective evidence of an impairment loss include:
• Significant financial difficulty of the issuer or obligor;
• A breach of contract, such as a default or delinquency in interest or principal payments;
• Chengdu Ya Guang Group, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;
• It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;
• The disappearance of an active market for that financial asset because of financial difficulties; or
• Observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including:
(i) adverse changes in the payment status of borrowers in the portfolio;
(ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.
Chengdu Ya Guang Group first assesses whether objective evidence of impairment exists.
For loans and receivables category, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The asset’s carrying amount is reduced and the amount of the loss is recognised in profit or loss. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, Chengdu Ya Guang Group may measure impairment on the basis of an instrument’s fair value using an observable market price.
– IIB-24 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated income statement.
(b) Assets classified as available for sale
Chengdu Ya Guang Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. For debt securities, Chengdu Ya Guang Group uses the criteria referred to in (a) above. In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair is recognized in profit or loss. Impairment losses recognised in the consolidated income statement on equity instruments are not reversed through the consolidated income statement. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the consolidated income statement.
3.11 Inventories
Inventories comprise raw materials, work in progress and finished goods manufactured by Chengdu Ya Guang Group and finished goods purchased from third parties. Inventories are stated at the lower of cost and net realisable value. Cost is determined using weighted average method. The cost of finished goods and work in progress manufactured by Chengdu Ya Guang Group comprise design costs, raw materials, direct labour, other direct costs and related production overhead (based on normal operating capacity). It excludes borrowing costs. The costs of finished goods purchased from third parties represent invoiced value on purchase, transportation fee and other direct costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
3.12 Trade and other receivables
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.
3.13 Cash and cash equivalents
In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand and deposits held at call with banks.
3.14 Pledged bank deposits
Pledged bank deposits mainly represent guarantee deposits for issuance of letters of credit, bank borrowings and other facilities.
– IIB-25 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
3.15 Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.
Where any group company purchases Chengdu Ya Guang Company’s equity share capital, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to Chengdu Ya Guang Company’s equity holders until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to Chengdu Ya Guang Company’s equity holders.
3.16 Government subsidy
Subsidies from the government are recognised at their fair value where there is a reasonable assurance that the subsidy will be received and Chengdu Ya Guang Group will comply with all attached conditions.
Government subsidies relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate.
Government subsidy relating to property, plant and equipment are included in non-current liabilities as deferred government subsidy and are credited to the income statement on a straight-line basis over the expected lives of the related assets.
3.17 Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
3.18 Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
– IIB-26 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
3.19 Borrowing costs
General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
3.20 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where Chengdu Ya Guang Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates, and joint venture except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by Chengdu Ya Guang Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
– IIB-27 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
3.21 Employee benefits
(a) Pension obligations and other supplementary benefit obligations
The full-time employees of Chengdu Ya Guang Group in the PRC are covered by various government sponsored pension plans under which the employees are entitled to a monthly pension based on certain formulas. The relevant government agencies are responsible for the pension liability to these retired employees. Chengdu Ya Guang Group contributes on a monthly basis to these pension plans. Under these plans, Chengdu Ya Guang Group has no obligation for post-retirement benefits beyond the contributions made. Contributions to these plans are expensed as incurred.
Chengdu Ya Guang Group also provided supplementary pension subsidies to certain retired employees in the PRC. Such supplementary pension subsidies are considered to be defined benefit plans as the Guangzhou Group is obligated to provide post-employment benefits to these employees. The liability recognised in the consolidated balance sheets in respect of these defined benefit plans is the present value of the defined benefit obligation at the balance sheet date, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by independent qualified actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government securities which have maturity approximating to the terms of the related pension liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of 10% of the defined benefit obligation are charged or credited to profit or loss immediately. Past-service costs are recognised immediately in the consolidated income statements.
(b) Termination benefits and early retirement benefits
Termination and early retirement benefits are payable when employment is terminated by Chengdu Ya Guang Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. Chengdu Ya Guang Group recognises termination and early retirement benefits when it is demonstrably committed to either: (i) terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or (ii) providing termination benefits as a result of an offer made to encourage voluntary redundancy. The specific terms vary among the terminated and early retired employees depending on various factors including position, length of service and district of the employee concerned. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value.
3.22 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of Chengdu Ya Guang Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Chengdu Ya Guang Group.
– IIB-28 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Chengdu Ya Guang Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of Chengdu Ya Guang Group’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. Chengdu Ya Guang Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
(a) Sales of goods
Sales of goods are recognized when Chengdu Ya Guang Group has delivered products to the customer, the customer has accepted the products and collectability of the related receivable is reasonable assured.
(b) Rendering of services
For sale of services, revenue is recognized in the accounting period in which the services are rendered, by reference of completion of the actual services provided as a proportion of the total services to be provided.
(c) Interest income
Interest income is recognised using the effective interest method. When a loan and receivable is impaired, Chengdu Ya Guang Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loan and receivables are recognised using the original effective interest rate.
(d) Dividend income
Dividend income is recognised when the right to receive payment is established.
3.23 Research and development
Research expenditure is recognised as an expense as incurred. Cost incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and its cost can be measured reliably. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight-line basis over its useful life, not exceeding five years.
– IIB-29 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
3.24 Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
(a) Chengdu Ya Guang Group is the lessee
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to income statement on a straight-line basis over the period of the lease.
(b) Chengdu Ya Guang Group is the lessor
Rental income from operating leases is recognised in income statement on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term. Contingent rental income is recognised in the period in which they are earned.
3.25 Distribution
Dividend distribution to Chengdu Ya Guang Company’s shareholders is recognised as a liability in Chengdu Ya Guang Group’s and Chengdu Ya Guang Company’s financial statements in the period in which the dividends are approved by the shareholders of Chengdu Ya Guang Company.
4. FINANCIAL RISK MANAGEMENT
4.1 Financial risk factors
Chengdu Ya Guang Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. Chengdu Ya Guang Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on Chengdu Ya Guang Group’s financial performance.
(a) Market risk
(i) Foreign exchange risk
Chengdu Ya Guang Group operates principally in the PRC and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US Dollar (“USD”). Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities. Chengdu Ya Guang Group manages its foreign exchange risk by performing regular reviews of the Chengdu Ya Guang Group’s net foreign exchange exposures and it has not hedged its foreign exchange risk.
In addition, the conversion of RMB into foreign currencies is subject to the rules and regulations of the foreign exchange controls promulgated by the PRC Government.
– IIB-30 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
The carrying amount of Chengdu Ya Guang Group’s foreign currency denominated monetary assets and monetary liabilities at the respective balance sheet dates are as follows:
Chengdu Ya Guang Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Assets Cash and cash equivalents: – USD – – 254 3,461 Pledged bank deposits – USD – – 464 1,471 Trade and other receivable: – USD – – 34,369 48,770
– – 35,087 53,702
Liabilities Borrowings – USD – 214,896 1,091,063 2,520,852 Trade and other payable – USD – 244,045 673,443 655,208
– 458,941 1,764,506 3,176,060
The increase of foreign currency liabilities is due to the increase of foreign currency borrowings to finance the trading of chemical products.
The following table shows the sensitivity analysis of a 5% increase in RMB against USD. The sensitivity analysis includes only foreign currency denominated monetary items and adjusts their translation at the year/period end for a 5% change in foreign currency rates. If there is a 5% increase in RMB against the USD, the effects in the result are as follows:
Chengdu Ya Guang Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
USD Increase in the profit for the year/period – 17,210 64,853 117,088
Chengdu Ya Guang Company has no foreign currency denominated monetary assets and monetary liabilities at the respective balance sheet dates.
– IIB-31 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
(ii) Price risk
Chengdu Ya Guang Group is not significantly exposed to price risk as Chengdu Ya Guang Group has no significant financial instruments that subject to change of commodity prices or equity price.
(iii) Cash flow and fair value interest rate risk
Chengdu Ya Guang Group’s interest-rate arises from borrowings. Borrowings issued at variable rates expose the Group to cash flow interest-rate risk. Borrowings issued at fixed rates expose the Group to fair value interest-rate risk. Chengdu Ya Guang Group currently has not used any interest rate swap arrangements but will consider hedging interest rate risk should the need arise. Chengdu Ya Guang Group’s income and operating cash flows are substantially independent of changes in market interest rates. As at 31 December 2008, 2009 and 2010 and 20 June 2011, management does not anticipate significant impact resulted from the changes in interest rates.
(b) Credit risk
The credit risk of Chengdu Ya Guang Group mainly arises from cash and cash equivalents, pledged bank deposits, and trade and other receivables (except for prepayments to suppliers and staff advances). The carrying amounts of these balances represent Chengdu Ya Guang Group’s maximum exposure to credit risk in relation to financial assets.
Substantially all of Chengdu Ya Guang Group’s cash and cash equivalents are held in state-owned financial institutions located in the PRC, which management believes are of high credit quality. None of cash at bank, bank deposits and restricted cash of Chengdu Ya Guang Group that were fully performing has been renegotiated during the Relevant Periods.
Chengdu Ya Guang Group has policies in place to ensure that products are sold to customers with good credit history and Chengdu Ya Guang Group performs periodic credit evaluations of its customers. Normally Chengdu Ya Guang Group does not require collaterals from trade debtors. The balance due from following customers accounted for more than 5% of Chengdu Ya Guang Group’s total balance of trade receivables for each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011. The top three customers of Chengdu Ya Guang Group accounted for 37%, 35%, 43% and 51% of total balance of trade receivables for the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011.
Six months Year ended 31 December ended 2008 2009 2010 2011 RMB’000 % RMB’000 % RMB’000 % RMB’000 %
Trade receivables: Customer A – 0% 8,125 2% 144,280 21% 269,654 29% Customer B 10 0% 3,930 1% 31,133 5% 107,174 11% Customer C 82,683 23% 92,677 22% 115,312 17% 104,653 11% Customer D 13,205 4% 23,712 6% 28,955 4% 31,796 3% Customer E 30,665 9% 29,784 7% 17,496 3% 4,403 0% Customer F 18,752 5% 7,995 2% 7,500 1% – 0% Customer G 8,774 2% 24,771 6% – 0% – 0%
Total 154,089 43% 190,994 46% 344,676 51% 517,680 54%
– IIB-32 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
(c) Liquidity risk
The board of directors of Chengdu Ya Guang Group manages the liquidity risk by maintaining sufficient cash to meet the normal operating commitments and sourcing adequate funding through banking credit facilities, including short-term and long-term bank loans.
The table below analyses Chengdu Ya Guang Group and Chengdu Ya Guang Company’s non-derivative financial liabilities into relevant maturity grouping based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant.
Chengdu Ya Guang Group
Less than 1 year RMB’000
As at 31 December 2008 Borrowings (principal amount plus interest) 32,041 Trade and other payables (excluding other taxes payable, advance from customers and payroll payable) 460,540
492,581
As at 31 December 2009 Borrowings (principal amount plus interest) 328,543 Trade and other payables (excluding other taxes payable, advance from customers and payroll payable) 634,915
963,458
As at 31 December 2010 Borrowings (principal amount plus interest) 1,157,302 Trade and other payables (excluding other taxes payable, advance from customers and payroll payable) 1,244,496
2,401,798
As at 30 June 2011 Borrowings (principal amount plus interest) 2,618,320 Trade and other payables (excluding other taxes payable, advance from customers and payroll payable) 1,459,343
4,077,663
– IIB-33 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Chengdu Ya Guang Company
Less than 1 year RMB’000
As at 31 December 2008 Borrowings (principal amount plus interest) 32,401 Trade and other payables (excluding other taxes payable, advance from customers and payroll payable) 129,060
161,461
As at 31 December 2009 Borrowings (principal amount plus interest) 40,047 Trade and other payables (excluding other taxes payable, advance from customers and payroll payable) 118,294
158,341
As at 31 December 2010 Trade and other payables (excluding other taxes payable, advance from customers and payroll payable) 153,737
As at 30 June 2011 Borrowings (principal amount plus interest) 30,000 Trade and other payables (excluding other taxes payable, advance from customers and payroll payable) 178,972
208,972
4.2 Capital risk management
Chengdu Ya Guang Group’s objectives when managing capital are to safeguard Chengdu Ya Guang Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, Chengdu Ya Guang Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
Consistent with others in the industry, Chengdu Ya Guang Group monitors capital on the basis of gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including current and non-current borrowings’ as shown in the consolidated balance sheet) less pledged bank deposits and cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the consolidated balance sheets plus net debt.
– IIB-34 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
During the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011, Chengdu Ya Guang Group’s strategy was to maintain the gearing ratio within 50%. The table below analyses Chengdu Ya Guang Group’s capital structure at 31 December 2008, 2009 and 2010 and 30 June 2011:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Total borrowings 30,000 328,496 1,151,063 2,607,456 Less: Pledged bank deposits – (222,260) (885,579) (2,178,346) Cash and cash equivalents (310,983) (226,615) (177,708) (184,652)
Net debt (280,983) (120,379) 87,776 244,458
Total equity 847,143 920,055 952,146 973,858
Total capital 566,160 799,676 1,039,922 1,218,316
Gearing ratio NA NA 8% 20%
Due to the expansion of chemical materials trading business, the bank borrowings of chemical materials trading segment increased significantly during the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011, leading to the increase in the gearing ratio.
4.3 Financial instruments by category
Chengdu Ya Guang Group
Receivables As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Assets as per consolidated balance sheets Trade and others receivable (excluding prepayments) 416,338 458,011 726,411 1,137,156 Pledged bank deposits 86,653 396,736 1,035,269 2,410,611 Cash and cash equivalents 310,983 226,615 177,708 184,652
813,974 1,081,362 1,939,388 3,732,419
Available-for-sale financial assets
Available-for-sale financial assets 600 – – 3,254
Total 814,574 1,081,362 1,939,388 3,735,673
– IIB-35 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Other financial liabilities at amortised cost As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Liabilities as per consolidated balance sheets Borrowings 30,000 328,496 1,151,063 2,607,456 Trade and others payable (excluding other taxes payables, advance from customers and payroll payable) 460,540 634,915 1,244,496 1,459,343
490,540 963,411 2,395,559 4,066,799
Chengdu Ya Guang Company
Receivables As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Assets as per balance sheets Trade and others receivable (excluding prepayments) 358,884 391,655 432,029 484,417 Pledged bank deposits 5,196 9,760 5,196 2,598 Cash and cash equivalents 287,938 174,576 147,855 76,396
652,018 575,991 585,080 563,411
Available-for-sale financial assets
Available-for-sale financial assets 600 – – 3,254
Total 652,618 575,991 585,080 566,665
Other financial liabilities at amortised cost As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Liabilities as per balance sheets Borrowings 30,000 40,000 – 30,000 Trade and others payable (excluding other taxes payables, advance from customers and payroll payable) 129,060 118,294 153,737 178,972
159,060 158,294 153,737 208,972
– IIB-36 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Chengdu Ya Guang Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
5.1 Useful lives of property, plant and equipment
Chengdu Ya Guang Group’s management determines the estimated useful lives and related depreciation charges for its property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. It could change significantly as a result of technical innovations and competitor actions in response to severe industry cycles. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned or sold.
5.2 Net realisable value of inventories
Inventories are carried at the lower of cost and net realisable value. The cost of inventories is written down to net realisable value when there is an objective evidence that the cost of inventories may not be recoverable. The cost of inventories may not be recoverable if those inventories are damaged, if they have become wholly or partially obsolete, or if their selling prices have declined. The cost of inventories may also be not recoverable if the estimated costs to be incurred to make the sale have increased. The amount written off to the income statement is the difference between the carrying value and net realisable value of the inventories. In determining whether the cost of inventories can be recoverable, significant judgement is required. In making this judgement, Chengdu Ya Guang Group evaluates, among other factors, the duration and extent by all means to which the amount will be recovered.
5.3 Provision for impairment of trade and other receivables
Chengdu Ya Guang Group makes provision for impairment of trade and other receivables based on an assessment of the recoverability of these receivables. Provisions are applied to trade and other receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of impairment of trade and other receivables requires the use of judgement and estimates. Where the expectation is different from the original estimate, such difference will impact the carrying value of receivables and provision for impairment losses in the period in which such estimate has been changed.
5.4 Impairment of goodwill
Chengdu Ya Guang Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 3.6. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates, including discount rate and growth rate, any change in these estimates will impact the impairment of goodwill.
– IIB-37 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
5.5 Income taxes and deferred taxation
Significant judgement is required in determining the provision for income tax. There are many transactions and calculations for which the ultimate determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the income tax and deferred tax provision in the period in which such determination is made.
Deferred tax assets relating to certain temporary differences and tax losses are recognised when management considers to be probable that future taxable profit will be available against which the temporary differences or tax losses can be utilised. The outcome of their actual utilisation may be different.
6. REVENUE AND SEGMENT INFORMATION
The chief operating decision-maker has been identified as the board of directors of Chengdu Ya Guang Group. The board of directors reviews Chengdu Ya Guang Group’s internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.
The board of directors consider the business from the following perspective:
– Manufacturing and sale of electronic products
– Trading of chemical materials
– Other segments comprise trading of iron and provision of bank security facilities.
The board of directors assesses the performance of the operating segments based on a measure of operating profit.
Segment assets consist primarily of property, plant and equipment, intangible assets, land use rights, other non-current assets, inventories, receivables and operating cash. They exclude available-for-sale financial assets, investment in associates, investment in a joint venture and deferred tax assets.
Segment liabilities consist primarily operating liabilities. They exclude bank borrowings, deferred income tax liabilities and income tax payable.
– IIB-38 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Information regarding Chengdu Ya Guang Group’s revenue by nature as provided to the board of directors for the purposes of resources allocation and assessment of segment performance is set out below:
Year ended 31 December 2008 Manufacturing and sale of Trading of electronic chemical Other Segment results products materials segments Total RMB’000 RMB’000 RMB’000 RMB’000
Segment revenue 257,463 813,533 74,236 1,145,232 Inter-segment revenue (98) – (889) (987)
Revenue from external customers 257,365 813,533 73,347 1,144,245
Cost of sales (156,130) (784,530) (64,249) (1,004,909) Distribution costs (13,511) (9,190) (6,914) (29,615) Administrative expenses (40,907) (13,002) (7,598) (61,507)
Operating profit/(loss) 46,817 6,811 (5,414) 48,214
Other gains-net 3,724 Other income 23,527 Financial cost, net (8,900) Share of profits of a joint venture 821 Share of results of associates (16)
Profit before income tax 67,370 Income tax expense (8,601)
Profit for the year 58,769
Other segment items are as follows: Segment assets 939,517 437,354 154,052 1,530,923 Segment liability 326,706 291,157 70,870 688,733 Capital expenditure 59,187 766 8,273 68,226 Depreciation charge (Note 8) 9,690 2,004 292 11,986 Amortisation charge (Note 7) 714 – 79 793 Impairment charge (Note 29) 9,988 12,481 1,874 24,343
– IIB-39 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Year ended 31 December 2009 Manufacturing and sale of Trading of electronic chemical Other Segment results products materials segments Total RMB’000 RMB’000 RMB’000 RMB’000
Segment revenue 287,299 1,776,860 47,412 2,111,571 Inter-segment revenue (9,186) – (1,106) (10,292)
Revenue from external customers 278,113 1,776,860 46,306 2,101,279
Cost of sales (163,523) (1,666,628) (38,591) (1,868,742) Distribution costs (12,382) (16,515) (7,409) (36,306) Administrative expenses (65,773) (8,156) (8,014) (81,943)
Operating profit/(loss) 36,435 85,561 (7,708) 114,288
Other gains-net 3,257 Other income 22,597 Financial cost, net (2,184) Share of profits of a joint venture 1,616 Share of results of associates 10
Profit before income tax 139,584 Income tax expense (28,909)
Profit for the year 110,675
Other segment items are as follows: Segment assets 929,177 1,010,349 125,725 2,065,251 Segment liabilities 314,318 480,887 49,763 844,968 Capital expenditure 81,944 3,159 18 85,121 Depreciation charge (Note 8) 8,630 1,718 699 11,047 Amortisation charge (Note 7) 724 – 90 814 Impairment charge (Note 29) 18,976 4,244 1,742 24,962
– IIB-40 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Year ended 31 December 2010 Manufacturing and sale of Trading of electronic chemical Other Segment results products materials segments Total RMB’000 RMB’000 RMB’000 RMB’000
Segment revenue 379,128 3,503,888 131,992 4,015,008 Inter-segment revenue (15,573) – (931) (16,504)
Revenue from external customers 363,555 3,503,888 131,061 3,998,504
Cost of sales (255,867) (3,459,525) (109,648) (3,825,040) Distribution costs (10,415) (19,056) (12,526) (41,997) Administrative expenses (37,583) (23,067) (8,384) (69,034)
Operating profit 59,690 2,240 503 62,433
Other gains-net 451 Other income 19,314 Financial income, net 22,848 Share of profits of a joint venture 2,788 Share of results of associates 309
Profit before income tax 108,143 Income tax expense (21,502)
Profit for the year 86,641
Other segment items are as follows: Segment assets 893,946 2,418,376 262,627 3,574,949 Segment liabilities 384,321 998,186 176,424 1,558,931 Capital expenditure 46,946 178 316 47,440 Depreciation charge (Note 8) 25,586 2,118 2,462 30,166 Amortisation charge (Note 7) 725 – 80 805 Additional/(reversal) of impairment provision (Note 29) (5,035) 15,707 710 11,382
– IIB-41 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Six months ended 30 June 2010 (unaudited) Manufacturing and sale of Trading of electronic chemical Other Segment results products materials segments Total RMB’000 RMB’000 RMB’000 RMB’000
Segment revenue 166,581 1,586,961 19,697 1,773,239 Inter-segment revenue (134) (82,299) – (82,433)
Revenue from external customers 166,447 1,504,662 19,697 1,690,806
Cost of sales (116,051) (1,479,283) (15,365) (1,610,699) Distribution costs (3,776) (9,972) (3,026) (16,774) Administrative expenses (15,655) (34,362) (2,301) (52,318)
Operating profit/(loss) 30,965 (18,955) (995) 11,015
Other gains-net 396 Other income 6,947 Financial cost, net (3,301) Share of profits of a joint venture 1,505 Share of results of associates (198)
Profit before income tax 16,364 Income tax expense (2,001)
Profit for the period 14,363
Other segment items are as follows: Capital expenditure 24,825 – 66 24,891 Depreciation charge (Note 29) 13,988 559 731 15,278 Amortisation charge (Note 29) 362 – 40 402 Additional/(reversal) of impairment provision (Note 29) 217 30,311 (736) 29,792
– IIB-42 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Six months ended 30 June 2011 Manufacturing and sale of Trading of electronic chemical Other Segment results products materials segments Total RMB’000 RMB’000 RMB’000 RMB’000
Segment revenue 171,954 3,466,508 110,437 3,748,899 Inter-segment revenue (719) – (4,731) (5,450)
Revenue from external customers 171,235 3,466,508 105,706 3,743,449
Cost of sales (117,629) (3,441,741) (97,395) (3,656,765) Distribution costs (5,267) (12,020) (7,139) (24,426) Administrative expenses (16,198) (15,123) (4,510) (35,831)
Operating profit/(loss) 32,141 (2,376) (3,338) 26,427
Other gains-net – Other income 3,000 Financial income, net 48,554 Share of profits of a joint venture 2,255 Share of results of associates 407
Profit before income tax 80,643 Income tax expense (17,627)
Profit for the period 63,016
Other segment items are as follows: Segment assets 862,032 4,126,576 221,217 5,209,825 Segment liabilities 370,806 1,179,523 188,443 1,738,772 Capital expenditure 4,071 521 120 4,712 Depreciation charge (Note 8) 13,521 544 2,400 16,465 Amortisation charge (Note 7) 362 – 40 402 Additional/(reversal) of impairment provision (Note 29) (2,111) 7,016 1,570 6,475
– IIB-43 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Reportable segments’ assets and liabilities are reconciled to total assets and total liabilities as follows:
At 31 December At 30 June Note 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Total segment assets 1,530,923 2,065,251 3,574,949 5,209,825 Available-for-sale financial assets 13 600 – – 3,254 Investments in a joint venture 11 17,598 19,214 22,002 20,262 Investment in associates 12 16,308 20,593 55,309 70,716 Deferred tax assets 25 31,655 24,433 26,707 22,861
Total assets per consolidated balance sheets 1,597,084 2,129,491 3,678,967 5,326,918
Total segment liabilities 688,733 844,968 1,558,931 1,738,772 Borrowings 21 30,000 328,496 1,151,063 2,607,456 Income tax payable 31,208 35,972 16,827 6,832
Total liabilities per consolidated balance sheets 749,941 1,209,436 2,726,821 4,353,060
The Group entities are principally domiciled in the PRC. The result of its revenue from external customers in the PRC and other countries and districts are disclosed below:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Revenue Mainland China 1,144,245 2,084,102 3,527,733 1,517,279 3,280,517 Hong Kong – 17,154 154,801 126,115 14,005 Euro-America – 23 47,575 47,412 83,433 Southeast Asia – – 268,395 – 355,477 Other countries ––––10,017
1,144,245 2,101,279 3,998,504 1,690,806 3,743,449
Revenue is the allocated based on the country in which customers are located.
All significant operating assets of Chengdu Ya Guang Group are located in the PRC.
– IIB-44 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Chengdu Ya Guang Group has a number of customers in the PRC. In periods set out below, certain customers, all located in PRC, accounted for greater than 10% of Chengdu Ya Guang Group total revenues:
For the year ended 31 December 2008, 2009 and 2010:
Year ended 31 December 2008 2009 2010 %of %of %of total total total Amount revenue Amount revenue Amount revenue RMB’000 RMB’000 RMB’000
Customer Customer A – – 703,845 33% 893,180 22% Customer B 333,258 29% 220,314 10% 161,346 4%
333,258 29% 924,159 43% 1,054,526 26%
For six months period ended 30 June 2011 and 2010:
Six month period ended 30 June 2010 (unaudited) 2011 % of total % of total Amount revenue Amount revenue RMB’000 RMB’000
Customer Customer A 351,977 21% 255,039 7% Customer B 64,632 4% – –
416,609 25% 255,039 7%
7. LAND USE RIGHTS
Chengdu Ya Guang Group
Chengdu Ya Guang Group’s interests in land use rights represent prepaid operating lease payments and their net book values are analysed as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
At beginning of year/period 28,539 31,783 30,969 30,164 Additions 4,037 – – – Amortisation (Note 29) (793) (814) (805) (402)
At end of year/period 31,783 30,969 30,164 29,762
Amortisation charges of RMB793,000, RMB814,000, RMB805,000 and RMB402,000 were included in the administrative expenses for the year ended 31 December 2008, 2009 and 2010 and for the six months ended 30 June 2011.
– IIB-45 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Chengdu Ya Guang Company
Chengdu Ya Guang Company’s interests in land use rights represent prepaid operating lease payments and their net book value is analysed as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
At beginning of year/period 28,539 27,825 27,101 26,376 Amortisation (714) (724) (725) (362)
At end of year/period 27,825 27,101 26,376 26,014
Chengdu Ya Guang Group’s and Chengdu Ya Guang Company’s land use rights are situated in the PRC and their respective land use rights were granted by government for periods of 50 years from the date of grant.
8. PROPERTY, PLANT AND EQUIPMENT
Chengdu Ya Guang Group
Electronic Equipment and and Motor other Buildings machinery vehicles equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Year ended 31 December 2008 Cost At beginning of year 103,961 26,887 6,530 28,849 166,227 Acquisition of subsidiaries (Note 36) 1,612 – 1,213 28 2,853 Additions – 3,216 2,628 4,352 10,196 Disposals (Note 34) – (1,430) (346) (7) (1,783)
At end of year 105,573 28,673 10,025 33,222 177,493
Accumulated depreciation At beginning of year 7,880 14,408 3,771 24,272 50,331 Charge for the year (Note 29) 5,191 2,680 1,747 2,368 11,986 Disposals (Note 34) – (1,131) (332) (6) (1,469)
At end of year 13,071 15,957 5,186 26,634 60,848
Net book amount At end of year 92,502 12,716 4,839 6,588 116,645
At beginning of year 96,081 12,479 2,759 4,577 115,896
– IIB-46 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Electronic Equipment and and Motor other Buildings machinery vehicles equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Year ended 31 December 2009 Cost At beginning of year 105,573 28,673 10,025 33,222 177,493 Transfer from construction-in-progress (Note 9) 6,965 65,053 – 58,066 130,084 Additions 2,663 603 3,605 990 7,861 Disposals (Note 34) – – (482) (1,956) (2,438)
At end of year 115,201 94,329 13,148 90,322 313,000
Accumulated depreciation At beginning of year 13,071 15,957 5,186 26,634 60,848 Charge for the year (Note 29) 5,135 2,470 1,835 1,607 11,047 Disposals (Note 34) – – (247) (1,844) (2,091)
At end of year 18,206 18,427 6,774 26,397 69,804
Net book amount At end of year 96,995 75,902 6,374 63,925 243,196
At beginning of year 92,502 12,716 4,839 6,588 116,645
Electronic Equipment and and Motor other Buildings machinery vehicles equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Year ended 31 December 2010 Cost At beginning of year 115,201 94,329 13,148 90,322 313,000 Transfer from construction-in-progress (Note 9) 96,834 6,620 – – 103,454 Additions 6,006 2,373 587 238 9,204 Disposals (Note 34) – (3,889) (1,005) (284) (5,178)
At end of year 218,041 99,433 12,730 90,276 420,480
Accumulated depreciation At beginning of year 18,206 18,427 6,774 26,397 69,804 Charge for the year (Note 29) 7,945 9,436 1,962 10,823 30,166 Disposals (Note 34) – (1,710) (963) (218) (2,891)
At end of year 26,151 26,153 7,773 37,002 97,079
Net book amount At end of year 191,890 73,280 4,957 53,274 323,401
At beginning of year 96,995 75,902 6,374 63,925 243,196
– IIB-47 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Electronic Equipment and and Motor other Buildings machinery vehicles equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Period ended 30 June 2011 Cost At beginning of period 218,041 99,433 12,730 90,276 420,480 Additions 900 426 758 580 2,664 Disposals (Note 34) – (606) (260) – (866)
At end of period 218,941 99,253 13,228 90,856 422,278
Accumulated depreciation At beginning of year 26,151 26,153 7,773 37,002 97,079 Charge for the period (Note 29) 5,535 5,142 866 4,922 16,465 Disposals (Note 34) – (62) (70) – (132)
At end of period 31,686 31,233 8,569 41,924 113,412
Net book amount At end of period 187,255 68,020 4,659 48,932 308,866
At beginning of period 191,890 73,280 4,957 53,274 323,401
Depreciation expenses have been charged to the consolidated income statements as below:
Chengdu Ya Guang Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Cost of sales 10,028 9,159 27,867 14,903 15,248 Administrative expenses 1,958 1,888 2,299 375 1,217
11,986 11,047 30,166 15,278 16,465
– IIB-48 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Chengdu Ya Guang Company
Electronic Equipment and and Motor other Buildings machinery vehicles equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Year ended 31 December 2008 Cost At beginning of year 105,606 26,380 3,209 27,034 162,229 Additions – 3,186 1,185 399 4,770 Disposals – (1,430) – (7) (1,437)
At end of year 105,606 28,136 4,394 27,426 165,562
Accumulated depreciation At beginning of year 7,880 14,139 2,421 22,910 47,350 Charge for the year 5,224 2,629 344 1,494 9,691 Disposals – (1,131) – (8) (1,139)
At end of year 13,104 15,637 2,765 24,396 55,902
Net book amount At end of year 92,502 12,499 1,629 3,030 109,660
At beginning of year 97,726 12,241 788 4,124 114,879
Electronic Equipment and and Motor other Buildings machinery vehicles equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Year ended 31 December 2009 Cost At beginning of year 105,606 28,136 4,394 27,426 165,562 Transfer from construction-in-progress (Note 9) 6,965 65,053 – 58,066 130,084 Additions 2,663 603 88 311 3,665 Disposals – – – (1,904) (1,904)
At end of year 115,234 93,792 4,482 83,899 297,407
Accumulated depreciation At beginning of year 13,104 15,637 2,765 24,396 55,902 Charge for the year 5,135 2,420 415 659 8,629 Disposals – – – (1,809) (1,809)
At end of year 18,239 18,057 3,180 23,246 62,722
Net book amount At end of year 96,995 75,735 1,302 60,653 234,685
At beginning of year 92,502 12,499 1,629 3,030 109,660
– IIB-49 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Electronic Equipment and and Motor other Buildings machinery vehicles equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Year ended 31 December 2010 Cost At beginning of year 115,234 93,792 4,482 83,899 297,407 Transfer from construction-in-progress (Note 9) 10,644 6,620 – – 17,264 Additions 6,006 2,371 354 – 8,731 Disposals – (3,593) (574) (282) (4,449)
At end of year 131,884 99,190 4,262 83,617 318,953
Accumulated depreciation At beginning of year 18,239 18,057 3,180 23,246 62,722 Charge for the year 6,150 9,387 426 9,623 25,586 Disposals – (1,529) (546) (220) (2,295)
At end of year 24,389 25,915 3,060 32,649 86,013
Net book amount At end of year 107,495 73,275 1,202 50,968 232,940
At beginning of year 96,995 75,735 1,302 60,653 234,685
Electronic Equipment and and Motor other Buildings machinery vehicles equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Period ended 30 June 2011 Cost At beginning of period 131,884 99,190 4,262 83,617 318,953 Additions 900 426 206 247 1,779 Disposals – (606) – – (606)
At end of period 132,784 99,010 4,468 83,864 320,126
Accumulated depreciation At beginning of period 24,389 25,915 3,060 32,649 86,013 Charge for the period 3,380 5,146 207 4,787 13,520 Disposals – (62) – – (62)
At end of period 27,769 30,999 3,267 37,436 99,471
Net book amount At end of period 105,015 68,011 1,201 46,428 220,655
At beginning of period 107,495 73,275 1,202 50,968 232,940
– IIB-50 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
9. CONSTRUCTION IN PROGRESS
Chengdu Ya Guang Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
At beginning of year/period 111,245 160,409 107,505 39,797 Additions 49,164 77,180 35,746 1,779 Transfer to property, plant and equipment (Note 8) – (130,084) (103,454) –
At end of year/period 160,409 107,505 39,797 41,576
Chengdu Ya Guang Company
Six months ended Year ended 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
At beginning of year/period 31,260 76,462 21,565 39,598 Additions 45,202 75,187 35,297 1,903 Transfer to property, plant and Equipment (Note 8) – (130,084) (17,264) –
At end of year/period 76,462 21,565 39,598 41,501
The construction in process is principally financed by the government grant.
– IIB-51 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
10. INVESTMENTS IN SUBSIDIARIES – CHENGDU YA GUANG COMPANY
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Cost 116,898 157,628 157,633 157,633 Less: Provision for impairment (2,328) (2,328) (2,328) (3,090)
Investment in unlisted entities 114,570 155,300 155,305 154,543
The movement of investment in subsidiaries is as below:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Unlisted investments, at cost At beginning of year/period 82,324 114,570 155,300 155,305 Liquidation of subsidiary (a) (6,524) – – – Additional capital injection (b) 38,770 40,730 5 – Impairment loss – – – (762)
At end of year/period 114,570 155,300 155,305 154,543
Notes:
(a) In April 2008, Chengdu Ya Hong Electronic Company Limited, a subsidiary principally engaged in manufacturing of electronics parts, was liquidated.
(b) The breakdown of additional capital injections is as below:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Xin Hua Xin Chemical Engineering Material Company Limited 38,770 38,530 – – Chengdu Ya Rui Electronic Company Limited – 200 – – Chengdu Xin Hong Mobile Communications Equipment Company Limited – 2,000 – – Hong Kong Ya Guang Trading Development Company Limited ––5–
Investment in unlisted entities 38,770 40,730 5 –
– IIB-52 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
As at 31 December 2008, 2009 and 2010 and 30 June 2011, Chengdu Ya Guang Company had equity interests in the following subsidiaries:
Place of incorporation Registered and type of legal Place of operation and Capital Name entity principal activities (’000) Interests held 31 December 31 December 31 December 30 June 2008 2009 2010 2011 Direct Indirect Direct Indirect Direct Indirect Direct Indirect
Shenzhen Ya Guang Bank PRC/Limited liability Guangdong/Trading of RMB10,050 95.24% – 95.24% – 95.24% – 95.24% – Union Technology company iron ore Company Limited
Sichuan Xin Hong Mobile PRC/Limited liability Sichuan/Manufacturing USD869 75% – 75% – 95% – 95% – Communications company and sales of Equipment Company communication devices Limited
Chengdu Xin Hua Xin PRC/Limited liability Sichuan/Trading of RMB15,000 46.45% – 58.20% – 58.20% – 58.20% – Chemical Engineering company chemical materials Material Company Limited
Chengdu Ya Rui Electronic PRC/Limited liability Sichuan/Manufacturing RMB5,000 100% – 100% – 100% – 100% – Company Limited company and sales of electronic parts
Chengdu Ya Guang PRC/Limited liability Sichuan/Investment RMB50,000 100% – 100% – 100% – 100% – Investment Management company management Company Limited
Chengdu Xin Hong Mobile PRC/Limited liability Sichuan/Manufacturing RMB2,000 100% – 100% – 100% – 100% – Communications company and sales of Equipment Company communication devices Limited
Hong Kong Ya Guang PRC/Limited liability Trading of chemical HKD10 58.20% – 58.20% – 58.20% – 58.20% – Trading Development company materials Company Limited
Sichuan Jing Yan Trading PRC/Limited liability Sichuan/Trading of RMB9,600 – 100% – 100% – 100% – 100% Company Limited company chemical materials
Shenzhen Lian Hong PRC/Limited liability Guangdong/Manufacturing RMB1,000 100% – 100% – 100% – 100% – Electrical Equipment company and sales of electronic Company Limited parts
Chengdu Ya Guang Company has 46.45% interest in Chengdu Xin Hua Xin Chemical Engineering Material Company Limited (“Xin Hua Xin Chemical Company”) in 2008, and could control its operating and financial policies. Therefore, Chengdu Ya Guang had accounted for the investment in Xin Hua Xin Chemical Company as its subsidiary.
– IIB-53 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
11. INVESTMENT IN A JOINT VENTURE
Chengdu Ya Guang Group
The movements of share of net assets of a joint venture are as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
At beginning of year/period 16,777 17,598 19,214 22,002 Share of profits of a joint venture 821 1,616 2,788 2,255 Dividends received – – – (3,995)
At end of year/period 17,598 19,214 22,002 20,262
Investment in a joint venture represents the investment in Zetex (Chengdu) Electronics Company Limited. Zetex (Chengdu) Electronics Company Limited was incorporated on 28 April 1995 by Chengdu Ya Guang Company and Chinatex Limited, a third party, which held 67.36% and 32.64% equity interests, respectively. According to the articles of association of Zetex (Chengdu) Electronics Company Limited, all financial and operating policies of the joint venture require the unanimous consent of all parties sharing the control. Therefore, Chengdu Ya Guang Group has accounted for the investment in Zetex (Chengdu) Electronics Company Limited as a joint venture.
Chengdu Ya Guang Group’s share of the results of its joint venture, which is unlisted, and its assets and liabilities, are as follows:
Place of Registered Interest Financial year/period ended establishment capital Assets Liabilities Revenue Profit held USD RMB’000 RMB’000 RMB’000 RMB’000 Direct
31 December 2008 PRC 5,361,900 37,675 1,967 24,212 1,219 67.36% 31 December 2009 PRC 5,361,900 41,134 3,028 22,184 2,399 67.36% 31 December 2010 PRC 5,361,900 44,004 1,758 30,368 4,139 67.36% 30 June 2011 PRC 5,361,900 44,915 5,251 23,068 3,348 67.36%
Chengdu Ya Guang Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Cost of investment 16,290 16,290 16,290 16,290
– IIB-54 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
12. INVESTMENT IN ASSOCIATES
Chengdu Ya Guang Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Cost 70,568 75,778 110,494 125,901 Less: Provision for impairment ((ii) & (iii)) (54,260) (55,185) (55,185) (55,185)
16,308 20,593 55,309 70,716
The movements of share of net assets of associates are as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
At beginning of year/period 924 16,308 20,593 55,309 Additional capital injection 15,400 8,200 55,000 15,000 Share of profit/(loss) of associates (16) 10 309 407 Disposal of associates (iv) – (3,000) (20,593) – Impairment loss – (925) – –
At end of year/period 16,308 20,593 55,309 70,716
Chengdu Ya Guang Group’s share of the results of its principal associates, all of which are unlisted, and its aggregated assets and liabilities, are as follows:
– IIB-55 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
For the year ended 31 December 2008
Registered Place of Profit/ Name capital establishment Assets Liabilities Revenues (Loss) Interest held RMB’000 RMB’000 RMB’000 RMB’000 Direct Indirect
Xi’an Starwave Communications Equipment Company Limited (i) USD6,790 PRC 27,032 5,899 15,279 (5,196)(ii) 62.65% –
Hebi Starwave Communications Equipment Company Limited (i) USD4,640 PRC 45,150 24,707 30,084 (3,440)(ii) 62.65% –
Chengdu Ya Guang Mechanical and Electrical Equipment Company Limited RMB3,000 PRC 4,127 2,221 2,097 (37) 49.00% –
Chengdu Xin Ya Xin Import Export Trading Company Limited RMB20,000 PRC 20,232 2,266 1,000 5 – 40.00%
Hunan Rui Yuan Petrochemical Company Limited RMB6,000 PRC 60,002 2–––25.00%
For the year ended 31 December 2009
Registered Place of Profit/ Name capital establishment Assets Liabilities Revenues (Loss) Interest held RMB’000 RMB’000 RMB’000 RMB’000 Direct Indirect
Xi’an Starwave Communications Equipment Company Limited (i) USD6,790 PRC 29,186 18,648 19,588 (10,595)(ii) 62.65% –
Hebi Starwave Communications Equipment Company Limited (i) USD4,640 PRC 35,754 19,957 18,104 (4,647)(ii) 62.65% –
Chengdu Ya Guang Mechanical and Electrical Equipment Company Limited RMB3,000 PRC 3,215 1,355 856 (48)(iii) 49.00% –
Chengdu Xin Ya Xin Import Export Trading Company Limited RMB20,000 PRC 24,824 2,528 22,155 25 – 40.00%
– IIB-56 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
For the year ended 31 December 2010
Registered Place of Profit/ Name capital establishment Assets Liabilities Revenues (Loss) Interest held RMB’000 RMB’000 RMB’000 RMB’000 Direct Indirect
Xi’an Starwave Communications Equipment Company Limited (i) USD6,790 PRC 20,095 23,035 21,743 (13,479)(ii) 62.65% –
Hebi Starwave Communications Equipment Company Limited (i) USD4,640 PRC 22,916 21,057 15,468 (13,937)(ii) 62,65% –
Chengdu Ya Guang Mechanical and Electrical Equipment Company Limited RMB3,000 PRC 2,777 917 56 – 49.00% –
Chengdu Hua Guang Rui Xin Microelectronics Company Limited RMB10,000 PRC 177,748 6,567 9,571 1,181 50.00% –
Chengdu Xin Hua Xin Petrochemical Company Limited RMB100,000 PRC 100,033 526 77,154 (561) – 50.00%
For the period ended 30 June 2011
Registered Place of Profit/ Name capital establishment Assets Liabilities Revenues (Loss) Interest held RMB’000 RMB’000 RMB’000 RMB’000 Direct Indirect
Xi’an Starwave Communications Equipment Company Limited (i) USD6,790 PRC 19,169 23,035 – (926)(ii) 62.65% –
Hebi Starwave Communications Equipment Company Limited (i) USD4,640 PRC 22,284 21,057 – (631)(ii) 62.65% –
Chengdu Ya Guang Mechanical and Electrical Equipment Company Limited RMB3,000 PRC 2,524 271 – (25)(iii) 49.00% –
Chengdu Hua Guang Rui Xin Microelectronics Company Limited RMB10,000 PRC 17,392 6,522 2,872 (311) 50.00% –
Chengdu Xin Hua Xin Petrochemical Company Limited RMB100,000 PRC 101,460 432 9,120 1,124 – 50.00%
Chengdu Xin Hua Xin Logistics Company Limited RMB30,000 PRC 29,797 41–––50.00%
– IIB-57 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Notes:
(i) Chengdu Ya Guang Company has 62.65% equity interests in Hebi Starwave Communication Equipment Company Limited (the “Hebi Starwave”) but has not accounted for it as a subsidiary due to the following reasons:
According to the articles of incorporation of Hebi Starwave, the board of directors consists of 7 directors and Chengdu Ya Guang Company could appoint 4 directors in the board. All financial and operating policies require agreement by 6 out of 7 directors. Therefore, Chengdu Ya Guang Company does not have control over Hebi Starwave, and has accounted for it as an associate.
Chengdu Ya Guang Company has 62.65% equity interests in Xi’an Starwave Communication Equipment Company Limited (the “Xi’an Starwave”) but has not accounted for it as a subsidiary due to the following reasons:
According to the articles of incorporation of Xi’an Starwave, the board of directors consists of 7 directors, and Chengdu Ya Guang Company could appoint 4 directors in the board. All significant financial and operating policies require agreement by 6 out of 7 directors. Therefore, Chengdu Ya Guang Company does not have control over Xi’an Starwave, and has accounted for it as an associate.
(ii) Due to the poor operating performance of Hebi Starwave and Xi’an Starwave, the directors of Chengdu Ya Guang Company considered the investments in Hebi Starwave and Xi’an Starwave amounted to RMB22,010,000 and RMB32,250,000 respectively were impaired and full provision for impairment were made by the directors in 2007. Chengdu Ya Guang Company has not recognised any further loss incurred by these two associates as Chengdu Ya Guang Company does not have legal or constructive obligations to make payments on behalf of these associates.
(iii) Due to the poor operating performance of Chengdu Ya Guang Mechanical and Electrical Equipment Company Limited, the directors of Chengdu Ya Guang Company considered the investment in Chengdu Ya Guang Mechanical and Electrical Equipment Company Limited amounted to RMB925,000 was impaired and full provision for impairment were made by the directors in 2009. Chengdu Ya Guang Company has not recognised any further loss incurred by the associate as Chengdu Ya Guang Company does not have legal or constructive obligations to make payments on behalf of this associate.
(iv) Disposal of associate
Prior to the disposal, Chengdu Ya Guang Group had 25% interest in Hunan Rui Yuan Petrochemical Company Limited and accounted for the investment as an associate. In 2009, Chengdu Ya Guang Group disposed 5% interest to a third party at a proceed of RMB3,030,000. This transaction has resulted in the recognition of a gain in the consolidated income statement as follows:
RMB’000
Proceeds from disposal 3,030 Less: Carrying amount of investment in the associate at the date of disposal (3,000)
Gain recognised 30
– IIB-58 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Prior to the disposal, Chengdu Ya Guang Group had 20% interest in Hunan Rui Yuan Petrochemical Company Limited and accounted for the investment as an associate. In January 2010, Chengdu Ya Guang Group disposed 20% interest to a third party at a proceed of RMB12,240,000. This transaction has resulted in the recognition of a gain in the consolidated income statement as follows:
RMB’000
Proceeds from disposal 12,240 Less: Carrying amount of investment in the associate at the date of disposal (12,000)
Gain recognised 240
Prior to the disposal, Chengdu Ya Guang Group had 40% interest in Chengdu Xin Ya Xin Import Export Trading Company Limited and accounted for the investment as an associate. In May 2010, Chengdu Ya Guang Group disposed 40% interest to a third party at a proceed of RMB8,685,000. This transaction has resulted in the recognition of a gain in the consolidated income statement as follows:
RMB’000
Proceeds from disposal 8,685 Less: Carrying amount of investment in the associate at the date of disposal (8,593)
Gain recognised 92
Chengdu Ya Guang Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Cost of investment 55,185 55,185 60,775 60,775 Less: Provision for impairment (Note (ii) & (iii)) (54,260) (55,185) (55,185) (55,185)
925 – 5,590 5,590
– IIB-59 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
13. AVAILABLE-FOR-SALE FINANCIAL ASSETS
Chengdu Ya Guang Group and Company
Six months ended Year ended 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
At the beginning of the year/period 600 600 – – Additions – – – 3,254 Disposal – (600) – –
At the end of the year/period 600 – – 3,254
Available-for-sale financial assets on 31 December 2008 represent 10% equity interest in Chengdu Ya Hui Optoelectronic Company Limited (the “Chengdu Ya Hui”) at fair value, an unlisted company established in the PRC with limited liability in 2008, which is engaged in manufacturing of electronics parts. Chengdu Ya Guang Company disposed this investment in 2009.
Available-for-sale financial assets on 30 June, 2011 represent 5% equity interest in Da Er Technology (Chengdu) Company Limited (the “Da Er Technology”) at fair value, an unlisted company established in the PRC with limited liability in 2011, which is principally engaged in the manufacturing electronics parts.
Available-for-sale financial assets are denominated in RMB.
14. OTHER NON-CURRENT ASSETS
Chengdu Ya Guang Group and Company
Other non-current assets represented the prepayments for construction of property, plant and equipment.
– IIB-60 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
15. INVENTORIES
Chengdu Ya Guang Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Raw materials 25,800 49,461 43,847 50,441 Work in progress 34,795 21,672 54,820 57,242 Finished goods 172,194 352,520 941,323 744,780
232,789 423,653 1,039,990 852,463
Less: provision for write-down of inventories: Raw materials (439) (159) (159) – Finished goods (12,380) (5,753) (17,538) (5,938)
Inventories – net 219,970 417,741 1,022,293 846,525
The cost of inventories recognised as Ya Guang Group’s expenses and included in ”cost of sales” amounted to RMB941,733,000, RMB1,786,786,000, RMB3,718,731,000, RMB1,559,292,000 and RMB3,590,975,000 for each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2010 and 2011, respectively (Note 29).
Chengdu Ya Guang Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Raw materials 23,936 47,883 42,787 49,174 Work in progress 34,394 21,064 54,728 57,242 Finished goods 10,816 24,038 13,826 25,449
69,146 92,985 111,341 131,865
Less: provision for write-down of inventories Raw materials (352) – – – Finished goods – (81) (81) (81)
68,794 92,904 111,260 131,784
– IIB-61 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
16. TRADE AND OTHER RECEIVABLES
Chengdu Ya Guang Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade receivables Trade receivables from related parties (Note 37 (c)) 222 49 233 490 Trade receivables from third parties 360,447 412,016 673,632 946,524 Less: Provision for impairment (31,388) (40,789) (39,413) (39,573)
Trade receivables – net 329,281 371,276 634,452 907,441
Other receivables Prepayments to suppliers 108,301 136,720 173,570 197,261 Notes receivable 38,874 57,297 71,381 155,113 Deposits receivable 517 713 1,210 1,348 Balance due from related parties (Note 37 (c)) 8,970 17,065 7,626 36,737 Receivables from third parties 36,128 3,522 3,963 11,385 Interest receivable – – 8,731 17,607 Others 5,361 18,765 7,454 18,260
Subtotal 198,151 234,082 273,935 437,711 Less: Provision for impairment (2,793) (10,627) (8,406) (10,735)
Other receivables – net 195,358 223,455 265,529 426,976
Total trade and other receivables 524,639 594,731 899,981 1,334,417
– IIB-62 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Chengdu Ya Guang Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade receivables Trade receivables from subsidiaries 287–7 Trade receivables from related parties (Note 37 (c)) 222 49 233 490 Trade receivables from third parties 233,949 259,436 293,961 288,624 Less: Provision for impairment (28,640) (37,238) (33,452) (31,203)
Trade receivables – net 205,559 222,254 260,742 257,918
Other receivables Prepayments to suppliers 17,030 20,698 20,380 22,242 Notes receivable 37,637 54,346 68,766 52,634 Balance due from subsidiaries (b) 100,880 99,317 96,337 165,279 Balance due from related parties (Note 37 (c)) 1,320 11,344 7,626 7,809 Receivables from third parties 11,524 3,357 2,004 662 Others 2,724 9,854 4,522 8,221
Subtotal 171,115 198,916 199,635 256,847 Less: Provision for impairment (760) (8,817) (7,968) (8,106)
Other receivables – net 170,355 190,099 191,667 248,741
Total trade and other receivables 375,914 412,353 452,409 506,659
Notes:
(a) The carrying amounts of the trade and other receivables at 31 December 2008, 2009 and 2010 and 30 June 2011 approximate their fair values.
(b) Current accounts with the subsidiaries are unsecured, interest free and repayment on demand.
– IIB-63 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
(c) The Chengdu Ya Guang Group’s credit terms on sales of goods ranging are within one year. The aging analysis of the trade receivables is as follows:
Chengdu Ya Guang Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Within 1 year 275,855 290,573 582,469 865,347 Over 1 year 84,814 121,492 91,396 81,667
Subtotal 360,669 412,065 673,865 947,014 Less: Provision for impairment (31,388) (40,789) (39,413) (39,573)
Trade receivables – net 329,281 371,276 634,452 907,441
Chengdu Ya Guang Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Within a year 154,233 155,198 212,826 215,014 Over 1 year 79,966 104,294 81,368 74,107
Subtotal 234,199 259,492 294,194 289,121 Less: Provision for impairment (28,640) (37,238) (33,452) (31,203)
Trade receivables – net 205,559 222,254 260,742 257,918
(d) The carrying amounts of trade and other receivables are denominated in the following currencies:
Chengdu Ya Guang Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
RMB 524,639 594,731 865,612 1,278,787 USD – – 34,369 55,630
524,639 594,731 899,981 1,334,417
– IIB-64 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Chengdu Ya Guang Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
RMB 375,914 412,353 452,409 506,659
(e) Movements on provision for impairment of trade receivables are as follows:
Chengdu Ya Guang Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
At beginning of year/period 21,598 31,388 40,789 39,413 Provision for receivables impairment 10,423 10,083 2,511 2,771 Written off (317) (500) (11) (27) Unused provision reversed (316) (182) (3,876) (2,584)
At end of year/period 31,388 40,789 39,413 39,573
Chengdu Ya Guang Company
Six months ended Year ended 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
At beginning of year/period 19,676 28,640 37,238 33,452 Provision for receivables impairment 8,964 8,627 – – Written off – (29) – – Unused provision reversed – – (3,786) (2,249)
At end of year/period 28,640 37,238 33,452 31,203
The carrying amount of trade and other receivables approximated their fair values.
– IIB-65 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
17. PLEDGED BANK DEPOSITS
Chengdu Ya Guang Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Guarantee deposits for issuance of bank notes 72,580 61,331 28,524 102,268 Guarantee deposits for issuance of letters of credit 6,995 103,386 115,969 127,398 Guarantee deposits for short-term bank borrowings – 222,260 885,579 2,178,346 Other guarantee deposits 7,078 9,759 5,197 2,599
86,653 396,736 1,035,269 2,410,611
Chengdu Ya Guang Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Other guarantee deposits 5,196 9,760 5,196 2,598
18. CASH AND CASH EQUIVALENTS
Chengdu Ya Guang Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Cash at bank and on hand 310,983 226,615 177,708 184,652
Chengdu Ya Guang Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Cash at bank and on hand 287,938 174,576 147,855 76,396
– IIB-66 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
19. PAID IN CAPITAL – CHENGDU YA GUANG GROUP AND COMPANY
Number of Paid in shares capital RMB’000
At 1 January 2008, 31 December 2008, 2009 and 2010 and 30 June 2011 68,651,430 68,651
Chengdu Ya Guang Company was established in 1965 as a state-owned enterprise in Chengdu, PRC. On 12 March 1993, Chengdu Ya Guang Company was restructured into a joint stock limited company with registered capital of 61,891,745 ordinary shares at par value of RMB1 per share. After several changes of registered capital, the paid in capital was increased to 68,651,430 in 2007.
In June 2009, CATIC Shenzhen Company acquired 38,385,535 shares from various third parties of Chengdu Ya Guang Company and became its major controlling shareholder, which held a total interest of 55.91% of Chengdu Ya Guang Company.
20. OTHER RESERVES
Chengdu Ya Guang Group
Statutory general Currency Capital reserve translation reserve fund differences Total RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2008 13,594 25,268 – 38,862 Government subsidy (b) 36,260 – – 36,260 Transfer from retained earnings (a) – 5,908 – 5,908
At 31 December 2008 49,854 31,176 – 81,030
Transaction with non-controlling interests (c) 803 – – 803 Transfer from retained earnings (a) – 6,634 – 6,634
At 31 December 2009 50,657 37,810 – 88,467
Currency translation differences – – (46) (46) Acquisition of non-controlling interests (c) (534) – – (534) Transfer from retained earnings (a) – 8,290 – 8,290
At 31 December 2010 50,123 46,100 (46) 96,177
Currency translation differences – – (113) (113)
At 30 June 2011 50,123 46,100 (159) 96,064
– IIB-67 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Chengdu Ya Guang Company
Statutory general Capital reserve Retained reserve fund earnings Total RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2008 10,589 25,269 583,505 619,363 Profit for the year – – 59,078 59,078 Capital injection (b) 36,260 – – 36,260 Transfer from retained earnings (a) – 5,908 (5,908) –
At 31 December 2008 46,849 31,177 636,675 714,701
Profit for the year – – 64,432 64,432 Distributions – – (34,325) (34,325) Transfer from retained earnings (a) – 6,634 (6,634) –
At 31 December 2009 46,849 37,811 660,148 744,808
Profit for the year – – 80,399 80,399 Distributions – – (41,191) (41,191) Transfer from retained earnings (a) – 8,290 (8,290) –
At 31 December 2010 46,849 46,101 691,066 784,016
Profit for the period – – 31,402 31,402 Distributions – – (41,191) (41,191)
At 30 June 2011 46,849 46,101 681,277 774,227
(a) According to the Company Laws of the PRC and the Articles of Association of Chengdu Ya Guang Company, when distributing net profit each year, Chengdu Ya Guang Company shall set aside 10% of its net profit as reported in the PRC statutory accounts for the statutory general reserve fund (except where the fund has reached 50% of Chengdu Ya Guang Company’s registered share capital). This reserve cannot be used for purposes other than those for which they are created and are not distributable as cash dividends.
(b) Capital injection
The amounts represent capital injections from government authorities for subsidising the research and development projects of Chengdu Ya Guang Company. According to the agreement with government authorities, the subsidies shall be transferred to the Chengdu Ya Guang Company’s paid-in-capital, upon completion of these projects and completion of other administrative procedures. This additional paid-in-capital will be owned by Chengdu Industrial Investment Company Limited, a state owned company. These projects were completed in 2008 and the subsidies were transferred to equity from other non-current liabilities (Note 23).
– IIB-68 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
(c) Transactions with non-controlling interests
On 3 January 2009, Chengdu Ya Guang Company and the non-controlling shareholder injected RMB38,530,000 and RMB6,470,000 to Xin Hua Xin Chemical Company, respectively. After the capital injection, Chengdu Ya Guang Company’s equity interests in Xin Hua Xin Chemical Company increased from 46.45% to 58.20%. The effect of changes in the ownership interest of Xin Hua Xin Chemical Company on the equity attributable to owners of Chengdu Ya Guang Company during the year is summarized as follows:
RMB
Increase of Chengdu Ya Guang Company’s share in Xin Hua Xin Chemical Company after capital injection 38,939,000 Less: Capital contributed by Chengdu Ya Guang Company (38,530,000)
Gain on further capital contributions to Xin Hua Xin Chemical Company recorded within equity 409,000
On 31 December 2009, Chengdu Ya Guang Company acquired 4% interest in Chengdu Ya Rui Electronic Company Limited (the “Chengdu Ya Rui”) at consideration of RMB200,000. The attributable equity interest of the Company in Chengdu Ya Rui increased from 96% to 100%. The effect of changes in the ownership interest of Chengdu Ya Rui on the equity attributable to owners of Chengdu Ya Guang Company during the year is summarized as follows:
RMB
Carrying amount of non-controlling interests acquired 594,000 Less: Consideration paid to acquire non-controlling interests (200,000)
Gain on acquisition of non-controlling interests recorded within equity 394,000
In October 2010, Shenzhen Ya Guang Bank Union Technology Company Limited (the “Shenzhen Ya Guang”) acquired 40% interests in Shenzhen Lian Hong Electrical Equipment Company Limited (the “Lian Hong Electrical Equipment”) at a consideration of RMB400,000. The attributable equity interest of Shenzhen Ya Guang in Lian Hong Electrical Equipment increased from 60% to 100%. The effect of changes in the ownership interest of Shenzhen Lian Hong Electrical Equipment Company Limited on the equity attributable to owners of the Company during the year is summarised as follows:
RMB
Carrying amount of non-controlling interests acquired (134,000) Less: Cash consideration paid to non-controlling interests (400,000)
Loss on acquisition of non-controlling interests recorded within equity (534,000)
(d) In 2008, Chengdu Ya Guang Company and the non-controlling shareholder of Chengdu Xin Hua Xin Chemical Company Limited contributed cash capital of RMB38,770,000 and RMB44,700,000, respectively, to Chengdu Xin Hua Xin Chemical Company.
In 2010, Chengdu Ya Guang Company and a non-controlling shareholder established and contributed cash capital of RMB5,000 and RMB4,000, respectively, to Hong Kong Ya Guang Trading Company Limited.
– IIB-69 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
21. BORROWINGS
Chengdu Ya Guang Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Current Bank borrowings – Pledged (a) – 214,896 1,033,991 2,406,210 – Secured (b) – 88,900 22,000 22,000 – Unsecured 30,000 24,700 95,072 179,246
Total borrowings 30,000 328,496 1,151,063 2,607,456
Chengdu Ya Guang company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Current Bank borrowings – Secured (a) – 40,000 – – – Unsecured 30,000 – – 30,000
Total borrowings 30,000 40,000 – 30,000
Notes:
(a) Pledged borrowings were secured by Chengdu Ya Guang Group’s short term bank deposits, as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Pledged by bank deposits – 214,896 1,033,991 2,406,210
(b) Chengdu Ya Guang Company provided a one-year guarantee for a loan of Nil, RMB48,900,000, RMB22,000,000 and RMB22,000,000 in favour of Xin Hua Xin Chemical Company for each of the years ended 31 December 2008, 2009, 2010 and six months ended 30 June 2011, respectively, and Xin Hua Xin Chemical Company provided an one-year guarantee for a loan of RMB40,000,000, in favour of Chengdu Ya Guang Company for the year ended 31 December 2009.
– IIB-70 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
(c) The carrying amounts of bank borrowings are denominated in the following currencies:
Chengdu Ya Guang Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
RMB 30,000 113,600 60,000 85,500 USD – 214,896 1,091,063 2,521,956
30,000 328,496 1,151,063 2,607,456
Chengdu Ya Guang Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
RMB 30,000 40,000 – 30,000
(d) The effective interest rates (per annum) at the balance dates are as follows:
Chengdu Ya Guang Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Bank borrowings 7.13% 4.86% 4.77% 6.68%
Chengdu Ya Guang Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Bank borrowings 7.13% 6.61% 5.31% 6.06%
– IIB-71 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
(e) The exposure of the Chengdu Ya Guang Group’s and the Chengdu Ya Guang Company’s borrowings to interest rate changes are as follows:
Chengdu Ya Guang Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Fixed rates 30,000 112,091 136,986 241,306 Floating rates – 216,405 1,014,077 2,366,150
30,000 328,496 1,151,063 2,607,456
Chengdu Ya Guang Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Fixed rates 30,000 – – – Floating rates – 40,000 – 30,000
30,000 40,000 – 30,000
(f) All borrowings are repayable within one year. The carrying amounts of borrowings approximate their fair values.
22. RETIREMENT AND OTHER SUPPLEMENTAL BENEFIT OBLIGATIONS
(a) State-managed retirement plans
The employees of Chengdu Ya Guang Group participate in employee social security plans organised and administrated by the PRC government authority. Chengdu Ya Guang Group is required to contribute from 16% to 22%, depending on the applicable local regulations, of payroll costs to the state-managed retirement plans. The obligation of these Chengdu Ya Guang Group with respect to the state-managed retirement plans is to make the specified contributions.
The total cost charged to consolidated income statements is as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Contributions to state-managed retirement plans (Note 28) 8,483 9,615 10,297 7,693 6,268
– IIB-72 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
At the balance sheet date, the following amount had not been paid to the state-managed retirement plans:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Amount due to state-managed retirement plans included in trade and other payables 226 190 25 235
(b) Early retirement and supplemental benefit obligations
Chengdu Ya Guang Group and Chengdu Ya Guang Company
The amounts of early retirement and supplemental benefit obligations recognised in the consolidated balance sheets are determined as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Present value of defined benefits obligations 10,389 9,361 8,453 8,345 Unrecognised actuarial gain/(losses) 711 (53) 125 –
Liability arising from defined benefit obligations 11,100 9,308 8,578 8,345 Less: current portion (1,792) (730) (466) (466)
Non-current portion 9,308 8,578 8,112 7,879
The movements of Chengdu Ya Guang Group’s early retirement benefit and supplemental benefit obligations are as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
At beginning of the year/period 12,670 11,100 9,308 8,578 For the year – Interest costs (Note 30) 509 338 349 175 – Payment (2,790) (2,077) (1,204) (408) – Actuarial losses/(gains) 711 (53) 125 –
At end of the year/period 11,100 9,308 8,578 8,345
– IIB-73 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
The above obligations were determined based on actuarial valuations performed by an independent qualified actuarial firm, Mercer Consulting (Shanghai) Company Limited (member of the Society of Actuaries and the China Association of Actuaries), using the projected unit credit actuarial cost method.
The material actuarial assumptions used in valuing these obligations are as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Discount rates (per annum) – Supplemental retirement benefits plan 3.5% 4.1% 4.1% 4.2% – Early retirement benefit plan 1.4% 2.5% 3.5% 3.5% Mortality: Average life expectancy of residents-Supplemental retirement benefit plan 86 86 86 86
23. OTHER NON-CURRENT LIABILITIES
The amounts represented various subsidies granted by and received from local government authorities in the PRC for subsidising the research and development projects of Chengdu Ya Guang Group. The movements are as follows:
Chengdu Ya Guang Group and Chengdu Ya Guang Company
Six months ended Year ended 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
At beginning of year/period 163,398 146,303 144,949 142,434 Receipt of subsidy 38,273 18,847 14,508 2,492 Credited to consolidated income statements during the year/period (Note 26) (19,108) (20,201) (17,023) (1,535) Credited to other reserves during the year (Note 20) (36,260) – – –
At end of year/period 146,303 144,949 142,434 143,391
– IIB-74 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
24. TRADE AND OTHER PAYABLES
Chengdu Ya Guang Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade payables Amounts due to related parties (Note 37 (c)) 1,433 592 18,070 32,918 Amounts due to third parties 165,219 402,182 1,070,340 1,162,897
166,652 402,774 1,088,410 1,195,815
Bills payables 140,380 191,910 100,380 197,895
Advances from customers Advances from third parties 37,869 40,652 140,229 117,894 Advances from related parties (Note 37 (c)) 8,411 257 – –
46,280 40,909 140,229 117,894
Other payables Accrued payroll expenses 21,412 13,548 17,876 1,219 Other taxes payable 3,098 1,339 5,318 8,580 Amounts due to third parties 123,054 28,819 37,241 42,554 Deposits payable 4,271 4,565 3,438 3,586 Amounts due to related parties (Note 37 (c)) 6,763 3,553 3,407 3,815 Interest payable 2,041 47 6,239 10,864 Consideration for acquiring of an associate (i) 10,000 – – – Others 7,379 3,247 5,381 4,814
178,018 55,118 78,900 75,432
Total trade and other payables 531,330 690,711 1,407,919 1,587,036
(i) The amount represents considerations of RMB10,000,000 payable to acquire Hebi Starwave, an associate, which was settled in 2009.
– IIB-75 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Chengdu Ya Guang Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade payables Amounts due to subsidiaries 323 1,097 498 1,320 Amounts due to related parties (Note 37 (c)) – – – 4,412 Amounts due to third parties 57,148 62,165 98,490 95,034
57,471 63,262 98,988 100,766
Bills payables – – – 13,863
Advances from customers Advances from third parties 18,862 31,597 64,801 39,672
Other payables Accrued payroll expenses 19,820 10,040 13,555 – Other taxes payable 1,561 489 1,288 497 Amounts due to third parties 18,558 18,377 18,137 18,128 Deposits payable 4,271 4,565 3,098 3,417 Consideration for acquiring of an associate 10,000 – – – Amounts due to subsidiaries 28,395 29,448 29,883 39,058 Amounts due to related parties (Note 37 (c)) 4,260 – – – Others 6,105 2,642 3,631 3,740
92,970 65,561 69,592 64,840
Total trade and other payables 169,303 160,420 233,381 219,141
Notes:
(a) The carrying amounts of trade and other payables approximate their fair values.
(b) The aging analysis of the trade payables is as follows:
Chengdu Ya Guang Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Within 1 year 152,750 393,104 1,077,983 1,185,127 Over 1 year 13,902 9,670 10,427 10,688
166,652 402,774 1,088,410 1,195,815
– IIB-76 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Chengdu Ya Guang Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Within 1 year 50,449 56,007 89,533 93,596 Over 1 years 7,022 7,255 9,455 7,170
57,471 63,262 98,988 100,766
25. DEFERRED INCOME TAX
The analysis of deferred tax assets is as follows:
Chengdu Ya Guang Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Deferred income tax assets: – to be recovered after more than 12 months 3,027 2,824 2,638 2,781 – to be recovered within 12 months 28,628 21,609 24,069 20,080
31,655 24,433 26,707 22,861
Chengdu Ya Guang Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Deferred income tax assets: – to be recovered after more than 12 months 3,027 2,824 2,638 2,781 – to be recovered within 12 months 17,549 18,450 18,172 15,902
20,576 21,274 20,810 18,683
– IIB-77 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
The movements of deferred income tax account are as follows:
Chengdu Ya Guang Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
At beginning of year/period 22,263 31,655 24,433 26,707 Credited/(charged) to consolidated income statement 9,392 (7,222) 2,274 (3,846)
At end of year/period 31,655 24,433 26,707 22,861
Chengdu Ya Guang Company
Six months ended Year ended 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
At beginning of year/period 18,134 20,576 21,274 20,810 Credited/(charged) to consolidated income statement 2,442 698 (464) (2,127)
At end of year/period 20,576 21,274 20,810 18,683
The movement in deferred tax assets are as follows:
Chengdu Ya Guang Group
Retirement and other Accrued supplemental Impairment payroll Government benefit Deferred income tax assets losses expenses Tax losses subsidy obligations Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2008 15,442 3,911 28 982 1,900 22,263 Credited/(charged) to consolidated income statement 1,919 (794) 6,457 2,045 (235) 9,392
At 31 December 2008 17,361 3,117 6,485 3,027 1,665 31,655 Credited/(charged) to consolidated income statement 356 (1,381) (5,726) (203) (268) (7,222)
At 31 December 2009 17,717 1,736 759 2,824 1,397 24,433 Credited/(charged) to consolidated income statement 2,771 559 (759) (186) (111) 2,274
At 31 December 2010 20,488 2,295 – 2,638 1,286 26,707 Credited/(charged) to consolidated income statement (1,721) (2,235) – 143 (33) (3,846)
At 30 June 2011 18,767 60 – 2,781 1,253 22,861
– IIB-78 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Chengdu Ya Guang Company
Retirement and other Accrued supplemental Deferred income Impairment payroll Government benefit tax assets losses expenses subsidy obligations Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Company
At 1 January 2008 12,342 2,910 982 1,901 18,135 Credited/(charged) to consolidated income statement 568 63 2,045 (235) 2,441
At 31 December 2008 12,910 2,973 3,027 1,666 20,576 Credited/(charged) to consolidated income statement 2,637 (1,467) (203) (269) 698
At 31 December 2009 15,547 1,506 2,824 1,397 21,274 Credited/(charged) to consolidated income statement (695) 527 (186) (110) (464)
At 31 December 2010 14,852 2,033 2,638 1,287 20,810 Credited/(charged) to consolidated income statement (203) (2,033) 143 (34) (2,127)
At 30 June 2011 14,649 – 2,781 1,253 18,683
26. OTHER INCOME
Chengdu Ya Guang Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Government subsidies 19,108 20,201 17,023 5,883 1,535 Rental income 2,374 794 1,326 571 681 Rendering of services 1,967 1,349 865 415 792 Gain/(loss) on sales of materials 78 253 100 78 (8)
23,527 22,597 19,314 6,947 3,000
– IIB-79 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
27. OTHER GAINS - NET
Chengdu Ya Guang Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Gain/(loss) on disposal of property, plant and equipment (Note 34) (237) (93) (101) – 6 Compensation income 598 1,700 12 – – Gain from waiver of debt 2,728 –––– Gain on disposal of associates (Note 12) – 30 332 332 – Gain on disposal of subsidiary (Note 34) – 1,643 – – – Others 635 (23) 208 64 (6)
3,724 3,257 451 396 –
28. EMPLOYEE BENEFIT EXPENSES
Chengdu Ya Guang Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Wages, salaries and welfare 41,006 41,901 58,158 31,350 25,511 Contribution to pension plans ((a) & Note 22 (a)) 8,483 9,615 10,297 7,693 6,268 Retirement and other supplemental benefit obligations (b) 1,220 285 474 179 175 Trade union and employee education costs 1,207 893 1,052 157 128 Housing benefits (c) 2,952 3,803 2,148 2,467 2,010
54,868 56,497 72,129 41,846 34,092
(a) The employees of Chengdu Ya Guang Group participate in various retirement benefit plans organised by the relevant municipal government in the PRC to which Chengdu Ya Guang Company is required to make monthly contributions which are calculated on certain percentage of the average employee salary as agreed by local municipal government to the scheme to fund the retirement benefits of the employees.
– IIB-80 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
(b) Early retirement benefits are recognised in the consolidated income statements in the period in which Chengdu Ya Guang Group entered into an agreement specifying the terms of redundancy or after the individual employee had been advised of the specific terms. These specific terms vary among the terminated and early retire employees depending on various factors including position, length of service and location of employee concerned.
Chengdu Ya Guang Group also provided supplemental pension subsidies to certain employees who retired before 31 December 1998. The costs of providing these pension subsidies are charged to the consolidated income statements in periods when employees providing service to Chengdu Ya Guang Company.
(c) These represent contributions to the government-sponsored housing funds at rates ranging from 6% to 9% of the employees’ basic salary in the PRC.
(d) Directors emoluments
Three, three, two, two (unaudited) and two directors received emoluments for their services provided to Chengdu Ya Guang Company for the years ended 31 December 2008, 2009 and 2010, and six months ended 30 June 2010 and 2011 respectively. The other directors of Chengdu Ya Guang Company received emoluments from the immediate holding company of Chengdu Ya Guang Company.
The remuneration of directors of the Chengdu Ya Guang that received emoluments for their services provided to the Chengdu Ya Guang Group is set out below:
For the year ended 31 December 2008:
Employer’s contribution Discretionary Other to pension Name of directors Fees Salary bonuses benefits scheme Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
He Fang – 180 – – 68 248 Wang Zhonglu – 180 – – 68 248 Cao Junbo – 180 – – 69 249
– 540 – – 205 745
For the year ended 31 December 2009:
Employer’s contribution Discretionary Other to pension Name of directors Fees Salary bonuses benefits scheme Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
He Fang – 255 – – 89 344 Wang Zhonglu – 250 – – 87 337 Cao Junbo – 381 – 88 218 687 Wang Mingchuan –––––– ZengJun –––––– YouLei ––––––
– 886 – 88 394 1,368
– IIB-81 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
For the year ended 31 December 2010:
Employer’s contribution Discretionary Other to pension Name of directors Fees Salary bonuses benefits scheme Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
He Fang – 464 – – 176 640 Wang Zhonglu – 409 – – 156 565 Wang Mingchuan –––––– ZengJun –––––– YouLei ––––––
– 873 – – 332 1,205
For the six months ended 30 June 2010 (unaudited):
Employer’s contribution Discretionary Other to pension Name of directors Fees Salary bonuses benefits scheme Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
He Fang – 403 – – 153 556 Wang Zhonglu – 359 – – 137 496 Wang Mingchuan –––––– ZengJun –––––– YouLei ––––––
– 762 – – 290 1,052
For the six months ended 30 June 2011:
Employer’s contribution Discretionary Other to pension Name of directors Fees Salary bonuses benefits scheme Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
He Fang – 387 – – 158 545 Wang Zhonglu – 403 – – 165 568 Wang Mingchuan –––––– ZengJun –––––– YouLei ––––––
– 790 – – 323 1,113
– IIB-82 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
(e) Five highest paid individuals
The five individuals whose emoluments were the highest in Chengdu Ya Guang Group include three, three, two, two (unaudited) and two directors for the years ended 31 December 2008, 2009 and 2010 and six months ended 30 June 2010 and 2011, whose emoluments are reflected in the analysis presented above. The emoluments payable to the remaining two, two, three, three (unaudited) and three individual for the years ended 31 December 2008, 2009 and 2010 and six months ended 30 June 2010 and 2011 are as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Basic salaries, bonuses, allowances and benefits in kind 523 702 1,726 1,504 1,275
The emoluments fell within the following bands:
No. of individuals Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 (unaudited)
Emolument bands Under RMB1,000,000 22333
29. EXPENSES BY NATURE
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Goods purchased (Note 15) 159,491 132,222 281,297 81,373 158,680 Changes in inventories (Note 15) 782,242 1,654,564 3,437,434 1,477,919 3,432,295 Employee benefit expenses (Note 28) 54,868 56,497 72,129 41,846 34,092 Depreciation of property, plant and equipment (Note 8) 11,986 11,047 30,166 15,278 16,465 Amortisation of land use rights (Note 7 ) 793 814 805 402 402 Research and development expenditure 18,636 27,821 20,292 4,475 1,407 Transportation expenses 6,933 7,776 9,715 5,413 5,736 Travelling expenses 6,359 7,039 9,089 3,183 3,462 Utility expenses 7,498 10,177 11,902 5,362 6,214 Entertainment expenses 7,431 7,393 8,145 2,848 3,401 Business taxes and other levies 3,660 4,652 8,343 3,548 6,877 Property management fee 1,737 2,028 2,558 916 813 Maintenance expenses 1,436 1,380 1,782 667 810 Impairment charge (Notes 6) 24,343 24,962 11,382 29,792 6,475 Other expenses 8,618 38,619 31,032 6,769 39,893
Total cost of sales, administrative expenses and distribution costs 1,096,031 1,986,991 3,936,071 1,679,791 3,717,022
– IIB-83 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
30. FINANCE COSTS – NET
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Finance costs: Bank interests 12,221 7,217 26,957 5,993 23,798 Discounted bills 1,130 1,476 1,825 1,008 1,498 Retirement benefit obligations interest cost (Note 22 (b)) 509 338 349 179 175 Net foreign exchange loss on finance activities 121 ––––
13,981 9,031 29,131 7,180 25,471
Finance income: Interest income on bank deposits (5,081) (5,903) (18,176) (1,080) (20,143) Net foreign exchange gain on finance activities – (944) (33,803) (2,799) (53,882)
(5,081) (6,847) (51,979) (3,879) (74,025)
Finance costs/(income) – net 8,900 2,184 (22,848) 3,301 (48,554)
31. INCOME TAX EXPENSE
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Current income tax – PRC income tax 17,993 21,687 22,871 7,318 13,640 – Hong Kong income tax – – 905 – 141 Deferred income tax (9,392) 7,222 (2,274) (5,317) 3,846
8,601 28,909 21,502 2,001 17,627
Taxation has been provided at the appropriate tax rates prevailing in the countries in which Chengdu Ya Guang Group operates. The rate applicable for income tax in the PRC is 25%, unless preferential rates were applicable.
For the subsidiary incorporated in Hong Kong, the corporate income tax rate applicable for income tax is 16.5% in Relevant Periods.
For certain subsidiaries established in Shenzhen special economic zone, the original corporate income tax rate was 15%. In accordance with relevant provision of the corporate income tax law, the corporate income tax rate of these subsidiaries will transit to 25% in five years from 2008 to 2012. The corporate income tax rate was 18%, 20%, 22% and 24% for the years ended 31 December 2008, 2009, 2010 and six months ended 30 June 2010 and 2011.
– IIB-84 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Chengdu Ya Guang Company was established in Chengdu, Sichuan province. It was eligible for preferential tax policies applicable for the development of western regions in the PRC, and entitled to a preferential income tax rate of 15% for the years ended 31 December 2008, 2009, 2010 and six months ended 30 June 2010 and 2011.
The taxation on Chengdu Ya Guang Group’s profit before income tax differs from the theoretical amount that would arise using the applicable tax rate, being the weighted average of tax rates prevailing in the territories in which the Chengdu Ya Guang Group operates, as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Profit before income tax 67,370 139,584 108,143 16,364 80,643
Tax calculated at domestic applicable tax rate 7,455 28,742 18,667 761 16,526 Expenses not deductible for taxation purposes 1,117 99 2,411 1,310 233 Tax effect on change of tax rate (52) (153) (101) (70) (56) Utilisation of unrecognised tax loss previously – (81) – – – Tax losses for which no deferred income tax assets was recognised 81 302 525 – 924
Income tax expenses 8,601 28,909 21,502 2,001 17,627
The tax effect of deductible tax losses that were not recognised as deferred income tax assets was as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Year ended 31 December 2012 ––––90 Year ended 31 December 2013 81 – 90 302 525 Year ended 31 December 2014 – 302 – – – Year ended 31 December 2015 – – 525 – – Year ended 30 June 2016 ––––924
81 302 615 302 1,539
– IIB-85 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
32. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the profit attributable to equity holders of Chengdu Ya Guang Company by the weighted average number of shares in issue during the year/period.
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Profit attributable to equity holders of Chengdu Ya Guang Company 57,728 85,888 77,684 19,826 47,961
Weighted average number of ordinary shares in issue (thousands) 68,651 68,651 68,651 68,651 68,651
Basic and diluted earnings per share (RMB per share) 0.84 1.25 1.13 0.29 0.70
There are no potential dilutive shares at 31 December 2008, 2009, 2010, and 30 June 2010 and 2011.
33. DISTRIBUTIONS
Dividends issued by Chengdu Ya Guang Company to the equity holders of Chengdu Ya Guang Company are as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Dividends issued 34,325 34,325 41,191 41,191 41,191
The Board of directors issued dividend of RMB0.5, 0.5, 0.6, 0.6 and 0.6 per share during each of the years ended 31 December 2008, 2009 and 2010 and six months ended 30 June 2010 and 2011.
– IIB-86 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
34. CASH GENERATED FROM OPERATIONS
Reconciliation of profit before income tax for the year/period to cash generated from operations:
Six months ended Year ended 31 December 30 June Note 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Profit before income tax 67,370 139,584 108,143 16,364 80,643 Adjustments for: – Depreciation of property, plant and equipment 8 11,986 11,047 30,166 15,278 16,465 – Amortization of land use rights 7 793 814 805 402 402 – Impairment charge 6 24,343 24,962 11,382 29,792 6,475 – (Profit)/loss on disposal of property, plant and equipment 27 237 93 101 – (6) – Gain on disposal of associates 27 – (30) (332) (332) – – Gain on disposal of subsidiary 27 – (1,643) – – – – Finance cost – net 30 8,900 2,184 (22,848) 3,301 (48,554) – Share of loss/(profits) of associates 12 16 (10) (309) 198 (407) – Share of profit of a joint venture 11 (821) (1,616) (2,788) (1,505) (2,255) – Government subsidies 26 (19,108) (20,201) (17,023) (5,883) (1,535)
Changes in working capital – Pledged bank deposits (80,911) (130,832) 67,795 1,370,505 (90,995) – Inventories 97,560 (190,864) (619,202) (47,723) 187,523 – Trade and other receivables (43,356) (61,420) (271,040) (740,891) (379,447) – Trade and other payables 5,505 233,805 732,334 (639,342) 231,957
Cash generated from/(used in) operations 72,514 5,873 17,184 164 266
In the consolidated cash flow statements, proceeds from sales of property, plant and equipments comprise:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Net book amount (Note 8) 314 347 2,287 1,398 734 Gain/(loss) on disposal of property, plant and equipment (Note 27) (237) (93) (101) – 6
Proceeds from disposal of property, plant and equipment 77 254 2,186 1,398 740
– IIB-87 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
In June 2009, the Group disposed of 95.24% equity interest in Huizhou Ya Guang Bank Union Chemical Engineering Company Limited (the “Huizhou Ya Guang”) to a third party, the cash flows from the disposal are as follows:
RMB’000
Consideration received – Cash consideration 2,500 Less: Cash and cash equivalents held by Huizhou Ya Guang (365)
Net cash received from disposal 2,135
The net assets of Huizhou Ya Guang are as follows:
On disposal 31 December date 2008 RMB’000 RMB’000
Current assets 1,743 16,870 Non-current assets 104 549 Current liabilities (183) (15,571)
Net assets 1,664 1,848
The revenue, expenses and net loss from 1 January 2009 to date of disposal are as follows:
RMB’000
Revenue 2,849 Less: Cost of sales (3,032)
Loss before tax (183) Less: Income tax –
Net loss (183)
In June 2009, the Group disposed 89.53% equity interest in Sichuan Ya Guang Bank Union Trading Company Limited (“Sichuan Ya Guang”) to a third party, the cash flows from the disposal are as follows:
RMB’000
Consideration received – Cash consideration 4,700 Less: Cash and cash equivalents held by Sichuan Ya Guang (175)
Net cash received from disposal 4,525
– IIB-88 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
The net assets of Sichuan Ya Guang are as follows:
On disposal 31 December date 2008 RMB’000 RMB’000
Current assets 4,422 5,295 Non-current assets 329 347 Current liabilities (285) (891)
Net assets 4,466 4,751
The revenue, expenses and net loss from 1 January 2009 to date of disposal are as follows:
RMB’000
Revenue 592 Less: Cost of sales (877)
Loss before tax (285) Less: Income tax –
Net loss (285)
Other gains arisen from the above disposal of subsidiaries are as follows:
Huizhou Ya Sichuan Ya Guang Guang Total RMB’000 RMB’000 RMB’000
Consideration received 2,500 4,700 7,200
Less: Net assets of subsidiaries disposed 1,664 4,466 6,130 Less: Non-controlling interests – (573) (573)
Net assets disposed of 1,664 3,893 5,557
Other gain from disposal 836 807 1,643
35. CAPITAL COMMITMENTS
(a) Capital commitments at the balance sheet date but not yet incurred are as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Contracted but not provided for – purchase of property, plant and equipment 3,530 23,257 18,440 9,240
– IIB-89 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
(b) Operating lease commitments
The future aggregate minimum lease expense under non-cancellable operating leases in respect of buildings is payable as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
No later than 1 year 1,222 809 1,464 548 Later than 1 year and no later than 5 years 2,034 2,096 3,293 1,488 Later than 5 years 85–––
3,341 2,905 4,757 2,036
36. BUSINESS COMBINATION
On 19 June 2008, Xin Hua Xin Chemical Company acquired 100% of the equity interests in Sichuan Jin Yan from a third party for expanding its trading capacity in chemical materials. The principal activities of Sichuan Jing Yan are trading of chemical materials. At the acquisition date, the fair value of the net assets of Sichuan Jin Yan amounted to RMB1,259,000 and there was a goodwill of RMB14,101,000 arising from the business combination.
Consideration: RMB’000
Cash 15,360
At acquisition Recognised amounts of identifiable assets acquired, liabilities assumed date RMB’000
Cash and cash equivalents 18,107 Trade and other receivables 79,450 Inventory 81,696 Property, plant and equipment (Note 8) 2,853 Trade and other payables (180,394) Current income tax liabilities (453)
Total identifiable net assets 1,259
Non-controlling interests –
Goodwill 14,101
Inflow of cash to acquire business, net of cash acquired: – cash in subsidiary acquired 18,107 – cash consideration (15,360)
Cash inflow on acquisition 2,747
– IIB-90 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Revenue of RMB509,536,000 has been recognized by Sichuan Jing Yan since 19 June 2008. It contributed a loss of RMB12,264,000 over the period from 19 June 2008 to 31 December 2008.
Had Sichuan Jing Yan been consolidated from 1 January 2008, the consolidated income statement would share a loss of RMB11,817,000.
37. RELATED PARTY TRANSACTIONS
Chengdu Ya Guang Group is controlled by CATIC Shenzhen Company, a state-controlled company established in the PRC which owns 55.91% of the Chengdu Ya Guang Group’s equity interest. The remaining shares are held by various investors, none of which hold more than 20% of shares. The directors of the Chengdu Ya Guang regard CATIC Shenzhen Company and Aviation Industry Corporation of China being the holding company and ultimate holding company respectively.
Related parties include Chengdu Ya Guang Company’s holding company, ultimate holding company, its subsidiaries, other state-controlled enterprises and their subsidiaries directly or indirectly controlled by the PRC government, corporations on which the Company is able to control or exercise significant influence, key management personnel of the company, holding company and its ultimate holding company and their close family members.
The following transactions were carried out with related parties:
(a) Significant transactions with related parties
Chengdu Ya Guang Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Sales of goods to related parties – a joint venture 1,905 1,755 2,070 1,004 1,223 – associates 16,369 22,648 – – –
18,274 24,403 2,070 1,004 1,223
Chengdu Ya Guang Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Purchases of goods from related parties – holding company ––––43,323 – a joint venture 3,822 2,401 5,010 2,764 6,392 – associates – – 66,863 50,578 –
3,822 2,401 71,873 53,342 49,715
– IIB-91 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Chengdu Ya Guang Company
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Sales of goods to related parties – subsidiaries 98 9,186 15,937 134 719 – a joint venture 1,905 1,755 2,070 1,004 1,223 – associates 71 3–––
2,074 10,944 18,007 1,138 1,942
Chengdu Ya Guang Company
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Purchases of goods from related parties – subsidiaries 889 1,106 – – 4,731 – associates ––––5,145
889 1,106 – – 9,876
(b) Key management compensation
Key management includes directors, supervisors and other senior managers. The compensation paid or payable to key management for employee services is shown below:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Basic salaries, allowances and benefits in kind 1,516 2,650 2,931 2,556 2,583
– IIB-92 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
(c) Significant balance with related parties
The balances with related party companies are non-interest bearing and repayable on demand.
Chengdu Ya Guang Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade receivables from related parties (Note 16) – a joint venture 208 40 233 490 – associates 139––
221 49 233 490
Other receivables from related parties (Note 16) – a joint venture 124 124 131 249 – non-controlling shareholder of a subsidiary 618 421 – 23,750 – associates 8,228 16,520 7,495 12,738
8,970 17,065 7,626 36,737
9,191 17,114 7,859 37,227
Chengdu Ya Guang Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade payables due to related parties (Note 24) – a joint venture 1,208 592 1,070 3,643 – non-controlling shareholder of a subsidiary 198 – – – – the holding company 27 – – 24,865 – associates – – 17,000 4,410
1,433 592 18,070 32,918
Other payables due to related parties (Note 24) – non-controlling shareholder of a subsidiary 2,503 3,553 3,407 3,815 – associates 4,260 – – –
6,763 3,553 3,407 3,815
8,196 4,145 21,477 36,733
– IIB-93 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
Chengdu Ya Guang Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Advances from related parties (Note 24) – associates 8,411 257 – –
Chengdu Ya Guang Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade receivables from related parties (Note 16) – a joint venture 209 40 233 490 – associates 139––
222 49 233 490
Other receivables from related parties (Note 16) – a joint venture 124 124 131 248 – associates 1,196 11,220 7,495 7,561
1,320 11,344 7,626 7,809
1,542 11,393 7,859 8,299
Chengdu Ya Guang Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade payables due to related parties (Note 24) – a joint venture –––2 – associates – – – 4,410
– – – 4,412
Other payables due to related parties (Note 24) – associates 4,260 – – –
4,260 – – 4,412
38. EVENTS AFTER THE END OF REPORTING PERIOD
No significant events occurred subsequent to 30 June 2011 and up to the date of this report.
– IIB-94 – APPENDIX IIB FINANCIAL INFORMATION OF THE TARGET GROUP
III SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by the Chengdu Ya Guang Company in respect of any period subsequent to 30 June 2011 up to the date of this report. No dividend or distribution has been declared or made by the Chengdu Ya Guang Company in respect of any period subsequent to 30 June 2011.
Yours faithfully,
PricewaterhouseCoopers Certified Public Accountants Hong Kong
– IIB-95 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
The following is the text of the report on Lutong Company received from the Company’s reporting accountant, PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.
The Directors CATIC Shenzhen Holdings Limited
23 December 2011
Dear Sirs,
We report on the financial information of AVIC Lutong Company Limited (“Lutong Company”) which comprises the balance sheet of Lutong Company as at 30 June 2011 and the income statement, the statement of comprehensive income, the statement of changes in equity and the cash flow statement of Lutong Company for the period from 1 February 2011 to 30 June 2011 (the “Relevant Period”), and a summary of significant accounting policies and other explanatory information. The financial information has been prepared by the directors of CATIC Shenzhen Holdings Limited (the “Company”) and is set out in Sections I to III below for inclusion in Appendix IIC to the circular of the Company dated 23 December 2011 (the “Circular”) in connection with the proposed acquisition of Lutong Company by the Company.
Lutong Company was incorporated in the People’s Republic of China (the “PRC”) on 1 February 2011 with limited liability under the Company Law of the PRC.
No audited financial statements have been prepared by Lutong Company as it is newly incorporated.
The directors of Lutong Company during the Relevant Period are responsible for the preparation and fair presentation of the financial statements of Lutong Company in accordance with the Accounting Standards for Business Enterprises of the People’s Republic of China, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
– IIC-1 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
For the purpose of this report, the directors of the Company have prepared the financial statements of Lutong Company for the Relevant Period (the “Underlying Financial Statements”) in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (the “IASB”). The Underlying Financial Statements were audited by PricewaterhouseCoopers Zhong Tian CPAs Limited Company (“普華永道中天會計師事務所有限公司”) in accordance with International Standards on Auditing issued by the International Auditing and Assurance Standards Board (“IAASB”) pursuant to separate terms of engagement with the Company.
The directors of the Company are responsible for the preparation of the Underlying Financial Statements that gives a true and fair view in accordance with IFRSs.
The financial information has been prepared based on the Underlying Financial Statements, with no adjustment made thereon.
Directors’ Responsibility for the Financial Information
The directors of the Company are responsible for the preparation of the financial information that gives a true and fair view in accordance with IFRSs and accounting policies adopted by the Company and its subsidiaries (together, the “Group”) as set out in the audited annual consolidated financial statements of the Company for the year ended 31 December 2010 as set out in Appendix I to the Circular.
Reporting Accountant’s Responsibility
Our responsibility is to express an opinion on the financial information and to report our opinion to you. We carried out our procedures in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).
Opinion
In our opinion, the financial information gives, for the purpose of this report, a true and fair view of the state of affairs of Lutong Company as at 30 June 2011 and of Lutong Company’s results and cash flows for the Relevant Period then ended.
– IIC-2 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
I FINANCIAL INFORMATION OF THE COMPANY
The following is the financial information of Lutong Company prepared by the directors of the Company as at 30 June 2011 and for the period from 1 February 2011 to 30 June 2011.
Balance sheet
As at Note 30 June 2011 RMB’000
Assets Non-current assets Property, plant and equipment 6 3,903 Intangible assets 7 121 Deferred income tax assets 14 476
4,500
Current assets Inventories 8 37,389 Trade and other receivables 9 293,351 Restricted cash 10 9,295 Cash and cash equivalents 11 40,140
380,175
Total assets 384,675
Equity Equity attributable to the shareholders of the company Paid-in capital 12 300,000 Retained earnings (1,920)
Total equity 298,080
Liabilities Current liabilities Trade and other payables 15 16,595 Amount due to a fellow subsidiary 13 70,000
86,595
Total liabilities 86,595
Total equity and liabilities 384,675
Net current assets 293,580
Total assets less current liabilities 298,080
– IIC-3 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
Income statement
Period from 1 February 2011 Note to 30 June 2011 RMB’000
Revenue 8,862 Cost of sales 16 (7,017)
Gross profit 1,845 Selling and distribution costs 16 (1,766) Administrative expenses 16 (2,205) Other gain 18 54
Operating loss (2,072) Finance income 265 Finance costs (589)
Finance costs – net 19 (324)
Loss before income tax (2,396) Income tax 20 476
Loss for the period attributable to shareholders of the company (1,920)
Earnings per share 21 N/A
– IIC-4 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
Statement of comprehensive income
Period from 1 February 2011 to 30 June 2011 RMB’000
Loss for the period (1,920) Other comprehensive income for the period, net of tax –
Total comprehensive income for the period attributable to shareholders of the company (1,920)
– IIC-5 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
Statement of changes in equity
Paid-in Accumulated capital losses Total equity RMB’000 RMB’000 RMB’000
Capital contribution 300,000 – 300,000 Loss for the period – (1,920) (1,920)
At 30 June 2011 300,000 (1,920) 298,080
– IIC-6 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
Cash flow statement
Period from 1 February 2011 to Note 30 June 2011 RMB’000
Cash flows from operating activities Cash generated from operations 22 (325,403) Interest paid (589) Interest received 265
Net cash used in operating activities (325,727)
Cash flows from investing activities Purchases of property, plant and equipment and intangible assets (4,133)
Net cash used in investing activities (4,133)
Cash flows from financing activities Proceeds from borrowings 70,000 Capital contributions 300,000
Net cash generated from financing activities 370,000
Net increase in cash and cash equivalents, and cash and cash equivalents at end of the period 40,140
– IIC-7 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
II NOTES TO THE FINANCIAL INFORMATION
1. GENERAL INFORMATION
AVIC Lutong Company Limited (“Lutong Company”) is principally engaged in the sales of axletrees, insulated membranes and bitumen.
Lutong Company is a limited liability company incorporated in the PRC. The registered address of Lutong Company is 19F, Guangdong International Building, No. 339, Huan Shi Dong Road, Yuexiu District, Guangzhou, Guangdong, PRC.
The financial information of Lutong Company (the “Financial Information”) is presented in RMB, unless otherwise stated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of preparation
The Financial Information has been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). The Financial Information has been prepared under the historical cost convention.
The preparation of the financial information in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying Lutong Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Financial Information are disclosed in note 4.
As at the date of this report, the following new standards, amendments and interpretations to existing standards have been published, but are not yet effective during the Relevant Periods and have not been early adopted by Lutong Company.
The new standards amendments and interpretations to existing standards are not expected to have a significant impact to Lutong Company.
• IAS 1 (Amendment), “Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income” (effective for annual periods beginning on or after 1 July 2012).
• IAS 12 (Amendment), ’’Deferred Tax: Recovery of Underlying Assets’’ (effective for annual periods beginning on or after 1 January 2012).
• IAS 19 (Amendment), “Employee Benefits” (effective for annual period beginning on or after 1 January 2013). The new standard is not expected to have a significant impact to Lutong Company.
• IFRS 7 (Amendment), ’’Financial Instruments: Disclosures’’ (effective for annual periods beginning on or after 1 July 2011).
• IFRS 9, ’’Financial Instruments’’ (effective for annual periods beginning on or after 1 January 2013).
• IFRS 10, “Consolidated Financial Statements” and the consequential amendments to IAS 27 “Consolidated and Separate Financial Statements” (effective for annual periods beginning on or after 1 January 2013).
– IIC-8 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
• IFRS 11, “Joint Arrangements” and the consequential amendment to IAS 28, “Investments in Associates” (effective for annual periods beginning on or after 1 January 2013).
• IFRS 12, “Disclosure of interests in other entities” (effective for annual periods beginning on or after 1 January 2013).
• IFRS 13, “Fair Value Measurement” (effective for annual periods beginning on or after 1 January 2013).
2.2 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board of directors that makes strategic decisions.
2.3 Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of Lutong Company are measured using the currency of the primary economic environment in which the entity operates (’the functional currency’). The Financial Information are presented in Renminbi (’’RMB’’), which is Lutong Company’s functional and presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within “finance income or cost”. All other foreign exchange gains and losses are presented in profit or loss within “other (losses)/gains – net”.
2.4 Property, plant and equipment
Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment loss. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to Lutong Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
– IIC-9 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
Depreciation on property, plant and equipment is calculated using the straight-line method to allocate their costs to their residual values over their estimated useful lives, as follows:
Useful lives
– Leasehold improvement 3years – Vehicles 5years – Other equipment 5years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposal are determined by comparing proceeds with carrying amount and are charged to profit and loss.
2.5 Intangible assets
Computer software
Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on a straight-line basis over their estimated useful lives of 3 years.
2.6 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average method. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
2.7 Impairment of non-financial assets
Assets that have an indefinite useful life, are not subject to amortisation and are tested annually for impairment. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
2.8 Trade and other receivables
Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.
2.9 Cash and cash equivalents
Cash and cash equivalents includes cash in hand and deposits held at call with banks with original maturities of three months or less.
– IIC-10 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
2.10 Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
2.11 Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.
Borrowings are classified as current liabilities unless Lutong Company has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.
2.12 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the country where the Lutong Company operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on the taxable entity where there is an intention to settle the balances on a net basis.
– IIC-11 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
2.13 Employee benefits
Pension obligations and other supplementary benefit obligations.
The full-time employees in the PRC are covered by various government sponsored pension plans under which the employees are entitled to a monthly pension based on certain formulas. The relevant government agencies are responsible for the pension liability to these retired employees. Lutong Company contributes on a monthly basis to these pension plans. Under these plans, Lutong Company has no obligation for post-retirement benefits beyond the contributions made. Contributions to these plans are expensed as incurred.
2.14 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of Lutong Company’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts.
Lutong Company recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of Lutong Company’s activities as described below. Lutong Company bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
(a) Sales of goods
Sales of goods are recognised when Lutong Company has delivered products to the customer, the customer has accepted the products and collectability of related receivables is reasonably assured.
(b) Interest income
Interest income is recognised using the effective interest method. When a loan and receivable is impaired, Lutong Company reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loan and receivables are recognised using the original effective interest rate.
2.15 Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.
– IIC-12 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
3. FINANCIAL RISK MANAGEMENT
3.1 Financial risk factors
Lutong Company’s activities expose it to a variety of financial risks: market risk (including currency risk and cash flow interest rate risk), credit risk and liquidity risk. Lutong Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on Lutong Company’s financial performance.
(a) Market risk
(i) Foreign exchange risk
Lutong Company operates principally in mainland China and is exposed to foreign exchange risk primarily through purchase transactions that are denominated in either US Dollar (“USD”) or Japanese Yen (“JYP”) which are in a currency other than the functional currency of Lutong Company. Lutong Company manages its exposures to foreign currency transactions by monitoring the level of foreign currency receipts and payments.
In addition, the conversion of RMB into foreign currencies is subject to the rules and regulations of the foreign exchange controls promulgated by the Chinese government.
The carrying amounts of Lutong Company’s foreign currency denominated monetary liabilities at the balance sheet date are as follows:
At 30 June 2011 RMB’000
Liabilities USD 417 JPY 13,793
Total 14,210
Lutong Company has no foreign currency denominated monetary assets at the balance sheet date.
The following table shows the sensitivity analysis of a 5% increase/decrease in RMB against the relevant foreign currencies. The sensitivity analysis includes only foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates. If there is a 5% increase in RMB against the relevant currencies, the effects are as follows:
RMB’000
USD Increase in the profit for the period 16
JPY Increase in the profit for the period 529
– IIC-13 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
(ii) Cash flow interest rate risk
Lutong Company’s interest rate risk arises from borrowings. All borrowings bear floating interest rate and expose Lutong Company to cash flow interest rate risk due to fluctuation of the prevailing market interest rates.
Lutong Company does not use any derivative contracts to hedge its exposure to interest rate risk. However, management will consider hedging significant interest rate exposures should the need arise.
As at 30 June 2011, if interest rates on bank borrowings had been 100 basis points higher/lower with all other variables held constant, post-tax profit for the year would have been RMB58,893 lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings.
(b) Credit risk
The credit risk of Lutong Company mainly arises from cash and cash equivalents, restricted cash and trade and other receivables (except for prepayments to suppliers and staff advances). The carrying amounts of these balances represent Lutong Company’s maximum exposure to credit risk in relation to financial assets.
Substantially all of Lutong Company’s cash and cash equivalents are held in major financial institutions located in the PRC, which are of high credit quality. None of cash at bank and restricted cash of Lutong Company that were fully performing has been renegotiated during the Relevant Period.
For other receivables, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the board. The utilisation of credit limits is regularly monitored.
Lutong Company has policies in place to ensure that products are sold to customers with appropriate credit history and Lutong Company performs periodic credit evaluations of its customers. The directors consider Lutong Company does not have a significant concentration of credit risk. No single customer accounted for more than 5% of Lutong Company’s total revenues during the Relevant Period.
(c) Liquidity risk
Lutong Company adopts prudent liquidity risk management which includes maintaining sufficient bank balances and cash, having available funding through an adequate amount of committed credit facilities.
– IIC-14 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
The table below analyses Lutong Company’s financial liabilities into relevant maturity groupings based on the remaining period at the end of the reporting period to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Less Between Between than 1 1 and 2 2 and 5 year years years Total RMB’000 RMB’000 RMB’000 RMB’000
As at 30 June 2011 Borrowings (principal amount plus interest) 73,828 – – 73,828 Trade and other payables (excluding other taxes payable) 14,989 – – 14,989
3.2 Capital risk management
Lutong Company’s objectives when managing capital are to safeguard Lutong Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, Lutong Company will monitor the operating cash flow generated from operations and available banking facilities to match its capital expenditures and dividend outflow payments.
Consistent with others in the industry, Lutong Company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash and cash equivalents. Total capital is calculated as equity, as shown in the balance sheet, plus net debt.
Lutong Company’s strategy was to maintain a solid capital base to support the operations and development of its business in the long term. Management considers a gear ratio of not more than 70% as solid and reasonable. The table below analyses Lutong Company’s capital structure at 30 June 2011:
As at 30 June 2010 RMB’000
Total borrowings (Note 13) 70,000 Less: Cash and cash equivalents (Note 11) (40,140)
Net debt 29,860
Total equity 298,080
Total capital 327,940
Gearing ratio 9%
– IIC-15 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
3.3 Fair value estimation
Lutong Company has no significant financial instruments that carried at fair value in the Relevant Period.
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Lutong Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
4.1 Provision for impairment of trade and other receivables
Lutong Company makes provision for impairment of trade and other receivables based on an assessment of the recoverability of these receivables. Provisions are applied to trade and other receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of impairment of trade and other receivables requires the use of judgement and estimates. Where the expectation is different from the original estimate, such difference will impact the carrying value of receivables and provision for impairment losses in the period in which such estimate has been changed.
4.2 Income taxes and deferred taxation
Significant judgement is required in determining the provision for income tax. There are many transactions and calculations for which the ultimate determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the income tax and deferred tax provision in the period in which such determination is made.
Deferred tax assets relating to certain temporary differences and tax losses are recognised when management considers to be probable that future taxable profit will be available against which the temporary differences or tax losses can be utilised. The outcome of their actual utilisation may be different.
5. SEGMENT INFORMATION
Lutong Company is principally engaged in trading activities and it is organized into one business segment.
All of Lutong Company’s revenue is attributable to the market in Mainland China and all of the Company’s non-current assets are located in Mainland China. No geographical information is presented.
– IIC-16 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
6. PROPERTY, PLANT AND EQUIPMENT
Leasehold Other improvement Vehicles equipment Total RMB’000 RMB’000 RMB’000 RMB’000
Period ended 30 June 2011 Additions 3,367 423 314 4,104 Depreciation (187) (4) (10) (201)
Closing net book amount 3,180 419 304 3,903
At 30 June 2011 Cost 3,367 423 314 4,104 Accumulated depreciation (187) (4) (10) (201)
Net book amount 3,180 419 304 3,903
Depreciation expenses were charged to the income statement as follows:
Period from 1 February 2011 to 30 June 2011 RMB’000
Administrative expenses 201
7. INTANGIBLE ASSETS
Intangible assets represent the cost of computer software. The movement is as follows:
Computer software RMB’000
Period ended 30 June 2011 Additions 128 Amortisation charge (7)
Closing net book amount 121
At 30 June 2011 Cost 128 Accumulated amortisation (7)
Net book amount 121
– IIC-17 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
Amortisation of the intangible assets has been charged to the income statement as follows:
Period from 1 February 2011 to 30 June 2011 RMB’000
Administrative expenses 7
8. INVENTORIES
At 30 June 2011 RMB’000
Finished goods 37,389
9. TRADE AND OTHER RECEIVABLES
At 30 June 2011 RMB’000
Trade receivables Trade receivables from third parties 2,958 Notes receivables 1,000
3,958
Less: Provision for impairment –
Trade receivables – net 3,958
Other receivables Prepayments 35,317 Other receivables from related parties (note 24(f)) 247,723 Other receivables from third parties 6,353
289,393
Less: Provision for impairment –
Other receivables – net 289,393
Total trade and other receivables 293,351
– IIC-18 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
The carrying amounts of Lutong Company’s trade and other receivables at 30 June 2011 approximate their fair values.
(a) The ageing analysis of trade receivables at respective balance sheet date is as follows:
As at 30 June 2011 RMB’000
Within 3 months 3,958
As at 30 June 2011, no trade and other receivables were past due or impaired.
10. RESTRICTED CASH
At 30 June 2011 RMB’000
Deposit pledged for letters of credit 7,295 Deposit pledged for letters of guarentee 2,000
9,295
All restricted cash was denominated in RMB as at 30 June 2011.
11. CASH AND CASH EQUIVALENTS
At 30 June 2011 RMB’000
Cash at bank and on hand 40,140
All cash and cash equivalents were denominated in RMB as at 30 June 2011.
12. PAID IN CAPITAL
Paid-in capital RMB’000
Capital injection 300,000
At 30 June 2011 300,000
The capital contribution was made by AVIC International Holdings Corporation (“AVIC International”) amounting to RMB150,000,000 and China National Aero-Technology Guangzhou Company Limited amounting to RMB150,000,000.
– IIC-19 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
13. AMOUNT DUE TO A FELLOW SUBSIDIARY
At 30 June 2011 RMB’000
Current Short-term borrowings 70,000
Total borrowings 70,000
The amount was borrowed from Aviation Industry Finance Company Limited (fellow subsidiary of Lutong Company), and the amount will be matured on 4 May 2012 and it bears an interest of 6.31% per annum, guaranteed by AVIC International.
The carrying amount approximates its fair values.
The amount was denominated in RMB as at 30 June 2011.
14. DEFERRED INCOME TAX
The analysis of deferred tax assets is as follows:
At 30 June 2011 RMB’000
Deferred income tax assets: Deferred income tax assets to be recovered within 12 months 476
The gross movement of deferred income tax account is as follows:
Period from 1 February 2011 to 30 June 2011 RMB’000
Changed to the income statement 476
End of the period 476
The movement in deferred tax assets and liabilities during the period ended 30 June 2011 without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:
Accrued payroll expenses Tax loss Total RMB’000 RMB’000 RMB’000
Recognised in profit or loss 29 447 476
At 30 June 2011 29 447 476
– IIC-20 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
15. TRADE AND OTHER PAYABLES
As at 30 June 2011 RMB’000
Trade payables Trade payables due to third parties 14,421
Other payables Advance from customers 1,482 Other payables 692
2,174
16,595
The carrying amounts of creditors and accruals approximate their fair values.
All Lutong Company’s trade payables are within 1 year.
16. EXPENSES BY NATURE
Period from 1 February 2011 to 30 June 2011 RMB’000
Depreciation and amortisation charges (Notes 6 and 7) 208 Employee benefit expenses (Note 17) 1,140 Costs of finished goods sold 7,017 Transportation expenses 290 Advertising and promotion expenses 347 Operating lease expenses 421 Other expenses 1,565
Total cost of sales, selling and distribution costs and administrative expenses 10,988
17. EMPLOYEE BENEFIT EXPENSE
Period from 1 February 2011 to 30 June 2011 RMB’000
Wages and salaries 795 Housing benefits 96 Pension costs – defined contribution plans 149 Welfare, medical and other expenses 100
1,140
– IIC-21 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
(a) Directors’ and senior management’s emoluments
The remuneration of directors for the period ended 30 June 2011 is set out below:
Name of director
Employer’s contribution Discretionary Other to pension Fee Salary bonuses benefits scheme Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Ma Jun – 50 – 9 10 69 Deng Kai – 132 – 17 10 159 Chen Qing – 57 – 11 9 77
– 239 – 37 29 305
(b) Five highest paid individuals
The five individuals whose emoluments were the highest in Lutong Company include three directors for the period ended 30 June 2011, whose emoluments are reflected in the analysis presented above. The emoluments payable to the remaining two individuals for the period ended 30 June 2011 are as follows:
Period from 1 February 2011 to 30 June 2011 RMB’000
Basic salaries, bonuses, allowances and benefits in kind 90 Retirement benefit – defined contribution scheme 12
102
The emoluments fell within the following bands:
Period from 1 February 2011 to 30 June 2011
Emolument bands Under RMB1,000,000 2
18. OTHER GAIN
Period from 1 February 2011 to 30 June 2011 RMB’000
Exchange gains 54
– IIC-22 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
19. FINANCE COSTS – NET
Period from 1 February 2011 to 30 June 2011 RMB’000
Interest expense: – Amount due to a fellow subsidiary (note 24(f)) 589
Finance income – Interest income (242) – Interest income from a fellow subsidiary (note 24(e)) (23)
Finance costs – net 324
20. INCOME TAX
The amounts of taxation charged to profit or loss represent:
Period from 1 February 2011 to 30 June 2011 RMB’000
Deferred income tax (476)
Taxation has been provided at the appropriate tax rates prevailing in the countries in which AVIC Lutong operates. The rates applicable for income tax in mainland China is 25% for the period ended 30 June 2011 and as at 30 June 2011.
The tax on Lutong Company’s loss before tax differs from the theoretical amount that would arise using the tax rate applicable to Lutong Company as follows:
Period from 1 February 2011 to 30 June 2011 RMB’000
Loss before income tax (2,396) Tax calculated at domestic tax rates (599) Expenses not deductible for tax purposes 123
Tax charge (476)
21. EARNINGS PER SHARE
No earnings per share is prepared as Lutong Company is not a company registered with share capital and the calculation of earnings per share is not relevant for Lutong Company.
– IIC-23 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
22. NOTES TO CASH FLOW STATEMENT
Period from 1 February 2011 to 30 June 2011 RMB’000
Loss before income tax (2,396) Adjustments for: – Depreciation of property, plant and equipment (Note 6) 201 – Amortisation (Note 7) 7 – Finance costs 589 – Finance income (265)
Changes in working capital: – Inventories (37,389) – Trade and other receivables (293,351) – Trade and other payables 16,496 – Addition of restricted cash (9,295)
Cash generated from operations (325,403)
23. COMMITMENTS
(a) Capital commitments
Capital commitments as at each of the balance sheet dates but not yet incurred are as follows:
At 30 June 2011 RMB’000
Property, plant and equipment – contracted but not provided for 10,498 Intangible assets – contracted but not provided for 128
10,626
(b) Operating lease commitments
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
At 30 June 2011 RMB’000
Within 1 year 1,306 Between 1 and 5 years 4,975
6,281
– IIC-24 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
24. RELATED PARTY TRANSACTIONS
Lutong Company has two shareholders, including China National Aero-Technology Guangzhou Company Limited (“the Guangzhou Company”) and AVIC International. AVIC International is the intermediate holding company of Guaugzhou Company. The directors of the Company regard Aviation Industry Corporation of China (“Aviation Industry”), a company incorporated in the PRC with limited liability, as the ultimate holding company of Lutong Company, the Guangzhou Company and AVIC International.
Shareholders are as below:
Equity Incorporated interest Company Location percentage
The Guangzhou Company Guangzhou 50% AVIC International Shenzhen 50%
The following transactions were carried out with related parties:
(a) Purchases of goods
Period from 1 February 2011 to 30 June 2011 RMB’000
– Shareholder 22,600
Goods are bought from the Guangzhou Company on normal commercial terms and conditions.
(b) Loans to a related party
Period from 1 February 2011 to 30 June 2011 RMB’000
– Fellow subsidiary 5,200
Lutong Company had entrusted loans amounted to RMB5,200,000 with an interest rate of 6.31% annually to Guangdong International Building Company Limited, which will be expired in October 2011 according to the agreement of entrusted loans.
(c) Funds to related parties
Period from 1 February 2011 to 30 June 2011 RMB’000
– Shareholder (i) 236,054 – Fellow subsidiary (ii) 5,170
241,224
– IIC-25 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
i. Funds to the shareholder were provided by Lutong Company to the Guangzhou Company for daily operations.
ii. Funds to a fellow subsidiary were provided by Lutong Company to Guizhou Qianhe Logistic Company for daily operations.
(d) Deposits
Period from 1 February 2011 to 30 June 2011 RMB’000
– Shareholder 950 – Fellow subsidiary 326
Deposits to fellow subsidiary represented the rental deposit and deposit for guarantee received.
(e) Interest income
Period from 1 February 2011 to 30 June 2011 RMB’000
– Fellow subsidiary 23
Interest income generated from the loans to Guangdong International Building Company Limited with an interest rate of 6.31% according to the agreement of entrusted loans.
(f) Interest expense
Period from 1 February 2011 to 30 June 2011 RMB’000
– Fellow subsidiary (note 19) 589
Interest expense represented the cost of the borrowings from Aviation Industry Finance Company Limited from 1 February 2011 to 30 June 2011.
(g) Rental expense
Period from 1 February 2011 to 30 June 2011 RMB’000
– Fellow subsidiary 218
Rental expense represented the costs for rental of office buildings from Guangdong International Building Company Limited according to the rental agreement.
– IIC-26 – APPENDIX IIC FINANCIAL INFORMATION OF THE TARGET GROUP
Balances with related parties as at 30 June 2011
At 30 June 2011 RMB’000 Other receivables due from – Shareholders the Guangzhou Company (note 24(c)(i)) 236,054 Aviation International (note 24(d)) 950 – Fellow subsidiaries Guangdong International Building Company Limited (note24(b),(d),(e)) 5,549 Guizhou Qianhe Logistic Company Limited (note 24(c)(ii)) 5,170
247,723
Other receivables due from related parties are unsecured.
Except for the balance due from Guangdong International Building Company Limited (note 24(b)), other receivables due from related parties are interest-free.
(h) Key management compensation
Period from 1 February 2011 to 30 June 2011 RMB’000
Salaries and other short-term employee benefits 403 Post-employment benefits 49
452
25. EVENTS AFTER THE END OF REPORTING PERIOD
No significant events occurred subsequent to 30 June 2011 and up to the date of this report.
III SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by Lutong Company in respect of any period subsequent to 30 June 2011 up to the date of this report. No dividend or distribution has been declared or made by Lutong Company in respect of any period subsequent to 30 June 2011.
Yours faithfully,
PricewaterhouseCoopers Certified Public Accountants Hong Kong
– IIC-27 – APPENDIX IID FINANCIAL INFORMATION OF THE TARGET GROUP
The following is the text of the report on Project Engineering Company received from the Company’s reporting accountant, PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.
The Directors CATIC Shenzhen Holdings Limited
23 December 2011
Dear Sirs,
We report on the financial information of AVIC-INTL Project Engineering Company Limited (“Project Engineering Company”) which comprises the balance sheet of Project Engineering Company as at 30 June 2011 and the income statement, the statement of comprehensive income, the statement of changes in equity and the cash flow statement of Project Engineering Company for the period from 28 April 2011 to 30 June 2011 (the “Relevant Period”), and a summary of significant accounting policies and other explanatory information. The financial information has been prepared by the directors of CATIC Shenzhen Holdings Limited (the “Company”) and is set out in Sections I to III below for inclusion in Appendix IID to the circular of the Company dated 23 December 2011 (the “Circular”) in connection with the proposed acquisition of Project Engineering Company by the Company.
Project Engineering Company was incorporated in the People’s Republic of China (the “PRC”) on 28 April 2011 with limited liability under the Company Law of the PRC.
No audited financial statements have been prepared by Project Engineering Company as it is newly incorporated.
The directors of Project Engineering Company during the Relevant Period are responsible for the preparation and fair presentation of the financial statements of Project Engineering Company in accordance with the Accounting Standards for Business Enterprises of the People’s Republic of China, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
– IID-1 – APPENDIX IID FINANCIAL INFORMATION OF THE TARGET GROUP
For the purpose of this report, the directors of the Company have prepared the financial statements of Project Engineering Company for the Relevant Period (the “Underlying Financial Statements”) in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (the “IASB”). The Underlying Financial Statements were audited by PricewaterhouseCoopers Zhong Tian CPAs Limited Company (“普華永道中天會計師事務所有限公司”) in accordance with International Standards on Auditing issued by the International Auditing and Assurance Standards Board (“IAASB”) pursuant to separate terms of engagement with the Company.
The directors of the Company are responsible for the preparation of the Underlying Financial Statements that gives a true and fair view in accordance with IFRSs.
The financial information has been prepared based on the Underlying Financial Statements, with no adjustment made thereon.
Directors’ Responsibility for the Financial Information
The directors of the Company are responsible for the preparation of the financial information that gives a true and fair view in accordance with IFRSs and accounting policies adopted by the Company and its subsidiaries (together, the “Group”) as set out in the audited annual consolidated financial statements of the Company for the year ended 31 December 2010 as set out in Appendix I to the Circular.
Reporting Accountant’s Responsibility
Our responsibility is to express an opinion on the financial information and to report our opinion to you. We carried out our procedures in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).
Opinion
In our opinion, the financial information gives, for the purpose of this report, a true and fair view of the state of affairs of Project Engineering Company as at 30 June 2011 and of Project Engineering Company’s results and cash flows for the Relevant Period then ended.
– IID-2 – APPENDIX IID FINANCIAL INFORMATION OF THE TARGET GROUP
I FINANCIAL INFORMATION OF THE COMPANY
The following is the financial information of Project Engineering Company prepared by the directors of the Company as at 30 June 2011 and for the period from 28 April 2011 to 30 June 2011.
Balance sheet
As at Note 30 June 2011 RMB’000
Assets Current assets Cash and cash equivalents 5 210,015
210,015
Total assets 210,015
Equity Equity attributable to the shareholder of the Company Paid in capital 210,000 Retained earnings 15
Total equity 210,015
Liabilities Total liabilities –
Total equity and liabilities 210,015
Net current assets 210,015
Total assets less current liabilities 210,015
– IID-3 – APPENDIX IID FINANCIAL INFORMATION OF THE TARGET GROUP
Income statement
Period from 28 April 2011 Note to 30 June 2011 RMB’000
Revenue – Cost of sales –
Gross profit – Administrative expenses (94)
Operating loss (94) Finance income 6 109
Profit before income tax 15 Income tax expense –
Profit for the period attributable to the shareholder of the Company 15
Earnings per share 7 N/A
– IID-4 – APPENDIX IID FINANCIAL INFORMATION OF THE TARGET GROUP
Statement of Comprehensive Income
Period from 28 April 2011 Note to 30 June 2011 RMB’000
Profit for the year 15 Other comprehensive income for the period –
Total comprehensive income for the period 15
– IID-5 – APPENDIX IID FINANCIAL INFORMATION OF THE TARGET GROUP
Statement of changes in equity
Paid-in Retained Total capital earnings equity RMB’000 RMB’000 RMB’000
Capital contribution 210,000 – 210,000 Profit for the period –1515
At 30 June 2011 210,000 15 210,015
– IID-6 – APPENDIX IID FINANCIAL INFORMATION OF THE TARGET GROUP
Cash flow statement
Period from 28 April 2011 Note to 30 June 2011 RMB’000
Cash flows from operating activities Cash generated from operations 8 15
Net cash generated from operating activities 15
Cash flows from investing activities Capital contributions 210,000
Net cash generated from investing activities 210,000
Net increase in cash and cash equivalents, and cash and cash equivalents at the end of the period 210,015
– IID-7 – APPENDIX IID FINANCIAL INFORMATION OF THE TARGET GROUP
II NOTES TO THE FINANCIAL INFORMATION
1. GENERAL INFORMATION
AVIC-INTL Project Engineering Company Limited (the “Project Engineering Company”) is a limited liability company incorporated in the PRC. The registered address of Project Engineering Company is Room 306, 3rd building, No. 16, Hong Da Bei Road, Beijing Economic and Technology Development District, PRC.
Project Engineering Company’s approved scope of business operations includes the sales of machinery and equipment (not including automobile), electronic products, instruments and apparatuses, medical appliances of I series; management measures for general contracting of investing construction, special engineering contracting; and import and export the products and technique, import and export agents. Project Engineering Company did not start its business operation during the period from 28 April 2011 to 30 June 2011.
The financial information of Project Engineering Company (the “Financial Information”) is presented in RMB, unless otherwise stated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of preparation
The Financial Information has been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). The Financial Information has been prepared under the historical cost convention.
The preparation of the financial information in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying Project Engineering Company’s accounting policies.
As at the date of this report, the following new standards, amendments and interpretations to existing standards have been published, but are not yet effective during the Relevant Period and have not been early adopted by Project Engineering Company. The new standards, amendments and interpretations to existing standards are not expected to have a significant impact to Project Engineering Company.
• IAS 1 (Amendment), “Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income” (effective for annual periods beginning on or after 1 July 2012).
• IAS 12 (Amendment), ’’Deferred Tax: Recovery of Underlying Assets’’ (effective for annual periods beginning on or after 1 January 2012).
• IAS 19 (Amendment), “Employee Benefits” (effective for annual period beginning on or after 1 January 2013).
• IFRS 7 (Amendment), ’’Financial Instruments: Disclosures’’ (effective for annual periods beginning on or after 1 July 2011).
• IFRS 9, ’’Financial Instruments’’ (effective for annual periods beginning on or after 1 January 2013).
– IID-8 – APPENDIX IID FINANCIAL INFORMATION OF THE TARGET GROUP
• IFRS 10, “Consolidated Financial Statements” and the consequential amendments to IAS 27 “Consolidated and Separate Financial Statements” (effective for annual periods beginning on or after 1 January 2013).
• IFRS 11, “Joint Arrangements” and the consequential amendment to IAS 28, “Investments in Associates” (effective for annual periods beginning on or after 1 January 2013).
• IFRS 12, “Disclosure of interests in other entities” (effective for annual periods beginning on or after 1 January 2013).
• IFRS 13, “Fair Value Measurement” (effective for annual periods beginning on or after 1 January 2013).
2.2 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board of directors that makes strategic decisions.
2.3 Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of Project Engineering Company are measured using the currency of the primary economic environment in which the entity operates (’the functional currency’). The Financial Information are presented in Renminbi (’’RMB’’), which is Project Engineering Company’s functional and the presentation currency.
(b) Transaction and balances
Foreign currency transactions are translated into the functional currency using the exchanges rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.
Foreign exchange gains and losses that related to borrowings and cash and cash equivalents are presented in the income statement within “finance income or cost”. All other foreign exchange gains and losses are presented in profit or loss within “other (losses)/gains — net”.
2.4 Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks with original maturities of three months or less.
– IID-9 – APPENDIX IID FINANCIAL INFORMATION OF THE TARGET GROUP
2.5 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the country where Project Engineering Company operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on the taxable entity where there is an intention to settle the balances on a net basis.
2.6 Employee benefits
Pension obligations and other supplementary benefit obligations
The full-time employees in the PRC are covered by various government sponsored pension plans under which the employees are entitled to a monthly pension based on certain formulas. The relevant government agencies are responsible for the pension liability to these retired employees. Project Engineering Company contributes on a monthly basis to these pension plans. Under these plans, Project Engineering Company has no obligation for post-retirement benefits beyond the contributions made. Contributions to these plans are expensed as incurred.
2.7 Revenue recognition
Interest income
Interest income is recognised using the effective interest method. When a loan and receivable is impaired, Project Engineering Company reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loan and receivables are recognised using the original effective interest rate.
2.8 Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.
– IID-10 – APPENDIX IID FINANCIAL INFORMATION OF THE TARGET GROUP
3. FINANCIAL RISK MANAGEMENT
3.1 Financial risk factors
Project Engineering Company’s activities expose it to credit risk. Project Engineering Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on Project Engineering Company’s financial performance.
Credit risk
The credit risk of Project Engineering Company mainly arises from cash and cash equivalents. The carrying amounts of these balances represent Project Engineering Company’s maximum exposure to credit risk in relation to financial assets.
Project Engineering Company expects that there is no significant credit risk associated with cash at bank since they are deposited at state-owned banks and other medium or large size listed banks. Management does not expect that there will be any significant losses from non-performance by these counterparties.
3.2 Fair value estimation
Project Engineering Company has no significant financial instruments that carried at fair value in relevant period.
3.3 Capital risk management
Project Engineering Company’s objectives when managing capital are to safeguard Project Engineering Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, Project Engineering Company will monitor the operating cash flow generated from operations and available banking facilities to match its capital expenditures and dividend outflow payments.
Consistent with others in the industry, Project Engineering Company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash and cash equivalents. Total capital is calculated as equity, as shown in the balance sheet, plus net debt.
4. SEGMENT INFORMATION
Project Engineering Company is principally engaged in trading activities and it is organized into one business segment.
Project Engineering Company did not start its business operation within the period from 28 April 2011 to 30 June 2011. No segmental information is presented.
– IID-11 – APPENDIX IID FINANCIAL INFORMATION OF THE TARGET GROUP
5. CASH AND CASH EQUIVALENTS
At 30 June 2011 RMB’000
Cash at bank and on hand 210,015
All cash and cash equivalents were denominated in RMB as at 30 June 2011.
6. FINANCE INCOME – NET
Period from 28 April 2011 to 30 June 2011 RMB’000
Financial income: – Cash at bank (109)
Finance income (109)
7. EARNINGS PER SHARE
No earning per share is presented as Project Engineering Company is not a company registered with share capital and the calculation of earnings per share is not relevant for Project Engineering Company.
8. NOTES TO CASH FLOW STATEMENT
Period from 28 April 2011 to 30 June 2011 RMB’000
Profit for the period 15
Cash generated from operations 15
9. RELATED PARTY TRANSACTIONS
Project Engineering Company is wholly owned by AVIC International Holding Corporation (“AVIC International”). The directors of Project Engineering Company regard Aviation Industry Corporation of China (“Aviation Industry”), a company incorporated in the PRC with limited liability, as their ultimate holding company.
Project Engineering Company has no related party transactions in the period from 28 April 2011 to 30 June 2011.
10. EVENTS AFTER THE END OF REPORTING PERIOD
No significant events occurred subsequent to 30 June 2011 and up to the date of this report.
– IID-12 – APPENDIX IID FINANCIAL INFORMATION OF THE TARGET GROUP
III Subsequent financial statements
No audited financial statements have been prepared by Project Engineering Company in respect of any period subsequent to 30 June 2011 up to the date of this report. No dividend or distribution has been declared or made by Project Engineering Company in respect of any period subsequent to 30 June 2011.
Yours faithfully,
PricewaterhouseCoopers Certified Public Accountants Hong Kong
– IID-13 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
The following is the text of the report on Bi Te Communication received from the Company’s reporting accountant, PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.
23 December 2011
The Directors CATIC Shenzhen Holdings Limited
Dear Sirs,
We report on the financial information of Shenzhen CATIC Bi Te Communication Technology Company Limited (the “Bi Te Communication”) which comprises the balance sheets of Bi Te Communication at 31 December 2008, 2009 and 2010 and 30 June 2011, and the income statements, the statements of comprehensive income, the statements of changes in equity and the cash flow statements of Bi Te Communication for each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011 (the “Relevant Periods”), and a summary of significant accounting policies and other explanatory information. This financial information has been prepared by the directors of CATIC Shenzhen Holdings Limited (the “Company”) and is set out in Sections I to III below for inclusion in Appendix IIE to the circular of the Company dated 23 December 2011 (the “Circular”) in connection with the proposed acquisition of Bi Te Communication by the Company.
Bi Te Communication was incorporated in the People’s Republic of China (the “PRC”) on 19 February 2002 as a company with limited liability under the Company Law of the PRC.
The statutory financial statements of Bi Te Communication for the year ended 31 December 2008 were audited by Shenzhen Nanfang Min He Certified Public Accountants (“深圳南方民和會計師事務所有限責任公司”) pursuant to separate terms of engagement with Bi Te Communication. The statutory financial statements of Bi Te Communication for each of the years ended 31 December 2009 and 2010 were audited by BDO China Li Xin Da Hua Certified Public Accountants (“立信大華會計師事務所有限公司”) pursuant to separate terms of engagement with Bi Te Communication.
– IIE-1 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
The directors of Bi Te Communication during the Relevant Periods are responsible for the preparation and fair presentation of the financial statements of Bi Te Communication in accordance with the Accounting Standards for Business Enterprises of the People’s Republic of China, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
For the purpose of this report, the directors of the Company have prepared the financial statements of Bi Te Communication for the Relevant Periods (the “Underlying Financial Statements”) in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (the “IASB”). The Underlying Financial Statements were audited by PricewaterhouseCoopers Zhong Tian CPAs Limited Company (“普華永道中天會計師事務所有限公司”) in accordance with International Standards on Auditing issued by the International Auditing and Assurance Standards Board (“IAASB”) pursuant to separate terms of engagement with the Company.
The directors of the Company are responsible for the preparation of the Underlying Financial Statements that gives a true and fair view in accordance with IFRSs.
The financial information has been prepared based on the Underlying Financial Statements, with no adjustment made thereon.
Directors’ Responsibility for the Financial Information
The directors of the Company are responsible for the preparation of the financial information that gives a true and fair view in accordance with IFRSs, and accounting policies adopted by the Company and its subsidiaries (together, the “Group”) as set out in the audited annual financial statements of the Company for the year ended 31 December 2010 as set out in Appendix I to the Circular.
Reporting Accountant’s Responsibility
Our responsibility is to express an opinion on the financial information and to report our opinion to you. We carried out our procedures in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the Hong Kong Institute of Certified Public Accountants.
Opinion
In our opinion, the financial information gives, for the purpose of this report, a true and fair view of the state of affairs of Bi Te Communication as at 31 December 2008, 2009 and 2010 and 30 June 2011 and of the results and cash flows of Bi Te Communication for the Relevant Periods then ended.
– IIE-2 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
Review of stub period comparative financial information
We have reviewed the stub period comparative financial information set out in Section I to III below included in Appendix IIE to the Circular which comprises the income statement, the statement of comprehensive income, the statement of changes in equity and the cash flow statement of Bi Te Communication for the six months ended 30 June 2010 and a summary of significant accounting policies and other explanatory information (the “Stub Period Comparative Financial Information”).
The directors of the Company are responsible for the preparation and presentation of the Stub Period Comparative Financial Information in accordance with the accounting policies set out in Note 2 and Note 3 of Section II below and the accounting policies adopted by the Group as set out in the audited annual consolidated financial statements of the Company for the year ended 31 December 2010 as set out in Appendix I to the Circular.
Our responsibility is to express a conclusion on the Stub Period Comparative Financial Information based on our review. We conducted our review in accordance with International Standard on Review Engagements 2410, ”Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the IAASB. A review of the Stub Period Comparative Financial Information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the Stub Period Comparative Financial Information, for the purpose of this report, has not been prepared, in all material respects, in accordance with the accounting policies set out in Note 2 and Note 3 of Section II below.
– IIE-3 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
I FINANCIAL INFORMATION OF BI TE COMMUNICATION
The following is the financial information of Bi Te Communication prepared by the directors of the Company as at 31 December 2008, 2009, 2010 and 30 June 2011 and for each of the years ended 31 December 2008, 2009, 2010 and the six months ended 30 June 2010 and 2011 (the ”Financial Information”).
(A) BALANCE SHEETS
At At 31 December 30 June Note 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 Assets Non-current assets Property, plant and equipment 6 1,980 2,315 2,419 2,636 Intangible assets 7 568 1,411 4,480 4,226
2,548 3,726 6,899 6,862
Current assets Inventories 8 8,735 12,907 9,873 12,954 Trade and other receivables 9 13,082 16,711 27,863 36,324 Cash and cash equivalents 10 3,423 1,951 5,798 4,410
25,240 31,569 43,534 53,688
Total assets 27,788 35,295 50,433 60,550
Equity Paid-in capital 11 5,000 5,000 5,000 30,000 Other reserves 12 5,681 5,681 5,681 5,681 Retained earnings 12 15,326 15,140 33,180 11,985
Total equity 26,007 25,821 43,861 47,666
– IIE-4 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
At At 31 December 30 June Note 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Liabilities Current liabilities Trade and other payables 14 1,781 9,474 5,350 6,461 Current income tax liabilities – – 1,222 1,423 Borrowings 13 – – – 5,000
1,781 9,474 6,572 12,884
Total liabilities 1,781 9,474 6,572 12,884
Total equity and liabilities 27,788 35,295 50,433 60,550
Net current assets 23,459 22,095 36,962 40,804
Total assets less current liabilities 26,007 25,821 43,861 47,666
– IIE-5 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
(B) INCOME STATEMENTS
Six months ended Year ended 31 December 30 June Note 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Revenue 12,260 17,386 51,615 20,083 21,781 Cost of sales 16 (1,857) (3,286) (14,460) (7,134) (5,623)
Gross profit 10,403 14,100 37,155 12,949 16,158
Selling and marketing costs 16 (2,104) (1,410) (2,818) (1,601) (1,829) Administrative expenses 16 (9,056) (12,899) (14,899) (7,673) (9,052) Other losses - net (246) – (22) (22) –
Operating (loss)/profit (1,003) (209) 19,416 3,653 5,277
Finance income 54 23 49 15 25 Finance costs ––––(65) Finance income/ (costs) - net 54 23 49 15 (40)
(Loss)/profit before income tax (949) (186) 19,465 3,668 5,237
Income tax expense 17 – – (1,425) (334) (1,432) (Loss)/profit for the year/period (949) (186) 18,040 3,334 3,805
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Distributions –––––
Earnings per share 18 N/A N/A N/A N/A N/A
– IIE-6 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
(C) STATEMENTS OF COMPREHENSIVE INCOME
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
(Loss)/profit for the year/period (949) (186) 18,040 3,334 3,805
Other comprehensive income, net of tax –––––
Total comprehensive (loss)/income for the year/period (949) (186) 18,040 3,334 3,805
– IIE-7 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
(D) STATEMENTS OF CHANGES IN EQUITY
Attributable to the equity owners of Bi Te Communication Paid-in Other Retained capital reserves earnings Total RMB’000 RMB’000 RMB’000 RMB’000
Balance at 1 January 2008 5,000 5,681 16,275 26,956
Loss and total comprehensive income for the year – – (949) (949)
Balance at 31 December 2008 5,000 5,681 15,326 26,007
Loss and total comprehensive income for the year – – (186) (186)
Balance at 31 December 2009 5,000 5,681 15,140 25,821
Profit and total comprehensive income for the year – – 18,040 18,040
Balance at 31 December 2010 5,000 5,681 33,180 43,861
Profit and total comprehensive income for the period – – 3,805 3,805
Transactions with equity owners: Transfer of retained earnings to paid-in capital 25,000 – (25,000) –
Balance at 30 June 2011 30,000 5,681 11,985 47,666
– IIE-8 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
Attributable to the equity owners of Bi Te Communication Paid-in Other Retained capital reserves earnings Total RMB’000 RMB’000 RMB’000 RMB’000
Unaudited Balance at 1 January 2010 5,000 5,681 15,140 25,821
Profit and total comprehensive income for the period – – 3,334 3,334
Balance at 30 June 2010 5,000 5,681 18,474 29,155
– IIE-9 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
(E) CASH FLOW STATEMENTS
Six months ended Year ended 31 December 30 June Note 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Cash flows from operating activities Cash generated from/(used in) operations 19 2,288 1,380 8,120 6,279 (4,566) Interest paid ––––(65) Income tax paid – – (204) – (1,231)
Net cash generated from/(used in) operating activities 2,288 1,380 7,916 6,279 (5,862)
Cash flows from investing activities Purchase of property, plant and equipment (813) (779) (623) (63) (526) Increase in intangible assets (625) (1,073) (3,446) – –
Net cash used in investing activities (1,438) (1,852) (4,069) (63) (526)
Cash flows from financing activities Proceeds from borrowings ––––5,000 Dividends paid to equity owners (4,000) (1,000) – – –
Net cash (used in)/generated from financing activities (4,000) (1,000) – – 5,000
Net (decrease)/increase in cash and cash equivalents (3,150) (1,472) 3,847 6,216 (1,388) Cash and cash equivalents at the beginning of the year/period 6,573 3,423 1,951 1,951 5,798
Cash and cash equivalents at the end of the year/period 10 3,423 1,951 5,798 8,167 4,410
– IIE-10 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
II NOTES TO THE FINANCIAL INFORMATION
1. GENERAL INFORMATION
Shenzhen CATIC Bi Te Communication Technology Company Limited (the “Bi Te Communication”) is principally engaged in development and production of military electronic communication system and products. Its shareholdings are detailed in Note 21.
Bi Te Communication is a limited liability company incorporated in the People’s Republic of China (the “PRC”). The address of its registered office is Shenzhen Software Park, KejiZhong 2nd Road, Nanshan District, Shenzhen, Guangdong Province.
The Financial Information of Bi Te Communication is presented in RMB, unless otherwise stated.
2. BASIS OF PREPARATION
The Financial Information has been prepared in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (the “IASB”). The Financial Information has been prepared under the historical cost convention.
The preparation of the Financial Information in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying Bi Te Communication’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Financial Information are disclosed in Note 5.
Changes in accounting policy and disclosures:
The following new standards and amendments to standards have been issued and are mandatory for Bi Te Communication’s accounting periods beginning on or after 1 January 2012 or later periods, and Bi Te Communication has not early adopted them
• IFRS 9 ‘Financial instruments’ addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not applicable until 1 January 2013 but is available for early adoption. This new standard is not expected to have a material impact on Bi Te Communication’s financial statements.
• IAS 12 (Amendment) ‘Deferred tax: Recovery of underlying assets’ introduces an exception to the principle for the measurement of deferred tax assets or liabilities arising on an investment property measured at fair value. IAS 12 requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. The amendment introduces a rebuttable presumption that an investment property measured at fair value is recovered entirely by sale. The amendment is applicable retrospectively to annual periods beginning on or after 1 January 2012 with early adoption permitted. This new amendment is not expected to have a material impact on Bi Te Communication’s financial statements.
• IFRS 7 (Amendment) ‘Disclosures – Transfers of financial assets’ introduces new disclosure requirement on transfers of financial assets. Disclosure is required by class of asset of the nature, carrying amount and a description of the risks and rewards of financial assets that have been transferred to another party yet remain on the entity’s balance sheet. The gain or loss on the transferred assets and any retained interest in those assets must be given. In addition, other disclosures must enable users to understand the amount of any associated liabilities, and the relationship between the financial assets and associated liabilities. The disclosures must be presented by type of ongoing involvement. The amendment is applicable to annual periods beginning on or after 1 July 2011 with early adoption permitted. This new amendment is not expected to have a material impact on Bi Te Communication’s financial statements.
– IIE-11 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
• IFRS 13, ’Fair value measurement’, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. Bi Te Communication is yet to assess IFRS13’s full impact and intends to adopt IFRS 13 no later than the accounting period beginning on or after 1 January 2012.
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on Bi Te Communication.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board of directors that makes strategic decisions.
Bi Te Communication’s revenue and profit are generated from development and production of military electronic communication system and products in the PRC, and all assets of Bi Te Communication are located in the PRC. Therefore, the board of directors consider no segmental information is necessary to be disclosed.
Bi Te Communication has a number of customers in the PRC. In periods set out below, certain customers, all located in PRC, accounted for greater than 10% of Bi Te Communication total revenues:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2011 % of total % of total % of total % of total Amount revenue Amount revenue Amount revenue Amount revenue RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Customer A 8,300 68% 9,070 52% 18,160 35% 9,050 41% Customer B 1,700 14% 7,500 43% 9,050 18% 6,700 30% Customer C 1,370 11% – – 6,700 13% 6,000 28% Customer D – – – – 6,000 12% – – Customer E – – – – 5,737 11% – –
3.2 Functional and presentation currency
Items included in the financial statements of the Bi Te Communication are measured using the currency of the primary economic environment in which the Bi Te Communication operates (‘the functional currency’). The Financial Information are presented in Renminbi (“RMB”), which is the Bi Te Communication’s functional and presentation currency.
3.3 Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment loss. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
– IIE-12 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
Depreciation of property, plant and equipment is provided using the straight-line method over their estimated useful lives, after deducting the estimated residual value. The estimated useful lives are as follows:
Motor vehicles 10 years Machinery and equipment 5 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are recognised within other gains-net, in the income statement.
3.4 Intangible assets
(a) Copyright and computer software
Acquired computer software programmes are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over the estimated useful lives of 5 years on a straight-line basis.
Cost associated with developing or maintaining computer software programmes which do not generate economic benefits are recognised as expense as incurred.
(b) Research and development
Research expenditure is recognised as an expense as incurred. Cost incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and its cost can be measured reliably. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight-line basis over its useful life, not exceeding five years.
3.5 Impairment of non-financial assets
Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
3.6 Offsetting financial instruments
Financial instruments are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amount and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
3.7 Financial assets
3.7.1 Classification
Bi Te Communication classifies its financial assets in the following categories: loans and receivables. The classification depends on the purpose for which the
– IIE-13 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. Bi Te Communication’s loans and receivables comprise ’trade and other receivables’ (Note 3.9) in the balance sheet.
3.8 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted-average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
3.9 Trade and other receivables
Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.
3.10 Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held at call with banks.
3.11 Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
3.12 Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless Bi Te Communication has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.
– IIE-14 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
3.13 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
3.14 Employee pension obligations
The full-time employees of Bi Te Communication are covered by various government-sponsored pension plans under which the employees are entitled to a monthly pension based on certain formulas. The relevant government agencies are responsible for the pension liability to these retired employees. Bi Te Communication contributes on a monthly basis to these pension plans. Under these plans, Bi Te Communication has no obligation for post-retirement benefits beyond the contributions made. Contributions to these plans are expensed as incurred.
3.15 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of Bi Te Communication’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts.
Bi Te Communication recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of Bi Te Communication’s activities as described below. Bi Te Communication bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
Sales of goods are recognised when Bi Te Communication has delivered products to the customer. The customer has accepted the products and collectability of related receivables is reasonably assured.
3.16 Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight line basis over the period of the lease.
– IIE-15 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
4. FINANCIAL RISK MANAGEMENT
4.1 Financial risk factors
Bi Te Communication’s activities expose it to a variety of financial risks: market risk (including currency risk, cash flow and fair value interest rate risk and price risk), credit risk and liquidity risk. Bi Te Communication’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on Bi Te Communication’s financial performance.
(a) Market risk
(i) Foreign exchange risk
Bi Te Communication operates principally in the PRC and was not exposed to foreign exchange risk arising from various currency exposures for each of the years ended 31 December 2008, 2009, 2010 and the six months ended 30 June 2011.
(ii) Price risk
Bi Te Communication is not significantly exposed to price risk as Bi Te Communication has no significant financial instruments that subject to change of commodity prices or equity price.
(iii) Cash flow and fair value interest rate risk
Bi Te Communication’s interest-rate risk arises from borrowings. Borrowings issued at variable rates expose Bi Te Communication to cash flow interest rate risk due to fluctuation of the prevailing market interest rates.
Bi Te Communication does not use any derivative contracts to hedge its exposure to interest rate risk. However, management will consider hedging significant interest rate exposures should the need arise.
Bi Te Communication does not significantly exposed to interest rate risk as Bi Te Communication has no long term borrowings.
(b) Credit risk
The credit risk of Bi Te Communication mainly arises from cash and cash equivalentsand trade and other receivables (except for prepayments to suppliers and staff advances). The carrying amounts of these balances represent Bi Te Communication’s maximum exposure to credit risk in relation to financial assets.
Substantially all of Bi Te Communication’s cash and cash equivalents are held in listed financial institutions located in the PRC, which management believes are of high credit quality. None of cash and cash equivalents, and trade and other receivables of Bi Te Communication that were fully performing has been renegotiated during the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2010 and 2011.
Bi Te Communication has policies in place to ensure that products are sold to customers with appropriate credit history and Bi Te Communication performs periodic credit evaluations of its customers. Normally Bi Te Communication does not require collaterals from trade debtors. The directors consider Bi Te Communication does not have a significant concentration of credit risk.
– IIE-16 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
(c) Liquidity risk
Bi Te Communication adopts prudent liquidity risk management which includes maintaining sufficient bank balances and cash, and having available funding through an adequate amount of committed credit facilities.
The table below analyses Bi Te Communication’s financial liabilities into relevant maturity groupings based on the remaining period at the end of each reporting period to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Less than 1 year RMB’000
As at 31 December 2008 Trade and other payables (excluding other taxes payable) 1,760
As at 31 December 2009 Trade and other payables (excluding other taxes payable) 9,408
As at 31 December 2010 Trade and other payables (excluding other taxes payable) 5,309
As at 30 June 2011 Borrowings 5,282 Trade and other payables (excluding other taxes payable) 6,405
11,687
4.2 Capital risk management
Bi Te Communication’s objectives when managing capital are to safeguard Bi Te Communication’s ability to continue as a going concern in order to provide returns for owners and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, Bi Te Communication will monitor the operating cash flow generated from operations and available banking facilities to match its capital expenditures and dividend outflow payments.
Bi Te Communication monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and bank balances. Total capital is calculated as “equity” as shown in the balance sheets plus net debt.
– IIE-17 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
Bi Te Communication’s strategy was to maintain a solid capital base to support the operations and development of its business in the long term. Management considers a gearing ratio of not more than 10% as solid and reasonable. The gearing ratios at 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011 are as follows:
At 31 December At 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Total borrowings – – – 5,000 Less: cash and cash equivalents (3,423) (1,951) (5,798) (4,410)
Net debt (3,423) (1,951) (5,798) 590
Total equity 26,007 25,821 43,861 47,666
Total capital 22,584 23,870 38,063 48,256
Gearing ratio NA NA NA 1%
4.3 Fair value estimation
Bi Te Communication has no assets and liabilities that are measured at fair value at the end of each reporting periods.
– IIE-18 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
4.4 Financial instruments by category
Receivables, Cash and cash equivalents RMB’000
At 30 June 2011 Assets Trade and other receivables (excluding prepayments) 35,031 Cash and cash equivalents 4,410
Total 39,441
At 31 December 2010 Assets Trade and other receivables (excluding prepayments) 27,145 Cash and cash equivalents 5,798
Total 32,943
At 31 December 2009 Assets Trade and other receivables (excluding prepayments) 16,324 Cash and cash equivalents 1,951
Total 18,275
At 31 December 2008 Assets Trade and other receivables (excluding prepayments) 12,693 Cash and cash equivalents 3,423
Total 16,116
Other financial liabilities at amortised cost At At 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Liabilities Borrowings – – – 5,000 Trade and other payables (excluding other taxes payable, payroll and advances from customers) 1,175 1,340 2,799 4,539
Total 1,175 1,340 2,799 9,539
– IIE-19 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Bi Te Communication makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
5.1 Useful lives of property, plant and equipment
Bi Te Communication’s management determines the estimated useful lives and related depreciation charges for its property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. It could change significantly as a result of technical innovations and competitor actions in response to severe industry cycles. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned or sold.
5.2 Net realisable value of inventories
Inventories are carried at the lower of cost and net realisable value. The cost of inventories is written down to net realisable value when there is an objective evidence that the cost of inventories may not be recoverable. The cost of inventories may not be recoverable if those inventories are damaged, if they have become wholly or partially obsolete, or if their selling prices have declined. The cost of inventories may also be not recoverable if the estimated costs to be incurred to make the sale have increased. The amount written off to the income statement is the difference between the carrying value and net realisable value of the inventories. In determining whether the cost of inventories can be recoverable, significant judgement is required. In making this judgement, Bi Te Communication evaluates, among other factors, the duration and extent by all means to which the amount will be recovered.
5.3 Income taxes
Significant judgement is required in determining the provision for income tax. There are many transactions and calculations for which the ultimate determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the income tax in the period in which such determination is made.
– IIE-20 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
6. PROPERTY, PLANT AND EQUIPMENT
Machinery and Motor equipment vehicles Total RMB’000 RMB’000 RMB’000
At 1 January 2008 Cost 2,372 956 3,328 Accumulated depreciation (1,879) (59) (1,938)
Net book amount 493 897 1,390
Year ended 31 December 2008 Opening net book amount 493 897 1,390 Additions 813 – 813 Depreciation (Note 16) (132) (91) (223)
Closing net book amount 1,174 806 1,980
At 31 December 2008 Cost 3,185 956 4,141 Accumulated depreciation (2,011) (150) (2,161)
Net book amount 1,174 806 1,980
Year ended 31 December 2009 Opening net book amount 1,174 806 1,980 Additions 779 – 779 Depreciation (Note 16) (353) (91) (444)
Closing net book amount 1,600 715 2,315
At 31 December 2009 Cost 3,964 956 4,920 Accumulated depreciation (2,364) (241) (2,605)
Net book amount 1,600 715 2,315
Year ended 31 December 2010 Opening net book amount 1,600 715 2,315 Additions 623 – 623 Disposals (21) – (21) Depreciation (Note 16) (407) (91) (498)
Closing net book amount 1,795 624 2,419
At 31 December 2010 Cost 4,566 956 5,522 Accumulated depreciation (2,771) (332) (3,103)
Net book amount 1,795 624 2,419
– IIE-21 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
Machinery and Motor equipment vehicles Total RMB’000 RMB’000 RMB’000
Six months ended 30 June 2011 Opening net book amount 1,795 624 2,419 Additions 526 – 526 Depreciation (Note 16) (264) (45) (309)
Closing net book amount 2,057 579 2,636
At 30 June 2011 Cost 5,092 956 6,048 Accumulated depreciation (3,035) (377) (3,412)
Net book amount 2,057 579 2,636
Depreciation expenses for the years ended 31 December 2008, 2009 and 2010 and six months ended 30 June 2010 and 2011 have been charged to the income statements are as below:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Cost of sales 15 38 60 36 19 Administrative expenses 208 406 438 206 290
223 444 498 242 309
– IIE-22 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
7. INTANGIBLE ASSETS
Internally Copyright generated and software Computer development software costs Total RMB’000 RMB’000 RMB’000
At 1 January 2008 Cost 138 – 138 Accumulated amortisation (41) – (41)
Net book amount 97 – 97
Year ended 31 December 2008 Opening net book amount 97 – 97 Additions 625 – 625 Amortisation charge (Note 16) (154) – (154)
Closing net book amount 568 – 568
At 31 December 2008 Cost 763 – 763 Accumulated amortisation (195) – (195)
Net book amount 568 – 568
Year ended 31 December 2009 Opening net book amount 568 – 568 Additions 1,073 – 1,073 Amortisation charge (Note 16) (230) – (230)
Closing net book amount 1,411 – 1,411
At 31 December 2009 Cost 1,836 – 1,836 Accumulated amortisation (425) – (425)
Net book amount 1,411 – 1,411
– IIE-23 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
Internally Copyright generated and software Computer development software costs Total RMB’000 RMB’000 RMB’000
At 1 January 2010 Cost 1,836 – 1,836 Accumulated amortisation (425) – (425)
Net book amount 1,411 – 1,411
Year ended 31 December 2010 Opening net book amount 1,411 – 1,411 Additions 217 3,229 3,446 Amortisation charge (Note 16) (377) – (377)
Closing net book amount 1,251 3,229 4,480
At 31 December 2010 Cost 2,053 3,229 5,282 Accumulated amortisation (802) – (802)
Net book amount 1,251 3,229 4,480
Six months ended 30 June 2011 Opening net book amount 1,251 3,229 4,480 Addition – – – Amortisation charge (Note 16) (201) (53) (254)
Closing net book amount 1,050 3,176 4,226
At 30 June 2011 Cost 2,053 3,229 5,282 Accumulated amortisation (1,003) (53) (1,056)
Net book amount 1,050 3,176 4,226
Amortisation of RMB154,000, RMB230,000, RMB377,000, RMB180,000 and RMB254,000 for each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2010 and 2011 respectively are included in the ’administrative expenses’ in the income statements.
– IIE-24 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
8. INVENTORIES
At At 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Raw materials 2,072 1,831 2,393 5,679 Work in progress 6,663 11,076 7,480 7,275
8,735 12,907 9,873 12,954
The cost of inventories recognised as expenses and included in “research and development expenses” amounted to RMB888,000, RMB1,441,000, RMB858,000, RMB430,000 and RMB1,413,000 for each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2010 and 2011, respectively.
The cost of inventories capitalised in intangible assets (internally generated software development costs) amounted to RMB Nil, RMB Nil, RMB1,572,000, RMB Nil for each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011, respectively.
The cost of inventories recognised as expenses and included in “cost of sales” amounted to RMB623,000, RMB2,049,000, RMB13,291,000, RMB6,653,000 and RMB4,614,000 for each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2010 and 2011, respectively.
9. TRADE AND OTHER RECEIVABLES
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade receivables Trade receivables 12,165 15,836 26,688 34,381
Other receivables Prepayments to suppliers 389 387 718 1,293 Deposits 285 85 309 209 Others 243 403 148 441
Other receivables – net 917 875 1,175 1,943
Total trade and other receivables 13,082 16,711 27,863 36,324
The carrying amounts of Bi Te Communication’s trade and other receivables at 31 December 2008, 2009 and 2010 and 30 June 2011 approximate their fair values.
– IIE-25 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
Trade debtors are generally granted credit terms within 3 months. Aging analysis of trade receivables is as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Within 3 months 8,853 15,836 5,460 12,731 3 to 12 months – – 16,490 11,790 Over 1 year 3,312 – 4,738 9,860
Trade receivables – net 12,165 15,836 26,688 34,381
At 31 December 2008, 2009, 2010 and 30 June 2011, trade receivables of RMB8,853,000, RMB15,836,000, RMB5,460,000 and RMB12,731,000 respectively, were fully performing.
At 31 December 2008, 2009, 2010 and 30 June 2011, trade receivables of RMB3,312,000, RMB0, RMB21,228,000 and RMB21,650,000 respectively, were past due but not impaired.
At 31 December 2008, 2009, 2010 and 30 June 2011, Bi Te Communication considered that no bad debt provision should be made for trade and other receivables.
10. CASH AND CASH EQUIVALENTS
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Cash at bank and on hand 3,423 1,951 5,798 4,410 Less: restricted cash ––––
3,423 1,951 5,798 4,410
All cash and cash equivalents are denominated in RMB.
11. PAID-IN CAPITAL
RMB’000
As at 1 January 2008, 31 December 2008, 2009 and 2010 5,000 Transfer of retained earnings to paid-in capital (Note a and 12) 25,000
As at 30 June 2011 30,000
a. Following the transfer of retained earnings to paid-in capital, all shareholders increased their respective shares equally.
– IIE-26 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
12. OTHER RESERVES AND RETAINED EARNINGS
Statutory general Retained reserve fund earnings Total RMB’000 RMB’000 RMB’000
At 1 January 2008 5,681 16,275 21,956 Loss for the year – (949) (949)
At 31 December 2008 5,681 15,326 21,007 Loss for the year – (186) (186)
At 31 December 2009 5,681 15,140 20,821 Profit for the year – 18,040 18,040
At 31 December 2010 5,681 33,180 38,861
At 1 January 2011 5,681 33,180 38,861 Profit for the period – 3,805 3,805 Transfer to paid-in capital – (25,000) (25,000)
At 30 June 2011 5,681 11,985 17,666
Unaudited At 1 January 2010 5,681 15,140 20,821 Profit for the period – 3,334 3,334
At 30 June 2010 5,681 18,474 24,155
According to the Company Law of the PRC and the Articles of Association of Bi Te Communication, when distributing net profit each year, Bi Te Communication shall set aside 10% of its net profit as reported in the PRC statutory accounts for the statutory general reserve fund (except where the fund has reached 50% of the Company’s registered share capital). This reserve cannot be used for purposes other than those for which they are created and are not distributable as cash dividends.
According to the Company Law of the PRC and the resolution of shareholders’ meeting of Bi Te Communication, retained earnings of RMB25,000,000 was transferred to paid-in capital during the period ended 30 June 2011.
13. BORROWINGS
As at 30 As at 31 December June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Current Bank borrowings-unsecured – – – 5,000
– IIE-27 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
(a) The effective interest rates (per annum) at the balance dates are as follows:
31 31 31 December December December 30 June 2008 2009 20010 2011
Current borrowings – – – 6.94%
(b) The carrying amounts of borrowings approximate their fair values and is denominated in RMB.
14. TRADE AND OTHER PAYABLES
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade payables Amounts due to third parties 175 1,340 2,799 4,539
Other payables Accrued payroll expenses 585 808 1,496 549 Advances from customers – 7,260 950 1,279 Dividends payable 1,000 – – – Others 21 66 105 94
1,606 8,134 2,551 1,922
Total trade and other payables 1,781 9,474 5,350 6,461
The carrying amounts of trade and other payables approximate their fair values.
The aging analysis of the trade and other payables, based on the invoice date, is as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB ’000 RMB ’000 RMB ’000 RMB ’000
With 3 months 1,756 9,299 4,279 4,554 3 to 12 months 25 175 121 957 Over 1 year – – 950 950
1,781 9,474 5,350 6,461
– IIE-28 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
15. EMPLOYEE BENEFIT EXPENSES
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Wages and salaries 3,687 5,217 7,003 2,907 3,451 Contribution to pension plans (a) 236 405 517 243 308 Welfare, medical and other expenses 477 660 1,127 507 720
4,400 6,282 8,647 3,657 4,479
(a) The employees of Bi Te Communication participate in various retirement benefit plans organised by the relevant municipal government in the PRC to which Bi Te Communication is required to make monthly contributions which are calculated on certain percentage of the average employee salary as agreed by local municipal government to the scheme to fund the retirement benefits of the employees.
(b) The employee benefit expenses was capitalized in intangible assets (internally generated software development costs) amounted to RMB Nil, RMB Nil, RMB1,659,000, RMB Nil for each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011, respectively.
(c) Directors’ emoluments
One of the directors of Bi Te Communication received emoluments for his services provided to Bi Te Communication for each of the years ended on 31 December 2008, 2009, and 2010 and the six months ended 30 June 2010 and 2011, respectively. Emoluments of the other directors were paid by the shareholders of Bi Te Communication during the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2010 and 2011, of which the amounts are considered by the directors as minimal.
The remuneration of directors of Bi Te Communication that received emoluments for their services provided to Bi Te Communication is set out below:
For the year ended 31 December 2008:
Employer’s contribution Discretionary Other to pension Name of director Fees Salary bonuses benefits scheme Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Liao Yongzhong – – – – – – Liang Yali – – – – – – Wang Yue – 234 – – – 234
– 234 – – – 234
– IIE-29 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
For the year ended 31 December 2009:
Employer’s contribution Discretionary Other to pension Name of director Fees Salary bonuses benefits scheme Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Liang Yali – – – – – – Wang Yue – 288 – – – 288 Huang Rixiong – – – – – – Li Weining – – – – – – Tan Ruquan – – – – – –
– 288 – – – 288
For the year ended 31 December 2010:
Employer’s contribution Discretionary Other to pension Name of director Fees Salary bonuses benefits scheme Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Liang Yali – – – – – – Wang Yue – 315 – – – 315 Huang Yongfeng – – – – – – Jin Shiwei – – – – – – Tong Xiaoming – – – – – –
– 315 – – – 315
For the six months ended 30 June 2010 (unaudited):
Employer’s contribution Discretionary Other to pension Name of director Fees Salary bonuses benefits scheme Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Liang Yali – – – – – – Wang Yue – 157 – – – 157 Huang Yongfeng – – – – – – Jin Shiwei – – – – – – Tong Xiaoming – – – – – –
– 157 – – – 157
– IIE-30 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
For the six months ended 30 June 2011:
Employer’s contribution Discretionary Other to pension Name of director Fees Salary bonuses benefits scheme Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Liang Yali – – – – – – Wang Yue – 146 – – – 146 Huang Yongfeng – – – – – – Jin Shiwei – – – – – – Tong Xiaoming – – – – – –
– 146 – – – 146
No directors received any emoluments from Bi Te Communication as an inducement to join or leave Bi Te Communication or compensation for loss of office during the Relevant Periods.
(d) Five highest paid individuals
The five individuals whose emoluments were the highest in Bi Te Communication include one director for each of the years ended on 31 December 2008, 2009, and 2010 and the six months ended 30 June 2010 and 2011, respectively. The emoluments payable to the four biggest paid individuals for the years ended 31 December 2008, 2009 and 2010 and six months ended 30 June 2010 and 2011 are as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Basic salaries, bonuses, allowances and benefits in kind 566 738 933 467 484
The emoluments fell within the following bands:
No. of individuals Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 (unaudited)
Emolument bands – Under HKD1,000,000 44444
– IIE-31 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
16. EXPENSES BY NATURE
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Changes in inventories of finished goods and work in progress (3,981) (4,414) 3,596 4,265 494 Raw materials and consumables used 4,604 6,463 9,695 2,388 4,120 Employee benefit expenses (Note 15) 4,400 6,282 6,988 3,657 4,479 Research and development expenses 1,956 4,077 3,360 2,194 2,522 Entertainment expenses 1,217 493 961 679 706 Rental expenses 1,241 725 1,084 240 737 Transportation and travel expenses 1,038 1,432 2,180 891 1,268 Office expenses 1,293 734 1,505 519 714 Depreciation of property, plant and equipment (Note 6) 223 444 498 242 309 Amortisation of intangible assets (Note7) 154 230 377 180 254 Promotion costs 49 317 944 745 506 Utility expenses 163 138 172 54 97 Other expenses 660 674 817 354 298
Total cost of sales, selling and marketing costs and administrative expenses 13,017 17,595 32,177 16,408 16,504
17. INCOME TAX EXPENSE
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Current income tax – PRC income tax – – 1,425 334 1,432
– – 1,425 334 1,432
– IIE-32 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
The income tax on Bi Te Communication’s profit/(loss) before income tax differs from the theoretical amount that would arise using the applicable tax rate, as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
(Loss)/profit before income tax (949) (186) 19,466 3,668 5,236
Tax calculated at applicable tax rate (2011: 24%, 2010: 11%, 2009: 10%, 2008: 9%) – – 2,141 404 1,257 Impact of change in the tax rate – – (45) – – Expenses not deductible for taxation purposes – – 100 74 175 Research and development expenses deductible for taxation purpose – – (287) (144) – Tax effect on unrecognised tax losses – – (484) – –
Income tax expense – – 1,425 334 1,432
Bi Te Communication established in a special economic zone in Shenzhen. Bi Te Communication’s original applicable income tax rate was 15%.
On 16 March 2007, the National People’s Congress approved the “PRC Corporate Income Tax Law” (the “Income Tax Law”). The Income tax law is effective from 1 January 2008. According to the relevant requirements of the Income Tax Law, the income tax rate applicable to Bi Te Communication will increase gradually to 25% within 5 years from 2008 to 2012. The income tax rates during the 5-year transition period are 18%, 20%, 22%, 24% and 25%, respectively. Bi Te Communication enjoyed the special income tax preference of “Two-year Exemption and Three-year Half Reduction” which began from 2006, and the actual income tax rates are 9%, 10%, 11%, 24% respectively from 2008 to 2011.
18. EARNINGS PER SHARE
No earning per share is presented as Bi Te Communication is not a company registered with share capital and the calculation of earnings per share is not relevant for Bi Te Communication.
– IIE-33 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
19. CASH GENERATED FROM OPERATIONS
Six months ended Year ended 31 December 30 June Note 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
(Loss)/profit before income tax (949) (186) 19,465 3,668 5,237 Adjustments for: – Depreciation of property, plant and equipment 6 223 444 498 242 309 – Amortisation of intangible assets 7 154 230 377 180 254 – Loss on disposal of property, plant and equipment – – 22 22 –
Changes in working capital: Trade and other receivables 7,084 (3,629) (11,152) (3,950) (8,461) Inventories (4,016) (4,172) 3,034 4,835 (3,081) Trade and other payables (208) 8,694 (4,124) 1,282 1,176
Cash generated from/(used in) operations 2,288 1,381 8,120 6,279 (4,566)
20. COMMITMENTS
(a) Operating lease commitments
The future aggregate minimum lease expense under non-cancellable operating leases in respect of land and buildings is payable as follows:
At 31 December At 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
No later than one year 480 480 1,248 1,323 Later than 1 year and no later than 5 years 1,600 1,120 3,126 2,539
2,080 1,600 4,374 3,862
– IIE-34 – APPENDIX IIE FINANCIAL INFORMATION OF THE TARGET GROUP
21. RELATED PARTY TRANSACTIONS
Bi Te Communication is controlled by CATIC Shenzhen Company, a state-controlled company established in the PRC which owns 51% equity interests of Bi Te Communication. The directors regard CATIC Shenzhen Company and Aviation Industry Corporation of China as the holding company and ultimate holding company respectively. The remaining 49% equity interests are held by third party company and senior executives of Bi Te Communication.
Related parties include Bi Te Communication’s shareholders, holding company, ultimate holding company and other state-owned companies and senior executives of Bi Te Communication and their close family members.
(a) Transactions with related parties
There were no transactions with related parties for the years ended 31 December 2008, 2009, 2010, and six months ended 30 June 2010 and 2011.
(b) Key management compensation
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Salaries and other short-term employee benefits 800 1,026 1,248 620 630
(c) Transactions with government related entities
Bi Te Communication is a state-owned enterprise ultimately controlled by the PRC government. The PRC government controls a significant portion of the productive assets and entities in the PRC. The transactions between Bi Te Communication and other PRC government controlled entities are related party transactions. These transactions mainly include depositing cash in certain state-owned banks, obtaining borrowings from certain state-owned banks and sales to the state-owned companies. Nearly all of Bi Te Communication’s cash were deposited in state-owned banks and nearly all customers of Bi Te Communication are state-owned companies during the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2010 and 2011.
22. EVENTS AFTER THE END OF REPORTING PERIOD
No significant events occurred subsequent to 30 June 2011 and up to the date of this report.
III SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by Bi Te Communication in respect of any period subsequent to 30 June 2011 and up to the date of this report. No distribution has been made by Bi Te Communication in respect of any period subsequent to 30 June 2011 and up to the date of this report.
Yours faithfully,
PricewaterhouseCoopers Certified Public Accountants Hong Kong
– IIE-35 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
The following is the text of the report on Shanghai Company received from the Company’s reporting accountant, PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.
The Directors CATIC Shenzhen Holdings Limited
23 December 2011
Dear Sirs,
We report on the financial information of China National Aero-Technology Shanghai Company Limited (the “Shanghai Company”) and its subsidiaries (together, the “Shanghai Group”) which comprises the consolidated and company balance sheets of Shanghai Company as at 31 December 2008, 2009 and 2010 and 30 June 2011, and the consolidated income statements, the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated cash flow statements of Shanghai Company for each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011 (the “Relevant Periods”), and a summary of significant accounting policies and other explanatory information. The financial information has been prepared by the directors of CATIC Shenzhen Holdings Limited (the “Company”) and is set out in Sections I to III below for inclusion in Appendix IIF to the circular of the Company dated 23 December 2011 (the “Circular”) in connection with the proposed acquisition of Shanghai Company by the Company.
Shanghai Company was incorporated in the People’s Republic of China (the “PRC”) in 2008 as a company with limited liability under the Company Law of the PRC (prior to 18 December 2008, Shanghai Company was a state-owned enterprise which was established on 15th August 1984).
As at the date of this report, Shanghai Company has direct and indirect interests in the subsidiaries and associates as set out in Note 10 and Note 11 of Section II below. All companies now comprising Shanghai Group have adopted 31 December as their financial year end date.
The statutory financial statements of Shanghai Company for each of the years ended 31 December 2008, 2009 and 2010 were audited by RSM China Certified Public Accountants (“中瑞岳華會計師事務所有限公司”).
– IIF-1 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
The directors of Shanghai Company during the Relevant Periods are responsible for the preparation and fair presentation of the company and consolidated financial statements of Shanghai Company in accordance with the Accounting Standards for Business Enterprises of the People’s Republic of China, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
For the purpose of this report, the directors of the Company have prepared the consolidated financial statements of Shanghai Group for the Relevant Periods (the “Underlying Financial Statements”) in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (the “IASB”). The Underlying Financial Statements were audited by PricewaterhouseCoopers Zhong Tian CPAs Limited Company (“普華永道中天會計師事務所有限公司”) in accordance with International Standards on Auditing issued by the International Auditing and Assurance Standards Board (“IAASB”) pursuant to separate terms of engagement with the Company.
The directors of the Company are responsible for the preparation of the Underlying Financial Statements that gives a true and fair view in accordance with IFRSs.
The financial information has been prepared based on the Underlying Financial Statements, with no adjustment made thereon.
Directors’ Responsibility for the Financial Information
The directors of the Company are responsible for the preparation of the financial information that gives a true and fair view in accordance with IFRSs and accounting policies adopted by the Company and its subsidiaries (together, the “Group”) as set out in the audited annual consolidated financial statements of the Company for the year ended 31 December 2010 as set out in Appendix I to the Circular.
Reporting Accountant’s Responsibility
Our responsibility is to express an opinion on the financial information and to report our opinion to you. We carried out our procedures in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).
Opinion
In our opinion, the financial information gives, for the purpose of this report, a true and fair view of the state of affairs of Shanghai Company and of Shanghai Group as at 31 December 2008, 2009 and 2010 and 30 June 2011 and of the results and cash flows of Shanghai Group for the Relevant Periods then ended.
– IIF-2 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Review of stub period comparative financial information
We have reviewed the stub period comparative financial information set out in Section I to III below included in Appendix IIF to the Circular which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement of Shanghai Company for the six months ended 30 June 2010 and a summary of significant accounting policies and other explanatory information (the “Stub Period Comparative Financial Information”).
The directors of the Company are responsible for the preparation and presentation of the Stub Period Comparative Financial Information in accordance with the accounting policies set out in Note 2 of Section II below and accounting policies adopted by the Group as set out in the audited annual financial statements of the Company for the year ended 31 December 2010 as set out in Appendix I to the Circular.
Our responsibility is to express a conclusion on the Stub Period Comparative Financial Information based on our review. We conducted our review in accordance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the IAASB. A review of Stub Period Comparative Financial Information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the Stub Period Comparative Financial Information, for the purpose of this report, has not been prepared, in all material respects, in accordance with the accounting policies set out in Note 2 of Section II below.
– IIF-3 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
I FINANCIAL INFORMATION OF THE SHANGHAI GROUP
The following is the financial information of Shanghai Group prepared by the directors of the Company as at 31 December 2008, 2009 and 2010 and 30 June 2011 and for each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2010 and 2011 (the “Financial Information”).
(A) Consolidated balance sheets
As at As at 31 December 30 June Note 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Assets Non-current assets Property, plant and equipment 6 138,118 154,652 551,223 501,673 Investment properties 7 559,202 641,653 704,038 716,961 Land use rights 8 23,457 22,768 47,619 47,201 Intangible assets 9 54 62 38,505 35,569 Investments in associates 11 2,400 3,401 2,678 399 Available-for-sale financial assets 12 114,815 131,267 116,168 47,542 Deferred income tax assets 22 9,201 9,565 5,596 3,576 Prepayment for acquisition of non- current assets 13 16,392 16,392 84,857 92,228
863,639 979,760 1,550,684 1,445,149
Current assets Inventories 14 174,277 222,642 225,624 176,593 Amounts due from customers for contract works 25 22,784 51,117 112,478 131,573 Trade and other receivables 15 439,190 595,536 858,552 948,060 Restricted cash 16 36,838 85,271 131,441 168,624 Cash and cash equivalents 17 205,648 223,565 490,261 268,204
878,737 1,178,131 1,818,356 1,693,054
Non-current assets held for sale 18 – – – 85,902
Total assets 1,742,376 2,157,891 3,369,040 3,224,105
Equity and liabilities Equity attributable to owners of the Company Paid- in capital 19 400,000 400,000 400,000 401,000 Other reserves 20 24,717 32,910 36,428 26,830 Retained earnings (30,514) 38,854 112,126 116,208
394,203 471,764 548,554 544,038
Non-controlling interests 134,760 137,043 271,952 163,817
Total equity 528,963 608,807 820,506 707,855
– IIF-4 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
As at As at 31 December 30 June Note 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Liabilities Non-current liabilities Borrowings 21 – 160,000 186,519 111,866 Retirement benefit obligations 26 22,814 21,729 19,828 19,108 Deferred income tax liabilities 22 74,682 96,027 112,585 115,267 Deferred income 23 – – 15,000 –
97,496 277,756 333,932 246,241
Current liabilities Trade and other payables 24 703,748 890,163 1,208,200 1,095,275 Amount due to customers for contract works 25 – – 148,739 88,491 Current income tax liabilities 6,628 8,033 20,515 4,875 Borrowings 21 402,790 367,306 831,503 1,079,621 Retirement benefit obligations 26 1,261 1,788 1,293 1,747 Dividend payable 1,490 4,038 4,352 –
1,115,917 1,271,328 2,214,602 2,270,009
Total liabilities 1,213,413 1,549,084 2,548,534 2,516,250
Total equity and (liabilities)/assets 1,742,376 2,157,891 3,369,040 3,224,105
Net current liabilities (237,180) (93,197) (396,246) (491,053)
Total assets less current liabilities 626,459 886,563 1,154,438 954,096
– IIF-5 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
(B) Balance sheets of Shanghai Company
As at As at 31 December 30 June Note 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Assets Non-current assets Property, plant and equipment 6 75,808 75,148 72,511 71,276 Investment properties 7 56,822 59,396 78,428 61,758 Investments in subsidiaries 10 274,106 274,106 473,509 390,255 Investments in an associate 11 1,517 1,517 1,517 1,517 Available-for-sale financial assets 12 113,961 130,269 115,107 47,542 Deferred income tax assets 22 4,797 728 – 1,514
527,011 541,164 741,072 573,862
Current assets Inventories 14 164,519 120,703 44,434 40,410 Amounts due from customers for contract works 25 22,784 51,117 10,279 11,314 Trade and other receivables 15 429,477 602,906 795,304 1,251,059 Restricted cash 16 36,586 80,181 92,540 168,624 Cash and cash equivalents 17 116,135 129,788 233,672 215,592
769,501 984,695 1,176,229 1,686,999
Non-current assets held for sale 18 – – – 83,254
Total assets 1,296,512 1,525,859 1,917,301 2,344,115
Equity and liabilities Equity attributable to owners of the company Paid-in capital 19 400,000 400,000 400,000 401,000 Other reserves 20 19,461 32,600 36,094 26,496 Retained earnings (29,683) (19,176) 22,383 28,321
Total equity 389,778 413,424 458,477 455,817
– IIF-6 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
As at As at 31 December 30 June Note 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Liabilities Non-current liabilities Borrowings 21 – 160,000 – 90,000 Retirement benefit obligations 26 18,056 17,039 16,538 15,968 Deferred income tax liabilities 22 – – 4,355 –
18,056 177,039 20,893 105,968
Current liabilities Trade and other payables 24 518,601 610,581 773,727 864,455 Current income tax liabilities 2,016 1,868 11,084 3,887 Borrowings 21 366,052 317,306 647,599 912,471 Retirement benefit obligations 26 1,179 1,603 1,169 1,517 Dividend payable 830 4,038 4,352 –
888,678 935,396 1,437,931 1,782,330
Total liabilities 906,734 1,112,435 1,458,824 1,888,298
Total equity and liabilities 1,296,512 1,525,859 1,917,301 2,344,115
Net current liabilities (119,177) 49,299 (261,702) (12,077)
Total assets less current liabilities 407,834 590,463 479,370 561,785
– IIF-7 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
(C) Consolidated income statements
Six months ended Year ended 31 December 30 June Note 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Continuing operations Revenue 5 1,373,116 1,232,192 2,166,926 964,003 1,308,536 Cost of sales 27 (1,245,337) (1,108,136) (2,008,245) (877,918) (1,251,160)
Gross profit 127,779 124,056 158,681 86,085 57,376
Other income 29 6,743 9,178 9,405 3,914 7,653 Selling and distribution expenses 27 (66,695) (67,667) (82,959) (28,253) (32,413) Administrative expenses 27 (38,226) (41,777) (57,484) (26,692) (40,534) Other gains – net 30 44,373 95,790 107,179 22,292 36,511
Operating profit 73,974 119,580 134,822 57,346 28,593 Finance costs 31 (30,379) (20,391) (20,553) (9,261) (32,977) Share of loss of associates (126) (190) (552) (244) (209)
Profit before income tax 43,469 98,999 113,717 47,841 (4,593) Income tax expense 32 (10,815) (24,492) (34,696) (11,764) (4,118)
Profit/(loss) for the year/period from continuing operations 32,654 74,507 79,021 36,077 (8,711) Profit/(loss) for the year/period from discontinued operations 18 7,904 8,956 4,560 5,672 1,753
Profit/(loss) for the year/period 40,558 83,463 83,581 41,749 (6,958)
Profit/(loss) attributable to Owners of the company 40,138 74,324 79,757 35,493 5,035 Non-controlling interests 420 9,139 3,824 6,256 (11,993)
40,558 83,463 83,581 41,749 (6,958)
Earnings per share 33 N/A N/A N/A N/A N/A
Distributions 34 1,935 4,038 4,352 – 953
– IIF-8 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
(D) Consolidated statements of comprehensive income
Six months ended Year ended 31 December 30 June Note 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Profit/(loss) for the year/period 40,558 83,463 83,581 41,749 (6,958)
Other comprehensive income Fair value gains/(losses) on available-for-sale financial assets, net of tax 12 (1,580) 12,339 1,409 (9,694) (9,598)
Other comprehensive income/(expense) for the year/period, net of tax (1,580) 12,339 1,409 (9,694) (9,598)
Total comprehensive income/ (expense) for the year/period 38,978 95,802 84,990 32,055 (16,556)
Attributable to Owners of the company 38,530 86,609 81,142 25,760 (4,563) Non-controlling interests 448 9,193 3,848 6,295 (11,993)
Total comprehensive income/(loss) for the year/period 38,978 95,802 84,990 32,055 (16,556)
– IIF-9 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
(E) Consolidated statements of changes in equity
Attributable to owners of the company Non- Paid-in Capital Other Retained controlling Total Note capital surplus reserves earnings Sub-total interests equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2008 164,878 7,698 66,059 48,015 286,650 123,224 409,874
Profit for the year – – – 40,138 40,138 420 40,558 Other comprehensive income: Available-for-sale financial assets 20 – – (1,608) – (1,608) 28 (1,580)
Total comprehensive income – – (1,608) 40,138 38,530 448 38,978
Transactions with owners: Capitalisation of amount due to parent company 19 18,767 – – – 18,767 – 18,767 Revaluation during the transformation from state-owned enterprises 19, 20 216,355 (7,698) (20,058) (116,406) 72,193 11,748 83,941 Distribution upon business combination under common control 37 – – (20,000) (2) (20,002) – (20,002) Transfer to statutory reserves 20 – – 324 (324) – – – Distributions 34 – – – (1,935) (1,935) (660) (2,595)
Transactions with owners 235,122 (7,698) (39,734) (118,667) 69,023 11,088 80,111
As at 31 December 2008 400,000 – 24,717 (30,514) 394,203 134,760 528,963
Profit for the year – – – 74,324 74,324 9,139 83,463 Other comprehensive income: Available-for-sale financial assets 20 – – 12,285 – 12,285 54 12,339
Total comprehensive income – – 12,285 74,324 86,609 9,193 95,802
Transactions with owners Distribution upon business combination under common control 37 – – (5,000) (10) (5,010) (5,010) (10,020) Transfer to statutory reserves 20 – – 908 (908) – – – Distributions 34 – – – (4,038) (4,038) (1,900) (5,938)
Transactions with owners – – (4,092) (4,956) (9,048) (6,910) (15,958)
As at 31 December 2009 400,000 – 32,910 38,854 471,764 137,043 608,807
– IIF-10 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Attributable to owner of the company Non- Paid in Capital Other Retained controlling Total Note capital surplus reserves earnings Sub-total interests equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As at 1 January 2010 400,000 – 32,910 38,854 471,764 137,043 608,807
Profit for the year – – – 79,757 79,757 3,824 83,581 Other comprehensive income: Available-for-sale financial assets 20 – – 1,385 – 1,385 24 1,409 Total comprehensive income – – 1,385 79,757 81,142 3,848 84,990
Transactions with owners: Disposed of a subsidiary 10 –––––(952) (952) Capital contribution by the non-controlling interests –––––68,936 68,936 Acquisition of a subsidiary 37 –––––66,667 66,667 Transfer to statutory reserves 20 – – 2,133 (2,133) – – – Distributions 34 – – – (4,352) (4,352) (3,590) (7,942)
Transactions with owners – – 2,133 (6,485) (4,352) 131,061 126,709
As at 31 December 2010 400,000 – 36,428 112,126 548,554 271,952 820,506
Profit/(loss) for the period – – – 5,035 5,035 (11,993) (6,958) Other comprehensive income: Available-for-sale financial assets 20 – – (9,598) – (9,598) – (9,598)
Total comprehensive expense – – (9,598) 5,035 (4,563) (11,993) (16,556)
Transactions with owners: Capital contribution by owner of the company 19 1,000–––1,000 – 1,000 Loss of control of a subsidiary 37 –––––(91,642) (91,642) Distributions 34 – – – (953) (953) (4,500) (5,453)
Transactions with owners 1,000 – – (953) 47 (96,142) (96,095)
As at 30 June 2011 401,000 – 26,830 116,208 544,038 163,817 707,855
– IIF-11 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Unaudited Attributable to owner of the company Non- Paid-in Capital Other Retained controlling Total Note capital surplus reserves earnings Sub-total interests equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2010 400,000 – 32,910 38,854 471,764 137,043 608,807
Profit for the period – – – 35,493 35,493 6,256 41,749 Other comprehensive income: Available-for-sale financial assets 12 – – (9,733) – (9,733) 39 (9,694)
Total comprehensive income/(expense) – – (9,733) 35,493 25,760 6,295 32,055
Transactions with owners: Capital contribution by the non-controlling interests –––––64,000 64,000 Distributions –––––(3,500) (3,500)
Transactions with owners –––––60,500 60,500
At 30 June 2010 (Unaudited) 400,000 – 23,177 74,347 497,524 203,838 701,362
– IIF-12 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
(F) Consolidated statements of cash flow
Six months ended Year ended 31 December 30 June Note 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Cash flows from operating activities Cash generated from /(used in) operations 35 64,632 58,933 19,069 (61,902) (328,276) Interest paid (27,384) (22,047) (23,713) (7,045) (29,515) Income tax paid (6,148) (8,999) (5,871) (5,640) (16,585)
Net cash generated from/(used in) operating activities 31,100 27,887 (10,515) (74,587) (374,376)
Cash flows from investing activities Purchase of property, plant and equipment, intangible assets and land use rights (43,160) (24,875) (195,881) (7,734) (214,956) Investments in associates 11 (2,550) – – – – Acquisition of subsidiaries, net of cash acquired 37 (3,000) (7,020) (84,518) – – Government subsidy – – 15,000 – – Loss control of a subsidiary, net of cash disposal 37 – – 474 – (274,050) Proceeds from sale of investment properties – 9,413 10,746 10,746 24,962 Proceeds from sale of property, plant and equipment and intangible assets 803 237 39,765 271 304 Proceeds from sale of available-for-sale financial assets – – 53,074 – – Dividend received from available-for-sale financial assets 2,244 2,484 6,852 2,656 5,600
Net cash (used in)/generated from investing activities (45,663) (19,761) (154,488) 5,939 (458,140)
– IIF-13 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Six months ended Year ended 31 December 30 June Note 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Cash flows from financing activities Proceeds from borrowings 661,482 627,032 936,085 365,000 1,226,554 Repayment of borrowings (642,921) (593,367) (528,000) (225,000) (626,783) Restricted cash movement for collateral borrowings 34,760 (20,852) (32,803) (21,195) 19,107 Capital contributions – – 68,936 64,000 1,000 Dividends paid to equity holders of Shanghai Company (1,105) (830) (4,038) (3,038) (5,305) Dividends paid to non-controlling interests – (2,560) (3,590) (3,500) (4,500)
Net cash generated from/(used in) financing activities 52,216 9,423 436,590 176,267 610,073
Net increase/(decrease) in cash and cash equivalents 37,653 17,549 271,587 107,619 (222,443) Exchange differences on cash and cash equivalents (489) 368 (4,891) (9,281) 386 Cash and cash equivalents at beginning of the year/period 17 168,484 205,648 223,565 223,565 490,261 Cash and cash equivalents at end of the year/period 17 205,648 223,565 490,261 321,903 268,204
– IIF-14 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
II NOTES TO THE FINANCIAL INFORMATION
1 GENERAL INFORMATION
China National Aero-Technology Corporation Shanghai Limited Liability Company (“Shanghai Company”) and its subsidiaries (together “Shanghai Group”) are principally engaged in trading of commodities, manufacturing and sales of ships, providing transport services and property leasing services.
Shanghai Company is a limited liability company incorporated in the PRC. The address of its registered office is Room 28A, No. 212 Jiangning Road, Jingan District, Shanghai, PRC.
The financial information of Shanghai Group (the “Financial Information”) is presented in RMB, unless otherwise stated.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
2.1 Basis of preparation
The Financial Information has been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). The Financial Information has been prepared under the historical cost convention, as modified by available-for-sale financial assets, investment properties carrying at fair value.
The preparation of the financial information in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying Shanghai Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4.
As at the date of this report, the following standards, amendments and interpretations to existing standards have been published by the International Accounting Standards Board (“IASB”), but are not yet effective during the Relevant Periods and have not been early adopted by Shanghai Group.
• IAS 1 (Amendment), “Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income” (effective for annual periods beginning on or after 1 July 2012). The amendment is not expected to have a significant impact to Shanghai Group.
• IAS 12 (Amendment), ’’Deferred Tax: Recovery of Underlying Assets’’ (effective for annual periods beginning on or after 1 January 2012). The amendment introduces an exception to the principle for the measurement of deferred tax assets or liabilities arising on an investment property measured at fair value. IAS 12 requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. The amendment introduces a rebuttable presumption that an investment property measured at fair value is recovered entirely by sale.
Shanghai Group is in the progress to assess the impact on the above amendment.
– IIF-15 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
• IAS 19 (Amendment), “Employee Benefits” (effective for annual period beginning on or after 1 January 2013). The issuance of the standard completes improvements to the accounting requirements for pensions and other post-employment benefits and the following important improvements have been made:
• Eliminating an option to defer the recognition of gains and losses, known as the ’corridor method’, improving comparability and faithfulness of presentation.
• Streamlining the presentation of changes in assets and liabilities arising from defined benefit plans, including requiring remeasurements to be presented in other comprehensive income, thereby separating those changes from changes that many perceive to be the result of an entity’s day-to-day operations.
• Enhancing the disclosure requirements for defined benefit plans, providing better information about the characteristics of defined benefit plans and the risks that entities are exposed to through participation in those plans.
Shanghai Group is in the progress to assess the impact on the above amendment.
• IFRS 7 (Amendment), ’’Financial Instruments: Disclosures’’ (effective for annual periods beginning on or after 1 July 2011). This amendment is not expected to have significant impact to Shanghai Group.
• IFRS 9, ’’Financial Instruments’’ (effective for annual periods beginning on or after 1 January 2013). The new standard is not expected to have significant impact to Shanghai Group.
• IFRS 10, “Consolidated Financial Statements” and the consequential amendments to IAS 27 “Consolidated and Separate Financial Statements” (effective for annual periods beginning on or after 1 January 2013). IFRS 10 replaces all of the guidance on control and consolidation in IAS 27, ’Consolidated and Separate Financial Statements’, and SIC-12, ’Consolidation − Special Purpose Entities’. IAS 27 is renamed ’Separate Financial Statements’; it continues to be a standard dealing solely with separate financial statements. The existing guidance for separate financial statements is unchanged. The new standard is not expected to have significant impact to Shanghai Group.
• IFRS 11, “Joint Arrangements” and the consequential amendment to IAS 28, “Investments in Associates” (effective for annual periods beginning on or after 1 January 2013). The new standard is not expected to have a significant impact to Shanghai Group.
• IFRS 12, “Disclosure of interests in other entities” (effective for annual periods beginning on or after 1 January 2013). The new standard is not expected to have a significant impact to Shanghai Group.
• IFRS 13, “Fair Value Measurement” (effective for annual periods beginning on or after 1 January 2013). The new standard improves consistency and reduces complexity by providing, for the first time, a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The new standard is not expected to have a significant impact to Shanghai Group.
– IIF-16 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
2.1.1 Going concern
As at 30 June 2011, Shanghai Group had net current liabilities of RMB491,053,000. Taking into account Shanghai Group’s trading performance, available banking facilities and financial support from its parent company, Shanghai Group should be able to operate within the level of its current financing. After making enquiries, the directors have a reasonable expectation that Shanghai Group has adequate resources to continue in operational existence for the foreseeable future and to meet its financial obligation as and when they fall due. Accordingly, the directors of Shanghai Group are of the opinion that it is appropriate to adopt the going concern basis in preparing the Financial Information.
2.2 Consolidation
(a) Subsidiaries
Subsidiaries are all entities (including special purpose entities) over which Shanghai Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether Shanghai Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to Shanghai Group. They are de-consolidated from the date that control ceases.
Shanghai Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by Shanghai Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, Shanghai Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.
Investments in subsidiaries are accounted for at cost less impairment. Cost also includes direct attributable costs of investment. The results of subsidiaries are accounted for by the company on the basis of dividend and receivable. In addition Shanghai Group applied the exemption in the amendments of IFRS 1 to use the revaluation amount of investment in subsidiaries as deemed cost during the transformation of state owned enterprise in 2008.
The excess of the consideration transferred the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement.
Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by Shanghai Group.
(b) Transactions with non-controlling interests
Shanghai Group treats transactions with non-controlling interests as transactions with equity owners of Shanghai Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share
– IIF-17 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
When Shanghai Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.
(c) Associates
Associates are all entities over which Shanghai Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. Shanghai Group’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss.
Shanghai Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, Shanghai Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
Unrealised gains on transactions between Shanghai Group and its associates are eliminated to the extent of Shanghai Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by Shanghai Group.
2.3 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the General Manager of Shanghai Group that makes strategic decisions.
2.4 Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of Shanghai Group’s entities are measured using the currency of the primary economic environment in which the entity operates (’the functional currency’). The Financial Infomation are presented in Renminbi (“RMB”), which is Shanghai Company’s functional and Shanghai Group’s presentation currency.
– IIF-18 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within ’finance income or cost’. All other foreign exchange gains and losses are presented in the income statement within ’other (losses)/gains – net’.
Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available for sale, are included in other comprehensive income.
2.5 Property, plant and equipment
Buildings comprise mainly factories and offices. Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Shanghai Group applied the exemption in the amendments of IFRS 1 to use the revaluation amount of property, plant and equipment as deemed cost during the transformation of state-owned enterprise in 2008.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to Shanghai Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
Depreciation on property, plant and equipment is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:
– Buildings, development and structures 20–30 years – Machinery 8–10 years – Vehicles 5 years – Furniture and equipment 5–8 years
Construction in progress represents buildings on which construction work has not been completed and machinery and equipment pending installation. It is carried at cost which includes construction expenditures and other direct costs less any impairment losses. On completion, construction in progress is transferred to the appropriate categories of property, plant and equipment at cost less accumulated impairment losses. No depreciation is provided for construction in progress until they are completed and available for use.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 2.8).
– IIF-19 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within ’Other (losses)/gains – net’ in the income statement.
2.6 Intangible assets
(a) Non-patent technology
Non-patent technology acquired in a business combination is recognised at fair value at the acquisition date. Non-patent technology has a finite useful life and is carried at fair value less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of non-patent technology over its estimated useful lives of 10 years.
(b) Computer software
Computer softwares initially recognised at cost and amortised on the straight-line basis over their estimated useful lives of 5 years.
2.7 Investment properties
(a) Investment properties
Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by Shanghai Group, is classified as investment property. Investment property is initially measured at cost, including related transaction costs. After initial recognition at cost, investment properties are carried at fair value, representing open market value determined at each reporting date by external valuers. Fair value is based on active property market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If the information is not available, Shanghai Group uses alternative valuation methods such as recent prices on less active markets or discounted cash flow projections. Changes in fair values are recorded in the income statement as part of a valuation gain or loss in the income statement.
(b) Revenue recognition
Rental income from investment property is recognised in the income statement on a straight-line basis over the term of the lease.
2.8 Impairment of investments in subsidiaries, associates and non-financial assets
Assets that have an indefinite useful life, for example, goodwill or intangible assets not ready to use, are not subject to amortisation and are tested annually for impairment. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
Impairment testing of the investments in subsidiaries or associates is required upon receiving dividends from these investments if the dividend exceeds the total comprehensive income of the subsidiary or associate in the period the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the investee’s net assets including goodwill.
– IIF-20 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
2.9 Non-current assets (or disposal groups) held for sale
Non-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probably.
2.10 Financial assets
2.10.1 Classification
Shanghai Group classifies its financial assets in the following categories: loans and receivables, and available-for-sale financial assets. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
(a) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The group’s loans and receivables comprise ’trade and other receivables’ and ’cash and cash equivalents’ in the balance sheet (notes 2.12 and 2.13).
(b) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period.
2.10.2 Recognition and measurement
Regular way purchases and sales of financial assets are recognised on the trade-date – the date on which Shanghai Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and Shanghai Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised cost using the effective interest method.
Changes in the fair value of monetary and non-monetary securities classified as available for sale are recognised in other comprehensive income.
When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as ‘gains and losses from investment securities’.
Interest on available-for-sale securities calculated using the effective interest method is recognised in the income statement as part of other income. Dividends on available-for-sale equity instruments are recognised in the income statement as part of other income when the group’s right to receive payments is established.
– IIF-21 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
2.11 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.
2.12 Impairment of financial assets
(a) Assets carried at amortised cost
Shanghai Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ’loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
The criteria that Shanghai Group uses to determine that there is objective evidence of an impairment loss include:
• Significant financial difficulty of the issuer or obligor;
• A breach of contract, such as a default or delinquency in interest or principal payments;
• Shanghai Group, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;
• It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;
• The disappearance of an active market for that financial asset because of financial difficulties; or
• Observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including:
(i) adverse changes in the payment status of borrowers in the portfolio;
(ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.
Shanghai Group first assesses whether objective evidence of impairment exists.
For loans and receivables category, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the profit or loss. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the group may measure impairment on the basis of an instrument’s fair value using an observable market price.
– IIF-22 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the profit or loss.
(b) Assets classified as available for sale
Shanghai Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. For debt securities, Shanghai Group uses the criteria refer to (a) above. In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the separate consolidated income statement. Impairment losses recognised in the separate consolidated income statement on equity instruments are not reversed through the separate consolidated income statement. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the separate profit or loss.
Impairment testing of trade and other receivables is described in note 2.14.
2.13 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined individually. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
2.14 Trade and other receivables
Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.
2.15 Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with banks with original maturities of three months or less.
2.16 Government grants
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and Shanghai Group will comply with all attached conditions.
Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate.
Government grants relating to property, plant and equipment are included in non-current liabilities as deferred government grants and are credited to the income statement on a straight-line basis over the expected lives of the related assets.
– IIF-23 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
2.17 Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
2.18 Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.
Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.
2.19 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future.
– IIF-24 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
2.20 Employee benefits
(a) Pension obligations and after supplemental benefit obligations
The full-time employees of Shanghai Group in the PRC are covered by various government sponsored pension plans under which the employees are entitled to a monthly pension based on certain formulas. The relevant government agencies are responsible for the pension liability to these retired employees. Shanghai Group contributes on a monthly basis to these pension plans. Under these plans, the Group has no obligation for post-retirement benefits beyond the contributions made. Contributions to these plans are expensed as incurred.
Shanghai Group also provided supplementary pension subsidies to certain retired employees in the PRC. Such supplementary pension subsidies are considered to be defined benefit plans as Shanghai Group is obligated to provide post-employment benefits to these employees. The liability recognised in the consolidated balance sheets in respect of these defined benefit plans is the present value of the defined benefit obligation at the balance sheet date. The defined benefit obligation is calculated annually by independent qualified actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government securities which have maturity approximating to the terms of the related pension liability. Past-service costs are recognised immediately in the consolidated income statements.
(b) Termination benefits and early retirement benefits
Termination and early retirement benefits are payable when employment is terminated by Shanghai Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. Shanghai Group recognises termination and early retirement benefits when it is demonstrably committed to either: (i) terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or (ii) providing termination benefits as a result of an offer made to encourage voluntary redundancy. The specific terms vary among the terminated and early retired employees depending on various factors including position, length of service and district of the employee concerned. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value.
2.21 Provisions
Provisions are recognised when: Shanghai Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.
– IIF-25 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
2.22 Revenue recognition
Revenue comprises 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, returns, rebates and discounts and after eliminating sales within Shanghai Group.
Shanghai Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of Shanghai Group’s activities as described below.
(a) Sales of goods
Sales of goods are recognised when Shanghai Group entity has delivered products to the customer, the customer has accepted the products and collectability of related receivables is reasonably assured.
(b) Sales of services
Shanghai Group provides transportation services. The related revenue is recognised upon services provided.
(c) Rental income
Rental income from properties letting under operating leases is recognised on a straight-line basis over the lease terms.
(d) Interest income
Interest income is recognised using the effective interest method. When a loan and receivable is impaired, Shanghai Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loan and receivables are recognised using the original effective interest rate.
(e) Dividend income
Dividend income is recognised when the right to receive payment is established.
2.23 Construction contracts
A construction contract is defined by IAS 11 as a contract specifically negotiated for the construction of an asset.
Contract costs are recognised as expenses in the period in which they are incurred.
When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable.
When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract revenue is recognised over the period of the contract. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.
Variations in contract work, claims and incentive payments are included in contract revenue to the extent that may have been agreed with the customer and are capable of being reliably measured.
– IIF-26 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Shanghai Group uses the ‘percentage-of-completion method’ to determine the appropriate amount to recognise in a given period. The stage of completion is measured by reference to the contract costs incurred up to the end of the reporting period as a percentage of total estimated costs for each contract. Costs incurred in the year in connection with future activity on a contract are excluded from contract costs in determining the stage of completion. They are presented as inventories, prepayments or other assets, depending on their nature.
The group presents as an asset the gross amount due from customers for contract work for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceed progress billings. Progress billings not yet paid by customers and retention are included within ‘trade and other receivables’.
The group presents as a liability the gross amount due to customers for contract work for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less recognised losses).
2.24 Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.
The group leases certain property, plant and equipment. Leases of property, plant and equipment where the group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments.
Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease term.
2.25 Dividend distribution
Dividend distribution to Shanghai Company’s equity holders is recognised as a liability in Shanghai Group’s financial statements in the period in which the dividends are approved by the directors of Shanghai Company.
– IIF-27 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
3 FINANCIAL RISK MANAGEMENT
3.1 Financial risk factors
Shanghai Group’s activities expose it to a variety of financial risks: market risk (including currency risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. Shanghai Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on Shanghai Group’s financial performance.
(a) Market risk
(i) Foreign exchange risk
Shanghai Group operates principally in mainland China and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US Dollar (“USD”) and the European Dollar (“EUR”). Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities. Shanghai Group attempts to minimise its foreign exchange risk exposure through payment of operating costs and maintenance of borrowings at a balanced mix of major currencies.
In addition, the conversion of RMB into foreign currencies is subject to the rules and regulations of the foreign exchange controls promulgated by the Chinese government.
The carrying amount of Shanghai Group’s foreign currency denominated monetary assets and monetary liabilities at the respective balance sheet dates are as follows:
As at Group As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Assets USD 14,717 21,418 59,513 254,890 EUR 2,527 51,100 35,212 7,820 JPY – 63 563 209 SGD90–––
Total 17,334 72,581 95,288 262,919
Liabilities USD (46,665) (39,635) (69,060) (317,721) EUR (500) (9,990) (11,901) (3,339) JPY (2,653) (685) (521) – CHF – – (29,843) – HKD (522) (394) (394) (32)
Total (50,340) (50,704) (111,719) (321,092)
– IIF-28 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
As at Company As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Assets USD 13,169 7,908 44,526 248,824 EUR 2,234 43,684 26,313 7,573 JPY – 63 563 209
Total 15,403 51,655 71,402 256,606
Liabilities USD (40,327) (39,635) (48,771) (271,974) EUR (500) (500) (500) (500) JPY (2,653) (685) (521) – CHF – – (29,843) – HKD (522) (394) (394) (32)
Total (44,002) (41,214) (80,029) (272,506)
The following table shows the sensitivity analysis of a 5% increase/(decrease) in RMB against the relevant foreign currencies. The sensitivity analysis includes only foreign currency denominated monetary items and adjusts their translation at the year/period end for a 5% change in foreign currency rates. If there is a 5% increase in RMB against the relevant currencies, the effects in the result for the relevant periods are as follows:
As at Group As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
USD Increase in the profit for the year/period (1,198) (683) (358) (2,356)
EUR Increase in the profit for the year/period 76 1,542 874 168
JPY Increase in the profit for the year/period (99) (23) 2 8
CHF Increase in the profit for the year/period – – (1,119) –
HKD Increase in the profit for the year/period (20) (15) (15) (1)
SGD Increase in the profit for the year/period 3–––
– IIF-29 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
As at Company Year ended 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
USD Increase in the profit for the year/period (1,018) (1,190) (159) (868)
EUR Increase in the profit for the year/period 65 1,619 968 265
JPY Increase in the profit for the year/period (99) (23) 2 8
CHF Increase in the profit for the year/period – – (1,119) –
HKD Increase in the profit for the year/period (20) (15) (15) (1)
(ii) Price risk
Shanghai Group is exposed to equity securities price risk because of investments held by Shanghai Group and classified in the financial information as available-for-sale. To manage its price risk arising from unlisted investments in equity securities, Shanghai Group periodically monitors the financial performance of its portfolio.
(iii) Cash flow interest rate risk
Shanghai Group’s exposure to changes in interest rates is mainly attributable to its bank borrowings. Borrowings at variable rates expose Shanghai Group to cash flow interest rate risk. Shanghai Group closely monitors trend of interest rate and its impact on Shanghai Group’s interest rate risk exposure. Shanghai Group currently has not used any interest rate swap arrangements but will consider hedging interest rate risk should the need arise.
As at 31 December 2008, 2009 and 2010 and 30 June 2011, if interest rates on bank borrowings had been fluctuated by 10% with all other variables held constant, post-tax profit for the year would have been RMB2,223,000, RMB2,619, 000, RMB2,249,000 and RMB2,313,000 lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings.
(b) Credit risk
The credit risk of Shanghai Group mainly arises from cash and cash equivalents, restricted cash, available-for-sale financial assets and trade and other receivables (except for prepayments to suppliers and staff advances). The carrying amounts of these balances represent Shanghai Group’s maximum exposure to credit risk in relation to financial assets.
– IIF-30 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Substantially all of Shanghai Group’s cash and cash equivalents are held in major financial institutions located in the PRC, which management believes are of high credit quality. None of cash at bank, bank deposits and restricted cash of Shanghai Group that were fully performing has been renegotiated during the Relevant Periods.
Shanghai Group has policies in place to ensure that services are rendered and products are sold to customers with appropriate credit history and Shanghai Group performs periodic credit evaluations of its customers. Normally Shanghai Group does not require collaterals from trade debtors. The directors consider Shanghai Group does not have a significant concentration of credit risk. No single customer accounted for more than 5% of Shanghai Group’s total revenues during the relevant periods.
(c) Liquidity risk
Shanghai Group adopts prudent liquidity risk management which includes maintaining sufficient bank balances and cash, having available funding through an adequate amount of committed credit facilities.
The table below analyses Shanghai Group’s and Shanghai Company’s financial liabilities into relevant maturity groupings based on the remaining period at the end of each reporting period to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Group
Between Between Less than 1 and 2 2 and 5 More than 1 year years years 5 years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As at 31 December 2008 Borrowings (excluding finance lease liabilities) 413,751 – – – 413,751 Trade and other payables 300,523 – – – 300,523
As at 31 December 2009 Borrowings (excluding finance lease liabilities) 393,604 5,640 16,920 187,211 603,375 Trade and other payables 342,420 – – 342,420
As at 31 December 2010 Borrowings (excluding finance lease liabilities) 796,355 20,362 16,920 181,571 1,015,208 Finance lease liabilities 17,843 13,058 973 – 31,874 Trade and other payables 764,772 – – – 764,772
As at 30 June 2011 Borrowings (excluding finance lease liabilities) 1,092,039 107,588 – 1,199,627 Finance lease liabilities 16,764 8,622 151 – 25,537 Trade and other payables 672,352 – – – 672,352
– IIF-31 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Company
Between Between Less than 1 and 2 2 and 5 More than 1 year years years 5 years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As at 31 December 2008 Borrowings 376,320 – – – 376,320 Trade and other payables 189,090 – – – 189,090
As at 31 December 2009 Borrowings 330,807 5,640 16,920 187,211 540,578 Trade and other payables 230,690 – – – 230,690 Financial guarantee contracts 40,000 – – – 40,000
As at 31 December 2010 Borrowings 664,498 – – – 664,498 Trade and other payables 312,837 – – – 312,837
As at 30 June 2011 Borrowings 936,853 93,588 – – 1,030,441 Trade and other payables 261,651 – – – 261,651
3.2 Capital risk management
Shanghai Group’s objectives when managing capital are to safeguard Shanghai Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, Shanghai Group will monitor the operating cash flow generated from operations and available banking facilities to match its capital expenditures and dividend outflow payments.
Consistent with others in the industry, Shanghai Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash and cash equivalents. Total capital is calculated as equity, as shown in the consolidated balance sheet, plus net debt.
– IIF-32 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Shanghai Group’s strategy was to maintain a solid capital base to support the operations and development of its business in the long term. Management considers a gear ratio of not more than 70% as solid and reasonable. The table below analyses Shanghai Group’s capital structure As at 31 December 2008, 2009 and 2010 and 30 June 2011:
As at Group As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Total borrowings (note 21) 402,790 527,306 1,018,022 1,191,487 Less: Cash and cash equivalents (note 17) (205,648) (223,565) (490,261) (268,204)
Net debt 197,142 303,741 527,761 923,283
Total equity 528,963 608,807 820,506 707,856
Total capital 726,105 912,548 1,348,267 1,631,139
Gearing ratio 27% 33% 39% 57%
As at Company As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Total borrowings (note21) 366,052 477,306 647,599 1,002,471 Less: Cash and cash equivalents (note17) (116,135) (129,788) (233,672) (215,592)
Net debt 249,917 347,518 413,927 786,879
Total equity 389,778 413,424 458,477 455,817
Total capital 639,695 760,942 872,404 1,242,696
Gearing ratio 39% 46% 47% 63%
– IIF-33 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
3.3 Fair value estimation
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The following table presents Shanghai Group’s assets and liabilities that are measured at fair value at the end of the reporting period.
As at Group As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Assets Level 3 – Available-for-sale financial assets-unlisted (note 12) 114,815 131,267 116,168 47,542
As at Company As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Assets Level 3 – Available-for-sale financial assets (note 12) 113,961 130,269 115,107 47,542
– IIF-34 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
3.4 Financial instruments by category
As at Group As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Assets as per balance sheet Trade and others receivable (excluding prepayments and VAT receivables) 328,940 388,908 442,117 468,870 Restricted cash 36,838 85,271 131,441 168,624 Cash and cash equivalents 205,648 223,565 490,261 268,204 Available-for-sale financial assets 114,815 131,267 116,168 47,542
Total 686,241 829,011 1,179,987 953,240
Liabilities as per balance sheet Borrowings (excluding finance lease liabilities) 402,790 527,306 989,288 1,168,218 Trade and other payables (excluding other taxes payables) 300,523 342,420 764,772 672,352 Dividend payable 1,490 4,038 4,352 – Financial lease liabilities – – 28,734 23,269
704,803 873,764 1,787,146 1,863,839
As at Company As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Assets as per balance sheet Trade and others receivable (excluding prepayments and VAT receivables) 392,317 427,534 412,932 737,945 Restricted cash 36,586 80,181 92,540 168,624 Cash and cash equivalents 116,135 129,788 233,672 215,592 Available-for-sale financial assets 113,961 130,269 115,107 47,542
Total 658,999 767,772 854,251 1,169,703
Liabilities as per balance sheet Borrowings 366,052 477,306 647,599 1,002,471 Trade and other payables 189,090 230,690 312,841 261,651 Dividend payable 830 4,038 4,352 –
555,972 712,034 964,792 1,264,122
– IIF-35 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
4 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
4.1 Useful lives of property, plant and equipment
Shanghai Group’s management determines the estimated useful lives and related depreciation charges for its property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. It could change significantly as a result of technical innovations and competitor actions in response to severe industry cycles. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned or sold.
4.2 Fair value of investment properties
Shanghai Group carries its investment properties at fair value with changes in the fair values recognised in profit or loss. It obtains independent valuations at least annually. At the end of each reporting period, the management update their assessment of the fair value of each property, taking into account the most recent independent valuations. The valuation represented the fair value amounts for which the properties could be exchanged between willing parties in an arm’s length transaction, based on current prices in an active property market for similar properties in the same location and condition and subject to similar leases.
4.3 Fair value of available-for-sale financial assets
The fair value of available-for-sale financial assets that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. Shanghai Group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. Any changes in these assumptions will impact the fair value of available-for-sale financial assets.
4.4 Provision for impairment of trade and other receivables
Shanghai Group makes provision for impairment of trade and other receivables based on an assessment of the recoverability of these receivables. Provisions are applied to trade and other receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of impairment of trade and other receivables requires the use of judgement and estimates. Where the expectation is different from the original estimate, such difference will impact the carrying value of receivables and provision for impairment losses in the period in which such estimate has been changed.
4.5 Pension benefits
The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations.
Shanghai Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, Shanghai Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.
– IIF-36 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in note 28.
4.6 Shipbuilding costs
Based on the best information available in market environment, Shanghai Group prepares a cost budget for each shipbuilding contract and the budget is used in Shanghai Group’s financial reporting and revisited on a monthly basis. The key components of the cost budget include material, equipment and sub-contracted service costs. Foreseeable losses are provided when identified.
In preparing the financial information, the Directors have reviewed the shipbuilding contracts and considered that a provision for loss is not necessary. Material adjustments to the budgeted shipbuilding costs may occur in future if there is a significant change in the shipbuilding market environment.
4.7 Income taxes and deferred taxation
Significant judgement is required in determining the provision for income tax. There are many transactions and calculations for which the ultimate determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the income tax and deferred tax provision in the period in which such determination is made.
Deferred tax assets relating to certain temporary differences and tax losses are recognised when management considers to be probable that future taxable profit will be available against which the temporary differences or tax losses can be utilised. The outcome of their actual utilisation may be different.
5 SEGMENT INFORMATION
The chief operating decision maker has been identified as the General Manager of Shanghai Group. The General Manager reviews Shanghai Group’s internal reporting in order to assess performance and allocate resources. The General Manager has determined the operating segments based on these reports.
The reportable operating segments derive their revenue primarily from trading of commodities, ship building, property holding, providing transport services and other services.
The performances of the operating segments are assessed based on a measure of adjusted earnings before interest, tax, depreciation and amortisation (“EBITDA”). Interest income and expenditure are not allocated to segments, as this type of activity is driven by the central treasury function, which manages the cash position of the group. Since the General Manager reviews adjusted EBITDA.
– IIF-37 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
The segment information provided to the General Manager for the reportable segments for the year ended 31 December 2008 is as follows:
Continuing operation Discontinued operation Property All other Trading Shipbuilding holding segments Subtotal Logistics Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Segment revenue 1,333,971 – 52,550 35,871 1,422,392 104,245 1,526,637 Inter-segment revenue (2,140) – (32,209) (14,927) (49,276) – (49,276)
Revenue from external customers 1,331,831 – 20,341 20,944 1,373,116 104,245 1,477,361
Adjusted EBITDA 25,657 – 37,013 16,483 79,153 12,338 91,491 Depreciation and amortisation (2,730) – (259) (2,316) (5,305) (821) (6,126) Income tax expense (769) – (9,556) (490) (10,815) (3,212) (14,027) Share loss of associates (126) – – – (126) – (126)
Total assets 943,080 – 357,585 211,653 1,512,318 106,042 1,618,360 Total assets includes: Investments in associates 2,400 – – – 2,400 – 2,400 Additions to non-current assets (other than financial instruments and deferred tax assets) 3,545 – 19,356 108 23,009 20,333 43,342
Total liabilities 682,920 – 5,184 9,874 697,978 37,963 735,941
The segment information provided to the General Manager for the reportable segments for the year ended 31 December 2009 is as follows:
Continuing operation Discontinued operation Property All other Trading Shipbuilding holding segments Subtotal Logistics Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Segment revenue 1,193,081 – 18,838 38,173 1,250,092 154,780 1,404,872 Inter-segment revenue (2,066) – – (15,834) (17,900) – (17,900)
Revenue from external customers 1,191,015 – 18,838 22,339 1,232,192 154,780 1,386,972
Adjusted EBITDA 26,188 – 91,052 10,898 128,138 13,498 141,636 Depreciation and amortisation (4,446) – (253) (4,049) (8,748) (753) (9,501) Income tax expense (134) – (22,925) (1,433) (24,492) (2,895) (27,387) Share of profit/(loss) from associates (190) – – – (190) (308) (498)
Total assets 1,206,540 – 432,119 205,451 1,844,110 172,949 2,017,059 Total assets includes: Investments in associates 1,159 – – – 1,159 2,242 3,401 Additions to non-current assets (other than financial instruments and deferred tax assets) 3,565 – 9 132 3,706 21,853 25,559
Total liabilities 873,358 – 5,568 6,306 885,232 40,519 925,751
– IIF-38 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
The segment information provided to the General Manager for the reportable segments for the year ended 31 December 2010 is as follows:
Continuing operation Discontinued operation Property All other Trading Shipbuilding holding segments Subtotal Logistics Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Segment revenue 1,913,707 198,683 16,176 45,001 2,173,567 184,687 2,358,254 Inter-segment revenue (160) – – (6,481) (6,641) – (6,641)
Revenue from external customers 1,913,547 198,683 16,176 38,520 2,166,926 184,687 2,351,613
Adjusted EBITDA 101,714 (17,004) 42,596 20,746 148,052 10,088 158,140 Depreciation and amortisation (4,826) (4,493) (358) (4,105) (13,782) (1,208) (14,990) Income tax expense (19,899) – (10,566) (4,231) (34,696) (3,659) (38,355) Share of profit/(loss) from associates (552) – – – (552) (171) (723)
Total assets 1,276,794 899,010 464,072 213,295 2,853,171 394,105 3,247,276
Total assets includes: Investments in associates 608 – – – 608 2,070 2,678 Additions to non-current assets (other than financial instruments and deferred tax assets) 8,124 54,888 1,019 286 64,317 89,512 153,829
Total liabilities 770,469 553,582 8,355 880 1,333,286 84,641 1,417,927
The segment information provided to the General Manager for the reportable segments for the year ended 30 June 2011 is as follows:
Continuing operation Discontinued operation Property All other Trading Shipbuilding holding segments Subtotal Logistics Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Segment revenue 976,690 309,505 4,088 19,147 1,309,430 68,449 1,377,879 Inter-segment revenue (476) – – (418) (894) – (894)
Revenue from external customers 976,214 309,505 4,088 18,729 1,308,536 68,449 1,376,985
Adjusted EBITDA 28,830 (17,385) 30,187 3,943 45,575 4,194 49,769 Depreciation and amortisation (2,498) (12,569) (194) (1,930) (17,191) (1,003) (18,194) Income tax expense 1,944 – (7,418) (159) (5,633) (930) (6,563) Share of profit/(loss) from associates (209) – – – (209) (58) (267)
Total assets 1,432,120 955,198 489,851 209,916 3,087,085 – 3,087,085 Total assets includes: Investments in associates 399 – – – 399 – 399 Additions to non-current assets (other than financial instruments and deferred tax assets) 69,365 56,814 – 106 126,285 112,603 238,888
Total liabilities 994,587 207,541 6,807 561 1,209,496 – 1,209,496
– IIF-39 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
The segment information provided to the General Manager for the reportable segments for the six months ended 30 June 2010 is as follows:
Continuing operation Discontinued operation Property All other (Unaudited) Trading Shipbuilding holding segments Subtotal Logistics Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Segment revenue 944,446 – 18,221 7,124 969,791 88,467 1,058,258 Inter-segment revenue – – – (5,788) (5,788) – (5,788)
Revenue from external customers 944,446 – 18,221 1,336 964,003 88,467 1,052,470
Adjusted EBITDA 30,404 – 20,781 10,473 61,658 9,850 71,508 Depreciation and amortisation (2,372) – (163) (2,021) (4,556) (451) (5,007) Income tax expense (4,603) – (5,232) (1,929) (11,764) (3,123) (14,887) Share of profit/(loss) from associates (244) – – – (244) (71) (315)
A reconciliation of adjusted EBITDA to profit before tax of continuing operations is provided as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Adjusted EBITDA – reportable segments 62,670 117,240 127,306 51,185 41,632 – other segments 16,483 10,898 20,746 10,473 3,943
Total segments 79,153 128,138 148,052 61,658 45,575 Depreciation and amortization (5,305) (8,748) (13,782) (4,556) (17,191) Finance costs – net (30,379) (20,391) (20,553) (9,261) (32,977)
Profit/(loss) before income tax of continuing operations 43,469 98,999 113,717 47,841 (4,593)
A reconciliation of adjusted EBITDA to profit before tax of discontinued operations is provided as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Discontinued operation Adjusted EBITDA 12,338 13,498 10,088 9,850 4,194
Depreciation and amortisation (821) (753) (1,208) (451) (1,003) Finance costs – net (401) (905) (661) (604) (4,935)
Profit/(loss) before income tax of discontinued operations 11,116 11,840 8,219 8,795 (1,744)
– IIF-40 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Shanghai Group is domiciled in the PRC. The result of its revenue from external customers in PRC for the years ended 31 December 2008, 2009, 2010 and the six months ended 30 June 2011 and 30 June 2010 are RMB633,243,000, RMB367,757,000, RMB493,568,000, RMB304,924,000 and RMB100,826,000. The total of revenue from external customers from other countries for the year ended 31 December 2008, 2009, 2010 and the six months ended 30 June 2011 and 30 June 2010 are RMB739,873,000, RMB864,435,000, RMB1,673,358,000, RMB1,003,612,000 and RMB863,177,000.
Shanghai Group has a number of customers, no revenue from a customer exceed 10% or more of Shanghai Group’s revenue during the Relevant Periods.
Reportable segments’ assets are reconciled to total assets as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Segment assets for reportable segments 1,406,707 1,811,608 3,033,981 2,877,169 Other segments assets 211,653 205,451 213,295 209,916 Unallocated: Deferred tax 9,201 9,565 5,596 3,576 Available-for-sale financial assets 114,815 131,267 116,168 47,542 Assets of disposal group classified as held for resale – – – 85,902
Total assets per balance sheet 1,742,376 2,157,891 3,369,040 3,224,105
Reportable segments’ liabilities are reconciled to total liabilities as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Segment liabilities for reportable segments 726,067 919,445 1,417,047 1,208,935 Other segments liabilities 9,874 6,306 880 561 Unallocated: Deferred tax 74,682 96,027 112,585 115,267 Current borrowings 402,790 367,306 831,503 1,079,621 Non-current borrowings – 160,000 186,519 111,866
Total liabilities per balance sheet 1,213,413 1,549,084 2,548,534 2,516,250
– IIF-41 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
6 PROPERTY, PLANT AND EQUIPMENT – GROUP AND COMPANY
Group
Buildings, developments Furniture and Motor and Machinery Construction structures vehicles equipment equipment in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2008 Cost 70,985 13,834 11,203 19,894 – 115,916 Accumulated depreciation (8,868) (7,385) (8,508) (15,830) – (40,591)
Net book amount 62,117 6,449 2,695 4,064 – 75,325
Year ended 31 December 2008 Opening net book amount 62,117 6,449 2,695 4,064 – 75,325 Additions 504 2,255 1,597 633 – 4,989 Revaluation during the transformation of state-owned enterprises 64,895 906 – 50 – 65,851 Disposals – (161) (1,087) (1,386) – (2,634) Depreciation (2,446) (1,684) (751) (532) – (5,413)
Closing net book amount 125,070 7,765 2,454 2,829 – 138,118
At 31 December 2008 Cost 141,551 15,322 8,198 16,179 – 181,250 Accumulated depreciation (16,481) (7,557) (5,744) (13,350) – (43,132)
Net book amount 125,070 7,765 2,454 2,829 – 138,118
Year ended 31 December 2009 Opening net book amount 125,070 7,765 2,454 2,829 – 138,118 Additions – 3,640 1,302 11 20,587 25,540 Disposals – (195) (4) (3) – (202) Depreciation (5,602) (2,138) (753) (311) – (8,804)
Closing net book amount 119,468 9,072 2,999 2,526 20,587 154,652
At 31 December 2009 Cost 141,551 17,870 8,708 16,183 20,587 204,899 Accumulated depreciation (22,083) (8,798) (5,709) (13,657) – (50,247)
Net book amount 119,468 9,072 2,999 2,526 20,587 154,652
– IIF-42 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Buildings, developments Furniture Machinery and Motor and and Construction structures vehicles equipment equipment in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Year ended 31 December 2010 Opening net book amount 119,468 9,072 2,999 2,526 20,587 154,652 Acquisition of a subsidiary (note 37(a)) 56,237 1,192 1,403 13,995 248,132 320,959 Additions 14,268 5,587 1,822 44,299 61,355 127,331 Transfers 229,902 – – 47,813 (277,715) – Disposals of a subsidiary – – (6) – – (6) Disposals – (299) (7) (39,315) – (39,621) Depreciation (7,344) (2,650) (1,085) (1,013) – (12,092)
Closing net book amount 412,531 12,902 5,126 68,305 52,359 551,223
At 31 December 2010 Cost 447,629 22,850 12,261 85,244 52,359 620,343 Accumulated depreciation (35,098) (9,948) (7,135) (16,939) – (69,120)
Net book amount 412,531 12,902 5,126 68,305 52,359 551,223
Six months ended 30 June 2011 Opening net book amount 412,531 12,902 5,126 68,305 52,359 551,223 Additions 17,654 3,162 822 3,602 24,877 50,117 Loss of control of a subsidiary (note 37(b)) (23,030) (5,943) (1,096) (1,504) (44,398) (75,971) Disposals (8,704) (146) (1) – – (8,851) Depreciation (9,206) (1,261) (874) (3,504) – (14,845)
Closing net book amount 389,245 8,714 3,977 66,899 32,838 501,673
At 30 June 2011 Cost 431,165 16,929 10,605 86,210 32,838 577,747 Accumulated depreciation (41,920) (8,215) (6,628) (19,311) – (76,074)
Net book amount 389,245 8,714 3,977 66,899 32,838 501,673
– IIF-43 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Buildings, developments Furniture Machinery and Motor and and Construction structures Vehicles equipment equipment in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
(Unaudited) Six months ended 30 June 2010 Opening net book amount 119,468 9,072 2,999 2,526 20,587 154,652 Additions 152 4,216 338 182 2,801 7,689 Disposals – (152) – – – (152) Depreciation (2,942) (1,160) (432) (123) – (4,657)
Closing net book amount 116,678 11,976 2,905 2,585 23,388 157,532
At 30 June 2010 Cost 141,703 21,244 9,046 16,365 23,388 211,746 Accumulated depreciation (25,025) (9,268) (6,141) (13,780) – (54,214)
Net book amount 116,678 11,976 2,905 2,585 23,388 157,532
Depreciation expenses for the years ended 31 December 2008, 2009 and 2010 and for the six months ended 30 June 2010 and 2011 have been charged to profit or loss as below:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Cost of goods sold – – 1,042 – 7,784 Selling and marketing expenses 340 963 905 518 435 General and administrative expenses 5,073 7,841 10,145 4,139 6,626
5,413 8,804 12,092 4,657 14,845
As at 31 December 2008, 2009 and 2010 and 30 June 2011, building of RMB15,378,000, RMB5,495,000, RMB34,232,000 and RMB32,340,000, were pledged as collateral for borrowings (note 21(a)).
Machinery includes the following amounts where Shanghai Group is a lessee under a finance lease:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Cost - capitalised finance leases – – 36,000 36,000 Accumulated depreciation – – – (1,835)
Net book amount – – 36,000 34,165
Shanghai Group leases various machineries under non-cancellable finance lease agreements. The lease terms are 3 years and ownership of the assets lie within Shanghai Group.
– IIF-44 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Company
Buildings, developments Furniture Machinery and Motor and and structures vehicles equipment equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2008 Cost 16,425 4,762 2,132 64 23,383 Accumulated depreciation (1,000) (1,770) (1,110) (61) (3,941)
Net book amount 15,425 2,992 1,022 3 19,442
Year ended 31 December 2008 Opening net book amount 15,425 2,992 1,022 3 19,442 Transfer from a subsidiary 30,794 – – – 30,794 Additions – 575 131 130 836 Revaluation during the transformation of state-owned enterprises 27,108 – – 32 27,140 Disposals – (319) (129) – (448) Depreciation (1,243) (457) (201) (55) (1,956)
Closing net book amount 72,084 2,791 823 110 75,808
At 31 December 2008 Cost 75,068 4,635 2,123 226 82,052 Accumulated depreciation (2,984) (1,844) (1,300) (116) (6,244)
Net book amount 72,084 2,791 823 110 75,808
Year ended 31 December 2009 Opening net book amount 72,084 2,791 823 110 75,808 Additions – 1,833 789 – 2,622 Disposals – (22) – – (22) Depreciation (2,429) (494) (319) (18) (3,260)
Closing net book amount 69,655 4,108 1,293 92 75,148
At 31 December 2009 Cost 75,068 6,314 2,912 226 84,520 Accumulated depreciation (5,413) (2,206) (1,619) (134) (9,372)
Net book amount 69,655 4,108 1,293 92 75,148
– IIF-45 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Buildings, developments Furniture Machinery and Motor and and structures vehicles equipment equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Year ended 31 December 2010 Opening net book amount 69,655 4,108 1,293 92 75,148 Additions – 161 782 26 969 Disposals – (67) – – (67) Depreciation (2,499) (620) (401) (19) (3,539)
Closing net book amount 67,156 3,582 1,674 99 72,511
At 31 December 2010 Cost 75,068 6,215 3,694 251 85,228 Accumulated depreciation (7,912) (2,633) (2,020) (152) (12,717)
Net book amount 67,156 3,582 1,674 99 72,511
Six months ended 30 June 2011 Opening net book amount 67,156 3,582 1,674 99 72,511 Additions – 565 6 – 571 Disposals – (42) (1) – (43) Depreciation (1,232) (298) (223) (10) (1,763)
Closing net book amount 65,924 3,807 1,456 89 71,276
Six months ended 30 June 2011 Cost 75,068 6,312 3,674 251 85,305 Accumulated depreciation (9,144) (2,505) (2,218) (162) (14,029)
Net book amount 65,924 3,807 1,456 89 71,276
Furniture Machinery Motor and and Buildings vehicles equipment equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
(Unaudited) Six months ended 30 June 2010 Opening net book amount 69,655 4,108 1,293 92 75,148 Additions – – 36 22 58 Depreciation (1,267) (306) (187) (9) (1,769)
Closing net book amount 68,388 3,802 1,142 105 73,437
At 30 June 2010 Cost 75,068 6,314 2,948 248 84,578 Accumulated depreciation (6,680) (2,512) (1,806) (143) (11,141)
Net book amount 68,388 3,802 1,142 105 73,437
– IIF-46 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Depreciation expenses for the years ended 31 December 2008, 2009 and 2010 and for the six months ended 30 June 2010 and 2011 have been charged to profit or loss as below:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
General and administrative expenses 1,956 3,260 3,539 1,769 1,763
As at 31 December 2008, 2009 and 2010 and 30 June 2011, building of RMB15,378,000, RMB5,495,000, RMB30,789,000 and RMB28,949,000, were pledged as collateral for borrowings (note 21(a)).
7 INVESTMENT PROPERTIES – GROUP AND COMPANY
Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Beginning of the year/period 495,804 559,202 641,653 641,653 704,038 Additions 21,778 4 4,063 – – Disposals – (5,653) (5,551) (5,551) (21,313) Net gain from fair value adjustment 41,620 88,100 63,873 26,486 34,236
End of the year/period 559,202 641,653 704,038 662,588 716,961
(a) Amounts recognised in profit and loss for investment properties are as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Rental income 26,764 22,931 16,917 8,878 8,035 Direct operating expenses from property that generated rental income (2,210) (1,075) (1,681) (618) (375)
24,554 21,856 15,236 8,260 7,660
(b) Valuation basis
The revaluations in the Relevant Periods were based on independent assessments made by China United Assets Appraisal Co., Ltd, an independent qualified valuer in the PRC. The valuations represented the fair value amounts for which the properties could be exchanged between willing parties in an arm’s length transaction, based on current prices in an active property market for similar properties in the same location and condition and subject to similar leases.
– IIF-47 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
(c) As at 31 December 2008, 2009 and 2010 and 30 June 2011, investment properties of RMB150,487,000, RMB34,378,000, RMB39,570,000 and RMB39,238,000 were pledged as collateral for borrowings (note 21(a)).
(d) The investment properties of Shanghai Group are all located in Shanghai, the PRC and currently under operating lease agreements.
(e) Leasing arrangements
Some of the investment properties are leased to tenants under long term operating leases with rentals payable monthly. Minimum lease payments receivable on leases of investment properties are as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Within one year 25,516 22,011 8,236 7,461 Later than one year but no later than 5 years 39,003 33,993 25,392 32,084 Later than 5 years 32,466 27,341 21,841 19,029
96,985 83,345 55,469 58,574
Company
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Beginning of the year/ period 48,103 56,822 59,396 59,396 78,428 Additions 2,422 – 4,062 – – Disposals ––––(21,313) Net gain from fair value adjustment 6,297 2,574 14,970 4,251 4,643
End of the year/period 56,822 59,396 78,428 63,647 61,758
(a) As at 31 December 2008, 2009 and 2010 and 30 June 2011, investment properties of RMB150,487,000, RMB34,378,000, RMB21,840,000 and RMB21,734,000 were pledged as collateral for borrowings (note 21(a)).
(b) The investment properties of the Shanghai Group are all located in Shanghai, PRC and currently under operating lease agreements.
– IIF-48 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
(c) Leasing arrangements
Some of the investment properties are leased to tenants under long term operating leases with rentals payable monthly. Minimum lease payments receivable on leases of investment properties are as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Within one year 1,732 1,089 1,390 372 Later than one year but no later than 5 years 975 195 – –
2,707 1,284 1,390 372
8 LAND USE RIGHTS – GROUP
Shanghai Group’s interests in land use rights represent prepaid operating lease payments.
As at 31 December 2008,2009 and 2010 and 30 June 2011, land use rights of Nil, Nil, RMB136,917,000 and Nil, were pledged as collateral for borrowings (note 21(a)).
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Beginning of the year/period 6,125 23,457 22,768 22,768 47,619 Revaluation during the transformation of state-owned enterprises 18,039 –––– Additions – – 69 – 130,930 Acquisition of a subsidiary (note 37(a)(1)) – – 25,537 – – Loss control of a subsidiary (note 37(b)) ––––(130,551) Amortisation (707) (689) (755) (345) (797)
End of the year/period 23,457 22,768 47,619 22,423 47,201
– IIF-49 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
9 INTANGIBLE ASSETS – GROUP
Non-patent Software Technology Total RMB’000 RMB’000 RMB’000
At 1 January 2008 Cost 67 – 67 Accumulated amortisation (7) – (7)
Net book amount 60 – 60
Year ended 31 December 2008 Opening net book amount 60 – 60 Amortisation charge (6) – (6)
Closing net book amount 54 – 54
At 31 December 2008 Cost 67 – 67 Accumulated amortisation (13) – (13)
Net book amount 54 – 54
Year ended 31 December 2009 Opening net book amount 54 – 54 Additions 16 – 16 Amortisation charge (8) – (8)
Closing net book amount 62 – 62
At 31 December 2009 Cost 83 – 83 Accumulated amortisation (21) – (21)
Net book amount 62 – 62
– IIF-50 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Non-patent Software Technology Total RMB’000 RMB’000 RMB’000
Year ended 31 December 2010 Opening net book amount 62 – 62 Additions 509 – 509 Acquisition of a subsidiary (note 37(a)) 262 39,815 40,077 Amortisation charge (70) (2,073) (2,143)
Closing net book amount 763 37,742 38,505
As at 31 December 2010 Cost 866 45,619 46,485 Accumulated amortisation and impairment (103) (7,877) (7,980)
Net book amount 763 37,742 38,505
Six months ended 30 June 2011 Opening net book amount 763 37,742 38,505 Additions 61 – 61 Loss of control of subsidiaries (note 37(b)) (418) – (418) Disposal (27) – (27) Amortisation charge (65) (2,487) (2,552)
Closing net book amount 314 35,255 35,569
At 30 June 2011 Cost 401 45,619 46,020 Accumulated amortisation (87) (10,364) (10,451)
Net book amount 314 35,255 35,569
(Unaudited) Six months ended 30 June 2010 Opening net book amount 62 – 62 Additions 45 – 45 Amortisation charge (5) – (5)
Closing net book amount 102 – 102
At 30 June 2010 Cost 128 – 128 Accumulated amortisation (26) – (26)
Net book amount 102 – 102
– IIF-51 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
10 INVESTMENTS IN SUBSIDIARIES – COMPANY
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Investment in unlisted entities 274,106 274,106 473,509 390,255
Particulars of Shanghai Company’s principal subsidiaries as at 30 June 2011 are set out below:
Place of incorporation And Paid- in Interest Main business Name kind of legal entity capital held activities
Shanghai Catic Industrial Co., Ltd PRC, Limited liability 22,150 75% Leasing company Shanghai Catic Auto-Maintenance PRC, Limited liability 13,842 95% Automobile Equipment Co., Ltd company maintenance *Shanghai Catic Grand Hotel Co., Ltd PRC, Limited liability 18,611 50% Leasing company Shanghai Catic Real Estate Development Co., PRC, Limited liability 15,000 100% Leasing Ltd company Shanghai Howell Industrial Co., Ltd PRC, Limited liability 5,000 100% Trading company Shanghai Kaixin Auto-Maintenance PRC, Limited liability 2,500 N/A Automobile Equipment Co., Ltd company maintenance AVIC International Logistics Co., Ltd PRC, Limited liability 150,000 N/A Logistics service company AVIC-Ding Heng Ship Building Co., Ltd PRC, Limited liability 299,471 60% Manufacturing company China National Aero-Technology PRC, Limited liability 20,000 100% Trading Corporation Hangzhou Co., Ltd company
* Although Shanghai Group owns 50% equity interest in Shanghai Catic Grand Hotel Co., Ltd., it is able to gain power over more than one half of the voting rights in the board. Consequently, Shanghai Group treated Shanghai Catic Grand Hotel Co., Ltd. as a subsidiary.
The movement of investment in subsidiaries is as below:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Unlisted investments, at cost Beginning of the year/period 62,910 274,106 274,106 274,106 473,509 Additional capital injection (a) 8,744 – 101,020 54,000 – Acquisition of subsidiaries (b) 25,268 – 100,000 – – Revaluation during the transformation of state-owned enterprises (c) 177,184 –––– Loss control of a subsidiary (d) – – (1,617) – (83,254)
End of the year/period 274,106 274,106 473,509 328,106 390,255
– IIF-52 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
(a) (i) In December 2008 and September 2010, Shanghai Company injected additional capital of RMB8,744,000 and RMB10,000,000 respectively into China National Aero-Technology Corporation Hangzhou Co., Ltd.
(ii) In January 2010, Shanghai Company injected additional capital of RMB54,000,000 into AVIC International Logistics Co., Ltd.
(iii) In July 2010, Shanghai Company injected additional capital of RMB37,020,000 into AVIC-Ding Heng Ship Building Co., Ltd.
(b) (i) In July 2008, Shanghai Company acquired 40% equity interest of AVIC International Logistics Co., Ltd at a consideration of RMB20,002,000, in which Shanghai Group held 10% of equity interest before the acquisition (note 37(a)(2)).
(ii) In July 2010, Shanghai Company acquired 60% equity interest of AVIC-Ding Heng Ship Building Co., Ltd from a third party at a consideration of RMB100,000,000 (note 37(a)(1)).
(c) In the year of 2008, Shanghai Company was transformed from state-owned enterprise to limited liability company and the investments in subsidiaries were revalued.
(d) (i) On 4 November 2010, Shanghai Company sold the entire equity interest of 62% of Shanghai Kaixin Auto-Maintenance Equipment Co., Ltd to a third party at a consideration of RMB1,550,000.
(ii) On 15 April 2011, AVIC International, the parent of Shanghai Company, injected additional capital amounting to RMB200,000,000 into the subsidiary of Shanghai Company, AVIC International Logistics Co., Ltd. As a result, the interest of Shanghai Company in this subsidiary was diluted from 50% to 23.44% and Shanghai Company lost the control of the subsidiary. AVIC International Logistics Co., Ltd has become an associate of Shanghai Company (note 18 and note 37(b)).
(e) As at 31 December 2008, 2009 and 2010 and 30 June 2011, investment in a subsidiary with carrying amount of Nil, Nil, RMB82,000,000 and Nil, was pledged as collateral for borrowings (note 21(a)).
11 INVESTMENTS IN ASSOCIATES – GROUP AND COMPANY
The movements of share of net assets of associates are as follows:
Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Beginning of the year/period 2,475 2,400 3,401 3,401 2,678 Capital injection – 2,550 – – – Revaluation during the transformation of state-owned enterprises 51–––– Loss of control of a subsidiary (note 37(b)) ––––84,007 Transfer to non-current assets held for sale (note 18) ––––(86,019) Disposals – (1,051) – – – Share of loss (126) (498) (723) (315) (267)
End of the year/period 2,400 3,401 2,678 3,086 399
– IIF-53 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Shanghai Group’s shares of the results of its principal associates are from unlisted companies and its aggregated assets and liabilities, are as follows:
Country of Profit / Interest Name incorporation Assets Liabilities Revenues (Loss) held% RMB’000 RMB’000 RMB’000 RMB’000
As at 31 December 2008 Jincheng Motorcycle Egypt PRC 8,105 2,865 39 (696) 24% Company Limited Zhejiang CATIC Economics PRC 2,698 269 22,160 95 43% and Trade Company Limited
10,803 3,134 22,199 (601) As at 31 December 2009 Jincheng Motorcycle Egypt PRC 4,637 2,447 1,517 (792) 24% Company Limited Shenzhen AVIC Yihe Supply PRC 6,717 394 258 (1,185) 26% Chain Management Co., Ltd
11,354 2,841 1,775 (1,977)
As at 31 December 2010 Jincheng Motorcycle Egypt PRC 4,696 2,803 3,622 (2,296) 24% Company Limited Shenzhen AVIC Yihe Supply PRC 5,660 9 156 (662) 26% Chain Management Co., Ltd
10,356 2,812 3,778 (2,958) (Unaudited) Jincheng Motorcycle Egypt PRC 6,776 3,602 1,055 (1,017) 24% Company Limited Shenzhen AVIC Yihe Supply PRC 6,427 384 135 (273) 26% Chain Management Co., Ltd
13,203 3,986 1,190 (1,290)
As at 30 June 2011 Jincheng Motorcycle Egypt PRC 4,993 4,168 1,560 (871) 24% Company Limited Shenzhen AVIC Yihe Supply PRC N/A N/A – (223) 26% Chain Management Co., Ltd
4,993 4,168 1,560 (1,094)
Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Investment cost 1,517 1,517 1,517 1,517
– IIF-54 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
12 AVAILABLE-FOR-SALE FINANCIAL ASSETS – GROUP AND COMPANY
Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Investments in shares of unlisted companies, at fair value 114,896 131,348 116,249 47,542 Less: provision for impairment losses (81) (81) (81) –
114,815 131,267 116,168 47,542
The movement of available-for-sale financial assets is as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Beginning of the year/period 60,375 114,815 131,267 131,267 116,168 Additions 56,000 –––– Loss control of a subsidiary (note 37(b)) ––––(1,061) Disposals – – (23,293) – (66,346) Net fair value (losses)/gains transfer to equity (1,560) 16,452 8,194 (12,926) (1,219)
End of the year/period 114,815 131,267 116,168 118,341 47,542
All available-for-sale financial assets are denominated in RMB.
As at 31 December 2008, 2009, 2010 and 30 June 2011, the share of unlisted companies with carrying amount of RMB56,000,000, Nil, RMB56,000,000 and RMB56,000,000 were pledged as collateral for borrowings (note 21(a)).
Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Investments in shares of unlisted companies, at fair value 113,961 130,269 115,107 47,542
– IIF-55 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
The movement of available-for-sale financial assets is as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Beginning of the year/ period 59,598 113,961 130,269 130,269 115,107 Additions 56,000 –––– Disposals – – (23,293) – (66,346) Net fair value gains/(losses) transfer to equity (note 20) (1,637) 16,308 8,131 (13,030) (1,219)
End of the year/period 113,961 130,269 115,107 117,239 47,542
All available-for-sale financial assets are denominated in RMB.
As at 31 December 2008, 2009 and 2010 and 30 June 2011, the share of unlisted companies with carrying amount of RMB56,000,000, Nil, RMB56,000,000 and RMB56,000,000 was pledged as collateral for borrowings (note 21(a)).
13 PREPAYMENT FOR ACQUISITION OF NON-CURRENT ASSETS – GROUP
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Prepayment for land use right – – 68,968 23,460 Prepayment for buildings 16,392 16,392 15,889 68,768
16,392 16,392 84,857 92,228
14 INVENTORIES – GROUP AND COMPANY
Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Raw materials – – 152,110 54,646 Work in progress 160,192 215,107 64,742 117,230 Finished goods 14,085 7,535 8,772 4,717
174,277 222,642 225,624 176,593
The cost of inventories recognized as expenses and included in “cost of sales” amounted to RMB1,260,601,000, RMB1,110,660,000, RMB1,861,452,000, RMB973,945,000 and RMB916,550,000 for each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2010 and 2011, respectively.
– IIF-56 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
As at 31 December 2008, 2009 and 2010 and 30 June 2011, inventories of Nil, Nil, RMB51,569,000 and RMB77,252,000, were pledged as collateral for borrowings (note21(a)).
Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Work in progress 157,244 116,459 35,694 35,694 Finished goods 7,275 4,244 8,740 4,716
164,519 120,703 44,434 40,410
15 TRADE AND OTHER RECEIVABLES – GROUP AND COMPANY
Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade receivables Trade receivables from third parties 249,925 278,064 291,319 375,249 Trade receivables from related parties (note 38) 15,253 30,088 23,435 615
265,178 308,152 314,754 375,864
Less: Provision for impairment (36,203) (39,102) (40,565) (44,006)
Trade receivables – net 228,975 269,050 274,189 331,858
Other receivables Prepayments to related parties (note 38) 2,821 528 16,098 73,669 Prepayments to third parties 93,842 176,865 296,613 354,054 Value added tax deductible 13,587 29,235 103,724 51,467 Other receivables due from related parties (note 38) 69,422 94,893 94,645 72,234 Other receivables due from third parties 40,419 36,192 101,708 88,420
220,091 337,713 612,788 639,844
Less: Provision for impairment (9,876) (11,227) (28,425) (23,642)
Other receivables – net 210,215 326,486 584,363 616,202
Total trade and other receivables 439,190 595,536 858,552 948,060
The carrying amounts of Shanghai Group’s trade and other receivables at 31 December 2008, 2009 and 2010 and 30 June 2011 approximate their fair values.
– IIF-57 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Group
The ageing analysis of the trade receivables by invoices date are as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Up to 6 months 226,233 254,892 252,305 328,854 6 to 12 months 5,454 11,540 22,890 10,945 1 to 2 years 1,733 11,240 5,481 2,407 2 to 3 years 291 675 4,148 2,240 Over 3 years 31,467 29,805 29,930 31,418
Trade receivables- gross 265,178 308,152 314,754 375,864 Less: Provision for impairment (36,203) (39,102) (40,565) (44,006)
Trade receivables - net 228,975 269,050 274,189 331,858
The average credit period for the Group is 6 months. As at 31 December 2008, 2009 and 2010 and 30 June 2011, trade receivables of RMB2,742,000, RMB14,158,000, RMB21,884,000 and RMB3,004,000, respectively, were past due but not impaired. These relate to certain customers with no history of credit default and they are in continuous trading with Shanghai Group. Based on past experience, management believes that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered as fully recoverable. The ageing analysis of these trade receivables is as follows:
Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
6 to 12 months 1,114 3,975 16,716 1,687 1 to 2 years 1,628 10,183 5,168 1,317
2,742 14,158 21,884 3,004
– IIF-58 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
As at 31 December 2008, 2009 and 2010 and 30 June 2011, trade receivables of RMB36,203,000, RMB39,102,000, RMB40,565,000 and RMB44,006,000 had been impaired and were fully provided for, respectively. It was assessed that all these receivables are not expected to be recoverable. The aging analysis of these non-recoverable receivables is as follows:
Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
6 to 12 months 4,340 7,565 6,174 9,258 1 to 2 years 105 1,057 313 1,090 2 to 3 years 291 675 4,148 2,240 Over 3 years 31,467 29,805 29,930 31,418
36,203 39,102 40,565 44,006
Movements on Shanghai Group’s provision for impairment of trade receivables are as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
At beginning of year/period 32,761 36,203 39,102 39,102 40,565 Additions 3,442 2,899 9,812 9,812 7,663 Loss control of a subsidiary ––––(1,788) Write-off – – (8,349) – (2,434)
At end of year/period 36,203 39,102 40,565 48,914 44,006
Group
The aging analysis of the other receivables due from third parties are as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Up to 6 months 14,668 11,914 16,032 22,709 6 to 12 months 2,395 3,790 38,123 25,661 1 to 2 years 8,711 2,668 1,766 8,780 2 to 3 years 4,790 5,019 26,728 8,745 Over 3 years 9,855 12,801 19,059 22,525
Other receivables – gross 40,419 36,192 101,708 88,420 Less: Provision for impairment (9,876) (11,227) (28,425) (23,642)
Other receivables – net 30,543 24,965 73,283 64,778
– IIF-59 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
As at 31 December 2008, 2009 and 2010 and 30 June 2011, other receivables due from third parties of RMB15,875,000, RMB13,051,000, RMB57,251,000 and RMB42,069,000, respectively, were past due but not impaired. These relate to certain customers with no history of credit default and they are in continuous trading with Shanghai Group. Based on past experience, management believes that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered as fully recoverable. The aging analysis of these trade receivables is as follows:
Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
6 to 12 months 2,395 3,790 38,123 25,661 1 to 2 years 8,711 2,668 1,766 8,780 2 to 3 years 4,769 5,019 17,362 7,628 Over 3 years – 1,574 – –
15,875 13,051 57,251 42,069
As at 31 December 2008, 2009 and 2010 and 30 June 2011, other receivables due from third parties of RMB9,976,000, RMB11,227,000, RMB28,425,000 and RMB23,642,000 had been impaired and were fully provided for, respectively. It was assessed that all these receivables are not expected to be recoverable. The aging analysis of these non-recoverable receivables is as follows:
Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
2 to 3 years 21 – 9,366 1,117 Over 3 years 9,855 11,227 19,059 22,525
9,876 11,227 28,425 23,642
Movements on Shanghai Group’s provision for impairment of other receivables are as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
At beginning of year/period 9,441 9,876 11,227 11,227 28,425 Additions 435 1,351 75 – – Loss control of a subsidiary ––––(4,783) Acquisition of a subsidiary – – 17,123 – – Write-off – – – (78) –
At end of year/period 9,876 11,227 28,425 11,149 23,642
– IIF-60 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
The carrying amounts of Shanghai Group’s trade and other receivables before provision for impairment are denominated in the following currencies:
Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
CNY 462,805 602,334 670,208 531,402 JPY 1,278 1,327 1,778 194 EUR 3,436 22,702 199,370 185,108 USD 17,750 19,502 55,611 288,422 CHF – – – 10,366 HKD – – 575 216
485,269 645,865 927,542 1,015,708
As at 31 December 2008, 2009 and 2010 and 30 June 2011, trade receivables of RMB7,506,000, Nil, Nil, RMB298,923,000, were pledged as collateral of borrowings (note 21(a)).
Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade receivables Trade receivables from third parties 165,734 201,635 152,572 342,233 Trade receivables from related parties – 549 549 549
165,734 202,184 153,121 342,782 Less: Provision for impairment (27,159) (30,357) (30,357) (38,020)
Trade receivables – net 138,575 171,827 122,764 304,762
Other receivables Prepayments to third party 23,377 146,016 210,859 266,772 Prepayments to related party 271 528 16,215 73,787 Prepayments to subsidiaries 150 – 91,736 133,489 Value added tax deductible 13,362 28,828 63,562 39,066 Other receivables due from related parties 61,592 55,818 59,023 66,257 Other receivables due from subsidiaries 180,734 186,285 214,324 357,480 Other receivables due from third parties 11,416 15,004 18,221 10,846
290,902 432,479 673,940 947,697 Less: Provision for impairment – (1,400) (1,400) (1,400)
Other receivables – net 290,902 431,079 672,540 946,297
Total trade and other receivables 429,477 602,906 795,304 1,251,059
The carrying amounts of Shanghai Company’s trade and other receivables at 31 December 2008, 2009 and 2010 and 30 June 2011 approximate their fair values.
– IIF-61 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
The aging analysis of the trade receivables by invoices date are as follows:
Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Up to 6 months 136,030 157,436 112,605 304,665 6 to 12 months 3,386 9,542 9,468 8,728 1 to 2 years – 10,810 2,864 907 2 to 3 years – – 3,788 2,240 Over 3 years 26,318 24,396 24,396 26,242
Trade receivables – gross 165,734 202,184 153,121 342,782 Less: Provision for impairment (27,159) (30,357) (30,357) (38,020)
Trade receivables – net 138,575 171,827 122,764 304,762
The average credit period for the Company is 6 months. As at 31 December 2008, 2009 and 2010 and 30 June 2011, trade receivables of RMB2,545,000, RMB14,391,000, RMB10,159,000 and RMB97,000 respectively, were past due but not impaired. These relate to certain customers with no history of credit default and they are in continuous trading with Shanghai Company. Based on past experience, management believes that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered as fully recoverable. The aging analysis of these trade receivables is as follows:
Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
6 to 12 months 2,545 4,607 4,765 97 1 to 2 years – 9,784 2,578 – 2 to 3 years – – 2,816 –
2,545 14,391 10,159 97
– IIF-62 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
As at 31 December 2008, 2009 and 2010 and 30 June 2011, trade receivables of RMB27,159,000, RMB30,357,000, RMB30,357,000 and RMB38,020,000 had been impaired and were fully provided for, respectively. It was assessed that all these receivables are not expected to be recoverable. The aging analysis of these non-recoverable receivables is as follows:
Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
6 to 12 months 841 4,935 4,703 8,631 1 to 2 years – 1,026 286 907 2 to 3 years – – 972 2,240 Over 3 years 26,318 24,396 24,396 26,242
27,159 30,357 30,357 38,020
Movements on Shanghai Company’s provision for impairment of trade receivables are as follows:
Company
As at 31 December As at 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) At the beginning of year/period 24,948 27,159 30,357 30,357 30,357 Additions 2,211 3,198 6,951 6,951 7,663 Write-off – – (6,951) – –
At the end of year/period 27,159 30,357 30,357 37,308 38,020
The aging analysis of other receivables due from third parties are as follows:
Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Up to 6 months 7,632 9,984 11,982 5,587 6 to 12 months 771 2,257 3,471 2,130 1 to 2 years 1,059 357 228 420 2 to 3 years 675 504 31 169 Over 3 years 1,279 1,902 2,509 2,540
Trade receivables – gross 11,416 15,004 18,221 10,846 Less: Provision for impairment – (1,400) (1,400) (1,400)
Other receivables – net 11,416 13,604 16,821 9,446
– IIF-63 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
As at 31 December 2008, 2009 and 2010 and 30 June 2011, other receivables due from third parties of RMB3,784,000, RMB3,620,000, RMB4,839,000 and RMB3,859,000 respectively, were past due but not impaired. These relate to certain customers with no history of credit default and they are in continuous trading with Shanghai Company. Based on past experience, management believes that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered as fully recoverable. The aging analysis of these other receivables is as follows:
Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
6 to 12 months 771 2,257 3,471 2,130 1 to 2 years 1,059 357 228 420 2 to 3 years 675 504 31 169 Over 3 years 1,279 502 1,109 1,140
3,784 3,620 4,839 3,859
As at 31 December 2008, 2009 and 2010 and 30 June 2011, other receivables due from third parties of Nil, RMB1,400,000, RMB1,400,000 and RMB1,400,000 had been impaired and were fully provided for, respectively. It was assessed that all these receivables are not expected to be recoverable. The aging analysis of these non-recoverable receivables is as follows:
Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Over 3 years – 1,400 1,400 1,400
Movements on Shanghai Company’s provision for impairment of other receivables are as follows:
Company
As at As at 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
At the beginning of year/period – – 1,400 1,400 1,400 Additions – 1,400 – – –
At the end of year/period – 1,400 1,400 1,400 1,400
– IIF-64 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
The carrying amounts of Shanghai Company’s trade and other receivables before provision for impairment are denominated in the following currencies:
Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
CNY 434,172 591,132 569,727 806,173 JPY 1,278 1,327 1,778 194 EUR 3,436 22,702 199,370 185,108 USD 17,750 19,502 55,611 288,422 CHF – – – 10,366 HKD – – 575 216
456,636 634,663 827,061 1,290,479
As at 31 December 2008, 2009 and 2010 and 30 June 2011, trade receivables of Nil, Nil, Nil and RMB298,992,000, were pledged as collateral for borrowings (note 21(a)).
16 RESTRICTED CASH – GROUP AND COMPANY
Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
For collateral borrowings (a) 24,454 45,306 78,109 59,002 For guarantee deposits (b) 12,384 39,965 53,332 109,622
36,838 85,271 131,441 168,624
Restricted cash of Shanghai Group are denominated in the following currencies:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
RMB 36,838 82,282 114,608 161,322 USD – – – 4,715 EUR – 2,989 16,833 2,587
36,838 85,271 131,441 168,624
– IIF-65 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
For collateral borrowings (a) 24,454 45,306 45,749 45,002 For guarantee deposits (b) 12,132 34,875 46,791 123,622
36,586 80,181 92,540 168,624
Restricted cash of Shanghai Company are denominated in the following currencies:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
RMB 36,586 77,192 84,497 161,322 USD – – – 4,715 EUR – 2,989 8,043 2,587
36,586 80,181 92,540 168,624
Notes:
(a) The amount represents bank deposits pledged as collateral for Shanghai Group’s borrowings(note 21(a)). Such collateral will be released after the repayment of the relevant borrowings.
(b) Shanghai Group placed certain cash deposits with designated banks as security for bank acceptance notes, letter of credit and letter of guarantee.
17 CASH AND CASH EQUIVALENTS – GROUP AND COMPANY
Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Cash at bank and on hand 205,648 223,565 490,261 268,204
– IIF-66 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Cash and cash equivalents of Shanghai Group are denominated in the following currencies:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
RMB 196,335 156,860 446,584 204,623 USD 6,838 18,611 24,784 62,068 EUR 2,475 48,094 18,416 1,498 JPY – – 477 15
205,648 223,565 490,261 268,204
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Cash at bank and on hand 116,135 129,788 233,672 215,592
Cash and cash equivalents of Shanghai Company are denominated in the following currencies:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
RMB 108,573 84,000 205,274 158,277 USD 5,208 5,125 10,129 56,057 EUR 2,354 40,663 18,269 1,243 JPY – – – 15
116,135 129,788 233,672 215,592
18 NON-CURRENT ASSETS HELD-FOR-SALE AND DISCONTINUED OPERATIONS – GROUP
On 15 April 2011, AVIC International, the parent company of Shanghai Group, injected additional capital amounting to RMB200,000,000 into the subsidiary of Shanghai Company, AVIC International Logistics Co., Ltd. As a result, the interest of Shanghai Company in this subsidiary was diluted from 50% to 23.44% and Shanghai Company loses the control of the subsidiary (note 37(b)).
– IIF-67 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
On 22 June 2011, Shanghai Company entered into an agreement for sale of its entire equity interest in AVIC International Logistics Co., Ltd, an associate of Shanghai Company, to AVIC International. Accordingly, the investment in associate was presented as held for sale. The transaction was completed on 18 July 2011.
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Operating cash flows (11,698) (27,887) (73,714) 10,941 (66,757) Investing cash flows (24,673) (28,776) (88,903) (5,081) (95,558) Financing cash flows (402) 64,134 282,012 62,451 358,814
Total cash flows (36,773) 7,471 119,395 68,311 196,499
Cumulative income or expense recognized in other comprehensive income relating to disposal group classified as held for sale:
As at 31 December As at 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Available-for-sale financial assets 28 54 24 39 –
Analysis of the result of discontinued operations is as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Revenue 104,245 154,780 184,687 88,467 68,449 Expenses (93,129) (142,940) (176,468) (79,672) (70,193)
Profit before tax of discontinued operations 11,116 11,840 8,219 8,795 (1,744) Tax (3,212) (2,884) (3,659) (3,123) (1,046)
7,904 8,956 4,560 5,672 (2,790)
Pre-tax gain on loss control of a subsidiary (note 37 (b)) ––––6,058 Tax ––––(1,515)
After tax gain on loss control of a subsidiary ––––4,543
Profit/(loss) after tax of discontinued operations 7,904 8,956 4,560 5,672 1,753
– IIF-68 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
As at 31 December As at 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Profit for the year from discontinued operations attributable to: – Equity holders of the company 3,721 4,195 2,224 2,666 4,043 – Non-controlling interests 4,183 4,761 2,336 3,006 (2,290)
Profit for the year from discontinued operations 7,904 8,956 4,560 5,672 1,753
19 PAID IN CAPITAL – GROUP AND COMPANY
Paid in Capital capital surplus RMB’000 RMB’000
At 1 January 2008 164,878 7,698
Capitalisation of amount due to the parent company (a(i)) 18,767 – Revaluation during the transformation to a limited company (a(ii)) 216,355 (7,698)
At 31 December 2008, 2009 and 2010 (b) 400,000 –
Capital injection (c) 1,000 –
At 30 June 2011 401,000 –
(a) In 2008, Shanghai Company was transformed from a state-owned enterprise into a limited liability company (the “Transformation”) by undertaking the following:
(i) The amount due to the parent company of RMB18,767,000 was capitalised;
(ii) All assets and liabilities of Shanghai Company were revalued. The net revaluation surplus of RMB72,193,000, which comprised transformation of capital surplus of RMB7,698,000, retained earnings of RMB116,406,000, statutory reserves of RMB20,058,000, respectively and capitalisation of paid-in-capital of RMB216,355,000.
(b) On 18 December 2008, the Transformation was completed. The paid-in capital of RMB400,000,000 was verified by RSM China Certified Public Accountants (“中瑞岳華會計 師事務所”).
(c) In June 2011, paid-in capital of RMB1,000,000 was additionally contributed by the parent of Shanghai Company in cash.
– IIF-69 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
20 OTHER RESERVES – GROUP AND COMPANY
Group
Available- for-sale Merger financial Statutory reserve assets Reserves Total RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2008 25,000 21,001 20,058 66,059 Revaluation during the transformation – – (20,058) (20,058) Revaluation – gross – (1,599) – (1,599) Revaluation – tax – (9) – (9) Business combination under common control (note 37(a)(2)) (20,000) – – (20,000) Transfer to statutory reserves (a) – – 324 324
At 31 December 2008 5,000 19,393 324 24,717
At 1 January 2009 5,000 19,393 324 24,717 Revaluation – gross – 16,380 – 16,380 Revaluation – tax – (4,095) – (4,095) Business combination under common control (note 37(a)(3)) (5,000) – – (5,000) Transfer to statutory reserves (a) – – 908 908
At 31 December 2009 – 31,678 1,232 32,910
At 1 January 2010 – 31,678 1,232 32,910 Transfer on disposal of available-for-sale financial assets, gross – (6,315) – (6,315) Revaluation – gross – 10,267 – 10,267 Revaluation – tax – (2,567) – (2,567) Transfer to statutory reserves (a) – – 2,133 2,133
At 31 December 2010 – 33,063 3,365 36,428
At 1 January 2011 – 33,063 3,365 36,428 Transfer on disposal of available-for-sale financial assets, gross – (10,346) – (10,346) Revaluation – gross – (1,219) – (1,219) Revaluation – tax – 1,967 – 1,967
At 30 June 2011 – 23,465 3,365 26,830
(Unaudited) At 1 January 2010 – 31,678 1,232 32,910 Revaluation – gross – (12,977) – (12,977) Revaluation – tax – 3,244 – 3,244
At 30 June 2010 – 21,945 1,232 23,177
– IIF-70 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Company
Available- for-sale financial Statutory asset Reserves Total RMB’000 RMB’000 RMB’000
At 1 January 2008 20,774 20,058 40,832 Revaluation during the transformation – (20,058) (20,058) Revaluation – gross (note 12) (1,637) – (1,637) Transfer to statutory reserves (a) – 324 324
At 31 December 2008 19,137 324 19,461
At 1 January 2009 19,137 324 19,461 Revaluation – gross (note 12) 16,308 – 16,308 Revaluation – tax (note 22) (4,077) – (4,077) Transfer to statutory reserves (a) – 908 908
At 31 December 2009 31,368 1,232 32,600
At 1 January 2010 31,368 1,232 32,600 Transfer on disposal of available-for-sale financial assets, gross (6,315) – (6,315) Revaluation – gross (note 12) 8,131 – 8,131 Revaluation – tax (note 22) (455) – (455) Transfer to statutory reserves (a) – 2,133 2,133
At 31 December 2010 32,729 3,365 36,094
At 1 January 2011 32,729 3,365 36,094 Transfer on disposal of available-for-sale financial assets, gross (10,346) – (10,346) Revaluation – gross (note 12) (1,219) – (1,219) Revaluation – tax (note 22) 1,967 – 1,967
At 30 June 2011 23,131 3,365 26,496
(Unaudited) At 1 January 2010 31,368 1,232 32,600 Revaluation – gross (note 12) (13,030) – (13,030) Revaluation – tax (note 22) 3,257 – 3,257
At 30 June 2010 21,595 1,232 22,827
(a) In accordance with the relevant government regulations and the articles of association of Shanghai Group’s subsidiaries and associates in the PRC, it is required to appropriate at each year end certain percentages of the profit for the year/period after setting off accumulated losses brought forward (based on figures reported in their respective statutory financial statements) to reserve fund and enterprise development fund respectively. These reserves are required to be retained in the financial statements of these subsidiaries and associates for specific purposes.
– IIF-71 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
21 BORROWINGS – GROUP AND COMPANY
Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Non-current Long-term bank borrowings – Secured (a) – – 14,000 14,000 – Unsecured – 160,000 160,000 90,000
– 160,000 174,000 104,000
Finance lease liabilities – – 12,519 7,866
Total non-current borrowings – 160,000 186,519 111,866
Current Short-term bank borrowings – Secured (a) 262,390 90,306 303,445 409,691 – Unsecured (b) 120,400 277,000 511,843 654,527
382,790 367,306 815,288 1,064,218
Current portion of long-term bank borrowings – Secured (a) 20,000 – – – Finance lease liabilities – – 16,215 15,403
Total current borrowings 402,790 367,306 831,503 1,079,621
Total borrowings 402,790 527,306 1,018,022 1,191,487
– IIF-72 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
(a) Secured borrowings were secured by Shanghai Group’s property, plant and equipment (note 6), investment property (note 7), restricted cash (note 16), land use rights (note 8), trade and other receivables (note 15), inventories (note 14), available-for-sale financial assets (note 12), and investments in subsidiaries (note 11), as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Property, plant and equipment 35,000 6,412 80,000 80,000 Investment property 166,598 38,588 25,000 25,000 Restricted cash 24,454 45,306 77,445 58,170 Land use rights – – 15,000 – Trade and other receivables 6,338 – – 130,521 Inventories – – 20,000 30,000 Available-for-sale financial assets 50,000 – 43,000 43,000 Investments in a subsidiary – – 57,000 57,000
Total borrowings 282,390 90,306 317,445 423,691
(b) The detailed information of borrowings guaranteed by related parties and third parties is as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Guarantees provided by related parties – AVIC International 120,000 110,000 100,000 355,527
Guarantees provided by third parties – – 10,000 –
120,000 110,000 110,000 355,527
(c) The carrying amounts of bank borrowings are denominated in the following currencies:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
RMB 360,400 482,000 910,734 941,020 USD 42,390 35,817 66,046 247,628 EUR – 9,489 11,399 2,839 CHF – – 29,843 –
402,790 527,306 1,018,022 1,191,487
– IIF-73 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
(d) The effective interest rates (per annum) for the year/period are as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Long-term loans 6.77% 4.69% 4.59% 5.45% Short-term loans 6.36% 5.42% 5.02% 5.37%
(e) All short-term bank loans will mature within one year. The maturity of long-term bank loans is as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Within one year –––– Between one and two years – – 14,000 104,000 Between two and five years –––– Over five years – 160,000 160,000 –
– 160,000 174,000 104,000
(f) The exposure of Shanghai Group’s borrowings to interest rate changes and the contractual repricing dates at the end of each reporting period are as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Changes in interest rates – 6 months or less 85,400 30,000 125,000 90,000 – over 6 months and up to 12 months 317,390 497,306 864,288 1,078,218
402,790 527,306 989,288 1,168,218
– IIF-74 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
(g) Finance lease liabilities
Lease liabilities are effectively secured as the rights to the leased assets revert to the lessor in the event of default.
Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Gross finance lease liabilities – minimum lease payments No later than 1 year – – 17,843 16,764 Later than 1 year and no later than 5 years – – 14,031 8,773
– – 31,874 25,537 Future finance charges on finance leases – – (3,140) (2,268)
Present value of finance lease liabilities – – 28,734 23,269
The present value of finance lease liabilities is as follows: No later than 1 year – – 16,215 15,403 Later than 1 year and no later than 5 years – – 12,519 7,866
– – 28,734 23,269
Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Non-current Long-term bank borrowings – Unsecured – 160,000 – 90,000
Current Short-term bank borrowings – Secured (a) 236,052 90,306 230,756 327,944 – Unsecured (b) 110,000 227,000 416,843 584,527
346,052 317,306 647,599 912,471
Current portion of long-term bank borrowings – Secured (a) 20,000 – – –
Total borrowings 366,052 477,306 647,599 1,002,471
– IIF-75 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
(a) Secured borrowings were secured by the Shanghai Group’s property, plant and equipment (note 6), investment property (note 7), restricted cash (note 6), trade and other receivables (note 15), available-for-sale financial assets (note 12), and investments in subsidiaries (note 11), as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Property, plant and equipment 15,000 6,412 60,000 60,000 Investment property 146,598 38,588 25,000 25,000 Restricted cash 24,454 45,306 45,756 45,009 Trade and other receivables – – – 97,935 Available-for-sale financial assets 50,000 – 43,000 43,000 Investments in a subsidiary – – 57,000 57,000
236,052 90,306 230,756 327,944
(b) The detailed information of borrowings guaranteed by related parties is as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Guarantees provided by related party – AVIC International 110,000 110,000 100,000 265,527
(c) The carrying amounts of bank borrowings are denominated in the following currencies:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
RMB 330,000 432,000 572,000 797,751 USD 36,052 35,816 45,756 201,881 EUR – 9,490 – 2,839 CHF – – 29,843 –
366,052 477,306 647,599 1,002,471
– IIF-76 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
(d) The effective interest rates (per annum) for the year/period are as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Long-term loans 5.630% 4.395% 4.587% 5.466% Short-term loans 6.312% 5.354% 4.636% 5.100%
(e) All short-term bank loans will mature within one year. The maturity of long-term bank loans is as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Within one year –––– Between one and two years – – – 90,000 Between two and five years –––– Over five years – 160,000 – –
– 160,000 – 90,000
(f) The exposure of Shanghai Company’s borrowings to interest rate changes and the contractual repricing dates at the end of each reporting period are as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Changes in interest rates – 6 months or less 85,000 30,000 125,000 90,000 – over 6 months and up to 12 months 281,052 447,306 522,599 912,471
366,052 477,306 647,599 1,002,471
– IIF-77 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
22 DEFERRED INCOME TAX – GROUP AND COMPANY
The analysis of deferred tax assets and deferred tax liabilities is as follows:
Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Deferred income tax assets: – Deferred income tax assets to be recovered after more than 12 months 8,043 3,728 1,505 – – Deferred income tax assets to be recovered within 12 months 1,158 5,837 4,091 3,576
9,201 9,565 5,596 3,576
Deferred income tax liabilities: – Deferred income tax liabilities to be settled after more than 12 months (74,682) (96,027) (112,585) (115,267)
Net deferred income tax assets/(liabilities) (65,481) (86,462) (106,989) (111,691)
Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Deferred income tax assets: – Deferred income tax assets to be recovered after more than 12 months 3,849 – – – – Deferred income tax assets to be recovered within 12 months 948 728 – 1,514
4,797 728 – 1,514
Deferred income tax liabilities: – Deferred income tax liabilities to be settled after more than 12 months – – (4,355) –
Net deferred income tax assets/ (liabilities) 4,797 728 (4,355) 1,514
– IIF-78 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
The gross movement of deferred income tax account is as follows:
Group
Six months ended 30 Year ended 31 December June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Beginning of the year/period (58,306) (65,481) (86,462) (86,462) (106,989) Charged to income statement: – Continuing operation (note 32) (7,337) (18,150) (20,356) (8,477) (3,755) – Discontinued operation 162 1,246 284 (574) – Charged to other comprehensive income – (4,077) (455) 3,257 1,967 Loss control of a subsidiary ––––(2,914) Beginning of the year/period (58,306) (65,481) (86,462) (86,462) (106,989)
End of the year/period (65,481) (86,462) (106,989) (92,256) (111,691)
Company
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Beginning of the year/period 4,841 4,797 728 728 (4,355) Income statement charge/(credit) (44) 8 (4,628) (131) 3,902 Charged to other comprehensive income – (4,077) (455) 3,257 1,967
End of the year/period 4,797 728 (4,355) 3,854 1,514
– IIF-79 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Deferred income tax assets:
Group
Provision for Accrued Employee impairment payroll Tax retirement losses expenses losses benefits Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2008 2,882 122 – 6,026 9,030 Charged to the income statement: – Continuing operation 627 – 670 (7) 1,290 – Discontinued operation 130 51 – – 181
At 31 December 2008 3,639 173 670 6,019 10,501 Charged to the income statement: – Continuing operation 560 116 3,338 (139) 3,875 – Discontinued operation 152 1,130 – – 1,282
At 31 December 2009 4,351 1,419 4,008 5,880 15,658 Charged to the income statement: – Continuing operation 276 (57) (4,008) (599) (4,388) – Discontinued operation 129 171 – – 300
At 31 December 2010 4,756 1,533 – 5,281 11,570 Charged to the income statement 1,307 – 3,564 (67) 4,804 Loss control of a subsidiary (note 37(b)) (1,663) (1,474) – – (3,137)
At 30 June 2011 4,400 59 3,564 5,214 13,237
At 1 January 2010 4,351 1,419 4,008 5,880 15,658 Charged to the income statement: – Continuing operation 2,324 – (4,008) (172) (1,856) – Discontinued operation 127 (675) – – (548)
At 30 June 2010 (unaudited) 6,802 744 – 5,708 13,254
– IIF-80 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Company
Provision for Employee impairment retirement losses Tax losses benefits Total RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2008 – – 4,841 4,841 Charged to the income statement 465 653 (33) 1,085
At 31 December 2008 465 653 4,808 5,926 Charged to the income statement 799 – (147) 652
At 31 December 2009 1,264 653 4,661 6,578 Charged to the income statement – (653) (234) (887)
At 31 December 2010 1,264 – 4,427 5,691 Charged to the income statement 1,916 3,201 (56) 5,061
At 30 June 2011 3,180 3,201 4,371 10,752
At 1 January 2010 1,264 653 4,661 6,578 Charged to the income statement 1,738 (653) (154) 931
At 31 June 2010 (unaudited) 3,002 – 4,507 7,509
– IIF-81 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Deferred income tax liabilities:
Group
Change in fair value of Revaluation available- of for-sale investment financial properties assets Total RMB’000 RMB’000 RMB’000
At 1 January 2008 (67,185) (151) (67,336) Charged to the income statement: (8,627) – (8,627) Charge to the other comprehensive income – Discontinued operation – (19) (19)
At 31 December 2008 (75,812) (170) (75,982) Charged to the income statement: (22,025) – (22,025) Charge to the other comprehensive income – Continuing operation – (4,077) (4,077) – Discontinued operation – (36) (36)
At 31 December 2009 (97,837) (4,283) (102,120) Charged to the income statement: (15,968) – (15,968) Charge to the other comprehensive income – Continuing operation – (455) (455) – Discontinued operation – (16) (16)
At 31 December 2010 (113,805) (4,754) (118,559) Charged to the income statement (8,559) – (8,559) Charge to the other comprehensive income – Continuing operation – 1,967 1,967 Loss control of a subsidiary (note 37(b)) – 223 223
At 30 June 2011 (122,364) (2,564) (124,928)
At 1 January 2010 (97,837) (4,283) (102,120) Charged to the income statement: (6,621) – (6,621) Charge to the other comprehensive income – Continued operation – 3,257 3,257 – Discontinued operation – (26) (26)
At 30 June 2010 (unaudited) (104,458) (1,052) (105,510)
– IIF-82 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
Company
Change in fair value of available- for-sale Fair value financial gain assets Total RMB’000 RMB’000 RMB’000
At 1 January 2008 ––– Charged to the income statement (1,129) – (1,129)
At 31 December 2008 (1,129) – (1,129) Charged to the income statement (644) – (644) Charge to the other comprehensive income – (4,077) (4,077)
At 31 December 2009 (1,773) (4,077) (5,850) Charged to the income statement (3,741) – (3,741) Charge to the other comprehensive income – (455) (455)
At 31 December 2010 (5,514) (4,532) (10,046) Charged to the income statement (1,159) – (1,159) Charge to the other comprehensive income – 1,967 1,967
At 30 June 2011 (6,673) (2,565) (9,238)
At 1 January 2010 (1,773) (4,077) (5,850) Charged to the income statement (1,062) – (1,062) Charge to the other comprehensive income – 3,257 3,257
At 30 June 2010 (unaudited) (2,835) (820) (3,655)
Note: Deferred income tax assets are recognised for tax losses carry forwards to the extent that the realisation of the related benefit through the future taxable profits is probable. The accumulated taxation loss and relevant unrecognised deferred tax assets is as below:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Taxation loss 15,331 17,883 72,491 18,173 64,980
Unrecognised deferred tax assets 3,833 4,471 18,123 4,543 16,245
As at 31 December 2008, 2009 and 2010 and 30 June 2010 and 2011, these accumulated tax losses amounting to approximately RMB15,331,000, RMB17,883,000, RMB72,491,000, RMB18,173,000 and RMB64,980,000 respectively will be expired in five years. There is no expiry period for the other tax losses.
– IIF-83 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
23 DEFERRED INCOME – GROUP
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Government subsidy (a) – – 15,000 –
(a) The AVIC Xiang Feng International Logistics (Shanghai) Company Limited received a government subsidy of RMB15,000,000 in 2010. The subsidy should be used to purchase land use rights for the construction of “AVIC Logistics Park”.
24 TRADE AND OTHER PAYABLES – GROUP AND COMPANY
Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade payables Trade payables due to related parties (note 38(e)) 1,628 2,634 1,804 6,358 Trade payables due to third parties 212,620 305,655 666,681 618,026
214,248 308,289 668,485 624,384
Other payables Accrued payroll expense 7,065 11,768 21,772 4,562 Interest payable 212 234 1,901 1,013 Other taxes payable 7,237 10,271 84,080 48,773 Advances from third parties 388,489 524,948 275,271 232,372 Advances from related parties (note 38(e)) 434 756 62,305 137,216 Other payables due to related parties (note 38(e)) 56,141 3,478 28,484 1,835 Other payables due to third parties 29,922 30,419 65,902 45,120
489,500 581,874 539,715 470,891
Total trade and other payables 703,748 890,163 1,208,200 1,095,275
– IIF-84 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
The aging analysis of the trade payables, based on the invoice date, is as follows:
Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Up to 6 months 194,356 197,001 588,489 563,057 6 to 12 months 10,785 67,721 54,977 30,779 1 to 2 years 4,996 36,214 17,363 3,368 2 to 3 years 305 3,244 757 27,180 Over 3 years 3,806 4,109 6,899 –
214,248 308,289 668,485 624,384
Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade payables Trade payables due to related parties 1,050 1,494 480 724 Trade payables due to third parties 104,793 210,943 194,782 231,802
105,843 212,437 195,262 232,526
Other payables Accrued payroll expense 1,883 3,407 5,622 2,018 Interest payable – – – 605 Other taxes payable 1,328 2,561 4,394 3,595 Advances from third parties 325,964 373,265 403,321 484,855 Advances from related parties 336 658 47,553 112,336 Amount due to related parties 74,227 4,416 96,472 5,922 Amount due to third parties 9,020 13,837 21,103 22,598
412,758 398,144 578,465 631,929
Total trade and other payables 518,601 610,581 773,727 864,455
– IIF-85 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
The aging analysis of the trade payables, based on the invoice date, is as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Up to 6 months 100,112 174,257 175,231 213,503 6 to 12 months 5,731 4,780 7,136 6,740 1 to 2 years – 33,400 12,895 2,379 2 to 3 years – – – 9,904 Over 3 years ––––
105,843 212,437 195,262 232,526
25 CONSTRUCTION CONTRACTS – GROUP AND COMPANY
(a) Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
The aggregate costs incurred and recognised profits to date 74,442 168,041 533,677 844,214 Less: Progress billings (51,658) (116,924) (569,938) (801,132)
Net balance sheet position for ongoing contracts 22,784 51,117 (36,261) 43,082
Presented as: Amount due from customers for contract works 22,784 51,117 112,478 131,573 Amount due to customers for contract works – – (148,739) (88,491)
22,784 51,117 (36,261) 43,082
– IIF-86 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
(b) Company
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
The aggregate costs incurred and recognised profits to date 74,442 168,041 168,471 169,506 Less: Progress billings (51,658) (116,924) (158,192) (158,192)
Net balance sheet position for ongoing contracts 22,784 51,117 10,279 11,314
Presented as: Amount due from customers for contract works 22,784 51,117 10,279 11,314
26 RETIREMENT AND OTHER SUPPLEMENTAL BENEFIT OBLIGATIONS – GROUP AND COMPANY
Group
(a) State-managed retirement plans
The Chinese employees of Shanghai Group participate in employee social security plans organised and administrated by the PRC government authority. The PRC group companies are required to contribute from 16% to 22%, depending on the applicable local regulations, of payroll costs to the state-managed retirement plans. The obligation of these PRC group companies with respect to the state-managed retirement plans is to make the specified contributions.
The total cost charged to consolidated income statement during the relevant periods is as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Contributions to state-managed retirement plans 3,081 4,590 5,677 1,705 3,745
– IIF-87 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
At the balance sheet date, the following amount had not been paid to the state-managed retirement plans:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Amount due to state-managed retirement plans included in trade and other payables 266 920 1,792 1,661
Group
(b) Early retirement and supplemental benefit obligations
The amounts of early retirement and supplemental benefit obligations recognised in the consolidated balance sheets are determined as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Present value of defined benefits obligations 24,075 23,517 21,121 20,855
Liability arising from defined benefit obligations 24,075 23,517 21,121 20,855 Less: current portion (1,261) (1,788) (1,293) (1,747)
Non-current portion 22,814 21,729 19,828 19,108
The movements of Shanghai Group’s early retirement and supplemental benefit obligations over the relevant periods are as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Beginning of the year/period 24,102 24,075 23,517 23,517 21,121 – Retirement benefit costs (note 28) 964 703 (608) 423 381 – Payment (991) (1,261) (1,788) (1,111) (647)
End of the year/period 24,075 23,517 21,121 22,829 20,855
The above obligations were determined based on actuarial valuations performed by an independent qualified actuarial firm, Mercer Consulting (Shanghai) Company Limited (member of the Society of Actuaries and the China Association of Actuaries), using the projected unit credit actuarial cost method.
– IIF-88 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
The material actuarial assumptions used in valuing these obligations are as follows:
As at As at 31 December 30 June 2008 2009 2010 2011
Discount rates (per annum) – 4% 4% 4% 4% The discount rate-retired welfare programs Early - retirees’ salary and supplemental benefits growth rate 8% 8% 8% 8% Retirees funeral expenses growth rate 4% 4% 4% 4% Mortality: Average life expectancy of residents 81 81 81 81
Company
(a) State-managed retirement plans
The Chinese employees of the Shanghai Company participate in employee social security plans organised and administrated by the PRC government authority. The Shanghai Company is required to contribute from 16% to 22%, depending on the applicable local regulations, of payroll costs to the state-managed retirement plans. The obligation of the Shanghai Company with respect to the state-managed retirement plans is to make the specified contributions.
At the balance sheet date, the following amount had not been paid to the state-managed retirement plans:
As at As at 31 December 30 June 2008 2009 2010 2010 RMB’000 RMB’000 RMB’000 RMB’000
Amount due to state-managed retirement plans included in trade and other payables 136 767 1,555 1,598
– IIF-89 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
(b) Early retirement and supplemental benefit obligations
The amounts of early retirement and supplemental benefit obligations recognised in the balance sheets are determined as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Present value of defined benefits obligations 19,235 18,642 17,707 17,485
Liability arising from defined benefit obligations 19,235 18,642 17,707 17,485
Less: current portion (1,179) (1,603) (1,169) (1,517)
Non-current portion 18,056 17,039 16,538 15,968
The movements of the Shanghai Group’s early retirement and supplemental benefit obligations over the year are as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Beginning of the year/period 19,365 19,235 18,642 18,642 17,707 – Interest costs 773 586 668 340 363 – Payment (903) (1,179) (1,603) (952) (585)
End of the year/period 19,235 18,642 17,707 18,030 17,485
The above obligations were determined based on actuarial valuations performed by an independent qualified actuarial firm, Mercer Consulting (Shanghai) Company Limited (member of the Society of Actuaries and the China Association of Actuaries), using the projected unit credit actuarial cost method.
– IIF-90 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
The material actuarial assumptions used in valuing these obligations are as follows:
As at As at 31 December 30 June 2008 2009 2010 2011
Discount rates (per annum) – 4% 4% 4% 4% The discount rate-retired welfare programs Early – retirees’ salary and supplemental benefits growth rate 8% 8% 8% 8% Retirees funeral expenses growth rate 4% 4% 4% 4% Mortality: Average life expectancy of residents 81 81 81 81
27 EXPENSES BY NATURE
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Changes in inventory Inventories consumed 1,188,490 997,112 1,723,069 822,362 911,322 Ship building cost – – 207,749 – 319,350 Construction contract cost 47,324 105,478 58,098 39,353 4,743 Employee benefit expense (note 28) 23,897 28,993 43,847 18,148 26,899 Depreciation, amortization charges (note 5) 5,305 8,748 13,782 4,556 17,191 Advertising costs 2,096 2,205 2,697 1,277 1,320 Provision for trade and other receivable 6,119 2,243 1,024 9,298 5,228 Consultation and legal fee 2,344 1,489 3,236 1,054 593 Entertainment expenses 2,395 2,289 4,396 1,660 2,123 Operating lease rental expense 1,455 5,623 17,655 7,451 4,951 Commission fee, freight and insurance fee 45,924 44,071 47,760 13,980 17,937 Conference fee and travel expense 4,873 5,610 8,430 2,956 5,325 Bank charge 1,638 2,504 3,162 1,284 1,931 Administrative expenses 6,596 2,947 5,968 1,105 1,943 Business taxes and other levies 8,442 7,348 6,618 3,115 2,284 Others 3,360 920 1,197 5,264 967
1,350,258 1,217,580 2,148,688 932,863 1,324,107
– IIF-91 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
28 EMPLOYEE BENEFIT EXPENSES
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Wages and salaries 17,835 21,182 34,821 13,870 20,636 Contribution to pension plans (note 26(a)) 3,081 4,590 5,677 1,705 3,745 Retirement benefit costs (a) 964 703 (608) 423 381 Housing benefit (b) 1,054 1,013 1,451 568 962 Welfare, medical and other expenses 963 1,505 2,506 1,582 1,175
23,897 28,993 43,847 18,148 26,899
(a) The employees of Shanghai Group in the PRC participate in various retirement benefit plans organised by the relevant municipal and provincial government in the PRC to which Shanghai Group is required to make monthly contributions at rates ranging from 16% to 22% depending on the applicable local regulations, of the employees’ basic salary for the Relevant Periods.
(b) These represent contributions to the government-sponsored housing funds at rates ranging from 5% to 20% of the employees’ basic salary in the PRC.
(c) Directors’ and senior management’s emoluments
The remuneration of every director and supervisor of Shanghai Group for the year ended 31 December 2008 is set out below:
Insurance and Name of director and Discretionary Other housing supervisors Salary bonuses benefits Benefits Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Chen Tao 167 143 12 46 368
– IIF-92 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
The remuneration of every director and supervisor of Shanghai Group for the year ended 31 December 2009 is set out below:
Employer’s contribution to Name of director and Discretionary Other pension supervisors Salary bonuses benefits scheme Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Zhang Bao 192 143 12 52 399 Wang Ying 61 457 12 52 582 Chen Tao 219 261 12 52 544
472 861 36 156 1,525
The remuneration of every director and supervisor of Shanghai Group for the year ended 31 December 2010 is set out below:
Employer’s contribution to Name of director and Discretionary Other pension supervisors Salary bonuses benefits scheme Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Zhang Bao 265 169 13 56 503 Wang Ying 105 643 7 56 811 Chen Tao 304 286 13 56 659
674 1,098 33 168 1,973
The remuneration of every director and supervisor of Shanghai Group for six months ended 30 June 2010 (unaudited) is set out below:
Employer’s contribution to Name of director and Discretionary Other pension supervisors Salary bonuses benefits scheme Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Zhang Bao 133 100 10 28 271 Wang Ying 52 365 10 28 455 Chen Tao 152 200 10 28 390
337 665 30 84 1,116
– IIF-93 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
The remuneration of every director and supervisor of Shanghai Group for the six months ended 30 June 2011 is set out below:
Employer’s contribution to Name of director and Discretionary Other pension supervisors Salary bonuses benefits scheme Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Wang Ying 52 404 3 31 490 Chen Tao 200 230 9 31 470
252 634 12 62 960
No directors or supervisors waived or agreed to waive any emoluments during the years ended 31 December 2008, 2009 and 2010 and for the six months ended 30 June 2010 and 2011. No incentive payment for joining Shanghai Group or compensation for loss of office was paid or payable to any directors or supervisors during the years ended 31 December 2008, 2009 and 2010 and for the six months ended 30 June 2010 and 2011.
(d) Five highest paid individuals
The five individuals whose emoluments were the highest in Shanghai Group include one, two, two, two (unaudited) and two directors for the years ended 31 December 2008, 2009 and 2010 and for the six months ended 30 June 2010 and 2011, whose emoluments are reflected in the analysis presented above. The emoluments payable to the remaining four, three, three, three (unaudited) and three individual for the years ended 31 December 2008, 2009 and 2010 and for the six months ended 30 June 2010 and 2011 are as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Basic salaries, bonuses, allowances and benefits in kind 1,877 1,761 2,218 1,147 1,590 Retirement benefit – defined contribution scheme 183 156 169 85 93
2,060 1,917 2,387 1,232 1,683
The emoluments fell within the following bands:
No. of individuals Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Emolument bands Under RMB1,000,000 43233 RMB1,000,001-RMB1,500,000 ––1––
– IIF-94 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
29 OTHER INCOME
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Dividend received from available-for-sale financial assets 3,126 3,042 5,058 2,656 5,600 Government grants 1,460 4,300 1,790 527 297 Interest income 2,157 1,836 2,557 731 1,756
6,743 9,178 9,405 3,914 7,653
30 OTHER (LOSSES)/GAINS – NET
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Gains/(losses) on disposal of property, plant and equipment (1,857) 32 70 47 (2,665) Gains on disposal of available-for-sale financial assets – – 36,100 – 1,954 Fair value gain on investment properties 41,620 88,100 63,873 26,486 34,236 Gains on disposal of investment properties – 3,760 5,195 5,195 3,649 Net foreign exchange gains/(losses) 1,680 2,315 1,107 (9,421) (781) Others 2,930 1,583 834 (15) 118
44,373 95,790 107,179 22,292 36,511
– IIF-95 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
31 FINANCE COST
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Interest expenses – Bank borrowings 28,463 20,391 20,553 9,261 31,441 – Interest expense on related parties (note 38(d)) 1,916 –––– – Finance lease liabilities ––––1,536
Finance costs 30,379 20,391 20,553 9,261 32,977
32 INCOME TAX EXPENSE
The amounts of taxation charged to profit or loss represent:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Current income tax – PRC income tax 3,478 6,342 14,340 3,287 363 Deferred income tax 7,337 18,150 20,356 8,477 3,755
10,815 24,492 34,696 11,764 4,118
Taxation has been provided at the appropriate tax rates prevailing in the countries in which Shanghai Group operates. The rates applicable for income tax in mainland China is 25%, 25%, 25%, 25% and 25% for the years ended 31 December 2008, 2009 and 2010 and six months ended 30 June 2010 and 2011 respectively. Certain subsidiaries established in mainland China are entitled to exemption and concessions from income tax under tax holidays. Income tax was calculated at rates given under the concessions.
– IIF-96 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
The taxation of Shanghai Group’s profit before income tax and share of net profit of associated companies differs from the theoretical amount that would arise using the applicable tax rate, being the weighted average of tax rates prevailing in the territories in which Shanghai Group operates, as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Profit before income tax 43,469 98,988 113,717 47,841 (4,593)
Tax calculated at domestic applicable tax rate 10,867 24,747 28,429 11,960 (1,149) Tax incentive and benefit (832) (322) (511) (236) (7) Income not subject to taxation (889) (805) (2,399) (664) (3,322) Expenses not deductible for taxation purposes 757 704 6,795 632 430 Tax losses for which no deferred income tax asset was recognised 912 168 2,382 72 8,166
Income tax expense 10,815 24,492 34,696 11,764 4,118
The weighted average applicable PRC corporate income tax rate for the years ended December 31, 2008, 2009 and 2010 and at June 30, 2010 and 2011 are at a standard rate of 25%.
33 EARNINGS PER SHARE
No earnings per share is prepared as Shanghai Company is not a company registered with share capital and the calculation of earnings per share is not relevant for Shanghai Company.
34 DISTRIBUTION
Dividends declared by the Shanghai Company to the equity holder based on the retained earnings of PRC Statutory accounts throughout the Relevant Periods are as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Dividends declared to – AVIC International 1,935 4,038 4,352 – 953
– IIF-97 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
35 CASH GENERATED FROM OPERATIONS
As at 31 December As at 30 June Note 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Profit before income tax including discontinued operation 54,585 110,839 121,936 56,636 (279) Adjustments for: – Depreciation of property, plant and equipment 6 5,413 8,804 12,092 4,657 14,845 – Amortisation of intangible assets 9 7 8 2,143 5 2,552 – Amortisation of land use rights 8 707 689 755 345 797 – Impairment of receivable and inventory 6,637 2,850 1,538 9,809 5,396 – Profit/(loss) on disposal of property, plant and equipment, intangible assets 1,832 (38) (144) (119) 2,638 – Profit/(loss) on disposal of investment properties – (3,760) (5,195) (5,195) (3,649) – Finance costs - net 29,620 21,447 21,524 9,838 36,396 – Share of loss of associates 5 126 498 723 315 267 – Dividend income from available-for-sale financial assets (3,216) (3,132) (5,163) (2,656) (5,600) – Fair value gain on investment properties 30 (41,620) (88,100) (63,873) (26,486) (34,236) – Gain on loss of control of subsidiaries 18 ––––(6,058) – Gain on disposal of available-for-sale financial assets 30 – – (36,100) – (1,954) Changes in working capital (excluding the effects of acquisition and disposal of subsidiaries): – Inventories (40,338) (48,364) 117,138 1,480 48,999 – Trade and other receivables (161,281) (187,305) 21,889 (412,547) (188,700) – Trade and other payables 213,300 300,411 (244,205) 212,633 (64,057) Amounts due from customers for contract works (16,075) (28,333) 87,378 87,090 (79,343) – Restricted cash movements 14,935 (27,581) (13,367) 2,293 (56,290)
Cash generated from/(used in) operations 64,632 58,933 19,069 (61,902) (328,276)
– IIF-98 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
36 COMMITMENTS
(a) Capital commitments
Capital expenditure contracted for at the end of the reporting period but not yet incurred is as followed:
As at Group As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Property, plant and equipment – – 63,013 59,222
37 BUSINESS COMBINATIONS AND DISPOSAL OF SUBSIDIARY
(a) Business combinations
(1) On 15 July 2010, Shanghai Group acquired 60% of the equity interests of AVIC-Ding Heng Ship Building Co., Ltd (‘AVIC-Dingheng’) from third party at a consideration of RMB100,000,000. At that date, the fair value of identified assets and liabilities in AVIC-Dingheng was RMB100,000,000 and consequently there is no goodwill on the acquisition.
The following table summarises the consideration paid for AVIC-Dingheng and the amounts of the assets acquired and liabilities assumed recognised at the acquisition date, as well as the fair value at the acquisition date of the non-controlling interest in AVIC-Dingheng.
At 15 July 2010 RMB’000
Total consideration-cash 100,000
Recognised amounts of assets acquired and liabilities assumed – at fair value Cash and cash equivalents 15,482 Trade and other receivables 286,656 Inventories 122,259 Property, plant and equipment (note 6) 320,959 Intangible assets and land use rights (note 8, 9) 65,614 Other non-current assets 7,224 Less: Borrowings (99,000) Trade and other payables (552,527)
Total identifiable net assets 166,667 Non-controlling interest (66,667)
100,000 Total amounts settled by cash (100,000) Cash and cash equivalents in subsidiaries acquired 15,482
Net cash flow (84,518)
– IIF-99 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
The revenue included in the consolidated statement of comprehensive income for the year ended 31 December 2010 contributed by AVIC-Dingheng was RMB198,683,000. AVIC-Dingheng also contributed loss of RMB17,019,000 over the same period.
Had AVIC-Dingheng been consolidated from 1 January 2010, the consolidated statement of comprehensive income would show revenue of RMB274,978,000 and profit of RMB26,699,000.
(2) On 8 July 2008, Shanghai Group acquired 40% of the equity interest of AVIC International Logistic Co., Ltd (‘AVIC International Logistic), in which Shanghai Group held 10% of equity interest before the acquisition, at a consideration of RMB20,020,100 which was business combination under common control as AVIC International Logistic and Shanghai Group are controlled by the ultimate shareholder, AVIC International. The consideration was fully prepaid in 2007.
(3) On 16 January 2009, AVIC International Logistic, which is the subsidiary of 50% equity interest hold by the Shanghai Company, acquired 100% of the equity interest of CATIC International Freight Forwarding Co., Ltd (’CATIC International Freight’) at a consideration of RMB10,020,000 which was business combination under common control as CATIC International Freight and Shanghai Group are all controlled by the ultimate shareholder, AVIC International. The part of consideration by RMB3,000,000 was prepaid in 2008 and the remaining payment of RMB7,020,000 was settled in 2009.
(b) Disposal of interest of a subsidiary
On 15 April 2011, AVIC International, the parent company of Shanghai Group, injected additional capital amounting to RMB200,000,000 into the subsidiary of Shanghai Company, AVIC International Logistics Co., Ltd. As a result, the interest of Shanghai Company in this subsidiary was diluted from 50% to 23.44% and Shanghai Company loses the control of the subsidiary.
– IIF-100 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
The following table summarizes the amounts of the assets and liabilities deconsolidated at the transaction date.
Consideration: RMB’000
Sale proceeds – Fair value of 23.44% interest retained 86,019
86,019 Less: Net assets disposed (79,961)
Gain on sale in the group’s financial statements 6,058
Carrying Recognised amounts of assets disposal and liabilities assumed – value carrying value Disposal Date RMB’000
Cash and cash equivalents 274,050 Trade and other receivables 231,922 Inventories 33 Investment in associates 2,012 Available-for-sale financial assets 1,061 Property, plant and equipment 75,971 Intangible assets and land use rights 130,969 Deferred income tax assets 3,137 Less: Borrowings (381,859) Trade and other payables (165,470) Deferred income tax liabilities (223)
Net assets disposal 171,603 Less: Non-controlling interest (91,642)
Controlling interest of net assets disposal 79,961
Cash and cash equivalents received as consideration – Less: Cash and cash equivalents in subsidiaries disposal (274,050)
Net cash outflow (274,050)
– IIF-101 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
38 RELATED PARTY TRANSACTIONS
Shanghai Group is controlled by AVIC International, which owns 100% of Shanghai Group’s equity interest. The directors of Shanghai Company regard Aviation Industry Corporation of China (“AVIC China”), a company incorporated in the PRC with limited liability, as their ultimate holding company.
(a) Purchase of goods
As at 31 December As at 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Purchase of goods from related parties – Fellow subsidiaries – – 22,519 – 327
Goods are bought from fellow subsidiaries on normal commercial terms and conditions.
(b) Sales of services
As at 31 December As at 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Sales of services to related parties – Parent 35 65,209 70,843 29,976 38,384 – Fellow subsidiaries 43,466 3,399 14,411 4,389 2,521
43,501 68,608 85,254 34,365 40,905
Services are sold to parent company and fellow subsidiaries on normal commercial terms and conditions.
(c) Rental income
As at 31 December As at 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Rental income from related parties – Fellow subsidiaries 4,000 3,500 4,007 2,000 1,980
Rental income generates from fellow subsidiaries on normal commercial terms and conditions.
– IIF-102 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
(d) Interest expense to related parties
As at 31 December As at 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Interest expense to related parties – Parent 1,102 – – – 1,167 – Fellow subsidiaries 2,042 4,482 12,394 5,312 7,512
3,144 4,482 12,394 5,312 8,679
(e) Amounts due from/(to) related parties
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade receivables from related parties – Parent 6,959 29,091 21,892 66 – Fellow subsidiaries 8,294 997 1,543 549
15,253 30,088 23,435 615
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade payables due to related parties – Parent 1,072 1,048 1,048 – – Fellow subsidiaries 556 1,586 756 6,358
1,628 2,634 1,804 6,358
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Advance from related parties – Parent 98 98 14,752 24,880 – Fellow subsidiaries 336 658 47,553 112,336
434 756 62,305 137,216
– IIF-103 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Prepayment to related parties – Parent 271 528 15,794 15,794 – Fellow subsidiaries 2,550 – 304 57,875
2,821 528 16,098 73,669
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Other receivable from related parties – Parent 7,610 39,979 15,971 63,933 – Fellow subsidiaries 61,812 54,914 78,674 8,301
69,422 94,893 94,645 72,234
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Other payable to related parties – Parent 56,079 3,478 3,484 1,102 – Fellow subsidiaries 62 – 25,000 733
56,141 3,478 28,484 1,835
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Dividends payable to related parties – Parent 830 4,038 4,352 –
– IIF-104 – APPENDIX IIF FINANCIAL INFORMATION OF THE TARGET GROUP
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Guarantee on borrowings provided by related parties – Parent 120,000 110,000 100,000 355,527
Amounts due from/to related parties are unsecured, interest-free and repayable on demand.
39 EVENTS AFTER THE END OF REPORTING PERIOD
On 22 June 2011, Shanghai Company entered into an agreement for sale of its entire equity interest in AVIC International Logistics Co., Ltd, an associate of Shanghai Company, to AVIC International. The transaction was completed on 18 July 2011.
III SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by Shanghai Company in respect of any period subsequent to 30 June 2011 up to the date of this report. No dividend or distribution has been declared or made by Shanghai Company in respect of any period subsequent to 30 June 2011.
Yours faithfully,
PricewaterhouseCoopers Certified Public Accountants Hong Kong
– IIF-105 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
The following is the text of the report on Rainbow Department Store received from the Company’s reporting accountant, PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.
23 December 2011
The Directors CATIC Shenzhen Holdings Limited
Dear Sirs,
We report on the financial information of Rainbow Department Store Co., Ltd. (the “Rainbow Dept. Store”) and its subsidiaries (together, the “Rainbow Group”), which comprises the consolidated and company balance sheets of Rainbow Dept. Store at 31 December 2008, 2009 and 2010 and 30 June 2011, and the consolidated income statements, the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated cash flow statements of Rainbow Dept. Store for each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011 (the “Relevant Periods”), and a summary of significant accounting policies and other explanatory information. This financial information has been prepared by the directors of CATIC Shenzhen Holdings Limited (the “Company”) and is set out in Sections I to III below for inclusion in Appendix IIG to the circular of the Company dated 23 December 2011 (the “Circular”) in connection with the proposed acquisition of Rainbow Dept. Store by the Company.
Rainbow Dept. Store was incorporated in the People’s Republic of China (the “PRC”) on 25 June 2007 as a joint stock company with limited liability under the Company Law of the PRC. Prior to that, Rainbow Dept. Store was a stated-owned enterprise under the name of Rainbow Department Store. The shares of Rainbow Dept. Store were listed on the Shenzhen Stock Exchange on 1 June 2010.
As at the date of this report, Rainbow Dept. Store has direct and indirect interests in the subsidiaries as set out in Note 11 of Section II below. All the companies now comprising the Rainbow Group have adopted 31 December as their financial year end date.
The statutory financial statements of Rainbow Dept. Store for each of the years ended 31 December 2008, 2009 and 2010 were audited by BDO China Li Xin Da Hua Certified Public Accountants Co., Ltd. (“立信大華會計師事務所有限公司”) pursuant to separate terms of engagement with Rainbow Dept. Store.
– IIG-1 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
The directors of Rainbow Dept. Store during the Relevant Periods are responsible for the preparation and fair presentation of the company and consolidated financial statements of Rainbow Dept. Store in accordance with the Accounting Standards for Business Enterprises of the People’s Republic of China and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
For the purpose of this report, the directors of the Company have prepared the consolidated financial statements of Rainbow Dept. Store for the Relevant Periods (the “Underlying Financial Statements”) in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (the “IASB”). The Underlying Financial Statements were audited by PricewaterhouseCoopers Zhong Tian CPAs Limited Company (“普華永道中天會計師事務所有限公司”) in accordance with International Standards on Auditing issued by the International Auditing and Assurance Standards Board (“IAASB”) pursuant to separate terms of engagement with the Company.
The directors of the Company are responsible for the preparation of the Underlying Financial Statements that gives a true and fair view in accordance with IFRSs.
The financial information has been prepared based on the Underlying Financial Statements, with no adjustment made thereon.
Directors’ responsibility for the financial information
The directors of the Company are responsible for the preparation of the financial information that gives a true and fair view in accordance with IFRSs and accounting policies adopted by the Company and its subsidiaries (together, the “Group”) as set out in the audited annual consolidated financial statements of the Company for the year ended 31 December 2010 as set out in Appendix I to the Circular.
Reporting accountant’s responsibility
Our responsibility is to express an opinion on the financial information and to report our opinion to you. We carried out our procedures in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the Hong Kong Institute of Certified Public Accountants.
Opinion
In our opinion, the financial information gives, for the purpose of this report, a true and fair view of the state of affairs of Rainbow Dept. Store and of Rainbow Group as at 31 December 2008, 2009 and 2010 and 30 June 2011 and of the results and cash flows of Rainbow Group for the Relevant Periods then ended.
– IIG-2 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Review of stub period comparative financial information
We have reviewed the stub period comparative financial information set out in Section I to III below included in Appendix IIG to the Circular which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement of Rainbow Dept. Store for the six months ended 30 June 2010 and a summary of significant accounting policies and other explanatory information (the “Stub Period Comparative Financial Information”).
The directors of the Company are responsible for the preparation and presentation of the Stub Period Comparative Financial Information in accordance with the accounting policies set out in Note 2 and Note 3 of Section II below and the accounting policies adopted by the Group as set out in the audited annual consolidated financial statements of the Company for the year ended 31 December 2010 as set out in Appendix I to the Circular.
Our responsibility is to express a conclusion on the Stub Period Comparative Financial Information based on our review. We conducted our review in accordance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the IAASB. A review of Stub Period Comparative Financial Information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the Stub Period Comparative Financial Information, for the purpose of this report, has not been prepared, in all material respects, in accordance with the accounting policies set out in Note 2 and Note 3 of Section II below.
– IIG-3 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
I FINANCIAL INFORMATION OF RAINBOW GROUP
The following is the financial information of Rainbow Group prepared by the directors of the Company as at 31 December 2008, 2009 and 2010 and 30 June 2011 and for each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2010 and 2011 (the “Financial Information”).
(A) CONSOLIDATED BALANCE SHEETS
As at As at 31 December 30 June Note 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Assets Non-current assets Land use rights 7 43,349 517,390 518,532 589,186 Property, plant and equipment 8 879,596 923,923 1,461,200 1,423,502 Intangible assets 9 6,202 7,561 7,976 7,619 Deferred income tax assets 18 59,975 85,415 117,793 112,996 Other non-current assets 10 89,395 107,189 149,419 315,380
1,078,517 1,641,478 2,254,920 2,448,683 Current assets Inventories 12 198,006 204,590 289,725 249,062 Trade and other receivables 13 192,397 389,142 167,890 171,446 Pledged bank deposits 14 – 15,390 14,431 40,652 Cash and cash equivalents 14 1,553,748 1,682,802 4,439,068 4,275,221
1,944,151 2,291,924 4,911,114 4,736,381
Total assets 3,022,668 3,933,402 7,166,034 7,185,064
– IIG-4 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
As at As at 31 December 30 June Note 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Equity Equity attributable to owners of the parent Share capital 15 350,000 350,000 400,100 800,200 Share premium 15 – – 1,871,751 1,671,701 Other reserves 16 40,987 79,798 126,520 126,520 Retained earnings 110,380 224,452 614,106 491,595
501,367 654,250 3,012,477 3,090,016
Non-controlling interests –––735
Total equity 501,367 654,250 3,012,477 3,090,751
Liabilities Current liabilities Trade payables, advances from customers and other payables 17 2,497,515 3,236,648 4,101,990 4,050,786 Current income tax liabilities 23,786 42,504 51,567 43,527
Total liabilities 2,521,301 3,279,152 4,153,557 4,094,313
Total equity and liabilities 3,022,668 3,933,402 7,166,034 7,185,064
Net current (liabilities)/assets (577,150) (987,228) 757,557 642,068
Total assets less current liabilities 501,367 654,250 3,012,477 3,090,751
– IIG-5 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
(B) BALANCE SHEETS
As at As at 31 December 30 June Note 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Assets Non-current assets Land use rights 7 4,150 479,051 481,053 500,743 Property, plant and equipment 8 631,309 564,630 541,098 509,235 Intangible assets 9 6,159 7,537 7,958 7,604 Investments in subsidiaries 11 109,148 109,148 1,101,403 1,103,603 Deferred income tax assets 18 44,850 46,902 55,756 50,934 Other non-current assets 10 35,782 35,854 44,716 49,795
831,398 1,243,122 2,231,984 2,221,914 Current assets Inventories 12 151,380 146,322 240,396 198,951 Trade and other receivables 13 311,904 524,490 294,267 447,850 Cash and cash equivalents 14 1,280,194 1,244,214 3,280,823 3,381,463
1,743,478 1,915,026 3,815,486 4,028,264
Total assets 2,574,876 3,158,148 6,047,470 6,250,178
Equity Share capital 15 350,000 350,000 400,100 800,200 Share premium 15 49,153 49,153 1,920,904 1,720,854 Other reserves 16 63,224 102,035 148,757 148,757 Retained earnings 16 132,619 336,053 749,877 569,868
Total equity 594,996 837,241 3,219,638 3,239,679
Liabilities Current liabilities Trade payables, advances from customers and other payables 17 1,962,249 2,288,620 2,790,222 2,981,865 Current income tax liabilities 17,631 32,287 37,610 28,634
Total liabilities 1,979,880 2,320,907 2,827,832 3,010,499
Total equity and liabilities 2,574,876 3,158,148 6,047,470 6,250,178
Net current (liabilities)/assets (236,402) (405,881) 987,654 1,017,765
Total assets less current liabilities 594,996 837,241 3,219,638 3,239,679
– IIG-6 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
(C) CONSOLIDATED INCOME STATEMENTS
Six months ended Year ended 31 December 30 June Note 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Revenue 6 3,563,766 3,708,914 4,533,657 2,170,461 2,736,729 Cost of sales 22 (2,036,769) (2,026,038) (2,413,246) (1,176,421) (1,426,538)
Gross profit 1,526,997 1,682,876 2,120,411 994,040 1,310,191
Selling and marketing costs 22 (1,066,121) (1,209,633) (1,430,896) (660,717) (847,219) Administrative expenses 22 (195,937) (163,389) (235,720) (109,155) (122,303) Other income 19 27,802 34,573 53,247 20,872 31,585 Other gains – net 20 9,187 17,054 19,439 8,998 13,710
Operating profit 301,928 361,481 526,481 254,038 385,964 Finance income – net 23 33,077 25,040 49,771 19,896 45,675
Profit before income tax 335,005 386,521 576,252 273,934 431,639 Income tax expense 24 (65,066) (93,638) (139,876) (72,462) (114,105)
Profit for the year/period 269,939 292,883 436,376 201,472 317,534
Profit attributable to: Equity holders of Rainbow Dept. Store 269,939 292,883 436,376 201,472 317,599 Non-controlling interests ––––(65)
269,939 292,883 436,376 201,472 317,534
Earnings per share attributable to the equity holders of Rainbow Dept. Store during the year/period (RMB per share) –basic 25 0.36 0.39 0.56 0.27 0.40
–diluted 25 0.36 0.39 0.56 0.27 0.40
Dividends 26 254,000 140,000 – – 440,110
– IIG-7 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
(D) CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Profit for the year/period 269,939 292,883 436,376 201,472 317,534 Other comprehensive income for the year/period, net of tax –––––
Total comprehensive income for the year/period 269,939 292,883 436,376 201,472 317,534
Attributable to Equity holders of Rainbow Dept. Store 269,939 292,883 436,376 201,472 317,599 Non-controlling interests ––––(65)
Total comprehensive income for the year/period, net of tax 269,939 292,883 436,376 201,472 317,534
– IIG-8 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
(E) CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Attributable to equity holders of Rainbow Dept. Store Non- Share Share Other Retained controlling Total Note capital premium reserves earnings Sub-total interests equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2008 250,000 19,600 10,893 124,535 405,028 – 405,028
Comprehensive income: Profit for the year – – – 269,939 269,939 – 269,939
Total comprehensive income – – – 269,939 269,939 – 269,939
Transactions with owners: Capital contribution 15(b) – 38,400 – – 38,400 – 38,400 Transfer to other reserves 16 – – 30,094 (30,094) – – – Transfer from share premium to share capital 15(c) 58,000 (58,000) ––––– Cash dividends 26(a) – – – (212,000) (212,000) – (212,000) Scrip dividends 26(a) 42,000 – – (42,000) – – –
Total transactions with owners 100,000 (19,600) 30,094 (284,094) (173,600) – (173,600)
At 31 December 2008 350,000 – 40,987 110,380 501,367 – 501,367
Comprehensive income: Profit for the year – – – 292,883 292,883 – 292,883
Total comprehensive income – – – 292,883 292,883 – 292,883
Transactions with owners Transfer to other reserves 16 – – 38,811 (38,811) – – – Cash dividends 26(b) – – – (140,000) (140,000) – (140,000) Total transactions with owners – – 38,811 (178,811) (140,000) – (140,000)
At 31 December 2009 350,000 – 79,798 224,452 654,250 – 654,250
– IIG-9 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Attributable to equity holders of Rainbow Dept. Store Non- Share Share Other Retained controlling Total Note capital premium reserves earnings Sub-total interests equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As at 1 January 2010 350,000 – 79,798 224,452 654,250 – 654,250
Comprehensive income: Profit for the year – – – 436,376 436,376 – 436,376
Total comprehensive income – – – 436,376 436,376 – 436,376
Transactions with owners: Proceeds from shares issued 15(e) 50,100 1,871,751 – – 1,921,851 – 1,921,851 Transfer to other reserves 16 – – 46,722 (46,722) – – –
Total transactions with owners 50,100 1,871,751 46,722 (46,722) 1,921,851 – 1,921,851
As at 31 December 2010 400,100 1,871,751 126,520 614,106 3,012,477 – 3,012,477
Comprehensive income: Profit for the year – – – 317,599 317,599 (65) 317,534
Total comprehensive income – – – 317,599 317,599 (65) 317,534
Transactions with owners: Capital contribution by non-controlling interests –––––800800 Transfer from share premium to share capital 15(f) 200,050 (200,050) ––––– Cash dividends 26(c) – – – (240,060) (240,060) – (240,060) Scrip dividends 26(c) 200,050 – – (200,050) – – –
Total transactions with owners 400,100 (200,050) – (440,110) (240,060) 800 (239,260)
As at 30 June 2011 800,200 1,671,701 126,520 491,595 3,090,016 735 3,090,751
Unaudited At 1 January 2010 350,000 – 79,798 224,452 654,250 – 654,250
Comprehensive income: Profit for the year – – – 201,472 201,472 – 201,472
Total comprehensive income – – – 201,472 201,472 – 201,472
Transactions with owners: Proceeds from shares issued 15(e) 50,100 1,871,751 – – 1,921,851 – 1,921,851
Total transactions with owners 50,100 1,871,751 – – 1,921,851 – 1,921,851
At 30 June 2010 (Unaudited) 400,100 1,871,751 79,798 425,924 2,777,573 – 2,777,573
– IIG-10 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
(F) CONSOLIDATED CASH FLOW STATEMENTS
Six months ended Year ended 31 December 30 June Note 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Cash flows from operating activities Cash generated from operations 27 747,000 1,019,656 1,722,408 579,197 404,941 Income tax paid (74,223) (100,361) (163,189) (88,318) (117,342)
Net cash generated from operating activities 672,777 919,295 1,559,219 490,879 287,599
Cash flows from investing activities Acquisition of subsidiary, net of cash acquired 29 ––––45,495 Purchase of property, plant and equipment (140,645) (201,058) (754,812) (505,002) (223,730) Proceeds from disposal of property, plant and equipment 27 2,367 5,447 7,681 1,996 2,462 Purchase of intangible assets 9 (2,441) (3,671) (3,392) (1,593) (1,424) Purchase of land use rights 7 – (476,000) (14,280) (14,280) (77,898) Interest received 33,085 25,041 39,999 14,858 42,909
Net cash used in investing activities (107,634) (650,241) (724,804) (504,021) (212,186)
Cash flows from financing activities Proceeds from issuance of shares 15(e) 38,400 – 1,921,851 1,921,851 – Proceeds from capital contribution by non-controlling interests ––––800 Dividends paid 26 (212,000) (140,000) – – (240,060)
Net cash (used in)/generated from financing activities (173,600) (140,000) 1,921,851 1,921,851 (239,260)
Net increase/(decrease) in cash and cash equivalents 391,543 129,054 2,756,266 1,908,709 (163,847) Cash and cash equivalents at beginning of year/period 1,162,205 1,553,748 1,682,802 1,682,802 4,439,068
Cash and cash equivalents at end of year/period 14 1,553,748 1,682,802 4,439,068 3,591,511 4,275,221
– IIG-11 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
II NOTES TO THE FINANCIAL INFORMATION
1 GENERAL INFORMATION
Rainbow Dept. Store and was incorporated in the People’s Republic of China (the “PRC”) as a joint stock company with limited liability under the Company Law of the PRC. The registered office of the Rainbow Dept. Store is situated at Metro Building, No. 1016 Fuzhong Yi Road, Futian District, Shenzhen, the PRC.
Rainbow Dept. Store’s shares were listed on the Small and Medium Enterprises Board of the Shenzhen Stock Exchange on 1 June 2010.
Rainbow Group is principally engaged in the operation and management of department stores business, franchising, food, household appliances and concessionaire sales in the PRC.
The Financial Information of Rainbow Group is presented in RMB, unless otherwise stated.
2 BASIS OF PREPARATION
The Financial Information has been prepared in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (the “IASB”). The Financial Information has been prepared under the historical cost convention.
The preparation of Financial Information in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying Rainbow Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Financial Information are disclosed in Note 5.
Changes in accounting policy and disclosures
The following new standards and amendments to standards have been issued and are mandatory for Rainbow Group’s accounting periods beginning on or after 1 January 2012 or later periods, and Rainbow Group has not early adopted them:
• IFRS 9 ‘Financial instruments’ addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not applicable until 1 January 2013 but is available for early adoption. This new standard is not expected to have a material impact on the Financial Information.
• IFRS 10, ‘Consolidated financial statements’ builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. Rainbow Group is yet to assess IFRS 10’s full impact and intends to adopt IFRS 10 no later than the accounting period beginning on or after 1 January 2013.
• IFRS 12, ‘Disclosures of interests in other entities’ includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. Rainbow Group is yet to assess IFRS 12’s full impact and intends to adopt IFRS 12 no later than the accounting period beginning on or after 1 January 2013.
• IFRS 13, ‘Fair value measurement’, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. Rainbow Group is yet to assess IFRS 13’s full impact and intends to adopt IFRS 13 no later than the accounting period beginning on or after 1 January 2012.
– IIG-12 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
• IAS 27 (revised) ‘Separate financial statements’ requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss. IAS 27 (revised) has had no impact on the current period, as none of the non-controlling interests have a deficit balance; there have been no transactions whereby an interest in an entity is retained after the loss of control of that entity, and there have been no transactions with non-controlling interests.
• IFRS 7 (Amendment) ‘Disclosures – Transfers of financial assets’ introduces new disclosure requirement on transfers of financial assets. Disclosure is required by class of asset of the nature, carrying amount and a description of the risks and rewards of financial assets that have been transferred to another party yet remain on the entity’s balance sheet. The gain or loss on the transferred assets and any retained interest in those assets must be given. In addition, other disclosures must enable users to understand the amount of any associated liabilities, and the relationship between the financial assets and associated liabilities. The disclosures must be presented by type of ongoing involvement. The amendment is applicable to annual periods beginning on or after 1 July 2011 with early adoption permitted. This new amendment is not expected to have a material impact on the Financial Information.
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on Rainbow Group.
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1 Consolidation
The consolidated financial statements include the financial statements of Rainbow Dept. Store and all of its subsidiaries made up to 31 December 2008, 31 December 2009, 31 December 2010, 30 June 2010 and 30 June 2011.
3.1.1 Business combination involving entities under common control
For business combination under common control, the consolidated financial statements incorporate the financial statements of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party.
The net assets of the combining entities or businesses are combined using the existing book values from the controlling parties’ perspective. No amount is recognised in consideration for goodwill or excess of acquirers’ interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party’s interest.
The consolidated income statement includes the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under the common control, where there is a shorter period, regardless of the date of the common control combination.
The comparative amounts in the consolidated financial statements are presented as if the entities or businesses had been combined at the previous balance sheet date or when they first came under common control, whichever is shorter.
– IIG-13 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
A uniform set of accounting policies is adopted by those entities. All intra-group transactions, balances and unrealised gains on transactions between combining entities or businesses are eliminated on consolidation.
3.1.2 Subsidiaries
Subsidiaries are all entities over which Rainbow Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether Rainbow Group controls another entity.
Except for business combinations applying business combination involving entities under common control as detailed in Note 3.1.1 above, Subsidiaries are fully consolidated from the date on which control is transferred to Rainbow Group. They are de-consolidated from the date that control ceases.
The acquisition method of accounting is used to account for business combinations by Rainbow Group. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by Rainbow Group. The consideration transferred includes the fair value of any asset acquired or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, Rainbow Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.
The excess of the consideration transferred the amount of any non-controlling interest in the acquire and the acquisition-date fair value of any previous equity interest in the acquire over the fair value of Rainbow Group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement.
Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the assets transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by Rainbow Group.
Investments in subsidiaries are stated at cost less provision for impairment losses. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes direct attributable costs of investment. The results of subsidiaries are accounted for by Rainbow Dept. Store on the basis of dividends received and receivable.
3.1.3 Transactions with non-controlling interests
Rainbow Group treats transactions with non-controlling interests as transactions with equity owners of Rainbow Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
– IIG-14 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
When Rainbow Group ceases to have control, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if Rainbow Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
3.2 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board of directors that makes strategic decisions.
3.3 Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of each of Rainbow Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The Financial Information are presented in Renminbi (“RMB”), which is the functional and presentation currency for Rainbow Dept. Store and Rainbow Group, respectively.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
3.4 Land use rights
Land use rights are up-front payments to acquire long-term interests in land. These payments are stated at cost and amortised over the remaining period of the leases on a straight-line basis.
3.5 Property, plant and equipment
Property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to Rainbow Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
– IIG-15 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Depreciation on property, plant and equipment is calculated using the straight-line method to allocate their cost amounts to their residual values over their estimated useful lives, as follows:
Buildings 20 years Leasehold improvements 5 years or the remaining term of the relevant lease, whichever is shorter Machinery and equipment 5-10 years Motor vehicles 5 years Electronic and other equipment 5 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Construction in progress mainly represents property, plant and equipment pending installation. It is carried at cost which includes construction expenditures and other direct costs less any impairment losses. On completion, construction in progress is transferred to the appropriate categories of property, plant and equipment at cost less accumulated impairment losses. No depreciation is provided for construction in progress until they are completed and available for use.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with carrying amount and are recognised in income statement.
3.6 Intangible assets
(a) Trademarks
Acquired trademarks are shown at historical cost. Trademarks have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of trademarks over ten years.
(b) Computer software
Acquired computer software programmes are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over five years on a straight-line basis.
Cost associated with developing or maintaining computer software programmes which do not generate economic benefits are recognised as expense as incurred.
3.7 Impairment of investments in subsidiaries and non-financial assets
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
– IIG-16 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
3.8 Financial assets
3.8.1 Classification
Rainbow Group classifies its financial assets in the following category: loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. Loans and receivables comprise “trade and other receivables”, “Cash and cash equivalent”, “pledged bank deposits” and “rental deposits“ in the balance sheet (Note 3.12, Note 3.13 and Note 3.14).
3.8.2 Recognition and measurement
Regular way purchases and sales of financial assets are recognised on the trade-date – the date on which Rainbow Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and Rainbow Group has transferred substantially all risks and rewards of ownership. Loans and receivables are subsequently carried at amortised cost using the effective interest method.
3.9 Offsetting financial instruments
Financial instruments are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amount and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
3.10 Impairment of financial assets
(a) Assets carried at amortised cost
Rainbow Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
The criteria that Rainbow Group uses to determine that there is objective evidence of an impairment loss include:
• Significant financial difficulty of the issuer or obligor;
• A breach of contract, such as a default or delinquency in interest or principal payments;
• Rainbow Group, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;
• It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;
– IIG-17 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
• The disappearance of an active market for that financial asset because of financial difficulties; or
• Observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including:
(i) adverse changes in the payment status of borrowers in the portfolio;
(ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.
Rainbow Group first assesses whether objective evidence of impairment exists.
For loans and receivables category, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The asset’s carrying amount is reduced and the amount of the loss is recognised in the consolidated income statement. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, Rainbow Group may measure impairment on the basis of an instrument’s fair value using an observable market price.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in income statement.
3.11 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost represents invoiced value on purchase and is principally calculated on a weighted-average basis. The inventory comprises finished goods, raw materials and goods in transit. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
3.12 Trade and other receivables
Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.
3.13 Cash and cash equivalents
In the statement of cash flows, cash and cash equivalents includes cash in hand and deposits held at call with banks.
3.14 Pledged bank deposits
Certain bank balances were pledged as deposits for issuance of letters of credit.
– IIG-18 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
3.15 Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.
3.16 Government grants
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and Rainbow Group will comply with all attached conditions.
Government grants relating to costs are deferred and recognised in income statement over the period necessary to match them with the costs that they are intended to compensate.
Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred government grants and are credited to the income statement on a straight-line basis over the expected lives of the related assets.
3.17 Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
3.18 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in income statement except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by Rainbow Group and it is probable that the temporary difference will not reverse in the foreseeable future.
– IIG-19 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
3.19 Employee pension obligations
The full-time employees of Rainbow Group in the PRC are covered by various government sponsored pension plans under which the employees are entitled to a monthly pension based on certain formulas. The relevant government agencies are responsible for the pension liability to these retired employees. Rainbow Group contributes on a monthly basis to these pension plans. Under these plans, Rainbow Group has no obligation for post-retirement benefits beyond the contributions made. Contributions to these plans are expensed as incurred.
3.20 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sales of goods and services in the ordinary course of the Rainbow Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminated sales within Rainbow Group.
(i) Commission income from concessionaire sales is recognised upon sales of goods by the relevant concessionaires.
(ii) Revenue from direct sales of goods is recognised when a Rainbow Group entity sells a product to the customer. Retail sales are usually in cash or by credit card. The recorded revenue is the gross amount of sale, including credit card fees payable for the transaction. Such fees are included in other operating expenses.
(iii) Processing and repair income is recognised when the processing and repair service is rendered.
(iv) Sales of goods that result in award credits for customers, under Rainbow Group’s award credits policy, are accounted for as multiple element revenue transactions and their fair value of the consideration received or receivable is allocated between the goods sold and the award credits granted. The consideration allocated to the award credits is measured by reference to their fair value – the amount for which the award credits could be sold separately. Such consideration is not recognised as revenue at the time of the initial sale transaction, but is deferred and recognised as revenue when the award credits are redeemed and Rainbow Group’s obligations have been fulfilled.
(v) Payments received in advance from stored value cards that are related to sales of goods not yet delivered are deferred in the balance sheet. Revenue is recognised when goods are delivered to the customers. After expiry of prepaid stored value cards, the corresponding receipts in advance are recognised as income.
3.21 Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Receipts or payments made under operating leases (net of any incentives paid to lessee or received from the lessor) are recognised as income or expense in income statement on a straight-line basis over the periods of the lease.
3.22 Dividend distribution
Dividend distribution to Rainbow Dept. Store’s shareholders is recognised as a liability in Rainbow Group’s and Rainbow Dept. Store’s financial statements in the period in which the dividends are approved by Rainbow Dept. Store’s shareholders.
– IIG-20 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
4 FINANCIAL RISK MANAGEMENT
4.1 Financial risk factors
Rainbow Group’s activities expose it to a variety of financial risks: market risk (including currency risk, price risk, fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. Rainbow Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on Rainbow Group’s financial performance.
(a) Market risk
(i) Foreign exchange risk
Rainbow Group operates principally in the PRC and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US Dollar (“USD”) and HK Dollar (“HKD”). Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities. Rainbow Group manages its foreign exchange risk by performing regular reviews of Rainbow Group’s net foreign exchange exposures and it has not hedged its foreign exchange risk.
In addition, the conversion of RMB into foreign currencies is subject to the rules and regulations of the foreign exchange controls promulgated by the PRC Government.
The carrying amount of the Rainbow Group’s foreign currency denominated monetary assets at the respective balance sheet dates are as follows:
Rainbow Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Cash and cash eqivalents USD 93 93 90 88 HKD 404039832
Total 133 133 129 920
Rainbow Dept. Store
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Cash and cash eqivalents USD 93 93 90 88 HKD 40403938
Total 133 133 129 126
Rainbow Group is not significantly exposed to foreign exchange risk.
– IIG-21 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
(ii) Price risk
Rainbow Group is not significantly exposed to price risk as the Rainbow Dept. Store has no significant financial instrument that is subject to change of commodity prices or equity price.
(iii) Cash flow and fair value interest rate risk
Rainbow Group has no significant interest-bearing assets and liabilities except for cash and cash equivalents. Rainbow Group’s income and operating cash flows are substantially independent of changes in market interest rates. As at 31 December 2008, 2009 and 2010 and 30 June 2011, management does not anticipate significant impact resulted from the changes in interest rates.
(b) Credit risk
The credit risk of Rainbow Group mainly arises from cash and cash equivalents, trade and other receivables, pledged bank deposits and rental deposits. The carrying amounts of these balances represent Rainbow Group’s maximum exposure to credit risk in relation to financial assets.
Substantially all of Rainbow Group’s cash and cash equivalents are held in state-owned financial institutions located in the PRC, which management believes are of high credit quality. None of cash at bank, bank deposits and restricted cash of Rainbow Group that were fully performing has been renegotiated during the the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011.
Retail sales are usually paid in cash or by major credit/debit cards. As at 31 December 2008, 2009 and 2010 and 30 June 2011, management considers Rainbow Group does not have a significant concentration of credit risk. No single customer accounted for more than 1% of Rainbow Group’s total revenues during the year/period.
For receivables related to prepaid stored value card to banks and card companies, Rainbow Group carries out regular review on these balances and follow-up action on any overdue amounts to minimise exposures to credit risk.
In addition, the Group monitors the exposure to credit risk in respect of the financial assistance provided to subsidiaries through exercising control over their financial and operating policy decisions and reviewing their financial positions on a regular basis.
(c) Liquidity risk
The liquidity risk of Rainbow Group is monitored by maintaining sufficient cash and cash equivalents, which is generated from the operating cash flow and financing cash flow.
All of Rainbow Group’s financial liabilities mature within 1 year as at 31 December 2008, 2009 and 2010 and 30 June 2011.
4.2 Capital risk management
Rainbow Group’s objectives when managing capital are to safeguard Rainbow Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
– IIG-22 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
In order to maintain or adjust the capital structure, Rainbow Group will monitor the operating cash flow generated from operations and available banking facilities to match its capital expenditures and dividend outflow payments.
Rainbow Group has abundant cash and it had no borrowings as at 31 December 2008, 31 December 2009, 31 December 2010 and 30 June 2011. Up to now, the management of Rainbow Group have no any plan to borrow money from others.
4.3 Fair value estimation
Rainbow Group has no assets and liabilities that are measured at fair value at the end of each reporting periods.
4.4 Financial instruments by category
Rainbow Group
Loan and Receivables As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Assets as per consolidated balance sheet
Trade and others receivable (excluding prepayments and value added tax receivables) 72,211 72,983 90,681 64,762 Pledged bank deposits (Note 14) – 15,390 14,431 40,652 Cash and cash equivalents (Note 14) 1,553,748 1,682,802 4,439,068 4,275,221 Rental deposits (Note 10) 83,018 102,433 111,524 113,405
Total 1,708,977 1,873,608 4,655,704 4,494,040
Rainbow Group
Other financial liabilities at amortised cost As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Liabilities as per consolidated balance sheet
Trade and others payable (excluding other taxes payables, deferred income and accrued payroll expenses) 2,341,505 3,029,993 3,881,926 3,888,205
– IIG-23 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Rainbow Dept. Store
Loan and receivables As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Assets as per balance sheet
Trade and others receivable (excluding prepayments and value added tax receivables) 263,134 532,873 260,984 422,616 Cash and cash equivalents (Note 14) 1,280,194 1,244,214 3,280,823 3,381,463 Rental deposits (Note 10) 34,174 35,417 33,865 33,973
Total 1,577,502 1,812,504 3,575,672 3,838,052
Rainbow Dept. Store
Other financial liabilities at amortised cost As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Liabilities as per balance sheet
Trade and others payable (excluding other taxes payables, deferred income and accrued payroll expenses) 1,822,312 2,123,225 2,636,519 2,872,793
5 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Rainbow Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
5.1 Useful lives of property, plant and equipment
Rainbow Group’s management determines the estimated useful lives and related depreciation charges for its property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned or sold.
– IIG-24 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
5.2 Net realisable value of inventories
Inventories are carried at the lower of cost and net realisable value. The cost of inventories is written down to net realisable value when there is an objective evidence that the cost of inventories may not be recoverable. The cost of inventories may not be recoverable if those inventories are damaged, if they have become wholly or partially obsolete, or if their selling prices have declined. The cost of inventories may also be not recoverable if the estimated costs to be incurred to make the sale have increased. The amount written off to income statement is the difference between the carrying value and net realisable value of the inventories. In determining whether the cost of inventories can be recoverable, significant judgement is required. In making this judgement, Rainbow Group evaluates, among other factors, the duration and extent by all means to which the amount will be recovered.
5.3 Income taxes and deferred taxation
Significant judgement is required in determining the provision for income tax. There are many transactions and calculations for which the ultimate determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the income tax and deferred tax provision in the period in which such determination is made.
Deferred tax assets relating to certain temporary differences and tax losses are recognised when management considers to be probable that future taxable profit will be available against which the temporary differences or tax losses can be utilised. The outcome of their actual utilisation may be different.
5.4 Estimated impairment of receivables
Rainbow Group makes provision for impairment of trade and other receivables based on an assessment of the recoverability of these receivables. Provisions are applied to trade and other receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of impairment of trade and other receivables requires the use of judgement and estimates. Where the expectation is different from the original estimate, such difference will impact the carrying value of receivables and provision for impairment losses in the period in which such estimate has been changed.
6 REVENUE AND SEGMENT INFORMATION
The chief operating decision-maker (“CODM”) has been identified as the board of directors of Rainbow Group. The CODM reviews Rainbow Group’s internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.
The CODM considers Rainbow Group has several operating segments but one reportable segment – the operation and management of department stores. All revenue is generated in the PRC and all significant operating assets of Rainbow Group are in the PRC. No significant geographical information is presented. Rainbow Group is organised into one business segment.
– IIG-25 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Information regarding Rainbow Group’s revenue by nature as provided to the CODM for the purposes of resources allocation and assessment of segment performance is set out below:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Commission income from concessionaire sales 1,102,333 1,191,898 1,529,301 713,734 1,038,057 Sales of goods 2,461,160 2,516,788 3,003,741 1,456,599 1,698,515 Others 273 228 615 128 157
Total 3,563,766 3,708,914 4,533,657 2,170,461 2,736,729
Rainbow Group has a number of customers from direct and concessionaire sales, no revenue from a customer exceed 10% or more of Rainbow Group’s revenue.
7 LAND USE RIGHTS
Rainbow Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Net book value at beginning of year/period 44,309 43,349 517,390 518,532 Additions – 476,000 14,280 77,898 Amortisation during the year/period (Note 22) (960) (1,959) (13,138) (7,244)
Net book value at end of year/period 43,349 517,390 518,532 589,186
Rainbow Dept. Store
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Net book value at beginning of year/period 4,258 4,150 479,051 481,053 Additions – 476,000 14,280 25,960 Amortisation during the year/period (108) (1,099) (12,278) (6,270)
Net book value at end of year/period 4,150 479,051 481,053 500,743
Rainbow Group’s land use rights are situated in the PRC and the respective land use rights were granted by Land Administration Bureau for periods of 40-50 years from the date of grant.
In 2009, Rainbow Group had acquired land use rights located at Shenzhen for commercial use purpose for a period of 40 years from the date of grant, amounting to RMB476,000,000.
As at 31 December 2008, 2009 and 2010 and 30 June 2011, Rainbow Group had not yet obtained land use rights with carrying amount Nil, RMB476,000,000, RMB476,000,000, RMB25,960,000, respectively.
– IIG-26 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
8 PROPERTY, PLANT AND EQUIPMENT
Rainbow Group
Machinery Electronic and Motor and other Construction Leasehold Buildings equipment vehicles equipment in progress improvements Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As 31 December 2008 Cost At beginning of year 622,858 88,123 20,669 87,409 – 276,587 1,095,646 Additions 48 11,192 4,658 18,563 – 101,081 135,542 Disposals (Note 27) – (17,280) (2,429) (6,191) – – (25,900)
At end of year 622,906 82,035 22,898 99,781 – 377,668 1,205,288
Accumulated depreciation At beginning of year 29,274 42,865 11,341 39,599 – 85,667 208,746 Charge for the year (Note 22) 33,594 10,277 2,821 15,634 – 75,611 137,937 Disposals (Note 27) – (14,062) (2,193) (4,736) – – (20,991)
At end of year 62,868 39,080 11,969 50,497 – 161,278 325,692
Net book amount At end of year 560,038 42,955 10,929 49,284 – 216,390 879,596
At beginning of year 593,584 45,258 9,328 47,810 – 190,920 886,900
As 31 December 2009 Cost At beginning of year 622,906 82,035 22,898 99,781 – 377,668 1,205,288 Transfer from construction-in-progress – 5,266 – – (5,266) – – Additions 786 25,554 1,600 17,641 5,981 151,117 202,679 Disposals (Note 27) (70) (1,359) (264) (12,832) – – (14,525)
At end of year 623,622 111,496 24,234 104,590 715 528,785 1,393,442
Accumulated depreciation At beginning of year 62,868 39,080 11,969 50,497 – 161,278 325,692 Charge for the year (Note 22) 33,748 12,769 2,732 15,521 – 88,547 153,317 Disposals (Note 27) (55) (1,149) (244) (8,042) – – (9,490)
At end of year 96,561 50,700 14,457 57,976 – 249,825 469,519
Net book amount At end of year 527,061 60,796 9,777 46,614 715 278,960 923,923
At beginning of year 560,038 42,955 10,929 49,284 – 216,390 879,596
– IIG-27 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Machinery Electronic and Motor and other Construction Leasehold Buildings equipment vehicles equipment in progress improvements Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As 31 December 2010 Cost At beginning of year 623,622 111,496 24,234 104,590 715 528,785 1,393,442 Transfer from construction-in-progress 48,595 174 – – (48,769) – – Additions 418,263 27,842 8,408 26,122 49,337 191,700 721,672 Disposals (Note 27) – (5,935) (577) (10,764) – – (17,276)
At end of year 1,090,480 133,577 32,065 119,948 1,283 720,485 2,097,838
Accumulated depreciation At beginning of year 96,561 50,700 14,457 57,976 – 249,825 469,519 Charge for the year (Note 22) 45,005 12,999 2,854 13,899 – 101,005 175,762 Disposals (Note 27) – (1,550) (342) (6,751) – – (8,643)
At end of year 141,566 62,149 16,969 65,124 – 350,830 636,638
Net book amount At end of year 948,914 71,428 15,096 54,824 1,283 369,655 1,461,200
At beginning of year 527,061 60,796 9,777 46,614 715 278,960 923,923
Six months ended 30 June 2011 Cost At 1 January 1,090,480 133,577 32,065 119,948 1,283 720,485 2,097,838 Transfer from construction-in-progress – 456 – – (456) – – Acquisition of a subsidiary (Note 29) – 1,444 87 1,638 – 17,639 20,808 Additions – 6,112 1,460 8,839 6,457 36,781 59,649 Disposals (Note 27) (686) (561) (592) (11,059) – – (12,898)
At 30 June 2011 1,089,794 141,028 33,020 119,366 7,284 774,905 2,165,397
Accumulated depreciation At 1 January 141,566 62,149 16,969 65,124 – 350,830 636,638 Charge for the period (Note 22) 28,806 9,281 2,569 10,989 – 63,341 114,986 Disposals (Note 27) – (490) (531) (8,708) – – (9,729)
At 30 June 2011 170,372 70,940 19,007 67,405 – 414,171 741,895
Net book amount At 30 June 2011 919,422 70,088 14,013 51,961 7,284 360,734 1,423,502
At 1 January 948,914 71,428 15,096 54,824 1,283 369,655 1,461,200
– IIG-28 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Depreciation expenses have been charged to consolidated income statements as follows:
Rainbow Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Administrative expenses 11,201 13,011 7,628 4,509 6,390 Selling and marketing costs 126,736 140,306 168,134 76,285 108,596
137,937 153,317 175,762 80,794 114,986
Rainbow Dept. Store
Machinery Electronic and Motor and other Construction Leasehold Buildings equipment vehicles equipment in progress improvements Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As 31 December 2008 Cost At beginning of year 480,100 65,438 15,202 62,334 – 136,338 759,412 Additions 48 6,888 1,427 11,670 – 67,700 87,733 Disposals – (16,932) (2,397) (5,130) – – (24,459)
At end of year 480,148 55,394 14,232 68,874 – 204,038 822,686
Accumulated depreciation At beginning of year 19,985 31,607 8,169 30,129 – 28,117 118,007 Charge for the year 24,545 7,106 2,103 11,350 – 48,314 93,418 Disposals – (13,965) (2,155) (3,928) – – (20,048)
At end of year 44,530 24,748 8,117 37,551 – 76,431 191,377
Net book amount At end of year 435,618 30,646 6,115 31,323 – 127,607 631,309
At beginning of year 460,115 33,831 7,033 32,205 – 108,221 641,405
– IIG-29 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Machinery Electronic and Motor and other Construction Leasehold Buildings equipment vehicles equipment in progress improvements Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As 31 December 2009 Cost At beginning of year 480,148 55,394 14,232 68,874 – 204,038 822,686 Additions 786 812 901 4,633 – 9,412 16,544 Disposals (70) (1,089) (37) (3,230) – – (4,426)
At end of year 480,864 55,117 15,096 70,277 – 213,450 834,804
Accumulated depreciation At beginning of year 44,530 24,748 8,117 37,551 – 76,431 191,377 Charge for the year 24,699 6,046 1,633 8,231 – 41,901 82,510 Disposals (55) (918) (33) (2,707) – – (3,713)
At end of year 69,174 29,876 9,717 43,075 – 118,332 270,174
Net book amount At end of year 411,690 25,241 5,379 27,202 – 95,118 564,630
At beginning of year 435,618 30,646 6,115 31,323 – 127,607 631,309
As 31 December 2010 Cost At beginning of year 480,864 55,117 15,096 70,277 – 213,450 834,804 Additions 569 11,470 4,289 12,349 979 29,088 58,744 Disposals – (4,828) (217) (9,381) – – (14,426)
At end of year 481,433 61,759 19,168 73,245 979 242,538 879,122
Accumulated depreciation At beginning of year 69,174 29,876 9,717 43,075 – 118,332 270,174 Charge for the year 24,992 5,390 1,615 7,710 – 37,754 77,461 Disposals – (2,256) (191) (7,164) – – (9,611)
At end of year 94,166 33,010 11,141 43,621 – 156,086 338,024
Net book amount At end of year 387,267 28,749 8,027 29,624 979 86,452 541,098
At beginning of year 411,690 25,241 5,379 27,202 – 95,118 564,630
– IIG-30 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Machinery Electronic and Motor and other Construction Leasehold Buildings equipment vehicles equipment in progress improvements Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Six months ended 30 June 2011 Cost At 1 January 2011 481,433 61,759 19,168 73,245 979 242,538 879,122 Additions – 4,205 90 5,046 1,261 3,064 13,666 Disposals (147) (426) (584) (7,697) – – (8,854)
At 30 June 2011 481,286 65,538 18,674 70,594 2,240 245,602 883,934
Accumulated depreciation At 1 January 2011 94,166 33,010 11,141 43,621 – 156,086 338,024 Charge for the period 13,205 4,464 1,565 6,677 – 18,674 44,585 Disposals – (386) (525) (6,999) – – (7,910)
At 30 June 2011 107,371 37,088 12,181 43,299 – 174,760 374,699
Net book amount At 30 June 2011 373,915 28,450 6,493 27,295 2,240 70,842 509,235
At 1 January 2011 387,267 28,749 8,027 29,624 979 86,452 541,098
– IIG-31 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
9 INTANGIBLE ASSETS
Rainbow Group
Computer Trademarks software Total RMB’000 RMB’000 RMB’000
At 1 January 2008 Cost 290 7,680 7,970 Accumulated amortisation (48) (1,406) (1,454)
Net book amount 242 6,274 6,516
Year ended 31 December 2008 Opening net book amount 242 6,274 6,516 Additions 263 2,178 2,441 Amortisation charge (Note 22) (67) (2,688) (2,755)
Closing net book amount 438 5,764 6,202
At 31 December 2008 Cost 553 9,858 10,411 Accumulated amortisation (115) (4,094) (4,209)
Net book amount 438 5,764 6,202
Year ended 31 December 2009 Opening net book amount 438 5,764 6,202 Additions 580 3,091 3,671 Amortisation charge (Note 22) (112) (2,200) (2,312)
Closing net book amount 906 6,655 7,561
At 31 December 2009 Cost 1,133 12,949 14,082 Accumulated amortisation (227) (6,294) (6,521)
Net book amount 906 6,655 7,561
– IIG-32 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Computer Trademarks software Total RMB’000 RMB’000 RMB’000
Year ended 31 December 2010 Opening net book amount 906 6,655 7,561 Additions 11 3,381 3,392 Amortisation charge (Note 22) (112) (2,865) (2,977)
Closing net book amount 805 7,171 7,976
At 31 December 2010 Cost 1,144 16,330 17,474 Accumulated amortisation (339) (9,159) (9,498)
Net book amount 805 7,171 7,976
Six months ended 30 June 2011 Opening net book amount 805 7,171 7,976 Additions – 1,424 1,424 Amortisation charge (Note 22) (56) (1,725) (1,781)
Closing net book amount 749 6,870 7,619
At 30 June 2011 Cost 1,144 17,754 18,898 Accumulated amortisation (395) (10,884) (11,279)
Net book amount 749 6,870 7,619
Amortisation expenses have been charged to Rainbow Group’s consolidated income statements as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Administrative expense 2,634 2,201 2,688 1,246 1,259 Selling and marketing costs 121 111 289 53 522
2,755 2,312 2,977 1,299 1,781
– IIG-33 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Rainbow Dept. Store
Computer Trademarks software Total RMB’000 RMB’000 RMB’000
At 1 January 2008 Cost 250 7,591 7,841 Accumulated amortisation (42) (1,338) (1,380)
Net book amount 208 6,253 6,461
Year ended 31 December 2008 Opening net book amount 208 6,253 6,461 Additions 264 2,176 2,440 Amortisation charge (62) (2,680) (2,742)
Closing net book amount 410 5,749 6,159
At 31 December 2008 Cost 514 9,767 10,281 Accumulated amortisation (104) (4,018) (4,122)
Net book amount 410 5,749 6,159
Year ended 31 December 2009 Opening net book amount 410 5,749 6,159 Additions 580 3,091 3,671 Amortisation charge (107) (2,186) (2,293)
Closing net book amount 883 6,654 7,537
At 31 December 2009 Cost 1,094 12,858 13,952 Accumulated amortisation (211) (6,204) (6,415)
Net book amount 883 6,654 7,537
Year ended 31 December 2010 Opening net book amount 883 6,654 7,537 Additions 11 3,381 3,392 Amortisation charge (106) (2,865) (2,971)
Closing net book amount 788 7,170 7,958
At 31 December 2010 Cost 1,105 16,239 17,344 Accumulated amortisation (317) (9,069) (9,386)
Net book amount 788 7,170 7,958
– IIG-34 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Computer Trademarks software Total RMB’000 RMB’000 RMB’000
Six months ended 30 June 2011 Opening net book amount 788 7,170 7,958 Additions – 1,424 1,424 Amortisation charge (54) (1,724) (1,778)
Closing net book amount 734 6,870 7,604
At 30 June 2011 Cost 1,105 17,663 18,768 Accumulated amortisation (371) (10,793) (11,164)
Net book amount 734 6,870 7,604
10 OTHER NON-CURRENT ASSETS
Rainbow Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Prepayments for property, plant and equipment 6,377 4,756 37,895 201,975 Rental deposits 83,018 102,433 111,524 113,405
89,395 107,189 149,419 315,380
Rainbow Dept. Store
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Prepayments for property, plant and equipment 1,608 437 10,851 15,822 Rental deposits 34,174 35,417 33,865 33,973
35,782 35,854 44,716 49,795
11 INVESTMENTS IN SUBSIDIARIES – RAINBOW DEPT. STORE
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Investments, at cost: Unlisted entities 109,148 109,148 1,101,403 1,103,603
– IIG-35 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
As at 31 December 2008, 2009 and 2010 and 30 June 2011, Rainbow Dept. Store had equity interests in the following subsidiaries:
Place of Registered incorporation and Capital Name type of legal entity Principal activities (RMB’000) Interests held 31 December 31 December 31 December 30 June 2008 2009 2010 2011 Direct Indirect Direct Indirect Direct Indirect Direct Indirect
Huizhou Rainbow Shopping the PRC/Limited Operation of 10,000 95% 5% 95% 5% 95% 5% 95% 5% Mall Co., Ltd. liability company department stores Shenzhen Rainbow Investment the PRC/Limited Operation of 20,000 100% – 100% – 100% – 100% – development Co.,Ltd. liability company department stores Shenzhen Jun Shang the PRC/Limited Operation of 10,000 100% – 100% – 100% – 100% – Department Store Co., Ltd. liability company department stores Xiamen Rainbow Shopping the PRC/Limited Operation of 10,000 – 100% – 100% – 100% – 100% Mall Co., Ltd. liability company department stores Dongguan Rainbow Shopping the PRC/Limited Operation of 10,000 – 100% – 100% – 100% – 100% Mall Co., Ltd. liability company department stores Zhejiang Rainbow Department the PRC/Limited Operation of 10,000 – 100% – 100% – 100% – 100% Store Co., Ltd. liability company department stores Shenzhen Wei Tian Home the PRC/Limited Repair of electric 100 – 100% – 100% – 100% – 100% Electrical Appliance Repair liability company appliances and Maintenance Co., Ltd. Dongguan Rainbow Industry the PRC/Limited Logistics and 10,000 – 100% – 100% – 100% – 100% and Trade Co., Ltd. liability company distribution Changsha Rainbow Department the PRC/Limited Operation of 10,000 – 100% – 100% – 100% – 100% Store Co., Ltd. liability company department stores Beijing Rainbow Commercial the PRC/Limited Operation of 10,000 – 100% – 100% – 100% – 100% Management Co., Ltd liability company department stores Nanchang Rainbow Shopping the PRC/Limited Operation of 10,000 – 100% – 100% – 100% – 100% Mall Co., Ltd. liability company department stores Suzhou Rainbow Shopping the PRC/Limited Operation of 10,000 – 100% – 100% – 100% – 100% Mall Co., Ltd. liability company department stores Fuzhou Rainbow Department the PRC/Limited Operation of 10,000 – 100% – 100% – 100% – 100% Store Co., Ltd. liability company department stores Jiaxing Rainbow Department the PRC/Limited Operation of 10,000 – 100% – 100% – 100% – 100% Store Co., Ltd. liability company department stores Shenzhen Rainbow Real Estate the PRC/Limited Property leasing 100,000 – – – – 100% – 100% – Co., Ltd. liability company Huzhou Rainbow Department the PRC/Limited Operation of 10,000 – – – – – 100% – 100% Store Co., Ltd. liability company department stores Beijing Fashion Rainbow the PRC/Limited Operation of 10,000 – – – – – 100% – 100% Department Store Co., Ltd. liability company department stores Changzhou Rainbow Shopping the PRC/Limited Operation of 10,000 – – – – – 100% – 100% Mall Co., Ltd. liability company department stores Jian Rainbow Shopping Mall the PRC/Limited Operation of 60,000 – – – – – 100% – 100% Co., Ltd. liability company department stores Shenzhen Gongming Rainbow the PRC/Limited Operation of 1,000 – – – – – – 100% – Department Store Co., Ltd. liability company department stores Shenzhen Le Di Clothing the PRC/Limited Wholesaling 10,000 – – – – – – 60% – Co., Ltd. liability company Nanchang Rainbow Properties the PRC/Limited Property leasing 10,000 – – – – – – – 100% Co., Ltd. liability company Ganzhou Rainbow Department the PRC/Limited Operation of 10,000 – – – – – – – 100% Store Co., Ltd. liability company department stores
– IIG-36 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
The movement of investments in subsidiaries is as below:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Unlisted investments, at cost Beginning of the year/period 99,148 109,148 109,148 1,101,403 Establishment of new subsidiaries (a) 10,000 – 100,000 1,200 Acquisition of a subsidiary (Note 29) – – – 1,000 Additional capital injections (b) – – 892,255 –
End of the year/period 109,148 109,148 1,101,403 1,103,603
(a) On 31 October 2008, Rainbow Dept. Store set up a new subsidiary, Shenzhen Junshang Department Store Co., Ltd, in the PRC, and contributed capital of RMB10,000,000.
On 30 September 2010, Rainbow Dept. Store set up a new subsidiary, Shenzhen Rainbow Real Estate Co., Ltd, in the PRC, and contributed capital of RMB100,000,000.
On 31 May 2011, Rainbow Dept. Store set up a new subsidiary, Shenzhen Le Di Clothing Co., Ltd, and contributed capital of RMB1,200,000. Rainbow Dept. Store and Origo Brand Management Limited, a third party, owned 60% and 40% equity interests of this subsidiary respectively.
(b) In 2010, Rainbow Dept. Store contributed additional capital of RMB849,505,000 and RMB42,750,000 into Shenzhen Rainbow Investment development Co.,Ltd and Huizhou Rainbow Shopping Mall Co., Ltd, respectively.
12 INVENTORIES
Rainbow Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Finished goods 189,571 195,598 268,877 235,896 Raw materials 5,800 6,343 9,659 9,686 Goods in transit 2,635 2,649 11,189 3,480
198,006 204,590 289,725 249,062
The cost of inventories recognised as Rainbow Group’s expenses and included in “cost of sales” amounted to RMB1,999,678, RMB1,991,509, RMB2,364,861, RMB1,155,818 and RMB1,417,539 for each of the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2010 and 2011, respectively (Note 22).
– IIG-37 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Rainbow Dept. Store
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Finished goods 136,061 130,024 173,141 138,552 Raw materials 3,623 3,410 5,783 55,306 Goods in transit 11,696 12,888 61,472 5,093
151,380 146,322 240,396 198,951
13 TRADE AND OTHER RECEIVABLES – RAINBOW GROUP
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade receivables Trade receivables from third parties 24,075 25,492 32,001 29,952 Trade receivables from related parties (Note 30) – 170 – –
24,075 25,662 32,001 29,952
Less: Provision for impairment (768) (755) (961) (909)
Trade receivables – net 23,307 24,907 31,040 29,043
Other receivables Prepayments to third parties 119,827 316,159 77,110 70,236 Prepayments to related parties (Note 30) 359 – 99 69 Rental deposits – – 1,644 1,644 Deposits to suppliers 43,544 39,785 31,379 29,600 Other receivables from third parties 22,060 24,997 33,614 7,885 Other receivables from related parties (Note 30) 1,016 1,013 1,073 1,292 Value added tax receivables – – – 36,379 Interest receivables – – 9,776 12,328
186,806 381,954 154,695 159,433
Less: Provision for impairment (17,716) (17,719) (17,845) (17,030)
Other receivables – net 169,090 364,235 136,850 142,403
Total trade and other receivables 192,397 389,142 167,890 171,446
The carrying amounts of Rainbow Group’s trade and other receivables at 31 December 2008, 2009 and 2010, and 30 June 2011 approximate their fair values.
– IIG-38 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Trade debtors are generally granted a credit terms within three months. The ageing analysis of the trade receivables are as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Up to 3 months 15,338 19,946 27,224 26,079 3 to 6 months 7,830 5,571 2,033 3,109 6 to 12 months 808 21 2,738 644 1 to 2 years 67 124 6 120 2 to 3 years 32–––
24,075 25,662 32,001 29,952 Less: Provision for impairment (768) (755) (961) (909)
Trade receivables – net 23,307 24,907 31,040 29,043
As of 31 December 2008, 2009, 2010 and 30 June 2011, trade receivables of RMB24,075,000, RMB25,662,000, RMB32,001,000 and RMB29,952,000 were impaired.
Movements on Rainbow Group’s provision for impairment of trade and other receivables are as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At beginning of year/period 17,728 18,484 18,474 18,474 18,806 Provision /(reversal) for receivable impairment 876 139 332 485 (867) Receivables written off as uncollectible (120) (149) – – –
At end of year/period 18,484 18,474 18,806 18,959 17,939
All of the carrying amounts of Rainbow Group’s trade and other receivables are denominated in Renminbi.
– IIG-39 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
13 TRADE AND OTHER RECEIVABLES – RAINBOW DEPT. STORE
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade receivables
Trade receivables from third parties 14,961 15,281 17,748 19,258 Trade receivables from subsidiaries (a) – – 6,648 16,323 Trade receivables from related parties (Note 30) – 170 – –
14,961 15,451 24,396 35,581
Less: Provision for impairment (472) (464) (533) (586)
Trade receivables – net 14,489 14,987 23,863 34,995
Other receivables
Prepayments to third parties 48,411 31,617 33,184 24,567 Prepayments to related parties (Note 30) 359 – 99 69 Other receivables from related parties (Note 30) 1,016 1,013 1,073 1,292 Rental deposits – – 1,644 1,644 Deposits to suppliers 10,679 12,196 6,426 4,247 Other receivables from third parties 14,149 15,142 20,157 2,993 Due from subsidiaries (a) 231,666 450,990 203,182 371,929 Value added tax receivables – – – 589 Interest receivables – – 6,226 6,596
306,280 510,958 271,991 413,926
Less: Provision for impairment (8,865) (1,455) (1,587) (1,071)
Other receivables – net 297,415 509,503 270,404 412,855
Total trade and other receivables 311,904 524,490 294,267 447,850
The carrying amounts of the Rainbow Dept. Store’s trade and other receivables at 31 December 2008, 2009 and 2010 and 30 June 2011 approximate their fair values.
(a) Current accounts with subsidiaries are unsecured, interest-free and repayable on demand.
– IIG-40 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Trade debtors are generally granted a credit terms within three months. The ageing analysis of the trade receivables are as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Up to 3 months 8,092 10,833 19,736 32,433 3 to 6 months 6,032 4,516 1,916 2,386 6 to 12 months 774 102 2,738 642 1 to 2 years 63 – 6 120
14,961 15,451 24,396 35,581
Less: Provision for impairment (472) (464) (533) (586)
Trade receivables – net 14,489 14,987 23,863 34,995
Movements on the Rainbow Dept. Store’s provision for impairment of trade and other receivables are as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At beginning of year/period 6,219 9,337 1,919 1,919 2,120 Provision /(reversal) for receivable impairment 3,118 (7,386) 201 520 (463) Receivables written off as uncollectible – (32) – – –
At end of year/period 9,337 1,919 2,120 2,439 1,657
All of the carrying amounts of the Rainbow Dept. Store’s trade and other receivables are denominated in Renminbi.
14 CASH AND CASH EQUIVALENTS AND PLEDGED BANK DEPOSITS
Rainbow Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Cash and cash equivalents: Cash at bank and on hand 1,553,748 1,682,802 4,439,068 4,275,221
Pledged bank deposits:
Guarantee deposits for issuance of letters of credit – 15,390 14,431 40,652
(a) Cash and cash equivalents and pledged bank deposits of Rainbow Group are mainly denominated in RMB.
– IIG-41 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Rainbow Dept. Store
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Cash and cash equivalents (b): Cash at bank and on hand 1,280,194 1,244,214 3,280,823 3,381,463
(b) Cash and cash equivalents of the Rainbow Dept. Store are mainly denominated in RMB.
15 SHARE CAPITAL AND SHARE PREMIUM
Rainbow Group
Number of share Capital Total Domestic number Share Share Shares A Shares of shares Capital premium Total (thousands) (thousands) (thousands) RMB’000 RMB’000 RMB’000 Note (a)
As at 1 January 2008 250,000 – 250,000 250,000 19,600 269,600
Capital contribution (b) ––––38,400 38,400 Transfer from share premium (c) 58,000 – 58,000 58,000 (58,000) – Scrip dividends (d) 42,000 – 42,000 42,000 – 42,000
As at 31 December 2008 and 2009 350,000 – 350,000 350,000 – 350,000
Issue of A shares (e) – 50,100 50,100 50,100 1,871,751 1,921,851
As at 31 December 2010 350,000 50,100 400,100 400,100 1,871,751 2,271,851
Transfer from share premium (f) 175,000 25,050 200,050 200,050 (200,050) – Scrip dividends (g) 175,000 25,050 200,050 200,050 – 200,050 Release of Domestic shares to A Shares (h) (63,637) 63,637 ––––
As at 30 June 2011 636,363 163,837 800,200 800,200 1,671,701 2,471,901
– IIG-42 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Rainbow Dept. Store
Number of share Capital Total Domestic number Share Share Shares A Shares of shares Capital premium Total (thousands) (thousands) (thousands) RMB’000 RMB’000 RMB’000 Note (a)
As at 1 January 2008 250,000 – 250,000 250,000 68,753 318,753
Capital contribution (b) ––––38,400 38,400 Transfer from share premium (c) 58,000 – 58,000 58,000 (58,000) – Scrip dividends (d) 42,000 – 42,000 42,000 – 42,000
As at 31 December 2008 and 2009 350,000 – 350,000 350,000 49,153 399,153
Issue of A shares (e) – 50,100 50,100 50,100 1,871,751 1,921,851
As at 31 December 2010 350,000 50,100 400,100 400,100 1,920,904 2,321,004
Transfer from share premium (f) 175,000 25,050 200,050 200,050 (200,050) – Scrip dividends (g) 175,000 25,050 200,050 200,050 – 200,050 Release of Domestic Shares to A shares (h) (63,637) 63,637 ––––
As at 30 June 2011 636,363 163,837 800,200 800,200 1,720,854 2,521,054
(a) In January of 1984, 深圳天虹商場 (Shenzhen Rainbow Department Store) was established by 中航技深圳工貿中心 (China Aviation Technology Shenzhen Trade Center) and 深圳市華 僑商品供應公司 (Shenzhen Overseas Chinese Goods Supply Company), both of which were state-owned enterprises in the PRC. On 25 June 2007, Shenzhen Rainbow Department Store was restructured to a foreign-investment joint stock company with limited liability and changed its name to Rainbow Dept. Store Co., Ltd with registered capital of 250,000,000 ordinary Domestic Shares (“Domestic Shares”) at a par value of RMB1 per share. These Domestic Shares are non-circulated shares. AVIC International Shenzhen Company Limited (the “AVIC Shenzhen”) and Five Dragon Trading Co., Ltd owned 46.611% and 44.298% equity shares of Rainbow Dept. Store respectively. After Rainbow Dept. Store was listed in 2010, AVIC Shenzhen and Five Dragon Trading Co., Ltd owned 39.52% and 38.75% equity shares of Rainbow Dept. Store respectively.
(b) AVIC Shenzhen contributed cash of RMB38,400,000 to Rainbow Dept. Store as additional capital.
(c) On 12 August 2008, according to the resolution of the shareholders’ meeting, RMB58,000,000 was transferred from Share Premium to Share Capital by the issue of 58,000,000 Domestic Shares with par value of RMB1 per share to all shareholders as at 31 December 2007.
(d) On 12 August 2008, according to the resolution of the annual shareholders’ meeting, Rainbow Dept. Store issued scrip dividends to all shareholders as at 31 December 2007 at 1.68 shares per 10 shares, amounting to RMB42,000,000.
– IIG-43 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
(e) On 24 May 2010, Rainbow Dept. Store issued 50,100,000 ordinary A shares at par value RMB1 per share by way of initial public offering in the Small and Medium Enterprises Board of the Shenzhen Stock Exchange at a price of RMB40 each, The excess of net proceeds from the offering over the nominal value of shares issued, being RMB1,871,751,000, is recorded as share premium.
(f) On 29 April 2011, according to the resolution of the shareholders’ meeting, RMB200,050,000 was transferred from Share Premium to Share Capital by the issue of 175,000,000 Domestic Shares and 25,050,000 A Shares to all Domestic Shares and A Shares shareholders as at 31 December 2010, respectively.
(g) According to the resolution of the shareholders’ meeting held on 8 April 2011, Rainbow Dept. Store issued scrip dividends to all shareholders as at 31 December 2010 at 5 shares for every 10 shares, amounting to RMB200,050,000.
(h) On 1 June 2011, 63,637,000 Domestic Shares were released to A Shares and became circulated shares. The remaining Domestic Shares are non-circulated shares.
(i) All issued shares are fully paid.
16 OTHER RESERVES AND RETAINED EARNINGS
Rainbow Group
Statutory general reserves (Note a) RMB’000
At 1 January 2008 10,893 Transfer from retained earnings 30,094
At 31 December 2008 40,987 Transfer from retained earnings 38,811
At 31 December 2009 79,798 Transfer from retained earnings 46,722
At 31 December 2010 126,520 Transfer from retained earnings –
At 30 June 2011 126,520
Unaudited
At 1 January 2010 79,798 Transfer from retained earnings –
At 30 June 2010 79,798
(a) According to the Company Laws of the PRC and the Articles of Association of Rainbow Dept. Store, when distributing net profit each year, Rainbow Dept. Store shall set aside 10% of its net profit as reported in the PRC statutory accounts for the statutory general reserve fund (except where the fund has reached 50% of the Company’s registered share capital). This reserve cannot be used for purposes other than those for which they are created and are not distributable as cash dividends.
– IIG-44 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Rainbow Dept. Store
Statutory general Reserves Retained (Note a) earnings Total RMB’000 RMB’000 RMB’000
At 1 January 2008 33,130 129,685 162,815 Profit for the year – 287,028 287,028 Transfer from retained earnings 30,094 (30,094) – Cash dividends (Note 26(a)) – (212,000) (212,000) Stock dividends (Note 26(a)) – (42,000) (42,000)
At 31 December 2008 63,224 132,619 195,843 Profit for the year – 382,245 382,245 Transfer from retained earnings 38,811 (38,811) – Cash dividends (Note 26(b)) – (140,000) (140,000)
At 31 December 2009 102,035 336,053 438,088 Profit for the year – 460,546 460,546 Transfer from retained earnings 46,722 (46,722) –
At 31 December 2010 148,757 749,877 898,634 Profit for the period – 260,101 260,101 Cash dividends (Note 26(c)) – (240,060) (240,060) Stock dividends (Note 26(c)) – (200,050) (200,050)
At 30 June 2011 148,757 569,868 718,625
Unaudited
At 1 January 2010 102,035 336,053 438,088 Profit for the period – 220,768 217,460
At 30 June 2010 102,035 556,821 655,548
– IIG-45 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
17 TRADE PAYABLES, ADVANCES FROM CUSTOMERS AND OTHER PAYABLES
Rainbow Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade payables Trade payables due to third parties 873,270 1,152,799 1,271,909 1,303,941 Trade payables due to related parties (Note 30) 2,992 2,846 7,371 16,197
876,262 1,155,645 1,279,280 1,320,138
Bills payables 10,100 13,600 20,100 19,300
Advances from customers Advances from third parties (a) 1,102,110 1,410,141 1,963,553 1,916,675 Advances from related parties (Note 30) – – 698 155
1,102,110 1,410,141 1,964,251 1,916,830
Other payables Accrued rental expenses 164,938 249,032 313,860 328,523 Accrued payroll expenses 127,354 108,693 129,758 116,799 Other taxes payable 28,656 65,223 46,716 10,587 Amounts due to third parties 187,880 193,547 291,423 294,554 Amount due to related parties (Note 30) 215 8,028 13,012 8,860 Deferred income – 32,739 43,590 35,195
509,043 657,262 838,359 794,518
Total trade payables, advances from customers and other payables 2,497,515 3,236,648 4,101,990 4,050,786
(a) The amount mainly represents the advance payment from customers for the purchase of Rainbow Stored Value Cards which would be recognised as revenue upon for the consumption of the products of Rainbow Group.
The carrying amounts of payables and accruals approximate their fair values.
All of the carrying amounts of Rainbow Group’s trade payables, advances from customers and other payables are denominated in Renminbi.
– IIG-46 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Rainbow Dept. Store
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade payables Trade payables due to subsidiaries (a) – 22 322 1,966 Trade payables due to third parties 603,537 738,732 697,899 752,332 Trade payables due to related parties (Note 30) 2,992 2,846 3,982 11,478
606,529 741,600 702,203 765,776
Bills payables 10,100 13,600 20,100 19,300
Advances from customers Advances from third parties (b) 858,830 1,048,862 1,397,483 1,305,909 Advances from related parties (Note 30) – – 698 –
858,830 1,048,862 1,398,181 1,305,909
Other payables Accrued rental expenses 111,223 119,039 127,945 136,763 Accrued payroll expenses 113,683 88,926 102,407 84,094 Other taxes payable 26,254 53,310 21,193 5,579 Amounts due to third parties 130,861 112,052 146,111 118,638 Amount due to related parties (Note 30) 215 8,028 12,897 8,617 Amounts due to subsidiaries (a) 104,554 80,044 229,082 517,790 Deferred income – 23,159 30,103 19,399
486,790 484,558 669,738 890,880
Trade payables, advances from customers and other payables 1,962,249 2,288,620 2,790,222 2,981,865
(a) Current accounts with subsidiaries are unsecured, interest free and repayable on demand.
(b) The amount mainly represents the advance payment from customers for the purchase of Rainbow Stored Value Cards which would be recognised as revenue upon for the consumption of the products of Rainbow Dept. Store.
The carrying amounts of payables and accruals approximate their fair values.
All of the carrying amounts of Rainbow Dept. Store’s trade payables, advances from customers and other payables are denominated in Renminbi.
– IIG-47 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
The ageing analysis of the trade payables is as follows:
Rainbow Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Within one year 860,727 1,134,911 1,257,237 1,291,750 Over 1 year 15,535 20,734 22,043 28,388
876,262 1,155,645 1,279,280 1,320,138
Rainbow Dept. Store
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Within one year 593,363 722,913 683,703 741,656 Over 1 year 13,166 18,687 18,500 24,120
606,529 741,600 702,203 765,776
18 DEFERRED INCOME TAX
The analysis of deferred tax assets is as follows:
Rainbow Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Deferred income tax assets: – be recovered after more than 12 months 42,017 73,047 100,969 100,730 – be recovered within 12 months 17,958 12,368 16,824 12,266
59,975 85,415 117,793 112,996
– IIG-48 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Rainbow Dept. Store
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Deferred income tax assets: – be recovered after more than 12 months 27,806 34,855 39,211 38,847 – be recovered within 12 months 17,044 12,047 16,545 12,087
44,850 46,902 55,756 50,934
Deferred income tax account is as follows:
Rainbow Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Beginning of the year/period 38,725 59,975 85,415 117,793 Credited/(charged) to consolidated income statements 21,250 25,440 32,378 (4,797)
End of the year/period 59,975 85,415 117,793 112,996
Rainbow Dept. Store
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Beginning of the year/period 32,398 44,850 46,902 55,756 Credited/(charged) to consolidated income statements 12,452 2,052 8,854 (4,822)
End of the year/period 44,850 46,902 55,756 50,934
– IIG-49 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
The movements in deferred tax assets during the years ended 31 December 2008, 2009 and 2010 and six months ended 2011 are as follows:
Rainbow Group
Provision Accrued for Pre- Accrued rental impairment operation payroll Deferred Prepaid expenses losses expenses expenses income Tax losses expenses Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Deferred income tax assets At 1 January 2008 26,679 186 2,975 8,242 – – 643 38,725 Credited/(charged) to consolidated income statements 14,556 532 (192) 6,935 – – (581) 21,250
At 31 December 2008 41,235 718 2,783 15,177 – – 62 59,975 Credited/(charged) to consolidated income statements 21,023 (87) 1,665 (3,552) 6,339 – 52 25,440
At 31 December 2009 62,258 631 4,448 11,625 6,339 – 114 85,415 Credited/(charged) to consolidated income statements 16,207 156 (754) 4,411 1,578 10,891 (111) 32,378
At 31 December 2010 78,465 787 3,694 16,036 7,917 10,891 3 117,793 Credited/(charged) to consolidated income statements 3,666 (212) (1,326) (4,347) (2,578) – – (4,797)
At 30 June 2011 82,131 575 2,368 11,689 5,339 10,891 3 112,996
– IIG-50 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Rainbow Dept. Store
Provision Accrued for Accrued rental impairment payroll Deferred expenses losses expenses income Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Deferred income tax assets At 1 January 2008 23,169 987 8,242 – 32,398 Credited/(charged) to income statements 4,637 881 6,934 – 12,452
At 31 December 2008 27,806 1,868 15,176 – 44,850 Credited/(charged) to income statements 1,954 (1,445) (3,552) 5,095 2,052
At 31 December 2009 29,760 423 11,624 5,095 46,902 Credited/(charged) to income statements 2,226 87 4,411 2,130 8,854
At 31 December 2010 31,986 510 16,035 7,225 55,756 Credited/(charged) to income statements 2,205 (111) (4,347) (2,569) (4,822)
At 30 June 2011 34,191 399 11,688 4,656 50,934
19 OTHER INCOME
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Sales of materials 7,364 4,364 7,172 2,704 3,833 Franchise income 8,758 14,948 29,454 10,613 17,289 Others 11,680 15,261 16,621 7,555 10,463
27,802 34,573 53,247 20,872 31,585
– IIG-51 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
20 OTHER GAINS – NET
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Government grants – 2,422 7,549 2,628 4,082 Profit/(loss) on disposal of property, plant and equipment (Note 27) (2,542) 412 (952) (254) (707) Penalty income 4,358 3,626 4,886 2,148 2,731 Excess of the share of net fair value of identifiable assets and liabilities and contingent liabilities over the cost of the business combination (Note 29) ––––3,905 Others 7,371 10,594 7,956 4,476 3,699
9,187 17,054 19,439 8,998 13,710
21 EMPLOYEE BENEFIT EXPENSES
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Wages and salaries 361,629 344,662 437,435 194,935 258,742 Welfare 7,837 7,200 7,218 3,718 4,301 Social security costs (a) 43,528 49,271 57,438 25,842 29,641 Trade union and employee education costs 9,995 7,184 9,276 4,205 5,411 Housing benefit (b) 460 329 2,106 403 7,031 Other benefits 1,068 3,532 2,142 1,919 1,268
424,517 412,178 515,615 231,022 306,394
(a) The employees of Rainbow Group in the PRC participate in various retirement benefit and medical social security plans organised by the relevant municipal and provincial government in the PRC to which Rainbow Group is required to make monthly contributions at rates ranging from 16% to 22%, depending on the applicable local regulations, of the employees’ corresponding wage base for the Relevant Periods.
(b) These represent contributions to the government-sponsored housing funds at rates ranging from 5% to 20% of the employees’ basic salary in the PRC.
– IIG-52 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
(c) Directors’ and senior management’s emoluments
The remuneration of directors of the Rainbow Dept. Store that received emoluments for their services provided to Rainbow Group for the years ended 31 December 2008, 2009, 2010, and the six months ended 30 June 2010 and 2011 amounted to RMB2,200,000, RMB2,440,000, RMB2,510,000, RMB1,255,000 and RMB1,255,000 respectively.
22 EXPENSES BY NATURE
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Changes in inventories of finished goods and goods in transit (Note 12) 34,315 6,041 81,819 (9,295) (40,690) Raw materials and consumables used (Note 12) 1,965,363 1,985,468 2,283,042 1,165,113 1,458,229 Employee benefit expenses (Note 21) 424,517 412,178 515,615 231,022 306,394 Amortisation of land use rights (Note 7) 960 1,959 13,138 6,523 7,244 Depreciation of property, plant and equipment (Note 8) 137,937 153,317 175,762 80,794 114,986 Amortisation of intangible assets (Note 9) 2,755 2,312 2,977 1,299 1,781 Electricity and water costs 186,648 213,894 238,984 109,050 129,088 Rental expenses 365,374 467,781 542,694 266,400 309,857 Promotion costs 5,065 5,040 8,135 3,233 3,742 Travelling expenses 5,421 4,576 6,976 2,678 4,044 Business taxes and other levies 37,070 34,497 48,385 20,603 41,425 Maintenance expenses 6,480 5,574 8,003 3,452 4,403 Postage expenses 8,147 4,385 4,399 2,043 2,661 Advertisement expenses 14,518 17,622 25,588 8,239 11,680 Handling charges of banks and credit card companies 33,357 35,013 44,206 19,742 28,673 Others 70,900 49,403 80,139 35,397 12,543
Total cost of sales, selling and marketing costs, and distribution costs 3,298,827 3,399,060 4,079,862 1,946,293 2,396,060
– IIG-53 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
23 FINANCE INCOME – NET
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Interest income on short-term bank deposits (Note 27) 33,086 25,040 49,775 19,897 45,461 Exchange (losses)/gains (9) – (4) (1) 214
Finance income – net 33,077 25,040 49,771 19,896 45,675
24 INCOME TAX EXPENSE
The amounts of taxation charged/(credited) represent:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Current enterprise income tax 86,316 119,078 172,254 76,424 110,244 Deferred income tax (21,250) (25,440) (32,378) (3,962) 3,861
65,066 93,638 139,876 72,462 114,105
Pursuant to the relevant income tax law of PRC, the subsidiaries of the Group established in the PRC were subject to income tax at a rate of 25% unless preferential rates were applicable.
For the Company and certain subsidiaries established in Shenzhen special economic zone and Xiamen special economic zone, the original enterprise income tax rate was 15%. In accordance with the relevant provision of the Corporate Income Tax law, the corporate income tax rate of the Company and certain subsidiaries will transit to 25% in five years from 2008 to 2012. The corporate income tax rate was 18%, 20%, 22%, 22%, 24% for the years ended 31 December 2008, 2009 and 2010 and six months ended 30 June 2010 and 2011 respectively.
– IIG-54 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
The taxation of Rainbow Group’s profit before income tax differs from the theoretical amount that would arise using the applicable tax rate, being the weighted average of tax rates prevailing in the territories in which Rainbow Group operates, as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Profit before income tax 335,005 386,521 576,252 273,934 431,639
Tax calculated at domestic applicable tax rate 60,301 77,304 126,775 60,266 103,593 Expenses not deductible for taxation purposes 985 554 2,662 1,669 1,048 Income not subject to tax (9,659) (5,336) (3,620) (205) (1,095) Reversal of prior year/period income tax payables (2,713) (13) (1,391) (1,679) (168) Tax losses not recognised as deferred tax assets 11,484 23,584 18,648 14,461 10,049 Temporary difference not recogonised as deferred tax assets 3,871 1,906 1,687 1,171 610 Tax rate difference between subsidiaries 797 (4,361) (4,885) (3,221) 68
Income tax expense 65,066 93,638 139,876 72,462 114,105
– IIG-55 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
25 EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the years ended 31 December 2008, 2009 and 2010, and the six months ended 30 June 2010 and 2011.
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) Profit attributable to equity holders of Rainbow Dept. Store 269,939 292,883 436,376 201,472 317,599
Weighted average number of ordinary shares in issue (thousands) 750,100 750,100 779,325 758,450 800,200 Basic and diluted earnings per share (RMB per share) 0.36 0.39 0.56 0.27 0.40
Weighted average numbers of ordinary shares in issue in 2008, 2009 and 2010 have been adjusted for the scrip dividends declared and shares issued due to the transfer from share premium (Note 15).
There were no potential dilutive shares at 31 December 2008, 2009 and 2010, and 30 June 2010 and 2011.
26 DIVIDENDS
(a) In 2008, according to the resolution of the annual shareholders’ meeting held in May and the resolution of shareholders’ meeting held in August, Rainbow Dept. Store issued cash dividends to all shareholders at RMB6.08 per 10 shares, scrip dividends at 1.68 shares per 10 shares and cash dividends at RMB1.71 per 10 shares, amounting to RMB152,000,000, RMB42,000,000 and RMB60,000,000, respectively.
(b) In 2009, according to the resolution of the annual shareholders’ meeting held in September, Rainbow Dept. Store issued cash dividends to all shareholders at RMB0.4 per share, amounting to RMB140,000,000.
(c) In 2011, according to the resolution of the annual shareholders’ meeting held in April, Rainbow Dept. Store issued cash dividends of RMB6 per 10 shares and scrip dividends at 5 shares per 10 shares to all shareholders, amounting to RMB240,060,000 and RMB200,050,000, respectively.
– IIG-56 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
27 CASH GENERATED FROM OPERATIONS
Rainbow Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Profit before income tax 335,005 386,521 576,252 273,934 431,639
Adjustments for: – Amortisation of land use right (Note 7) 960 1,959 13,137 6,523 7,244 – Depreciation of property, plant and equipment (Note 8) 137,937 153,317 175,762 80,794 114,986 – Amortisation of intangible assets (Note 9) 2,755 2,312 2,977 1,299 1,781 – Excess of the share of net fair value of identifiable assets and liabilities and contingent liabilities over the cost of the business combination (Note 29) ––––(3,905) – Provision for/(reversal of) impairment charge 876 139 332 485 (893) – Profit/(loss) on disposal of property, plant and equipment 2,542 (412) 952 254 707 – Interest income (Note 23) (33,086) (25,040) (49,775) (19,897) (45,461)
446,989 518,796 719,637 343,392 506,098
Changes in working capital – Pledged bank deposits – (15,390) 959 15,390 (26,221) – Inventories (34,423) (6,584) (85,135) 10,061 45,149 – Trade and other receivables (89,491) (196,884) 230,696 206,452 41,290 – Non-current rental deposits (8,379) (19,415) (9,091) (4,546) (1,881) – Trade payables, advances from customers and other payables 432,304 739,133 865,342 8,448 (159,494)
Cash generated from operations 747,000 1,019,656 1,722,408 579,197 404,941
– IIG-57 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
In the statement of cash flow, proceeds from sale of property, plant and equipments compromise:
Rainbow Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Net book amount (Note 8) 4,909 5,035 8,633 2,250 3,169 Profit/(loss) on disposal of property, plant and equipment (Note 20) (2,542) 412 (952) (254) (707)
Proceeds from disposal of property, plant and equipment 2,367 5,447 7,681 1,996 2,462
28 COMMITMENTS
(a) Capital commitments
Capital commitments contracted but not yet incurred are as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Purchase of property, plant and equipment 359,196 192,829 30,491 207,625 Purchase of land use rights – – 24,970 –
359,196 192,829 55,461 207,625
(b) Operating lease commitments
The future aggregate minimum lease expenses payable under non-cancellable operating leases in respect of buildings payable are as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
No later than 1 year 230,508 289,333 439,019 481,495 Later than 1 year and no later than 5 years 1,045,437 1,348,009 2,030,807 2,401,465 Later than 5 years 3,288,373 4,072,920 5,838,459 7,393,185
4,564,318 5,710,262 8,308,285 10,276,145
– IIG-58 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
29 BUSINESS COMBINATIONS
On 4 March 2011, Rainbow Group had 100% equity interests in Shenzhen Gongming Rainbow Department Store Co., Ltd (the “Gongming Store”) in which 95% was acquired from the landlord of the Gongming Store and 5% from an individual at a total consideration of RMB1,000,000. Before the acquisition, Gongming Store was operated by its landlord under a franchise agreement with Rainbow Group. Thereafter, Rainbow group operates the store and pays a monthly rent to the landlord.
At the acquisition date, the fair value of the net identifiable assets in Gongming Store, amounting to RMB4,905,000, exceeds the cost of the business combination by RMB3,905,000, which is recognised as a gain and included in “Other gains - net” in Rainbow Group’s consolidated income statement for the period ended 30 June 2011.
The following table summarises the consideration paid for the Gongming Store and the amounts of the assets acquired and liabilities assumed recognised at the acquisition date.
Consideration:
RMB’000
– Cash 1,000
Recognised amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents 46,495 Property, plant and equipment 20,808 Inventories 4,486 Trade and other receivables 5,029 Trade payables, advances from customers and other payables (71,913)
Total net identifiable assets 4,905
Excess of the fair value of net identifiable assets over the cost of the business combination 3,905
Inflow of cash to acquire business, net of cash consideration paid: Cash in subsidiary acquired 46,495 Less: cash consideration 1,000
Cash inflow on acquisition 45,495
The revenue included in the consolidated income statement since 4 March 2011 to 30 June 2011 contributed by Gongming Store was RMB101,965,000. Gongming Store also contributed a profit of RMB2,172,000 over the same period.
Had Gongming Store been consolidated from 1 January 2011, the consolidated income statement would share revenue of RMB167,702,000 and a profit of RMB3,611,000.
– IIG-59 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
30 SIGNIFICANT RELATED PARTY TRANSACTIONS
Rainbow Group is controlled by AVIC International Shenzhen Company Limited (the “AVIC Shenzhen”), a state-controlled company established in the PRC which owns 39.52% of Rainbow Dept. Store’s shares. Five Dragons Trading Co., Ltd (五龍貿易有限公司) holds 38.75% of Rainbow Dept. Store’s shares. According to the agreements signed on 6 June 2006 between AVIC Shenzhen and Five Dragons Trading Co., Ltd and on 6 February 2007 among company sponsors, Five Dragons Trading Co., Ltd had agreed to transfer its 16% shareholder’s voting rights in Rainbow Dept. Store to AVIC Shenzhen under the conditions that AVIC Shenzhen remains to be the single largest shareholder of Rainbow Dept. Store and Rainbow Dept. Store remains to be a listed company in the Shenzhen Stock Exchange. Together with the existing 39.52% interest in Rainbow Dept. Store, AVIC Shenzhen has 55.52% voting rights in Rainbow Dept. Store. The remaining 21.73% of the shares are widely held by public investors. The directors of the Rainbow Dept. Store regard AVIC Shenzhen, AVIC International Holding Corporation (the “AVIC International”) and Aviation Industry Corporation of China (the “Aviation Industry”) as the holding company, intermediate holding company and ultimate holding company of the Group, respectively.
Related parties include the Company’s holding company, intermediate holding company, ultimate holding company, its subsidiaries, other state-controlled enterprises and their subsidiaries directly or indirectly controlled by the PRC government, corporations in which the Company is able to control or exercise significant influence, key management personnel of the Company, holding company and its ultimate holding company and their close family members.
In addition to the related party information shown elsewhere in the Financial Information, the following is a summary of significant related party transactions entered into in the ordinary course of business between Rainbow Group and its related parties and the balances arising from related party transactions:
(a) Sales of goods to related parties
Rainbow Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Sales of goods to related parties – AVIC Shenzhen – – 24 – 2 – AVIC International – – 254 – 300 – Aviation Industry – – 19 – 119 – Entities controlled by AVIC Industry 760–7–305
760 – 304 – 726
– IIG-60 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
(b) Purchases of goods from related parties
Rainbow Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) Purchases of goods from related parties – AVIC Shenzhen – 130 38 35 – – Entities controlled by AVIC Industry 20,031 18,977 45,728 20,441 57,089
20,031 19,107 45,766 20,476 57,089
Transactions with government related entities:
Rainbow Group is a state-owned enterprise ultimately controlled by the PRC government. The PRC government controls a significant portion of the productive assets and entities in the PRC. The transactions between Rainbow Group and other PRC government controlled entities are related party transactions. These transactions mainly include depositing cash in certain stated-owned banks. Nearly all of Rainbow Group’s cash were deposited in state-owned banks during the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011.
(c) Providing of services to related parties
Rainbow Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Providing of services to related parties –Entities controlled by AVIC Industry – – 2,035 810 916
(d) Purchases of services from related parties
Rainbow Group
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Purchases of services from related parties – Entities controlled by AVIC Industry 31,031 28,746 26,987 12,640 15,335
– IIG-61 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
(e) Balances with related parties
The balances with related parties companies are non-interest bearing and repayable on demand.
Rainbow Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade receivables from related parties – Entities controlled by AVIC Industry (Note 13) – 170 – –
Other receivables from related parties – Entities controlled by AVIC Industry (Note 13) 1,016 1,013 1,073 1,292
Prepayments to related parties – Entities controlled by AVIC Industry (Note 13) 359 – 99 69
1,375 1,183 1,172 1,361
Rainbow Dept. Store
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade Receivables from related parties – Entities controlled by AVIC Industry (Note 13) – 170 – – Other receivables from related parties – Entities controlled by AVIC Industry (Note 13) 1,016 1,013 1,073 1,292 Prepayments to related parties – Entities controlled by AVIC Industry (Note 13) 359 – 99 69
1,375 1,183 1,172 1,361
– IIG-62 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Rainbow Group
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade payables due to related parties (Note 17) – AVIC Shenzhen – 131 4 – – Entities controlled by AVIC Industry 2,992 2,715 7,367 16,197
2,992 2,846 7,371 16,197
Advances from related parties (Note 17) – AVIC International – – – 21 – Entities controlled by AVIC Industry – – 698 134
– – 698 155
Amount due to related parties (Note 17) – AVIC Shenzhen – – 9 10 – Entities controlled by AVIC Industry 215 8,028 13,003 8,850
215 8,028 13,012 8,860
3,207 10,874 21,081 25,212
– IIG-63 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
Rainbow Dept. Store
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Trade payables due to related parties (Note 17) – AVIC Shenzhen – 131 4 – – Entities controlled by AVIC Industry 2,992 2,715 3,978 11,478
2,992 2,846 3,982 11,478
Advances from related parties (Note 17) – Entities controlled by AVIC Industry – – 698 –
Amount due to related parties (Note 17) – Entities controlled by AVIC Industry 215 8,028 12,897 8,617
3,207 10,874 17,577 20,095
(f) Key management compensation
Key management includes directors (executive and non-executive), other senior executives of Rainbow Dept. Store. The compensation paid or payable to key management for employee services is shown below:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)
Basic salaries, allowances and benefits in kind 8,620 9,490 10,380 5,190 5,190
31 EVENTS AFTER THE END OF REPORTING PERIOD
No significant events occurred subsequent to 30 June 2011 and up to the date of this report.
– IIG-64 – APPENDIX IIG FINANCIAL INFORMATION OF THE TARGET GROUP
III SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by the Rainbow Dept. Store in respect of any period subsequent to 30 June 2011 up to the date of this report. No dividend or distribution has been declared or made by the Rainbow Dept. Store in respect of any period subsequent to 30 June 2011.
Yours faithfully,
PricewaterhouseCoopers Certified Public Accountants Hong Kong
– IIG-65 – APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
The following is an illustrative and unaudited pro forma consolidated balance sheet, unaudited pro forma consolidated income statement and unaudited pro forma consolidated cash flow statement of the Enlarged Group, which have been prepared on the basis of the notes set out below for the purpose of illustrating the effects of the Acquisitions. Completion of Acquisition Agreement 1 and Acquisition Agreement 2 is interconditional and acquisitions contemplated thereunder shall take place simultaneously. Acquisition Agreement 3 and the acquisition contemplated thereunder is independent from Acquisition Agreement 1, Acquisition Agreement 2 and the acquisitions contemplated thereunder. The unaudited pro forma financial information has been prepared as if the Acquisitions had taken place on 30 June 2011 for the unaudited pro forma consolidated balance sheet and on 1 January 2010 for the unaudited pro forma consolidated income statement and the unaudited pro forma consolidated cash flow statement in the following scenarios.
I. the acquisitions pursuant to Acquisition Agreement 1, Acquisition Agreement 2 and Acquisition Agreement 3
II. the acquisitions pursuant to Acquisition Agreement 1 and Acquisition Agreement 2
III. the acquisition pursuant to Acquisition Agreement 3
For the purpose of this unaudited pro forma financial information, no adjustment has been made to reflect the effect of the 2010 Acquisition. Details of the financial information of the target companies/business of the 2010 Acquisition, and the unaudited pro forma financial information (the “2010 Pro Forma Financial Information”) illustrating how the 2010 Acquisition might have affected the relevant financial information of the Group were set out in the circular of the Company dated 31 December 2010 (the “2010 Circular”). Since the financial information of the target companies/business of the 2010 Acquisition at the completion date may be substantially different from that disclosed in the 2010 Circular, the effects of the 2010 Acquisition on relevant financial information of the Group may be different from those illustrated by the 2010 Pro Forma Financial Information as disclosed in the 2010 Circular, and the difference may be significant.
This unaudited pro forma financial information has been prepared for illustrative purposes only and, because of its hypothetical nature, it may not give a true picture of the financial position, results and cash flow of the Enlarged Group had the acquisitions in above scenarios been completed as at 30 June 2011 or 1 January 2010, where appropriate, or at any future dates.
– III-1 – I. ACQUISITIONS PURSUANT TO ACQUISITION AGREEMENT 1, ACQUISITION AGREEMENT 2 AND FINANCIAL FORMA PRO UNAUDITED ACQUISITION III APPENDIX AGREEMENT 3
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2011
Pro Forma Adjustments Aggregation of audited consolidated balance sheets of target companies under Acquisition Pro forma Agreement 1 and adjustments Unaudited pro Unaudited Acquisition relating to forma consolidated Agreement 2 acquisition consolidated balance sheet of other than AVIC pursuant to balance sheet of the Group as at Lutong as at 30 Other pro forma adjustments relating to acquisition pursuant to Acquisition Agreement 1, Acquisition the Enlarged 30 June 2011 June 2011 Acquisition Agreement 2 Agreement 3 Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 3 Note 5 Note 6(a) Note 6(b) Note 6(c) Note 6(d) Note 6(e) Note 6(f) Note 6(g) Note 6(h) Note 7(a) NOMTO FTEELRE GROUP ENLARGED THE OF INFORMATION
ASSETS – III-2 – Non-current assets Land use rights 707,706 76,963 – – – – 40,541 – – – – 825,210 Mining rights 529,779 – – ––––––– –529,779 Intangible assets – 39,820 – ––––––– – 39,820 Goodwill 5,240 14,101 – – – – 35,238 – – – – 54,579 Property, plant and equipment 7,215,504 815,802 – – – – 1,515 – – – – 8,032,821 Investment properties 1,105,319 716,961 – ––––––– –1,822,280 Construction-in-progress 556,890 41,576 – ––––––– –598,466 Investments in associates 795,569 81,115 – –––––––6,328,303 7,204,987 Investments in subsidiary – – 1,799,260 (1,799,260) –––––– – – Investments in jointly controlled entities – 20,262 – ––––149,770 – – – 170,032 Available-for-sale financial assets 28,079 50,796 – (10,000) – – – – – – – 68,875 Trade and other receivables – – – ––––––– – – Deferred income tax assets 115,175 26,437 – ––––––– –141,612 Other non-current assets 114,534 133,035 – ––––––– –247,569
11,173,795 2,016,868 1,799,260 (1,809,260) – – 77,294 149,770 – – 6,328,303 19,736,030 Pro Forma Adjustments FINANCIAL FORMA PRO UNAUDITED III APPENDIX Aggregation of audited consolidated balance sheets of target companies under Acquisition Pro forma Agreement 1 and adjustments Unaudited pro Unaudited Acquisition relating to forma consolidated Agreement 2 acquisition consolidated balance sheet of other than AVIC pursuant to balance sheet of the Group as at Lutong as at 30 Other pro forma adjustments relating to acquisition pursuant to Acquisition Agreement 1, Acquisition the Enlarged 30 June 2011 June 2011 Acquisition Agreement 2 Agreement 3 Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 3 Note 5 Note 6(a) Note 6(b) Note 6(c) Note 6(d) Note 6(e) Note 6(f) Note 6(g) Note 6(h) Note 7(a)
Current assets Inventories 2,577,537 1,048,551 – ––––––– –3,626,088 Trade and other receivables 2,688,104 2,580,943 – ––––––(5,693) – 5,263,354 Amounts due from customers for contract works – 131,573 – ––––––– –131,573 Pledged bank deposits 202,165 2,579,235 – ––––––– –2,781,400 Cash and cash equivalents 1,408,640 735,796 – ––––––– –2,144,436 NOMTO FTEELRE GROUP ENLARGED THE OF INFORMATION 6,876,446 7,076,098 – ––––––(5,693) – 13,946,851 I- – III-3 –
Non-current assets held for sale – 85,902 – ––––––– – 85,902
Total assets 18,050,241 9,178,868 1,799,260 (1,809,260) – – 77,294 149,770 – (5,693) 6,328,303 33,768,783 Pro Forma Adjustments FINANCIAL FORMA PRO UNAUDITED III APPENDIX Aggregation of audited consolidated balance sheets of target companies under Acquisition Pro forma Agreement 1 and adjustments Unaudited pro Unaudited Acquisition relating to forma consolidated Agreement 2 acquisition consolidated balance sheet of other than AVIC pursuant to balance sheet of the Group as at Lutong as at 30 Other pro forma adjustments relating to acquisition pursuant to Acquisition Agreement 1, Acquisition the Enlarged 30 June 2011 June 2011 Acquisition Agreement 2 Agreement 3 Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 3 Note 5 Note 6(a) Note 6(b) Note 6(c) Note 6(d) Note 6(e) Note 6(f) Note 6(g) Note 6(h) Note 7(a)
EQUITY Capital and reserves attributable to the Company’s equity holders Share capital 673,367 809,651 – (809,651) – – – – – – – 673,367 Share premium 354,513 – – ––––––– –354,513 Other reserves 439,114 128,575 1,799,260 (1,089,716) (62,487) 153,319 54,225 149,770 – – 6,328,303 7,900,363 Retained earnings 531,437 836,620 – (321,322) 62,487 (153,319) (549) – (8,800) – – 946,554 NOMTO FTEELRE GROUP ENLARGED THE OF INFORMATION
I- – III-4 – 1,998,431 1,774,846 1,799,260 (2,220,689) – – 53,676 149,770 (8,800) – 6,328,303 9,874,797
Non-controlling interests in equity 3,192,530 257,492 – 411,429 – – 14,670 – – – – 3,876,121
Total equity 5,190,961 2,032,338 1,799,260 (1,809,260) – – 68,346 149,770 (8,800) – 6,328,303 13,750,918 Pro Forma Adjustments FINANCIAL FORMA PRO UNAUDITED III APPENDIX Aggregation of audited consolidated balance sheets of target companies under Acquisition Pro forma Agreement 1 and adjustments Unaudited pro Unaudited Acquisition relating to forma consolidated Agreement 2 acquisition consolidated balance sheet of other than AVIC pursuant to balance sheet of the Group as at Lutong as at 30 Other pro forma adjustments relating to acquisition pursuant to Acquisition Agreement 1, Acquisition the Enlarged 30 June 2011 June 2011 Acquisition Agreement 2 Agreement 3 Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 3 Note 5 Note 6(a) Note 6(b) Note 6(c) Note 6(d) Note 6(e) Note 6(f) Note 6(g) Note 6(h) Note 7(a)
LIABILITIES Non-current liabilities Borrowings 5,824,596 111,866 – ––––––– –5,936,462 Deferred income tax liabilities 346,283 115,267 – – – – 8,948 – – – – 470,498 Trade and other payables – – – ––––––(5,693) – (5,693) Retirement and other supplemental benefit obligations – 26,987 – ––––––– – 26,987 Deferred income on government grants 568,250 – – ––––––– GROUP – ENLARGED THE OF INFORMATION 568,250 Other non-current liabilities 114,327 143,391 – ––––––– –257,718 I- – III-5 –
6,853,456 397,511 – – – – 8,948 – – (5,693) – 7,254,222
Current liabilities Trade and other payables 3,233,156 2,753,108 – –––––8,800 – – 5,995,064 Amounts due to customers for contract work – 88,491 – ––––––– – 88,491 Short-term Borrowings 2,755,018 3,892,077 – ––––––– –6,647,095 Retirement and other supplemental benefit obligations – 2,213 – ––––––– – 2,213 Current income tax liabilities 17,650 13,130 – ––––––– – 30,780
6,005,824 6,749,019 – –––––8,800 – – 12,763,643
Total liabilities 12,859,280 7,146,530 – – – – 8,948 – 8,800 (5,693) – 20,017,865 Pro Forma Adjustments FINANCIAL FORMA PRO UNAUDITED III APPENDIX Aggregation of audited consolidated balance sheets of target companies under Acquisition Pro forma Agreement 1 and adjustments Unaudited pro Unaudited Acquisition relating to forma consolidated Agreement 2 acquisition consolidated balance sheet of other than AVIC pursuant to balance sheet of the Group as at Lutong as at 30 Other pro forma adjustments relating to acquisition pursuant to Acquisition Agreement 1, Acquisition the Enlarged 30 June 2011 June 2011 Acquisition Agreement 2 Agreement 3 Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 3 Note 5 Note 6(a) Note 6(b) Note 6(c) Note 6(d) Note 6(e) Note 6(f) Note 6(g) Note 6(h) Note 7(a)
Total equity and liabilities 18,050,241 9,178,868 1,799,260 (1,809,260) – – 77,294 149,770 – (5,693) 6,328,303 33,768,783
Net current assets/(liabilities) 870,622 327,079 – –––––(8,800) (5,693) – 1,183,208
Total assets less current liabilities 12,044,417 2,429,849 1,799,260 (1,809,260) – – 77,294 149,770 (8,800) (5,693) 6,328,303 21,005,140 NOMTO FTEELRE GROUP ENLARGED THE OF INFORMATION I- – III-6 – UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER FINANCIAL FORMA PRO UNAUDITED 2010 III APPENDIX
Pro Forma Adjustments Aggregation of audited consolidated income statements of target companies under Acquisition Pro forma Audited Agreement 1 and adjustments consolidated Acquisition relating to income statement of Agreement 2 other acquisition Unaudited pro the Group for than AVIC Lutong Other pro forma adjustments relating to pursuant to forma consolidated the year ended for the year ended acquisition pursuant to Acquisition Agreement 1, Acquisition income statement of 31 December 2010 31 December 2010 Acquisition Agreement 2 Agreement 3 the Enlarged Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 4 Note 5 Note 6(g) Note 6(h) Note 6(i) Note 6(j) Note 7(b)
Revenue 6,964,551 6,257,429 – (9,954) – – – 13,212,026 Cost of sales (5,459,142) (5,886,027) – 9,954 14,797 – – (11,320,418) GROUP ENLARGED THE OF INFORMATION I- – III-7 – Gross profit 1,505,409 371,402 – – 14,797 – – 1,891,608 Other gains – net 72,074 107,608 –––– – 179,682 Other income/(loss) 220,721 28,719 –––– – 249,440 Fair value gain on investment property 74,406 ––––– – 74,406 Distribution costs (429,871) (126,378) –––– – (556,249) Administrative expenses (725,739) (145,534) (8,800) – 1,358 – – (878,715) Other operating expenses – (2,818) –––– – (2,818)
Operating profit 717,000 232,999 (8,800) – 16,155 – – 957,354
Finance income 20,773 52,238 –––– – 73,011 Finance costs (344,113) (50,413) –––– – (394,526)
Finance costs – net (323,340) 1,825 –––– – (321,515)
Share of profit of associates 61,228 (243) –––– 152,082 213,067 Share of profit of jointly controlled entities – 2,788 –––– – 2,788 Pro Forma Adjustments FINANCIAL FORMA PRO UNAUDITED III APPENDIX Aggregation of audited consolidated income statements of target companies under Acquisition Pro forma Audited Agreement 1 and adjustments consolidated Acquisition relating to income statement of Agreement 2 other acquisition Unaudited pro the Group for than AVIC Lutong Other pro forma adjustments relating to pursuant to forma consolidated the year ended for the year ended acquisition pursuant to Acquisition Agreement 1, Acquisition income statement of 31 December 2010 31 December 2010 Acquisition Agreement 2 Agreement 3 the Enlarged Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 4 Note 5 Note 6(g) Note 6(h) Note 6(i) Note 6(j) Note 7(b)
Profit before income tax 454,888 237,369 (8,800) – 16,155 – 152,082 851,694
Income tax expenses (112,298) (57,623) – – (3,936) – – (173,857) NOMTO FTEELRE GROUP ENLARGED THE OF INFORMATION Profit for the year from I- – continuing III-8 – operations 342,590 179,746 (8,800) – 12,219 – 152,082 677,837
Profit for the year from discontinued operations – 4,560 –––– – 4,560
Profit for the year 342,590 184,306 (8,800) – 12,219 – 152,082 682,397
Profit attributable to: Equity holders of the Company 193,561 171,525 (8,800) – 18,163 (43,090) 152,082 483,441 Non-controlling interests 149,029 12,781 – – (5,944) 43,090 – 198,956
342,590 184,306 (8,800) – 12,219 – 152,082 682,397 UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER FINANCIAL FORMA PRO UNAUDITED 2010 III APPENDIX
Pro Forma Adjustments Aggregation of audited consolidated cash flow statements of target companies under Pro forma Acquisition Agreement adjustments Unaudited Audited consolidated 1 and Acquisition relating to pro forma cash flow statement of Agreement 2 other than Other pro forma adjustments acquisition consolidated the Group for AVIC Lutong for relating to acquisition pursuant to pursuant to income statement the year ended the year ended Acquisition Agreement 1, Acquisition of the Enlarged 31 December 2010 31 December 2010 Acquisition Agreement 2 Agreement 3 Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 4 Note 5 Note 6(g) Note 6(k)
Cash flows from operating activities Cash generated from operations 588,688 (12,536) – – – 576,152 Interest paid (346,906) (55,763) – – – (402,669) Income tax paid (65,764) (48,725) – – – (114,489)
Net cash generated from/(used in) operating activities 176,018 (117,024) – – – 58,994 GROUP ENLARGED THE OF INFORMATION
Cash – III-9 – flows from investing activities Purchase of property, plant and equipment (486,168) (207,562) – – – (693,730) Purchase of mining rights (14,945) – – – – (14,945) Purchase of land use rights (25,635) – – – – (25,635) Purchase of Intangible assets – (3,474) – – – (3,474) Additions to construction-in-progress (1,650,010) (34,325) – – – (1,684,335) Acquisition of subsidiaries, net of cash paid – (84,518) (8,800) – – (93,318) Additional investments in associates (134,000) (65,000) – – – (199,000) Proceeds from disposal of property, plant and equipment 11,966 41,951 – – – 53,917 Proceeds from disposal of construction-in-progress 1,255 – – – – 1,255 Proceeds from disposal of other non-current assets 1,487 – – – – 1,487 Proceeds from disposal of investment properties – 10,746 – – – 10,746 Net proceeds from disposal of subsidiaries 132,795 21,399 – – – 154,194 Purchase of available-for-sale financial assets (10,501) – – – – (10,501) Disposal of available-for-sale financial assets – 53,074 – – – 53,074 Sale of held-to-maturity financial assets – – – – – 18,253 Government grants received 399,004 17,986 – – – 416,990 Interest received 20,773 18,386 – – – 39,159 Dividend received from available-for-sale financial assets – 6,852 – – – 6,852 Addition to other non-current assets 100,477 (445) – – – 100,032 Net change of pledged bank deposits 310,516 (706,327) – – – (395,811)
Net cash used in investing activities (1,342,986) (931,257) (8,800) – – (2,283,043) Pro Forma Adjustments FINANCIAL FORMA PRO UNAUDITED III APPENDIX Aggregation of audited consolidated cash flow statements of target companies under Pro forma Acquisition Agreement adjustments Unaudited Audited consolidated 1 and Acquisition relating to pro forma cash flow statement of Agreement 2 other than Other pro forma adjustments acquisition consolidated the Group for AVIC Lutong for relating to acquisition pursuant to pursuant to income statement the year ended the year ended Acquisition Agreement 1, Acquisition of the Enlarged 31 December 2010 31 December 2010 Acquisition Agreement 2 Agreement 3 Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 4 Note 5 Note 6(g) Note 6(k)
Cash flows from financing activities Proceeds from borrowings 3,966,771 2,158,948 – – – 6,125,719 Repayments of borrowings (2,937,771) (928,296) – – – (3,866,067) Capital contribution from non-controlling interests 703,079 158,940 – – – 862,019 Dividends paid to non-controlling interests (17,662) (16,507) – (18,161) – (52,330) Dividends paid to equity holders – (45,229) – 45,229 – – Government subsidy received 21,164 – – – – 21,164 Increase in restricted cash – (32,803) – – – (32,803) Net change of pledged bank deposits 106,590 – – – – 106,590 GROUP ENLARGED THE OF INFORMATION I-0– III-10 – Net cash generated from financing activities 1,842,171 1,295,053 – 27,068 – 3,164,292
Net increase in cash and cash equivalents 675,203 246,772 (8,800) 27,068 – 940,243
Exchange differences on cash and cash equivalents (3,769) (4,891) – – – (8,660) Cash and cash equivalents at beginning of year 1,056,811 452,978 – – – 1,509,789
Cash and cash equivalents at end of year 1,728,245 694,859 (8,800) 27,068 – 2,441,372 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
NOTES TO THE UNAUDITED PRO FORMA INFORMATION
1. Prior to the acquisitions pursuant to Acquisition Agreement 1 and Acquisition Agreement 2, Project Engineering Company, Shanghai Company, Chengdu Ya Guang Company, Guizhou Resources Company, Bi Te Communication and the Company were all under common control of AVIC International.
For accounting purpose, the acquisitions of Project Engineering Company, Shanghai Company, Chengdu Ya Guang Company, Guizhou Resources Company and Bi Te Communication pursuant to Acquisition Agreement 1 and Acquisition Agreement 2 will be treated as a combination of entities under common control and accounted for on the basis of merger accounting.
Upon completion of the acquisition pursuant to Acquisition Agreement 1, the Company would have 50% equity interest in Lutong Company. Upon the completion of the 2010 Acquisition, the Company would own 100% equity interest in China National Aero-Technology Guangzhou Company Limited, which owned the other 50% equity interest in AVIC Lutong. Together with the 50% equity interest of Lutong Company to be acquired by the Company under Acquisition Agreement 1, Lutong Company would become a wholly-owned subsidiary of the Company. For the purpose of this unaudited pro forma financial information, which includes no adjustment to reflect the effect of the 2010 Acquisition, Lutong Company would become a joint venture of the Company upon the acquisition pursuant to Acquisition Agreement 1. For accounting purpose, the acquisition of 50% equity interest in AVIC Lutong pursuant to Acquisition Agreement 1 has been accounted for using equity method in this unaudited pro forma financial information.
2. Upon completion of the acquisition pursuant to Acquisition Agreement 3, Rainbow Department Store would become an associate of the Company. For accounting purpose, the acquisition of 39.52% equity interest in Rainbow Department Store pursuant to Acquisition Agreement 3 has been accounted for using the equity method in this unaudited pro forma financial information.
3. The unadjusted consolidated balance sheet of the Group as at 30 June 2011 is extracted without adjustment from the unaudited condensed consolidated interim financial statements of the Group for the six months ended 30 June 2011 as incorporated by reference in Appendix I of this circular.
4. The unadjusted consolidated income statement and the unadjusted consolidated cash flow statement of the Group are extracted without adjustment from the audited consolidated financial statements of the Group for the year ended 31 December 2010 as incorporated by reference in Appendix I of this circular.
5. The balances and amounts are the aggregation of the consolidated financial information of Project Engineering Company, Shanghai Company, Chengdu Ya Guang Company, Guizhou Resources Company and Bi Te Communication, as set out in Appendix II to this circular.
6. The other pro forma adjustments relating to the Acquisition Agreement 1, Acquisition Agreement 2 reflect:
(a) the aggregate consideration of the acquisition of Project Engineering Company, Shanghai Company, Chengdu Ya Guang Company, Guizhou Resources Company and Bi Te Communication pursuant to Acquisition Agreement 1 and Acquisition Agreement 2, being approximately RMB1,799 million, will be satisfied by the Company issuing PSCS to AVIC International and Shenzhen Company with 1% distribution rate and a conversion price of RMB3.56 per share. For the purpose of this pro forma financial information, the fair value of PSCS is determined based upon the valuation of the net assets acquired and settled by the issue of PSCS as at 30 June 2011. According to International Accounting Standard 32 “Financial Instruments: Presentation”, the PSCS does not meet the definition of financial liabilities and the entire amount will be accounted for as equity and recognized as other reserve.
As the PSCS will be accounted for as equity and the Company may as its sole discretion elect to defer the distribution pursuant to the terms of the PSCS, no adjustment in relation to the distribution of the PSCS has been made for the purpose of preparing this unaudited pro forma financial information.
– III-11 – APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
(b) elimination of (i) paid-in capital of Project Engineering Company, Shanghai Company, Chengdu Ya Guang Company, Guizhou Resources Company and Bi Te Communication, other reserve and retained earnings attributable to non-controlling interests, amounting to RMB810 million, RMB45 million and RMB321 million respectively, and (ii) the 10% equity interest in Guizhou CATIC Resources held by the Company prior to the Acquisitions, amounting to RMB10 million and accounted for as available-for-sale financial assets, and the recognition of non-controlling interests and merger reserve, amounting to RMB411 million and RMB1,044 million respectively. Upon the completion of the acquisition of 90% equity interest of Guizhou CATIC Resources pursuant to Acquisition Agreement 1, Guizhou CATIC Resources will become a wholly owned subsidiary of the Company.
For the purpose of this unaudited pro forma financial information, the net assets value of Project Engineering Company, Shanghai Company, Chengdu Ya Guang Company, Guizhou Resources Company and Bi Te Communication at 30 June 2011 has been used in the calculation of merger reserve arising from the acquisition of these target companies pursuant to Acquisition Agreement 1 and Acquisition Agreement 2. Since the net assets value of Project Engineering Company, Shanghai Company, Chengdu Ya Guang Company, Guizhou Resources Company and Bi Te Communication at the completion date of Acquisition Agreement 1 and Acquisition Agreement 2 may be substantially different from the net assets value used in the preparation of this unaudited pro forma financial information, and the fair value of PSCS to be issued at the completion date, which will be determined based on a separate valuation with the purpose of determining the fair value of PSCS at the completion date, may be substantially different from its fair value used in preparing this unaudited pro forma financial information, the amounts of other reserve arising from the recognition of PSCS and merger reserve at the completion date may be different from the amounts presented in the unaudited pro forma financial information and the difference may be significant.
(c) reclassification of the statutory reserve of Project Engineering Company, Shanghai Company, Chengdu Ya Guang Company, Guizhou Resources Company and Bi Te Communication, which was generated after these target companies came under common control of AVIC International and attributable to the holders of the equity interests proposed to be acquired by the Company, to retained earnings.
(d) elimination of the retained earnings and statutory reserve of Chengdu Ya Guang and Bi Te Communication generated before they became subsidiaries of AVIC International in the year ended 31 December 2009, amounting to RMB152 million and RMB1 million, respectively, and recognition of merger reserve amounting to RMB153 million.
(e) recognition of the fair value of identifiable assets and liabilities of Chengdu Ya Guang and Bi Te Communication on the dates when they were acquired from third parties by Shenzhen Company in the year ended 31 December 2009 and recognition of remaining goodwill arising from the acquisition of Bi Te Communication recorded in the consolidated financial statements of Shenzhen Company. Such fair value is determined with reference to the valuation reports prepared by an independent valuer, China United Assets Appraisal Group (“China United”), and after allowing for the impact on depreciation and amortization charges up to 30 June 2011.
For the purpose of this unaudited pro forma financial information, no impairment provision is recognised on the goodwill arising from the original acquisition of Bi Te Communication by Shenzhen Company since the recoverable amount of Bi Te Communication exceeds its carrying amount, including the goodwill. The recoverable amount of Bi Te Communication is determined based on the value-in-use calculations, which uses pre-tax cash flow projections based on financial forecast prepared by the management of Bi Te Communication covering a five-year period and cash flows beyond the five-year period extrapolated using the estimated growth rates. Goodwill impairment assessment based on the consistent accounting policies, principal assumptions and valuation methods would be performed at the completion date. The carrying and recoverable amount of Bi Te Communication at the completion date may be substantially different from those used in goodwill impairment assessment for the purpose of the unaudited pro forma financial information, and impairment provision may be recognised at the completion date.
– III-12 – APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
On the original acquisition date when Chengdu Ya Guang became a subsidiary of Shenzhen Company, Shenzhen Company’s interest in the fair value of net identifiable assets of Chengdu Ya Guang approximated the consideration and no goodwill was recognized by Shenzhen Company for this original acquisition.
(f) recognition of investment in Lutong Company and PSCS to be issued by the Company to satisfy the consideration for the acquisition of 50% equity interests in Lutong Company pursuant to Acquisition Agreement 1.
For the purpose of this unaudited pro forma financial information, the fair value of aforesaid PSCS is determined based upon the valuation of the equity interests acquired settled by the issue of PSCS as at 30 June 2011.
Since the fair value of PSCS to be issued at the completion date of Acquisition Agreement 1, which will be determined based on a separate valuation for the purpose of determining the fair value of PSCS, may be substantially different from its fair value used in preparing this unaudited pro forma financial information, the amounts of other reserve arising from recognition of PSCS at the completion date of Acquisition Agreement 1 may be different from the amounts presented in the unaudited pro forma financial information and the difference may be significant.
(g) recognition of estimated transaction costs directly attributable to the Acquisitions.
(h) elimination of inter-company transactions and balances among the Group, Project Engineering Company, Shanghai Company, Chengdu Ya Guang Company, Guizhou Resources Company and Bi Te Communication.
(i) recognition of additional depreciation charges of property, plant and equipment and additional amortisation charges of land use rights based on their fair value at the date when Chengdu Ya Guang and Bi Te Communication were acquired from third parties by Shenzhen Company in the year ended 31 December 2009.
(j) recognition of profits attributable to non-controlling interests of Chengdu Ya Guang and Bi Te Communication.
(k) elimination of the dividends amounting to RMB45 million paid by Shanghai Company and Chengdu Ya Guang in the year ended 31 December 2010 in connection with the equity interests proposed to be acquired by the Company, which was assumed to be paid to the Company had the acquisition pursuant to Acquisition Agreement 1 and Acquisition Agreement 2 been completed on 1 January 2010.
7. Pro forma adjustments relating to Acquisition Agreement 3 reflect:
(a) recognition of investment in Rainbow Department Store and PSCS to be issued by the Company to satisfy the consideration for the acquisition of 316,257,000 shares of Rainbow Department Store pursuant to Acquisition Agreement representing approximately 39.52% equity interests in Rainbow Department Store.
For the purpose of this unaudited pro forma financial information, the fair value of aforesaid PSCS is determined with reference to the consideration of Acquisition Agreement 3, being 316,257,000 shares of Rainbow Department Store multiplied by RMB20.01 per share, representing 90% of the arithmetic mean of the daily weighted average price of Rainbow Department Store as quoted on the Shenzhen Stock Exchange for the last 30 consecutive trading days prior to the date of Acquisition Agreement 3.
Since the fair value of PSCS to be issued at the completion date of Acquisition Agreement 3, which will be determined based on a separate valuation for the purpose of determining the fair value of PSCS, may be substantially different from its fair value used in preparing this unaudited pro forma financial information, the amounts of other reserve arising from the recognition of PSCS at the completion date of Acquisition Agreement 3 may be different from the amounts presented in the unaudited pro forma financial information and the difference may be significant.
– III-13 – APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
For the purpose of this unaudited pro forma financial information, the carrying amount of investment in Rainbow Department Store is determined based on the cost of investment in Rainbow Department Store, being the fair value of PSCS to be issued as consideration. Since the recoverable amount of investment in Rainbow Department Store at 30 June 2011, being the closing price of Rainbow Department Store as quoted on the Shenzhen Stock Exchange at 30 June 2011 multiplied by 316,257,000 shares of Rainbow Department Store, is higher than the carrying amount, no impairment provision is recognised for the purpose of this unaudited pro forma financial information.
Since the fair value of PSCS at the completion date may be substantially different from the amount presented in this unaudited pro forma financial information, and the recoverable amount of investment in Rainbow Department Store at the completion date may be lower than the fair value of PSCS at the completion date, the carrying amount of investment in Rainbow Department Store at the completion date may be substantially different from that presented in the unaudited pro forma financial information and impairment provision may be recognised on investment in Rainbow Department Store at the completion date.
(b) recognition of share of profit of Rainbow Department Store using the equity method, with adjustments made for depreciation charges of properties and amortisation charges of land use rights and intangible assets based on their fair value at 1 January 2010, which is determined with reference to valuation for the purpose of purchase price allocation.
For the purpose of this unaudited pro forma financial information, the carrying amount of investment in Rainbow Department Store at 31 December 2010 is determined based on the cost of investment, being the fair value of PSCS to be issued as consideration, and the Company’s proportionate share of the change in Rainbow Department Store’s net assets in the year ended 31 December 2010. For the purpose of this unaudited pro forma financial information, the recoverable amount of investment in Rainbow Department Store as at 31 December 2010 is determined with reference to the closing price of Rainbow Department Store as quoted on the Shenzhen Stock Exchange as at 31 December 2010 multiplied by 210,838,000 shares of Rainbow Department Store as at 31 December 2010. In June 2011, Rainbow Department Store issued bonus share to all shareholders as at 31 December 2010 at 5 shares for every 10 shares. The 316,257,000 shares of Rainbow Department Store proposed to be acquired represent 210,838,000 shares of Rainbow Department Store as at 31 December 2010 plus 105,419,000 shares of the bonus issue in June 2011. Considering the recoverable amount of investment in Rainbow Department Store exceeds its carrying amount at 31 December 2010, no impairment loss is recognised for the purpose of this unaudited pro forma financial information.
At the date of and after the completion of Acquisition Agreement 3, the recoverable amount of investment in Rainbow Department Store may be lower than its carrying amount, impairment charges may be recognised on investment in Rainbow Department Store in the consolidated financial statement of the Enlarged Group.
8. No adjustment has been made to reflect any trading result or other transaction of the Group and the target companies of the Acquisitions entered into subsequent to 30 June 2011 for the unaudited pro forma consolidated balance sheet or 31 December 2010 for the unaudited pro forma consolidated income statement and the unaudited pro forma consolidated cash flow statement.
9. Pro forma adjustments set out in Note 6(h), 6(i), 6(j), 6(k) and Note 7(b) above are expected to have continuing effect on the consolidated income statement and cash flow statement of the Enlarged Group.
– III-14 – II. ACQUISITION PURSUANT TO ACQUISITION AGREEMENT 1 AND ACQUISITION AGREEMENT 2 FINANCIAL FORMA PRO UNAUDITED III APPENDIX
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2011
Pro Forma Adjustments Aggregation of audited consolidated balance sheets of target companies under Acquisition Agreement 1 and Unaudited pro Unaudited Acquisition forma consolidated Agreement 2 consolidated balance sheet of other than AVIC balance sheet of the Group as at Lutong as at 30 the Enlarged 30 June 2011 June 2011 Other pro forma adjustments relating to acquisition pursuant to Acquisition Agreement 1 and Acquisition Agreement 2 Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 2 Note 4 Note 5(a) Note 5(b) Note 5(c) Note 5(d) Note 5(e) Note 5(f) Note 5(g) Note 5(h)
ASSETS Non-current assets Land use rights 707,706 76,963 ––––40,541 – – – 825,210 Mining rights 529,779 ––––––––– GROUP ENLARGED THE OF INFORMATION 529,779 Intangible assets – 39,820 ––––––––39,820 Goodwill – III-15 – 5,240 14,101 ––––35,238 – – – 54,579 Property, plant and equipment 7,215,504 815,802 ––––1,515 – – – 8,032,821 Investment properties 1,105,319 716,961 ––––––––1,822,280 Construction-in-progress 556,890 41,576 ––––––––598,466 Investments in associates 795,569 81,115 ––––––––876,684 Investments in subsidiary – – 1,799,260 (1,799,260) ––––––– Investments in jointly controlled entities – 20,262 –––––149,770 – – 170,032 Available-for-sale financial assets 28,079 50,796 – (10,000) ––––––68,875 Deferred income tax assets 115,175 26,437 ––––––––141,612 Other non-current assets 114,534 133,035 ––––––––247,569
11,173,795 2,016,868 1,799,260 (1,809,260) – – 77,294 149,770 – – 13,407,727 Pro Forma Adjustments FINANCIAL FORMA PRO UNAUDITED III APPENDIX Aggregation of audited consolidated balance sheets of target companies under Acquisition Agreement 1 and Unaudited pro Unaudited Acquisition forma consolidated Agreement 2 consolidated balance sheet of other than AVIC balance sheet of the Group as at Lutong as at 30 the Enlarged 30 June 2011 June 2011 Other pro forma adjustments relating to acquisition pursuant to Acquisition Agreement 1 and Acquisition Agreement 2 Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 2 Note 4 Note 5(a) Note 5(b) Note 5(c) Note 5(d) Note 5(e) Note 5(f) Note 5(g) Note 5(h)
Current assets Inventories 2,577,537 1,048,551 ––––––––3,626,088 Trade and other receivables 2,688,104 2,580,943 –––––––(5,693) 5,263,354 Amounts due from customers for contract works – 131,573 ––––––––131,573 Pledged bank deposits 202,165 2,579,235 ––––––––2,781,400 Cash and cash equivalents 1,408,640 735,796 ––––––––2,144,436 NOMTO FTEELRE GROUP ENLARGED THE OF INFORMATION 6,876,446 7,076,098 –––––––(5,693) 13,946,851 I-6– III-16 –
Non-current assets held for sale – 85,902 ––––––––85,902
Total assets 18,050,241 9,178,868 1,799,260 (1,809,260) – – 77,294 149,770 – (5,693) 27,440,480 Pro Forma Adjustments FINANCIAL FORMA PRO UNAUDITED III APPENDIX Aggregation of audited consolidated balance sheets of target companies under Acquisition Agreement 1 and Unaudited pro Unaudited Acquisition forma consolidated Agreement 2 consolidated balance sheet of other than AVIC balance sheet of the Group as at Lutong as at 30 the Enlarged 30 June 2011 June 2011 Other pro forma adjustments relating to acquisition pursuant to Acquisition Agreement 1 and Acquisition Agreement 2 Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 2 Note 4 Note 5(a) Note 5(b) Note 5(c) Note 5(d) Note 5(e) Note 5(f) Note 5(g) Note 5(h)
EQUITY Capital and reserves attributable to the Company’s equity holders Share capital 673,367 809,651 – (809,651) ––––––673,367 Share premium 354,513 –––––––––354,513 Other reserves 439,114 128,575 1,799,260 (1,089,716) (62,487) 153,319 54,225 149,770 – – 1,572,060 Retained earnings 531,437 836,620 – (321,322) 62,487 (153,319) (549) – (8,800) – 946,554
1,998,431 1,774,846 1,799,260 (2,220,689) – – 53,676 149,770 (8,800) – 3,546,494 Non-controlling interests in equity 3,192,530 257,492 – 411,429 – – 14,670 – – – 3,876,121 NOMTO FTEELRE GROUP ENLARGED THE OF INFORMATION
Total equity – III-17 – 5,190,961 2,032,338 1,799,260 (1,809,260) – – 68,346 149,770 (8,800) – 7,422,615 Pro Forma Adjustments FINANCIAL FORMA PRO UNAUDITED III APPENDIX Aggregation of audited consolidated balance sheets of target companies under Acquisition Agreement 1 and Unaudited pro Unaudited Acquisition forma consolidated Agreement 2 consolidated balance sheet of other than AVIC balance sheet of the Group as at Lutong as at 30 the Enlarged 30 June 2011 June 2011 Other pro forma adjustments relating to acquisition pursuant to Acquisition Agreement 1 and Acquisition Agreement 2 Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 2 Note 4 Note 5(a) Note 5(b) Note 5(c) Note 5(d) Note 5(e) Note 5(f) Note 5(g) Note 5(h)
LIABILITIES Non-current liabilities Borrowings 5,824,596 111,866 ––––––––5,936,462 Deferred income tax liabilities 346,283 115,267 ––––8,948 – – – 470,498 Trade and other payables –––––––––(5,693) (5,693) Retirement and other supplemental benefit obligations – 26,987 ––––––––26,987 Deferred income on government grants 568,250 –––––––––568,250 Other non-current liabilities 114,327 143,391 ––––––––257,718
6,853,456 397,511 ––––8,948 – – GROUP ENLARGED THE OF INFORMATION (5,693) 7,254,222 I-8– III-18 – Current liabilities Trade and other payables 3,233,156 2,753,108 ––––––8,800 – 5,995,064 Amounts due to customers for contract work – 88,491 ––––––––88,491 Short-term Borrowings 2,755,018 3,892,077 ––––––––6,647,095 Retirement and other supplemental benefit obligations – 2,213 ––––––––2,213 Current income tax liabilities 17,650 13,130 ––––––––30,780
6,005,824 6,749,019 ––––––8,800 – 12,763,643 Pro Forma Adjustments FINANCIAL FORMA PRO UNAUDITED III APPENDIX Aggregation of audited consolidated balance sheets of target companies under Acquisition Agreement 1 and Unaudited pro Unaudited Acquisition forma consolidated Agreement 2 consolidated balance sheet of other than AVIC balance sheet of the Group as at Lutong as at 30 the Enlarged 30 June 2011 June 2011 Other pro forma adjustments relating to acquisition pursuant to Acquisition Agreement 1 and Acquisition Agreement 2 Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 2 Note 4 Note 5(a) Note 5(b) Note 5(c) Note 5(d) Note 5(e) Note 5(f) Note 5(g) Note 5(h)
Total liabilities 12,859,280 7,146,530 ––––8,948 – 8,800 (5,693) 20,017,865
Total equity and liabilities 18,050,241 9,178,868 1,799,260 (1,809,260) – – 77,294 149,770 – (5,693) 27,440,480
Net current assets/(liabilities) 870,622 327,079 ––––––(8,800) (5,693) 1,183,208
Total assets less current liabilities 12,044,417 2,429,849 1,799,260 (1,809,260) – – 77,294 149,770 (8,800) (5,693) 14,676,837 NOMTO FTEELRE GROUP ENLARGED THE OF INFORMATION I-9– III-19 – UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER FINANCIAL 2010 FORMA PRO UNAUDITED III APPENDIX
Pro Forma Adjustments Aggregation of audited consolidated income statements of target companies under Acquisition Audited Agreement 1 and consolidated Acquisition income statement of Agreement 2 other Unaudited pro the Group for the than AVIC Lutong forma consolidated year ended 31 for the year ended Other pro forma adjustments relating to acquisition pursuant to income statement of December 2010 31 December 2010 Acquisition Agreement 1 and Acquisition Agreement 2 the Enlarged Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 3 Note 4 Note 5(g) Note 5(h) Note 5(i) Note 5(j)
Revenue 6,964,551 6,257,429 – (9,954) – – 13,212,026 Cost of sales (5,459,142) (5,886,027) – 9,954 14,797 – (11,320,418) NOMTO FTEELRE GROUP ENLARGED THE OF INFORMATION Gross profit 1,505,409 371,402 – – 14,797 – 1,891,608 I-0– III-20 – Other gains - net 72,074 107,608 ––––179,682 Other income/(loss) 220,721 28,719 ––––249,440 Fair value gain on investment property 74,406 –––––74,406 Distribution costs (429,871) (126,378) ––––(556,249) Administrative expenses (725,739) (145,534) (8,800) – 1,358 – (878,715) Other operating expenses – (2,818) ––––(2,818)
Operating profit 717,000 232,999 (8,800) – 16,155 – 957,354
Finance income 20,773 52,238 ––––73,011 Finance costs (344,113) (50,413) ––––(394,526)
Finance costs - net (323,340) 1,825 ––––(321,515) Share of profit of associates 61,228 (243) ––––60,985 Share of profit of jointly controlled entities – 2,788 ––––2,788 Pro Forma Adjustments FINANCIAL FORMA PRO UNAUDITED III APPENDIX Aggregation of audited consolidated income statements of target companies under Acquisition Audited Agreement 1 and consolidated Acquisition income statement of Agreement 2 other Unaudited pro the Group for the than AVIC Lutong forma consolidated year ended 31 for the year ended Other pro forma adjustments relating to acquisition pursuant to income statement of December 2010 31 December 2010 Acquisition Agreement 1 and Acquisition Agreement 2 the Enlarged Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 3 Note 4 Note 5(g) Note 5(h) Note 5(i) Note 5(j)
Profit before income tax 454,888 237,369 (8,800) – 16,155 – 699,612
Income tax credit/(charge) (112,298) (57,623) – – (3,936) – (173,857)
Profit for the year from continuing operations 342,590 179,746 (8,800) – 12,219 – 525,755 NOMTO FTEELRE GROUP ENLARGED THE OF INFORMATION
Profit/(loss) for the – year III-21 – from continued operations – 4,560 ––––4,560
Profit/(loss) for the year 342,590 184,306 (8,800) – 12,219 – 530,315
(Loss)/profit attributable to: Equity holders of the Company 193,561 171,525 (8,800) – 18,163 (43,090) 331,359 Non-controlling interests 149,029 12,781 – – (5,944) 43,090 198,956
342,590 184,306 (8,800) – 12,219 – 530,315 UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER FINANCIAL FORMA PRO UNAUDITED 2010 III APPENDIX
Pro Forma Adjustments Aggregation of audited consolidated cash flow statements of target companies under Acquisition Agreement Audited consolidated 1 and Acquisition cash flow statement of Agreement 2 other than Unaudited pro forma the Group for the year AVIC Lutong for the Other pro forma adjustments relating to acquisition consolidated income ended 31 December year ended 31 pursuant to Acquisition Agreement 1 and statement of the 2010 December 2010 Acquisition Agreement 2 Enlarged Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 3 Note 4 Note 5(g) Note 5(k)
Cash flows from operating activities Cash generated from operations 588,688 (12,536) – – 576,152 Interest paid (346,906) (55,763) – – (402,669) Income tax paid (65,764) (48,725) – – (114,489)
Net cash generated from/(used in) operating activities 176,018 (117,024) – – 58,994 NOMTO FTEELRE GROUP ENLARGED THE OF INFORMATION
Cash flows from investing – III-22 – activities Purchase of property, plant and equipment, construction in progress and investment properties (486,168) (207,562) – – (693,730) Purchase of mining rights (14,945) – – – (14,945) Purchase of land use rights (25,635) – – – (25,635) Purchase of Intangible assets – (3,474) – – (3,474) Additions to construction-in-progress (1,650,010) (34,325) – – (1,684,335) Acquisition of subsidiaries, net of cash acquired – (84,518) (8,800) – (93,318) Additional investments in associates (134,000) (65,000) – – (199,000) Proceeds from disposal of property, plant and equipment 11,966 41,951 – – 53,917 Proceeds from disposal of construction-in-progress 1,255 – – – 1,255 Proceeds from disposal of other non-current assets 1,487 – – – 1,487 Proceeds from disposal of investment properties – 10,746 – – 10,746 Net proceeds from disposal of subsidiaries 132,795 21,399 – – 154,194 Purchase of available-for-sale financial assets (10,501) – – – (10,501) Disposal of available-for-sale financial assets – 53,074 – – 53,074 Government grants received 399,004 17,986 – – 416,990 Interest received 20,773 18,386 – – 39,159 Pro Forma Adjustments FINANCIAL FORMA PRO UNAUDITED III APPENDIX Aggregation of audited consolidated cash flow statements of target companies under Acquisition Agreement Audited consolidated 1 and Acquisition cash flow statement of Agreement 2 other than Unaudited pro forma the Group for the year AVIC Lutong for the Other pro forma adjustments relating to acquisition consolidated income ended 31 December year ended 31 pursuant to Acquisition Agreement 1 and statement of the 2010 December 2010 Acquisition Agreement 2 Enlarged Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 3 Note 4 Note 5(g) Note 5(k)
Dividend received from available-for-sale financial assets – 6,852 – – 6,852 Addition to other non-current assets 100,477 (445) – – 100,032 Net change of pledged bank deposits 310,516 (706,327) – – (395,811)
Net cash used in investing activities (1,342,986) (931,257) (8,800) – (2,283,043)
Cash flows from financing activities Proceeds from borrowings 3,966,771 2,158,948 – – 6,125,719 Repayments of borrowings (2,937,771) (928,296) – – (3,866,067) NOMTO FTEELRE GROUP ENLARGED THE OF INFORMATION Capital contribution from non-controlling interests 703,079 158,940 – – 862,019
Dividends paid to non-controlling – III-23 – interests (17,662) (16,507) – (18,161) (52,330) Dividends paid to equity holders – (45,229) – 45,229 – Government subsidy received 21,164 – – – 21,164 Decrease in restricted cash – (32,803) – – (32,803) Net change of pledged bank deposits 106,590 – – – 106,590
Net cash generated from financing activities 1,842,171 1,295,053 – 27,068 3,164,292
Net increase in cash and cash equivalents 675,203 246,772 (8,800) 27,068 940,243
Exchange differences on cash and cash equivalents (3,769) (4,891) – – (8,660) Cash and cash equivalents at beginning of year 1,056,811 452,978 – – 1,509,789
Cash and cash equivalents at end of year 1,728,245 694,859 (8,800) 27,068 2,441,372 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
NOTES TO THE UNAUDITED PRO FORMA INFORMATION
1. Prior to the acquisitions pursuant to Acquisition Agreement 1 and Acquisition Agreement 2, Project Engineering Company, Shanghai Company, Chengdu Ya Guang Company, Guizhou Resources Company, Bi Te Communication and the Company were all under common control of AVIC International.
For accounting purpose, the acquisition of Project Engineering Company, Shanghai Company, Chengdu Ya Guang Company, Guizhou Resources Company and Bi Te Communication pursuant to Acquisition Agreement 1 and Acquisition Agreement 2 will be treated as a combination of entities under common control and accounted for on the basis of merger accounting.
Upon completion of the acquisition pursuant to Acquisition Agreement 1, the Company would have 50% equity interest in Lutong Company. Upon the completion of the 2010 Acquisition, the Company would own 100% equity interest in China National Aero-Technology Guangzhou Company Limited, which owned the other 50% equity interest in AVIC Lutong. Together with the 50% equity interest of Lutong Company to be acquired by the Company under Acquisition Agreement 1, Lutong Company would become a wholly-owned subsidiary of the Company. For the purpose of this unaudited pro forma financial information, which includes no adjustment to reflect the effect of the 2010 Acquisition, Lutong Company would become a joint venture of the Company upon the acquisition pursuant to Acquisition Agreement 1. For accounting purpose, the acquisition of 50% equity interest in AVIC Lutong pursuant to Acquisition Agreement 1 has been accounted for using equity method in this unaudited pro forma financial information.
2. The unadjusted consolidated balance sheet of the Group as at 30 June 2011 is extracted without adjustment from the unaudited condensed consolidated interim financial statements of the Group for the six months ended 30 June 2011 as incorporated by reference in Appendix I of this circular.
3. The unadjusted consolidated income statement and the unadjusted consolidated cash flow statement of the Group are extracted without adjustment from the audited consolidated financial statements of the Group for the year ended 31 December 2010 as incorporated by reference in Appendix I of this circular.
4. The balances and amounts are the aggregation of the consolidated financial information of Project Engineering Company, Shanghai Company, Chengdu Ya Guang Company, Guizhou Resources Company and Bi Te Communication, as set out in Appendix II to this circular.
5. The other pro forma adjustments relating to the Acquisition Agreement 1, Acquisition Agreement 2 reflect:
(a) the aggregate consideration of the acquisition of Project Engineering Company, Shanghai Company, Chengdu Ya Guang Company, Guizhou Resources Company and Bi Te Communication pursuant to Acquisition Agreement 1 and Acquisition Agreement 2, being approximately RMB1,799 million, will be satisfied by the Company issuing PSCS to AVIC International and Shenzhen Company with 1% distribution rate and a conversion price of RMB3.56 per share. For the purpose of this pro forma financial information, the fair value of PSCS is determined based upon the valuation of the net assets acquired and settled by the issue of PSCS as at 30 June 2011. According to International Accounting Standard 32 “Financial Instruments: Presentation”, the PSCS does not meet the definition of financial liabilities and the entire amount will be accounted for as equity and recognized as other reserve.
As the PSCS will be accounted for as equity and the Company may as its sole discretion elect to defer the distribution pursuant to the terms of the PSCS, no adjustment in relation to the distribution of the PSCS has been made for the purpose of preparing this unaudited pro forma financial information.
– III-24 – APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
(b) elimination of (i) paid-in capital of Project Engineering Company, Shanghai Company, Chengdu Ya Guang Company, Guizhou Resources Company and Bi Te Communication, other reserve and retained earnings attributable to non-controlling interests, amounting to RMB810 million, RMB45 million and RMB321 million respectively, and (ii) the 10% equity interest in Guizhou CATIC Resources held by the Company prior to the Acquisitions, amounting to RMB10 million and accounted for as available-for-sale financial assets, and the recognition of non-controlling interests and merger reserve, amounting to RMB411 million and RMB1,044 million respectively. Upon the completion of the acquisition of 90% equity interest of Guizhou CATIC Resources pursuant to Acquisition Agreement 1, Guizhou CATIC Resources will become a wholly owned subsidiary of the Company.
For the purpose of this unaudited pro forma financial information, the net assets value of Project Engineering Company, Shanghai Company, Chengdu Ya Guang Company, Guizhou Resources Company and Bi Te Communication at 30 June 2011 has been used in the calculation of merger reserve arising from the acquisition of these target companies pursuant to Acquisition Agreement 1 and Acquisition Agreement 2. Since the net assets value of Project Engineering Company, Shanghai Company, Chengdu Ya Guang Company, Guizhou Resources Company and Bi Te Communication at the completion date of Acquisition Agreement 1 and Acquisition Agreement 2 may be substantially different from the net assets value used in the preparation of this unaudited pro forma financial information, and the fair value of PSCS to be issued at the completion date, which will be determined based on a separate valuation with the purpose of determining the fair value of PSCS at the completion date, may be substantially different from its fair value used in preparing this unaudited pro forma financial information, the amounts of other reserve arising from the recognition of PSCS and merger reserve at the completion date may be different from the amounts presented in the unaudited pro forma financial information and the difference may be significant.
(c) reclassification of the statutory reserve of Project Engineering Company, Shanghai Company, Chengdu Ya Guang Company, Guizhou Resources Company and Bi Te Communication, which was generated after these target companies came under common control of AVIC International and attributable to the holders of the equity interests proposed to be acquired by the Company, to retained earnings.
(d) elimination of the retained earnings and statutory reserve of Chengdu Ya Guang and Bi Te Communication generated before they became subsidiaries of AVIC International in the year ended 31 December 2009, amounting to RMB152 million and RMB1 million, respectively, and recognition of merger reserve amounting to RMB153 million.
(e) recognition of the fair value of identifiable assets and liabilities of Chengdu Ya Guang and Bi Te Communication on the dates when they were acquired from third parties by Shenzhen Company in the year ended 31 December 2009 and recognition of remaining goodwill arising from the acquisition of Bi Te Communication recorded in the consolidated financial statements of Shenzhen Company. Such fair value is determined with reference to the valuation reports prepared by an independent valuer, China United Assets Appraisal Group (“China United”), and after allowing for the impact on depreciation and amortization charges up to 30 June 2011.
For the purpose of this unaudited pro forma financial information, no impairment provision is recognised on the goodwill arising from the original acquisition of Bi Te Communication by Shenzhen Company since the recoverable amount of Bi Te Communication exceeds its carrying amount, including the goodwill. The recoverable amount of Bi Te Communication is determined based on the value-in-use calculations, which uses pre-tax cash flow projections based on financial forecast prepared by the management of Bi Te Communication covering a five-year period and cash flows beyond the five-year period extrapolated using the estimated growth rates. Goodwill impairment assessment based on the consistent accounting policies, principal assumptions and valuation methods would be performed at the completion date. The carrying and recoverable amount of Bi Te Communication at the completion date may be substantially different from those used in goodwill impairment assessment for the purpose of the unaudited pro forma financial information, and impairment provision may be recognised at the completion date.
– III-25 – APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
On the original acquisition date when Chengdu Ya Guang became a subsidiary of Shenzhen Company, Shenzhen Company’s interest in the fair value of net identifiable assets of Chengdu Ya Guang approximated the consideration and no goodwill was recognized by Shenzhen Company for this original acquisition.
(f) recognition of investment in Lutong Company and PSCS to be issued by the Company to satisfy the consideration for the acquisition of 50% equity interests in Lutong Company pursuant to Acquisition Agreement 1.
For the purpose of this unaudited pro forma financial information, the fair value of aforesaid PSCS is determined based upon the valuation of the equity interests acquired settled by the issue of PSCS as at 30 June 2011.
Since the fair value of PSCS to be issued at the completion date of Acquisition Agreement 1, which will be determined based on a separate valuation for the purpose of determining the fair value of PSCS, may be substantially different from its fair value used in preparing this unaudited pro forma financial information, the amounts of other reserve arising from recognition of PSCS at the completion date of Acquisition Agreement 1 may be different from the amounts presented in the unaudited pro forma financial information and the difference may be significant.
(g) recognition of estimated transaction costs directly attributable to the Acquisitions.
(h) elimination of inter-company transactions and balances among the Group, Project Engineering Company, Shanghai Company, Chengdu Ya Guang Company, Guizhou Resources Company and Bi Te Communication.
(i) recognition of additional depreciation charges of property, plant and equipment and additional amortisation charges of land use rights based on their fair value at the date when Chengdu Ya Guang and Bi Te Communication were acquired from third parties by Shenzhen Company in the year ended 31 December 2009.
(j) recognition of profits attributable to non-controlling interests of Chengdu Ya Guang Company and Bi Te Communication.
(k) elimination of the dividends amounting to RMB45 million paid by Shanghai Company and Chengdu Ya Guang in the year ended 31 December 2010 in connection with the equity interests proposed to be acquired by the Company, which was assumed to be paid to the Company had the acquisition pursuant to Acquisition Agreement 1 and Acquisition Agreement 2 been completed on 1 January 2010.
6. No adjustment has been made to reflect any trading result or other transaction of the Group and the target companies of the Acquisitions entered into subsequent to 30 June 2011 for the unaudited pro forma consolidated balance sheet or 31 December 2010 for the unaudited pro forma consolidated income statement and the unaudited pro forma consolidated cash flow statement.
7. Pro forma adjustments set out in Notes 5(h), 5(i), 5(j), 5(k) above are expected to have continuing effect on the consolidated income statement and cash flow statement of the Enlarged Group.
– III-26 – APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
III. ACQUISITIONS PURSUANT TO ACQUISITION AGREEMENT 3
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2011
Pro Forma Adjustments Pro forma Unaudited Unaudited adjustments pro forma consolidated relating to consolidated balance acquisition balance sheet of the pursuant to sheet of the Group as at Acquisition Enlarged 30 June 2011 Agreement 3 Group RMB’000 RMB’000 RMB’000 Note 2 Note 4(a)
ASSETS Non-current assets Land use rights 707,706 – 707,706 Mining rights 529,779 – 529,779 Goodwill 5,240 – 5,240 Property, plant and equipment 7,215,504 – 7,215,504 Investment properties 1,105,319 – 1,105,319 Construction-in-progress 556,890 – 556,890 Investments in associates 795,569 6,328,303 7,123,872 Available-for-sale financial assets 28,079 – 28,079 Deferred income tax assets 115,175 – 115,175 Other non-current assets 114,534 – 114,534
11,173,795 6,328,303 17,502,098
Current assets Inventories 2,577,537 – 2,577,537 Trade and other receivables 2,688,104 – 2,688,104 Pledged bank deposits 202,165 – 202,165 Cash and cash equivalents 1,408,640 – 1,408,640
6,876,446 – 6,876,446
Total assets 18,050,241 6,328,303 24,378,544
– III-27 – APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
Pro Forma Adjustments Pro forma Unaudited Unaudited adjustments pro forma consolidated relating to consolidated balance acquisition balance sheet of the pursuant to sheet of the Group as at Acquisition Enlarged 30 June 2011 Agreement 3 Group RMB’000 RMB’000 RMB’000 Note 2 Note 4(a)
EQUITY Capital and reserves attributable to the Company’s equity holders Share capital 673,367 – 673,367 Share premium 354,513 – 354,513 Other reserves 439,114 6,328,303 6,767,417 Retained earnings 531,437 – 531,437
1,998,431 6,328,303 8,326,734 Non-controlling interests in equity 3,192,530 – 3,192,530
Total equity 5,190,961 6,328,303 11,519,264
LIABILITIES Non-current liabilities Borrowings 5,824,596 – 5,824,596 Deferred income tax liabilities 346,283 – 346,283 Deferred income on government grants 568,250 – 568,250 Other non-current liabilities 114,327 – 114,327
6,853,456 – 6,853,456
Current liabilities Trade and other payables 3,233,156 – 3,233,156 Short-term Borrowings 2,755,018 – 2,755,018 Current income tax liabilities 17,650 – 17,650
6,005,824 – 6,005,824
– III-28 – APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
Pro Forma Adjustments Pro forma Unaudited Unaudited adjustments pro forma consolidated relating to consolidated balance acquisition balance sheet of the pursuant to sheet of the Group as at Acquisition Enlarged 30 June 2011 Agreement 3 Group RMB’000 RMB’000 RMB’000 Note 2 Note 4(a)
Total liabilities 12,859,280 – 12,859,280
Total equity and liabilities 18,050,241 6,328,303 24,378,544
Net current assets/(liabilities) 870,622 – 870,622
Total assets less current liabilities 12,044,417 6,328,303 18,372,720
– III-29 – APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2010
Pro Forma Adjustments Audited consolidated Other pro income forma Unaudited statement of adjustments pro forma the Group relating to consolidated for the year acquisition income ended 31 pursuant to statement of December Acquisition the Enlarged 2010 Agreement 3 Group RMB’000 RMB’000 RMB’000 Note 3 Note 4(b)
Revenue 6,964,551 – 6,964,551 Cost of sales (5,459,142) – (5,459,142)
Gross profit 1,505,409 – 1,505,409 Other gains – net 72,074 – 72,074 Other income 220,721 – 220,721 Fair value gain on investment property 74,406 – 74,406 Distribution costs (429,871) – (429,871) Administrative expenses (725,739) – (725,739)
Operating profit 717,000 – 717,000
Finance income 20,773 – 20,773 Finance costs (344,113) – (344,113)
Finance costs – net (323,340) – (323,340)
Share of profit of associates 61,228 152,082 213,310
Profit before income tax 454,888 152,082 606,970
Income tax charge (112,298) – (112,298)
Profit for the year 342,590 152,082 494,672
profit attributable to: Equity holders of the Company 193,561 152,082 345,643 Non-controlling interests 149,029 – 149,029
342,590 152,082 494,672
– III-30 – APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW STATEMENT FORTHE YEAR ENDED 31 DECEMBER 2010
Pro Forma Adjustments Audited consolidated Other pro cash flow forma Unaudited statement of adjustments pro forma the Group relating to consolidated for the year acquisition income ended 31 pursuant to statement of December Acquisition the Enlarged 2010 Agreement 3 Group RMB’000 RMB’000 RMB’000 Note 3
Cash flows from operating activities Cash generated from operations 588,688 – 588,688 Interest paid (346,906) – (346,906) Income tax paid (65,764) – (65,764)
Net cash generated from/ (used in) operating activities 176,018 – 176,018
Cash flows from investing activities Purchase of property, plant and equipment, construction in progress and investment properties (486,168) – (486,168) Purchase of mining rights (14,945) – (14,945) Purchase of land use rights (25,635) – (25,635) Additions to construction-in-progress (1,650,010) – (1,650,010) Additional investments in associates (134,000) – (134,000) Proceeds from disposal of property, plant and equipment 11,966 – 11,966 Proceeds from disposal of construction-in-progress 1,255 – 1,255 Proceeds from disposal of other non-current assets 1,487 – 1,487
– III-31 – APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
Pro Forma Adjustments Audited consolidated Other pro cash flow forma Unaudited statement of adjustments pro forma the Group relating to consolidated for the year acquisition income ended 31 pursuant to statement of December Acquisition the Enlarged 2010 Agreement 3 Group RMB’000 RMB’000 RMB’000 Note 3
Net proceeds from disposal of subsidiaries 132,795 – 132,795 Purchase of available-for-sale financial assets (10,501) – (10,501) Government grants received 399,004 – 399,004 Interest received 20,773 – 20,773 Addition to other non-current assets 100,477 – 100,477 Net change of pledged bank deposits 310,516 – 310,516
Net cash used in investing activities (1,342,986) – (1,342,986)
Cash flows from financing activities Proceeds from borrowings 3,966,771 – 3,966,771 Repayments of borrowings (2,937,771) – (2,937,771) Capital contribution 703,079 – 703,079 Dividends paid to non-controlling interests (17,662) – (17,662) Government subsidy received 21,164 – 21,164 Net change of pledged bank deposits 106,590 – 106,590
Net cash generated from financing activities 1,842,171 – 1,842,171
– III-32 – APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
Pro Forma Adjustments Audited consolidated Other pro cash flow forma Unaudited statement of adjustments pro forma the Group relating to consolidated for the year acquisition income ended 31 pursuant to statement of December Acquisition the Enlarged 2010 Agreement 3 Group RMB’000 RMB’000 RMB’000 Note 3
Net increase in cash and cash equivalents 675,203 – 675,203 Exchange differences on cash and cash equivalents (3,769) – (3,769) Cash and cash equivalents at beginning of year 1,056,811 – 1,056,811
Cash and cash equivalents at end of year 1,728,245 – 1,728,245
– III-33 – APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
NOTES TO THE UNAUDITED PRO FORMA INFORMATION
1. Upon completion of the acquisition pursuant to Acquisition Agreement 3, Rainbow Department Store would become an associate of the Company. For accounting purpose, the acquisition of 39.52% equity interest in Rainbow Department Store pursuant to Acquisition Agreement 3 has been accounted for using the equity method in this unaudited pro forma financial information.
2. The unadjusted consolidated balance sheet of the Group as at 30 June 2011 is extracted without adjustment from the unaudited condensed consolidated interim financial statements of the Group for the six months ended 30 June 2011 as incorporated by reference in Appendix I of this circular.
3. The unadjusted consolidated income statement and the unadjusted consolidated cash flow statement of the Group are extracted without adjustment from the audited consolidated financial statements of the Group for the year ended 31 December 2010 as incorporated by reference in Appendix I of this circular.
4. Pro forma adjustments relating to Acquisition Agreement 3 reflect:
(a) recognition of investment in Rainbow Department Store and PSCS to be issued by the Company to satisfy the consideration for the acquisition of 316,257,000 shares of Rainbow Department Store pursuant to Acquisition Agreement 3, representing approximately 39.52% equity interests in Rainbow Department Store.
For the purpose of this unaudited pro forma financial information, the fair value of aforesaid PSCS is determined with reference to the consideration of Acquisition Agreement 3, being 316,257,000 shares of Rainbow Department Store multiplied by RMB20.01 per share, representing 90% of the arithmetic mean of the daily weighted average price of Rainbow Department Store as quoted on the Shenzhen Stock Exchange for the last 30 consecutive trading days prior to the date of Acquisition Agreement 3.
Since the fair value of PSCS to be issued at the completion date of Acquisition Agreement 3, which will be determined based on a separate valuation for the purpose of determining the fair value of PSCS, may be substantially different from its fair value used in preparing this unaudited pro forma financial information, the amounts of other reserve arising from the recognition of PSCS at the completion date of Acquisition Agreement 3 may be different from the amounts presented in the unaudited pro forma financial information and the difference may be significant.
For the purpose of this unaudited pro forma financial information, the carrying amount of investment in Rainbow Department Store is determined based on the cost of investment in Rainbow Department Store, being the fair value of PSCS to be issued as consideration. Since the recoverable amount of investment in Rainbow Department Store at 30 June 2011, being the closing price of Rainbow Department Store as quoted on the Shenzhen Stock Exchange at 30 June 2011 multiplied by 316,257,000 shares of Rainbow Department Store, is higher than carrying amount, no impairment provision is recognised for the purpose of this unaudited pro forma financial information.
Since the fair value of PSCS at the completion date may be substantially different from the amount presented in this unaudited pro forma financial information, and the recoverable amount of investment in Rainbow Department Store at the completion date may be lower than the fair value of PSCS at the completion date, the carrying amount of investment in Rainbow Department Store at the completion date may be substantially different from that presented in the unaudited pro forma financial information and impairment provision may be recognised on investment in Rainbow Department Store at the completion date.
– III-34 – APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
(b) recognition of share of profit of Rainbow Department Store using the equity method, with adjustments made for depreciation charges of properties and amortisation charges of land use rights and intangible assets based on their fair value at 1 January 2010, which is determined with reference to valuation for the purpose of purchase price allocation.
For the purpose of this unaudited pro forma financial information, the carrying amount of investment in Rainbow Department Store at 31 December 2010 is determined based on the cost of investment, being the fair value of PSCS to be issued as consideration, and the Company’s proportionate share of the change in Rainbow Department Store’s net assets in the year ended 31 December 2010. For the purpose of this unaudited pro forma financial information, the recoverable amount of investment in Rainbow Department Store as at 31 December 2010 is determined with reference to the closing price of Rainbow Department Store as quoted on the Shenzhen Stock Exchange as at 31 December 2010 multiplied by 210,838,000 shares of Rainbow Department Store as at 31 December 2010. In June 2011, Rainbow Department Store issued bonus share to all shareholders as at 31 December 2010 at 5 shares for every 10 shares. The 316,257,000 shares of Rainbow Department Store proposed to be acquired represent 210,838,000 shares of Rainbow Department Store as at 31 December 2010 plus 105,419,000 shares of the bonus issue in June 2011. Considering the recoverable amount of investment in Rainbow Department Store exceeds its carrying amount at 31 December 2010, no impairment loss is recognised for the purpose of this unaudited pro forma financial information.
At the date of and after the completion of Acquisition Agreement 3, the recoverable amount of investment in Rainbow Department Store may be lower than its carrying amount, impairment charges may be recognised on investment in Rainbow Department Store in the consolidated financial statement of the Enlarged Group.
5. No adjustment has been made to reflect any trading result or other transaction of the Group and Target Group entered into subsequent to 30 June 2011 for the unaudited pro forma consolidated balance sheet or 31 December 2010 for the unaudited pro forma consolidated income statement and the unaudited pro forma consolidated cash flow statement.
6. Pro forma adjustments set out in Notes 3(b) above are expected to have continuing effect on the consolidated income statement and cash flow statement of the Enlarged Group.
– III-35 – APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
The following is the text of a report received from PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.
ACCOUNTANT’S REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION
TO THE DIRECTORS OF CATIC SHENZHEN HOLDINGS LIMITED
We report on the unaudited pro forma financial information set out on pages III-1 to III-38 under the heading of “Unaudited Pro Forma Financial Information of the Enlarged Group” (the “Unaudited Pro Forma Financial Information”) in Appendix III of the circular dated 23 December 2011 (the “Circular”) of CATIC Shenzhen Holdings Limited (the “Company”), in connection with the proposed acquisition (the “Acquisitions”) of China National Aero-Technology Shanghai Company Limited, AVIC Lutong Company Limited, AVIC-INTL Project Engineering Company Limited, Shenzhen CATIC Bi Te Communication Technology Company Limited, Guizhou CATIC Resources Company Limited, Chengdu Ya Guang Electronics Company Limited and Rainbow Department Store Company Limited by the Company. The Unaudited Pro Forma Financial Information has been prepared by the directors of the Company, for illustrative purposes only, to provide information about how the Acquisitions might have affected the relevant financial information of the Company and its subsidiaries (hereinafter collectively referred to as the “Group”). The basis of preparation of the Unaudited Pro Forma Financial Information is set out on pages III-37 to III-38 of the Circular.
Respective Responsibilities of Directors of the Company and the Reporting Accountant
It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).
– III-36 – APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
It is our responsibility to form an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.
Basis of Opinion
We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted consolidated balance sheet of the Group as at 30 June 2011 and unadjusted consolidated income statement and consolidated cash flow statement of the Group for the year ended 31 December 2010 as set out in the “Pro forma Financial Information” section of this circular with the unaudited condensed consolidated financial statements of the Group for the six months ended 30 June 2011 as set out in the 2011 interim report of the Company and the audited consolidated financial statements of the Group for the year ended 31 December 2010 as set out in the 2010 annual report of Company, respectively, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company.
We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.
The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of:
– the financial position of the Group as at 30 June 2011 or any future date, or
– the results and cash flows of the Group for the year ended 31 December 2010 or any future periods.
– III-37 – APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
Opinion
In our opinion:
a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
b) such basis is consistent with the accounting policies of the Group; and
c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.
PricewaterhouseCoopers
Certified Public Accountants Hong Kong, 23 December 2011
– III-38 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
(A) PROPERTY INTERESTS OF THE GROUP
The following is the text of a letter, summary of values and valuation certificate prepared for the purpose of incorporation in this circular received from LCH (Asia-Pacific) Surveyors Limited, an independent professional surveyor, in connection with its valuation as at 31 October 2011 of the property interests held by the Group.
The readers are reminded that the report which follows has been prepared in accordance with the guidelines set by the International Valuation Standards, Eighth Edition, 2007 (the “IVS”) published by the International Valuation Standards Committee as well as the HKIS Valuation Standards on Properties, First Edition, 2005 (the “HKIS Standards”) published by the Hong Kong Institute of Surveyors (the “HKIS”). Both standards entitle the valuer to make assumptions which may on further investigation, for instance by the readers’ legal representative, prove to be inaccurate. Any exception is clearly stated below. Headings are inserted for convenient reference only and have no effect in limiting or extending the language of the paragraphs to which they refer. Translation of terms in English or in Chinese are for readers’ identification purpose only and have no legal status or implication in this report. This report is prepared and signed off in English format, translation of this report in language other than English shall only be used as a reference and should not be regarded as a substitute for this report. It is emphasised that the findings and conclusions presented below are based on the documents and facts known to the valuer at the Latest Practicable Date of this circular. If additional documents and facts are made available, the valuer reserves the right to amend this report and its conclusions.
17th Floor Champion Building 287–291 Des Voeux Road Central Hong Kong
23 December 2011
The Board of Directors CATIC Shenzhen Holdings Limited Level 25 Hangdu Building, CATIC Zone Shennan Road Central Futian District Shenzhen City Guangdong Province The People’s Republic of China
–IV-1– APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Dear Sirs,
In accordance with the property list and the instructions given by the management of CATIC Shenzhen Holdings Limited (hereinafter referred to as the “Company”) to us to value certain properties in which the Company and its subsidiaries (collectively, hereinafter together with the Company referred to as the “Group”) have interests in the People’s Republic of China (hereinafter referred to as the “PRC” or “China”), we confirm that we have conducted inspections, made relevant enquiries and obtained such further information as we consider necessary to support our findings and conclusion of values of the properties as at 31 October 2011 (hereinafter referred to as the “Date of Valuation”) for the Company’s internal management reference purpose.
We understand that the use of our work product (regardless of form of presentation) will form part of the Company’s business due diligence but we have not been engaged to make specific sale or purchase recommendations, or to give opinion for financing arrangement. We further understand that the use of our work product will not supplant other due diligence, which the management of the Company should conduct, in reaching its business decisions regarding the properties valued. Our work is designed solely to provide information that will give the management of the Company a reference in forming part of its internal due diligence, and our work should not be the only factor to be referenced by the Company. Our findings and conclusion of values of the properties are documented in a valuation report and submitted to the Company at today’s date.
At the request of the management of the Company, we prepared this summary report (including this letter, summary of values and valuation certificate) to summarise our findings and conclusions as documented in the valuation report for the purpose of inclusion in this circular at today’s date for the Company’s shareholders’ reference. Terms herein used without definition shall have the same meanings as in the valuation report, and the assumptions and caveats adopted in the valuation report also applied to this summary report.
Valuations of certain properties with long-term title certificates
Basis of valuation and assumptions
According to the IVS, which the HKIS Standards also follows, there are two valuation bases in valuing property with absolute title, namely market value basis and valuation bases other than market value. In this engagement, we have provided our values of the properties in Groups I and II on market value basis.
The term “Market Value” is defined by the IVS and the HKIS Standards as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.
Unless otherwise stated, our valuations of the properties have been made on the assumptions that, as at the Date of Valuation,
1. the legally interested party in each of the properties has absolute title to its relevant property interest;
–IV-2– APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
2. the legally interested party in each of the properties has free and uninterrupted rights to assign its relevant property interest for the whole of the unexpired terms as granted, and any premiums payable have already been fully paid;
3. the legally interested party in each of the properties sells its relevant property interest in the market in its existing states without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any other similar arrangement which could serve to increase the value of the property interest;
4. each of the properties has obtained relevant government’s approvals for the sale of the property and is able to dispose of and transfer free of all encumbrances (including but not limited to the cost of transaction) in the market; and
5. the properties can be freely disposed of and transferred free of all encumbrances as at the Date of Valuation for its existing uses in the market to both local and overseas purchasers without payment of any premium to the government.
Should this not be the case, it will have adverse impact to the values as reported.
Approach to value
There are three generally accepted approaches in arriving at the market value of a property on an absolute title basis, namely the Sales Comparison Approach (or known as the Market Approach), the Cost Approach and the Income Approach.
In valuing Property Nos. 1, 2, 4, 9-14, 16, 18 and 19 and portion of Property No. 15 in Group I, we have adopted the Sales Comparison Approach on the assumption that each of the properties was sold with the benefit of vacant possession as at the Date of Valuation. This approach considers the sales, listings or offering of similar or substitute properties and related market data and establishes a value of a property that a reasonable investor would have to pay for a similar property of comparable utility and with an absolute title.
Having considered the general and inherent characteristics of Property Nos. 5-8, 17 and 21 in Group I, we have adopted the depreciated replacement cost (“DRC”) method which is a procedural valuation approach and is an application of the Cost Approach in valuing specialised properties like these properties. The use of this method requires an estimate of the market value of the land use rights for its existing use, and an estimate of the new replacement cost of the buildings and other site works from which deductions are then made to allow for age, condition, and functional obsolescence taken into account of the site formation cost and those public utilities connection charges to the properties. The land use rights of these properties have been determined from market-based evidences by analysing similar sales or offerings or listings of comparable properties.
–IV-3– APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
The valuations of these properties are on the assumption that each of the properties is subject to the test of adequate potential profitability of the business having due regard to the value of the total assets employed and the nature of the operation.
By using this method, the land should be assumed to have the benefit of planning permission for the replacement of the existing buildings and it is always necessary when valuing the land, to have regard to the manner in which the land is developed by the existing buildings and site works, and the extent to which these realise the full potential value of the land. When considering a notional replacement site, it should normally be regarded as having the same physical and location characteristics as the actual site, other than characteristics of the actual site which are not relevant, or are of no value, to the existing use. In considering the buildings, the gross replacement cost of the buildings should take into consideration everything which is necessary to complete the construction from a new green field site to provide buildings as they are, at the Date of Valuation, fit for and capable of being occupied and used for the current use. These costs to be estimated are not to erect buildings in the future but have the buildings available for occupation at the Date of Valuation, the work having commenced at the appropriate time.
We need to state that our opinion of value of each Property Nos. 5-8, 17 and 21 in Group I is not necessarily intended to represent the amount that might be realised from disposition of its land use rights or various buildings on piecemeal basis in the open market.
In valuing Property Nos. 3 and 20, portion of Property No. 15 and properties in Group II which were subject to tenancy agreements as at the Date of Valuation, we have adopted the investment method of the Income Approach (or sometimes referred to as a method of the Market Approach for the reversionary interests and the rate of return are market-derived) by taking into account the current rent receivable from the existing tenancy agreements and the reversionary potential of the property interests. Our opinion of value of each of the properties in this group is subject to the existing tenancy agreements, and otherwise with the benefit of vacant possession.
Unless otherwise stated, we have not carried out any valuation on redevelopment basis to these properties and the study of possible alternative development options and the related economics do not come within the scope of our work for such properties.
Valuations of certain properties with restricted titles
In valuing properties in Groups III and IV, we have attributed no commercial values to the properties as the land use rights of these properties are administratively allocated in nature and/or transferability of such properties are restricted.
Matters that might affect the values reported
For the sake of valuation, we have adopted the areas as shown in the copies of the documents as provided and no further verification work has been conducted. Should it be established subsequently that the adopted areas were not the latest approved, we reserve the rights to revise our report and the valuations accordingly.
–IV-4– APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
No allowance has been made in our valuations for any charges, mortgages outstanding premium or amounts owing on the properties valued nor any expenses or taxation which may be incurred in effecting a sale for each of the properties in Groups I and II. Unless otherwise stated, it is assumed that the properties are free from all encumbrances, restrictions, and outgoings of an onerous nature which could affect their values.
In our valuations, we have assumed that each of the properties in Groups I and II is able to sell and purchase in the market without any legal impediment (especially from the regulators). Should this not be the case, it will affect the reported values significantly. The readers are reminded to have their own legal due diligence work on such issues. No responsibility or liability is assumed.
As at the Latest Practicable Date of this circular, we are unable to identify any adverse news against the properties which may affect the reported values in our work product. Thus, we are not in the position to report and comment on its impact (if any) to the properties. However, should it be established subsequently that such news did exist at the Date of Valuation, we reserve the right to adjust the values reported herein.
Establishment of titles
Based on the purpose of this engagement, the management of the Company was requested to provide us the necessary copies of documents to support the Group’s title to the properties, and that the Group has free and uninterrupted rights to transfer, to mortgage, to let or to use its relevant property interests for the whole of the unexpired terms as granted free of all encumbrances and any premiums payable have already been paid in full or outstanding procedures have been completed (if any). Various copies of documents are provided for the purpose of this valuation. However, we have not examined the original documents to verify the ownership and encumbrances, or to ascertain the existence of any amendments which may not appear on the copies handed to us. All documents disclosed (if any) are for reference only and no responsibility is assumed for any legal matters concerning the legal titles and the rights (if any) to the properties valued. Any responsibility for our misinterpretation of the documents cannot be accepted.
The land registration system of China forbids us to search the original documents of the properties from the relevant authorities in order to verify legal titles or any material encumbrances which may not appear on the copies handed to us. We need to state that we are not legal professional and are not qualified to ascertain the titles and to report any encumbrances that may be registered against the properties. However, we have complied with the requirements as stated in Practice Note No. 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and relied solely on the copies of the PRC legal opinions as provided by the Company with regard to the titles of the existing legally interested parties in the properties. According to the legal title explanatory notes provided by the appointed personnel of the Company and various legal opinions given by the Group’s PRC legal adviser 北京市嘉源律師事務所 (Jia Yuan
–IV-5– APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Law Firm) in December 2010 and December 2011 (the “Legal Opinions”), we noted that the Legal Opinions opined that:
1. the titles and the rights of the properties valued in our report are vested in the Group legally and protected by the laws of China;
2. there exists no legal impediment to the Group to continue holding the titles and rights of the properties valued; and
3. the Group has the absolute rights to use together with other rights on the properties valued.
Based on the Legal Opinions, we have further assumed that there would have no legal impediment (especially from the regulators) to the Group to dispose the properties in Groups I and II on the market. Should this not be the case, it will affect our findings and conclusion of values in this report significantly. The readers are reminded to have their own legal due diligence work on such issues. No responsibility or liability is assumed.
Inspections and investigations of the properties in accordance with Valuation Standard 4 of the HKIS Standards
We have conducted inspection to the exterior, and where possible, the interior of most of the properties in respect of which we have been provided with such information as we have requested for the purpose of our valuations. We have not inspected those parts of the properties which were covered, unexposed or inaccessible and such parts have been assumed to be in a reasonable condition. We cannot express an opinion about or advise upon the condition of the properties and our work product should not be taken as making any implied representation or statement about the condition of the properties. No structural survey, investigation or examination has been made, but in the course of our inspections, we did not note any serious defects in the properties inspected. We are not, however, able to report that the properties are free from rot, infestation or any other structural defects. No tests were carried out to the building utilities (if any) and we are unable to identify those services either covered, unexposed or inaccessible.
Our valuations have been made on the assumption that no unauthorised alteration, extension or addition has been made in the properties, and that the inspections and the use of this report do not purport to be a building survey of the properties. We have also assumed that the properties are free of rot and inherent danger or unsuitable materials and techniques.
We have not carried out on-site measurements to verify the correctness of the areas of the properties, but have assumed that the areas shown on the documents and official layout plans handed to us are correct. All dimensions, measurements and areas are approximations.
–IV-6– APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Our engagement and the agreed procedures to value the properties did not include an independent land survey to verify the legal boundaries of the properties. We need to state that we are not in the land survey profession, therefore, we are not in the position to verify or ascertain the correctness of the legal boundaries of the properties that appeared on the documents handed to us. No responsibility from our part is assumed. The management of the Company or interested party in the properties should conduct their own legal boundaries due diligence work to serve their purposes.
We have not arranged for any investigation to be carried out to determine whether or not any deleterious or hazardous material has been used in the construction of the properties, or has since been incorporated, and we are therefore unable to report that the properties are free from risk in this respect. For the purpose of our valuations, we have assumed that such investigation would not disclose the presence of any such material to any significant extent.
We are not aware of the content of any environmental audit or other environmental investigation or soil survey which may have been carried out on the properties and which may draw attention to any contamination or the possibility of any such contamination. In undertaking our work, we have been instructed to assume that no contaminative or potentially contaminative uses have ever been carried out in the properties. We have not carried out any investigation into past or present uses, either of the properties or of any neighbouring land, to establish whether there is any contamination or potential for contamination to the properties from these uses or sites, and have therefore assumed that none exists. However, should it be established subsequently that contamination, seepage or pollution exists at the properties or on any neighbouring land, or that the premises have been or are being put to a contaminative use, this might reduce the values now reported.
Sources of information and its verification in accordance with Valuation Standard 5 of the HKIS Standards
In the course of our work, we have provided with copies of the documents regarding the properties, and these copies have been referenced without further verifying with the relevant bodies and/or authorities. Our procedures to value did not require us to conduct any searches or inspect the original documents to verify the ownership or to verify any amendment which may not appear on the copies handed to us. We need to state that we are not legal professional, therefore, we are not in the position to advise and comment on the legality and effectiveness of the documents provided by the management of the Company.
We have relied solely on the information provided by the management of the Company or its appointed personnel without further verification, and have fully accepted advice given to us on such matters as planning approvals or statutory notices, locations, titles, easements, tenure, occupation, lettings, rental, site and floor areas and all other relevant matters.
–IV-7– APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
The scope of valuation has been determined by reference to the property list and, where appropriate, its classification on the accounts book provided by the management of the Company. The properties on the list have been included in our valuations. The management of the Company has confirmed to us that it has no property interest other than those specified on the list supplied to us.
Our valuations have been made only based on the advice and information made available to us. While a limited scope of general inquiries had been made to the local property market practitioners, we are not in a position to verify and ascertain the correctness of the advice given by the relevant personnel. No responsibility or liability is assumed.
Information furnished by others, upon which all or portions of our report are based, is believed to be reliable but has not been verified in all cases. Our procedures to value or work do not constitute an audit, review, or compilation of the information provided. Thus, no warranty is made nor liability assumed for the accuracy of any data, advice, opinions, or estimates identified as being furnished by others which have been used in formulating our report.
When we adopted the work products from other professions, external data providers and the management of the Company in our work, the assumptions and caveats adopted by them in arriving at their figures also applied to this report. The procedures we have taken do not provide all the evidence that would be required in an audit and, as we have not performed an audit, accordingly, we do not express an audit opinion.
We are unable to accept any responsibility for the information that has not been supplied to us by the management of the Company or its appointed personnel. Also, we have sought and received confirmation from the management of the Company or its appointed personnel that no material factors have been omitted from the information supplied. Our analysis and valuation are based upon full disclosure between us and the Company of material and latent facts that may affect our work.
We have had no reason to doubt the truth and accuracy of the information provided to us by the management of the Company or its appointed personnel. We consider that we have been provided with sufficient information to reach an informed view, and have had no reason to suspect that any material information has been withheld.
Unless otherwise stated, all monetary amounts are in Renminbi Yuan (“RMB”).
Limiting conditions in this summary report
Our findings and conclusion of values of the properties in this summary report are valid only for the stated purpose and only for the Date of Valuation, and for the sole use of the named Company. We or our personnel shall not be required to give testimony or attendance in court or to any government agency by reason of this summary report or the detailed report, and the valuers accept no responsibility whatsoever to any other person.
–IV-8– APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
No responsibility is taken for changes in market conditions and local government policy, and no obligation is assumed to revise this summary report or the detailed report to reflect events or conditions which occur or make known to us subsequent to the date hereof.
Neither the whole nor any part of this summary report or any reference made hereto may be included in any published documents, circular or statement, or published in any way, without our written approval of the form and context in which it may appear. Nonetheless, we consent to the publication of this summary report in this circular to the Company’s shareholders’ reference.
Our maximum liability relating to services rendered under this engagement (regardless of form of action, whether in contract, negligence or otherwise) shall be limited to the charges paid to us for the portion of its services or work products giving rise to liability. In no event shall we be liable for consequential, special, incidental or punitive loss, damage or expense (including without limitation, lost profits, opportunity costs, etc.), even if it has been advised of their possible existence.
The Company is required to indemnify and hold us and our personnel harmless from any claims, liabilities, costs and expenses (including, without limitation, attorney’s fees and the time of our personnel involved) brought against, paid or incurred by us at a time and in any way based on the information made available in connection with our report except to the extent that any such loses, expenses, damages or liabilities are ultimately determined to be the result of gross negligence of our engagement team in conducting its work. This provision shall survive even after the termination of this engagement for any reason.
Statements
The attached valuation certificate is prepared in line with the requirements contained in Chapter 5 and Practice Note No. 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited as well as the guidelines contained in the IVS and the HKIS Standards. The valuations have been undertaken by valuers (see End Notes), acting as external valuers, qualified for the purpose of the valuation.
We retain a copy of this summary report and the valuation report together with the data from which it was prepared, and these data and documents will, according to the Laws of Hong Kong, keep for a period of 6 years from the date of this report and to be destroyed thereafter. We considered these records confidential, and we do not permit access to them by anyone, with the exception for law enforcement authorities or court order, without the Company’s authorisation and prior arrangement made with us. Moreover, we will add the Company’s information into our client list for our future reference.
–IV-9– APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
The valuations of the properties depend solely on the assumptions made in this report and not all of which can be easily quantified or ascertained exactly. Should some or all of the assumptions prove to be inaccurate at a later date, it will affect the reported values significantly.
We hereby certify that the fee for this service is not contingent upon our conclusion of values and we have no significant interest in the properties, the Group or the values reported.
Our valuations are summarised below and the valuation certificate is attached.
Yours faithfully, For and on behalf of LCH (Asia-Pacific) Surveyors Limited
Joseph Ho Chin Choi Elsa Ng Hung Mui BSc PgD MSc RPS (GP) BSc MSc RPS(GP) Managing Director Director
Contributing valuers: Terry Fung Chi Hang BSc MSc Leslie Wong Tak Chiu BSc BBA Eugene Lai Chung Yee ASc
Notes:
1. Mr. Joseph Ho Chin Choi has been conducting asset valuations and/or advisory work in Hong Kong, Macau, Taiwan, mainland China, the Philippines, Vietnam, Malaysia, Singapore, Thailand, Bangladesh, Mongolia, Japan, Australia, Kazakhstan, Madagascar, Scotland, Finland, Germany, Poland, Brazil, Argentina, Guyana, Venezuela, Canada and the United States of America for various purposes since 1988. He is a Fellow of The HKIS and a valuer on the List of Property Valuers for Undertaking Valuation for Incorporation or Reference in Listing Particulars and Circulars and Valuation in Connection with Takeovers and Mergers published by The HKIS.
2. Ms Elsa Ng Hung Mui has been conducting valuation of real estate properties in Hong Kong since 1994 and has more than 12 years of experience in valuing properties in mainland China. She is a Member of The HKIS and a valuer on the List of Property Valuers for Undertaking Valuation for Incorporation or Reference in Listing Particulars and Circulars and Valuation in Connection with Takeovers and Mergers published by The HKIS.
3. Mr. Terry Fung Chi Hang is a graduate surveyor who has been involved in valuation of real estate properties both in Hong Kong and the PRC for more than 6 years. He involved in various asset valuations, mine valuation and agriculture property assets valuation.
4. Mr. Leslie Wong Tak Chiu is a graduate surveyor who has been involved in valuation of real estate properties both in Hong Kong and the PRC for more than 5 years. He involved in various asset valuations, mine valuation, toll road valuation and agriculture property assets valuation.
5. Mr. Eugene Lai Chung Yee is an assistant graduate surveyor who has been involved in valuation of real estate properties both in Hong Kong and the PRC for more than 3 years after graduation.
– IV-10 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
SUMMARY OF VALUES
Group I – Properties held and occupied by the Group under long-term title certificates in the PRC and valued on market value basis
Amount of valuation in its Amount of existing state valuation in its attributable to existing state as Interest the Group as at 31 October attributable to at 31 October Property 2011 the Group 2011 RMB RMB
1. Unit 712 on Level 7 3,360,000 41.49 per cent. 1,390,000 Xin Cheng Cultural Building No. 11 Chong Wen Men Wai Avenue Chong Wen District Beijing The PRC
2. Flat 9D Northern Portion of 4,750,000 45.62 per cent. 2,170,000 Block No. 7 Ju Long Hua Yuan erected on Lot No. 1-2-2-25(3) No. 68 Xin Zhong Street Dongcheng District Beijing The PRC
3. The whole of Main Tower 1,715,000,000 75 per cent. 1,286,250,000 and Portions of Ancillary Towers A and B Guangdong International Building No. 339 Huan Shi Road East Dong Shan District Guangzhou City Guangdong Province The PRC
–IV-11– APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its Amount of existing state valuation in its attributable to existing state as Interest the Group as at 31 October attributable to at 31 October Property 2011 the Group 2011 RMB RMB
4. The whole of Level 25 35,850,000 100 per cent. 35,850,000 Hangdu Building erected on Lot No. B210-0022 CATIC Zone Shennan Road Central Futian District Shenzhen City Guangdong Province The PRC
5. A factory complex 317,870,000 45.62 per cent. 145,010,000 erected on Lot No. G02410-1 and located at Bao Long Industrial City Pingshan Town Longguan District Shenzhen City Guangdong Province The PRC
6. A staff quarters complex 20,490,000 45.62 per cent. 9,350,000 erected on Lot No. G02413-2 and located at Bao Long Industrial City Pingshan Town Longguan District Shenzhen City Guangdong Province The PRC
– IV-12 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its Amount of existing state valuation in its attributable to existing state as Interest the Group as at 31 October attributable to at 31 October Property 2011 the Group 2011 RMB RMB
7. A dormitory building 62,740,000 45.62 per cent. 28,620,000 erected on Lot No. G02413-4 and located at Bao Long Industrial City Pingshan Town Longguan District Shenzhen City Guangdong Province The PRC
8. A factory complex 327,520,000 88.35 per cent. 289,360,000 erected on Lot No. G10203-0476 and located at Gaoqiao Pingdi Jie Dao Longguan District Shenzhen City Guangdong Province The PRC
9. 24 various residential 10,750,000 88.35 per cent. 9,500,000 units of Block 3 Tao Ran Ju erected on Lot No. T405-0003 Long Jing Zhu Guang Industrial Zone Nanshan District Shenzhen City Guangdong Province The PRC
– IV-13 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its Amount of existing state valuation in its attributable to existing state as Interest the Group as at 31 October attributable to at 31 October Property 2011 the Group 2011 RMB RMB
10. Northern Canteen on 11,210,000 45.62 per cent. 5,110,000 Levels 2 to 7 of Section B of Staff Quarters No. 3 erected on Lot No. T303-22 Jin Long Industrial Complex Majialong Industrial Zone Nanshan District Shenzhen City Guangdong Province The PRC
11. The whole of Levels 1 and 73,060,000 45.62 per cent. 33,330,000 2 of Block 1A erected on Lot No. T303-22 Jin Long Industrial Complex Majialong Industrial Zone Nanshan District Shenzhen City Guangdong Province The PRC
12. The whole of Level 4 and 73,680,000 45.62 per cent. 33,610,000 portions on each of Levels 3, 5 and 7-9 of Block 1A erected on Lot No. T303-22 Jin Long Industrial Complex Majialong Industrial Zone Nanshan District Shenzhen City Guangdong Province The PRC
– IV-14 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its Amount of existing state valuation in its attributable to existing state as Interest the Group as at 31 October attributable to at 31 October Property 2011 the Group 2011 RMB RMB
13. The whole of 34,360,000 45.62 per cent. 15,680,000 Levels 2 to 7 of Section C of Staff Quarters No. 3 erected on Lot No. T303-22 Jin Long Industrial Complex Majialong Industrial Zone Nanshan District Shenzhen City Guangdong Province The PRC
14. 25 various residential 21,350,000 45.62 per cent. 9,740,000 units Kaiyuan Residence Majialong Industrial Zone Nanshan District Shenzhen City Guangdong Province The PRC
15. A 6-storey industrial 186,890,000 88.35 per cent. 165,120,000 building erected on Lot No. T309-030A and located at Qiaocheng Dong Lu Xiao Sha He Area Nanshan District Shenzhen City Guangdong Province The PRC
– IV-15 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its Amount of existing state valuation in its attributable to existing state as Interest the Group as at 31 October attributable to at 31 October Property 2011 the Group 2011 RMB RMB
16. A composite building 37,760,000 88.35 per cent. 33,360,000 erected on Lot No. T309-0073 and located at Qiaocheng Dong Lu Xiao Sha He Area Nanshan District Shenzhen City Guangdong Province The PRC
17. A parcel of land with 5 87,600,000 100 per cent. 87,600,000 various staff quarters buildings and 2 ancillary office buildings erected thereon and located at the eastern side of Changjiang Road Delingha City Qinghai Province The PRC
18. A parcel of land located 5,890,000 100 per cent. 5,890,000 at Taoha Village Gahai Town Delingha City Qinghai Province The PRC
– IV-16 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its Amount of existing state valuation in its attributable to existing state as Interest the Group as at 31 October attributable to at 31 October Property 2011 the Group 2011 RMB RMB
19. 11 various parcels of land 250,000 100 per cent. 250,000 located at Mahai Lake Mining Area Lenghu Town Haixi Prefecture Qinghai Province The PRC
20. The whole of Skytel Hotel 207,400,000 41.49 per cent. 86,050,000 Nan Da Jie Beilin District Xian City Shaanxi Province The PRC
21. A factory complex erected 1,026,420,000 22 per cent. 225,810,000 on two parcels of land (Lots 115/1 and 115/2) and located at Heqing Hongxing Village Pudong New District Shanghai The PRC
Sub-total: RMB4,264,200,000 RMB2,509,050,000
– IV-17 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Group II – Properties held by the Group under long-term title certificates in the PRC for investment and valued on market value basis
Amount of Amount of valuation in its valuation in its existing state existing state as Interest attributable to at 31 October attributable to the Group as at Property 2011 the Group 31 October 2011 RMB RMB
22. Flat 505 on Level 5 710,000 45.62 per cent. 320,000 Block No. 9 Baoan Zone No. 73 Gong Yuan Road Baoan District Shenzhen City Guangdong Province The PRC
23. Unit Nos. 3A02 to 3A03 11,920,000 88.35 per cent. 10,530,000 and 3A05 to 3A06 Level 3A North Block Tairan Cangsong Building Tairan Liu Road Che Gong Temple Futian District Shenzhen City Guangdong Province The PRC
24. Units J and K on Level 8 4,490,000 88.35 per cent. 3,970,000 Hangdu Building erected on Lot No. B210-0022 Huafu Road Futian District Shenzhen City Guangdong Province The PRC
– IV-18 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of Amount of valuation in its valuation in its existing state existing state as Interest attributable to at 31 October attributable to the Group as at Property 2011 the Group 31 October 2011 RMB RMB
25. Southern Portion of 16,240,000 45.62 per cent. 7,410,000 Level 22 Hangdu Building erected on Lot No. B210-0022 CATIC Zone Shennan Road Central Futian District Shenzhen City Guangdong Province The PRC
26. Flats 15D and 15E 1,980,000 45.62 per cent. 900,000 on Level 15 of a residential block Neptunus Mansion erected on land parcel No. T104-0039 Chuang Ye Road Nanshan District Shenzhen City Guangdong Province The PRC
27. The whole of Level 6 and 81,240,000 45.62 per cent. 37,060,000 portions on each of Levels 3, 5 and 7-9 of Block 1A erected on Lot No. T303-22 Jin Long Industrial Complex Majialong Industrial Zone Nanshan District Shenzhen City Guangdong Province The PRC
– IV-19 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of Amount of valuation in its valuation in its existing state existing state as Interest attributable to at 31 October attributable to the Group as at Property 2011 the Group 31 October 2011 RMB RMB
28. Unit 102 on Level 1 1,460,000 45.62 per cent. 670,000 Block No. 1 Nan Yuan Xin Cun Nanshan District Shenzhen City Guangdong Province The PRC
29. Flats 2103 and 2104 on 5,790,000 45.62 per cent. 2,640,000 Level 21 No. 1102 Wu Ding Road Jingan District Shanghai The PRC
Sub-total: RMB123,830,000 RMB63,500,000
– IV-20 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Group III – Properties held and occupied by the Group in the PRC under restricted titles
Amount of Amount of valuation in valuation in its existing state its existing attributable to state as Interest the Group as at 31 October attributable to at 31 October Property 2011 the Group 2011 RMB RMB
30. The whole of 3 various No 75 per cent. No residential blocks Commercial Commercial (excluding Flat 501 of Value Value No. 1330 Guang Yuan Road Central) Nos. 1324 to 1330 (currently known as Nos. 166 to 172) Guang Yuan Road Central Bai Yun District Guangzhou City Guangdong Province The PRC
31. Units 901, 902 and 903 on No 75 per cent. No Level 9 Commercial Commercial No. 2-2 Bao Han Zhi Street Value Value Tian He District Guangzhou City Guangdong Province The PRC
32. Flats 301-318 on Level 3 No 60 per cent. No of Block 4 Commercial Commercial Gao Xin Technology Estate Value Value Park South Zone Nanshan District Shenzhen City Guangdong Province The PRC
– IV-21 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of Amount of valuation in valuation in its existing state its existing attributable to state as Interest the Group as at 31 October attributable to at 31 October Property 2011 the Group 2011 RMB RMB
33. The whole of Level 5 No 60 per cent. No Block A Factory W2 Commercial Commercial erected on Value Value Lot No. T204-0005 Gao Xin Industrial Zone Ke Ji Second Road South Nanshan District Shenzhen City Guangdong Province The PRC
34. 10 various residential units No 88.35 per cent. No of Block 53 erected on Commercial Commercial Lot No. T409-0027 Value Value Tao Yuan Cun Xi Li Long Zhu Road Nanshan District Shenzhen City Guangdong Province The PRC
35. Unit 602 on Level 6 No 41.49 per cent. No Block No. 1 Commercial Commercial Weiyi Xing Cheng Value Value No. 39 Shao Shan Road Fu Rong District Chang Sha City Hunan Province The PRC
36. Unit 6 on Level 11 No 41.49 per cent. No No. 433 City Avenue Commercial Commercial Shen He District Value Value Shen Yang City Liaoning Province The PRC
– IV-22 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of Amount of valuation in valuation in its existing state its existing attributable to state as Interest the Group as at 31 October attributable to at 31 October Property 2011 the Group 2011 RMB RMB
37. Flat 3-1-1-2 on No 41.49 per cent. No Level 1 of Block 125 Commercial Commercial No. 14 You Ai Dong Lane Value Value Xiao Xi Street Shenhe District Shenyang City Liaoning Province The PRC
38. 10 various residential units No 100 per cent. No located at Commercial Commercial New Century Garden Value Value No. 17 Geermu West Road Delingha City Qinghai Province The PRC
39. 40 various structures No 100 per cent. No including various ditch Commercial Commercial and salt pan erected on a Value Value parcel of site known as Mahai Lake Mining Area Lenghu Town Haixi Prefecture Qinghai Province The PRC
40. Unit 11201 on No 41.49 per cent. No Level 12 of Block 1 Commercial Commercial Cai Shi Dong Keng Value Value Xincheng District Xian City Shaanxi Province The PRC
– IV-23 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of Amount of valuation in valuation in its existing state its existing attributable to state as Interest the Group as at 31 October attributable to at 31 October Property 2011 the Group 2011 RMB RMB
41. Unit 1 on Level 20 of No 41.49 per cent. No Block B Commercial Commercial Jiao Yun Plaza Value Value No. 59 Re He Road Shibei District Qingdao City Shandong Province The PRC
42. Units 1907A and 1907B on No 41.49 per cent. No Level 19 Commercial Commercial Shen Neng International Value Value Building No. 1 Fuxing Road Central Luwan District Shanghai The PRC
43. Unit 3B-2 on Level 2 No 41.49 per cent. No No. 8 Dongyuhe Street Commercial Commercial Qingyang District Value Value Chengdu City Sichuan Province The PRC
44. Units 712–716 on No 41.49 per cent. No Level 7 of Block B Commercial Commercial Kang Da Gong Yu Value Value No. 128 Hami Road Heping District Tianjin The PRC
45. Unit G on Level 12 No 41.49 per cent. No No. 30-12-16 Commercial Commercial Lin Kiang Zhi Road Value Value Yuzhong District Chongqing The PRC
Sub-total: Nil Nil
– IV-24 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Group IV – Properties held by the Group in the PRC for investment under restricted titles
Amount of valuation in its Amount of existing state valuation in its Interest attributable to the existing state as attributable to Group as at 31 Property at 31 October 2011 the Group October 2011 RMB RMB
46. The whole block of No Commercial 41.49 per cent. No Commercial Fiyta Building Value Value erected on Lot No. B210-19 Zhen Hua Road CATIC Zone Futian District Shenzhen City Guangdong Province The PRC
47. The whole of Fiyta No Commercial 41.49 per cent. No Commercial Technology Building Value Value erected on Lot No. T205-0010 High Technological Industrial Estate Shennan Road Nanshan District Shenzhen City Guangdong Province The PRC
Sub-total: Nil Nil
Grand-total: RMB4,388,030,000 RMB2,572,550,000
– IV-25 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
VALUATION CERTIFICATE
Group I – Properties held and occupied by the Group under long-term title certificates in the PRC and valued on market value basis
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
1. Unit 712 on Level 7 The property comprises a As confirmed by the 3,360,000 Xin Cheng Cultural residential unit on Level management of the (100 per cent. Building 7 of a 12-storey office Group, as at the Date of interest) No. 11 Chong Wen building which was Valuation, the property Men Wai Avenue completed in about 2005. was occupied by the 1,390,000 Chong Wen District Group for office purpose. (41.49 per cent. Beijing The property has a gross interest) The PRC floor area of approximately 189.75 sq. m.
The property is subject to a right to use the land for a term of 50 years commencing from 10 March 1998 to 9 March 2048 for commercial office usage.
Notes:
1. Pursuant to a Sales and Purchase Agreement dated 16 October 2006 and entered between 北京崇裕 房產開發有限公司 (translated as Beijing Chong Yu Real Estate Development Co., Ltd.) and the Beijing office of 深圳飛亞達（集團）股份有限公司 (translated as Shenzhen Fiyta Holdings Limited), a 41.49% owned subsidiary of the Company, the property was purchased by the Beijing office of 深 圳飛亞達（集團）股份有限公司 (translated as Shenzhen Fiyta Holdings Limited) at a consideration of RMB3,185,903. According to the agreement, the land of the property is subject to a State-owned Land Use Rights Certificate known as Jing Chong Qi Guo Yong (2005) Zi Di 0011 Hao 京崇其國用 (2005)字第0011號 with a land use term of 50 years commencing from 10 March 1998 to 9 March 2048 for commercial office usage.
2. Pursuant to a Building Ownership Certificate known as Jing Fang Quan Zheng Chong Qu Zi Di 08002447 Hao 京房權證崇股字第08002447號 and issued by 北京建設委員會 (translated as Beijing Construction Committee) on 30 May 2008, the legally interest party in the property is 深圳飛亞達 （集團）股份有限公司 (translated as Shenzhen Fiyta Holdings Limited).
3. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-26 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
2. Flat 9D Northern The property comprises a As confirmed by the 4,750,000 Portion of Block No. 7 residential unit on Level management of the (100 per cent. Ju Long Hua Yuan 9 of a 12-storey Group, as at the Date of interest) erected on residential building Valuation, the property Lot No. 1-2-2-25(3) which was completed in was occupied by the 2,170,000 No. 68 Xin Zhong 1996. Group for staff quarters (45.62 per cent. Street purpose. interest) Dongcheng District The gross floor area of Beijing the property is The PRC approximately 201.94 sq. m.
The property is subject to a right to use the land for a term from 22 October 2003 to 22 July 2043 for residential purpose.
Notes:
1. According to a State-owned Land Use Rights Certificate known as Jing Shi Dong Gu Guo Yong (2003 Chu) Zi Di 0450107 Hao 京市東股國用（2003出）字第0450107號 dated 22 October 2003 and issued by the People’s Government of Beijing City, the legally interested party in an undivided share of land of approximately 14.86 sq. m. is 深圳天馬微電子股份有限公司 (translated as Shenzhen Tianma Microelectronics Co., Ltd.) and subsequently renamed as 天馬微電子股份有限公 司(translated as Tianma Microelectronics Co., Ltd.), a 45.62% owned subsidiary of the Company. The right to use the land is till 22 July 2043 for residential purpose.
2. Pursuant to a Building Ownership Certificate known as Jing Fang Quan Zheng Shi Dong Gu Zi Di 0450107 Hao 京房權証市東股字第0450107號 and dated 22 October 2003, the legally interested party in the property is 深圳天馬微電子股份有限公司 (translated as Shenzhen Tianma Microelectronics Co., Ltd.) and subsequently renamed as 天馬微電子股份有限公司 (translated as Tianma Microelectronic Co., Ltd.) for a term commencing from 22 October 2003 to 22 July 2043.
3. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-27 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
3. The whole Main The development is a As confirmed by the 1,715,000,000 Tower and Portions of composite development management of the (100 per cent. Ancillary Towers A comprises i.) a 57-storey Group, portions of the interest) and B Main Tower together commercial podium, Guangdong with a 30-storey Ancillary basement, Main Tower, 1,286,250,000 International Tower A erected on an Ancillary Tower B and (75 per cent. Building 8-storey (including 2 the whole of the boiler interest) No. 339 Huan Shi mezzanine levels) building of the Road commercial podium plus Guangdong International East Dong Shan 3 levels basement; ii.) a Building having a total District 35-storey Ancillary Tower gross area of Guangzhou City B; and iii.) a 2-storey approximately 92,698.69 Guangdong Province boiler building. sq. m. were occupied by The PRC 廣東國際大廈實業有限 The property comprises 公司(translated as the whole of the Main Guangdong International Tower which include Building Industrial various office units at the Company Limited) and whole of the Levels 7 to traded as Crown Plaza 22 and the Crown Plaza Guangzhou City Centre Guangzhou City Centre Hotel; portions of the Hotel at the whole of the property having an area Levels 23 to 63 with of approximately refuge floors and 49,995.18 sq. m. were building services leased out or pending to facilities at Levels 23, 42, leased out to various 60 and 63; the whole of tenants at a total monthly the Levels 1, 3 to 6 of the rental income of 8-storey commercial approximately podium and the whole of RMB5,493,147 as at the the 3 levels basement in Date of Valuation. the development; various composite units on the whole of Levels 1 to 6 (including 2 mezzanine levels on Levels 3 and 5) and 14 various composite units in the 35-storey Ancillary Tower B; Levels 31 and 32 of the Ancillary Tower A and the 2-storey boiler building. (See Note 1 below)
The property is erected on a site having a site area of approximately 18,997.60 sq. m. The total gross floor area of the property is approximately 142,693.87 sq. m. (see Note 3 below). The property was completed in 1992.
The property is subject to a right to use the land for 50 years commencing from 10 December 2007 for commercial and residential usages.
– IV-28 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Notes:
1. The property comprises (i) the whole of Levels 1, 3 to 6; (ii) the whole of Basement Level 1 to Basement Level 3; (iii) Levels 7 to 63 of the Main Tower; (iv) the whole of Levels 1 to 6 (including 2 mezzanine levels on Levels 3 and 5), and Rooms 8D, 22A, 25D, 25E, 26B, 34A, 34B, 34C, 34F, 34G, 35C, 35E, 35F and 35G of the Ancillary Tower B; (v) Levels 31 and 32 of the Ancillary Tower A; and (vi) a 2-storey boiler building of Guangdong International Building.
2. According to 86 various Realty Title Certificates, the legally interested party in the whole of Main Tower, Commercial Podium plus 3 levels of basement; Level 31 of Ancillary Tower; a 2-storey boiler building and various units in the Ancillary Tower B having a total gross floor area of approximately 142,693.87 sq. m. is 廣東國際大廈實業有限公司 (translated as Guangdong International Building Industrial Company Limited and hereinafter referred to as “Guangdong International”), a 75% owned subsidiary of the Company.
3. According to the information made available to us, the gross floor area breakdown of the property is as follows:
Gross Floor Area (sq. m.)
(i) Various office units at Levels 7 to 22 of the Main Tower 26,291.93 (ii) Hotel portion (i.e. Levels 23 to 63) of the Main Tower 54,047.64 (iii) Commercial podium at Levels 1, 3 to 6 37,894.94 (iv) Basement Levels 1 to 3 18,013.67 (v) Level 31 of Ancillary Tower A 483.96 (vi) Various composite units at the whole of the Levels 1 to 6 (including 2 3,939.90 mezzanine levels on Levels 3 and 5) of Ancillary Tower B (vii) 14 various composite units at various levels at the Levels 8 to 35 of 1,237.04 Ancillary Tower B (viii) a 2-storey boiler building 784.79
Total 142,693.87
4. Guangdong International is a limited liability company incorporated in the PRC on 31 December 1987 and with a valid Enterprise Legal Person Business License dated 20 December 2007 for operation till 31 December 2022.
5. According to the information provided, all outstanding premium regarding the property has been fully paid. Should this not be the case, the value reported will be affected significantly.
6. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-29 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
4. The whole of Level 25 The property comprises As confirmed by the 35,850,000 Hangdu Building the whole of Level 25 of a management of the (100 per cent. erected on 26-storey (excluding 2 Group, as at the Date of interest) Lot No. B210-0022 levels of basement) Valuation, the property CATIC Zone commercial/office was occupied by the Shennan Road building which was Group for office purpose. Central completed in 1997. Futian District Shenzhen City The total gross floor area Guangdong Province of the property is The PRC approximately 1,373.45 sq. m.
The property is subject to a right to use the land for a term of 50 years from 3 December 1994 to 2 December 2044 for office usage.
Notes:
1. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 3000523195 Hao 深房地字第 3000523195號 dated 3 July 2008 and issued by the People’s Government of Shenzhen City, the legally interested party in the property is 深圳中航集團股份有限公司 (translated as CATIC Shenzhen Holdings Limited).
2. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-30 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
5. A factory complex The property comprises a As confirmed by the 317,870,000 erected on parcel of land having a management of the (100 per cent. Lot No. G02410-1 site area of Group, as at the Date of interest) and located at Bao approximately 54,684.80 Valuation, the property Long Industrial City sq. m. with two 5-storey was occupied by the 145,010,000 Pingshan Town workshop buildings Group for industrial and (45.62 per cent. Longguan District erected thereon. The ancillary office purposes. interest) Shenzhen City buildings were Guangdong Province completed in between The PRC 2003 and 2008.
The total gross floor area of the buildings was approximately 75,056.39 sq. m. (see Note 2 below).
The property is subject to a right to use the land for a term of 50 years commencing from 11 April 2001 to 10 April 2051 and for industrial and office usages.
Notes:
1. Pursuant to a Contract for the Grant of State-owned Land Use Rights known as Shen Di He Zi (2001) 5073 Hao 深地合字(2001) 5073號 and dated 11 April 2001, the right to use the land was granted to 深圳天馬微電子股份有限公司 (translated as Shenzhen Tianma Microelectronics Co., Ltd.) and subsequently renamed as 天馬微電子股份有限公司 (translated as Tianma Microelectronics Co., Ltd.), a 45.62% owned subsidiary of the Company, for a term of 50 years from 11 April 2001 to 10 April 2051 and for industrial usage.
2. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 6000500655 Hao 深房地字第 6000500655號 and issued by the People’s Government of Shenzhen City on 29 September 2011, the legally interested party in the property with a parcel of land having a site area of approximately 54,684.80 sq. m. and a workshop/office building having a gross floor area of approximately 75,056.39 sq. m. is Tianma Microelectronics Co., Ltd. for industrial and office usages.
3. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-31 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
6. A staff quarters The property comprises a As confirmed by the 20,490,000 complex erected on parcel of land having a management of the (100 per cent. Lot No. G02413-2 and site area of Group, as at the Date of interest) located at Bao Long approximately 15,205.20 Valuation, the property Industrial City sq. m. with 3 various was occupied by the 9,350,000 Pingshan Town buildings erected Group for staff quarters, (45.62 per cent. Longguan District thereon. They include a canteen and interest) Shenzhen City 5-storey senior staff entertainment room Guangdong Province quarters, a 6-storey staff purposes. The PRC quarters and a 3-storey ancillary block which were completed in 2003.
The total gross floor area of the buildings was approximately 9,729.22 sq. m.
The property is subject to a right to use the land for a term of 50 years commencing from 2 April 2001 to 1 April 2051 and for staff quarters usage.(See Note 1)
Notes:
1. Pursuant to a Contract for the Grant of State-owned Land Use Rights known as Shen Di He Zi (2001) 5072 深地合字(2001)5072號 dated 2 April 2001, the right to use the land was granted to 深圳 天馬微電子股份有限公司 (translated as Shenzhen Tianma Microelectronics Co., Ltd.) and subsequently renamed as 天馬微電子股份有限公司 (translated as Tianma Microelectronics Co., Ltd.), a 45.62% owned subsidiary of the Company, for a term of 50 years from 2 April 2001 to 1 April 2051 and for industrial usage.
2. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 6000318208 Hao 深房地字第 6000318208號 and issued by the People’s Government of Shenzhen City on 28 November 2008, the legally interested party in the property is Tianma Microelectronics Co., Ltd.
3. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-32 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
7. A dormitory building The property comprises As confirmed by the 62,740,000 erected on Lot No. the whole of a 16-storey management of the (100 per cent. G02413-4 and dormitory erected on a Group, as at the Date of interest) located at Bao Long parcel of land having a Valuation, the property Industrial City site area of was occupied by the 28,620,000 Pingshan Town approximately 6,006.23 Group for staff quarters (45.62 per cent. Longguan District sq. m. The building was purpose. interest) Shenzhen City completed in 2008. Guangdong Province The PRC The dormitory building has a gross floor area of approximately 27,290.84 sq. m.
The property is subject to a right to use the land for a term of 50 years commencing from 4 March 2005 to 3 March 2055 and for staff quarters purpose.
Notes:
1. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 6000391943 Hao 深房地字第 6000391943號 and issued by 深地市房地產權証登記中心 (translated as Shenzhen City Real Estate Title Registration Center) on 28 December 2009, the legally interest party in the property is 天馬微 電子股份有限公司 (translated as Tianma Microelectronics Co., Ltd.), a 45.62% owned subsidiary of the Company.
2. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-33 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
8. A factory complex The property comprises a As confirmed by the 327,520,000 erected on Lot No. parcel of land having a management of the (100 per cent. G10203-0476 and site area of Group, as at the Date of interest) located at Gaoqiao approximately 109,877.34 Valuation, the property Pingdi Jie Dao sq. m. with 8 various was occupied by the 289,360,000 Longguan District buildings and structures Group for industrial, (88.35 per cent. Shenzhen City erected thereon. They canteen, ancillary office, interest) Guangdong Province include a 10-storey dormitory and other The PRC workshop, a 3-storey supporting purposes. workshop building, a 3-storey canteen, two 11-storey dormitories, a 6-storey dormitory building and two 2-storey ancillary buildings. They were completed in 2008.
The buildings and structures have a total gross floor area of approximately 109,511.4 sq. m. (See Note 4 below)
The property is subject to a right to use the land for a term of 50 years from 22 March 2006 to 21 March 2056 for industrial usage.
Notes:
1. Pursuant to a Contract for the Grant of State-owned Land Use Rights known as Shen Di He Zi (2006) 5028 Hao 深地合字(2006)5028號 dated 22 March 2006, 深南電路有限公司 (translated as Shennan Circuit Company Limited and hereinafter referred to as “Shennan Circuit”), a 88.35% owned subsidiary of the Company, has been granted the right to use a parcel of land having a site area of approximately 109,877.34 sq. m. for a term of 50 years commencing from 22 March 2006 to 21 March 2056 at a total consideration of RMB16,824,938 and for industrial usage.
2. Pursuant to a Planning Permit for Using Construction Usage Land known as Shen Gui Xu Zi 06-2006-0056 Hao 深規許字06-2006-0056號 and issued by the Planning Bureau of People’s Government of Longguan District on 8 March 2006, approval was given to Shennan Circuit to develop a parcel of land having a site area of 109,877.34 sq. m..
– IV-34 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
3. Pursuant to 7 various Construction Planning Permits 建設工程規劃許可證 all dated 7 July 2006, Shennan Circuit was permitted to develop 8 various buildings and structures having a total gross floor area of approximately 104,936.94 sq. m.. Pursuant to the above mentioned Permits, the area breakdowns for each of the buildings and structures are as follows:
Gross Floor Area (sq. m.)
(i) a 10-storey workshop 12,119.35 (ii) a 3-storey canteen 7,679.10 (iii) a 3-storey workshop 57,753.52 (iv) two 11-storey dormitories 19,135.83 (v) a 6-storey dormitory building 5,764.42 (vi) a 2-storey waste water treatment station 2,363.58 (vii) a 2-storey ancillary building 121.14
Total: 104,936.94
4. Pursuant to two various Permit to Commence Construction Nos. 44030020060120002 and 44030020060120003 issued by the Construction Bureau of Shenzhen City on 18 October 2006, approval was given to Shennan Circuit to commence the construction of a factory complex having a total gross floor area of approximately 109,511.4 sq. m..
5. According to the management of the Company, Shennan Circuit is in the process of applying the relevant title certificate for the land and buildings mentioned above.
6. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-35 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
9. 24 various residential The property comprises As confirmed by the 10,750,000 units of Block 3 Tao 24 various residential management of the (100 per cent. Ran Ju erected on units on various levels of Group, as at the Date of interest) Lot No. T405-0003 a 6-storey residential Valuation, the property Long Jing Zhu Guang building which was was occupied by the 9,500,000 Industrial Zone completed in 2001. Group for staff quarters (88.35 per cent. Nanshan District purpose. interest) Shenzhen City The total gross floor area Guangdong Province of the property is The PRC approximately 874.32 (See Note 1) sq. m.
The property is subject to a right to use the land for a term of 70 years from 8 June 1992 to 7 June 2062 for residential usage.
Notes:
1. The 24 various residential units are known as Units 111, 112, 115 and 116 on Level 1, Units 211, 212, 215 and 216 on Level 2, Units 311, 312, 315 and 316 on Level 3, Units 411,412, 415 and 416 on Level 4, Units 511, 512, 515 and 516 on Level 5, and Units 611, 612, 615 and 616 on Level 6 of Block 3.
2. Pursuant to 24 various Realty Title Certificates all dated 3 June 2002 and issued by the People’s Government of Shenzhen City, the legally interested party in the property is 深南電路有限公司 (translated as Shennan Circuit Company Limited), a 88.35% owned subsidiary of the Company.
3. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-36 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
10. Northern Canteen on The property comprises As confirmed by the 11,210,000 Levels 2 to 7 of the whole of Levels 2 to 7 management of the (100 per cent. Section B of Staff of a 9-storey composite Group, as at the Date of interest) Quarter No. 3 erected building which was Valuation, the property on Lot No. T303-22 completed in 1993. was occupied by the 5,110,000 Jin Long Industrial Group for staff quarters (45.62 per cent. Complex Majialong The total gross floor area and canteen purposes. interest) Industrial Zone of the property is Nanshan District approximately 1,867.73 Shenzhen City sq. m. Guangdong Province The PRC The property is subject to a right to use the land for a term of 30 years from 28 June 1993 to 27 June 2023 for other usage.
Notes:
1. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 4000366313 Hao 深房地字第 4000366313號 and issued by the People’s Government of Shenzhen City, the legally interested party in the property is 天馬微電子股份有限公司 (translated as Tianma Microelectronics Co., Ltd.), a 45.62% owned subsidiary of the Company.
2. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-37 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
11. The whole of Levels 1 The property comprises As confirmed by the 73,060,000 and 2 of Block 1A the whole of Levels 1 and management of the (100 per cent. erected on 2 of an 8-storey industrial Group, as at the Date of interest) Lot No. T303-22 building which was Valuation, the property Jin Long Industrial completed in 1993. was occupied by the 33,330,000 Complex Group for workshop (45.62 per cent. Majialong Industrial The total gross floor area purpose. interest) Zone of the property is Nanshan District approximately 9,132.95 Shenzhen City sq. m. Guangdong Province The PRC The property is subject to a right to use the land for a term of 30 years from 28 June 1993 to 28 June 2023 for industrial usage.
Notes:
1. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 4000366312 Hao 深房地字第 4000366312號 and issued by the People’s Government of Shenzhen City, the legally interested party in the property is 天馬微電子股份有限公司 (translated as Tianma Microelectronics Co., Ltd.), a 45.62% owned subsidiary of the Company.
2. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-38 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
12. The whole of Level 4 The property comprises As confirmed by the 73,680,000 and portions on each the whole of Level 4 and management of the (100 per cent. of Levels 3, 5 and 7-9 portions on each of Group, as at the Date of interest) of Block 1A erected Levels 3, 5, 7-9 of an Valuation, the property on 9-storey industrial with a total gross floor 33,610,000 Lot No. T303-22 building which was area of approximately (45.62 per cent. Jin Long Industrial completed in 1993. 7,027.25 sq. m. was interest) Complex occupied by the Group Majialong Industrial The total gross floor area for workshop, warehouse Zone of the property is and ancillary office Nanshan District approximately 7,027.25 purposes. Shenzhen City sq. m. Guangdong Province The PRC The property is subject to a right to use the land for a term of 30 years from 28 June 1993 to 27 June 2023 for industrial usage.
Notes:
1. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 4000366310 and 4000366311 Hao 深房地字第4000366310及4000366311號 and issued by the People’s Government of Shenzhen City, the legally interested party in the property having a total gross floor area of approximately 19,365.25 sq. m. (The property together with Property No. 27 as mentioned in Group II below) is 天馬微電子股份有限公司 (translated as Tianma Microelectronics Co., Ltd.), a 45.62% owned subsidiary of the Company.
2. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-39 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
13. The whole of Levels 2 The property comprises As confirmed by the 34,360,000 to 7 of Section C of the whole of Levels 2 to 7 management of the (100 per cent. Staff Quarters No. 3 of a 9-storey composite Group, as at the Date of Interest) erected on Lot No. building which was Valuation, the property T303-22 Jin Long completed in 1993. was occupied by the 15,680,000 Industrial Complex Group for staff quarters (45.62 per cent. Majialong Industrial The total gross floor area purpose. Interest) Zone of the property is Nanshan District approximately 5,727.33 Shenzhen City sq. m. Guangdong Province The PRC The property is subject to a right to use the land for a term of 30 years from 28 June 1993 to 27 June 2023 for staff quarters usage.
Notes:
1. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 4000366314 Hao 深房地字第 4000366314號 and issued by the People’s Government of Shenzhen City, the legally interested party in the property is 天馬微電子股份有限公司 (translated as Tianma Microelectronics Co., Ltd.), a 45.62% owned subsidiary of the Company.
2. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-40 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
14. 25 various The property comprises As confirmed by the 21,350,000 residential units 25 various residential management of the (100 per cent. Kaiyuan Residence units on various levels of Group, as at the Date of Interest) Majialong Industrial an 8-storey residential Valuation, the property Zone building which was was occupied by the 9,740,000 Nanshan District completed in 1993. Group for staff quarters (45.62 per cent. Shenzhen City purpose. Interest) Guangdong Province According to the The PRC information provided by (See Note 1 below) the management of the Company, the total gross floor area of the property is approximately 2,372.14 sq. m.
The property is subject to a right to use the land for a term of 50 years from 5 June 1989 to 4 June 2039 for residential usage.
Notes:
1. The 25 various residential units are known as Units 101, 103, 104, 105 and 106 on Level 1, Units 201, 202, 203, 204 and 205 on Level 2, Units 302 and 303 on Level 3, Units 402 and 405 on Level 4, Units 503 and 504 on Level 5, Unit 603 on Level 6, Units 702, 703, 704 and 705 on Level 7, and Units 803, 804, 805 and 806 on Level 8.
2. Pursuant to 25 various Realty Title Certificates known as Shen Fang Di Zi Di 4000366282 to 4000366294 and 4000366296 to 4000366307 Hao 深房地字第4000366282 至 4000366294及4000366296 至 4000366307號 all dated 19 August 2008 and issued by the People’s Government of Shenzhen City on 6 September 2004, the legally interested party in the property is 天馬微電子股份有限公司 (translated as Tianma Microelectronics Co., Ltd.), a 45.62% owned subsidiary of the Company.
3. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-41 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
15. A 6-storey industrial The property comprises As confirmed by the 186,890,000 building erected on the whole of a 6-storey management of the (100 per cent. Lot No. T309-030A industrial building which Group, as at the Date of interest) and located at was erected on a parcel of Valuation, portions of the Qiaocheng Dong Lu land having a site area of property with a total 165,120,000 Xiao Sha He Area approximately 9,203.20 gross floor area of (88.35 per cent. Nanshan District sq. m. The building was approximately 2,833 interest) Shenzhen City completed in 1994. sq. m. were subject to Guangdong Province various tenancy The PRC The total gross floor area agreements at a total of the property is monthly rental of approximately 29,419.31 RMB147,587, and the sq. m. remaining portion of the property was occupied The property is subject to by the Group for a right to use the land for workshop purpose. a term of 30 years from 8 October 1991 to 7 October 2021 for industrial usage.
Notes:
1. Pursuant to a Contract for the Grant of State-owned Land Use Rights known as Shen Di He Zi (91) 249 Hao 深地合字(91)249號 dated 18 October 1991, 中國航空技術深圳有限公司 (translated as CATIC Shenzhen Company Limited), a 88.35% owned subsidiary of the Company, has been granted the right to use a parcel of land having a site area of approximately 12,326 sq. m. (the property together with Property No. 16 as mentioned in Group I below) for a term of 30 years commencing from 8 October 1991 to 7 October 2021 and for industrial usage.
2. Pursuant to a Sales and Purchase Agreement dated 12 June 2003 and made between CATIC Shenzhen Company Limited and 深南電路有限公司 (translated as Shennan Circuit Company Limited) of which Shennan Circuit Company Limited acquired the property from CATIC Shenzhen Company Limited at a consideration of RMB46,561,800.
3. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 4000354326 Hao 深房地字第 4000354326號 and issued by the People’s Government of Shenzhen City on 10 February 2006, the legally interested party in the property is Shennan Circuit Company Limited.
4. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-42 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
16. A composite building The property comprises As confirmed by the 37,760,000 erected on the whole of an 8-storey management of the (100 per cent. Lot No. T309-0073 composite building Group, as at the Date of interest) and located at which was erected on a Valuation, the property Qiaocheng Dong Lu parcel of land having a was occupied by the 33,360,000 Xiao Sha He Area site area of Group for canteen and (88.35 per cent. Nanshan District approximately 3,122.50 staff quarters purposes. interest) Shenzhen City sq. m. and was completed Guangdong Province in 1998. The PRC The total gross floor area of the property is approximately 6,090.26 sq. m.
The property is subject to a right to use the land for a term of 30 years from 8 October 1991 to 7 October 2021 for industrial usage.
Notes:
1. Pursuant to a Contract for the Grant of State-owned Land Use Rights known as Shen Di He Zi (91) 249 Hao 深地合字(91)249號 dated 18 October 1991, 中國航空技術深圳有限公司 (translated as CATIC Shenzhen Company Limited), a 88.35% owned subsidiary of the Company, has been granted the right to use a parcel of land having a site area of approximately 12,326 sq. m. (the property together with Property No. 15 as mentioned in Group I above) for a term of 30 years commencing from 8 October 1991 to 7 October 2021 and for industrial usage.
2. Pursuant to a Sales and Purchase Agreement dated 12 June 2003 and made between CATIC Shenzhen Company Limited and 深南電路有限公司 (translated as Shennan Circuit Company Limited) of which Shennan Circuit Company Limited acquired the property from CATIC Shenzhen Company Limited at a consideration of RMB18,855,600.
3. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 4000254327 Hao 深房地字第 4000254327號 and issued by the People’s Government of Shenzhen City, the legally interested party in the property is Shennan Circuit Company Limited.
4. According to the information provided by the management of the Company, the relevant land premium as mentioned in the said certificate in Note 3 above was fully settled.
5. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-43 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
17. A parcel of land with The property comprises a As confirmed by the 87,600,000 5 various staff parcel of land with a site management of the (100 per cent. quarters buildings area of approximately Group, as at the Date of interest) and 2 ancillary office 66,666.7 sq. m. Valuation, the property buildings erected was occupied by the thereon and located We were given to Group for staff quarters at the eastern side of understand that 7 major and ancillary office Changjiang Road buildings were erected on usage. Delingha City the property with a total Qinghai Province gross floor area of The PRC approximately 22,759.48 sq. m. and the usages of the buildings are for staff quarters and ancillary office.
The property is held under a State-owned Land Use Rights Certificate for residential usage.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate known as De Shi Guo Yong (2008) Di 16 Hao 德市國用(2008)第16號, the legally interested party in a parcel of land having a site area of approximately 66,666.7 sq. m. is 海西中航三鉀矽業有限公司 (translated as Haixi CATIC Sanjiaguiye Company Limited), an indirect wholly owned subsidiary of the Company.
2. Pursuant to 7 various Building Ownership Certificates all dated 20 June 2011, the legally interested party in the property having a total gross floor area of approximately 22,759.48 sq.m. is 青海中航資源有限公司 (translated as Qinghai CATIC Resources Co., Ltd.), an indirect wholly owned subsidiary of the Company.
3. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-44 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
18. A parcel of land The property comprises a As confirmed by the 5,890,000 located at parcel of land with a site management of the (100 per cent. Taoha Village area of approximately Group, as at the Date of interest) Gahai Town 532,500 Valuation, the property (See Note 3) Delingha City sq. m. was vacant. Qinghai Province The PRC The property is subject to a right to use the land for a term till 4 June 2057 for industrial usage.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate known as De Shi Guo Yong (2007) Di 7856 Hao 德市國用(2007)第7856號, the legally interested party in a parcel of land having a site area of approximately 532,500 sq. m. is 海西中航三鉀珪業有限公司 (translated as Haixi CATIC Sanjiaguiye Company Limited and hereinafter referred to as “Haixi CATIC”), an indirect wholly owned subsidiary of the Company.
The land use rights of portion of the land of approximately 277,8000 sq.m. is transferrable land in nature while the land use rights of portion of the land of approximately 254,700 sq.m. is administrative allocated in nature.
2. According to the relevant laws in the PRC, land idle for over 2 years without commencement of construction work will be subject to payment of idle land fee penalty or repossess the land by the government without compensation.
As confirmed by the management of the Haixi CATIC as at the date of this report, the Haixi CATIC did not receive any form of notice from the government for any penalty or repossession of the land property. Thus, in our valuation, we have not taken into account any possible penalty payments or other fees for preventing possible repossession of the property. As agreed with Haixi CATIC, we have assumed Haixi CATIC has an absolute rights to use, to dispose and transfer the property free of all encumbrances without payment of additional premium as at the Date of Valuation.
3. We have assigned no commercial value to portion of the land which is administrative allocated in nature, as the Group did not obtain any transferable long-term title certificate, or the like, of the whole of the property as at the Date of Valuation.
4. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-45 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
19. 11 various parcels of The property comprises As confirmed by the 250,000 land located at 11 various parcels of land management of the (100 per cent. Mahai Lake with a total site area of Group, as at the Date of interest) Mining Area approximately of 22,523.3 Valuation, the property Lenghu Town sq. m. and situated was occupied by the Haixi Prefecture within the Mahai Lake Group for production, Qinghai Province Mining Area. storage, office, dormitory The PRC and other ancillary There are various supporting facilities structures (referred to purposes. Property No. 39 as mentioned below) erected on the property.
The property is subject to a right to use the lands for a term till December 2056 for industrial usage. (See Note 1 below)
Notes:
1. Pursuant to 11 various State-owned Land Use Rights Certificates known as Leng Xing Guo Tu Guo Yong (2006) Di 04 to 14 Hao 冷行國土國用(2006)第04號至14號, the legally interested party in 10 various parcels of land having a total site area of approximately 21,159.9 sq. m. is 青海省冷湖天 田鉀肥（集團）有限公司 (translated as Qinghai Province Lenghu Tiantian Potash (Group) Company Limited), and the legally interested party in a parcel of land having a site area of approximately 1,363.40 sq. m. is 青海省冷湖鉀肥（集團）有限公司 (translated as Qinghai Province Lenghu Potash (Group) Company Limited), all for a term till December 2056 for industrial usage. As advised by the management of the Company, 青海省冷湖天田鉀肥（集團）有限公司 and 青海省冷湖鉀肥（集團） 有限公司 are currently renamed as 青海省冷湖天田鉀肥有限公司 (translated as Qinghai Province Lenghu Tiantian Potash Company Limited and hereinafter referred to as “Tiantian Potash Company”), a wholly owned subsidiary of the Company.
2. According to the Company’s circulars dated 3 April 2008 and 15 July 2008, and information provided by the management of the Company at current date, we were given to understand that the property was transferred to 海西中航三鉀矽業有限公司 (translated as Haixi CATIC Sanjiaguiye Company Limited), a subsidiary of the Company, by Tiantian Potash Company by way of capital contribution in September 2007. As advised, the company is in the process of applying the relevant new State-owned Land Use Rights Certificates.
3. Readers should read this property together with Property No. 39 in Group III. The classification is for easy presentation purpose only.
4. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-46 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
20. The whole of The property comprises As confirmed by the 207,400,000 Skytel Hotel the whole of an 8-storey management of the (100 per cent. NanDaJie (including a basement) Group, as at the Date of interest) Beilin District hotel with various shops. Valuation, portions of the Xian City The property was building having a total 86,050,000 Shaanxi Province completed in 1984. gross floor area of (41.49 per cent. The PRC approximately 13,315.06 interest) The property is erected sq. m. were traded under on a site having a site the trade name of Skytel area of approximately Hotel. Portions of the 4,440.50 sq. m. The total building having a gross gross floor area of the floor area of property is approximately 2,055.27 approximately 18,124.34 sq. m. were leased out to sq. m. various tenants at a total monthly rental income of The property is subject to approximately a right to use the land for RMB100,000. a term till 29 April 2042 for commercial usage. The remaining portion of the building was either occupied by the Group or vacant.
Notes:
1. Pursuant to a Sales and Purchase Agreement dated 19 October 2007 and made between 西安萬科金 屬國際集團有限公司 (translated as Xian Wanke Metallic International Group Ltd.) and 深圳飛亞達 （集團）股份有限公司 (translated as Shenzhen Fiyta Holdings Limited), a 41.49% owned subsidiary of the Company, Shenzhen Fiyta Holdings Limited acquired the property at a consideration of RMB180,000,000.
2. Pursuant to a State-owned Land Use Rights Certificate known as Xi Bei Guo Yong (2008 Chu) Di 279 Hao 西碑國用(2008 出)第279號 and issued by the People’s Government of Xian City, the legally interested party in the property is Shenzhen Fiyta Holdings Limited.
3. Pursuant to a Building Ownership Certificate known as Xian Si Fang Quan Zheng Bei Lin Qu Zi Di 1100108005I-1-1-2 Hao 西安巿房權證碑林區字第1100108005I-1-1-2號 dated 23 January 2008, the legally interested party in the property is Shenzhen Fiyta Holdings Limited.
4. Pursuant to a Hotel Management Agreement made between Shenzhen Fiyta Holdings Limited and Shenzhen CATIC Hotel Management Limited (hereinafter referred to as “CATIC Hotel Management”), CATIC Hotel Management was appointed as the management agent of the hotel portion of Citylion Hotel (subsequently renamed as Skytel Hotel) for the period from 1 August 2009 to 31 July 2012 at a hotel management fee of RMB3,500,000 per year.
5. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-47 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
21. A factory complex The property comprises As confirmed by the 1,026,420,000 erected on two two parcels of land management of the (100 per cent. parcels of land (Lots having a total site area of Group, as at the Date of interest) 115/1 and 115/2) and approximately 300,000 sq. Valuation, the property located at m. with 19 various major was occupied by the 225,810,000 Heqing Hongxing buildings and structures Group for industrial, (22 per cent. Village erected thereon. canteen, ancillary office, interest) Pudong New District dormitory and other Shanghai The buildings and supporting purposes. The PRC structures have a total gross floor area of approximately 124,432.28 sq. m. and were completed in 2009. (See Note 3 below)
The property is subject to a right to use the land for a term of 50 years from 26 September 2006 to 25 September 2056 for industrial usage.
Notes:
1. Pursuant to a Contract for the Grant of State-owned Land Use Rights dated 26 September 2006, 上 海天馬微電子股份有限公司 (translated as Shanghai Tianma Microelectronics Co., Ltd. and hereinafter referred to as “Shanghai Tianma”), a 22% owned subsidiary of the Company, has been granted the right to use a parcel of land having a site area of approximately 300,000 sq. m. for a term of 50 years and for industrial usage at a total consideration of RMB30,000,010.
2. Pursuant to 2 various Shanghai Certificates of Real Estate Ownership known as Lu Fang Di Lu Zi (2006) Di 091360 and 091361 Hao 瀘房地盧字(2006)第091360號及091361號 and issued by the Shanghai Housing and Land Resources Administration Bureau and both dated 6 December 2006, the legally interest party in two parcels of land having a total site area of approximately 300,000 sq. m. is Shanghai Tianma.
3. Pursuant to 2 various Shanghai Certificates of Real Estate Ownership known as Lu Fang Di Lu Zi (2006) Di 107973 and 108399 Hao 瀘房地盧字(2006)第107973號及108399號 and issued by the Shanghai Housing and Land Resources Administration Bureau and dated 30 December 2009 and 31 December 2009, respectively, the legally interest party in 19 major buildings having a total gross floor area of approximately 124,432.28 sq. m. is Shanghai Tianma.
4. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-48 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Group II – Properties held by the Group under long-term title certificates in the PRC for investment and valued on market value basis
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
22. Flat 505 on Level 5 The property comprises a As confirmed by the 710,000 Block No. 9 residential unit on Level management of the (100 per cent. Baoan Zone 5 of a 7-storey residential Group, as at the Date of interest) No. 73 Gong Yuan building which was Valuation, the property Road completed in 1993. was subject to a tenancy 320,000 Baoan District agreement with a (45.62 per cent. Shenzhen City The gross floor area of monthly rental of interest) Guangdong Province the property is RMB500. The PRC approximately 93.36 sq. m.
The property is subject to a right to use the land for a term of 70 years from 28 April 1991 to 27 April 2061 for residential usage.
Notes:
1. Pursuant to a Sales and Purchase Agreement dated 25 June 1991, 深圳天馬微電子股份有限公司 (translated as Shenzhen Tianma Microelectronics Co., Ltd.) and subsequently renamed as 天馬微 電子股份有限公司 (translated as Tianma Microelectronics Co., Ltd.), a 45.62% owned subsidiary of the Company, acquired the property from 深圳市恆基房地產開發公司 (translated as Shenzhen Hengji Real Estate Development Company).
2. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 5000351198 Hao 深房地字第 5000351198號 dated 18 December 2008 and issued by the People’s Government of Shenzhen City on 18 December 2008, the legally interested party in the property is Tianma Microelectronics Co., Ltd. The property is subject to a right to use the land for a term of 70 years from 28 April 1991 to 27 April 2061 for residential usage.
3. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-49 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
23. Unit Nos. 3A02 The property comprises As confirmed by the 11,920,000 to 3A03 and four office units on Level management of the (100 per cent. 3A05 to 3A06 3A (i.e. Level 4) of a Group, as at the Date of interest) Level 3A 21-storey office building Valuation, the property North Block which was completed in was subject to two 10,530,000 Tairan Cangsong 2001. various tenancy (88.35 per cent. Building agreements at a total interest) Tairan Liu Road The total gross floor area monthly rental of Che Gong Temple of the property is RMB54,506 and occupied Futian District approximately 549.42 sq. m. for office purpose. Shenzhen City Guangdong Province The property is subject to The PRC a right to use the land for a term of 50 years from 16 November 1988 to 15 November 2038 for industrial usage.
Notes:
1. Pursuant to four various Realty Title Certificates known as Shen Fang Di Zi Di 3000585713, 3000585735, 3000585736 and 3000585737 Hao (深房地字第3000585713, 3000585735, 3000585736及 3000585737號) all dated 4 November 2009 and issued by the Shenzhen Resources and Housing Administrative Bureau, the legal interest party in the property is 深南電路有限公司 (translated as Shennan Circuit Company Limited), a 88.35% owned subsidiary of the Company.
2. As recorded in the certificates, the property was purchased on 2 November 2009 and the purchase price of the property is RMB8,265,787, as advised by the Company.
3. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-50 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
24. Units J and K on The property comprises As confirmed by the 4,490,000 Level 8 two various office units management of the (100 per cent. Hangdu Building on Level 8 of a 26-storey Group, as at the Date of interest) erected on (excluding 2 levels Valuation, the property is Lot No. B210-0022 basement) commercial/ subject to a monthly 3,970,000 Huafu Road office building which was tenancy agreement at a (88.35 per cent. Futian District completed in 1997. monthly rental of interest) Shenzhen City RMB13,593 and occupied Guangdong Province The total gross floor area for office purpose. The PRC of the property is approximately 181.24 sq. m.
The property is subject to a right to use the land for a term of 50 years from 3 December 1994 to 2 December 2044 for technology office usage.
Notes:
1. Pursuant to two various Realty Title Certificates known as Shen Fang Di Zi Di 3000036889 Hao 深 房地字第3000036889號 and Shen Fang Di Zi Di 3000036890 Hao 深房地字第3000036890號 and issued by the People’s Government of Shenzhen City both dated 11 August 1999, the legally interested party in the property is 深圳深南電路公司 (translated as Shenzhen Shennan Circuit Corporation) which was subsequently renamed as 深南電路有限公司 (translated as Shennan Circuit Company Limited), a 88.35% owned subsidiary of the Company.
2. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-51 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
25. Southern Portion of The property comprises As confirmed by the 16,240,000 Level 22 an office unit on Level 22 management of the (100 per cent. Hangdu Building of a 26-storey (excluding Group, as at the Date of interest) erected on 2 levels of basement) Valuation, the property Lot No. B210-0022 commercial/office was subject to two 7,410,000 CATIC Zone building which was various tenancy (45.62 per cent. Shennan Road completed in 1997. agreements at a total interest) Central monthly rental of Futian District The gross floor area of RMB52,400 and occupied Shenzhen City the property is for office purpose. Guangdong Province approximately The PRC 655.00 sq. m.
The property is subject to a right to use the land for a term of 50 years from 3 December 1994 to 2 December 2044 for office usage.
Notes:
1. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 3000546081 Hao 深房地字第 3000546081號 and issued by the People’s Government of Shenzhen City on 20 February 2009, the legally interested party in the property is 天馬微電子股份有限公司 (translated as Tianma Microelectronics Co., Ltd.), a 45.62% owned subsidiary of the Company.
2. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-52 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
26. Flats 15D and 15E on The property comprises As confirmed by the 1,980,000 Level 15 of two residential units on management of the (100 per cent. a residential block Level 15 of a 32-storey Group, as at the Date of interest) Neptunus Mansion residential block of a Valuation, the property erected on land composite development was subject to two 900,000 parcel No. T104-0039 known as Neptunus various tenancy (45.62 per cent. Chuang Ye Road Mansion which was agreements at a total interest) Nanshan District completed in 1994. The monthly rental of Shenzhen City development consists of RMB6,600. Guangdong Province the residential block and The PRC a 28-storey office block both erected on a 4-storey shopping podium.
The total gross floor area of the property is approximately 166.82 sq. m.
The property is subject to a right to use the land for a term of 50 years from 28 November 1992 to 27 November 2042 for residential usage.
Notes:
1. Pursuant to two Realty Title Certificates known as Shen Fang Di Zi Di 4000366309 Hao 深房地字第 4000366309號 and Shen Fang Di Zi Di 4000366308 Hao 深房地字第4000366308號 both dated 19 August 2008 and issued by the People’s Government of Shenzhen City, the legally interested party in the property is 天馬微電子股份有限公司 (translated as Tianma Microelectronics Co., Ltd.), a 45.62% owned subsidiary of the Company.
2. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-53 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
27. The whole of Level 6 The property comprises As confirmed by the 81,240,000 and portions on each the whole of Level 6 and management of the (100 per cent. of Levels 3, 5 and 7-9 portions on each of Group, as at the Date of interest) of Block 1A erected Levels 3, 5 and 7-9 of a Valuation, the property on 9-storey industrial with a total gross floor 37,060,000 Lot No. T303-22 building which was area of approximately (45.62 per cent. Jin Long Industrial completed in 1993. 12,338 sq. m. were subject interest) Complex to various tenancy Majialong Industrial The total gross floor area agreements at a total Zone of the property is monthly rental of Nanshan District approximately 12,338 RMB294,568, and was Shenzhen City sq. m. occupied by the tenants Guangdong Province for workshop, warehouse The PRC The property is subject to and ancillary office a right to use the land for purposes. a term of 30 years from 28 June 1993 to 27 June 2023 for industrial usage.
Notes:
1. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 4000366310 and 4000366311 Hao 深房地字第4000366310及4000366311號 and issued by the People’s Government of Shenzhen City on 19 August 2008, the legally interested party in the property having a total gross floor area of approximately 19,365.25 sq. m. (the property together with Property No. 12 as mentioned in Group I above) is 天馬微電子股份有限公司 (translated as Tianma Microelectronics Co., Ltd.), a 45.62% owned subsidiary of the Company.
2. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-54 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
28. Unit 102 on Level 1 The property comprises a As confirmed by the 1,460,000 Block No. 1 residential unit on management of the (100 per cent. Nan Yuan Xin Cun Level 1 of a 7-storey Group, as at the Date of interest) Nanshan District residential building Valuation, the property Shenzhen City which was completed in was subject to a tenancy 670,000 Guangdong Province 1984. agreement at a monthly (45.62 per cent. The PRC rental of RMB800. interest) The gross floor area of the property is approximately 64.29 sq. m.
The property is subject to a right to use the land for a term of 50 years from 9 July 1985 to 9 July 2035.
Notes:
1. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 4000366295 Hao 深房地字第 4000366295號 and issued by the People’s Government of Shenzhen City on 19 August 2008, the legally interested party in the property is 天馬微電子股份有限公司 (translated as Tianma Microelectronics Co. Ltd.), a 45.62% owned subsidiary of the Company.
2. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-55 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
29. Flats 2103 and 2104 The property comprises As confirmed by the 5,790,000 on Level 21 two various residential management of the (100 per cent. No. 1102 Wu Ding units on Level 21 of a Group, as at the Date of interest) Road 22-storey residential Valuation, the property Jingan District block which was was subject to a tenancy 2,640,000 Shanghai completed in 1997. agreement at a total (45.62 per cent. The PRC annual rental of interest) The total gross floor area RMB70,000. of the property is approximately 200.94 sq. m.
Notes:
1. Pursuant to two various Realty Title Certificates known as Hu Fang Di Jing Zi (1999) Di 002569 Hao 滬房地靜字(1999)第002569 號 and Hu Fang Di Jing Zi (1999) Di 002570 Hao 滬房地靜字 (1999) 第002570號 and issued by the People’s Government of Shanghai City on 6 August 1999, the legally interested party in the property is 深圳天馬微電子股份有限公司 (translated as Shenzhen Tianma Microelectronics Co., Ltd.) and subsequently renamed as 天馬微電子股份有限公司 (translated as Tianma Microelectronic Co. Ltd.), a 45.62% owned subsidiary of the Company.
2. The property is restricted for domestic sales only.
3. According to the legal opinion prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) the Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-56 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Group III – Properties held and occupied by the Group in the PRC under restricted titles
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011
30. The whole of 3 The property comprises As confirmed by the No Commercial various residential 101 various residential management of the Value blocks (excluding Flat units on various levels of Group, as at the Date of 501 of No. 1330 three adjoining 9-storey Valuation, the majority of (See Note 6) Guang Yuan Road residential buildings the property was Central) which were completed in occupied by the Group Nos. 1324 to around 1994. (See Note 1 for staff quarters 1330 (currently below). purpose. Some of the known as Nos. 166 to units were vacant. 172) Guang Yuan The total gross floor area Road Central of the property is Bai Yun District approximately 6,691.89 Guangzhou City sq. m. Guangdong Province The PRC The property is held under a Realty Title Certificate without a specified term for residential usage. (See Note 2 below).
Notes:
1. The property comprises Units 101 to 130 on Level 1 of No. 166 Guang Yuan Zhong Road, Units 201, 202, 203, 301, 302, 303, 401, 402, 403, 502, 503, 601, 602, 603, 701, 702, 703, 801, 802, 803, 901, 902, 903 on various Levels 2 to 9 of each Nos. 168, 170 and 172 Guang Yuan Zhong Road; and Unit 501 on Level 5 of each Nos. 168 and 170 Guang Yuan Zhong Road.
We are given to understand that Nos. 166, 168, 170 and 172 Guang Yuan Zhong Road were previously known as Nos. 1324, 1326, 1328 and 1330 Guang Yuan Zhong Road, respectively.
2. Pursuant to a Realty Title Certificate known as Sui Fang Di Zheng Zi Di 86815 Hao 穗房地證字第 86815 號 and dated 30 November 1994, the legally interested party in the property is 廣東國際大廈 實業有限公司 (translated as Guangdong International Building Industrial Company Limited and hereinafter referred to as “Guangdong International”) for an unspecified term for residential usage.
3. Guangdong International is a limited liability company incorporated in the PRC on 31 December 1987 and with a valid Enterprise Legal Person Business License dated 20 December 2007 for operation till 31 December 2022.
4. We have assigned no commercial value to the property as the Group did not obtain any transferable long-term title certificate, or the like, of the property as at the Date of Valuation.
– IV-57 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
5. According to the legal opinions given by the Group’s qualified PRC legal advisers, they opined that:
(i) the titles and the rights of the property valued in our report are vested in the Group legally and protected by the laws of China;
(ii) there exists no legal impediment to the Group to continue holding the titles and rights of the property valued; and
(iii) the Group has the absolute rights to use together with other rights on the property valued.
6. For accounts reporting purpose, the value of the property in its existing state attributable to the Group as at the Date of Valuation would be in the region of RMB13,290,000 (75 per cent. interest).
– IV-58 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011
31. Units 901, 902 and The property comprises 3 As confirmed by the No Commercial 903 on Level 9 various residential units management of the Value No. 2-2 Bao Han Zhi on Level 9 of a 9-storey Group, as at the Date of Street residential building Valuation, the property (See Note 6) Tian He District which was completed in was occupied by the Guangzhou City about 1993. Group as staff quarters Guangdong Province purpose. The PRC The total gross floor area of the property is approximately 271.48 sq. m.
The property is held under three various state-owned Land Use Rights Certificates without a specified term for residential usage. (See Note 1 below).
Notes:
1. Pursuant to 3 various State-owned Land Use Rights Certificates known as Sui Di Zheng Zi Di 0134826, 0134828 and 0134829 Hao 穗地證字第0134826, 0134828及0134829號 and dated 1 April 1993, the legally interested party in the land of the property is 廣東國際大廈實業有限公司 (translated as Guangdong International Building Industrial Company Limited and hereinafter referred to as “Guangdong International”), a subsidiary of the Company, for an unspecified term for residential usage.
2. Pursuant to 3 various Building Ownership Certificates known as Sui Fang Zheng Zi Di 141680, 141681 and 141682 Hao 穗房證字第141680, 141681及141682號 and dated 1 April 1993, the legally interested party in the property is Guangdong International for an unspecified term. According to a payment receipt provided, the consideration was fully paid on 5 March 1991.
3. Guangdong International is a limited liability company incorporated in the PRC on 31 December 1987 and with a valid Enterprise Legal Person Business License dated 20 December 2007 for operation till 31 December 2022.
4. We have assigned no commercial value to the property as the Group did not obtain any transferable long-term title certificate, or the like, of the property as at the Date of Valuation.
5. According to the legal opinions given by the Group’s qualified PRC legal advisers, they opined that:
(i) the titles and the rights of the property valued in our report are vested in the Group legally and protected by the laws of China;
(ii) there exists no legal impediment to the Group to continue holding the titles and rights of the property valued; and
(iii) the Group has the absolute rights to use together with other rights on the property valued.
6. For accounts reporting purpose, the value of the property in its existing state attributable to the Group as at the Date of Valuation would be in the region of RMB1,320,000 (75 per cent. interest).
– IV-59 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011
32. Flats 301-318 The property comprises As confirmed by the No Commercial on Level 3 of Block 4 18 various residential management of the Value Gao Xin Technology units on Level 3 of a Group, as at the Date of Estate Park 7-storey residential Valuation, the property (See Note 4) South Zone building which was was occupied by the Nanshan District completed in 1997. Group for staff quarters Shenzhen City purpose. Guangdong Province The total gross floor area The PRC of the property is approximately 700.2 sq. m.
Notes:
1. Pursuant to a Sales and Purchase Agreement dated 28 October 1997, 深圳邁威有線電視器材有限公 司 (translated as Shenzhen Maiwei Cable TV Equipments Co., Ltd.), a subsidiary of the Company, acquired the property from a third party at a consideration of RMB1,939,554 with a term expiring on 31 December 2047 for residential purpose.
2. We have assigned no commercial value to the property as the Group did not obtain any transferable long-term title certificate, or the like, of the property as at the Date of Valuation.
3. According to the legal opinions given by the Group’s qualified PRC legal advisers, they opined that:
(i) the titles and the rights of the property valued in our report are vested in the Group legally and protected by the laws of China;
(ii) there exists no legal impediment to the Group to continue holding the titles and rights of the property valued; and
(iii) the Group has the absolute rights to use together with other rights on the property valued.
4. For accounts reporting purpose, the value of the property in its existing state attributable to the Group as at the Date of Valuation would be in the region of RMB2,890,000 (60 per cent. interest).
– IV-60 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011
33. The whole of Level 5 The property comprises As confirmed by the No Commercial Block A Factory W2 the whole of Level 5 of a management of the Value erected on 7-storey industrial Group, as at the Date of Lot No. T204-0005 building which was Valuation, the property (See Note 5) Gao Xin completed in 1996. was subject to 2 various Industrial Zone tenancy agreements at a Ke Ji Second Road The gross floor area of total monthly rental of South the property is RMB124,417. Nanshan District approximately 1,879.81 Shenzhen City sq. m. Guangdong Province The PRC The property is subject to a right to use the land for a term of 50 years from 28 July 1995 to 27 July 2045 for industrial usage.
Notes:
1. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 4000057912 Hao 深房地字第 4000057912號 and issued by the People’s Government of Shenzhen City on 5 December 2001, the legally interested party in the property is 深圳邁威有線電視器材有限公司 (translated as Shenzhen Maiwei Cable TV Equipments Co., Ltd.), a subsidiary of the Company.
2. According to the said certificate as mentioned in Note 1 above, the property is not allowed for sale in the open market. To mortgage or to let the property is subject to administrative procedures.
3. We have assigned no commercial value to the property as the Group did not obtain any transferable long-term title certificate, or the like, of the property as at the Date of Valuation.
4. According to the legal opinions given by the Group’s qualified PRC legal advisers, they opined that:
(i) the titles and the rights of the property valued in our report are vested in the Group legally and protected by the laws of China;
(ii) there exists no legal impediment to the Group to continue holding the titles and rights of the property valued; and
(iii) the Group has the absolute rights to use together with other rights on the property valued.
5. For accounts reporting purpose, the value of the property in its existing state attributable to the Group as at the Date of Valuation would be in the region of RMB4,330,000 (60 per cent. interest).
– IV-61 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011
34. 10 various The property comprises As confirmed by the No Commercial residential units of 10 various residential management of the Value Block 53 units on various levels of Group, as at the Date of erected on a 7-storey residential Valuation, the property (See Note 6) Lot No. T409-0027 building which was was occupied by the Tao Yuan Cun completed in 1997. Group for staff quarters Xi Li Long Zhu Road purpose. Nanshan District The total gross floor area Shenzhen City of the property is Guangdong Province approximately 744.35 The PRC sq. m. (See Note 1) The property is subject to a right to use the land for a term of 50 years from 16 August 1997 to 15 August 2047 for multi-storey residential usage.
Notes:
1. The property comprises 10 various residential units known as Units 103 and 104 on Level 1, Units 303 and 304 on Level 3, Units 403 and 404 on Level 4, Units 503 and 504 on Level 5, and Units 703 and 704 on Level 7 of Block 53.
2. Pursuant to 10 various Realty Title Certificates all dated 31 July 1998, the legally interested party in the property is 深圳深南電路公司 (translated as Shenzhen Shennan Circuit Corporation) which was subsequently renamed as 深南電路有限公司 (translated as Shennan Circuit Company Limited), a subsidiary of the Company.
3. According to the said certificates as mentioned in Note 2 above, the property is not allowed for sale in the open market. To mortgage or to let the property is subject to administrative procedures as required.
4. We have assigned no commercial value to the property as the Group did not obtain any transferable long-term title certificate, or the like, of the property as at the Date of Valuation.
5. According to the legal opinions given by the Group’s qualified PRC legal advisers, they opined that:
(i) the titles and the rights of the property valued in our report are vested in the Group legally and protected by the laws of China;
(ii) there exists no legal impediment to the Group to continue holding the titles and rights of the property valued; and
(iii) the Group has the absolute rights to use together with other rights on the property valued.
6. For accounts reporting purpose, the value of the property in its existing state attributable to the Group as at the Date of Valuation would be in the region of RMB10,200,000 (88.35 per cent. interest).
– IV-62 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011
35. Unit 602 on Level 6 The property comprises a As confirmed by the No Commercial Block No. 1 residential unit on Level management of the Value Weiyi Xing Cheng 6 of a 19-storey Group, as at the Date of No. 39 Shao Shan residential building Valuation, the property (See Note 5) Road which was completed in was occupied by the Fu Rong District about 2007. Group for staff quarters Chang Sha City purpose. Hunan Province The property has a gross The PRC floor area of approximately 131.24 sq. m.
The property is subject to an administratively allocated land use rights for a term of 50 years commencing from 10 October 2000 to 10 October 2050 for composite usage. (See Note 1 below).
Notes:
1. Pursuant to a Sales and Purchase Agreement entered between 湖南維一實業開發有限公司 (translated as Hunan Weiyi Industrial Development Co., Ltd.) and 深圳飛亞達（集團）股份有限公司 (translated as Shenzhen Fiyta Holdings Limited), a subsidiary of the Company, the property was purchased by Shenzhen Fiyta Holdings Limited at a consideration of RMB501,207. According to the agreement, the land of the property is administrative allocation in nature subject to an Allocated Land Use Rights Permit known as Fu Guo Yong (2000) Zi Di 2718 Hao 芙國用(2000)字第 2718號 with a land use term of 50 years commencing from 10 October 2000 to 10 October 2050 for composite usage.
2. Pursuant to a Realty Title Certificate known as the Chang Fang Quan Zheng Fu Rong Zi Di 00615443 Hao 長房權證芙蓉字第00615443號 and issued by the Realty Administration Bureau of Chang Sha City on 31 January 2007, the legally interest party in the property is Shenzhen Fiyta Holdings Limited.
3. We have assigned no commercial value to the property as the Group did not obtain any transferable long-term title certificate, or the like, of the property as at the Date of Valuation.
4. According to the legal opinions given by the Group’s qualified PRC legal advisers, they opined that:
(i) the titles and the rights of the property valued in our report are vested in the Group legally and protected by the laws of China;
(ii) there exists no legal impediment to the Group to continue holding the titles and rights of the property valued; and
(iii) the Group has the absolute rights to use together with other rights on the property valued.
5. For accounts reporting purpose, the value of the property in its existing state attributable to the Group as at the Date of Valuation would be in the region of RMB420,000 (41.49 per cent. interest).
– IV-63 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011
36. Unit 6 on Level 11 The property comprises a As confirmed by the No Commercial No. 433 City Avenue residential unit on Level management of the Value Shen He District 11 of a 23-storey Group, as at the Date of Shen Yang City residential building Valuation, the property (See Note 5) Liaoning province which was completed in was occupied by the The PRC around 2007. Group for staff quarters purpose. The property has a gross floor area of approximately 186.56 sq. m.
The property is subject to a right to use the land for a term commencing from 8 May 2005 for residential usage. (See Note 1 below).
Notes:
1. Pursuant to a Sales and Purchase Agreement dated 23 June 2006 and entered between 遼寧東海房 屋土地開發有限公司 (translated as Liaoning Dong Hai Housing and Land Development Co., Ltd.) and 深圳飛亞達（集團）股份有限公司 (translated as Shenzhen Fiyta Holdings Limited), a subsidiary of the Company, the property was purchased by Shenzhen Fiyta Holdings Limited at a consideration of RMB806,888. According to the agreement, the land of the property is administrative allocation in nature subject to an Allocated Land Use Rights Permit known as Shen He Guo Yong (2005) Di 0147 Hao 沈河國用(2005)第0147號 with a land use term commencing from 8 May 2005 for residential usage.
2. Pursuant to a Building Ownership Certificate known as Shen Fang Quan Zheng Shen He Zi Di 55049 Hao 沈房權證沈河字第55049號 and issued by the Realty Bureau of Shenyang City on 2 December 2008, the legally interest party in the property is Shenzhen Fiyta Holdings Limited.
3. We have assigned no commercial value to the property as the Group did not obtain any transferable long-term title certificate, or the like, of the property as at the Date of Valuation.
4. According to the legal opinions given by the Group’s qualified PRC legal advisers, they opined that:
(i) the titles and the rights of the property valued in our report are vested in the Group legally and protected by the laws of China;
(ii) there exists no legal impediment to the Group to continue holding the titles and rights of the property valued; and
(iii) the Group has the absolute rights to use together with other rights on the property valued.
5. For accounts reporting purpose, the value of the property in its existing state attributable to the Group as at the Date of Valuation would be in the region of RMB540,000 (41.49 per cent. interest).
– IV-64 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011
37. Flat 3-1-1-2 on The property comprises a As confirmed by the No Commercial Level 1 of Block 125 residential unit on management of the Value No. 14 You Ai Dong Level 1 of a 7-storey Group, as at the Date of Lane residential building Valuation, the property (See Note 6) Xiao Xi Street which was completed in was occupied by the Shenhe District 1998. Group for office purpose. Shenyang City Liaoning Province The gross floor area of The PRC the property is approximately 120 sq. m.
The property is subject to an administratively allocated land use rights without a specified land tenure.
Notes:
1. Pursuant to a Sales and Purchase Agreement dated 20 March 1994, 深圳飛亞達（集團）股份有限公司 (translated as Shenzhen Fiyta Holdings Limited), a subsidiary of the Company, acquired the property from 遼寧興河房地產開發公司 (translated as Liaoning Xinhe Real Estate Development Company) at a consideration of RMB288,000.
2. Pursuant to a State-owned Land Use Rights Certificate dated 24 August 2004 and issued by the People’s Government of Shenhe District, Shenyang City, the land use rights of the property is administrative allocation in nature and for residential usage.
3. Pursuant to a Building Ownership Certificate known as Shen He Fang Zi Di 007126 Hao 沈河房字 第 007126號 and issued by the People’s Government of Shenyang City on 22 January 1996, the legally interested party in the property is Shenzhen Fiyta Holdings Limited.
4. We have assigned no commercial value to the property as the Group did not obtain any transferable long-term title certificate, or the like, of the property as at the Date of Valuation.
5. According to the legal opinions given by the Group’s qualified PRC legal advisers, they opined that:
(i) the titles and the rights of the property valued in our report are vested in the Group legally and protected by the laws of China;
(ii) there exists no legal impediment to the Group to continue holding the titles and rights of the property valued; and
(iii) the Group has the absolute rights to use together with other rights on the property valued.
6. For accounts reporting purpose, the value of the property in its existing state attributable to the Group as at the Date of Valuation would be in the region of RMB330,000 (41.49 per cent. interest).
– IV-65 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011
38. 3 various residential The property comprise 3 As confirmed by the No Commercial units located at various residential units management of the Value New Century Garden on various levels of a Group, as at the Date of No. 17 Geermu multi-storey residential Valuation, the property West Road building which were was occupied by the Delingha City completed in about 2008. Group for staff quarters Qinghai Province purpose. The PRC The property has a total gross floor area of approximately 269.88 sq. m.
The property is subject to an administratively allocated land use rights without a specified land tenure for residential usage.
Notes:
1. The 3 various residential units are known as Units 601 to 603 on Tower 17.
2. Pursuant to 3 various Building Ownership Certificate issued by the Construction and Transport Bureau of Delingha City, the legally interested party in the property with a total gross floor area of approximately 269.88 sq.m. is 青海中航資源有限公司 (translated as Qinghai CATIC Resources Co., Limited), a subsidiary of the Company.
3. We have assigned no commercial value to the property as the Group did not obtain any transferable long-term title certificate, or the like, of the property as at the Date of Valuation.
4. According to the legal opinions given by the Group’s qualified PRC legal advisers, they opined that:
(i) the titles and the rights of the property valued in our report are vested in the Group legally and protected by the laws of China;
(ii) there exists no legal impediment to the Group to continue holding the titles and rights of the property valued; and
(iii) the Group has the absolute rights to use together with other rights on the property valued.
5. For accounts reporting purpose, the value of the property in its existing state attributable to the Group as at the Date of Valuation would be in the region of RMB430,000 (100 per cent. interest).
– IV-66 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011
39. 40 various structures The property comprises As confirmed by the No Commercial including various 40 various structures and management of the Value ditch and salt pan various ditch and salt Group, as at the Date of erected on a parcel of pan which are erected on Valuation, the property (See Note 5) site known as a parcel of land was occupied by the Mahai Lake (including Property No. Group for production, Mining Area 19 as mentioned above) storage, office, dormitory Lenghu Town and having a total site and other ancillary Haixi Prefecture area of approximately supporting facilities Qinghai Province 284.526 sq. km. purposes. The PRC The structures were completed between 2000 and 2006 and the total gross floor area of the structures is approximately 14,870.14 sq. m.
Notes:
1. According to the information made available to us, there is no Building Ownership Certificate issued for the structures as mentioned above.
2. We have assigned no commercial value to the property as the Group did not obtain any transferable long-term title certificate, or the like, of the property as at the Date of Valuation.
3. Readers should read this property together with Property No. 19 in Group I. The classification is for easy presentation purpose only.
4. According to the legal opinions given by the Group’s qualified PRC legal advisers, they opined that:
(i) the titles and the rights of the property valued in our report are vested in the Group legally and protected by the laws of China;
(ii) there exists no legal impediment to the Group to continue holding the titles and rights of the property valued; and
(iii) the Group has the absolute rights to use together with other rights on the property valued.
5. For accounts reporting purpose, the value of the property in its existing state attributable to the Group as at the Date of Valuation would be in the region of RMB294,100,000 (100 per cent. interest).
– IV-67 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011
40. Unit 11201 on The property comprises a As confirmed by the No Commercial Level 12 of residential unit on management of the Value Block 1 Level 12 of a 13-storey Group, as at the Date of Cai Shi Dong Keng residential building Valuation, the property (See Note 4) Xincheng District which was completed in was occupied by the Xian City 2002. Group for staff quarters Shaanxi Province purpose. The PRC The gross floor area of the property is approximately 106.22 sq. m.
There is no specified land use term under the given title certificate.
Notes:
1. Pursuant to a Building Ownership Certificate known as Xian Si Fang Quan Zheng Xin Cheng Qu Zi Di 1125108017III-49-1-11201 Hao 西安巿房權證新城區字第1125108017III-49-1-11201號 and dated 2 June 2004, the legally interested party in the property is 深圳飛亞達（集團）股份有限公司 (translated as Shenzhen Fiyta Holdings Limited), a subsidiary of the Company.
2. We have assigned no commercial value to the property as the Group did not obtain any transferable long-term title certificate, or the like, of the property as at the Date of Valuation.
3. According to the legal opinions given by the Group’s qualified PRC legal advisers, they opined that:
(i) the titles and the rights of the property valued in our report are vested in the Group legally and protected by the laws of China;
(ii) there exists no legal impediment to the Group to continue holding the titles and rights of the property valued; and
(iii) the Group has the absolute rights to use together with other rights on the property valued.
4. For accounts reporting purpose, the value of the property in its existing state attributable to the Group as at the Date of Valuation would be in the region of RMB290,000 (41.49 per cent. interest).
– IV-68 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011
41. Unit 1 on Level 20 of The property comprises a As confirmed by the No Commercial Block B residential unit on management of the Value Jiao Yun Plaza Level 20 of a 25-storey Group, as at the Date of No. 59 Re He Road building which was Valuation, the property (See Note 4) Shibei District completed in 1997. was occupied by the Qingdao City Group for staff quarters Shandong Province The gross floor area of purpose. The PRC the property is approximately 103.67 sq. m.
There is no specified land use term under the given title certificate.
Notes:
1. Pursuant to a Building Ownership Certificate known as Fang Quan Zheng Zi Zi Di 1315 Hao 房權 證自字第1315號 issued by the Real Estate Management Bureau of Qingdao City on 30 December 1999, the legally interested party in the property is 深圳飛亞達（集團）股份有限公司 (translated as Shenzhen Fiyta Holdings Limited), a subsidiary of the Company.
2. We have assigned no commercial value to the property as the Group did not obtain any transferable long-term title certificate, or the like, of the property as at the Date of Valuation.
3. According to the legal opinions given by the Group’s qualified PRC legal advisers, they opined that:
(i) the titles and the rights of the property valued in our report are vested in the Group legally and protected by the laws of China;
(ii) there exists no legal impediment to the Group to continue holding the titles and rights of the property valued; and
(iii) the Group has the absolute rights to use together with other rights on the property valued.
4. For accounts reporting purpose, the value of the property in its existing state attributable to the Group as at the Date of Valuation would be in the region of RMB540,000 (41.49 per cent. interest).
– IV-69 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011
42. Units 1907A and The property comprises As confirmed by the No Commercial 1907B on Level 19 two adjoining office units management of the Value Shen Neng on Level 19 of a 26-storey Group, as at the Date of International office building which was Valuation, the property (See Note 5) Building completed in 1997. was occupied by the No. 1 Fuxing Group for office purpose. Road Central The property has a total Luwan District gross floor area of Shanghai approximately 278.41 sq. m. The PRC The property is subject to a right to use the land for an unspecified term for composite usage.
Notes:
1. Pursuant to a Sales and Purchase Agreement dated 25 September 2006 and entered between 上海 申能房地產有限公司 (translated as Shanghai Shen Neng Realty Co., Ltd.) and 深圳飛亞達（集團） 股份有限公司 (translated as Shenzhen Fiyta Holdings Limited), a subsidiary of the Company, the property was purchased by Shenzhen Fiyta Holdings Limited at a consideration of RMB5,373,313.
2. Pursuant to 2 various Shanghai Certificates of Real Estate Ownership known as Lu Fang Di Lu Zi (2006) Di 003525 and 003526 Hao (瀘房地盧字(2006)第003525及003526號) and issued by the Shanghai Housing and Land Resources Administration Bureau and both dated 4 December 2006, the legally interest party in the property is Shenzhen Fiyta Holdings Limited.
3. We have assigned no commercial value to the property as the Group did not obtain any transferable long-term title certificate, or the like, of the property as at the Date of Valuation.
4. According to the legal opinions given by the Group’s qualified PRC legal advisers, they opined that:
(i) the titles and the rights of the property valued in our report are vested in the Group legally and protected by the laws of China;
(ii) there exists no legal impediment to the Group to continue holding the titles and rights of the property valued; and
(iii) the Group has the absolute rights to use together with other rights on the property valued.
5. For accounts reporting purpose, the value of the property in its existing state attributable to the Group as at the Date of Valuation would be in the region of RMB2,770,000 (41.49 per cent. interest).
– IV-70 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011
43. Unit 3B-2 on Level 2 The property comprises a As confirmed by the No Commercial No. 8 Dongyuhe residential unit on management of the Value Street Level 2 of a 7-storey Group, as at the Date of Qingyang District building which was Valuation, the property (See Note 4) Chengdu City completed in 2001. was occupied by the Sichuan Province Group for staff quarters The PRC The gross floor area of purpose. the property is approximately 76 sq. m.
There is no specified land use term under the given title certificate.
Notes:
1. Pursuant to a Building Ownership Certificate known as Rong Fang Quan Zheng Cheng Fang Jian Zheng Zi Di 0686866 Hao 蓉房權證成房監證字第0686866號 dated 17 December 2001 and issued by the People’s Government of Chengdu City, the legally interested party in the property is 深圳飛亞 達（集團）股份有限公司 (translated as Shenzhen Fiyta Holdings Limited), a subsidiary of the Company.
2. We have assigned no commercial value to the property as the Group did not obtain any transferable long-term title certificate, or the like, of the property as at the Date of Valuation.
3. According to the legal opinions given by the Group’s qualified PRC legal advisers, they opined that:
(i) the titles and the rights of the property valued in our report are vested in the Group legally and protected by the laws of China;
(ii) there exists no legal impediment to the Group to continue holding the titles and rights of the property valued; and
(iii) the Group has the absolute rights to use together with other rights on the property valued.
4. For accounts reporting purpose, the value of the property in its existing state attributable to the Group as at the Date of Valuation would be in the region of RMB250,000 (41.49 per cent. interest).
– IV-71 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011
44. Units 712-716 on The property comprises As confirmed by the No Commercial Level 7 of Block B four residential units on management of the Value Kang Da Gong Yu Level 7 of a 15-storey Group, as at the Date of No. 128 Hami Road building which was Valuation, the property (See Note 5) Heping District completed in 1998. was occupied by the Tianjin Group for staff quarters The PRC The gross floor area of purpose. the property is approximately 125.64 sq. m.
The property is subject to an administratively allocated land use rights without a specified land tenure.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate known as No. 01001760 dated 14 May 2003 and issued by the People’s Government of Tianjin City, the land use rights of the property is administrative allocation in nature.
2. Pursuant to a Building Ownership Certificate known as Fang Quan Zheng He Ping Zi Di 10017606 Hao 房權證和平字第10017606號 and issued by the Real Estate Management Bureau of Tianjin City on 14 May 2003, the legally interested party in the property is 深圳飛亞達（集團）股份有限公司 (translated as Shenzhen Fiyta Holdings Limited), a subsidiary of the Company.
3. We have assigned no commercial value to the property as the Group did not obtain any transferable long-term title certificate, or the like, of the property as at the Date of Valuation.
4. According to the legal opinions given by the Group’s qualified PRC legal advisers, they opined that:
(i) the titles and the rights of the property valued in our report are vested in the Group legally and protected by the laws of China;
(ii) there exists no legal impediment to the Group to continue holding the titles and rights of the property valued; and
(iii) the Group has the absolute rights to use together with other rights on the property valued.
5. For accounts reporting purpose, the value of the property in its existing state attributable to the Group as at the Date of Valuation would be in the region of RMB710,000 (41.49 per cent. interest).
– IV-72 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011
45. Unit G on Level 12 The property comprises a As confirmed by the No Commercial No. 30-12-16 residential unit on management of the Value Lin Kiang Zhi Road Level 12 of a 30-storey Group, as at the Date of Yuzhong District building which was Valuation, the property (See Note 5) Chongqing completed in 1994. was occupied by the The PRC Group for staff quarters The gross floor area of and ancillary office the property is purposes. approximately 117.73 sq. m.
There is no specified land use term under the given title certificate.
Notes:
1. Pursuant to a Sales and Purchase Agreement dated March 1996, 深圳飛亞達（集團）股份有限公司 (translated as Shenzhen Fiyta Holdings Limited), a subsidiary of the Company, acquired the property from 重慶渝城房地產開發公司 (translated as Chongqing Yucheng Real Estate Development Company).
2. Pursuant to a Building Ownership Certificate known as Zhong Zi Di Qu 971781 Hao 中字第區 971781號 on 17 November 1997, the legally interested party in the property is 深圳飛亞達（集團） 股份有限公司 (translated as Shenzhen Fiyta Holdings Limited).
3. We have assigned no commercial value to the property as the Group did not obtain any transferable long-term title certificate, or the like, of the property as at the Date of Valuation.
4. According to the legal opinions given by the Group’s qualified PRC legal advisers, they opined that:
(i) the titles and the rights of the property valued in our report are vested in the Group legally and protected by the laws of China;
(ii) there exists no legal impediment to the Group to continue holding the titles and rights of the property valued; and
(iii) the Group has the absolute rights to use together with other rights on the property valued.
5. For accounts reporting purpose, the value of the property in its existing state attributable to the Group as at the Date of Valuation would be in the region of RMB350,000 (41.49 per cent. interest).
– IV-73 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Group IV – Properties held by the Group in the PRC for investment under restricted titles
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011
46. The whole block of The property comprises As confirmed by the No Commercial Fiyta Building the whole of a management of the Value erected on commercial/office Group, as at the Date of Lot No. B210-19 development known as Valuation, the property (See Note 5) Zhen Hua Road Fiyta Building erected on was subject to various CATIC Zone a site having a site area tenancy agreements at a Futian District of approximately 4,976 total monthly rental of Shenzhen City sq. m. RMB1,771,765. Guangdong Province The PRC The development comprises an 8-storey main building and a 10-storey ancillary building. The buildings were completed in 1986 and renovated in 1996, 1998 and 2005, respectively.
The total gross floor area of the property is approximately 19,615 sq. m.
The property is subject to a right to use the land for a term of 50 years from 9 March 1995 to 8 March 2045 for commercial and finance office usages.
Notes:
1. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 5217203 Hao 深圳房地字第 5217203號 and issued by the People’s Government of Shenzhen City on 5 May 1997, the legally interested party in the property was 深圳飛亞達（集團）股份有限公司 (translated as Shenzhen Fiyta Holdings Limited), a subsidiary of the Company.
2. According to the said certificate as mentioned in Note 1 above, the property is not allowed for sale in the open market. To mortgage or to let the property is subject to administrative procedures as required.
3. We have assigned no commercial value to the property as the Group did not obtain any transferable long-term title certificate, or the like, of the property as at the Date of Valuation.
– IV-74 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
4. According to the legal opinions given by the Group’s qualified PRC legal advisers, they opined that:
(i) the titles and the rights of the property valued in our report are vested in the Group legally and protected by the laws of China;
(ii) there exists no legal impediment to the Group to continue holding the titles and rights of the property valued; and
(iii) the Group has the absolute rights to use together with other rights on the property valued.
5. For accounts reporting purpose, the value of the property in its existing state attributable to the Group as at the Date of Valuation would be in the region of RMB106,150,000 (41.49 per cent. interest).
– IV-75 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Group as at Property Description and tenure Particulars of occupancy 31 October 2011
47. The whole of Fiyta The property comprises As confirmed by the No Commercial Technology Building the whole of an management of the Value erected on office/science research Group, as at the Date of Lot No. T205-0010 related development Valuation, part of the (See Note 5) High Technological known as Fiyta property having a total Industrial Estate Technology Building gross floor area of about Shennan Road erected on a site having a 60,897.15 sq. m. was Nanshan District site area of subject to various Shenzhen City approximately 8,612.30 tenancy agreements at a Guangdong Province sq. m. total monthly rental of The PRC RMB3,718,317. The development comprises a 20-storey The remaining portion of building with 3 basement the property was levels. As advised by the occupied by the Group management of the for office/science Company, the building research purpose. was completed in 2004.
The total gross floor area of the property is approximately 67,937.86 sq. m. for office/science research usages.
The property is subject to a right to use the land for a term of 50 years from 20 August 1996 to 19 August 2046 for research and office usages.
Notes:
1. Pursuant to a Contract for the Grant of State-owned Land Use Rights known as Shen Di He Zi (96) 071 Hao 深地合字(96) 071號 made between the Town Planning and Land Administration Bureau of Shenzhen City and 深圳飛亞達（集團）股份有限公司 (translated as Shenzhen Fiyta Holdings Limited), a subsidiary of the Company, on 21 August 1996 and a supplementary agreement dated 22 March 2004, the land use rights of a parcel of land having a site area of approximately 8,612.3 sq. m. has been granted to 深圳飛亞達（集團）股份有限公司 (translated as Shenzhen Fiyta Holdings Limited) for a term of 50 years from 20 August 1996 to 19 August 2046 for high technology/research/laboratory and office usages. The said contract restricted the usage of the land to be owner occupied and a non-alienation clause was applied.
2. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 4000256465 Hao 深房地字第 4000256465號 and issued by the People’s Government of Shenzhen City on 19 January 2006, the legally interested party in the property is 深圳飛亞達（集團）股份有限公司 (translated as Shenzhen Fiyta Holdings Limited).
– IV-76 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
3. We have assigned no commercial value to the property as the Group did not obtain any transferable long-term title certificate, or the like, of the property as at the Date of Valuation.
4. According to the legal opinions given by the Group’s qualified PRC legal advisers, they opined that:
(i) the titles and the rights of the property valued in our report are vested in the Group legally and protected by the laws of China;
(ii) there exists no legal impediment to the Group to continue holding the titles and rights of the property valued; and
(iii) the Group has the absolute rights to use together with other rights on the property valued.
5. For accounts reporting purpose, the value of the property in its existing state attributable to the Group as at the Date of Valuation would be in the region of RMB242,650,000 (41.49 per cent. interest).
– IV-77 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
(B) PROPERTY INTERESTS OF THE TARGET GROUP
The following is the text of a letter, summary of values and valuation certificate prepared for the purpose of incorporation in this circular received from LCH (Asia-Pacific) Surveyors Limited, an independent professional surveyor, in connection with its valuations as at 31 October 2011 of the property interests held by the Target Group.
The readers are reminded that the report which follows has been prepared in accordance with the guidelines set by the International Valuation Standards, Eighth Edition, 2007 (the “IVS”) published by the International Valuation Standards Committee as well as the HKIS Valuation Standards on Properties, First Edition, 2005 (the “HKIS Standards”) published by the Hong Kong Institute of Surveyors (the “HKIS”). Both standards entitle the valuer to make assumptions which may on further investigation, for instance by the readers’ legal representative, prove to be inaccurate. Any exception is clearly stated below. Headings are inserted for convenient reference only and have no effect in limiting or extending the language of the paragraphs to which they refer. Translation of terms in English or in Chinese are for readers’ identification purpose only and have no legal status or implication in this report. This report is prepared and signed off in English format, translation of this report in language other than English shall only be used as a reference and should not be regarded as a substitute for this report. It is emphasised that the findings and conclusions presented below are based on the documents and facts known to the valuer at the Latest Practicable Date of this circular. If additional documents and facts are made available, the valuer reserves the right to amend this report and its conclusions.
17th Floor Champion Building 287–291 Des Voeux Road Central Hong Kong
23 December 2011
The Board of Directors CATIC Shenzhen Holdings Limited Level 25, Hangdu Building, CATIC Zone Shennan Road Central Futian District, Shenzhen City Guangdong Province The People’s Republic of China
– IV-78 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Dear Sirs,
In accordance with the property list and the instructions given by the management of CATIC Shenzhen Holdings Limited (hereinafter referred to as the “Company”) to us to value certain designated properties in which the Target Companies (as defined in the Circular) and its subsidiaries (collectively, together with the Target Companies hereinafter referred to as the “Target Group”) have interests in the People’s Republic of China (hereinafter referred to as the “PRC” or “China”), we confirm that we have conducted inspections, made relevant enquiries and obtained such further information as we consider necessary to support our findings and conclusion of values of the properties as at 31 October 2011 (hereinafter referred to as the “Date of Valuation”) for the Company’s internal management reference purpose.
We understand that the use of our work product (regardless of form of presentation) will form part of the Company’s business due diligence but we have not been engaged to make specific sales or purchase recommendations, or to give opinion for financing arrangement. We further understand that the use of our work product will not supplant other due diligence which the management of the Company should conduct in reaching its business decision regarding the properties valued. Our work is designed solely to provide information that will give a reference to the management of the Company in forming part of its due diligence, and our work should not be the only factor to be referenced by the Company. Our findings and conclusion of values of the properties are documented in a valuation report and submitted to the Company at today’s date.
At the request of the management of the Company, we prepared this summary report (including this letter, summary of values and valuation certificate) to summarise our findings and conclusions as documented in the valuation report for the purpose of inclusion in this circular at today’s date for the Company’s shareholders’ reference. Terms herein used without definition shall have the same meanings as in the valuation report, and the assumptions and caveats adopted in the valuation report also applied to this summary report.
Valuation of the properties in Groups I and II
Basis of valuation and assumptions
According to the IVS, which the HKIS Standards also follows, there are two valuation bases in valuing property with absolute title namely market value basis and valuation bases other than market value. In this engagement, we have provided our values of the properties on market value basis.
The term “Market Value” is defined by the IVS and the HKIS Standards as “the estimated amount for which a property should exchange on the Date of Valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.
Unless otherwise stated, our valuations of the properties have been made on the assumptions that, as at the Date of Valuation,
1. the legally interested party in each of the properties has absolute title to its relevant property interest;
– IV-79 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
2. the legally interested party in each of the properties has free and uninterrupted rights to assign its relevant property interest for the whole of the unexpired terms as granted, and any premiums payable have already been fully paid;
3. the legally interested party in each of the properties sells its relevant property interest in the market in its existing state without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any other similar arrangement which could serve to increase the value of the property interest;
4. each of the properties has obtained relevant government’s approvals for the sale of the property and is able to dispose of and transfer free of all encumbrances (including but not limited to the cost of transaction) in the market; and
5. the properties can be freely disposed of and transferred free of all encumbrances as at the Date of Valuation for its existing uses in the market to both local and overseas purchasers without payment of any premium to the government.
Should any of the above not be the case, it will have adverse impact to the values as reported.
Approach to value
There are three generally accepted approaches in arriving at the market value of a property on an absolute title basis, namely the Sales Comparison Approach (or known as the Market Approach), the Cost Approach and the Income Approach.
In valuing Property Nos. 1-3, 5-9, 12-17, 19, 23, 24 and 25 in Group I and Property No. 31 in Group II, we have adopted the Sales Comparison Approach on the assumption that each of the properties was sold with the benefit of vacant possession as at the Date of Valuation. This approach considers the sales, listings or offerings of similar or substitute properties and related market data and establishes a value of a property that a reasonable investor would have to pay for a similar property of comparable utility and with an absolute title.
Having considered the general and inherent characteristics of Property Nos. 4, 10, 11, 18 and 20 in Group I, we have adopted the depreciated replacement cost (“DRC”) method which is a procedural valuation approach and is an application of the Cost Approach in valuing specialised properties like these properties. The use of this approach requires an estimate of the market value of the land use rights for its existing use, and an estimate of the new replacement cost of the buildings and other site works from which deductions are then made to allow for age, condition, and functional obsolescence taken into account of the site formation cost and those public utilities connection charges to the properties. The land use rights of these properties have been determined from market-based evidences by analysing similar sales or offerings or listings of comparable properties.
– IV-80 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
The valuations of these properties are on the assumption that each of the properties are subject to the test of adequate potential profitability of the business having due regard to the value of the total assets employed and the nature of the operation.
By using this method, the land should be assumed to have the benefit of planning permission for the replacement of the existing buildings and it is always necessary when valuing the land, to have regard to the manner in which the land is developed by the existing buildings and site works, and the extent to which these realise the full potential value of the land. When considering a notional replacement site, it should normally be regarded as having the same physical and location characteristics as the actual site, other than characteristics of the actual site which are not relevant, or are of no value, to the existing use. In considering the buildings, the gross replacement cost of the buildings should take into consideration everything which is necessary to complete the construction from a new green field site to provide buildings as they are, at the Date of Valuation, fit for and capable of being occupied and used for the current use. These costs to be estimated are not to erect buildings in the future but have the buildings available for occupation at the date of valuation, the work having commenced at the appropriate time.
We need to state that our opinion of value of each Property Nos. 4, 10, 11, 18 and 20 in Group I is not necessarily intended to represent the amount that might be realised from disposition of its land use rights or various buildings on piecemeal basis in the open market.
In valuing the Property Nos. 21, 22 in Group I and Property Nos. 26-29 in Group II, we have adopted the investment method of the Income Approach (or sometimes referred to as a method of the Market Approach for the reversionary interests and the rate of return are market-derived) by taking into account the current rent receivable from the existing tenancy agreements and the reversionary potential of the property interests. Our opinion of value of each of the properties in this group is subject to the existing tenancy agreements, and otherwise with the benefit of vacant possession.
Unless otherwise stated, we have not carried out any valuation on redevelopment basis to these properties and the study of possible alternative development options and the related economics do not come within the scope of our work for such properties.
Valuation of the property in Group III
In valuing the properties in Group III, we have attributed no commercial value to the properties as the land use rights of these properties are administratively allocated in nature and/or transferability of such property is restricted.
– IV-81 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Matters that might affect the values reported
For the sake of valuation, we have adopted the areas as shown in the copies of the document as provided and no further verification work has been conducted. Should it be established subsequently that the adopted areas were not the latest approved, we reserve the rights to revise our report and the valuations accordingly.
No allowance has been made in our valuations for any charges, mortgages outstanding premium or amounts owing on the properties valued nor any expenses or taxation which may be incurred in effecting a sale for each of the properties in Groups I and II. Unless otherwise stated, it is assumed that the properties are free from all encumbrances, restrictions, and outgoings of an onerous nature which could affect their values.
In our valuations, we have assumed that each of the properties in Groups I and II is able to sell and purchase in the market without any legal impediment (especially from the regulators). Should this not be the case, it will affect the reported values significantly. The readers are reminded to have their own legal due diligence work on such issues. No responsibility or liability is assumed.
As at the Latest Practicable Date of this circular, we are unable to identify any adverse news against the properties which may affect the reported values in our work product. Thus, we are not in the position to report and comment on its impact (if any) to the properties. However, should it be established subsequently that such news did exist at the Date of Valuation, we reserve the right to adjust the values reported herein.
Establishment of titles
Based on the purpose of this engagement, the management of the Company was requested to provide us the necessary copies of documents to support the Target Group’s title to the properties, and that the Target Group has free and uninterrupted rights to transfer, to mortgage or to let its relevant property interests (in this instance, an absolute title) for the whole of the unexpired terms as granted free of all encumbrances and any premiums payable have already been paid in full or outstanding procedures have been completed (if any). Various copies of documents are provided to us for the purpose of this valuation. However, we have not examined the original documents to verify the ownership and encumbrances, or to ascertain the existence of any amendments which may not appear on the copies handed to us. All documents disclosed (if any) are for reference only and no responsibility is assumed for any legal matters concerning the legal titles and the rights (if any) to the properties valued. Any responsibility for our misinterpretation of the documents cannot be accepted.
The land registration system of China forbids us to search the original documents of the properties from the relevant authorities in order to verify legal titles or any material encumbrances which may not appear on the copies handed to us. We need to state that we are not legal professional and are not qualified to ascertain the titles and to report any encumbrances that may be registered against the properties. However, we have complied with the requirements as stated in Practice Note No. 12 of the Rules Governing the Listing
– IV-82 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP of Securities on The Stock Exchange of Hong Kong Limited and relied solely on the copies of document and the copy of the PRC legal opinions as provided by the Company with regard to the legal title of the properties. The PRC legal opinions was prepared by a PRC legal adviser 北京市嘉源律師事務所 (Jia Yuan Law Firm) dated December 2011. No responsibility or liability is assumed in relation to those legal opinions.
Based on the legal opinions, we have further assumed that there would have no legal impediment (especially from the regulators) to the Target Group to dispose the properties in Groups I and II on the market. Should this not be the case, it will affect our findings and conclusion of values in this report significantly. The readers are reminded to have their own legal due diligence work on such issues. No responsibility or liability is assumed.
Inspections and investigations of the properties in accordance with Valuation Standard 4 of the HKIS Standards
We have conducted inspection to the exterior, and where possible, the interior of most of the properties in respect of which we have been provided with such information as we have requested for the purpose of our valuations. We have not inspected those parts of the properties which were covered, unexposed or inaccessible and such parts have been assumed to be in a reasonable condition. We cannot express an opinion about or advise upon the condition of the properties and our work product should not be taken as making any implied representation or statement about the condition of the properties. No structural survey, investigation or examination has been made, but in the course of our inspections, we did not note any serious defects in the properties inspected. We are not, however, able to report that the properties are free from rot, infestation or any other structural defects. No tests were carried out to the building utilities (if any) and we are unable to identify those services either covered, unexposed or inaccessible.
Our valuations have been made on the assumption that no unauthorised alteration, extension or addition has been made in the properties, and that the inspections and the use of this report do not purport to be a building survey of the properties. We have also assumed that the properties are free of rot and inherent danger or unsuitable materials and techniques.
We have not carried out on-site measurements to verify the correctness of the areas of the properties, but have assumed that the areas shown on the documents and official layout plans handed to us are correct. All dimensions, measurements and areas are approximations.
Our engagement and the agreed procedures to value the properties did not include an independent land survey to verify the legal boundaries of the properties. We need to state that we are not in the land survey profession, therefore, we are not in the position to verify or ascertain the correctness of the legal boundaries of the properties that appeared on the documents handed to us. No responsibility from our part is assumed. The management of the Company or interested party in the properties should conduct their own legal boundaries due diligence work to serve their purposes.
– IV-83 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
We have not arranged for any investigation to be carried out to determine whether or not any deleterious or hazardous material has been used in the construction of the properties, or has since been incorporated, and we are therefore unable to report that the properties are free from risk in this respect. For the purpose of our valuations, we have assumed that such investigation would not disclose the presence of any such material to any significant extent.
We are not aware of the content of any environmental audit or other environmental investigation or soil survey which may have been carried out on the properties and which may draw attention to any contamination or the possibility of any such contamination. In undertaking our work, we have been instructed to assume that no contaminative or potentially contaminative uses have ever been carried out in the properties. We have not carried out any investigation into past or present uses, either of the properties or of any neighbouring land, to establish whether there is any contamination or potential for contamination to the properties from these uses or sites, and have therefore assumed that none exists. However, should it be established subsequently that contamination, seepage or pollution exists at the properties or on any neighbouring land, or that the premises have been or are being put to a contaminative use, this might reduce the values now reported.
Sources of information and its verification in accordance with Valuation Standard 5 of the HKIS Standards
In the course of our work, we have provided with copies of the documents regarding the properties, and these copies have been referenced without further verifying with the relevant bodies and/or authorities. Our procedures to value did not require us to conduct any searches or inspect the original documents to verify the ownership or to verify any amendment which may not appear on the copies handed to us. We need to state that we are not legal professional, therefore, we are not in the position to advise and comment on the legality and effectiveness of the documents provided by the management of the Company.
We have relied solely on the information provided by the management of the Company or its appointed personnel without further verification, and have fully accepted advice given to us on such matters as planning approvals or statutory notices, locations, titles, easements, tenure, occupation, lettings, rental, site and floor areas and all other relevant matters.
The scope of valuation has been determined by reference to the property list and its classification on the account book provided by the management of the Company. The properties on the list have been included in our valuations. The management of the Company has confirmed to us that the Target Group has no property interest other than those specified on the list supplied to us.
Our valuations have been made only based on the advice and information made available to us. While a limited scope of general inquiries had been made to the local property market practitioners, we are not in a position to verify and ascertain the correctness of the advice given by the relevant personnel. No responsibility or liability is assumed.
– IV-84 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Information furnished by others, upon which all or portions of our report are based, is believed to be reliable but has not been verified in all cases. Our procedures to value or work do not constitute an audit, review, or compilation of the information provided. Thus, no warranty is made nor liability assumed for the accuracy of any data, advice, opinions, or estimates identified as being furnished by others which have been used in formulating our report.
When we adopted the work products from other professions, external data providers and the management of the Company in our work, the assumptions and caveats adopted by them in arriving at their figures also applied to this report. The procedures we have taken do not provide all the evidence that would be required in an audit and, as we have not performed an audit, accordingly, we do not express an audit opinion.
We are unable to accept any responsibility for the information that has not been supplied to us by the management of the Company or its appointed personnel. Also, we have sought and received confirmation from the management of the Company or its appointed personnel that no material factors have been omitted from the information supplied. Our analysis and valuation are based upon full disclosure between us and the Company of material and latent facts that may affect our work.
We have had no reason to doubt the truth and accuracy of the information provided to us by the management of the Company or its appointed personnel. We consider that we have been provided with sufficient information to reach an informed view, and have had no reason to suspect that any material information has been withheld.
Unless otherwise stated, all monetary amounts are in Renminbi Yuan (“RMB”).
Limiting conditions in this summary report
Our findings and conclusion of values of the properties in this summary report are valid only for the stated purpose and only for the Date of Valuation, and for the sole use of the named Company. We or our personnel shall not be required to give testimony or attendance in court or to any government agency by reason of this summary report or the detailed report, and the valuers accept no responsibility whatsoever to any other person.
No responsibility is taken for changes in market conditions and local government policy, and no obligation is assumed to revise this summary report or the detailed report to reflect events or conditions which occur or make known to us subsequent to the date hereof.
Neither the whole nor any part of this summary report or any reference made hereto may be included in any published documents, circular or statement, or published in any way, without our written approval of the form and context in which it may appear. Nonetheless, we consent to the publication of this summary report in this circular for the Company’s shareholders’ reference.
– IV-85 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Our maximum liability relating to services rendered under this engagement (regardless of form of action, whether in contract, negligence or otherwise) shall be limited to the charges paid to us for the portion of its services or work products giving rise to liability. In no event shall we be liable for consequential, special, incidental or punitive loss, damage or expense (including without limitation, lost profits, opportunity costs, etc.), even if it has been advised of their possible existence.
The Company is required to indemnify and hold us and our personnel harmless from any claims, liabilities, costs and expenses (including, without limitation, attorney’s fees and the time of our personnel involved) brought against, paid or incurred by us at a time and in any way based on the information made available in connection with our report except to the extent that any such loses, expenses, damages or liabilities are ultimately determined to be the result of gross negligence of our engagement team in conducting its work. This provision shall survive even after the termination of this engagement for any reason.
Statements
The attached valuation certificate is prepared in line with the requirements contained in Chapter 5 and Practice Note No. 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited as well as the guidelines contained in the IVS and the HKIS Standards. The valuations have been undertaken by valuers (see End Notes), acting as external valuers, qualified for the purpose of this valuation.
We retain a copy of this summary report and the detailed report together with the data from which it was prepared, and these data and documents will, according to the Laws of Hong Kong, keep for a period of 6 years from the date of this report and to be destroyed thereafter. We considered these records confidential, and we do not permit access to them by anyone, with the exception for law enforcement authorities or court order, without the Company’s authorisation and prior arrangement made with us. Moreover, we will add the Company’s information into our client list for our future reference.
The valuations of the properties depend solely on the assumptions made in this report and not all of which can be easily quantified or ascertained exactly. Should some or all of the assumptions prove to be inaccurate at a later date, it will affect the reported values significantly.
We hereby certify that the fee for this service is not contingent upon our conclusion of values and we have no significant interest in the properties, the Target Group or the values reported.
– IV-86 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Our valuations are summarised below and the valuation certificate is attached.
Yours faithfully, For and on behalf of LCH (Asia-Pacific) Surveyors Limited
Joseph Ho Chin Choi Elsa Ng Hung Mui BSc PgD MSc RPS (GP) BSc MSc RPS(GP) Managing Director Director
Contributing valuers: Terry Fung Chi Hang BSc MSc Leslie Wong Tak Chiu BSc BBA Eugene Lai Chung Yee ASc
Notes:
1. Mr. Joseph Ho Chin Choi has been conducting asset valuations and/or advisory work in Hong Kong, Macau, Taiwan, mainland China, the Philippines, Vietnam, Malaysia, Singapore, Thailand, Bangladesh, Mongolia, Japan, Australia, Kazakhstan, Madagascar, Scotland, Finland, Germany, Poland, Brazil, Argentina, Guyana, Venezuela, Canada and the United States of America for various purposes since 1988. He is a Fellow of The HKIS and a valuer on the List of Property Valuers for Undertaking Valuation for Incorporation or Reference in Listing Particulars and Circulars and Valuation in Connection with Takeovers and Mergers published by The HKIS.
2. Ms Elsa Ng Hung Mui has been conducting valuation of real estate properties in Hong Kong since 1994 and has more than 12 years of experience in valuing properties in mainland China. She is a Member of The HKIS and a valuer on the List of Property Valuers for Undertaking Valuation for Incorporation or Reference in Listing Particulars and Circulars and Valuation in Connection with Takeovers and Mergers published by The HKIS.
3. Mr. Terry Fung Chi Hang is a graduate surveyor who has been involved in valuation of real estate properties both in Hong Kong and the PRC for more than 6 years. He involved in various asset valuations, mine valuation and agriculture property assets valuation.
4. Mr. Leslie Wong Tak Chiu is a graduate surveyor who has been involved in valuation of real estate properties both in Hong Kong and the PRC for more than 5 years. He involved in various asset valuations, mine valuation, toll road valuation and agriculture property assets valuation.
5. Mr. Eugene Lai Chung Yee is an assistant graduated surveyor who has been involved in valuation of real estate properties both in Hong Kong and the PRC for more than 3 years after graduation.
– IV-87 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
SUMMARY OF VALUES
Group I – Properties held and occupied by the Target Group under long-term title certificates in the PRC and valued on market value basis
Amount of Amount of valuation in valuation its existing state in its existing Interest attributable to the state as at of the Target Target Group as at Property 31 October 2011 Group 31 October 2011 RMB RMB
1. 131 various car parking spaces 36,160,000 39.52 per cent. 14,290,000 on Basement Level 1 Nos. 7-11 Hu Bin Xi Lu Siming District Xiamen City Fujian Province The PRC
2. 2 office units on Level 10 of 9,600,000 39.52 per cent. 3,790,000 Block A (known as Fujian Great Power Building) of Dai Xi Yang Hai Jing Cheng No. 9 Hu Bin Xi Lu Siming District Xiamen City Fujian Province The PRC
3. Various commercial units 433,380,000 39.52 per cent. 171,270,000 known as Nos. 1D, 2F, 3F, 4F and 5F Dai Xi Yang Hai Jing Cheng No. 9 Hu Bin Xi Lu Siming District Xiamen City Fujian Province The PRC
– IV-88 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of Amount of valuation in valuation its existing state in its existing Interest attributable to the state as at of the Target Target Group as at Property 31 October 2011 Group 31 October 2011 RMB RMB
4. A warehouse complex erected 90,150,000 39.52 per cent. 35,630,000 on two parcels of land (Lot Nos. 1917220800004 and 1917220800005) and located at Shixia Village Dalang Town Dongguan Guangdong Province The PRC
5. The whole of Levels 1-3 and 542,430,000 39.52 per cent. 214,370,000 car parking spaces on Basement Zhong Yin Plaza No. 111 Dong Zong Lu Guancheng District Dongguan Guangdong Province The PRC
6. Units 101 and 105 on Level 1 894,890,000 39.52 per cent. 353,660,000 Podium of Dingcheng Building Zhenhua Road CATIC Zone Futian District Shenzhen City Guangdong Province The PRC
– IV-89 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of Amount of valuation in valuation its existing state in its existing Interest attributable to the state as at of the Target Target Group as at Property 31 October 2011 Group 31 October 2011 RMB RMB
7. Units 522 – 524 on Level 5 2,420,000 39.52 per cent. 960,000 Yu Yuan Xin Yuan Long Gang District Shenzhen City Guangdong Province The PRC
8. A parcel of land known as Lot 520,940,000 39.52 per cent. 205,880,000 No. T107-0013 and located at northern side of Dong Bin Lu Nan Shan District Shenzhen City Guangdong Province The PRC
9. A parcel of land known as Lot 26,100,000 39.52 per cent. 10,310,000 No. T107-0022(G) and located at Houhai Zhong Xin Qu Nanshan District Shenzhen City Guangdong Province The PRC
10. A warehouse complex located 46,770,000 39.52 per cent. 18,480,000 at Hua Qiao Cheng Highway South Shen Yun Lu North Nanshan District Shenzhen City Guangdong Province The PRC
– IV-90 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of Amount of valuation in valuation its existing state in its existing Interest attributable to the state as at of the Target Target Group as at Property 31 October 2011 Group 31 October 2011 RMB RMB
11. A factory complex located at 388,710,000 60 per cent. 233,230,000 Dongwei Group Taizi Village Daqiao Town Jiangdu City Jiangsu Province The PRC
12. A parcel of land known 52,700,000 39.52 per cent. 20,830,000 as Lot No. 2010DG48 and located at West of Jizhou Jinggangshang Main Road and North of Square Road South Jizhou District Jian City Jiangxi Province The PRC
13. 12 various office units on 125,300,000 100 per cent. 125,300,000 Levels 26-28 CATIC Tower No. 212 Jiangning Lu Jingan District Shanghai The PRC
14. Portion A of a factory complex 43,410,000 75 per cent. 32,560,000 erected on a parcel of land and located at No. 80 Huashen Road Waigaoqiao Free Trade Zone Shanghai The PRC
15. Unit No. 504 on Level 5 and 6,130,000 100 per cent. 6,130,000 Unit Nos.601–604 on Level 6 No. 8 Luo Xiu Xin Cun Xuhui District Shanghai The PRC
– IV-91 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of Amount of valuation in valuation its existing state in its existing Interest attributable to the state as at of the Target Target Group as at Property 31 October 2011 Group 31 October 2011 RMB RMB
16. Units 1101 and 1103 on 4,540,000 100 per cent. 4,540,000 Level 12 Aijian Building Lane No. 1 No. 590 Wan Ping Nan Lu Xuhui District Shanghai The PRC
17. Three various residential units 1,680,000 55.91 per cent. 940,000 located at Eastern Section 1 Erhuan Road Chenghua District Chengdu City Sichuan Province The PRC
18. A factory complex located at 159,000,000 55.91 per cent. 88,900,000 No. 66 Donghong Road Chenghua District Chengdu City Sichuan Province The PRC
19. A parcel of land located at 5,000,000 55.91 per cent. 2,800,000 No. 1 Jianshe South Second Road Chenghua District Chengdu City Sichuan Province The PRC
20. A factory complex located at 103,100,000 55.91 per cent. 57,640,000 Lot No. GX2007-03-05 Northwest Section Chengdu Gaoxin Western Park Area Chengdu City Sichuan Province The PRC
– IV-92 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of Amount of valuation in valuation its existing state in its existing Interest attributable to the state as at of the Target Target Group as at Property 31 October 2011 Group 31 October 2011 RMB RMB
21. Level 1 of 1,870,000 100 per cent. 1,870,000 No. 26 Zhonghe South Road Shangchen District Hangzhou City Zhejiang Province The PRC
22. Level 1 of 3,400,000 100 per cent. 3,400,000 No. 28 Zhonghe South Road Shangchen District Hangzhou City Zhejiang Province The PRC
23. Rooms 301 and 302 of 3,140,000 100 per cent. 3,140,000 unit 3 of Block 71 Taizi Yuan Hupan Huayuan Xihu District Hangzhou City Zhejiang province The PRC
24. Room 401 of 1,550,000 100 per cent. 1,550,000 unit 3 of Block 6 Kangle Xin Cun Xihu District Hangzhou City Zhejiang province The PRC
25. Units 1401-1405 on Level 14 71,360,000 100 per cent. 71,360,000 Tianji Building Xihu District Hangzhou City Zhejiang Province The PRC
Sub-total: RMB3,573,730,000 RMB1,682,830,000
– IV-93 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Group II – Properties held by the Target Group for investment under long-term title certificates in the PRC and valued on market value basis
Amount of Amount of valuation in valuation its existing state in its existing Interest attributable to the state as at of the Target Target Group as at Property 31 October 2011 Group 31 October 2011 RMB RMB
26. A warehouse complex erected on 16,140,000 100 per cent. 16,140,000 a parcel of land and located at No. 191 Lian Yi Lu Baoshan District Shanghai The PRC
27. Portion B of a factory complex 166,640,000 75 per cent. 124,980,000 located at No. 80 Huashen Road Waigaoqiao Free Trade Zone Shanghai The PRC
28. The whole of Shanghai Grand 189,000,000 50 per cent. 94,500,000 Skylight Gardens Hotel and located at No. 100 Baise Road Xuhui District Shanghai The PRC
29. 2 office units on the 39,460,000 100 per cent. 39,460,000 whole of Level 8 and 9 Offshore Oil Tower No. 583 Ling Ling Lu Xuhui District Shanghai The PRC
30. Unit Nos. 1, 2 and 6 on 7,230,000 100 per cent. 7,230,000 Level 1 and Unit 104 on Level 2 Aijian Building Lane No. 1 No. 590 Wan Ping Nan Lu Xuhui District Shanghai The PRC
Sub-total: RMB418,470,000 RMB282,310,000
– IV-94 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Group III – Properties held by the Target Group for investment under restricted title in the PRC
Amount of Amount of valuation in valuation its existing state in its existing Interest attributable to the state as at of the Target Target Group as at Property 31 October 2011 Group 31 October 2011 RMB RMB
31. A factory complex erected on No Commercial 95 per cent. No Commercial a parcel of land and located at Value Value No. 8398 Beiqing Road Qingpu District Shanghai The PRC
32. Whole of Levels 2 to 4 No Commercial 95 per cent. No Commercial No. 9223 Beiqing Road Value Value Qingpu District Shanghai The PRC
Sub-total: Nil Nil
Grand Total: RMB3,992,200,000 RMB1,965,140,000
– IV-95 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
VALUATION CERTIFICATE
Group I – Properties held and occupied by the Target Group under long-term title certificates in the PRC and valued on market value basis
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
1. 131 various car The property comprises We have inspected and 36,160,000 parking spaces on 131 various car parking confirmed by the Basement spaces on Basement Level management of the (100 per cent. Level 1 1 of a 37-storey Company, as at the Date interest) Nos. 7-11 commercial building plus of Valuation, the property Hu Bin Xi Lu a 2-storey basement was occupied by the 14,290,000 Siming District which was completed in Target Group for car Xiamen City about 1999. parking purpose. (39.52 per cent. Fujian Province interest) The PRC It has a total gross floor area of approximately 5,811.16 sq. m.
The property is subject to a right to use the land for a term commencing from 3 January 1993 to 2 January 2063 for car parking usage.
Notes:
1. Pursuant to 131 various Realty Title Certificates issued by Xiamen Municipal Land Resources and Housing Administration Bureau (廈門市國土資源與房產管理局), the legally interested party in 131 car parking spaces having a total gross floor area of approximately 5,811.16 sq. m. is Xiamen Rainbow Shopping Mall Company Limited (廈門市天虹商場有限公司) (hereinafter referred to as “Xiamen Rainbow Shopping”), a wholly owned subsidiary of Rainbow Department Store Co., Ltd., for 70 years commencing from 3 January 1993 to 2 January 2063 for car parking usage.
2. Pursuant to a copy of the Enterprise Legal Person Business Licence dated 5 August 2011, Xiamen Rainbow Shopping is a limited liability company with an operation period commencing from 22 April 2003 to 21 April 2033 with a registered capital of RMB10,000,000.
3. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the land legally by the way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-96 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
2. 2 office units on The property comprises 2 We have inspected and 9,600,000 Level 10 of Block A office units on Level 10 of confirmed by the (known as Fujian a 37-storey commercial management of the (100 per cent. Great Power building plus a 2-storey Company, as at the Date interest) Building) of Dai Xi basement which was of Valuation, the property Yang Hai Jing Cheng completed in about 1999. was occupied by the 3,790,000 No. 9 Hu Bin Xi Lu Target Group for office Siming District It has a total gross floor purpose. (39.52 per cent. Xiamen City area of approximately interest) Fujian Province 676.23 sq. m. The PRC The property is subject to a right to use the land for a term commencing from 3 January 1993 to 2 January 2043 for office usage.
Notes:
1. Pursuant to two various Realty Title Certificates known as Xia Di Fang Zheng Di 00489491 and 00489758 Hao and dated 6 November 2006 and 7 November 2006, respectively, and issued by Xiamen Municipal Land Resources and Housing Administration Bureau (廈門市國土資源與房產管 理局), the legally interested party in the office units having a total gross floor area of approximately 676.23 sq. m. is Xiamen Rainbow Shopping Mall Company Limited (廈門市天虹商 場有限公司) (hereinafter referred to as “Xiamen Rainbow Shopping”), a wholly owned subsidiary of Rainbow Department Store Co., Ltd., for a term commencing from 3 January 1993 to 2 January 2043 for office usage.
2. Pursuant to a copy of the Enterprise Legal Person Business Licence dated 5 August 2011, Xiamen Rainbow Shopping is a limited liability company with an operation period commencing from 22 April 2003 to 21 April 2033 with a registered capital of RMB10,000,000.
3. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the land legally by the way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-97 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
3. Various commercial The property comprises 5 We have inspected and 433,380,000 units known as various commercial units confirmed by the Nos. 1D, 2F, 3F, 4F on Levels 1-5 of a management of the (100 per cent. and 5F 37-storey commercial Company, as at the Date interest) Dai Xi Yang Hai Jing building plus a 2-storey of Valuation, the property Cheng basement which was was occupied by the 171,270,000 No. 9 Hu Bin Xi Lu completed in about 1999. Target Group as a Siming District department store. (39.52 per cent. Xiamen City It has a total gross floor interest) Fujian Province area of approximately The PRC 19,488.08 sq. m.
The property is subject to a right to use the land for a term commencing from 3 January 1993 to 2 January 2033 for commercial service usage.
Notes:
1. Pursuant to five various Realty Title Certificates known as Xia Di Fang Zheng Di 00489489, 00489497, 00489599, 00489600 and 00489935 Hao and issued by Xiamen Municipal Land Resources and Housing Administration Bureau (廈門市國土資源與房產管理局), the legally interested party in the units having a total gross floor area of approximately 19,488.08 sq. m. is Xiamen Rainbow Shopping Mall Company Limited (廈門市天虹商場有限公司) (hereinafter referred to as “Xiamen Rainbow Shopping”), a wholly owned subsidiary of Rainbow Department Store Co., Ltd., for a term of 40 years commencing from 3 January 1993 to 2 January 2033 for commercial usage.
2. Pursuant to a copy of the Enterprise Legal Person Business Licence dated 5 August 2011, Xiamen Rainbow Shopping is a limited liability company with an operation period commencing from 22 April 2003 to 21 April 2033 with a registered capital of RMB10,000,000.
3. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the land legally by the way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-98 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
4. A warehouse complex The property comprises We have inspected and 90,150,000 erected on two two parcels of land confirmed by the parcels of land having a total site area of management of the (100 per cent. (Lot Nos. approximately 87,833.4 Company, as at the Date interest) 1917220800004 and sq. m. with 3 various of Valuation, the property 1917220800005) and buildings and structures was occupied by the 35,630,000 located at Shixia erected thereon. They Target Group for Village Dalang Town were completed in 2010. warehouse, ancillary (39.52 per cent. Dongguan office and other interest) Guangdong Province The buildings and supporting purposes. The PRC structures have a total gross floor area of approximately 21,164.51 sq. m. (see Note 8 below)
Apart from the above, there were 2 buildings under construction on site during the time of inspection. They include a warehouse and a dormitory building having a total gross floor area of approximately 29,930.10 sq. m. (See Note 6 below)
The property is subject to a right to use the land for a term till 10 August 2054 for industrial purpose.
Notes:
1. Pursuant to two various Contract for the Transfer of State-owned Land Use Rights both dated 18 July 2007 and made between 東莞市拓普電器有限公司 (translated as Dongguan Top Electrical Co., Ltd.) and 東莞市天虹工貿有限公司 (translated as Dongguan Rainbow Industry and Trade Company Limited and hereinafter referred to as “Dongguan Rainbow Industry”), the land use rights of two parcels of land having a total site area of approximately 87,833.4 sq. m. was transferred to Dongguan Rainbow Industry, a wholly owned subsidiary of Rainbow Department Store Co,. Ltd., for a term commencing from 18 July 2007 to 10 August 2054 for industrial usage at a consideration of RMB40,417,000.
2. Pursuant to two various State-owned Land Use Rights Certificates known as Dong Fu Guo Yong (2004) Di Te 794-2 Hao (東府國用(2004)第特794-2號) and Dong Fu Guo Yong (2004) Di Te 794-4 Hao (東府國用(2004)第特794-4號及 both dated 23 August 2007 and issued by the People’s Government of Dongguan City, the legally interest party in the land having a total site area of approximately 87,833.4 sq. m. is Dongguan Rainbow Industry.
3. Pursuant to a Planning Permit for Using Construction Usage Land 建設用地規劃許可證 known as Di Zi Di 2008-16-10003 Hao (地字第2008-16-10003號) dated 17 April 2008, Dongguan Rainbow Industry is permitted to develop a parcel of land having a site area of approximately 84,671.48 sq. m. for M1 industrial usage 一類工業用地.
– IV-99 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
4. Pursuant to two various Construction Planning Permit 建設工程規劃許可證 known as Jian Zi Di 2008-16-10022 and 2008-16-10023 Hao, Dongguan Rainbow Industry is permitted to develop 2 buildings which would have a total gross floor area of approximately 29,760.58 sq. m. upon completion.
5. Pursuant to three various Permit to Commence Construction 建築工程施工許可證 known as Nos. 4419002009101500101, 4419002011040700101 and 4419002011040700201, dated 15 October 2009 and 7 April 2011, Dongguan Rainbow Industry is permitted to develop 3 buildings which would have a total gross floor area of approximately 50,412.9 sq. m. upon completion.
6. According to the information provided by the management of the Company, there were 2 buildings which classified as construction in progress items at the time of inspection. Pursuant to the above mentioned Permit to Commence Construction, the area breakdowns for each of the buildings upon completion are as follows:
Gross Floor Area (sq.m.)
(i) a 6-storey dormitory building 9,244.78 (ii) a 2-storey warehouse (phase 2) 20,685.32
Total: 29,930.10
7. According to the information provided by the management of the Company, the cost of the construction in progress item mentioned in Note 6 above was approximately RMB5,030,000 as at the Date of Valuation. In our valuation, the construction in progress items was reported at cost spent as at the Date of Valuation.
8. According to the on-site inspection, three various buildings and structures with no Realty Title Certificate but having a total gross floor area of approximately 21,164.51 sq. m. were erected on the land as mentioned in Note 1. They are listed as follows:
Gross Floor Area (sq.m.)
(i) a 2-storey warehouse (phase 1) 20,685.32 (ii) a single storey switch room 386.27 (iii) a single storey toilet 92.92
Total: 21,164.51
9. Pursuant to a copy of the Enterprise Legal Person Business Licence dated 10 September 2010, Dongguan Rainbow Industry is a limited company with an operation period commencing from 23 May 2007 for an unspecified term with a registered capital of RMB10,000,000.
10. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the land legally by the way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-100 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
5. The whole of Levels The property comprises We have inspected and 542,430,000 1-3 and car parking the whole of Levels 1, 2 confirmed by the spaces on Basement and 3 of a 7-storey management of the (100 per cent. Zhong Yin Plaza commercial building Company, as at the Date interest) No. 111 Dong Zong which was completed in of Valuation, the property Lu Guancheng about 1994. was occupied by the 214,370,000 District Target Group as a Dongguan It has a total gross floor department store. (39.52 per cent. Guangdong Province area of approximately interest) The PRC 36,329.97 sq. m. (see Note 2).
The property is subject to a right to use the land for a term till 12 August 2064 for non-domestic (commercial) usage.
Notes:
1. Pursuant to three various Sales and Purchase Agreements all dated 20 August 2009 and made between 東莞中銀廣場建造有限公司 (translated as Dongguan Zhong Yin Plaza Construction Company Limited) and Dongguan Rainbow Shopping Mall Company Limited (東莞市天虹商場有 限公司) (hereinafter referred to as “Dongguan Rainbow Shopping”), a wholly owned subsidiary of Rainbow Department Store Co., Ltd., the whole of Levels 1, 2 and 3 having a total gross floor area of approximately 36,329.97 sq. m. were contracted to be transferred to Dongguan Rainbow Shopping for commercial usage. According to the agreements, the property is held under the Contract for the Grant of State-owned Land Use Rights known as Dong Fu Guo Yong (1994) Zi Di Te 468 Hao for a term commencing from 13 August 1994 to 12 August 2064 for commercial/residential usages at a consideration of RMB392,400,000.
2. Pursuant to three various Realty Title Certificates known as Yue Fang Di Quan Zheng Guan Zi Di 0100134417, 0100134418 and 0100134419 Hao and issued by 東莞市房產管理局 (translated as Dongguan City Housing Administrative Bureau), the legally interested party in the property having a total gross floor area of approximately 36,329.97 sq. m. is Dongguan Rainbow Shopping.
3. Pursuant to 108 various Realty Title Certificates issued by Dongguan City Housing Administrative Bureau, the legally interested party in 108 car parking spaces having an area of approximately 1,296 sq. m. is Dongguan Rainbow Shopping.
4. Pursuant to a copy of the Enterprise Legal Person Business Licence dated 12 February 2009, Dongguan Rainbow Shopping is a limited liability company with an operation period commencing from 9 September 2004 for an unspecified term with a registered capital of RMB10,000,000.
5. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the land legally by the way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-101 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
6. Units 101 and 105 on The property comprises 2 As inspected and 894,890,000 Level 1 commercial units on confirmed by the Podium of Dingcheng Level 1 of podium of a management of the (100 per cent. Building 30-storey commercial Target Group, as at the interest) Zhenhua Road building which was Date of Valuation, the CATIC Zone completed in about 2006. property was occupied 353,660,000 Futian District by the Target Group for Shenzhen City The property has a total shopping arcade and (39.52 per cent. Guangdong Province gross floor area of about ancillary office purposes. interest) The PRC 19,094.91 sq. m.
The property is subject to a right to use the land for a term from 11 November 2002 till 10 November 2072 for commercial/ residential usage.
Notes:
1. Pursuant to 2 various Realty Title Certificates – Shen Fang Di Zi Di 3000476392 and 3000476394 Hao both dated 4 June 2007 and issued by Shenzhen City Land Resources and Real Estate Title Management Bureau, the legally interested party in the property having a total gross floor area of 19,094.91 sq. m. is 天虹商場有限公司, currently renamed as 天虹商場股份有限公司 (translated as Rainbow Department Store Company Limited and hereinafter referred to as “Rainbow Department Store”) for a term of 70 years from 11 November 2002 to 1 November 2072 for commercial/residential usage.
2. Pursuant to two Sale and Purchase Agreements of Real Estate of Shenzhen City both dated 17 May 2007 and made between 中國航空技術進出口深圳公司 (AVIC International Shenzhen Company Limited and hereinafter referred to “AVIC Shenzhen”) and Rainbow Department Store, the property was purchased by the Target Group in 2007.
3. Pursuant to a copy of the Enterprise Legal Person Business Licence 企業法人營業執照 dated 23 June 2011, Rainbow Department Store is a holdings limited with an operational period commencing from 2 May 1984 for an unspecified term with a registered capital of RMB400,100,000.
4. According to the legal opinion prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-102 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
7. Units 522-524 on The property comprises 3 We have inspected and 2,420,000 Level 5 residential units on Level confirmed by the Yu Yuan Xin Yuan 5 of a 12-storey management of the (100 per cent. Long Gang District composite building plus Company, as at the Date interest) Shenzhen City a basement which was of Valuation, the property Guangdong Province completed in about 2004. was occupied by the 960,000 The PRC Target Group for office It has a total gross floor and canteen purposes. (39.52 per cent. area of approximately interest) 280.17 sq. m.
The property is subject to a right to use the land for a term of 70 years commencing from 8 April 1994 to 7 April 2064 for commercial/residential purposes.
Notes:
1. Pursuant to 3 various Realty Title Certificates known as Shen Fang Di Zi Di 6000182620, 6000182621 and 6000182622 Hao all dated 1 November 2005 and issued by the People’s Government of Shenzhen City, the legally interested party in the residential units having a total gross floor area of approximately 280.17 sq. m. is Rainbow Department Store Co., Ltd. (hereinafter referred to as “Rainbow Department Store”).
2. Pursuant to a copy of the Enterprise Legal Person Business Licence dated 23 June 2011, Rainbow Department Store is a holdings limited with an operation period commencing from 2 May 1984 for an unspecified term with a registered capital of RMB400,100,000.
3. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the land legally by the way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-103 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
8. A parcel of land The property comprises a We have inspected and 520,940,000 known as parcel of land having a confirmed by the Lot No. T107-0013 site area of management of the (100 per cent. and located at northern approximately 6,212.66 Company, as at the Date interest) side of Dong Bin Lu sq. m. of Valuation, the property Nan Shan District was in the process of site 205,880,000 Shenzhen City The property is subject to leveling. Guangdong Province a right to use the land for (39.52 per cent. The PRC a term of 40 years interest) commencing from 10 December 2009 to 9 December 2049 for commercial office and commercial purposes.
Notes:
1. Pursuant to a Contract for the Grant of State-owned Land Use Rights dated 10 December 2009, the land use rights of a parcel of land having a site area of approximately 6,212.66 sq. m. was contracted to be granted to Rainbow Department Store Co., Ltd. (hereinafter referred to as “Rainbow Department Store”), for a term of 40 years for commercial office and commercial usages at a consideration of RMB476,000,000.
2. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 4000447580 Hao dated 12 April 2010 and issued by the People’s Government of Shenzhen City, the legally interest party in the land having a site area of approximately 6,212.66 sq. m. is Rainbow Department Store.
3. The property should be used for commercial office and commercial usages and subject to the following development covenants:
Plot ratio: ≤9.0 Site Coverage: ≤70% Building height: ≤100m Greenery area: ≥35% Other development parameters: According to the planning requirements
4. Pursuant to a Planning Permit for Using Construction Usage Land 建設用地規劃許可證 Shen Gui Tu Xu ZG-2010-0005 Hao (深規土許ZG-2010-0005號) dated 3 February 2010, Rainbow Department Store is permitted to develop a parcel of land having a site area of approximately 6,212.66 sq. m.
5. As advised by the management of Rainbow Department Store, the cost spent for leveling was approximately RMB1,560,000 as at 30 September 2011. In our valuation, such leveling activity was reported at cost as at the Date of Valuation.
6. Pursuant to a copy of the Enterprise Legal Person Business Licence dated 23 June 2011, Rainbow Department Store is a holdings limited with an operation period commencing from 2 May 1984 for an unspecified term with a registered capital of RMB400,100,000.
– IV-104 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
7. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the land legally by the way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-105 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
9. A parcel of land The property comprises a We have inspected and 26,100,000 known as parcel of land having a confirmed by the Lot No. T107-0022(G) site area of approximately management of the (100 per cent. and located at Houhai 3,354 sq. m. Company, as at the Date interest) Zhong Xin Qu of Valuation, the property Nanshan District The property is subject to was vacant. 10,310,000 Shenzhen City a right to use the land for Guangdong Province a term of 50 years (39.52 per cent. The PRC commencing from 10 May interest) 2011 to 9 May 2061 for underground public car parking purpose.
Notes:
1. Pursuant to a Contract for the Grant of State-owned Land Use Rights dated 10 May 2011, the land use rights of a parcel of land having a site area of approximately 3,354 sq. m. was contracted to be granted to Rainbow Department Store Co., Ltd. (hereinafter referred to as “Rainbow Department Store”), for a term of 50 years for underground public car parking usage at a consideration of RMB25,960,000.
2. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 4000510307 Hao on 26 September 2011 and issued by the People’s Government of Shenzhen City, the legally interest party in the land having a site area of approximately 3,354 sq. m. is Rainbow Department Store.
3. The property should be used for underground public car parking usages and subject to the following development covenants:
Plot ratio: = 0.05 Building height: single storey Permitted GFA: 160 sq. m. (above ground for staircase, lift and toilet) and 12,000 sq. m. (underground car parking) Other development parameters: According to the planning requirements
4. Pursuant to a copy of the Enterprise Legal Person Business Licence dated 23 June 2011, Rainbow Department Store is a holdings limited with an operation period commencing from 2 May 1984 for an unspecified term with a registered capital of RMB400,100,000.
5. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the land legally by the way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-106 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
10. A warehouse complex The property comprises a We have inspected and 46,770,000 located at parcel of land having a confirmed by the Hua Qiao Cheng site area of management of the (100 per cent. Highway South approximately 13,703.7 Company, as at the Date interest) Shen Yun Lu North with 2 buildings and of Valuation, the property Nanshan District structures erected was occupied by the 18,480,000 Shenzhen City thereon. They were Target Group for storage Guangdong Province completed in 2002. and staff quarters (39.52 per cent. The PRC purposes. interest) The buildings and structures have a total gross floor area of approximately 18,015.97 sq. m.
The property is subject to a right to use the land for a term of 50 years commencing from 18 August 1997 to 17 August 2047 for industrial warehouse usage.
Notes:
1. Pursuant to a Realty Title Certificate known as Shen Fang Di Zi Di 4000124441 Hao on 5 September 2003 and issued by the People’s Government of Shenzhen City, the legally interested party in the land having a site area of 13,703.7 sq. m. together with buildings and structures having a total gross floor area of approximately 18,015.97 sq. m. is 深圳天虹商場有限公司 (currently renamed as 天虹商場股份有限公司 and translated as Rainbow Department Store Company Limited, hereinafter referred to as “Rainbow Department Store”.
2. Pursuant to a copy of the Enterprise Legal Person Business Licence dated 23 June 2011, Shenzhen Rainbow Shopping is a holdings limited with an operation period commencing from 2 May 1984 for an unspecified term with a registered capital of RMB400,100,000.
3. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the land legally by the way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-107 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
11. A factory complex The property comprises a We have inspected and 388,710,000 located at parcel of land having a confirmed by the Dongwei Group site area of management of the (100 per cent. Taizi Village approximately 120,721 Company, the property is interest) Daqiao Town sq. m. with 5 various occupied by the Jiangdu City major buildings and Target Group for 233,230,000 Jiangsu Province structures erected manufacturing, ancillary The PRC thereon. They include 3 office, staff quarters, (60 per cent. single-storey workshops, storage and other interest) a 7-storey office building supporting facilities and a single-storey purposes. supporting building which were completed in between 2007 and 2009.
They have a total gross floor area of approximately 24,875.7 sq. m.
The property is subject to a right to use the land for a term till 11 July 2057 for industrial purpose.
Notes:
1. Pursuant to a Contract for the Grant of State-owned Land Use Rights dated 12 July 2007, the land use rights of a parcel of land having a site area of approximately 120,721 sq. m. was contracted to be granted to 鼎衡（江蘇）造船有限公司 (translated as Dingheng Jiangsu Shipbuilding Co., Ltd.), for a term of 50 years for industrial usage at a consideration of RMB20,300,000.
2. Pursuant to a State-owned Land Use Rights Certificates known as Jiang Guo Yong (2011) Di 17385 Hao, the legally interest party in the land having a site area of approximately 120,721 sq. m. is AVIC Dingheng Shipbuilding Co., Ltd. (中航鼎衡造船有限公司) (hereinafter referred to as “Dingheng Shipbuilding”), which is a 60% owned subsidiary of China National Aero-Technology Corporation Shanghai Limited Liability Company (中國航空技術上海有限公司).
– IV-108 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
3. According to the on-site inspection, 5 various buildings and structures without title certificate but having a total gross floor area of approximately 24,875.70 sq. m. were built on the land as mentioned in Note 1 above. As per the information provided by the management of the Targeted Company, the area breakdowns for the buildings and structures are as follows:
Gross Floor Area (sq. m.)
(i) 3 single storey workshops 20,978.01 (ii) A 7-storey office building 3,724.69 (iii) a single storey ancillary building 173.00
Total: 24,875.70
In our valuation, we have taken the buildings and structures into account and on the assumption that they are able to sell together with the land as an unique interest without further encumbrance/premium. For reference purpose, the aggregate sum of depreciated replacement cost of the said buildings (excluding the land) would be in the region of RMB73,440,000, which should be deducted from the amount of valuations together with relevant costs if the buildings are unable to sell as an unique interest in the open market.
4. Pursuant to a copy of the Enterprise Legal Person Business Licence dated 22 March 2011, Dingheng Shipbuilding is a limited company with an operation period commencing from 24 March 2006 to 23 March 2056 with a registered capital of US$450,000,000.
5. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the land legally by the way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-109 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
12. A parcel of land The property comprises a We have inspected and 52,700,000 known as parcel of land having a confirmed by the Lot No. 2010DG48 site area of approximately management of the (100 per cent. and located at 17,062.02 sq.m. Company, as at the Date interest) West of Jizhou of Valuation, the property Jinggangshang The property is subject to was vacant. 20,830,000 Main Road and a right to use the land for North of Square a term till 2 November (39.52 per cent. Road South 2050 for commercial interest) Jizhou District purpose. Jian City Jiangxi Province The PRC
Notes:
1. The right to possess the land is held by the State and the rights to use the land has been transferred to 吉安天虹商場有限公司 (translated as “Jian Rainbow Shopping Mall Company Limited” and hereinafter referred to as “Jian Rainbow”), a wholly owned subsidiary of Rainbow Department Store Co., Ltd., via the following ways:
(i) Pursuant to a Contract for the Grant of State-owned Land Use Rights with Contract No. 36201009010067 Hao dated 3 November 2010 (the “Head Granted Lease”), and made between the Land Administration Bureau of Jian City and Jian Rainbow, the land use rights of a parcel of land having a site area of 17,062.02 sq.m. was granted to Jian Rainbow for a term of 40 years for commercial usage at a consideration of RMB49,940,533; and
(ii) pursuant to a State-owned Land Use Rights Certificate No. Jizhou Guo Yong (2011) Di I-1624 Hao (吉州國用 (2011) 第I-1624 號) on 21 July 2011 and issued by the People’s Government of Jian City, the property is a transferable land and has a term of use till 2 November 2050 for industrial purpose. The legally interest party in the site is Jian Rainbow and the site area of the property is approximately 17,062.02 sq.m. as recorded under the State-owned Land Use Rights Certificate.
(iii) According to the information provided by Jian Rainbow, the land premium of RMB49,940,533 has been fully settled.
–IV-110– APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
2. The property is subject to the following development covenants. They are:
(i) Restrictions under the Head Granted Lease
The subject property should be used for commercial purpose and subject to the followings:
Maximum Gross Floor Area: 76,779 sq.m. Plot ratio: not less than 4.5 Site Coverage: not more than 60% Other development covenants: upon the completion of the development to be erected on the land, 70% of the total gross floor area must be used and operated by Jian Rainbow for over 8 years. Upon the commencement of the business operation, Jian Rainbow shall make a written confirmation of such to the Commercial Bureau and State-owned Land Resources Bureau of Jian City.
3. Pursuant to a Planning Permit for Using Construction Usage Land No. Di Zi Di 2010-490 Hao 地字 第2010-049號 dated 22 November 2010, Jian Rainbow has the right to develop the land of the property with a site area of approximately 17,062.02 sq. m.
4. Pursuant to a copy of the Enterprise Legal Person Business Licence 企業法人營業執照 dated 20 October 2010, Jian Rainbow is a limited liability company registered in the PRC for an operational period commencing from 20 October 2010 to 19 October 2040.
5. According to the legal opinion prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-111 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
13. 12 various office units The property comprises We have inspected and 125,300,000 on Levels 26-28 12 office units on various confirmed by the CATIC Tower levels of a 28-storey management of the (100 per cent. No. 212 Jiangning Lu commercial building, Company, the property interest) Jingan District which was completed in was occupied by the Shanghai about 2000. Target Group for office The PRC purpose. It has a total gross floor area of approximately 4,601.28 sq. m.
The property is subject to a right to use the land which is transferable for composite purpose without specified terms.
Notes:
1. Pursuant to 12 various Shanghai Certificates of Real Estate Ownership known as Hu Fang Di Jing Zi (2009) Di 001174 – 001185 Hao on 26 March 2009 and issued by the Shanghai Housing and Land Resources Administration Bureau, the legally interested party in the office units having a total gross floor area of approximately 4,601.28 sq. m. is China National Aero-Technology Corporation Shanghai Limited Liability Company (中國航空技術上海有限公司) (hereinafter referred to as “Shanghai Company”).
2. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
–IV-112– APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
14. Portion A of a factory The property comprises a We have inspected and 43,410,000 complex erected on parcel of land having a confirmed by the a parcel of land and site area of management of the (100 per cent. located at approximately 32,110 sq. m. Company, the property interest) No. 80 Huashen Road with two single-storey was occupied by the Waigaoqiao Free warehouses, Levels 11 Target Group for office 32,560,000 Trade Zone and 12 of a 12-storey purpose. Shanghai industrial building and (75 per cent. The PRC Level 2 of a 2-storey interest) ancillary building erected thereon which were completed in between 1997 and 2002.
It has a total gross floor area of approximately 12,401.995 sq. m.
The property is subject to a right to use the land for a term from 1 January 1993 till 31 December 2042 for industrial and storage purposes.
Notes:
1. Readers should read together with Property No. 27 below for another portion of this property.
2. Pursuant to a Shanghai Certificate of Real Estate Ownership known as Hu Fang Di Pu Zi (2007) Di 049037 Hao on 14 May 2007 and issued by the Shanghai Housing and Land Resources Administration Bureau, the legally interested party in the property having a site area of approximately 32,110 sq. m. and a total gross floor area of approximately 40,175.80 sq. m. is Shanghai Gao Hang Industrial Company Limited (hereinafter referred to as “Shanghai Gao Hang”).
3. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
–IV-113– APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
15. Unit No. 504 The property comprises 5 We have inspected and 6,130,000 on Level 5 and various residential units confirmed by the Unit Nos. 601–604 on Levels 5 and 6 of a management of the (100 per cent. on Level 6 6-storey residential Company, the property interest) Luo Xiu Xin Cun building which was was occupied by the No. 8 Xuhui District completed in about 1994. Target Group for Shanghai residential purpose. The PRC It has a total gross floor area of approximately 339.39 sq. m.
The property is subject to a right to use the land which is transferable for residential purpose without a specified term.
Notes:
1. Pursuant to a Shanghai Certificates of Real Estate Ownership known as Hu Fang Di Xu Zi (2009) Di 031786 Hao on 29 December 2009 and issued by the Shanghai Housing Security & Administration Bureau (上海市住房保障和房屋管理局) and Shanghai Planning, Land & Resources Administration Bureau (上海市規劃和國土資源管理局), the legally interested party in the residential units having a total gross floor area of approximately 339.39 sq. m. is China National Aero-Technology Corporation Shanghai Limited Liability Company (中國航空技術上海有限公司) (hereinafter referred to “Shanghai Company”).
2. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
–IV-114– APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
16. Units 1101 and 1103 The property comprises 2 We have inspected and 4,540,000 on Level 12 residential units on Level confirmed by the Aijian Building Lane 12 of a 15-storey management of the (100 per cent. No. 1 residential building, Company, the property interest) No. 590 Wan Ping which was completed in was occupied by the Nan Lu about 1984. Target Group for Xuhui District residential purpose. Shanghai It has a total gross floor The PRC area of approximately 194.5 sq. m.
The property is subject to a right to use the land which is transferable for composite purpose without a specified term.
Notes:
1. Pursuant to 2 various Shanghai Certificates of Real Estate Ownership known as Hu Fang Di Xu Zi (2011) Di 013465 and 013462 Hao on 15 September 2011 and issued by the Shanghai Housing and Land Resources Administration Bureau, the legally interested party in the residential units having a total gross floor area of approximately 194.5 sq. m. is China National Aero-Technology Corporation Shanghai Limited Liability Company (中國航空技術上海有限公司) (hereinafter referred to “Shanghai Company”).
2. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
–IV-115– APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
17. Three various The property comprises 3 We have inspected and 1,680,000 residential units various residential units confirmed by the located at on various levels of two management of the (100 per cent. Eastern Section 1 adjoining 7-storey Company, the property interest) Erhuan Road residential building was vacant. Chenghua District which was completed in 940,000 Chengdu City about 1990’s. Sichuan Province (55.91 per cent. The PRC It has a total gross floor interest) (see Note 1) area of approximately 258.89 sq. m.
The property is subject to a right to use the land for a term till 18 November 2068 for residential purpose.
Notes:
1. The three various residential units are known as:
Unit 1 on Level 5, Block 1, New Tower 4 Unit 1 on Level 6, Block 2, New Tower 4 Unit 2 on Level 5, Block 6, New Tower 5
2. The right to possess the land is held by the State and the rights to use portion of the undivided land has been transferred to 成都亞光電子股份有限公司 (translated as “Chengdu Ya Guang Electronic Company Limited” and hereinafter referred to as “Chengdu Ya Guang”) via the following ways:
Pursuant to a State-owned Land Use Rights Certificate No. Cheng Guo Yong (2002) Di 1207 Hao (成國用 (2002) 第1207 號) on 11 October 2002 and issued by the Land Resources Bureau of Chengdu City, the property is situated on a transferable land and has a term of use till 18 November 2068 for residential purpose. The legally interest party in the site is Chengdu Ya Guang Electronic and the site area of the development is approximately 9,797.46 sq. m. as recorded under the State-owned Land Use Rights Certificate. As confirmed by the Company, the total undivided share of the site area in respect of the property is approximately 98.47 sq. m.
–IV-116– APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
3. Pursuant to 2 various Building Ownership Certificates on 19 June 2002 and issued by the 成都市房 屋產權監理處 (translated as Chengdu City Housing Right Monitoring Department), the legally interested party in the property having a total gross floor area of approximately 258.89 sq. m. is Chengdu Ya Guang Electronic.
4. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
–IV-117– APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
18. A factory complex The property comprises We have inspected and 159,000,000 located at four parcels of adjoining confirmed by the No. 66 Donghong land having a total site management of the (100 per cent. Road area of approximately Company, the property interest) Chenghua District 35,652.83 sq. m. with 10 was occupied by the Chengdu City various major buildings Target Group for 88,900,000 Sichuan Province and structures erected industrial, office and staff The PRC thereon. quarters usages. (55.91 per cent. interest) The buildings include Portion of the property is three workshops, four subject to various dormitory buildings, tenancy agreements with three office buildings and the latest expiring on 27 other supporting August 2013 at an facilities and having a aggregated monthly total gross floor area of rental of RMB30,500. approximately 47,791.69 sq. m. which were completed in about 2007.
The property is subject to a right to use the land expiring on 15 November 2051 and 8 February 2054 for industrial purpose; and 21 November 2044 for other commercial service (office) purpose.
Notes:
1. The right to possess the land is held by the State and the right to use the land has been transferred to 成都亞光電子股份有限公司 (translated as “Chengdu Ya Guang Electronic Company Limited” and hereinafter referred to as “Chengdu Ya Guang”) via the following ways:
(i) Pursuant to a State-owned Land Use Rights Certificate No. Cheng Guo Yong (2008) Di 783 Hao (成國用 (2008) 第783 號) on 20 August 2008 and issued by the People’s Government of Chengdu City, the property is a transferable land and has a term of use till 15 November 2051 for industrial purpose. The legally interest party in the site is Chengdu Ya Guang Electronic and the site area of the property is approximately 9,474.35 sq. m. as recorded under the State-owned Land Use Rights Certificate.
(ii) Pursuant to a State-owned Land Use Rights Certificate No. Cheng Guo Yong (2008) Di 276 Hao (成國用 (2008) 第276 號) on 20 March 2008 and issued by the People’s Government of Chengdu City, the property is a transferable land and has a term of use till 8 February 2054 for industrial purpose. The legally interest party in the site is Chengdu Ya Guang Electronic and the site area of the property is approximately 5,457.56 sq. m. as recorded under the State-owned Land Use Rights Certificate.
–IV-118– APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
(iii) Pursuant to a State-owned Land Use Rights Certificate No. Cheng Guo Yong (2008) Di 858 Hao (成國用(2008)第858號) on 3 September 2008 and issued by the People’s Government of Chengdu City, the property is a transferable land and has a term of use till 8 February 2054 for industrial purpose. The legally interest party in the site is Chengdu Ya Guang Electronic and the site area of the property is approximately 10,043.15 sq. m. as recorded under the State-owned Land Use Rights Certificate.
(iv) Pursuant to a State-owned Land Use Rights Certificate No. Cheng Guo Yong (2008) Di 859 Hao (成國用(2008)第859號) on 3 September 2008 and issued by the People’s Government of Chengdu City, the property is a transferable land and has a term of use till 21 November 2044 for other commercial service (office) purpose. The legally interest party in the site is Chengdu Ya Guang Electronic and the site area of the property is approximately 10,677.77 sq. m. as recorded under the State-owned Land Use Rights Certificate.
2. Pursuant to 11 various Building Ownership Certificates dated between 29 July 2008 and 6 December 2008 and issued by the 成都市房屋產權監理處 (translated as Chengdu City Housing Right Monitoring Department), the legally interested party in the property having a total gross floor area of approximately 47,791.69 sq. m. is Chengdu Ya Guang Electronic.
3. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
–IV-119– APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
19. A parcel of land The property comprises a We have inspected and 5,000,000 located at parcel of land having a confirmed by the No. 1 Jianshe South site area of management of the (100 per cent. Second Road approximately 713.70 Company, the property interest) Chenghua District sq. m. with an open side was occupied by the Chengdu City corrugated metal sheet Target Group for 2,800,000 Sichuan Province cover erected thereon. temporary bicycle shed The PRC usage. (55.91 per cent. The property is subject to interest) a right to use the land expiring on 19 November 2068 for residential purpose.
Notes:
1. The right to possess the land is held by the State and the right to use the land has been transferred to 成都亞光電子股份有限公司 (translated as “Chengdu Ya Guang Electronic Company Limited” and hereinafter referred to as “Chengdu Ya Guang”) pursuant to a State-owned Land Use Rights Certificate No. Cheng Guo Yong (2001) Di 667 Hao (成國用 (2001) 第667號) on 19 June 2001 and issued by the People’s Government of Chengdu City. The property is a transferable land and has a term of use till 19 November 2068 for residential purpose. The legally interested party in the site is Chengdu Ya Guang and the site area of the property is approximately 713.70 sq. m. as recorded under the State-owned Land Use Rights Certificate.
2. According to the relevant laws in the PRC, land idle for over 2 years without commencement of construction work will be subject to payment of idle land fee penalty or repossess the land by the government without compensation.
As confirmed by the management of the Chengdu Ya Guang as at the date of this report, the Chengdu Ya Guang did not receive any form of notice from the government for any penalty or repossession of the land property. Thus, in our valuation, we have not taken into account any possible penalty payments or other fees for preventing possible repossession of the property. As agreed with Chengdu Ya Guang, we have assumed Chengdu Ya Guang has an absolute rights to use, to dispose and transfer the property free of all encumbrances without payment of additional premium as at the Date of Valuation.
3. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-120 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
20. A factory complex The property comprises a We have inspected and 103,100,000 located at parcel of land having a confirmed by the Lot No. GX2007-03-05 site area of management of the (100 per cent. Northwest Section approximately 36,288.61 Company, the property interest) Chengdu Gaoxin sq. m. with 8 various was occupied by the Western Park Area major buildings and Target Group for 57,640,000 Chengdu City structures erected industrial, ancillary office Sichuan Province thereon. and staff quarters usages. (55.91 per cent. The PRC interest) The buildings include Portion of the property is five workshops, a subject to various dormitory building and tenancy agreements with other supporting the latest expiring on 11 facilities having a total May 2013 at an gross floor area of aggregated monthly approximately 39,436.25 rental of RMB1,964,220. sq. m. which were completed in about 2011.
The property is subject to a right to use the land expiring on 6 December 2057 for industrial purpose.
Notes:
1. The right to possess the land is held by the State and the right to use the land has been transferred to 成都亞光投資管理有限公司 (translated as “Chengdu Ya Guang Investment Management Company Limited” and hereinafter referred to as “Chengdu Ya Guang Investment”), a wholly owned subsidiary of Chengdu Yu Guang Company Limited, via the following ways:
pursuant to a State-owned Land Use Rights Certificate No. Cheng Guo Yong (2008) Di 527 Hao (成 國用(2008)第527號) on 17 January 2008 and issued by the People’s Government of Chengdu City, the property is a transferable land and has a term of use till 6 December 2057 for industrial purpose. The legally interest party in the site is Chengdu Ya Guang Investment and the site area of the subject property is approximately 36,288.61 sq. m. as recorded under the State-owned Land Use Rights Certificate.
2. Pursuant to 8 various Building Ownership Certificate all dated between 25 July 2011 and issued by the成都市房屋產權登記中心 (translated as Chengdu City Housing Right Registration Centre), the legally interested party in the property having a total gross floor area of approximately 39,436.25 sq. m. are Chengdu Ya Guang Investment.
3. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-121 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
21. Level 1 of The property comprises We have inspected and 1,870,000 No. 26 Zhonghe an unit on Level 1 of a confirmed by the South Road 2-storey non-domestic management of the (100 per cent. Shangchen District building which was Company, the property interest) Hangzhou City completed in about 1990. was subject to a tenancy Zhejiang Province agreements expiring on The PRC It has a gross floor area of 31 July 2013 at an annual approximately 90.36 rental of RMB36,750. sq. m..
The property is subject to a right to use the land for a term till 4 November 2050 for commercial purpose.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate known as Hang Shang Guo Yong (2010) Di 011299 Hao (杭上國用(2010)第011299號) on 7 December 2010 and issued by the People’s Government of Hangzhou City, the property is situated on a transferable land and has a term of use till 4 November 2050 for commercial purpose. The legally interest party in the site is AVIC International Hangzhou Company Limited (中國航空技術杭州有限公司) (hereinafter referred to as “Hangzhou Company”) and the land use right area of the property is approximately 39.2 sq. m. as recorded under the State-owned Land Use Rights Certificate.
2. Pursuant to a Building Ownership Certificates known as Hang Fang Quan Zheng Shang Yi Zi Di 10786132 Hao on 1 February 2010 and issued by the Hangzhou City Real Estate Administration Bureau, the legally interested party in the non-domestic unit having a gross floor area of approximately 90.36 sq. m. is Hangzhou Company, a wholly owned subsidiary of China National Aero-Technology Corporation Shanghai Limited Liability Company.
3. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-122 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
22. Level 1 of The property comprises We have inspected and 3,400,000 No. 28 Zhonghe an unit on Level 1 of a confirmed by the South Road 3-storey non-domestic management of the (100 per cent. Shangchen District building which was Company, the property interest) Hangzhou City completed in about 1990. was subject to a tenancy Zhejiang Province agreement expiring on 20 The PRC It has a gross floor area of April 2012 at an annual approximately 164.45 rental of RMB19,800. sq. m.
The property is subject to a right to use the land for a term till 4 November 2050 for commercial purpose.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate known as Hang Shang Guo Yong (2010) Di 011304 Hao (杭上國用(2010)第011304號) on 7 December 2010 and issued by the People’s Government of Hangzhou City, the subject property is situated on a transferable land and has a term of use till 4 November 2050 for commercial purpose. The legally interest party in the site is AVIC International Hangzhou Company Limited (中國航空技術杭州有限公司) (hereinafter referred to as “Hangzhou Company”) and the land use right area of the property is approximately 71.3 sq. m. as recorded under the State-owned Land Use Rights Certificate.
2. Pursuant to a Building Ownership Certificates known as Hang Fang Quan Zheng Shang Yi Zi Di 10786134 Hao on 1 February 2010 and issued by the Hangzhou City Real Estate Administration Bureau, the legally interested party in the non-domestic unit having a gross floor area of approximately 164.45 sq. m. is Hangzhou Company, a wholly owned subsidiary of China National Aero-Technology Corporation Shanghai Limited Liability Company.
3. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-123 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
23. Rooms 301 and 302 The property comprises We have inspected and 3,140,000 of unit 3 of two units on Level 3 of a confirmed by the Block 71 5-storey building which management of the (100 per cent. Taizi Yuan was completed in about Company, the property interest) Hupan Huayuan 2005. was occupied by the Xihu District Target Group for staff Hangzhou City It has a total gross floor quarters purpose. Zhejiang Province area of approximately The PRC 151.86 sq. m.
The property is subject to a right to use the land for a term till 8 November 2064 for residential purpose.
Notes:
1. Pursuant to two State-owned Land Use Rights Certificates known as Hang Xi Guo Yong (2010) Di 007528 and 007531 Hao (杭西國用(2010)第007528及007531號) both dated 25 May 2010 and issued by the People’s Government of Hangzhou City, the legally interested party in the property is 中國 航空技術杭州有限公司 (translated as AVIC International Hangzhou Company Limited and hereinafter referred to as “Hangzhou Company”), a wholly owned subsidiary of China National Aero-Technology Corporation Shanghai Limited Liability Company, for a term till 8 November 2064 for residential purpose. The total land use right area of the property is approximately 57.4 sq. m. as recorded under the State-owned Land Use Rights Certificate
2. Pursuant to two Building Ownership Certificates known as Hang Fang Quan Zheng Xi Yi Zi Di 10786145 and 10786121 Hao both dated 1 February 2010 and issued by the Hangzhou City Real Estate Administration Bureau, the legally interested party in the residential units having a total gross floor area of approximately 151.86 sq. m. is Hangzhou Company.
3. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-124 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
24. Room 401 of unit 3 The property comprises a We have inspected and 1,550,000 of Block 6 residential unit on Level confirmed by the Kangle Xin Cun 4 of a 7-storey residential management of the (100 per cent. Xihu District building which was Company, the property interest) Hangzhou City completed in about 1996. was occupied by the Zhejiang Province Target Group for staff The PRC It has a gross floor area of quarters purpose. approximately 86.08 sq. m.
The property is subject to a right to use the land for a term till 8 May 2063 for residential purpose.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate known as Hang Xi Guo Yong (2010) Di 007530 Hao (杭西國用(2010)第007530號) on 25 May 2010 and issued by the People’s Government of Hangzhou City, the legally interested party in the property is 中國航空技術杭州有限公司 (translated as AVIC International Hangzhou Company Limited) (hereinafter referred to as “Hangzhou Company”), a wholly owned subsidiary of China National Aero-Technology Corporation Shanghai Limited Liability Company, for a term till 8 May 2063 for residential purpose and the land use right area of the property is approximately 50 sq. m. as recorded under the State-owned Land Use Rights Certificate.
2. Pursuant to a Building Ownership Certificate known as Hang Fang Quan Zheng Xi Yi Zi Di 10785990 Hao on 1 February 2010 and issued by the Hangzhou City Real Estate Administration Bureau, the legally interested party in the residential unit having a gross floor area of approximately 86.08 sq. m. is Hangzhou Company.
3. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-125 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
25. Units 1401-1405 on The property comprises 4 We have inspected and 71,360,000 Level 14 office units on Level 14 of confirmed by the Tianji Building a 21-storey commercial management of the (100 per cent. Xihu District building which was Company, the property interest) Hangzhou City completed in about 2009. was occupied by the Zhejiang Province Target Group for office The PRC It has a total gross floor purpose. area of approximately 2,378.71 sq. m.
The property is subject to a right to use the land for a term till 31 August 2050 for commercial purpose.
Notes:
1. Pursuant to five various State-owned Land Use Rights Certificates known as Hang Xi Guo Yong (2011) Di 008908 to 008912 Hao (杭西國用(2011)第008908至 008912號) all dated 26 July 2011 and issued by the People’s Government of Hangzhou City, the legally interested party in the property is AVIC International Hangzhou Company Limited (hereinafter referred to “AVIC Hangzhou”) for a term till 31 August 2050 for commercial purpose. The total land use right area of the property is approximately 176.1 sq. m. as recorded under the State-owned Land Use Rights Certificate.
2. Pursuant to five various Building Ownership Certificates known as Hang Fang Quan Zheng Xi Yi Zi Di 11982599, 11982604, 11982610, 11982613 and 11983231 Hao all dated 8 July 2011 and issued by the Hangzhou City Real Estate Administration Bureau, the legally interested party in the residential units having a total gross floor area of approximately 2,378.71 sq. m. is AVIC Hangzhou.
3. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:-
(i) the Target Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-126 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Group II – Properties held by the Target Group for investment under long-term title certificates in the PRC and valued on market value basis
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
26. A warehouse complex The property comprises a We have inspected and 16,140,000 erected on a parcel of parcel of land having a confirmed by the land and located at site area of management of the (100 per cent. No. 191 Lian Yi Lu approximately 9,484.7 Company, the property interest) Baoshan District sq. m. with 4 various was subject to an Shanghai major buildings and inter-company The PRC structures erected lease at a daily rental of thereon. They include 2 RMB0.37 per sq. m. and various single storey occupied by a related warehouses and 2 company for storage various 4-storey usage. warehouses which were completed in between 1983 and 1987.
They have a total gross floor area of approximately 4,428.39 sq. m.
The property is subject to a right to use the land for a term commencing from 31 March 2008 to 20 March 2058 for storage purpose.
Notes:
1. Pursuant to a Shanghai Certificate of Real Estate Ownership known as Hu Fang Di Bao Zi (2009) Di 050251 Hao dated 11 October 2009 and issued by both Shanghai Housing Security & Administration Bureau and Shanghai Planning, Land & Resources Administration Bureau, the legally interested party in the property having the land use rights area of approximately 9,484.7 sq. m and a total gross floor area of approximately 4,428.39 sq. m. is China National Aero-Technology Corporation Shanghai Limited Liability Company (中國航空技術上海有限公司) (hereinafter referred to “Shanghai Company”) for a term of 50 years for storage usage.
2. In valuing the property, we understand that the property is currently subject to inter-company leases as at the Date of Valuation. Therefore, in our valuation, we have considered the property as being owner-occupied and valued on the assumption of sale with vacant possession.
– IV-127 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
3. Pursuant to a Shanghai Certificate of Real Estate Ownership known as Hu Fang Di Bao Zi (2009) Di 050251 Hao on 11 October 2009 and issued by the Shanghai Housing Security & Administration Bureau (上海市住房保障和房屋管理局) and Shanghai Planning, Land & Resources Administration Bureau (上海市規劃和國土資源管理局), the legally interested party in the land as mentioned in Note 1 and having a total gross floor area of approximately 4,428.39 sq. m. is China National Aero-Technology Corporation Shanghai Limited Liability Company (中國航空技術上海有限公司) (hereinafter referred to as “Shanghai Company”). The area breakdowns for the buildings and structures are as follows:
Gross Floor Area (sq. m.)
(i) Two single storey warehouses 2,403.94 (ii) Two 4-storey warehouses 2,024.45
Total: 4,428.39
4. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the land legally by the way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-128 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
27. Portion B of a factory The property comprises a We have inspected and 166,640,000 complex and located single-storey warehouse, confirmed by the at No. 80 Huashen Levels 1 to 10 and management of the (100 per cent. Road basement of a 12-storey Company, the property interest) Waigaoqiao Free industrial building and was subject to various Trade Zone Level 1 of a 2-storey tenancy agreements at an 124,980,000 Shanghai ancillary building which aggregated monthly The PRC were completed in rental of approximately (75 per cent. between 1994 and 2002. RMB800,000. interest)
It has a total gross floor area of approximately 27,773.805 sq. m.
The property is subject to a right to use the land for a term from 1 January 1993 till 31 December 2042 for industrial and storage purposes.
Notes:
1. Readers should read together with Property No. 14 above for another portion of this property.
2. Pursuant to a Shanghai Certificate of Real Estate Ownership known as Hu Fang Di Pu Zi (2007) Di 049037 Hao on 14 May 2007 and issued by the Shanghai Housing and Land Resources Administration Bureau, the legally interested party in the property having a site area of approximately 32,100 sq. m. and a total gross floor area of approximately 40,175.80 sq. m. is Shanghai Gao Hang Industrial Company Limited (hereinafter referred to as “Shanghai Gao Hang”).
3. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-129 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
28. The whole of The property comprises a We have inspected and 189,000,000 Shanghai Grand parcel of land having a confirmed by the Skylight Gardens site area of management of the (100 per cent. Hotel and located at approximately 16,865.74 Company, the property interest) No. 100 Baise Road sq. m. with 31 various was operated as a hotel Xuhui District major buildings and by the Target Company. 94,500,000 Shanghai City structures erected The PRC thereon. (50 per cent. interest) The buildings include two guardhouses, two main hotel buildings, a machine room, a rest room and 25 villa guest houses and having a total gross floor area of approximately 18,189.38 sq. m. which were completed in about 1990.
The property is subject to a right to use the land for a term of 40 years till 16 March 2048 for food and beverage tourism purposes.
Notes:
1. The right to possess the land is held by the State and the right to use the land was granted to 上海 園林賓館有限公司 (Shanghai Park Guesthouse Company Limited and hereinafter referred to as “Shanghai Park”), a 50%-owned subsidiary of China National Aero-Technology Corporation Shanghai Limited Liability Company, via the following ways: (i) According to a Realty Title Certificate known as Hu Fang Di Xu Zi (2008) Di 007019 Hao (滬房地徐字(2008)第007019號) and issued by the People’s Government of Shanghai City, the legally interested party in a parcel of land having a site area of approximately 16,865.74 sq. m. is Shanghai Park with a term of land use for 40 years till 16 March 2048 for food and beverage tourism purposes.
2. According to the above mentioned Realty Title Certificate, the legally interested party in 31 various buildings and structures and having a total gross floor area of approximately 18,189.38 sq. m. is Shanghai Park.
3. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-130 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
29. 2 office units on the The property comprises 2 We have inspected and 39,460,000 whole of various office units on confirmed by the Levels 8 and 9 the whole of Levels 8 and management of the (100 per cent. Offshore Oil Tower 9 of a 28-storey Company, the property interest) No. 583 Ling Ling Lu commercial building, was subject to various Xuhui District which was completed in tenancy agreements with Shanghai about 1989. the latest expiring on 30 The PRC June 2013 at an It has a total gross floor aggregated monthly area of approximately rental of RMB164,717. 2,050 sq. m.
The property is subject to a right to use the land for a term from 9 September 2010 till 8 September 2060 for office purpose.
Notes:
1. Pursuant to a Shanghai Certificate of Real Estate Ownership known as Hu Fang Di Xu Zi (2010) Di 017297 Hao issued by Shanghai Housing Security & Administration Bureau (上海市住房保障和房 屋管理局) and Shanghai Planning, Land & Resources Administration Bureau (上海市規劃和國土資 源管理局), the legally interested party in the office units having a total gross floor area of approximately 2,050 sq. m. is China National Aero-Technology Corporation Shanghai Limited Liability Company (中國航空技術上海有限公司) (hereinafter referred to “Shanghai Company”).
2. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-131 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
30. Unit Nos.1, 2 and 6 The property comprises 3 We have inspected and 7,230,000 on Level 1 and Unit various residential units confirmed by the 104 on Level 2 on Level 1 and a management of the (100 per cent. Aijian Building residential unit on Level Company, the property interest) Lane No. 1 2 of a 15-storey building, was occupied by the No. 590 Wan Ping which was completed in Target Group for Nan Lu about 1984. residential purpose. Xuhui District Shanghai It has a total gross floor The PRC area of approximately 337.2 sq. m.
The property is subject to a right to use the land which is transferable for composite purpose without a specified term.
Notes:
1. Pursuant to 4 various Shanghai Certificate of Real Estate Ownership known as Hu Fang Di Xu Zi (2011) Di 013463, 013460, 013464 and 013461 Hao all dated 15 September 2011 and issued by the Shanghai Housing and Land Resources Administration Bureau, the legally interested party in the residential units having a total gross floor area of approximately 337.2 sq. m. is China National Aero-Technology Corporation Shanghai Limited Liability Company (中國航空技術上海有限公司) (hereinafter referred to as “Shanghai Company”).
2. According to the legal opinion as prepared by the Group’s PRC legal adviser, the following opinions are noted:
(i) the Target Group has obtained the right to use the property legally by way of land grant or assignment; and
(ii) the Target Group has an absolute right to occupy, use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property. The Target Group has the right to assign, lease or mortgage the property within the remaining specified land use term.
– IV-132 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Group III – Properties held by the Target Group for investment under restricted title in the PRC
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
31. A factory complex The property comprises a We have inspected and No Commercial erected on a parcel of parcel of land having a confirmed by the Value land and located at site area of management of the No. 8398 Beiqing approximately 32,546.23 Company, the property (See Note 4) Road sq. m. with three single to was subject to two Qingpu District 4-storey industrial various tenancy Shanghai buildings erected there agreements at a total The PRC on which were completed annual rental of in 1997. RMB900,000 and occupied for industrial It has a total gross floor purpose. area of approximately 8,327 sq. m.
The property is subject to a right to use the land for for industrial purpose without a specified term.
Notes:
1. Pursuant to a Shanghai Certificate of Real Estate Ownership known as Hu Fang Di Qing Zi (2001) Di 003235 Hao on 1 June 2001 and issued by the Shanghai Housing and Land Resources Administration Bureau, the legally interested party in the property having a site area of approximately 32,546.23 sq. m. and a total gross floor area of approximately 8,327 sq. m. is Shanghai AVIC Auto Insurance Equipment Company Limited 上海中航汽保設備有限公司 (hereinafter referred to as “Shanghai Auto Insurance”).
2. According to the legal opinion prepared by the Group’s PRC legal adviser, the land of the property is collectively-owned in nature. Once it completed all the relevant procedures, the Target Group would have an absolute right to use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property.
3. We have assigned no commercial value to the property as the Target Group did not obtain any transferable long-term title certificate, or the like, of the property as at the Date of Valuation.
4. For reference purpose, should the property able to freely transferred in the market, the market value of the property in its existing state attributable to the Target Group as at the Date of Valuation would be in the region of RMB23,730,000 (95 per cent. interest).
– IV-133 – APPENDIX IV PROPERTY VALUATION REPORT OF THE ENLARGED GROUP
Amount of valuation in its existing state attributable to the Target Group as at Property Description and tenure Particulars of occupancy 31 October 2011 RMB
32. Whole of Levels The property comprises We have inspected and No Commercial 2to4 Levels 2 to 4 of a 4-storey confirmed by the Value No. 9223 Beiqing residential building management of the Road which was completed in Company, the property Qingpu District 1997. was subject to a tenancy Shanghai agreement at an annual The PRC It has a total gross floor rental of RMB60,000 area of approximately and occupied for office 900.66 sq. m. purpose.
The property is subject to a right to use the land for residential purpose without a specified term.
Notes:
1. Pursuant to a Shanghai Certificate of Real Estate Ownership known as Hu Fang Di Qing Zi (2003) Di 004611 Hao on 26 May 2003 and issued by the Shanghai Housing and Land Resources Administration Bureau, the legally interested party in the property having a total gross floor area of approximately 900.66 sq. m. is Shanghai AVIC Auto Insurance Equipment Company Limited and hereinafter referred to as “Shanghai Auto Insurance”).
2. According to the legal opinion prepared by the Group’s PRC legal adviser, once it completed all the relevant transferable procedures, the Target Group would have an absolute right to use, transfer, lease, mortgage or other uses comply with the relevant laws and regulations in the PRC regarding disposition of the property.
3. We have assigned no commercial value to the property as the Target Group did not obtain any transferable long-term title certificate or complete the relevant transferable procedures, or the like, of the property as at the Date of Valuation.
4. For reference purpose, should the property able to freely transferred in the market, the market value of the property in its existing state attributable to the Target Group as at the Date of Valuation would be in the region of RMB2,850,000 (95 per cent. interest).
– IV-134 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
The following is the management discussion and analysis of the Group for each of the financial year ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011.
(I) FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
CORPORATE ORGANIZATION CHART
AVIC CCB Aviation Industry National Council for Aviation Industry Zhong Jin Chuang Xin Equity Investment (Tianjin) Social Security Fund Corporation of China (Tianjin) Investment Co., Ltd. Company Limited
14.31% 62.52% 14.31% 8.86%
AVIC International
100%
Shenzhen Company
58.77%
the Company
Electronics Luxurious Commercial Mineral manufacturing goods property resources
88.35%Shennan 41.49% 75%Guangdong AVIC 100% Fiyta Circuit Int’l Resources
22.35% AVIC Real Estate 45.62% 30% Shanghai 21% Tianma Tianma
30% Chengdu Tianma
10% Wuhan Tianma
Note: In March 2011, Aviation Industry made a capital contribution to AVIC International through China Aviation Industry Supply and Marketing Corporation and China Aviation Wealth Industry and Trade Development Limited, which are its subsidiaries. Meanwhile, AVIC CCB Aviation Industry Equity Investment (Tianjin) Company Limited (“AVIC CCB”) made a capital contribution to AVIC International in cash. Upon completion of the capital increase, the registered capital of AVIC International reached RMB8,459,000,000, which was owned as to 62.52%, 14.31%, 14.31% and 8.86% respectively by China Aviation, Zhong Jin Chuang Xin, the Social Security Fund and AVIC CCB.
–V-1– APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
BUSINESS REVIEW
The consolidated revenue and profit contributions of the Company in its consolidated results for the year 2010 were primarily derived from the following subsidiaries:
Percentage of equity held by the Name of subsidiary Company Principal activities
Tianma Microelectronics Co., 45.62% Manufacture and sales of Ltd. (“Tianma”) liquid crystal displays (“LCD”) and modules
Shennan Circuit Co., Ltd. 88.35% Manufacture and sales of (“Shennan Circuit”) printed circuit boards (“PCB”)
Fiyta Holdings Limited 41.49% Manufacture of middle to (“Fiyta”) high-end wrist watches and chain sale of luxurious wrist watches
Shenzhen CATIC Resources 100% Agriculture-related Co., Ltd. (“CATIC resources business Resources”)
Guangdong International 75% Hotel and property Building Industrial Co., operations Ltd. (“GIB Company”)
Summary of Performance
During the year, the Group recorded a consolidated revenue from continuing operations of approximately RMB6,964,551,000, representing an increase of approximately 36.75% over the previous year of RMB5,092,883,000. The overall gross profit was approximately RMB1,505,409,000, representing an increase of approximately 81.11% over the previous year of RMB831,212,000. The Group’s profit attributable to the shareholders (excluding minority shareholders’ interests) amounted to approximately RMB193,561,000.
In the year 2010, facing the complex and volatile market, economic and policy environment and opportunities from industry recovery after the financial crisis, the Group implemented the strategic plan of “operational excellence, profit management, perfection of corporate governance, promotion of merger and acquisition, and improvement of leadership”. The principal activities recorded a good performance, of which, the LCD business responded quickly to market
–V-2– APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
demand, actively promoted the product mix adjustment and development of key clients, obtained substantial increase in annual operation revenue and earnings and turned losses into gains; “aggressive marketing” strategy adopted in PCB business achieved notable success; the packaging substrate and electronics assembly businesses were progressing smoothly and achieving sustained and rapid growth in profitability; the luxurious wrist watches business continued to grow rapidly, the “VIOLA TRICOLOR” multi-brand system had achieved initial success and the sales channel of luxurious watches was expanded quickly; in resource business, the production technical innovation of potassium fertilizers was completed on schedule and the project was pushed forward steadily; the modernization and renovation of Guangdong International Building were basically completed at the end of the year and it is expected that its trial operation will start in April 2011.
While developing business rapidly and promoting major projects steadily, the Group endeavored to improve the management level and business profitability continuously and achieved prominent achievements in corporate governance, management innovation, capital financing and other aspects. During the reporting period, the Group continued to promote operational excellence, actively implemented cost control and endeavored to increase the efficiency of assets. The Group optimized business operation management system, effectively improved the corporate governance; actively promoted capital market financing, completed the placing of Fiyta shares and promoted integrated LCD business reorganisation of Tianma. The Group also implemented ongoing leadership enhancement program, built a high-quality, passionate and aggressive talent team, and actively practiced social responsibilities.
The turnover and profit/(loss) of the Group for 2010 with comparative figures for 2009 are as follow:
Turnover 2010 2009 (RMB’000) (RMB’000)
LCD 3,321,736 2,181,111 PCB 1,578,891 1,167,939 Timepieces manufacturing and sales 1,700,608 1,153,803 Resources 189,529 433,682 Investment properties 126,042 115,929 Cable TV equipment 47,745 32,040 Hotel – 8,379
Total 6,964,551 5,092,883
–V-3– APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
Profit/(loss) after taxation 2010 2009 (RMB’000) (RMB’000)
LCD 150,028 (290,779) PCB 148,710 101,761 Timepieces manufacturing and sales 53,538 43,772 Resources (7,363) (80,795) Investment properties 88,467 69,857 Cable TV equipment 1,123 (183) Hotel (42,197) (43,432) Others (49,716) (88,981)
Total 342,590 (288,780)
LCD
The Group is engaged in the research and development, design, production, sales and servicing of liquid crystal displays (LCD) and liquid crystal modules (LCM) products through its subsidiary, Tianma. In 2010, the Group’s turnover from LCD business surged by approximately 52.30% over the previous year corresponding figure of RMB2,181,111,000 to approximately RMB3,321,736,000. The profit after taxation was approximately RMB150,028,000, while the loss of the previous year was RMB290,779,000.
The global financial crisis in 2008 brought severe impact on TFT-LCD industry. Production lines of all generations could not be expanded to appropriate application areas. Thus, there was still an over-production in the supply of panel products. In 2010, with the global economic recovery, the market of TFT-LCD gradually recovered. Comparing with the continuous downslide of the price of large size panels, demand of small and middle size panels this year was relatively strong. The active demand of smart phones and tablet PCs was one of the major growth drivers.
Facing new market environment, Tianma reacted rapidly and achieved a good sales performance through accurate grasp of market opportunities, product mix adjustment and rational allocation of production capacity. Meanwhile, Tianma played a role of uniform deployment and reasonable arrangement in the marketing platform, supply chain platform, R&D platform, human resources platform and enterprise culture system, which enable the subsidiaries, associates and managed companies to reach economy of scale, achieve a full range of integrated management and achieve synergies that promote our business. During the reporting period, Tianma realized consolidated gross profit of 14%, with an increase of 11 percentage points as compared with previous year. This marked a success in achieving a turnaround in profitability.
–V-4– APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
Shanghai Tianma fully explored the market of overseas key customers, maintained close contacts with customers to fully meet customer demand, improved product quality and thereby achieved breakthrough results. During the reporting period, the Company achieved a turnover of RMB2,048,870,000, representing an increase of 56.68% over the previous year; a net profit of RMB162,550,000, representing an increase of 211.46% over the previous year. AM-OLED assembly line project has achieved a major breakthrough and progress. The performance indicators of the first LTPS LCD product have reached the standards and passed validation test, and may enter the phase of mass production and application. Construction of plant and supporting facilities and introduction and installment of production equipment of the 4.5G TFT-LCD production line in Chengdu Tianma have been completed and the production line has formally entered the period of gradual output release; the 4.5G TFT-LCD production line and CF production line in associate Wuhan Tianma have started trial production; meanwhile, the construction of other supporting facilities, equipment commissioning, staff recruitment and other work are proceeding in an orderly way. Shanghai CATIC Opto-electronics Limited, entrusted to the management by Tianma, has resumed production and further established advantage of production capacity. Moreover, its market standing has also been significantly raised.
Gross Profit Margin
2010 2009 (RMB’000) (RMB’000)
Sales revenue 3,321,736 2,181,111 Cost of sales 2,863,603 2,109,394 Gross profit 458,133 71,717 Gross profit margin 14% 3%
Market Structure
Sales regions 2010 2009
PRC 44.06% 20.68% Hong Kong 24.63% 60.62% Europe and America 12.75% 11.52% Southeast Asia and others 18.56% 7.18%
Total 100% 100%
–V-5– APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
Product Structure
2010 2009
LCD-CSTN 0.51% 0.87% LCD-MONO 19.81% 5.48% LCD sub-total 20.32% 6.35% CSTN modules 13.19% 18.64% TFT modules 53.57% 66.53% MONO modules 12.92% 8.48% Modules sub-total 79.68% 93.65%
Total 100% 100%
PCB
The Group, through the subsidiary, Shennan Circuit, engages in the production and sales of mid to high end multi-layer PCB products, which are widely used in high technology fields such as telecommunication, aerospace, medical services and industrial control. The turnover of the PCB business of the Group in 2010 rose by about 35.19% to approximately RMB1,578,891,000 when compared with the figure of the previous year of RMB1,167,939,000. The profit after taxation amounted to approximately RMB148,710,000 which represented an increase of approximately 46.14% when compared to that of the previous year of RMB101,761,000.
In 2010, the global semiconductor and electronics industries have experienced a significant booming upward cycle. Due to the effect of downstream terminal demand, the PCB industry showed a strong growth momentum. As economic recovery of European and American countries from the second half of the year was slower than expected and developing countries and emerging economies presented rational drop after rapid growth, the growth trend of PCB was slowed and the overall growth of semiconductor and electronics industries of the year was stable.
Facing market opportunities and challenges, Shennan Circuit proposed the strategy of “making further effort in developing target market and promoting market coverage”, grasped business opportunities arising and actively explored the market. The business of HDI board grew rapidly due to the domestic investment in 3G business and active demand of smart phones and tablet PCs. Order taking work of Shennan Circuit this year achieved a speedy breakthrough. In terms of internal operation management, the Company greatly increased production capacity through expanding the production capacity and improving the production efficiency, on the other hand, the Company took management and technical innovation, lean manufacture and other measures to enhance the production operation capacity of the Company and reduce the negative impact of constant rise of price of raw materials and labor costs on corporate profits. In addition, through a series of brand promotion activities, Shennan Circuit has further promoted its corporate image and brand influence at home and abroad.
–V-6– APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
In 2010, Shennan Circuit has made great breakthrough in electronics assembly business, which has currently formed capacity of 10 SMT production lines and possessed the complete process manufacturing capabilities of mobile phones and radio frequency amplifiers and other products. In terms of packaging substrate business, debugging of all connecting facilities has been completed so far, the production lines have already entered trial-production stage and the delivery rate of products in mass production and processing of important samples has been substantially increased and customer development has achieved initial success. We have started to provide lot-size products to a number of internationally renowned clients.
Gross Profit Margin
2010 2009 (RMB’000) (RMB’000)
Sales revenue 1,578,891 1,167,939 Cost of sales 1,206,970 912,250 Gross profit 371,921 255,689 Gross profit margin 24% 22%
Market Structure
Sales regions 2010 2009
PRC 76% 84% Europe and America 14% 10% Southeast Asia and others 10% 6%
Total 100% 100%
Product Structure
Sales regions 2010 2009
Telecommunications equipment 69% 77% Consumer electronic devices 2% 2% Others 29% 21%
Total 100% 100%
–V-7– APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
Luxurious wrist watches
The Group engages in the manufacture of middle and high-end luxurious watches and chain sales of imported watches through its subsidiary, Fiyta, including R&D, design, manufacture and sales of watches under its owned brand name and chain sales network operation of prestigious watches. In 2010, the revenue of the watch business of the Group amounted to approximately RMB1,700,608,000, representing a growth of approximately 47.39% when compared with RMB1,153,803,000 of the previous year. The profit after taxation amounted to approximately RMB53,538,000, representing an increase of approximately 22.31% when compared with the previous year of RMB43,772,000.
In 2010, given strongly recovering economy and increasing consumption sentiment, China became the world’s second largest consumer of luxury goods and the most dynamic market, and was the world’s major growth area of luxury goods industry. Accordingly, the watch industry entered into a period of rapid growth. In this context, for watch business, the Group adhered to two master lines for business, namely, building the world prestigious watch sales channel of Harmony and “VIOLA TRICOLOR” multi-brand system, continuously optimized the integration of internal resources, endeavored to expand markets and improved the overall enterprise profitability and market competitiveness.
During the year, Fiyta’s owned-brand watch business adheared to the “VIOLA TRICOLOR” multi-brand strategy, i.e., the common development of Fiyta brand, high-end brand “Emile Chouriet” and fashion brands. Fiyta watches continue to strengthen investment and operational management of exclusive shops, promote the channel quality improvement, show to more middle and high end customers the excellent products and brand image of Fiyta, exploit overseas channels, strengthen product marketing and promotion, promote the brand image of Fiyta and accelerate product serialization and standardization through new arrivals, spokesperson advertising and regional promotion; during the reporting period, 56 new sales outlets were opened for high-end brand “Emile Chouriet” wristwatches (120 in total). Both the sales quantity and amount have achieved 100% growth over the previous year; and, fashion brands COSMO and JEEP mainly focus on channel laying and the initial channel laying in Southeast Asian markets has been completed, while 70 watch counters have also been established in the PRC. Moreover, network, credit cards and other sales channels have also been developed.
The Group’s Shenzhen Harmony World Watch Center (“Harmony”) was in sound operation while continuing to actively develop strategic channel partners and seize the opportunity to rapidly extend network. During the reporting period, a total of 57 new chain stores were opened. At the end of the reporting period, the sales network of Harmony watches had reached 187 outlets (38 of which were Harmony shops). Harmony also persistently enhanced the management of its chain stores and completed storefront renovation of 15 chain stores. Harmony brand was proactively promoted and had been widely recognized and listed as one of the Top 500 Brands in Asia. Communication and cooperation with international watch groups and independent watch brands was continuously fortified and reinforced.
–V-8– APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
“Three-tier marketing” theory was actively fostered and deepened, whereas terminal implementation was strengthened. The improved customer satisfaction and loyalty ultimately boosted the steady growth of sales.
In 2010, Fiyta completed placing of A shares, successfully issued 31,230,480 new shares and raised funds of RMB499,999,985. Main purposes of the raised funds are network expansion and improvement of Harmony chain store operation and new product and brand marketing and promotion of Fiyta, which will effectively contribute to the development of the watch business and improve the core competitiveness and sustainable development capacity of Fiyta.
Gross Profit Margin
2010 2009 (RMB’000) (RMB’000)
Sales revenue 1,700,608 1,153,803 Cost of sales 1,203,259 801,266 Gross profit 497,349 352,537 Gross profit margin 30% 31% Gross profit margin of Fiyta timepieces 67% 65% Gross profit margin of Harmony timepieces 25% 24%
Market Structure
Sales regions 2010 2009
Northeast region 10.34% 9% North China region 14.31% 13% Northwest region 24.59% 19% Southwest region 11.34% 3% East China region 12.01% 11% South China region 27.41% 45%
Total 100% 100%
Resources
The Group has taken a proactive stance to develop its resources business with CATIC Resources as its business platform and mainly focused on agriculture-related resources business. In 2010, the resources business of the Group recorded turnover of approximately RMB189,529,000, representing a decrease of approximately 56.29% as compared with RMB433,682,000 last year. The loss after taxation was approximately RMB7,363,000.
–V-9– APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
In terms of potassium fertilizer business, as prices of resources in international resource market remained a decline stage in 2009, price of potassium fertilizers in 2010 has been in a bottom level and presented slight recovery in the fourth quarter. Meanwhile, hindered by nationwide natural disasters, the market demand for potassium fertilizers continued to stay at low levels. In the fourth quarter, due to the stimulus of stock of agrochemicals during slack seasons (winter) and fertilizer preparation for spring plowing, the demand grew slightly; in addition, as a result of CATIC Resources’ technical reform and rationalization for workshops during the reporting period, the annual production volume of the potassium fertilizers was limited to 113,000 tons and the sales volume was 113,000 tons. Due to the influence of above mentioned factors, profits of potassium fertilizer business of the Group did not meet our expectation. By the end of year 2010, the Company has completed technological transformation project of the second workshop, construction of desliming plant, reconstruction project of inlet channel from the Iqe River to the mine section and solution mining industrial test and thereby laid the foundation for solution mining of low-grade earth surface mine in the coming year.
In terms of phosphate fertilizer business, the Group has completed mining preparation of Kunming Heqi Phosphorus Chemical Industry Co., Ltd. (later renamed Kunming CATIC Phosphorus Chemical Industry Co., Ltd.), including changes of mining warrants, renewal and change of work safety license, sewage discharge permission application and process modification of the washing plant, construction of related supporting facilities for mining. In 2010, production has not started and it is expected to start normal production next year. Meanwhile, in order to increase resource reserves, allocate necessary back-end phosphorus chemical engineering equipment, integrate resources and realize synergetic effect of the area, CATIC Resources acquired Yunnan Hongfu Phosphoric Orefield in September of 2010.
During the reporting period, to further define and implement the development strategy of focusing on agricultural resources, CATIC Resources sold the equity interests in Guizhou Xiao Jia Wan and An Jia Zhai two coal mines in May 2010 and obtained a gain on disposal of approximately RMB72,030,000.
Gross Profit Margin
2010 2009 (RMB’000) (RMB’000)
Sales revenue 189,529 433,682 Cost of sales 125,164 319,683 Gross profit 64,365 113,999 Gross profit margin 34% 26%
– V-10 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
Market Structure
Sales regions 2010 2009
Sales regions 2% 6% Jiangsu region 1% – Hubei region 3% – Qinghai region 71% 26% Shandong region 13% 17% Sichuan region – 3% Guizhou region 3% 13% Yunnan region – 12% Beijing region 1% 4% Zhejiang region 4% 8% Shanxi region 2% 11%
Total 100% 100%
Product structure
Product structure 2010 2009
85# products 100% 84% 90# products – 12% phosphate fertilizer – 4%
Total 100% 100%
–V-11– APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
FINANCIAL REVIEW
Capital Structure
2010 2009 (RMB’000) (RMB’000) Restated
Total borrowings 8,021,658 7,102,801 Total liabilities 12,318,964 9,802,017 Non-controlling interests 2,970,967 2,125,824 Total equity 4,948,449 3,824,337 Total assets 17,267,413 13,626,354
Loan-to-equity ratio 162.10% 185.73% Debt-to-equity ratio 248.95% 256.31%
Loan-to-equity ratio = total loans at the year end over shareholders’ equity at the year end
Debt-to-equity ratio = total liabilities at the year end over shareholders’ equity at the year end
As at 31 December 2010, the cash and cash equivalents of the Group amounted to approximately RMB1,728,245,000 (2009: RMB1,056,811,000), mainly derived from the following sources:
• Cash and bank deposits at the beginning of the year; and
• Revenue from operations.
As of 31 December 2010, the current borrowings of the Group amounted to approximately RMB2,350,486,000 (2009: RMB2,310,325,000) with an annual interest rate of 4.66% (2009: 4.22%), and non-current borrowings totaling approximately RMB5,671,172,000 (2009: RMB4,792,476,000) with weighted average interest rate of 4.95% on 31 December 2010 (31 December 2009: 4.88%).
Capital expenditure of the Group in 2010 amounted to approximately RMB2,353,874,000, of which approximately RMB1,263,398,000 was applied to the purchase of production equipments for the TFT-LCD and LCD operations and the construction of staff dormitories; approximately RMB299,886,000 was applied to the purchase of production equipments for the PCB operations; approximately RMB67,285,000 was applied to the purchase of production equipments for the watch operations and setting up new chain stores of Harmony; approximately RMB316,292,000 was applied to the hotel and lease operations; approximately RMB406,398,000 was applied to the acquisition of production equipments and mining rights for resources business and the construction works relating to office, living facilities and mining areas; and approximately RMB615,000 was applied to other projects.
– V-12 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
The Group’s capital expenditure for 2011 is estimated to be approximately RMB3,501,100,000, of which approximately RMB803,000,000 will be used for the purchase of production equipment and the construction of staff dormitories for the LCD operations; approximately RMB482,600,000 will be applied to the purchase of production equipment for Wuhan Tianma and Chengdu Tianma; approximately RMB874,000,000 will be applied to the purchase of production equipment and land used for production and the construction of new production plant for the PCB operations; approximately RMB60,000,000 will be used for the renovation of guest rooms and facilities of GIB Company; approximately RMB748,500,000 will be used as the investment in construction of Qinghai Resources Silicon Metal Mine and Yunnan Hongfu Mine; approximately RMB533,000,000 will be used for purchase of production equipment and land used for production and also the construction of new production plants and sales network of Fiyta. The proposed capital expenditure is expected to be financed by bank borrowings, bank deposits and the cash generated from the Group’s operations.
PROSPECTS FOR 2011
In 2011, the Group will continue to take rapid growth as the main line of development and actively seize opportunities for development. With “transcendence, efficiency and synergy” being determined as the annual strategic topics, the Group will promote the implementation of various strategic measures, endeavor to improve efficiency of operation management, assets, performance of staff and organisation and realize efficient and rapid growth of business. The Group will endeavor to improve business operation and management efficiency through continued efforts to promote operational excellence, deepen management innovation and optimize operational processes; improve asset efficiency by establishing innovative business model and profit model; build medium and high level talent development system on an ongoing basis, while establishing key personnel introduction platform; improve organizational efficiency, to actively adapt to cross-regional and multi-business development needs; and continue to promote changes in thinking model and reform of corporate culture system, to support healthy and sustainable development of all the business lines.
LCD
Authoritative market research organisation DisplaySearch has predicated that in 2011, market size of LCD is expected to reach US$28.5 billion, with an annual average growth rate of approximately 19%. Although facing relatively severe macro environment, driven by smart phones, tablet computers, e-book readers, automotive displays and other products, the market will still maintain growth momentum with generally stable prices. In terms of technology, driven by the strong demand for smart phones and tablet PCs, LEDs, AM-OLEDs and touch panels will become key development items of the panel industry. It is expected that the shipments and production capacity of touch panels will maintain robust growth in the next two years. Meanwhile, the market development space of AM-OLEDs will expand as the difference in price between 3.5-inch AM-OLED panels and TFT-LCD panels decreases year by year. In 2011, there is expected to be an annual growth rate
– V-13 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
of 29.4% in the global shipment of touch panels due to the simultaneous driving force from general application of tablet PCs and touch screen mobile phones. In terms of application, mobile phones continue to dominate the applications of small-and-medium-size liquid crystal display screens and display devices, and other new applications such as personal navigation devices, digital photo frames and MP3/portable media players are boosting the sales of small and medium-size LCDs.
In 2011, various production lines of liquid crystal display business built by the Group will start mass production in succession and therefore the scale effect will become increasingly apparent. Adhering to the strategic thinking of “from good to great”, Tianma will continue to implement the “key customer strategy”, leverage on overall management, coordination and service advantages, further improve the marketing platform, supply chain platform, R&D platform, human resources platform and enterprise culture system. Tianma will optimize the internal processes, integrate the supply chain management platform, build a sound cost management system, resource planning system and supply chain operation model to strengthen supply chain risk management capabilities while improving quick delivery capabilities and thereby maximize the efficiency of assets. Tianma will also continue to increase input in research and development, increase the success rate of new project development and pay close attention to the development of new display technology and supplement the technical platform. We will particularly in terms of AM-OLEDs, gradually master the key design techniques and processing techniques of AM-OLED mass production, expand the product lines and layout of production lines and further strengthen our international leading position.
In addition, the Group will continue to push forward the integrated LCD business reorganisation of Tianma, endeavor to excel in Chengdu Tianma and Wuhan Tianma during their period of gradual output release, improve standardization and efficiency of corporate governance, strengthen risk management and corporate social responsibility and improve business capability and social awareness.
PCB
The global semiconductor industry restores steady growth in 2011. The global PCB industry has entered a new round of growth cycle with predictable growth in the next few years. The economic recovery of European and American countries from the second half of 2010 was slower than expectation. Moreover, considering the rational drop in the domestic market and slowdown of demand growth in terminal electronic equipment market, the growth of global PCB industry in 2011 is expected to be lower than that of 2010. However, as China is an important country for global PCB industry, the PCB industry in China will maintain sustainable growth under the policies continuously promulgated by the State Council in recent years for supporting the electronic information industry, the growing domestic market demand and continuous transfer of global production capacity. Semiconductor sales in emerging markets represented by China have accounted for more than 50% of the global sales and its growth rate will be higher than the global industry average. The
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enterprises that possess design and independent research and development capacities in the semiconductor industry and meet related environmental protection standards might usher in rapid development in the future.
Looking into 2011, Shennan Circuit will continue to adhere to the low cost and differentiation strategies and customer-oriented principle, enhance influence in the core competitive field of communications market, further increase market share in industries such as optical network construction, 3G network follow-up construction and integration of telecom, radio and TV, and Internet networks. We will also constantly raise market coverage in other key industry sectors, such as aerospace, industrial control and healthcare. In 2011, two growth businesses of Shennan Circuit – electronics assembly and packaging substrate will develop rapidly. As the global electronic information industry continues to shift to China, top international electronic manufacturing services (EMS) companies gradually increase investments in China and recovery of downstream markets causes rapid expansion in capacity of EMS market, development of Shennan Circuit electronics assembly business will be further accelerated. The electronics assembly business and packaging substrate business will possess production capabilities of certain scale and market competitiveness and bring new performance growth opportunities to the Company in the future.
In 2011, Shennan Circuit will focus on interaction among the three principal activities of PCB, electronics assembly and packaging substrate, give full play to industrial synergy and steadily push forward the formation progress of a multi-service and multi-regional pattern. On the basis of the successful transformation of the first branch plant, capacity upgrade of the second branch plant and rapid development of electronics assembly and packaging substrate businesses, Shennan Circuit will promote the plants’ full-process lean production, improve the standardization and automation level of production system and enhance the plants’ overall operation efficiency. We will strengthen coordination of cross-department lean processes, intensify construction of human resources management system, promote the implementation of compensation and performance reform project, consolidate efficient operation process, establish replicable efficient operation models and thereby provide effective support to multi-service and multi-regional operation. In the future, the Company will adhere to the principle of customer orientation, take efficient implementation as the driving force and leapfrog development as a goal and thus finally achieve joint growth of customers, suppliers, enterprises and employees.
Luxurious wrist watches
With the rapid development of the global economy, luxurious goods industry has become one of the fastest growing industries in the world, of which, watches play a very important role. The current rapid development of China’s macro economy, consumption upgrade caused by increase in China’s per capita income and rapid increase and intersection of consumer discretionary items after the economic crisis provide high-end retail and luxurious retail enterprises with more opportunities in domestic first-tier cities. In recent years, both volume of imported
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watches and the prices have increased and consumers have significantly more demand for imported watches. Benefiting from China’s economic trends and the long-term favorable momentum of luxurious goods industry, Fiyta keeps optimistic about the market prospect in 2011.
In 2011, Fiyta will adhere to the “VIOLA TRICOLOR” multi-brand strategy on the basis of sound operation, seize market opportunities, improve design capabilities and supply chain management, expand sales channels, strengthen the talent team building and brand marketing and management and rapidly increase the market share; and Harmony will strengthen communications with brand owners, retail dealers and real estate developers to enter into broad strategic alliances, rapidly expand and stabilize the sales network through more pragmatic approaches and means; endeavor to develop and maintain VIP customers and offer related support for steady growth of sales.
In addition, the Company will continue to strengthen internal communication and cooperation among brands, give full play to synergies, achieve synchronous growth of scale and benefits and extend the industrial value chain by stock acquisition and other means. We will take full advantage of the platform as a listed company, smooth the financing channels of capital market, strengthen employer brand construction, increase the reserve of talents, stabilize the backbone workforce and build a dedicated, professional and efficient team.
Resources
After market downturn in 2009 and adjustment in 2010, the international and domestic potash fertilizer prices have bottomed out and rebounded. Recently, due to the continued quantitative easing (QE) policy of the US and regional political volatility, price of bulk commodities in the international market rises continuously. Moreover, as a result of the inherent concentrated supply and monopoly characteristics of international potash fertilizer industry, the price of potash fertilizer in the international market has been in a rising trend. Meanwhile, impacted by rising inflation, domestic prices of agricultural products rose rapidly in 2010, above 10% over the same period of the previous year. Price rise of agricultural products will greatly stimulate the enthusiasm of farmers. Additionally, for the purpose of assuring national food security, several agricultural new policies have been implemented in China, including adjustment of agricultural structure, promotion of agricultural technology, expansion of agricultural acreage, maintaining soil fertility through balanced fertilization and liberalized land use right transfer. All these measures will further promote large-scale and intensive agricultural planting and thereby expand the demand for fertilizer industry and make the industry flourishing.
In terms of potash fertilizer business, CATIC Resources will continue to intensify technology R&D, complete the salt field expansion project, expand production capacity as far as possible within a workable range, endeavor to make major breakthroughs in water diversion and solution mining in 2011 so as to increase potash fertilizer yield and quality and enhance its profitability. Meanwhile,
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the Company will choose good opportunities to expand and merge other high-quality potash fertilizer resources in Qinghai and expand the market share in the field of potash fertilizer. In terms of phosphate fertilizer, Kunming CATIC Phosphorus Chemical Industry Co., Ltd. will start normal operations and Yunnan Hongfu Phosphoric Orefield will strive to complete the first phase project construction and the trial run.
The Company will continue to promote operational lean management, focus on strengthening cost control, strengthen management and control of each business sections, focus on relevant agricultural resources, strengthen business development and integration, actively increase reserves of high quality resources and try to bring stable good returns to the shareholders.
SIGNIFICANT EVENTS
1. Proposed Amendment to the Renovation Project for the Modernization and Renovation of Guangdong International Building
On 21 January 2009, the Board of the Company resolved to conduct a modernization and renovation project of the properties of a subsidiary, Guangdong International Building Industrial Co., Ltd. According to the feasibility study report released at that time, the total expected cost of the approved renovation project would not exceed RMB250,000,000. In December 2009, the Company reevaluated the project budget after the implementation of the design plan. According to the latest audit, the total budget for the project has been revised to not exceeding RMB451,000,000.
Under the Listing Rules, the modernization and renovation project of Guangdong International Building constituted a discloseable transaction. For further details, please refer to the announcement of the Company dated 5 August 2010.
2. Increase of Share Capital and Issuance of Shares by Shennan Circuit
On 30 November 2009, the Company, CATIC Shenzhen and 41 management members and staff of Shennan Circuit entered into a capital increase agreement, pursuant to which the management members and staff of Shennan Circuit conditionally agreed to make a capital contribution in total of RMB48,314,000 in cash to the registered capital and the capital reserve of Shennan Circuit. Upon completion of the capital increase, the shareholding of the Company in Shennan Circuit will be diluted from 95% to approximately 88.35% of the enlarged registered capital of Shennan Circuit, while 4.65% and 7% of the shareholding will be held by CATIC Shenzhen and the management members and staff respectively.
The resolution approving the capital increase was duly passed at the extraordinary general meeting held on 19 March 2010, and new business licence was obtained on 1 November 2010.
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3. Issuance of Shares and Acquisition of Assets by Tianma
On 18 November 2009, Tianma, a non-wholly owned subsidiary of the Company, entered into various framework agreements with the Company, Shanghai Zhang Jiang (Group) Co., Ltd. (“Shanghai Zhang Jiang Group”), Shanghai State-owned Assets Operation Co., Ltd. (“Shanghai State Assets Company”) and Shanghai Industrial Investment (Group) Co., Ltd. (“Industrial Investment Group”), and accordingly entered into formal agreements on 18 January 2010. According to the agreements, Tianma conditionally agreed to acquire 21%, 20%, 19% and 10% of the total equity interests in Shanghai Tianma from the Company, Shanghai Zhang Jiang Group, Shanghai State Assets Company and Industrial Investment Group, respectively, in consideration of Tianma issuing not exceeding 44,709,007, 42,580,018, 40,451,011 and 21,290,000 new A shares (149,030,036 new A shares in total) at the price of RMB5.34 per A Share (aggregate consideration not exceeding RMB795,820,400) to the Company, Shanghai Zhang Jiang Group, Shanghai State Assets Company and Industrial Investment Group, respectively. Upon the completion of the acquisitions and the issuance of A shares, Shanghai Tianma will be wholly owned by Tianma, while the aggregate shareholding of Tianma held by the Company will be diluted from approximately 45.62% to approximately 42.40% of the enlarged issued share capital of Tianma.
Under the Listing Rules, the acquisitions and the issuance of A shares constituted very substantial acquisition, connected transaction and very substantial disposal. For further details, please refer to the announcement of the Company dated 27 November 2009, the supplemental announcement dated 18 January 2010 and the circular dated 1 February 2010. The resolutions approving the acquisitions and the issuance of A shares were duly passed at the extraordinary general meeting held on 19 March 2010.
Tianma approved the above transaction at the general meeting held on 14 May 2010 and then submitted a full set of application materials to China Securities Regulatory Commission (CSRC) for review. On 30 December, the transaction was not approved at the year 2010 forty-second session review meeting of the Review Committee of Merger, Acquisition and Reorganisation of Listed Companies of CSRC. Tianma held a board meeting on 28 January 2011 and decided to continue to proceed with this substantial asset restructuring, and re-submit the application materials to CSRC for review after resolving related problems and supplementing, amending and perfecting the application materials in accordance with the requirements of CSRC and the opinions of the Review Committee of Merger, Acquisition and Reorganisation of Listed Companies.
4. Non-public offering of shares by Fiyta
On 12 April 2010, the board of directors of Fiyta, a non-wholly owned subsidiary of the Company, proposed to raise not more than RMB500,000,000 by issuing not more than 50,000,000 A Shares to not more than 10 institutional investors or other qualified investors and the Company with the help of an institutional
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placing agent. Meanwhile, the Company signed the Subscription Agreement with Fiyta on the same day to subscribe for new shares with a total subscription amount of RMB80,000,000. The subscription price was not less than RMB12.45 per Fiyta share, with a discount of approximately 10% compared with the average closing price RMB13.83 per share of the last 20 trading days as of 12 April 2010 (including the day).
Under the Listing Rules, the transaction constituted a discloseable transaction of the Company. For further details, please refer to the announcement of the Company dated 12 April 2010.
On 29 November 2010, Fiyta has obtained the Permission about Non-public Offering of Shares by Shenzhen FIYTA Holdings Ltd. (ZJXK [2010] No. 1703) from CSRC for approving the non-public offering of no more than 50,000,000 new shares. According to subscription situation of investors, the share issuance price was finally determined to be RMB16.01 per share for a total issue of 31,230,480 new shares. The total amount of raised funds from this share offering is RMB499,999,984.80. Deducting the issuing expenses of RMB17,234,852.57, the net amount raised is RMB482,765,132.23. On 30 December 2010, new shares of Fiyta were successfully listed in Shenzhen Stock Exchange.
5. Set up of AM-OLED assembly line by Shanghai Tianma
On 13 August 2010, the Board of the Company resolved that the construction of an AM-OLED assembly line was to be carried out by Shanghai Tianma, an indirect non-wholly owned subsidiary of the Company. According to an internal feasibility study, the total investment for the construction of the assembly line will be no more than RMB491,600,000, of which, RMB210,000,000 will be borne and contributed by Shanghai Tianma, while the balance in the amount of RMB281,600,000 will be funded by government subsidies.
Under the Listing Rules, the above construction of the assembly line constituted a discloseable transaction of the Company. For further details, please refer to the announcement of the Company dated 13 August 2010.
6. Acquisition of Yunnan Hongfu Phosphoric Ore by CATIC Resources
On 14 September 2010, CATIC Resources, a wholly-owned subsidiary of the Company, entered into a capital increase agreement with Yunnan Hongzhou Investment Co., Ltd. (“Yunnan Hongzhou”) and Yunnan Hongfu Fertilizer Co., Ltd. (“Yunnan Hongfu”), pursuant to which CATIC Resources agreed to contribute RMB114,489,795.90 in cash to the capital of Yunnan Hongfu. After the capital increase, CATIC Resources will hold 51% of the equity interest in Yunnan Hongfu and Yunnan Hongzhou will hold 49% of the equity interest in Yunnan Hongfu.
Under the Listing Rules, this capital increase constituted a discloseable transaction of the Company. For further details, please refer to the announcement of the Company dated 14 September 2010.
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7. Very Substantial acquisition and connected transaction – Issuance of domestic legal person shares and perpetual subordinated convertible securities for acquiring related assets of the parent company and related parties
On 30 November 2010, the Company entered various asset acquisition agreements with CATIC International, CATIC Shenzhen and Beijing Raise. According to the agreements, the Company has conditionally agreed to acquire certain equity interests for sale from CATIC International, CATIC Shenzhen and Beijing Raise respectively. According to the Company’s initial valuation data available at the announcement date, the initial value of the target group as at 30 June 2010 was approximately RMB4,151,136,588 (equivalent to approximately HK$4,826,903,009). The total consideration is adjustable after the assessment of the valuation of the target group by the State-owned Assets Supervision and Administration Commission of the State Council. However, the total consideration in any event shall not exceed RMB4,566,250,247 (equivalent to approximately HK$5,309,593,310).
Pursuant to the agreements, the consideration shall, upon completion of the acquisition, be respectively satisfied by the Company by (1) allotting and issuing 437,264,906 consideration shares at the issue price of RMB3.15 (equivalent to approximately HK$3.66) per domestic share and (2) issuing perpetual subordinated convertible securities convertible to not more than 918,981,497 conversion shares at the initial conversion price of RMB3.47 (equivalent to approximately HK$4.03) per share to CATIC International, CATIC Shenzhen and Beijing Raise.
Under the Listing Rules, the acquisitions constituted a very substantial acquisition and connected transaction. For further details, please refer to the announcement of the Company dated 6 December 2010 and the circular dated 30 December 2010. The resolutions approving the acquisitions and the issuance of shares were duly passed at the extraordinary general meeting held on 16 February 2011. Currently, the Company is preparing the proposal to be submitted to the State-owned Assets Supervision and Administration Commission of the State Council for consideration in accordance with the relevant procedures.
(II) FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009
FINANCIAL REVIEW
During the year of 2009, the Group recorded a consolidated revenue of approximately RMB5,092,883,000 (2008: RMB4,077,074,000), representing an increase of approximately 24.92% over the previous year. The overall gross profit was approximately RMB831,212,000 (2008: RMB1,081,615,000), representing a decrease of approximately 23.15% over the previous year. The Group’s loss attributable to shareholders (after minority interests) amounted to approximately RMB165,566,000.
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In 2009, under the influence of the global financial crisis and economic turbulence, enterprises in the People’s Republic of China (“PRC”) faced the headwinds of a challenging operating environment. The electronic, resources, timepieces manufacturing and sales industries, which the Group is engaged in, were inevitably affected. Of which, the gross profit of the LCD business and resource businesses of the Group plummeted as compared to the corresponding period last year as a result of the shrink in market demand and the drop in prices. However, it is encouraging to note that notwithstanding the decrease in overseas market demand and fall in prices, the PCB business has managed to buck against market decline and recorded growth in income and gross profit through continuously optimizing customers’ structure and perking up production capacity. Timepieces manufacturing and chain sale businesses remained on the track of steady growth and its brand value and market position has been substantially enhanced. The renovation works of Guangdong International Building has formally commenced in 2009 with a view to increasing the property’s value; but such project will have a negative effect on the overall profitability of the Group in the short term.
The Group has made encouraging progress during the year in terms of the implementation of major investment projects and internal management, etc. During 2009, the Group has endeavored to enhance the management level of various business segments, optimize its operation, implement its cost control strategies and perk up its assets return efficiency. Without interfering our corporate development, we have remarkably reduced our cost. Our business segments have also attached great importance to the restructuring of operation structures and procedures and have gradually established business management systems, which most suit their unique business characteristics. Besides, high priority was accorded to the continual development of senior staffs management capability, the building up of their competency and the retaining and nurturing of talents in order to meet the requirements arising from the rapid business expansion.
The turnover and profits/(losses) of the Group for the year 2009 together with the comparative figures of 2008 were as follows:
Turnover 2009 2008 RMB’000 RMB’000
Resources 433,682 550,419 LCD 2,181,111 1,374,254 PCB 1,167,939 944,413 Timepieces manufacturing and sales 1,153,803 968,768 Investment properties 115,929 107,804 Cable TV equipment 32,040 28,167 Hotel 8,379 103,249
Total 5,092,883 4,077,074
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Profit/(losses) after taxation 2009 2008 (RMB’000) (RMB’000) Restated
Resources (80,795) 205,408 LCD (290,779) (69,777) PCB 101,761 85,272 Timepieces manufacturing and sales 43,772 33,824 Investment properties 69,857 4,734 Cable TV equipment (183) 528 Hotel (43,432) (75,066) Others (88,981) 226,588
Total (288,780) (41,665)
Resources
The Group has taken a proactive stance to develop its resources business with CATIC Resources serving as its business platform and mainly focused on agriculture-related resources business, which we enjoy dominate position and sustainable development can be achieved. Under the impact of the financial crisis, the international resources market witnessed huge fluctuation in price in 2009 and domestic resources prices remained at low levels under the then prevailing economic hardship. Under such an environment, the performance of the resources business of the Group did not meet our expectation with profit recording a relatively huge drop. In 2009, the resources business of the Group recorded turnover of approximately RMB433,682,000, representing a decrease of approximately 21.21% as compared with RMB550,419,000 last year. Loss after taxation was approximately RMB80,795,000 (profit after taxation last year approximately RMB205,408,000).
With respect to the potassium fertilizer business, the annual volume of potassium chloride produced during the year was 207,000 tonnes and the aggregate volume of potassium chloride sold was 269,000 tonnes with inventory being completely absorbed. The domestic potassium fertilizer prices continued to linger at low levels in 2009 as market demand dropped. Prices of potassium chloride products ceased to decline in the fourth quarter after sliding down for the first three quarters. As the stimulus measures introduced by the Chinese government gradually deliver positive effects, the demand arising from spring plowing and the replenishment by distributors have started to increase, which provides a larger room for the rebound of the price of potassium fertilizer. In terms of cost, costs of sales for the year increased as the product delivery mode of potassium fertilizer products had switched from customer pick-up prices that prevailed in 2008 to a FOB national railway station pricing method (國鐵第一到站價). Therefore the Company has to bear extra transportation and miscellaneous expenses. Meanwhile, the combined effect of a substantial rise in the national resources tax from RMB50/ton to RMB150/ton and the high-cost potassium fertilizer inventory purchased in prior periods has raised our costs for the year and has therefore resulted in a loss for this
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year for our potassium fertilizer business. On the other hand, our phosphorous mining business of CATIC Resources maintained a watchful stance because the business was still in its preliminary set-up stage while the prices of phosphorous fertilizer and yellow phosphorus were at a trough in 2009.
CATIC Resources has stepped up the construction of infrastructures and production facilities in the Mahaihu mines in order to guarantee its long term and sustainable development. In 2009, CATIC Resources has obtained the permission from the Development and Reform Commission of Qinghai Province for the 450,000-ton production capacity expansion project and completed its initial approval procedures such as the environmental impact assessment. Furthermore, CATIC Resources allocated a special fund for the expansion project and has commenced several key projects such as the low-grade ore and mud desliming project, the water drainage and solution mining project, the brine laminating project (層壓鹵水項目) and the technical upgrade project for workshop no. 2 and has thus paved that way for us to expand our production capacity, improve product quality, reduce mineral waste and enhance production technology in the future.
In addition, CATIC Resources gave great weight to the interchange and integration of corporate culture. It has also focused on grasping business opportunities arising from the market and achieving breakthrough in key technologies on the basis of its principal of self-innovation. Besides, the enormous resources put into the economic exploitation of resources, research and development of technologies of sustainable and integrated utilization of resources have also brought about huge progress in terms of technical innovation. QINGHAI CATIC Resources has been given the title of “Model Enterprise in Qinghai Province (青海省模範集體)” by the provincial party committee and the provincial government of Qinghai Province, and was awarded as a “Successful Enterprise in the Experimental Sustainable Economy in Qaidam Basin (柴達木循環經濟試驗平安企 業)”.
Gross Profit Margin
2009 2008 RMB’000 RMB’000
Sales revenue 443,682 550,419 Cost of sales 364,103 248,676 Gross profit 69,579 301,743 Gross profit margin 16.04% 54.82%
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Market Structure
Sales regions 2009 2008
Jiangsu region 6% 8% Hebei region – 84% Xinjiang region – 1% Shandong region 16% 6% Sichuan region 17% 1% Guizhou region 3% – Yunnan region 13% – Beijing region 12% – Zhejiang region 4% – Shanxi region 8% – Jilin region 11% –
Total 100% 100%
Product structure
Product structure 2009 2008
85# products 84% 93% 90# products 12% 7% Coal products 4% –
Total 100% 100%
85# product represents products with a potassium chloride content of 54% in the market.
90# product represents products with a potassium oxide content of 57% in the market.
LCD
The Group carries on the research and development, design, production, sales and service of LCD and Liquid Crystal Module (“LCM”) products through Tianma. The revenue of the LCD business of the Group for 2009 was approximately RMB2,181,111,000 (2008: RMB1,374,254,000), representing an increase of approximately 58.71% over the previous year. The loss after taxation for the year was approximately RMB290,779,000 (2008: approximately RMB69,777,000).
The overall market demand for and prices of LCD panels plummeted as the industry was affected in 2009 by the ripple effect of the financial crisis. In particular, export was impacted by a plunge in the number of orders from foreign customers, which mainly comprises European and US customers. Although the market condition showed signs of rebound in the second half of the year, the market is still characterized by instability as the overall demand has yet to resume while there was an over-production in the market.
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Notwithstanding such difficulties, Tianma adhered to its strategy of concentrating on “big accounts and differentiated and selected markets” and maintaining close contacts with large customers, while concentrating on the provision of tailor-made products and the marketing efforts in selected markets, market share has also been increased rapidly. As a result of all our efforts, Tianma has improved its account management in respect of the large customers and established its operation model and management system for the selected markets. However, due to the facts that the market demand and prices have fallen substantially thanked to the financial crisis, while the production capacity of the 4.5 generation tube size thin film transistor liquid-crystal display (“TFTLCD”) production line project of our joint venture, Shanghai Tianma Microelectronic Company Limited (“Shanghai Tianma”), has not yet been fully utilized in the first half year, the gross profit margin of the Group’s LCD business dropped to 3.04%. Meanwhile, Tianma made provision for 48.23% of the trade receivable from Amoi Electronics Co., Ltd. in the fourth quarter (an accumulated provision for bad debt of 78.23% has been provided with respect to such trade receivable), the result of which was an unexpected operating results for the LCD business of the Group which was greatly different from what we have expected, and has produced a relatively large impact on our profit after tax.
Shanghai Tianma, a subsidiary of Tianma, put enormous effort in market expansion, reducing defect rate and the consistency of its products in order to fight against the adverse external environment. In 2009, it realized from principal business an income of RMB1,280,294,000, representing an increase of 1,283% from the prior year. As time is needed for us the step up our production capacity, our current sales volume cannot fully cover our relatively higher fixed costs. Therefore, the consolidated gross profit margin for the year was 2.9% and the accumulated net loss amounted to RMB146,176,000. The construction of 4.5 G TFT-LCD production line of Chengdu Tianma Microelectronics Company Limited (“Chengdu Tianma”, a subsidiary of Tianma) and the 4.5 G TFT-LCD and CF production lines of Wuhan Tianma Microelectronics Company Limited (“Wuhan Tianma”, a financial asset available for sales of Tianma and is held as to 10% by Tianma), which were invested by the Group in October and November 2008, respectively, were progressing smoothly, while the structure of the main plant of Chengdu Tianma has been completed in July and the installation of equipment therein has been finished. On the other hand, Wuhan Tianma has finished the tendering process for its equipment and has also completed the structure of the TFT and CF production lines.
During the year of 2009, Tianma obtained totally 48 patent application numbers and the “Tianma” trademark was named a “Renowned Brand of Guangdong Province” and Tianma was awarded the title of “Top 100 Shenzhen Enterprises 2009” by Shenzhen Enterprise Confederation and Shenzhen Economic Daily. Shanghai Tianma has completed the design of 45 models of panal and about 200 models of module products and has made a total of 135 technical invention patent applications, in which 3 were overseas applications, while 4 have been
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approved. Tianma and Shanghai Tianma were successively certified as a municipal-level “National Hi-tech Enterprise” and Shanghai Tianma also engaged in the LTPS technology commercialization project and the National Engineering Laboratory Project of the National Development and Reform Commission and technological projects of ministry committees such as the “863” Project Committee of the Ministry of Science and Technology of the PRC (國家科技部「863」).
Gross Profit Margin
2009 2008 RMB’000 RMB’000
Sales revenue 2,181,111 1,374,254 Cost of sales 2,114,698 1,215,184 Gross profit 66,413 159,070 Gross profit margin 3.04% 11.57%
Market Structure
Sales regions 2009 2008
PRC 20.68% 29.19% Hong Kong 60.62% 51.61% Europe and America 11.52% 12.34% Southeast Asia and others 7.18% 6.86%
Total 100.00% 100.00%
Product
2009 2008
LCD-CSTN 0.87% 2.95% LCD-MONO 5.48% 10.74% LCD sub-total 6.35% 13.69% CSTN modules 18.64% 43.47% TFT modules 66.53% 27.05% MONO modules 8.48% 15.79% Modules sub-total 93.65% 86.31%
Total 100.00% 100.00%
PCB
The Group carries on the production and sales of mid and high end PCB products through Shennan Circuit, which is mainly engaged in the high technology
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field such as telecommunication, medical services, automobile and industrial control. The revenue of the PCB business of the Group for 2009 was approximately RMB1,167,939,000 (2008: RMB944,413,000), representing an increase of approximately 23.67% over the previous year. The profit after taxation for the year was approximately RMB101,761,000 (2008: RMB85,272,000), representing an increase of approximately 19.34% over the previous year.
Due to the financial crisis, demand in the global PCB industry contracted significantly in 2009, while the production value of the industry dropped by approximately 14.2% from 2008, resulting in a substantial decrease in prices and severe market competition. Under such pressure, the sales gross profit margin of Shennan Circuit for the year dropped 2.23% to 21.64% from the corresponding period last year. In face of the adverse external environment, Shennan Circuit adopted a customer-oriented external strategy that endeavor to exploit large customers, expand its share in the key products procurement market and explore new customers. Internally, it has perpetually increased its production capacity, improved its product quality and striven to provide quick delivery. Although the demand from overseas market shrank and the weight of export in Shennan Circuit’s sales diminished in 2009, the proportion attributable to PCB for the telecommunication industry swelled due to the domestic investment in 3G business, and hence the revenue of Shennan Circuit for 2009 jumped by 23.67% against all odds. To tackle the financial crisis, Shennan Circuit actively launched various campaigns to reduce expenses and strengthen the management of the supply chain and quality as well as costs control, which helped it to secure a relatively high profit margin. Attributable to the combined effect of an increase in operating income and the reduction in costs and expenses, the profit after taxation of Shennan Circuit for 2009 bounded significantly.
In 2009, the production capacity of the Shennan Circuit’s plant in Longgang increased rapidly with production volume and production value both doubled as compared with 2008. It has also achieved satisfactory quality and delivery capability. Such developments have laid a sound foundation for us to sustain the blow from the financial crisis and achieve growth in time of adversity.
Through the thorough implementation of management and innovation projects, Shennan Circuit has further improved its product quality, advanced its expertise, enhanced the speed of delivery and promoted the research and development of new techniques and products. In terms of product mix, sales of high-end products with over 10 layers have increased by 24% and our product profile has been persistently shifting to the high end.
Shennan Circuit achieved a breakthrough in terms of patent applications by successfully filing 66 patents in 2009 and has a total of 84 approved patents as at the date hereof. Shennan Circuit was approved as a “National Hitech Enterprise”. It was listed as a “Top 100 Shenzhen Enterprises” for the third consecutive year and its ranking overtook 19 competitors within three years. It was included as one of the “Top 100 Efficient Shenzhen Industrial Enterprises” and was certified as a “Innovative Experimental Enterprise in Guangdong Province”. The innovative
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product of Shennan Circuit, namely the “Improved Customer Management System for Hi-tech Enterprises to Improve Their Competitiveness in the International Market (高科技企業提升國際市場競爭力的精益客戶管理)”, was award the “First Prize in the Sixteenth National Awards for Innovative and Modern Corporate Management (第十六屆國家級企業管理現代化創新成果一等獎)”. Last but not least, the successful pass of the NADCAP certification in the space and aviation industry marked the well established processing management capability of Shennan Circuit in processing core products in the space and aviation field.
Gross Profit Margin
2009 2008 RMB’000 RMB’000
Sales revenue 1,167,939 944,413 Cost of sales 915,234 724,336 Gross profit 252,705 219,551 Gross profit margin 21.64% 23.30%
Market Structure
Sales regions 2009 2008
PRC 84% 77% Europe and America 10% 13% Southeast Asia and others 6% 10%
Total 100% 100%
Product
2009 2008
Telecommunications equipment 77% 65% Consumer electronic devices 2% 3% Others 21% 32%
Total 100% 100%
Luxurious Timepieces
The Group carries on the manufacture of middle and high-end luxurious timepieces and chain sales of imported timepieces through its subsidiary Fiyta, including research and development, design, manufacture and sales of timepieces under its owned brand name and chain sales network operation of prestigious timepiece brands. Impacted by the economic crisis in 2009, the international
– V-28 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
markets for most luxuries suffered significant contraction, except for the PRC market which exhibited stronger resistance to risk as compared with other overseas markets. In 2009, the revenue of the timepiece business of the Group was approximately RMB1,153,803,000, representing an increase of approximately 19.10% over RMB968,768,000 for the previous year. The profit after taxation for the year was approximately RMB43,722,000, an increase of approximately 29.26% from RMB33,824,000 for the previous year.
The timepieces business of Fiyta maintained a stable growth in 2009. Leverage on the theme of watches for space and aviation uses, Fiyta continued to upgrade the brand connotation and enrich the product series of its proprietary brand watches by introducing the “Photographer” series, the “The Heart of City” female series and the 60th National Anniversary Limited Edition of hollowed tourbillion gold watch in 2009, which were well received by the market. Through unremittingly promoting and enhancing the terminal brand image, the satisfaction of customers buying Fiyta watches has been consistently improving. With strengthened channel development, the number of points of sales of Fiyta timepiece reached 560 as of the end of 2009.
In 2009, Harmony World Watch Center overcame the blow of the economic crisis on consumers’ sentiment in the luxuries market and persistently enhanced the operating capacity of its chain stores. It has also stringently controlled operating costs, increased investment in setting up point of sales on the basis of reduced operating risks, expanded the network of chain premium watch stores steadily, optimized the network and thus achieved continuous growth in operation results, with the sales income of Harmony (including Henglianda) for 2009 rose approximately 19.62% over the corresponding period last year. In 2009, the number of newly open Harmony shops was 28 (consisted of 27 Harmony shops and 1 Henglianda shops) and the total number of our chain stores reached 130 (consisted of 101 Harmony and 29 Henglianda shops) as of the end of 2009.
By carrying out capital operation and investment business, Fiyta established a fashionable brand operation company – 68 Station Limited in Hong Kong and Shenzhen Xiangji Commercial & Trade Co., Ltd. and determined to acquire Switzerland based Montres Chouriet SA and the Emile Chouriet high-end wrist watch brand and constructed a VIOLA T RICOLOR brand development strategy.
In 2009, Fiyta was awarded 3 awards in the field of science and technology. SHEN ZHOU VII Space Watch was awarded the special award of progress of science and technology – the highest award in respect of progress of science and technology, while the A-Tic Technology was awarded the second prize of technical invention and the FZK-601 clock control system was awarded the honorable mention of technical innovation. At the prize awarding ceremony of China Innovation Design Awards (CIDF) held in Guangdong Province, all the three products submitted by Fiyta were awarded 2009 CIDF awards. Harmony was awarded various titles such as the “Asia Renowned and Quality Brand Award (亞洲名優品牌獎)” and “60 Excellent Enterprises in the 60 Years of New China (新中國60年60家卓越企業)”. At the Sixth PRC HRM Annual Ceremony (第六屆中國人力資源管理年度盛典), Following the years of 2006, 2007 and 2008, Fiyta was the forth time awarded with the “Best Employer Enterprise in China (中國最佳僱主企業獎)”.
– V-29 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
Gross Profit Margin
2009 2008 RMB’000 RMB’000
Sales revenue 1,153,803 968,768 Cost of sales 803,770 655,600 Gross profit 350,330 313,168 Gross profit margin 30.34% 32.32%
2009 2008
The gross profit margin of Fiyta timepieces 64.64% 60.46% The gross profit margin of Harmony timepieces 23.63% 26.68%
Market Structure
Sales regions 2009 2008
Northeast region 9% 8% North China region 13% 15% Northwest region 19% 19% Southwest region 3% 11% East China region 11% 10% South China region 45% 37%
Total 100% 100%
Capital Structure
2009 2008 RMB’000 RMB’000 Restated
Total borrowings 7,102,801 5,965,713 Total liabilities 9,802,017 8,100,414 Minority interest 2,125,824 1,822,455 Shareholders’ equity 3,824,337 3,695,238
Total assets 13,626,354 11,795,652
Loan-to-equity ratio 418.18% 318.55% Debt-to-equity ratio 577.09% 432.53%
Loan-to-equity ratio = total loans at the year end over shareholders’ equity at the year end
Debt-to-equity ratio = total liabilities at the year end over shareholders’ equity at the year end
– V-30 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
LIQUIDITY AND CAPITAL RESOURCES
As at 31 December 2009, the Group had cash and cash equivalents totaling approximately RMB1,056,811,000 (2008: RMB874,373,000), which was mainly derived from the following sources:
• Cash and bank deposits at the beginning of the year; and
• Revenue from operations.
As at 31 December 2009, the Group had current borrowings totaling approximately RMB2,310,325,000 (2008: RMB3,044,734,000), which carried weighted average annual interest rates of 5.41% (2008: 6.96%), and noncurrent borrowings totaling RMB4,792,476,000 (2008: RMB2,920,979,000) with weighted average annual interest rate of 6.24% (2008: 7.05%).
Capital expenditure of the Group in 2009 amounted to approximately RMB1,227,342,000, of which approximately RMB901,609,000 was applied for the purchase of production equipment for the TFT-LCD and LCD operations; approximately RMB125,890,000 was applied for the purchase of production equipment for the PCB operations; approximately RMB54,893,000 was applied for the purchase of production equipment for the timepieces operations and the set up of new chain stores of Harmony; approximately RMB58,880,000 was applied for the hotel and lease operations; approximately RMB84,964,000 was applied for the acquisition of production equipment and mining rights for resources business and the construction works relating to office and living facilities and mining areas and approximately RMB1,106,000 was applied for other projects.
The Group’s capital commitment for 2010 is estimated to be approximately RMB1,010,579,000, of which approximately RMB580,268,000 will be used for the purchase of production equipment for the LCD operations; approximately RMB128,000,000 will be applied as the capital investment in Wuhan Tianma; approximately RMB180,000,000 will be applied as the capital investment in Chengdu Tianma; approximately RMB13,247,000 will be used for the purchase of production equipment and land used for production and the construction of new production plant for the PCB operations; approximately RMB29,139,000 will be used for the renovation of parking lots and guest room of GIB Company; approximately RMB38,225,000 will be used for the purchase of mining and production equipment for the resources business and approximately RMB41,700,000 will be used as the investment in Xiaojiawan coal mine. The proposed capital expenditure is expected to be financed by bank borrowings, bank deposits and the cash generated from the Group’s operations.
FOREIGN EXCHANGE RISK
The Group does not have any material foreign exchange risk as the Group’s products are mainly distributed in the PRC and overseas sales are mainly settled in US Dollar or HK Dollar.
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CONTINGENT LIABILITIES
The Company provided a one-year guarantee for a loan of RMB555,000,000 and a long-term guarantee for a loan of RMB90,000,000 in favour of Fiyta, a subsidiary of the Company, a one-year guarantee for a loan of RMB145,000,000 and a long-term guarantee for a loan of RMB505,000,000 in favour of CATIC Resources, a subsidiary of the Company, a one-year guarantee for a loan of RMB200,000,000 and a long-term guarantee for a loan of RMB120,000,000 in favour of GIB Company and a one-year guarantee for a syndicated loan of RMB564,051,000 and a long-term guarantee for a syndicated loan of RMB1,588,371,000 in favour of Shanghai Tianma, a subsidiary of the Company, a one-year guarantee for a loan of RMB5,000,000 in favour of MaiWei. Tianma, a subsidiary of the Company, provided a one-year guarantee for a syndicated loan of RMB118,000,000 in favour of Shanghai Tianma.
Gearing ratio:
The gearing ratios at 31 December 2009 and 2008 are as follows:
2009 2008 RMB’000 RMB’000 Restated
Total borrowings 7,102,801 5,965,713 Less: cash and cash equivalents (1,056,811) (874,373)
Net debt 6,045,990 5,091,340 Total equity 3,824,337 3,471,194
Total capital 9,870,327 8,562,534
Gearing ratio 60% 58%
Pledged asset
As at 31 December 2009, non-current secured bank borrowings of RMB680,000,000 (2008: RMB680,000,000) were secured by the land use rights of GIB Company at the net book value of approximately RMB482,724,000 (2008: RMB495,308,000) (Note 26).
As at 31 December 2009, non-current secured bank borrowings of RMB680,000,000 (2008: RMB680,000,000) and RMB1,918,423,000 (2008: RMB2,063,460,000) were secured by the buildings of the GIB Company at the net book value of approximately RMB223,850,000 (2008: RMB224,432,000), and the buildings and equipment and machinery of Shanghai Tianma Microelectronics Co., Ltd. (“Shanghai Tianma”) at the net book value of approximately RMB2,694,133,000 (2008: RMB2,953,003,000) respectively (Note 26).
– V-32 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
As at 31 December 2009, non-current secured bank borrowings of RMB680,000,000 (2008: RMB680,000,000) were secured by the investment properties of the Guangdong International Building at the fair value of approximately RMB576,749,000 (2008: RMB530,941,000) for the GIB Company, a subsidiary of the Group (Note 26).
Certain bank balances had been pledged for letters of credit issued by banks for the purchase of plant and machineries, amounting to RMB549,159,000 (2008: RMB65,838,000), and for bank loans amounting to RMB26,672,000 (2008: RMB30,000,000) as at 31 December 2009. These deposits will be released upon the settlement of the purchase consideration of the plant and machinery and the repayment of the bank loan.
OTHER SIGNIFICANT EVENTS
Modernization and Renovation of Guangdong International Building
On 21 January 2009, the Board of the Company resolved to conduct a modernization and renovation project of the properties of a subsidiary, Guangdong International Building Industrial Co., Ltd. The Board believes that Guangdong International Building is old and incurs high maintenance costs, and the modernization and renovation project will enhance the competitiveness of Guangdong International Building by improving its occupancy, income and commercial value while reducing the operation costs. According to budget, the expected cost of such project will not exceed RMB250,000,000.
Pursuant to the Listing Rules, the modernization and renovation project constitutes a disclosable transaction. For further details, please refer to the announcement of the Company dated 21 January 2009.
During the year of 2009, six renovation contracts have been entered into for the renovation of Guangdong International Building. For details, please refer to the Company’s announcements dated 13 February 2009, 7 April 2009, 13 May 2009, 14 July 2009, 2 September 2009, and 15 December 2009.
Repurchases of H Shares
Pursuant to the special mandate granted in the 2007 annual general meeting and class meetings, the Board of the Company has repurchased H shares. In December 2008, the Company repurchased 3,644,000 H shares. From January to April 2009, the Company repurchased 1,898,000 H shares. As at the date hereof, the Company has repurchased a total of 5,542,000 H shares. The Company completed the cancellation procedures for all the above repurchased shares on 16 June 2009, while the procedures for altering its registration at the State Administration of Industry and Commerce were completed on 3 July 2009.
For further details, please refer to the circular of the Company dated 29 April 2008.
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Issuance of Shares and Acquisition of Assets by Tianma
On 18 November 2009, Tianma, a non-wholly owned subsidiary of the Company, entered into various framework agreements with the Company, Shanghai Zhang Jiang (Group) Co., Ltd. (“Shanghai Zhang Jiang Group”), Shanghai State-owned Assets Operation Co., Ltd. (“Shanghai State Assets Company”) and Shanghai Industrial Investment (Group) Co., Ltd. (“Industrial Investment Group”), and accordingly entered into formal agreements on 18 January 2010. According to the agreements, Tianma has conditionally agreed to acquire 21%, 20%, 19% and 10% of the total equity interest in Shanghai Tianma from the Company, Shanghai Zhang Jiang Group, Shanghai State Assets Company and Industrial Investment Group, respectively, in consideration of Tianma issuing not exceeding 44,709,007, 42,580,018, 40,451,011 and 21,290,000 new A shares (i.e. a total of 149,030,036 new A shares) at the price of RMB5.34 per A Share (i.e. at an aggregate consideration not exceeding RMB795,820,400) to the Company, Shanghai Zhang Jiang Group, Shanghai State Assets Company and Industrial Investment Group, respectively. Upon the completion of the acquisitions and the issuance of A shares, Shanghai Tianma will be wholly owned by Tianma, while the aggregate shareholding of Tianma held by the Company will be diluted from approximately 45.62% to approximately 42.40% of the enlarged issued share capital of Tianma.
Pursuant to the Listing Rules, the acquisitions and the issuance of A shares constitute a very substantial acquisition, connected transaction and very substantial disposal. For further details, please refer to the announcement of the Company dated 27 November 2009, the supplemental announcement dated 18 January 2010 and the circular dated 1 February 2010. The resolution approving the acquisitions and the issuance of A shares was duly passed at the extraordinary general meeting held on 19 March 2010.
Increase of Share Capital and Issuance of Shares by Shennan Circuit
On 30 November 2009, the Company, CATIC Shenzhen and 41 management members and staff of Shennan Circuit entered into a capital increase agreement, pursuant to which the management members and staff of Shennan Circuit had conditionally agreed to make a capital contribution in total of RMB48,314,000 in cash to the registered capital and the capital reserve of Shennan Circuit. Upon the completion of the capital increase, the shareholding of the Company in Shennan Circuit will be diluted from 95% to approximately 88.35% of the enlarged registered capital of Shennan Circuit, while 4.65% and 7% of the shareholding will be held by CATIC Shenzhen and the management members and staff respectively.
Pursuant to the Listing Rules, the capital increase constitutes a very substantial disposal and connected transaction. For further details, please refer to the announcement of the Company dated 4 December 2009 and the circular dated 1 February 2010. The resolution approving the capital increase was duly passed at the extraordinary general meeting held on 19 March 2010.
– V-34 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
EMPLOYEES AND REMUNERATION
As at 31 December 2009, the Group had approximately 12,399 employees (2008: 11,084 employees) with employee related costs of approximately RMB655,687,000 (2008: RMB564,612,000). The Group formulated its competitive remuneration policy based on market condition and individual employee’s performance.
(III) FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2008
FINANCIAL REVIEW
In 2008, the Group recorded a consolidated revenue from continuing operations of approximately RMB4,077,074,000 (2007: RMB3,357,210,000), representing an increase of approximately 21.44% over the previous year. The overall gross profit was approximately RMB1,063,517,000 (2007: RMB774,564,000), representing an increase of approximately 37.31% over the previous year. The Group’s consolidated profit attributable to shareholders (after minority interests) amounted to approximately RMB3,984,000 (2007: RMB189,159,000), representing a decrease of approximately 97.89% over the previous year.
In 2008, the business segments of the Group were affected by the downturn of the PRC’s marco-economy from overheating which was in turn impacted by the ripple effect of the global financial crisis and economic turmoil triggered by the subprime crisis in the US. In particular, the skyrocketing of raw material costs in the first half of the year and the sluggish market demand in the second half year have adversely affected the Group’s electronic components segment, resulting in a substantial decline in gross profit as compared with the corresponding period last year, while the performance of the business segment of manufacture and chain sale of timepieces remained relatively stable. During the year, GIB Company recorded significant loss as a result of the operating loss of its hotel operation and assets retirement arising from the proposed decoration and renovation, which therefore delivered adverse effects to the operation of the Group. Benefiting from the preliminary success of the mergers and acquisition of the resources business, the potassium fertilizer business has made obvious contribution to the business development of the Group. To conclude, the scale of operation of the Group has, on the whole, continued to expand in 2008.
However, as the Company recorded a loss of approximately RMB51,039,000 from the disposal of all of its shares in Amoi Electronics Co., Ltd. (a company listed on the Shanghai Stock Exchange), together with the drop in valuation of the properties of Shenzhen CATIC Real Estate Co., Ltd. (“CATIC Real Estate”) due to the poor performance of the property market, the profit attributable to the Company has endured loss of approximately RMB24,118,000. Besides, GIB Company, with its results consolidated for the first time, has brought about losses of approximately RMB76,810,000 to the Company, resulting in a substantial decrease in the gross profit of the Group.
– V-35 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
The Group has made encouraging progress during the year in terms of the implementation of major investment projects and the internal management, and the mergers and acquisition of Haixi CATIC Sanjiaguiye Company Limited (“CATIC Sanjia”) was completed successfully during the year, which rendered a total production capacity of approximately 250,000 tonnes of potassium chloride and marked the formal entry of the Group into the resources market. The Group’s 4.5 G TFT-LCD production line project of Shanghai Tian Ma has proceeded smoothly and trial production was commenced during the year. Besides, the 4.5 G TFT-LCD production line of Chengdu Tianma Microelectronics Company Limited (“Chengdu Tian Ma”) and the 4.5 G TFT-LCD and CF production lines of Wuhan Tian Ma were established with the aim of making the Group’s presence felt and consolidating its leading position in the small and medium size LCD market. The high-end PCB project of the Group was carried out smoothly and mass production was commenced during the year. The stable rise in production values has cemented the leading position of the PCB electronic component manufacturing business of the Group in the relevant business segments in the PRC. At the same time, the Group has also introduced measures aiming at enhancing the standard of management and control of the Group, which included the introduction of balance scorecard and the system of lean six sigma, along with the programs on leadership, professional dedication, brand awareness and information technology. The Group’s relentless efforts have gained widespread recognition and the Group was awarded various prizes, which included the “Model Enterprise of Strategies Implementation in the PRC”, “Leadership Award in the 3rd International Lean Six Sigma Conference”, “2008 Top 100 Enterprises of Human Resources Management in the PRC” and “2008 Special Award of Best Employer”. In addition, the Group also won the “2008 Charity Enterprise in the PRC” award for its concern over social responsibilities, its care for the general staff and its active participation in social activities.
The analysis of the Group’s revenue (continuing and discontinued operations) and profit contributions by principal activities for 2008 together with the comparative figures for 2007 are as follows:
Revenue by activities 2008 2007 RMB’000 RMB’000 Restated
Mineral resources 550,419 – LCD 1,374,254 1,721,220 PCB 944,413 786,844 Luxurious timepieces 968,768 761,321 Hotel 103,249 – Other businesses 135,971 87,825
Total 4,077,074 3,357,210
– V-36 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
Profit/(loss) after taxation 2008 2007 RMB’000 RMB’000 Restated
Mineral resources 205,408 (16,956) LCD (69,777) 82,300 PCB 85,272 119,135 Luxurious timepieces 33,824 34,788 Hotel (75,066) – Other businesses (220,898) 43,648
Total (41,237) 262,915
Resources
The Group entered the mining resources industry, which was dominated by few market players and which was delivering sustainable development, through its subsidiary Shenzhen CATIC Resources Co., Ltd. (“CATIC Resources”). In 2008, the turnover of the resources business of the Group amounted to approximately RMB550,419,000, while profit after taxation was approximately RMB205,408,000.
CATIC Resources, a subsidiary of the Group which serves as the management and development platform of its agriculture-related resources business, recorded an increase in registered capital to RMB500 million during the year and has also achieved outstanding performance in its businesses. During the year, CATIC Resources completed the acquisition of the entire shareholding in CATIC Sanjia and at the same time actively proceeded with the integration of mines. The annual production volume of potassium chloride has in total reached 250,270 tonnes, while the maximum daily production volume was 1,322.68 tonnes. Under the influence of the economic crisis, the price of potassium fertilizer was volatile during the year, but the overall fluctuation was smaller in comparison with other industries and the price of potassium fertilizer has remained at a relatively high level. CATIC Sanjia has benefited from the above development and attained outstanding performance during the year, with its turnover and profit after taxation as at 31 December 2008 amounting to approximately RMB547,046,000 and approximately RMB229,241,000 respectively.
CATIC Sanjia has put great emphasis on the construction of infrastructures of mines in order to guarantee its long term and sustainable development. During the year, CATIC Sanjia completed the construction of the 35 KV electric power transmission line with a length of 78 km and the related facilities and has also commenced various projects such as the deepening of the brine transportation system, the construction of new mining ditches, the heightening of dyke and the cleaning of the magnesium chloride pool. Besides, CATIC Sanjia has also engaged in the construction works of communication optical cables and the facilities for staff quarters and continued to improve the infrastructures of the mining areas so as to lay a solid foundation for maintaining its existing capacity and enhancing its capacity in the future.
– V-37 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
In order to further its business development in the resources industry, build up the competitive strength of the Group and give new impetus to business growth, CATIC Resources has accelerated its pace of resources consolidation and implementation of plans of mergers and acquisition and continued to explore business opportunities of other types of resources. During the year, CATIC Resources acquired 70% equity interest in Kunming Dongchuan Heqi Phosphorus Chemical Industry Co., Ltd. (“He Qi Company”) and entered the phosphate industry, which has long term investment value, through such transaction. In November 2008, He Qi Company obtained an upgraded mining permit with an annual limit of 400,000 tonnes and this, as a result, has further enhanced the reserves and production volume of resources of the Group.
In addition, CATIC Resources gave great weight to the interchange and integration of corporate culture, which is essential to the smooth proceeding of various tasks after mergers and acquisition. It has also focused on grasping business opportunities arising from the market and achieving breakthrough in key technologies on the basis of its principal of self-innovation. Besides, the enormous resources put into the economic development of resources, research and development of technologies of sustainable and integrated utilization of resources have also brought about huge progress in terms of technical innovation.
Gross Profit Margin
2008 RMB’000
Sales revenue 550,419 Cost of sales 248,676 Gross profit 301,743 Gross profit margin 54.82%
Market Structure
Sales regions 2008
Jiangsu region 8% Hebei region 84% Xinjiang region 1% Shandong region 6% Sichuan region 1%
Total 100%
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Product Structure
Product structure 2008
85# product 93% 90# product 7%
Total 100%
85# product represents products with a potassium chloride content of 54% in the market.
90# product represents products with a potassium oxide content of 57% in the market.
LCD
The Group carries out the research and development, design, production, sale and servicing of LCD and LCM products through Tian Ma. The revenue of the LCD business of the Group for 2008 was approximately RMB1,374,254,000 (2007: RMB1,721,220,000), representing a decrease of approximately 20.16% over the previous year. The loss after taxation for the year was approximately RMB69,777,000 (2007: profit after taxation for the year was approximately RMB82,300,000), representing a decrease of approximately 184.78% over the previous year.
The unfavourable marco-economic factors such as the subprime crisis in the US and the appreciation of RMB, as well as the global recession cycle of panel monitor industry, the substantial drop in demand and product prices, have seriously impacted the LCD business of the Group and the relatively huge decline in profit has failed the Group’s profit target. In order to mitigate the adverse effect of the external environment, Tian Ma has adhered to the strategy of “technology-first, speed driven and personalized services” and continued to customize its product and optimize its customer structure. Tian Ma has also focused on the development of new products and the abandonment of certain low-end products and has built up a product mix which comprises mobile phones, MP3, GPS, wireless phones, automobiles, digital photo frames and medical equipment. Besides, it has taken proactive initiatives in the implementation of various marketing strategies, resulting in a 30% growth of sales of CSTN products as compared with last year, while the increase in sales to major customers is most obvious. Other measures introduced to overcome the prevailing economic challenges included better cost control, improvement in inventory turnover, enhancement of the Group’s efforts in loan recovery and the establishment of strategic relations with suppliers in order to attain better credit terms.
The construction work of the production line of 4.5 generation tube size thin film transistor liquid-crystal display (“TFT-LCD”) of Shanghai Tian Ma, has completed at the end of March 2008 and such project has made significant progress after the trial production undertaken throughout the year. During the year, Shanghai Tian Ma has basically completed its plan for the product lines of mobile phones and GPS products. It has also formulated plans for other product lines and has successfully acquired 8 large clients.
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In order to further improve the industry chain and to form a conglomerate, the Group made investment in establishing the 4.5G TFT-LCD production line of Chengdu Tian Ma and the 4.5G TFT-LCD and CF production lines of Wuhan Tianma Microelectronics Company Limited (“Wuhan Tian Ma”) in October and November 2008 respectively. The establishment of these three TFT production lines will have significant positive impact on maintaining rapid growth and enhancing competitiveness of the Group’s LCD business.
During the year of 2008, Tian Ma obtained totally 14 patent application numbers and was awarded “Leading Enterprise of Proprietary and Innovation Industry” by the People’s Government of Shenzhen, “Renowned Brand of Shenzhen” by Shenzhen Top Brand Nomination Council (深圳知名品牌評價委員會), and “Energy Saving Beacon Scheme Model Unit” (節能燈塔計劃示範單位)by Shenzhen Science and Technology Association. The Shanghai Tian Ma TFT-LCD Project has completed the design of 13 types of boards and around some 100 types of module products. Shanghai Tian Ma has applied for 26 technological invention patents. It also engaged in the TFT-LCD Engineering Laboratory Project of the National Development and Reform Commission and technological projects of ministry committees such as the “863” Project Committee of the Ministry of Science and Technology of the PRC (國家科技部「863」).
Gross Profit Margin
2008 2007 2006 RMB’000 RMB’000 RMB’000
Sales revenue 1,374,254 1,721,220 1,518,021 Cost of sales 1,215,184 1,448,550 1,255,681 Gross profit 159,070 272,670 260,819 Gross profit margin 11.57% 15.84% 17.20%
Market Structure
2008 2007 2006
PRC 29.19% 39% 40% Hong Kong 51.61% 35% 30% Europe and America 12.34% 14% 9% Southeast Asia and others 6.86% 12% 21%
Total 100% 100% 100%
– V-40 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
Product Structure
2008 2007 2006
Mobile phones 49.63% 43% 41% Wireless phones 9.37% 11% 14% Automobile appliances 8.30% 7% 8% MP3 10.90% 15% 12% Others 21.80% 24% 25%
Total 100% 100% 100%
PCB
The Group carries out the production and sale of mid and high-end PCB products through Shenzhen Shennan Circuit Co., Ltd. (“Shennan Circuit”), which is mainly engaged in the high technology field such as telecommunication, medical services, automobile and industrial control. The revenue of the PCB business of the Group for 2008 was approximately RMB944,413,000 (2007: RMB786,844,000), representing an increase of approximately 20.03% over the previous year. The profit after taxation for the year was approximately RMB85,272,000 (2007: RMB119,135,000), representing a decrease of approximately 28.42% over the previous year.
Despite the drastic increase in commodity prices and persistent rise in cost during the first half of the year, as well as the gloomy market during the second half of the year, the Group endeavoured to extend its customer base and committed itself for market development under its unswerving philosophy of “Customer Satisfaction”. The Group has acquired a total of 25 new clients during the year, which helped laying a solid foundation for meeting the challenges and operating in an adverse environment. The Group has also adjusted its product structure with a tilt toward high-end products. The sales revenue of the high-end products with over 10 layers grew by 18% in 2008, representing 64% of the total sales revenue. The Group successfully minimised the adverse effect resulting from a decrease in product prices and an increase in fixed cost. Meanwhile, it has also strengthened its product research and development, perfected its skills and techniques, further improved the product quality, enhanced its flexibility in production and expanded its production capacity.
The Group’s high-end PCB project has been capable of delivering stable mass production since June 2008, and has passed the ISO/TS16949 accreditation for the first time. During the year, the output value of the project increased steadily. Various production and operation indicators had shown that the Group has had excellent performance, and this represented a successful and smooth completion of the trial period of the project.
– V-41 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
Shennan Circuit successfully filed 3 patents in 2008 and has a total of 17 patents as at the date hereof. Shennan Circuit was named “Top 100 Shenzhen Enterprises 2007” and “First Group of Leading Enterprises of Proprietary and Innovation Industry in Shenzhen”. The black-belt items of Shennan Circuit won the Outstanding Project Award in the 3rd International Lean Six Sigma Conference. As a result of its due performance of its obligations on environmental protection, Shennan Circuit was awarded “Pengcheng’s Leading Enterprise in Reduction of Waste for the Year 2007” (2007年度「鵬城減廢行動」先進企業) “Shenzhen’s Advanced Unit in Energy Conservation” (深圳市節能降耗先進單位) and “Shenzhen’s First Group of Energy Saving Model Enterprises” (深圳市首批節能示範企業).
Gross Profit Margin
2008 2007 2006 RMB’000 RMB’000 RMB’000
Sales revenue 944,413 786,844 572,236 Cost of sales 724,336 572,273 418,483 Gross profit 219,551 214,571 153,753 Gross profit margin 23.3% 26.87% 26.87%
Market Structure
2008 2007 2006
PRC 76.63% 79% 75% Europe and America 13.35% 17% 14% Southeast Asia and others 10.02% 4% 11%
Total 100% 100% 100%
Product Structure
2008 2007 2006
Telecommunications equipment 65.03% 63% 64% Consumer electronic devices 2.61% 3% 5% Others 32.36% 34% 31%
Total 100% 100% 100%
– V-42 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
Luxurious Timepieces
The Group carries out the manufacture of middle and high-end luxurious timepieces and chain sale of luxurious timepieces through Shenzhen Fiyta Holdings Limited (深圳市飛亞達（集團）股份有限公司) (“Fiyta”), including R&D, design, production and sale of timepieces under its owned brand name and operation of chain sale network for prestigious timepiece brands. In 2008, the revenue of the timepieces business of the Group was approximately RMB968,768,000, representing an increase of approximately 27.25% over RMB761,321,000 for the previous year. The profit after taxation for the year was approximately RMB33,824,000, representing a decrease of approximately 2.77% over RMB34,788,000 for the previous year.
Fiyta has adhered to its brand strategy and leveraging on the publicity that an astronaut of Shenzhou 7 has successfully completed his mission of outer space stroll with an astronomical watch on his wrist, Fiyta has enhanced its brand promotion, increased the brand value as well as accelerated its pace in the serialization and standardization of products. Fiyta also successfully launched high-end Tourbillon watches, “Straight Life” series, “The Heart of City” series and Shenzhou 7 watches. In 2008, the revenue, profit and gross profit margin of Fiyta watch business increased as compared with last year. Meanwhile, in order to promote its brand image, Fiyta has dedicated itself to rapidly and steadily expanding its proprietary brand sales network as well as adjusting its adopted strategy to enhance risk control. During the year, Fiyta has established 9 additional sales branches and the total number of brand stores have reached 12. It also successfully entered into overseas markets such as Singapore, Malaysia, Canada, the US and Vietnam.
Harmony World Watch Center has been putting its “three-level sales and marketing strategy” into practice and has perfected its customer management system. Such an initiative has greatly facilitated the operation of the Center and extended its influence on the industry while gaining customers’ recognition. With the rapid expansion of its sales network, brand promotion and strengthened ties with international timepiece groups and brands, Harmony has recorded a substantial growth of sales revenue and profit. Currently, Harmony enjoys greatly improved position and influence in the watch industry and solid cooperation relationship with various world-famous brands. In 2008, it opened 12 new shops. As at the end of 2008, the total number of chain stores reached 79.
As at the end of 2008, Fiyta has completed and announced the amendments to 4 national standards and 17 industry standards. It has also participated in 4 working committees on the relevant international standards. In 2008, the “Chinese Manned Space Programmes – extra-vehicular activity spacesuit watches of Shenzhou 7” of Fiyta had passed the scientific ratification. Fiyta had applied for 2 invention patents, 7 practical new design patents (2 of which had been approved) and 1 design patent. Fiyta also won 3 CIDF awards (Gold Prize for its Folding Tourbillon, Honorable Mention award for its Square Tourbillon and Best Design Team award for its Innovative Design Department) and the Shenzhen City Technological Innovation Award.
– V-43 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
Gross Profit Margin
2008 2007 2006 RMB’000 RMB’000 RMB’000
Sales revenue 968,768 761,321 453,338 Cost of sales 675,422 523,714 306,412 Gross profit 380,004 237,607 146,926 Gross profit margin 36% 31.21% 32.41%
2008 2007 2006
The gross profit margin of Fiyta timepieces 65.06% 61.89% 51.52% The gross profit margin of Harmony timepieces 24.78% 23.38% 21.95%
Capital Structure
2008 2007 RMB’000 RMB’000 Restated
Total borrowings 5,965,713 3,725,844 Total liabilities 8,044,326 5,201,420 Minority interest 1,739,112 1,938,299 Shareholders’ equity 3,471,194 3,900,052
Total assets 11,515,520 9,101,472
Loan-to-equity ratio 344.42% 189.92% Debt-to-equity ratio 464.43% 265.14%
Loan-to-equity ratio = total loans at the year end over shareholders’ equity at the year end
Debt-to-equity ratio = total liabilities at the year end over shareholders’ equity at the year end
LIQUIDITY AND FINANCIAL RESOURCES
As at 31 December 2008, the Group had cash and cash equivalents totaling approximately RMB874,373,000 (2007: RMB1,306,698,000), which was mainly derived from the following sources:
• Cash and bank deposits at the beginning of the year; and
• Revenue from operations.
– V-44 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
As at 31 December 2008, the Group had current borrowings totaling approximately RMB3,044,734,000 (2007: RMB1,780,208,000), which carried interest rates ranging from 3.78% to 8.96% (2007: 2.5% to 8.75%) per annum, and non-current borrowings totaling approximately RMB2,920,979,000 (2007: RMB1,945,636,000) with interest rate of 7.05% (2007: 7.08%) per annum.
Capital expenditure of the Group in 2008 amounted to approximately RMB2,132,301,000, of which approximately RMB1,254,586,000 was applied to the purchase of production equipment for the TFT-LCD and LCD operations and the construction of staff dormitory, approximately RMB206,883,000 was applied to the purchase of production equipment for the PCB operations, approximately RMB39,754,000 was applied to the purchase of production equipment for the timepieces business and opening new Harmony chain stores, approximately RMB215,781,000 was applied to the hotel and lease operations, approximately RMB414,563,000 was applied to the acquisition of production equipment and mining rights for the resources business and the construction works relating to office and living facilities and mining areas and approximately RMB734,000 was applied to other projects.
The Group’s capital expenditure for 2009 is estimated to be approximately RMB709,806,000, of which approximately RMB28,066,000 will be used for the purchase of production equipment and the construction of staff dormitory for the LCD business, approximately RMB514,000,000 will be applied to Wuhan Tian Ma and Chengdu Tian Ma, approximately RMB28,202,000 will be used for the purchase of production equipment and land used for production and the construction of new production plant for the PCB business, approximately RMB6,455,000 will be used for the renovation of parking lot and guest rooms of Guangdong International Building, approximately RMB47,752,000 will be used for the construction of office and living facilities of CATIC Sanjia and as land premium of Xiaojiawan, and approximately RMB85,331,000 will be used for other projects. The proposed capital expenditure is expected to be financed by bank borrowings, bank deposits and the cash generated from the Group’s operations.
FOREIGN CURRENCY RISK
The Group has no significant foreign currency risk as the Group’s products are mainly distributed in the PRC and overseas sales are mainly settled in US Dollar or HK Dollar.
CONTINGENT LIABILITIES
The Company provided a one-year guarantee for a loan of RMB575,000,000 and a long-term guarantee for a loan of RMB70,000,000 in favour of Fiyta, a subsidiary of the Company, a one-year guarantee for a loan of RMB40,000,000 in favour of CATIC Sanjia and a long-term guarantee for a syndicated loan of RMB433,326,600 in favour of Shanghai Tian Ma, a subsidiary of the Company.
Tian Ma provided a long-term guarantee for a syndicated loan of RMB619,038,000 in favour of Shanghai Tian Ma.
– V-45 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
GEARING RATIO
The gearing ratios at 31 December 2008 and 2007 are as follows:
2008 2007 RMB’000 RMB’000 Restated
Total borrowings 5,965,713 3,725,844 Less: cash and cash equivalents (874,373) (1,306,698)
Net debt 5,091,340 2,419,146 Total equity 3,471,194 3,900,052
Total capital 8,562,534 6,319,198
Gearing ratio 59% 38%
PLEDGED ASSETS
As at 31 December 2008, non-current secured bank borrowing of RMB680,000,000 (2007: nil) and RMB2,063,460,000 (2007: RMB1,802,577,000) were secured by the land use rights of Guangdong International Building and Shanghai Tian Ma at the net book value of approximately RMB495,308,000 (2007: nil) and RMB134,958,000 (2007: RMB127,579,000) respectively.
TRANSACTIONS
Acquisition of shares of CATIC Real Estate and termination of the acquisition
On 21 January 2008, the Company entered into a share transfer agreement with CATIC Shenzhen Company Limited (“CATIC Shenzhen”) and Shenzhen CATIC City Development Limited (“CATIC City”), pursuant to which the Company planned to acquire 45,835,127 and 15,942,619 A shares in CATIC Real Estate from CATIC Shenzhen Company Limited and CATIC City, respectively, representing approximately 20.62% and 7.17% of the issued share capital of CATIC Real Estate, respectively, at the price of RMB20 per share. The total consideration of the proposed share transfer was RMB1,235,554,920. The above consideration would be satisfied by the allotment and issue of 146,620,034 and 50,998,164 domestic legal person shares (an aggregate of 197,618,198 domestic legal person shares) by the Company to CATIC Shenzhen Company Limited and CATIC City, respectively, at a price of HKD6.725 per share.
– V-46 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
The proposed share transfer constitutes a major and connected transaction of the Company according to the Listing Rules. For further details, please refer to the announcement and the circular of the Company dated 22 January 2008 and 9 April 2008 respectively. The resolutions to approve the proposed share transfer have been passed in the extraordinary general meeting and the class meetings held on 27 May 2008.
Due to the dramatic global financial unrest at the time in which the CSRC was reviewing the proposal, the original conditions for the share exchanges contemplated in the share transfer agreement have significantly changed. The parties to the share transfer agreement considered that, in the current situation, it was not in the interest of the parties to proceed with this transaction, and as the share transfer agreement has not taken effect and has not been executed yet, all the parties agreed to terminate the share transfer agreement in writing after negotiation. On 11 November 2008, the Company entered into a termination agreement with CATIC Shenzhen Company Limited and CATIC City, pursuant to which none of the parties was required to pay any penalty or compensation to any other party in respect of the termination of the share transfer agreement. Accordingly, the parties thereto have agreed that the share transfer agreement was terminated with immediate effect.
For further details, please refer to the announcement of the Company dated 11 November 2008.
Acquisition of equity interest in CATIC Sanjia
On 21 January 2008, CATIC Resources entered into acquisition agreements with CATIC Investment Management Company Limited (“CATIC Investment Company”), Mr. Yang Yong Gang and Qinghai Province Leng Hu Tiantian Potash Company Limited (“Tiantian Potash Company”), respectively, pursuant to which CATIC Resources acquired 60%, 30% and 5% equity interest in CATIC Sanjia from CATIC Investment Company, Mr. Yang Yong Gang and Tiantian Potash Company at a consideration of RMB330,000,000, RMB165,000,000 and RMB27,500,000 respectively, being RMB522,500,000 in aggregate (the “Acquisition of 95% Equity Interest in CATIC Sanjia”).
The Acquisition of 95% Equity Interest in CATIC Sanjia constitutes discloseable and connected transactions of the Company according to the Listing Rules. For further details, please refer to the announcement and the circular of the Company dated 21 January 2008 and 3 April 2008 respectively. The resolution approving the Acquisition of 95% Equity Interest in CATIC Sanjia was duly passed in the extraordinary general meeting held on 19 May 2008 and the Acquisition of 95% Equity Interest in CATIC Sanjia was completed on 23 May 2008.
– V-47 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
On 20 June 2008, CATIC Resources entered into an acquisition agreement with Tiantian Potash Company, pursuant to which CATIC Resources has conditionally agreed to acquire 5% equity interest in CATIC Sanjia from Tiantian Potash Company at a consideration of RMB125,000,000 (the “Acquisition of 5% Equity Interest in CATIC Sanjia”). The Acquisition of 5% Equity Interest in CATIC Sanjia constitutes a discloseable transaction under the Listing Rules. For further details, please refer to the announcement and the circular of the Company dated 24 June 2008 and 15 July 2008 respectively. The resolution approving the Acquisition of 5% Equity Interest in CATIC Sanjia was duly passed in the extraordinary general meeting held on 1 September 2008.
Upon the completion of the above acquisitions, the Company held 100% equity interest in CATIC Sanjia. Further details please refer to the announcement and the circular of Company dated 24 June 2008 and 15 July 2008 respectively. The resolution of the acquisition of 5% equity interest in CATIC Sanjia was duly passed in the extraordinary general meeting held on 1 September 2008.
Issuance of new shares by Fiyta
On 2 June 2008, the board of directors of Fiyta proposed to issue not less than 30,000,000 and not more than 50,000,000 Fiyta new shares to a limited number (not more than 10) of institutional or individual investors (the “Fiyta Issue Proposal”). The Fiyta Issue Proposal constitutes a material dilution in the percentage of the Company’s equity interest in Fiyta and a deemed disposal as well as a discloseable transaction of the Company.
For further details, please refer to the announcement and the circular of the Company dated 3 June 2008 and 10 June 2008 respectively. The Company has passed the special resolutions in respect of the Fiyta Issue Proposal in the extraordinary general meeting, H shares class meeting and domestic shares class meeting held on 25 July 2008 to approve the Fiyta Issue Proposal. The proposal is still subject to the approval by the CSRC.
Extension of mandate and withdrawal of application for the issuance
The Company has passed resolutions to grant to the Board the specific mandate to issue not more than 200,000,000 H shares (the “New H Shares”) and not more than 150,000,000 domestic shares in the extraordinary general meeting and the class meetings held on 10 September 2007. The term of the specific mandate expired on 9 September 2008. On 8 July 2008, the Board resolved to convene the extraordinary general meeting and the class meetings to extend the term of the mandate granted to the Board to issue the New H Shares, which represented not more than 29.46% of the total issued share capital of the Company as at 9 July 2008.
For further details, please refer to the announcement and the circular of the Company dated 9 July 2008 and 24 July 2008 respectively. The resolutions approving the extension of the mandate for the issuance of the New H shares were duly passed in the extraordinary general meeting and the class meetings held on 9 September 2008.
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The outbreak and spread of the global financial crisis has resulted in the financial turbulence and economic recession around the world. Although the Company has obtained the approvals from the then State-owned Assets Supervision and Administration Commission of the State Council and the National Council for Social Security Fund the People’s Republic of China for the new issuance and has also made an application to the CSRC for approval, the current bleak market condition was unfavourable for the issuance of additional shares. The Company applied to withdraw the application in respect of the issue of foreign-listed H shares and their listing on the Hong Kong Stock Exchange for the interests of all shareholders as a whole.
For further details, please refer to the announcement of the Company dated 27 March 2009.
Formation of a joint venture by Tian Ma – Chengdu Tian Ma
On 22 July 2008, Tian Ma entered into a joint venture agreement (the “Joint Venture Agreement”) with Chengdu Hi-Tech Investment Group Co., Ltd. and Chengdu Industrial Investment Group Co., Ltd., pursuant to which the parties conditionally agreed to establish a joint venture company to engage in the investment, construction and operation of production lines of 4.5 generation tube size thin film crystal liquid-crystal display (“TFT-LCD”) in Chengdu Hi-Tech Industries Development Zone. The registered capital of the joint venture company is RMB1.2 billion. Tian Ma will contribute RMB360,000,000 and will hold 30% equity interest of the joint venture company. After duly incorporated pursuant to the Joint Venture Agreement, the joint venture company will be considered as a subsidiary of the Company. On the same day, Tian Ma entered into a supplemental agreement, pursuant to which Tian Ma will enter into share transfer agreement(s) to acquire in aggregate 70% equity interest in the joint venture company from Chengdu Industrial Investment Group Co., Ltd. and Chengdu Hi-Tech Investment Group Co., Ltd. within 5 years from the date of incorporation of the joint venture company on certain conditions.
The Joint Venture Agreement and the supplemental agreement constitute a very substantial acquisition of the Company. For further details, please refer to the announcement and the circular of the Company dated 25 July 2008 and 9 October 2008 respectively. The resolution approving the formation of the joint venture company by Tian Ma was duly passed in the extraordinary general meeting held on 26 November 2008.
Formation of a joint venture by Tian Ma – Wuhan Tian Ma
On 11 October 2008, Tian Ma entered into a joint venture agreement (the “Joint Venture Agreement”) with Hubei Science & Technology Investment Company, pursuant to which the parties conditionally agreed to establish a joint venture company. The joint venture company is principally engaged in the investment, construction and operation of production lines of tube size thin film crystal liquid-crystal display and the ancillary color filter (the “TFT-LCD Business”). The
– V-49 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
registered capital of the joint venture company is RMB1,600,000,000. Tian Ma will contribute RMB160,000,000 and will hold 10% equity interest in the joint venture company, while Hubei Science & Technology Investment Company will contribute RMB1.44 billion and will hold 90% equity interest.
The Joint Venture Agreement constitutes a discloseable transaction of the Company under the Listing Rules. For further details, please refer to the announcement and the circular of the Company dated 13 October 2008 and 31 October 2008 respectively.
Application for extension of mining rights
Kuming Dongchuan Heqi Phosphorous Chemical Industry Co., Ltd. (“He Qi Company”), a domestic company incorporated in the PRC with limited liability, legally held the mining rights to A Wang Bai Long Tan (阿旺白龍潭) phosphorite mine (the “Mine”) in Dong Chuan District, Kun Ming City, Yunnan Province. On 31 July 2008, CATIC Resources entered into an agreement of cooperation with Mr. Yang Qi, Mr. Li Zhi Jian and Mr. Li Yi Lin to acquire an aggregate of 70% equity interest in He Qi Company. He Qi Company became a non-wholly owned subsidiary of the Company upon the completion of the acquisition.
He Qi Company made an application to the Department of Land and Resources of Yunnan Province for an extension of mining rights of phosphorite in the Mine on 28 April 2006. The application has been approved by the Department of Land and Resources of Yunnan Province on 24 October 2008. The Department of Land and Resources of Yunnan Province will proceed with the issuance of a new mining operation permit to He Qi Company upon its payment of the mining fees in the aggregate sum of RMB57,172,335, and the Board approved the payment of the above mining fees on 25 November 2008.
The application for the extension of mining rights constitutes a discloseable transaction of the Company under the Listing Rules. For further details, please refer to the announcement and the circular of the Company dated 25 November 2008 and 12 December 2008 respectively.
Completion of Repurchase of H Shares
Pursuant to the general mandate granted in the 2007 annual general meeting and class meetings held on 16 June 2008, the Board of the Company repurchased H shares. During the period of November 2008 to December 2008, the Company repurchased an aggregate of 3,644,000 H shares. During the period from January 2009 to April 2009, the Company repurchased 1,898,000 H shares. By then, the Company has repurchased a total of 5,542,000 H shares. The Company has currently completed the cancellation procedures for the repurchased shares as well as the procedures for applying for amendments to the industry and commerce registration. For further details, please refer to the circular of the Company dated 29 April 2008 and the announcement dated 16 June 2008.
– V-50 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
SIGNIFICANT INVESTMENTS
Acquisition of equity interest in CATIC Sanjia
Through acquiring 100% equity interests of CATIC Sanjia, the Group duly entered into the monopolistic and sustainable agricultural related resources industry. Upon the completion of the acquisition, CATIC Sanjia has become the wholly-owned subsidiary of the Company, and its financial results (such as revenue and profit) have been consolidated into the accounts of the Group. Since CATIC Sanjia’s business started in 2008, the earnings and profit of CATIC Sanjia will bring positive effects to the Group’s earnings and profit in the future.
Formation of a joint venture by Tian Ma – Chengdu Tian Ma
In the year the joint venture company was newly established, the factory was still under construction.
Subsequent to the establishment and commencement of business of Shanghai Tian Ma Microelectronics Company Limited, the Directors believed that, the establishment of Chengdu Tian Ma could provide the Group the opportunity to further develop the small/medium size TFT-LED display market. The Directors considered that small/medium size display products could be used on a wide range of products, and the market has shown a rapid growth, while TFT-LCD product will lead the market in the future. TFT-LCD business is one of the industries that supported by local government, and the formation of joint venture with the joint partners (all of which were state-owned companies) is one of the ways to attract investment used by the local government, as the joint partners will inject part of the initial capital into the joint venture. The Directors considered that, investing in TFT-LCD products made with joint partners is the way to further develop the panel monitor market, and such investment was in line with the development strategies of the Group and can help to enhance the competitiveness of the Group in the industry.
Formation of a joint venture by Tian Ma – Wuhan Tian Ma
In the year the joint venture company was newly established, the factory was still under construction.
Subsequent to the establishment and development of Shanghai Tian Ma Microelectronics Company Limited and the establishment of Chengdu Tian Ma, the establishment of Wuhan Tian Ma will provide the Group a good opportunity to further develop the small/medium size TFT-LED display market. TFT-LCD business is one of the industries that are supported by the local government, formation of joint venture with Hubei Science & Technology Investment Company (a state-owned company) is one of the ways to attract investment used by the local government. During the process of setting up the joint venture, most of the initial capital of the joint venture will be injected by Hubei Science & Technology Investment Company. The Directors considered that, investing in TFT-LCD business with Hubei Science & Technology Investment Company is the way to further
– V-51 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
develop the panel monitor market. Such investment was in line with the development strategy of the Group, and as such, it can help to perfect the strategic planning of the Group in the TFT-LCD industry, build up structural advantage, setting up a higher entry barrier, and to enhance the competitive advantage of the Group in the industry.
Application for extension of mining rights
Due to the monopolistic nature and there were only a few players in the natural resources business, the Company has been actively seeking opportunity to expand resources business. The extension of mining rights of phosphorous can increase the phosphorous resources reserve of the Group, so as to ensure the sustainable long-term development in resources business of the Group.
EMPLOYEES AND SALARIES
As at 31 December 2008, the Group had approximately 11,084 employees (2007: 10,325 employees) with employee related costs of approximately RMB564,612,000 (2007: RMB398,743,000). The Group formulated its competitive remuneration policy based on market condition and individual employee’s performance.
(IV) FOR THE SIX MONTHS ENDED 31 JUNE 2011
BUSINESS REVIEW
The revenue and profit of the Company in its consolidated results for the six months ended 30 June 2011 (the “Reporting Period”) were primarily derived from the following subsidiaries:
Percentage of equity held by the Name of subsidiary Company Principal activities
Tianma Microelectronics Co., 45.62% Manufacture and sales of Ltd. (“Tianma”) liquid crystal displays (“LCD”) and modules
Shennan Circuit Co., Ltd. 88.35% Manufacture and sales of (“Shennan Circuit”) printed circuit boards (“PCB”)
Fiyta Holdings Limited 41.49% Manufacture and sales of (“Fiyta”) middle to high-end wrist watches
– V-52 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
Percentage of equity held by the Name of subsidiary Company Principal activities
Shenzhen CATIC Resources 100% Agriculture-related Co., Ltd. (“CATIC resources business Resources”)
Guangdong International 75% Hotel and property Building Industrial Co., operations Ltd. (“GIB Company”)
During the six months ended 30 June 2011, the Group recorded a consolidated revenue of approximately RMB4,588,143,000, representing an increase of approximately 56.84% over RMB2,925,394,000 for the same period last year. The gross profit was approximately RMB941,891,000, grew by approximately 52.07% from RMB619,394,000 for the same period last year. The Group recorded consolidated profit attributable to shareholders (excluding minority interests) of approximately RMB20,860,000, representing an improvement of approximately 7.23% from the consolidated profit attributable to shareholders (excluding minority interests) of RMB19,454,000 for the same period last year. The earnings per share amounted to approximately RMB0.0310, as compared to earnings per share of RMB0.0289 for the same period last year.
SUMMARY OF PERFORMANCE
In the first half of 2011, China maintained a fast growing economy though there were signs of slowing down and inflation. Faced with a complex and volatile world market and emerging circumstances in domestic economy, the Group strived to ensure growth in core business through seizing development opportunities actively, focusing on the mission of maintaining fast growth, and implementing strategic measures. Our LCD business recorded steady growth by capturing the opportunities of increase in market demands and restructuring product and customer structures; the “aggressive marketing” strategy adopted in the PCB business achieved notable success in promoting stable progresses across multiple business fields; as for luxurious wrist watch business, the overall improvements in our market competitiveness and profitability have resulted in impressive growth. The resources business recorded significant growth in operating revenue as a result of the upward trend of potassium fertilizer prices and the growth of operation of the fertilizer business department; Guangdong International Building has completed the renovation and modernization project, and the “Crowne Plaza Hotel Guangzhou City Centre” has opened for business in June.
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LCD
The Group engages in the Research and Development (R&D), design, production, sales and servicing of liquid crystal displays (LCD) and liquid crystal modules (LCM) products through its subsidiary, Tianma. In the first half of 2011, the Group’s turnover from LCD business was approximately RMB2,076,773,000, surged by approximately 46.27% over RMB1,419,791,000 for the same period last year. The profit after taxation was approximately RMB67,952,000, representing an increase of approximately 17.40% over the profit after taxation of approximately RMB57,881,000 for the same period last year.
With the active demand for smart phones and tablet Personal Computers (PCs), demands for small to middle size panels grew in a steady pace during the first half of 2011. Tianma took advantage of this opportunity, and implemented the strategies of “leading technology, speedy win and customized services”. Through proactively adjusting both product and customer structures, and focusing on the market of small to middle size panels, Tianma managed to increase its orders and gradually release the production capacity of Chengdu Tianma, with revenue increasing over the same period last year. However, due to increasing labor costs, higher R&D expenses and the fact that Chengdu Tianma was still in the process of gradual output release, Tianma’s operating profit was to some degree under the adverse impact.
In addition to the existing 4.5 generation TFT-LCD in normal operation, the R&D project of OLED test assembly line by Shanghai Tianma also proceeded smoothly during the Reporting Period. With the first colour AMOLED product has been lighted up successfully, and most of the equipment installation and commissioning work has been done, the project entered into the stage of technology and equipment optimization and refinement. Chengdu Tianma has been in normal operation and the new production line expansion project invested in the first quarter is currently at the preliminary stage of equipment specification design and mass production delivery. Wuhan Tianma has completed the construction of production site, and the equipment for 4.5 generation TFT-LCD production line has been moved in and installed. It is prepared to commence normal operation in July. During the Reporting Period, Tianma have been entrusted with the management of Shenzhen CATIC Opto-electronics, and Shanghai Tianma have been entrusted with the management of Xiamen Tianma, after being entrusted with the management at shanghai CATIC Opto-electromics. This will not only enable Tianma to share its successful management experience to achieve operation synergy, but also bring Tianma a new business model and income source.
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PCB
The Group, through its subsidiary, Shennan Circuit, engages in the production of middle to high-end multi-layer PCB products, which are widely used in high technology fields such as telecommunication, medical services, automobile and industrial control. In the first half of the year, the turnover from the PCB business of the Group was approximately RMB997,799,000, rose by approximately 50.06% over RMB664,925,000 for the same period last year. The profit after taxation amounted to approximately RMB90,962,000, representing an increase of approximately 25.24% over RMB72,630,000 for the same period last year.
Global PCB industry has begun to recover since 2010. Driven by increased market demand and global industrial shifts, PCB companies in China have achieved rapid development in recent years. The PCB market remained active in low seasons since the first half of 2011, and the effect of order transfers resulting from Japan’s earthquake proved beneficial for PCB companies in South Korea, Taiwan and Mainland China. Driven by increasing demand from the core markets such as communications, medical industrial control and aerospace & aviation, and under the guidance of clear market strategies, Shennan Circuit achieved outstanding results in its market expansion during the Reporting Period, making the year-on-year growth in order value of 35%.
In order to control the risk of fluctuation in upstream materials, optimise product structure, and strengthen core competitiveness, Shennan Circuit started packaging substrate business and electronics assembly businesses (in the upstream and downstream of PCB industry chain respectively) in 2010. During the Reporting Period, the packaging substrate business witnessed a steady increase in production capacity, propelled by continuous improvement in technology. However, order and delivery volumes were affected by a shortage in global raw material supply caused by Japan’s earthquake. The electronics assembly businesses has launched the production lines in new electronics assembly building, further releasing its production capacity; although there is still room for improvement in respect of capacity utilization rate and delivery rate.
In the first half of 2011, Shennan Circuit continued to implement the strategy of management innovation and operational excellence throughout the company. By building strategic partnership with its suppliers and implementing lean manufacturing to improve efficiency of the staffs, Shennan Circuit has managed to control the impacts of increasing raw material and labor costs on the company’s profits. In addition, Shennan Circuit has also gained effective control over its costs by ways of optimizing production process, improving technologies, saving energy and lowering consumption and other measures.
– V-55 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
Luxurious wrist watches
The Group engages in the manufacture and chain sales of middle to high-end watches through its subsidiary, Fiyta, including R&D, design, manufacture and sales of watches under its owned brand name and chain sales network operation of prestigious watches. In the first half of 2011, the turnover from the watch business of the Group amounted to approximately RMB1,189,052,000, representing a growth of approximately 56.66% over RMB759,025,000 for the same period last year. The profit after taxation amounted to approximately RMB68,250,000, representing an increase of approximately 111.33% over RMB32,295,000 for the same period last year.
The Group focused on two base lines of operation in its watch business, namely, building its own watch brands and the world prestigious watch sales channel of Harmony, endeavored to improve overall market competitiveness and profitability by continuously optimizing and integrating internal resources, improving work standards and exploring broader markets.
In the first half of 2011, Fiyta adhered to the “VIOLA TRICLOR” multi-brand strategy, i.e., the “FIYTA” brand, the high-end brand “Emile Chouriet” and the fashion brand series, continued to improve the “4P+C” brand building pattern, and committed to expand sales channels, through which sales revenue from all brands recorded rapid growth. During the Reporting Period, 177 new sales points were added to the FIYTA channel, with sales revenue recorded a year-on-year growth of 67.31%. 31 new sales outlets were opened for high-end brand “Emile Chouriet” (145 in total), and the sales revenue recorded a year-on-year growth of 93.75%. As for fashion brands, 33 new sales outlets were opened, and the sales revenue recorded a year-on-year growth of 202.74%. In the first half of 2011, Fiyta’s owned-brand watch business recorded a turnover of RMB203,830,000, representing a growth of 73.86% as compared to the same period last year.
The Group’s Shenzhen Harmony World Watch Center (“Harmony”) was in sound operation while continuing to expand sales network rapidly. The number of Harmony’s sales outlets reached 207. Communication and cooperation with international watch groups and independent watch brands was continuously fortified and reinforced; “Three-tier marketing” theory was actively fostered and deepened in order, whereas sales terminals were further strengthened to proactively promote the Harmony brand, and boost its brand reputation and enhance its brand value. In the first half of 2011, the turnover from Harmony business amounted to approximately RMB1,003,180,000, representing a growth of 50.64% as compared to the same period last year.
– V-56 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
Resources business
The Group, through CATIC Resources, one of its subsidiaries, made great steps in the development of certain agriculture-related resources business. In the first half of 2011, the turnover from the agriculture-related resources business of the Group was approximately RMB216,796,000 representing an increase of 4,580.40% over RMB4,632,000 of the same period last year. The loss after taxation amounted to approximately RMB38,568,000, as compared to loss after taxation of RMB42,115,000 for the same period last year.
In terms of potassium fertilizer business, the price of potassium fertilizer in the international market maintained its upward trend since the fourth quarter of last year and continued to move up during the first half of 2011, helping to boost a steady growth in domestic potassium fertilizers prices and generate higher operating rates in most domestic potassium fertilizer factories. Qinghai CATIC completed its salt field conversion project in early May, with daily production capacity increasing by approximately 6% to 8% as compared to that before the technology innovation (i.e. production capacity increased about 20 to 30 tons per day). In the first half of the year, the total production volume of the potassium fertilizers was 44,600 tons, increasing by about 48% over the same period last year, and the sales volume reached 20,000 tons. In order to further explore the market and promote added value of the products, the Company has established a fertilizer business department to take charge of fertilizer trading and customizing business, which has generated remarkable contribution to the revenue for the first half of the year.
In terms of phosphate fertilizer business, Kunming CATIC Phosphorus Chemical Industry Co., Ltd. has completed the alteration of mining warrants and work safety license, and the formulation of mining plan. However, as relevant work for forestry land requisition and compensation has not been completed, the company was not able to start operation in the first half of 2011. The Group has completed 90% of the main structure construction for the first stage equipment installation in Yunnan Hongfu Chemical Fertilizer Co., Ltd., which was acquired in October 2010, and has received all relevant government approvals.
Hotel business
The Group is committed to hotel and property operations through its subsidiary, GIB Company.
Guangdong International Building has been in operation for 16 years before the Group’s acquisition and has never been renovated or modernized. Its facilities were aging or obsolete, and its operating income was decreasing year by year. For the purpose of improving the building’s overall image, enhancing operating income and commercial value, as well as lowering operating costs, GIB Company announced to suspend the hotel business and to implement renovation and modernization project on the hotel and commercial podium from January 2009. By the end of March 2011, the renovation and modernization project of the hotel and the
– V-57 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
podium has been substantially completed and the building has passed the acceptance and inspection procedures carried out by relevant authorities. During the renovation and modernization period, GIB Company entered into a contract with Crown Plaza Hotel Management Company (皇冠假日酒店管理公司), appointing the latter to be responsible for the operation and management of the new hotel up to five-star standard, and to improve hotel operation and management and make more contribution to the revenue of the Company. According to the podium’s commercial positioning, GIB Company has completed the majority work of enlisting business operators, and many new tenants have already opened for business. In June 2011, the new “Crown Plaza Hotel Guangzhou City Centre” (廣州中心皇冠假日 酒店) formally opened and the Company held a press conference and a grand opening ceremony.
PROSPECTS
Looking into the second half of 2011, there are still substantial uncertainties in the global economy. China’s economy is losing momentum. Although it currently shows no signs of a hard landing, there are many uncertainties in economic policies and macro regulations and control measures. Rigid increases in costs for materials, labour and financing will impose significant pressures on corporate operation. Facing uncertainties in the economy and policies, the Group will tackle external and internal difficulties and problems specifically, to actively improve profitability, and optimise product and client portfolio while growing.
In addition, pursuant to the strategy of continuous injection of high-quality assets by the controlling shareholders into the Company, the Company has entered into an equity acquisition agreement with its controlling shareholders and related parties on 30 November 2010, to acquire equity interests in 12 of their subsidiaries. The transaction has mostly been completed currently, and the procedures for related asset delivery and industrial and commercial registration are expected to be completed in the second half of 2011. Upon completion, the Group’s businesses would be further expanded into trade and logistics as well as real estate operations. Details of the business operation will be disclosed in the 2011 annual report.
LCD
In the second half of 2011, the active demand for smart phones and tablet PCs will directly boost the market demand for upstream small to middle size LCD panels. In the future, the small to middle size LCD panel market will become the major growth engine in the panel markets. Display search has predicted that the output value of flat panel displays (FPD) in the world will reach US$148 billion by 2015, with output area representing 98% of all the display devices. The growth of TFT-LCD is expected to reach 8% between 2009 and 2015. The output value of the panels shall reach US$133.7 billion, representing 91% of the FPD industry.
– V-58 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
In the second half of 2011, Tianma will continue to promote the integration of the LCD business, to build strategic partnership with core suppliers and try to participate in the R&D and manufacture of upstream materials through various ways. The Company will improve its core competitiveness continuously by making plans for strategic resources deployment in the medium and long term, and building a steady, speedy and competitive supply chain management system.
PCB
Driven by the active demand for smart phones and tablet PCs, most companies in the PCB industry are optimistic about the growth of the industry in the second half of 2011. Demand in the telecommunication market, which Shennan Circuit principally engages in, is expected to expand in the second half of 2011 due to the continuing investments in domestic 3G business in recent years and the gradual popularization and application of TD-LTE technology in the country. As a result, the value of purchase order of Shennan Circuit in the whole year is expected to meet our target.
In terms of the packaging substrate businesses, Shennan Circuit will intensify the exploration of customers in need of packaging substrate testing in the second half of 2011. We will concentrate on technical design improvement, production line process optimization and product delivery rate enhancement, and effectively minimize the impact of key constraints in respects such as technology and talents on new business development of the Company. The product and customer structures of electronics assembly businesses are expected to be further centralized in the second half of the year. Output will be promoted significantly as well. In the meantime, with the introduction of some major customers, the capability in internal management and whole-process service of electronics assembly businesses will also improve remarkably.
In the future, Shennan Circuit will continue to adhere to the key strategies of “customer orientation, effective implementation, leapfrog development, and growing together”, and realize a sustainable rapid growth.
Luxurious wrist watches
For the second half of 2011, the Group remains optimistic about the development of China’s luxury goods market, especially the luxurious wrist watches market. We will increase investment in the core business, so as to promote market awareness of our brands, while actively expanding our sales network. In terms of FIYTA watch business, we will promote market awareness and recognition of our high-end “Emile Chouriet” wrist watches through continuous brand marketing efforts, strengthen market presence and influence of “FIYTA” watches through effective allocation of advertisement resources, and enrich the intrinsic value of our fashion brands through speeding up the establishment of domestic sales network. As for the Harmony business, we will steadily expand the sales network and enhance our communication and interaction with the brands and suppliers to gain more support from strategic and significant brands. With the
– V-59 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
upcoming consumption upgrade and gradually expanding sales channels, it is expected that the revenue from watch business of the Group will continue to grow rapidly.
Resources business
After two dismal years, the international potassium fertilizer prices rebounded steadily since the fourth quarter of last year. As a result of the tight supply and demand situation in the international market beginning in the first half of 2011 and the significant rise in the prices of agricultural products since last year, the international potassium fertilizer prices has been moving up steadily this year. The management of the Company expects that the domestic potassium fertilizer prices will continue to rise in the second half of 2011. Meanwhile, the demand in domestic market will recover as autumn will be a peak season for chemical fertilizers. The Company will seize this favourable opportunity to expand the production and sale volume of potassium fertilizers so as to earn profit. In terms of phosphate fertilizers, Kunming CATIC Phosphorus Chemical Industry Co., Ltd. will strive to commence production as soon as possible and Yunnan Hongfu Chemical Fertilizer Co., Ltd. will strive to complete the construction of its first phase project and commence trial operation during the second half of 2011.
Hotel business
GIB Company will complete the rest of the modernization and renovation project. With improvement in the surrounding environment of the office, the Company will consider the synergy of office and podium properties leasing operations and the five-star hotel operations, further optimize tenant quality of the offices and podium properties, and increase unit rentals to effectively combine the two business lines and achieve synergic effect. The Company will continue to explore a new approach that can create a win-win situation for both hotel operations and property leasing operations which is suitable to GIB Company, so as to remarkably enhance the value of the Company as a whole.
LIQUIDITY AND CAPITAL RESOURCES
As at 30 June 2011, the Group had cash and cash equivalents totaling approximately RMB1,408,640,000. The Group’s bank loans included short-term loans of approximately RMB2,755,018,000 with annual interest rates ranging from 2.27% to 6.06% and long-term loans of approximately RMB5,824,596,000 with annual interest rates ranging from 3.96% to 6.40%. The Group has strengthened and perfected the regulations in respect of the management of tradable financial assets, defining the procedures of decision-making, implementation and risk control.
LOAN-TO-EQUITY RATIO
As at 30 June 2011, the Group’s loan-to-equity ratio (bank loans to shareholders’ equity ratio) was 429.32% (30 June 2010: 466.47%).
– V-60 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
PLEDGED ASSETS
As at 30 June 2011, certain subsidiaries of the Group had pledged bank loans totaling RMB2,398,468,800 (30 June 2010: RMB2,204,279,200). The loans were secured by plants and buildings of the Group.
ENTRUSTED DEPOSITS AND OVERDUE TERM DEPOSIT
During the six months ended 30 June 2011, the Company did not have any entrusted deposit and overdue term deposit in any form.
MANAGEMENT CONTRACT
During the six months ended 30 June 2011, the Company did not enter into any contract nor had any existing contract in relation to the management or administration of its general business or any major business.
PURCHASE, SALE OR REDEMPTION OF SHARES
During the six months ended 30 June 2011, neither the Company nor any of its subsidiaries had issued, purchased or sold any of the Company’s shares.
PROPERTY INTERESTS OF THE GROUP
LCH (Asia-Pacific) Surveyors Limited, an independent professional surveyor, has valued the property interests of the Group as at 31 October 2011 and is of the opinion that the property interests are valued at an aggregate amount of RMB5,581.2 million (see note on the following page) as at 31 October 2011. The full text of the letter, summary of values and valuation certificates with regard to such property interests are set forth in Appendix IV to this circular.
– V-61 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
The table below shows the reconciliation of property interests of the Group from its unaudited consolidated financial statement as at 30 June 2011 to the unaudited net asset value of the property interests of the Group as at 31 October 2011:
RMB’000 (100% interest)
Valuation as at 31 October 2011 (Note) 5,581,200
Net book value as at 30 June 2011 5,193,810 Less: – Disposal and Depreciation 548,475 Net book value as at 31 October 2011 4,645,335
Valuation surplus 935,865
Note:
This valuation amount includes value in use of RMB1,193.21 million of properties in Groups III and IV in Part A of Appendix IV. The valuer attributed no commercial value to the properties in Groups III and IV in Part A of Appendix IV due to their restrictions in transferability. However, these properties have value in use to the Group for accounts reporting purpose due to the fact that the legal opinion opined the Group has the right to use the properties. Their values were presented as footnote under each property in valuation certificate in Appendix IV –57 to IV-77.
SIGNIFICANT EVENTS
1. Very substantial acquisition and connected transaction – Issuance of domestic legal person shares and perpetual subordinated convertible securities for acquiring related assets of the parent company and related parties
On 30 November 2010, the Company entered into equity interest acquisition agreements with CATIC International, CATIC Shenzhen and Beijing Raise Science Co., Ltd (“Beijing Raise”), respectively. Pursuant to the agreements, the Company has conditionally agreed to acquire certain equity interests in 12 companies from CATIC International, CATIC Shenzhen and Beijing Raise respectively, for an aggregate consideration not more than RMB4,566,250,247, which shall be satisfied by issuance of domestic shares of the Company and perpetual subordinated convertible securities (PSCS). The resolutions approving the acquisitions were duly passed at the extraordinary general meeting held on 16 February 2011 and the class meeting for holders of H Shares held on the same date. For further details, please refer to the announcement of the Company dated 3 December 2010 and the circular dated 31 December 2010.
The Company has received written approval from the SASAC stating its consent in principle to the acquisition in July 2011. For further details on the update of the acquisition, please refer to the announcement of the Company dated 15 July 2011.
– V-62 – APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP
2. Entrusted management agreement between Tianma and Shenzhen CATIC Opto-electronics
On 25 February 2011, Tianma and Shenzhen CATIC Opto-electronics Limited (“Shenzhen CATIC Opto-electronics”) entered into the Shenzhen CATIC Opto-electronics entrusted management agreement, pursuant to which Shenzhen CATIC Opto-electronics has entrusted Tianma to manage shareholder’s rights during the transitional period of the share acquisition of NEC LCD Technologies, Ltd. from 25 February 2011 to 24 February 2012. The service charge under the entrusted management agreement payable by Shenzhen CATIC Opto-electronics to Tianma is RMB1,000,000.
Tianma is a non-wholly owned subsidiary of the Company. Shenzhen CATIC Opto-electronics is owned as to 51% by CATIC Shenzhen and as to 49% by CATIC International. CATIC Shenzhen is the promoter and the controlling shareholder of the Company. CATIC International owns 100% interest in CATIC Shenzhen. Pursuant to Chapter 14A of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”), the entrusted management agreement constituted a continuing connected transaction of the Company. For further details, please refer to the announcement of the Company dated 25 February 2011.
3. Entrusted management agreement between Shanghai Tianma and Xiamen Tianma
On 17 May 2011, Shanghai Tianma Microelectronics Co., Ltd. (“Shanghai Tianma”) and Xiamen Tianma Microelectronics Co., Ltd. (“Xiamen Tianma”) entered into the Xiamen Tianma entrusted management agreement, pursuant to which Shanghai Tianma provides management services to Xiamen Tianma during the period from 17 May 2011 to 28 February 2014. Under the entrusted management agreement, Shanghai Tianma has the right to charge Xiamen Tianma for an aggregate management fee of no more than RMB30,000,000 during the above period.
Tianma is a non-wholly owned subsidiary of the Company, and Xiamen Tianma is owned as to 15.3%, 14.7%, 6% and 64% by CATIC Shenzhen, CATIC International, CATIC Xiamen Company Limited (“Xiamen CATIC”) and Xiamen Jincai Investment Co., Ltd. (廈門市金財投資有限公司) respectively. CATIC Shenzhen is the promoter and the controlling shareholder of the Company, holding approximately 58.77% of the issued share capital of the Company, and CATIC International holds 100% interest in CATIC Shenzhen and Xiamen CATIC respectively. Therefore, the entrusted management agreement constituted a continuing connected transaction of the Company. For further details, please refer to the announcement of the Company dated 17 May 2011.
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4. Issuance of Shares and Acquisition of Assets by Tianma
On 18 January 2010, Tianma, a non-wholly owned subsidiary of the Company, entered into formal agreements with the Company, Shanghai Zhang Jiang (Group) Co., Ltd. (“Shanghai Zhang Jiang Group”), Shanghai State-owned Assets Operation Co., Ltd. (“Shanghai State Assets Company”) and Shanghai Industrial Investment (Group) Co., Ltd. (“Industrial Investment Group”). According to the agreements, Tianma has conditionally agreed to acquire 21%, 20%, 19% and 10% of the total equity interest in Shanghai Tianma from the Company, Shanghai Zhang Jiang Group, Shanghai State Assets Company and Industrial Investment Group, respectively. The resolutions approving the acquisitions and the issuance of A shares were duly passed at the extraordinary general meeting held on 19 March 2010. For further details, please refer to the circular of the Company dated 1 February 2010.
The transaction was not approved by the Review Committee of Merger, Acquisition and Reorganisation of Listed Companies of China Securities Regulatory Commission (“CSRC”) on 30 December 2010. Thereafter, the board of Tianma decided to continue to proceed with this substantial asset restructuring at a board meeting, and therefore re-submitted the amended and perfected application materials to CSRC for review.
– V-64 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
The following is the management discussion and analysis on the operation results and financial performance by the management of the Enlarged Group for each of the financial year ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011.
(I) Management Discussion and Analysis of Rainbow Department Store Co., Ltd. (“Rainbow Department Store”)
Business Overview
Rainbow Department Store is a renowned chained department store enterprise in the PRC and one of the enterprises having the largest number of department stores in the PRC. Since its establishment in 1984, Rainbow Department Store has been engaging in the merchandise retailing business featuring department store. Its principal activities remain unchanged.
During the Reporting Period, benefitting from the factors such as the economic growth in the PRC, the increasing income level of households and the acceleration of urbanization, the sales income and profitability of Rainbow Department Store grew at a faster pace. Despite the unfavorable environment of the financial crisis, the revenue and gross profit of Rainbow Department Store grew at a growth rate of 4.07% and 10.21%, respectively, in 2009. Since 2010, the operating results of Rainbow Department Store has shown an accelerating trend. During 2010 and the first half of 2011, the year-on-year growth of the gross profit of Rainbow Department Store was 26.00% and 31.80%, respectively.
Revenue
During the Reporting Period, the revenue of Rainbow Department Store was primarily attributable to commission income from concessionaire sales (專櫃佣金收 入) and sales of goods (自營收入).
In 2009, the revenue of Rainbow Department Store as RMB3,708,914,000, representing a slight growth of 4.07% compared to that of the previous year (2008: RMB3,563,766,000), under the unfavorable conditions of the global financial crisis. In 2010, the revenue of Rainbow Department Store increased to RMB4,533,657,000, representing a significant increase of 22.24% compared with that of previous year. The increase was mainly attributable to the new opening of the five “Rainbow” direct-operated chained department stores, namely Huangjiang Rainbow, Guozhan Rainbow, Houjie Rainbow, Huzhou Rainbow and Henggang Rainbow by Rainbow Department Store. As of the end of 2010, Rainbow Department Store had 39 “Rainbow” direct-operated chained department stores. In addition, Rainbow Department Store launched the first “Dreams-on” Department Store (a core store) in November 2010, which has contributed a revenue of RMB288,214,000 to Rainbow Department Store. As the number of stores increased, the revenue of Rainbow Department Store also continued to grow.
– VI-1 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
From 1 January to 30 June 2011, the revenue amounted to RMB2,736,729,000, representing a significant increase of 26.09% compared with that of the same period of last year (from 1 January to 30 June 2010: RMB2,170,461,000). The increase was mainly attributable to the new opening of two stores, namely Liyang Rainbow and Yong’an Rainbow during the first half of 2010 by Rainbow Department Store, thereby, the number of “Rainbow” direct-operated chained department stores increased to 41. In addition, Rainbow Department Store acquired 100% of equity interest in Shenzhen Gongming Rainbow Department Store Company Limited (“Gongming Rainbow”), and converted it from a franchised department store into a direct-operated store, which contributed a revenue of RMB101,965,000 to Rainbow Department Store during the Reporting Period.
Cost of sales
In 2009, the cost of sales of Rainbow Department Store amounted to RMB2,026,038,000, which was basically comparable to that of last year (2008: RMB2,036,769,000). In 2010, the cost of sales of Rainbow Department Store amounted to RMB2,413,246,000, representing an increase of 19.11% compared to that of last year, which was basically consistent with the growth of the sales income. The cost of sales accounted for 57.15%, 54.63% and 53.23% of the revenue in 2008, 2009 and 2010, respectively. The gross profit margin of Rainbow Department Store showed a stable increasing trend, which was mainly attributable to the implementation of sound and effective measures of cost control and proactively reduction of loss for loss-making stores and products. It also aimed at fully developing revenue management by enhancing the validity of the products, improving the effectiveness of sales, exploring the customers’ value and utilizing resources.
From 1 January to 30 June 2011, the cost of sales amounted to RMB1,426,538,000, representing an increase of 21.26% compared to that of last year (from 1 January to 30 June 2010: RMB1,176,421,000), slightly lower than that of the same period of last year. During January to June 2011, the cost of sales accounted for 52.13% of the revenue, slightly lower than 54.20% of the same period of last year. The decrease was mainly attributable to the continuous optimization of supply chain, in-depth promotion of product management, promotion of product agent system in trail locations, continuous improvement of product structure, and effective reduction of the stock and halt of merchandise. Rainbow Department Store also aimed at optimizing the supply chain management system, the philosophical of “win-win”, implementing the classification management of suppliers and the effective development the strategical customers so as to reduce the cost for cooperation.
Other income
During the Reporting Period, the other income of Rainbow Department Store included sales of materials (mainly objects such as packaging paper sold to concessionaires (專櫃) from Rainbow Department Store), other services fees and franchise fee income.
– VI-2 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
The other income of Rainbow Department Store amounted to RMB27,802,000, RMB34,573,000 and RMB53,247,000 in 2008, 2009 and 2010, respectively. Other income accounted for 0.78%, 0.93% and 1.17% of the sales income respectively.
During the period from 1 January to 30 June 2010 and the period from 1 January to 30 June 2011, the other income of Rainbow Department Store amounted to RMB20,872,000 and RMB31,585,000, accounting for 0.96% and 1.15% of the sales income during the same period.
During the Reporting Period, the structure and the movement of other income of Rainbow Department Store are as follows:
January January to June to June 2008 2009 2010 2010 2011
Sales of materials 26.49% 12.62% 13.47% 12.96% 12.14% Other services fee income 42.01% 44.14% 31.21% 36.20% 33.13% Franchise fee income 31.50% 43.24% 55.32% 50.84% 54.73%
Total of other income 100.00% 100.00% 100.00% 100.00% 100.00%
The increase of other income was mainly attributable to the increase in franchise fee income, which included the fee of use of trademark, the franchise management fee, system utilization fee and franchise preparation fee charged to franchise stores. The franchise management fee was determined based on the sales of the franchise stores, therefore, as the number and sales of franchise stores steadily increased, the receipts obtained by Rainbow Department Store increased accordingly. In addition, a certain sum of franchise preparation fee was to be paid by the franchise store before joining the franchise, which was of a significant amount. The franchise preparation fee received from Shimao Rainbow and Dongcheng Rainbow by Rainbow Department Store during 2010 and the first half of 2011, resulted in a larger growth in other income.
Other gains/(losses), net
During the Reporting Period, the other gains/(losses), net included the gains on disposal of property, plant and equipment, the penalty income from suppliers, government grants, the excess of the share of net fair value of identifiable assets and liabilities and contingent liabilities over the cost of acquiring Gongming Rainbow.
Other net gains of Rainbow Department Store amounted to RMB9,187,000, RMB17,054,000 and RMB19,439,000 in 2008, 2009 and 2010, respectively, which accounted for 0.26%, 0.46% and 0.43% of the revenue of the same period.
– VI-3 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
During the period from 1 January to 30 June 2010 and the period from 1 January to 30 June 2011, the other net gains of Rainbow Department Store amounted to RMB8,998,000 and RMB13,710,000, accounting for 0.41% and 0.50% of the sales income during the same period respectively.
During the Reporting Period, the structure and the movement of other gains and losses of Rainbow Department Store are as follows:
January January to June to June 2008 2009 2010 2010 2011
Gains/(losses) on disposal of property, plant and equipment (27.67%) 2.42% (4.90%) (2.82%) (5.16%) Penalty income from suppliers 47.44% 21.26% 25.14% 23.87% 19.92% Government grants 0.00% 14.20% 38.83% 29.21% 29.77% Excess of the share of net fair value of identifiable assets and liabilities and contingent liabilities over the cost of acquiring Gongming Rainbow 0.00% 0.00% 0.00% 0.00% 28.48% Others 80.23% 62.12% 40.93% 49.74% 26.99%
Total other gains/(losses) 100.00% 100.00% 100.00% 100.00% 100.00%
Other gains/(losses) were mainly attributable to the gains/(losses) on disposal of property, plant and equipment, the default penalty from suppliers, government grants income and others. Other items mainly included staff liabilities compensation, donation expenses and non-payable balances with suppliers.
Selling and distribution expenses
During the Reporting Period, the sales and distribution expenses of Rainbow Department Store mainly included staff salaries, lease payment, depreciation and amortization charge, transportation fee and promotion fees, etc.
The sales and distribution expenses amounted to RMB1,209,633,000 and RMB1,430,896,000, respectively in 2009 and 2010, representing an increase of 13.46% and 18.29%. The increase was mainly attributable to the expansion of operations scale resulted from more new stores opened by Rainbow Department Store, which led to an increase in the aggregate selling expenses for the respective year. The sales
– VI-4 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
and distribution expenses of Rainbow Department Store accounted for 32.61% and 31.56%, respectively of the revenue in 2009 and 2010, basically representing a similar level.
From 1 January to 30 June 2011, the selling and distribution expenses amounted to RMB847,219,000, representing a significant increase of 28.23% compared with that of the same period last year (from 1 January to 30 June 2010: RMB660,717,000), and accounted for 30.96% of the revenue, basically representing a similar level of 30.44% of the same period of last year. The significant increase of selling and distribution expenses was mainly attributable to the new opening of two stores, namely Liyang Rainbow and Yong’an Rainbow by Rainbow Department Store during the first half of 2011, as well as the acquisition of 100% of equity interest in Gongming Rainbow (深圳市公明天虹商場有限公司), and the convertion of a franchised store, namely Gongming Rainbow into a direct-operated store. As the operations scale expanded, the underlying human capital, property lease payment, renovation expenses, transportation expenses and promotion expenses increased accordingly.
Administrative expenses
During the Reporting Period, administrative expenses of Rainbow Department Store mainly comprised the staff remuneration, rental fee, depreciation and amortization charges, utilities fee, etc.
In 2009, administrative expenses of Rainbow Department Store was RMB163,389,000, decreased by 16.61% over last year (2008: RMB195,937,000), and accounted for 4.41% of the revenue which is lower than 5.50% of last year, primarily due to the adoption of the optimization, integration and information management, which effectively lowered administrative cost and also the expansion of scale of operation diluted administrative expenses ratio. In 2010, administrative expenses amounted to RMB235,720,000, representing a significant increased of 44.27% compared with that of last year, and accounted for 5.20% of the revenue, primarily because, in order to meet the need of development, the number of staff for Rainbow Department Store increased from 10,560 to 12,326 accordingly, as a result the total amount of staff remuneration and the relevant equipment depreciation expense steadily increased and hence administrative expenses increased accordingly. In addition, at the end of 2009, Rainbow Department Store acquired land use right of approximately RMB476,000,000, of which amortization charge of approximately RMB12,000,000 was included in administrative expenses in 2010.
From 1 January to 30 June 2011, administrative expenses amounted to RMB122,303,000, representing an increase of 12.05% compared with that of the same period of last year (from 1 January to 30 June 2010: RMB109,155,000), and accounted for 4.47% of the revenue, basically representing a similar level to 5.03% of the same period last year. The increase of the administrative expense was primarily attributable to the increasing number of stores of Rainbow Department Store, and the average staff number of Rainbow Department Store in the first half of 2011 increased approximately by 9% over the same period of last year.
– VI-5 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Finance costs, net
Finance cost, net represents the difference between finance costs and finance income. During the Reporting Period, Rainbow Department Store has no borrowing and the finance costs was derived from a slight loss of the foreign exchange. The finance income of Rainbow Department Store is mainly the interest income from deposits.
In 2009, finance incomes, net amounted to RMB25,040,000, representing a decrease of 24.30% over last year (2008: RMB33,077,000). The decrease was mainly attributable to the decrease of the interest rate of deposit and the interest income. In 2010, finance income-net amounted to RMB49,771,000, representing a significant increase of 98.77% over last year, which was primarily attributable to the significant interest income derived from the fixed term deposit of the fund that was raised from the listing of Rainbow Department Store in 2010.
For the period from 1 January to 30 June 2011, finance income-net amounted to RMB45,675,000, representing a significant increase of 129.57% as compared with that of the same period of last year (from 1 January to 30 June 2010: RMB19,896,000), which was primarily attributable to the deposit of the fund raised from the listing of Rainbow Department Store in 2010 that generated massive interest income and the increase of interest rate for fixed term deposit.
Income tax
According to the Notice of the State Council on the Implementation of Transitional Preferential Policies in Respect of Enterprises Income Tax (國務院關於 實施企業所得稅過渡優惠政策的通知), the applicable tax rate for Rainbow Department Store Company Limited, Shenzhen Rainbow Investment Development Company Limited, Xiamen Rainbow Shopping Mall Company Limited, Shenzhen Wei Tian Home Electrical Appliance Repair and Maintenance Company Limited, which were located in the special economic zone, in 2008, 2009, 2010 and for the period from 1 January to 30 June 2011 was 18%, 20%, 22% and 24% respectively. The applicable tax rate for the remaining companies was 25%. The income tax expenses of Rainbow Department Store amounted to RMB65,066,000, RMB93,638,000, RMB139,876,000, RMB72,462,000 and RMB114,105,000 for 2008, 2009, 2010, and for the period from January to June 2010 and 2011 respectively.
– VI-6 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Gross profit and net profit
From January to June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Revenue 3,563,766 3,708,914 4,533,657 2,170,461 2,736,729 Gross profit 1,526,997 1,682,876 2,120,411 994,040 1,310,191
Gross profit margin 42.85% 45.37% 46.77% 45.80% 47.87%
Operating profit 301,928 361,481 526,481 254,038 385,964 Profit before tax 335,005 386,521 576,252 273,934 431,639 Net profit attributable to parent company 269,939 292,883 436,376 201,472 317,599
Net profit margin 7.57% 7.90% 9.63% 9.59% 11.61%
Gross profit margin
The gross profit margin of Rainbow Department Store for 2008, 2009 and 2010 were 42.85%, 45.37% and 46.77% respectively, maintaning a stable growth. For the period from 1 January to 30 June 2011, the gross profit margin of Rainbow Department Store was 47.87%, which was higher than 45.80% of the same period last year. The increase was mainly attributable to Rainbow Department Store consolidating and promoting effective measures for cost control, and actively reducing and recovering the loss of shops and products which are loss-making. At the same time, it carried out comprehensive revenue management in terms of enhancing the effectiveness of products and promoting, digging out customer value as well as utilizing the resources, all of which proved to be effective.
Net Profit margin
In 2009, the operating profit of Rainbow Department Store amounted to RMB361,481,000 and net profit attributable to parent company was RMB292,883,000. Net profit margin was 7.90%, slightly higher than 7.57% of last year. The increase was mainly attributable to an increase in gross margin profit by 2.52 percentage point in 2009. In addition, due to a series of cost control measures, management fee decreased by 16.61% over the same period of last year, which resulted in a slight increase in the net profit margin of Rainbow Department Store. Operating profit of Rainbow Deportment Store for 2010 amounted to RMB526,481,000, and net profit attributable to parent company was RMB436,376,000. Net profit margin increased to 9.63%, which is mainly due to the increase of gross profit margin of Rainbow
– VI-7 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Department Store by 1.40 percentage point over last year. In addition, as Rainbow Department Store continued to consolidate the implementation of cost control measures in 2009, the ordinary operation fee was effectively controlled and net profit margin improved remarkably.
From 1 January 2011 to 30 June 2011, operating profit amounted to RMB385,964,000, increased by 51.93%, compared with the same period of last year (from 1 January to 30 June 2010: RMB254,038,000). Net profit attribute to parent company amounted to RMB317,599,000, while net profit margin increased from 9.59% to 11.61%, which was mainly due to Rainbow Department Store’s great efforts to develop direct purchasing business, by integrating purchasing resources and shortened the commodity supply chain, which, in turn, reduced the purchasing cost and increased the profitability.
Segment Analysis
Retail business segments of Rainbow Department Store mainly comprise commission income from concessionaires, sales of goods and others. Relevant revenue and costs by segments are analysed as follows:
From January to June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Revenue Commission income from concessionaires 1,102,333 1,191,898 1,529,301 713,734 1,038,057 Sales of goods 2,461,160 2,516,788 3,003,741 1,456,599 1,698,515 Others 273 228 615 128 157
Total 3,563,766 3,708,914 4,533,657 2,170,461 2,736,729
Cost of Sale Commission income from concessionaires 00000 Sales of goods 2,036,748 2,026,007 2,413,246 1,176,421 1,426,538 Others 21 31000
Total 2,036,769 2,026,038 2,413,246 1,176,421 1,426,538
– VI-8 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
From January to June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Gross profit Commission income from concessionaires 1,102,333 1,191,898 1,529,301 713,734 1,038,057 Sales of goods 424,412 490,781 590,495 280,178 271,977 Others 252 197 615 128 157
Total 1,526,997 1,682,876 2,120,411 994,040 1,310,191
Gross profit magrin Commission income from concessionaires 100.00% 100.00% 100.00% 100.00% 100.00% Sales of goods 17.24% 19.50% 19.66% 19.24% 16.01% Others 92.31% 86.40% 100.00% 100.00% 100.00%
Total 42.85% 45.37% 46.77% 45.80% 47.87%
Commission income from concessionaire sales was the payment received from those franchised concessionaires for their use of location, facilities, franchise, services and so on that were provide by Rainbow Department Store, who stayed in charge of the general management, financial management, promotion initiatives, and quality control of its department stores. Since commission income from concessionaire sales was recognized upon sales of goods by the relevant concessionaires, usually as a percentage of the sales of relevant concessionaires, thus, no corresponding cost of sales was recognized for this proportion of revenue.
– VI-9 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Liquidity, financial resources and capital structure
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Total borrowings 0000 Less: cash and cash equivalents 1,553,748 1,682,802 4,439,068 4,275,221 Net debts –1,553,748 –1,682,802 –4,439,068 –4,275,221 Total liabilities 2,521,301 3,279,152 4,153,557 4,094,313 Total owners’ equity 501,367 654,250 3,012,477 3,090,751 Total capital –1,052,381 –1,028,552 –1,426,591 –1,184,470 Total assets 3,022,668 3,933,402 7,166,034 7,185,064 Gearing Ratio n.a. n.a. n.a. n.a. Assets-liabilities ratio 83.41% 83.37% 57.96% 56.98%
Gearing Ratio = Net debts/Total capital
Assets-liabilities Ratio = Total liabilities/Total assets
Inventory
During the Reporting Period, inventory of Rainbow Department Store was mainly consisted of inventory goods, raw materials and goods in transit. As of 31 December 2009, balance of inventory amounted to RMB204,590,000, representing a slightly increase of 3.33% compared with that of last year (2008: RMB198,006,000). As of 31 December 2010, inventory amounted to RMB289,725,000, representing a significant increase of 41.61% compared with that of last year. This is mainly because Rainbow Department Store has opened five direct-operated stores during the Reporting Period which increased the inventory. Rainbow Department Store actively prepared for the traditional selling season in the Spring Festival. As the Spring Festival of this year is on 2 February, which is almost half a month earlier than last year, inventory at the end of the period increase over that at the beginning of the period, and the rising price also led to the increase of the balance of inventory. As sales expectation was well realized in the New Year and Spring Festival, inventory decreased effectively and inventory level of Rainbow Department Store remained in a reasonable range. As of 30 June 2011, the balance of inventory amounted to RMB249,062,000, representing a decrease of 14.04% over that of the end of last year. This is mainly because the end of the year is closed to the Spring Festival holiday, the selling season, inventory in each store was relatively larger.
– VI-10 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Receivables and payables
Trade and other receivables
Trade and other receivables of Rainbow Department Store is mainly consisted of trade receivables, prepayment to suppliers and other receivables, value-added tax receivables. As of 31 December 2009, the balance of trade and other receivables amounted to RMB389,142,000, representing a significant increase of 102.26% over last year (2008: RMB192,397,000), which was primarily due to the prepayment for the acquisition of properties in Dongguan Yujing Oriental Venice Plaza (東莞愉景東 方威尼斯廣場) amounted to RMB200,000,000. As at 31 December 2010, the balance of trade and other receivables amounted to RMB167,890,000, representing a significant decrease of 56.86% over last year, which was primarily due to the amount of approximately RMB262,000,000 was transferred to fixed assets after Rainbow Department Store completed the assignment of property rights of Dongguan Yujing Oriental Venice Plaza (東莞愉景東方威尼斯廣場). As at 30 June 2011, the balance of trade and other receivables amounted to RMB171,446,000, basically stable as compared with those at the end of last year.
Trade and other payables
The trade and other payables of Rainbow Department Store was mainly the trade payables, notes payables, advances from customers, payroll payable, other payables, other taxes payable and so forth. As of 31 December 2009 and 2010, the balance of trade and other payables was RMB3,236,648,000 and RMB4,101,990,000, representing a rise of 29.59% and 26.74% respectively compared with that of the previous year. The major reasons include the increase of procurement due to the business scale expansion of Rainbow Department Store and the corresponding growth of amounts payable to concessionaire due to the increase in the number of concessionaires. In addition, Rainbow Department Store’s e-commerce business was gradually expanding with a significant increase of online prepayment. As of 30 June 2011, the balance of trade and other payables was RMB4,050,786,000, basically representing a similar level of those at the end of the previous year.
– VI-11 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Commitments
Commitments in respect of capital expenditure contracted but not provided of Rainbow Department Store are as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Property, plant and equipment 359,196 192,829 30,491 207,625 Land use right 0 0 24,970 0
Total 359,196 192,829 55,461 207,625
As of the end of 2010, according to a land use right transfer agreement set between Rainbow Department Store and Bureau of Land and Resources of Ji’an, the balance of expenditure commitment on land use right was RMB24,970,000. At 1 March 2011, Rainbow Department Store fully made the payment, therefore, the commitment balance of land use right dropped to nil as of 30 June 2011.
The future aggregate minimum lease expense under non-cancellable operating leases of Rainbow Department Store is as follows:
As at As at 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
No later than 1 year 230,508 289,333 439,019 481,495 1-5 years 1,045,437 1,348,009 2,030,807 2,401,465 Later than 5 years 3,288,373 4,072,920 5,838,459 7,393,185
Total 4,564,318 5,710,262 8,308,285 10,276,145
Pledged assets
As of 31 December 2009 and 2010, and 30 June 2011, the pledged bank deposit of Rainbow Department Store amounted to RMB15,390,000, RMB14,431,000 and RMB40,652,000 respectively, were pledged as guarantee for issuance of letters of credit.
– VI-12 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Capital expenditures
During the Reporting Period, the capital expenditures of Rainbow Department Store are summarized as follows:
From January to June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Land use right 0 476,000 14,280 77,898 Property, plant and equipment 135,542 202,679 721,672 59,649 Intangible asset 2,441 3,671 3,392 1,424
Total 137,983 682,350 739,344 138,971
In 2009, Rainbow Department Store purchased the use right of a parcel of commercial land in Shenzhen for 40 years with self-owned funds of RMB476,000,000; in 2010, Rainbow Department Stores purchased two properties located in Dongguan Yujing Oriental Venice Plaza and Dongguan Dalang Warehouse (東莞大朗倉庫) with self-owned funds of RMB417,693,909 and RMB48,594,736, respectively.
Material investments, acquisitions and disposals
During the Reporting Period, material investments, acquisition and disposal incurred by Rainbow Department Store were principally as follows:
In December 2006, Rainbow Department Store Company Limited acquired 49% equity interests of Shenzhen Rainbow Investment Development Company Limited (“Rainbow Investment”) from Yinong Luo (羅亦農) for a consideration of RMB74,480,000; in March 2007, Rainbow Department Store acquired the remaining 51% equity interests in Rainbow Investment from AVIC International Shenzhen Company Limited, its parent company, and thus wholly owned Rainbow Investment; In 2010, Rainbow Department Store injected RMB849,505,000 to Rainbow Investment. In 2008, 2009, 2010 and from January to June 2011, the net profit/(loss) of Rainbow Investment amounted to RMB6,717,415, RMB(25,827,283), RMB6,652,922 and RMB34,098,057, respectively.
– VI-13 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
On 4 March 2011, Rainbow Department Store acquired the entire equity interest of Gongming Rainbow for a consideration of RMB1,000,000. The fair value of the net assets of Gongming Rainbow then was 4,904,980, and Rainbow Department Stores, therefore, obtained investment gain of RMB3,904,980. Gongming Rainbow realized the net profit of RMB2,172,484 in total from 4 March 2011 to 30 June 2011.
Number of employees and their remuneration
During the Reporting Period, number of employees and remuneration of Rainbow Department Stores are as follows:
As at 31 December As at 30 June 2008 2009 2010 2010 2011
Number of employees 9,784 10,560 12,326 11,177 12,164
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011
Employee remuneration expenses (RMB’000) 424,517 412,178 515,615 231,022 306,394
Note: Number of employees is based on headcount
Employee remuneration of Rainbow Department Store is comprised of basic salary and performance-based salary. Employee benefit shall be subject to social security pursuant to the local social insurance bureau. The average employee remuneration per capita in 2009 amounted to RMB39,032, a decline of 10.04% compared with that of last year (2008: RMB43,389), mainly resulted from the impact of the financial crisis in 2009. With the shrinkage in the growth of Rainbow Department Store performance, amounts of performance-based salary dropped. In 2010, the average employee remuneration per capita of Rainbow Department Store was RMB41,831, an increase of 7.17% compared with that of last year, mainly resulted from optimistically growing results of Rainbow Department Store and amounts of performance-based salary correspondingly rising. In addition, with the rise of the commodity price, employee remuneration of Rainbow Department Store in turn got enhanced. During the period from 1 January to 30 June 2011, the average employee remuneration per capita of Rainbow Department Store amounted to RMB25,189, up 21.86% compared with that of the same period last year (from 1 January to 30 June 2010: RMB20,669), mainly attributable to prosperous performance of Rainbow Department Store for the first half of 2011 as well as employee performance-based salary increased correspondingly.
– VI-14 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Business prospects
Benefited from factors such as national economic growth, rise in households’ income and acceleration of urbanization, the retail industry is experiencing a rapid development cycle in China which has been the third biggest consumer market only next to the United States and Japan. Retail sales per capita in China, however, are far below the level of that of the developed countries, with a huge potential for development.
Rainbow Department Store will adhere to the principles of development of “efficient expansion and sustainable development”, following the development strategy of “rapid development of the South China, Southeast, Central China, steady development of the East China, North China, and waiting for an opportunity to enter the Southwest and Northwest”. Rainbow Department Store will continue to implement the dual-brand strategy, and will gradually form a business model as “the tangible chain retail business as the core and the e-commerce business and brand agency business as the wings”. According to the expansion plan, Rainbow Department Store will try to open up about 10 stores per year in the coming 5 years, which would enable performance continue to grow rapidly.
(II) Management Discussion and Analysis of Shenzhen AVIC Bi Te Communication Technology Company Limited (“Bi Te Communication”)
Business overview
Bi Te Communication is principally engaged in development and production of military electronic communication system and products (軍用電子通信系統和產 品), with numbers of products extensively applied widely in China armed forces. In the meanwhile, Bi Te Communication has already commenced the development work of transforming products and technologies from military use to civilian use.
Revenue
During the reporting period, Bi Te Communication derived its revenue mainly from selling military electronic communication system. Since the majority of Bi Te Communication’s products are currently for military use, the main model of sales is planned order, which means regularly production plans would be drawn upon received orders. The production and sales volume are affected by national plans for military products, which varied from year to year. In addition, Bi Te attachs importance to expanding the scope of products’ application, striving to secure planned orders while making efforts to extend sales beyond planned.
– VI-15 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
In 2009, revenue of Bi Te Communication amounted to RMB17,386,000, representing an increase of 41.81% over RMB12,260,000 in 2008. In 2010, the revenue increased to RMB51,615,000, representing a significant increase of 196.88% compared to that of previous year. The increase was mainly attributed to the fact that Bi Te Communication mainly focused on product research and development before 2010 and in 2010, and it began to expand sales pursuant to the State’s demand of armaments. From 1 January to 30 June 2011, the revenue reached RMB21,781,000, representing a slight increase of 8.45% compared to RMB20,083,000 of the same period last year.
Cost of sales
In 2009, cost of sales of Bi Te Communication amounted to RMB3,286,000, up by 76.95% compared to RMB1,857,000 of 2008. In 2010, cost of sales was RMB14,460,000, representing an increase of 340.05% over that in the previous year, which indicated a significant growth when compared with the growth rate of its revenue. In 2008, 2009 and 2010, cost of sales accounted for 15.15%, 18.90% and 28.02%, respectively of the revenue, with a slight decline in gross profit margin, which was mainly attributable to huge contributions at early stage for products research and development, which resulted in a higher fixed cost before the benefit of economy of scales yet to be materialised. In addition, raw material prices going up would further drive up the costs.
Cost of sales for the period from 1 January to 30 June 2011 was RMB5,623,000, representing a decrease of 21.18% over RMB7,134,000 of the previous year. Cost of sales as a proportion of revenue from January to June 2011 was 25.82%, lower than 35.52% of the same period of last year, primarily resulting from implementation of a series of measures to bring production costs under control. In addition, in turn, the benefit of economy of scales begin to materialise.
Other gains/(losses), net
In 2008, the net losses of Bi Te Communication amounted to RMB246,000, principally including early termination penalty of RMB240,000 paid to Vision Shenzhen Business Park (威新軟件園) and donation of RMB5,000 to UNICEF. In 2010, the net losses was RMB22,000, due to centralized disposal of a bunch of obsolete computers accounted for RMB22,000 of non-operating expenses.
Selling and distribution expenses
During the Reporting Period, selling costs of Bi Te Communication mainly included staff remuneration, entertainment expenses, travel expenses, conference fees and promotion expenses.
– VI-16 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
In 2009, selling costs of Bi Te Communication amounted to RMB1,410,000, representing a decrease of 32.98% over RMB2,104,000 in 2008, mainly attributable to the focus on the research and development of new products in that year, so that the entertainment and conference activities decreased. In 2010, selling costs was RMB2,818,000, representing an increase of 99.86% over 2009 and 33.94% over 2008, mainly resulting from the increase of marketing activities with the launch of new products. Entertainment expenses then went up by RMB323,420, growing by 108% year on year. Promotion expenses increased RMB432,736 year on year, with a growth rate of 180% year on year. Travel expenses increased RMB235,910, rising 57% year on year. From 2008 to 2010, cost of sales as a proportion to revenue of Bi Te Communication was 17.16%, 8.11% and 5.46%, respectively, which resulted in a trend of year-by-year decrease. From 1 January to 30 June 2011, cost of sales was RMB1,829,000, representing a rise of 14.24% over RMB1,601,000 for the same period of the previous year, with cost of sales as a proportion to revenue increasing from 7.97% to 8.40%.
Administrative expenses
Administrative expenses of Bi Te Communication in 2009 amounted to RMB12,899,000, representing an increase of 42.44% over RMB9,056,000 for the previous year. Administrative expenses as a proportion to revenue were up from 73.87% to 74.19%. In 2010, administrative expenses amounted to RMB14,899,000, representing a slight decrease of 15.51% from the previous year. Administrative expenses as a proportion to revenue dropped significantly by 28.87%, mainly attributable to overheads and research and development expenses, with its annual growth being less than the revenue growth. In addition, a significant increase of revenue of sales year on year in 2010 resulted in administrative expenses as a proportion to revenue went down substantially.
From 1 January to 30 June 2011, administrative expenses were RMB9,052,000, representing an increase of 17.97% over RMB7,673,000 for the same period of the previous year. Administrative expenses as a proportion to revenue went up from 38.21% to 41.56%, mainly attributable to a rise in salary expenses of RMB748,719 or by 23%; the year-on-year increase in research and development of RMB329,256 or by 15%; the increase in conference fees of RMB220,000, which didn’t occur during the year of 2010; the increase in office expenses of RMB140,935 or by 64% and a growth of rental of RMB120,156 or by 53%.
Finance costs, net
The net finance cost is the difference between finance expense and finance income. From 2008 to 2010, finance income is consisted of interest income on deposit, with no borrowings and finance expense. Finance expense for the first half of 2011 rose from the interest expense of borrowings amounted to RMB5 million.
– VI-17 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Finance income for 2009 amounted to RMB23,000, decreasing by 57.41% as compared with last year (2008: RMB54,000), which was mainly due to a year-on-year decrease in interest income resulted from the deposit balance decreasing by 44% (representing a year-on-year decrease of around RMB1,491,446). Finance income of Bi Te Communication for 2010 amounted to RMB49,000, increasing significantly by 113.04% as compared with last year, which was mainly due to remarkable income growth in 2010 brought sufficient business cash flow to Bi Te Communication, balance of bank deposit increased by 201% to RMB3,860,060 on a year-on-year basis resulted in an increase in the interest income on deposit accordingly.
From 1 January to 30 June 2011, the net finance cost amounted to RMB40,000, in which finance income amounted to RMB25,000, increasing by 66.67% as compared with RMB15,000 for the same period of last year. This is mainly due to deposit balance increased relatively as compared with the same period of last year, in turn leading to a growth in interest income. Finance expense amounted to RMB65,000, while the amount for the same period of last year is nil.
Income tax
Bi Te Communication is eligible for the preferential tax of “exemption from income taxation for first two years, 50% reduction for next three years”. According to the Shen Guo Shui Nan Jian Mian [2007] No.0011 issued by the State Tax Bureau in Shenzhen, from the year the enterprise makes a profit, it can exempt from the income taxation in the first two years; it should only pay half of the income taxation from the third year to the fifth year. Meanwhile, the company which was originally entitled to a low income tax rate of 15%, will subject to a tax rate of 25% within five years as required by the new tax regulations. The applicable income tax rate for 2009 and 2010 were 15% and 11% respectively and the applicable income tax rate thereafter would be 25%.
– VI-18 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Gross profit and net profit
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 (unaudited) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Revenue 12,260 17,386 51,615 20,083 21,781 Gross profit 10,403 14,100 37,155 12,949 16,158 Gross profit margin 84.85% 81.10% 71.98% 64.48% 74.18% Operating profit/(loss) (1,003) (209) 19,416 3,653 5,277 Profit (loss) before tax (949) (186) 19,465 3,668 5,237 Net profit (loss) (949) (186) 18,040 3,334 3,805 Net profit (loss) margin – – 34.95% 16.60% 17.47%
Gross profit
The gross profit of Bi Te Communication in 2009 amounted to RMB14,100,000, increasing by 35.54% as compared with last year (2008: RMB10,403,000); gross profit margin amounted to 81.10%, slightly lower than 84.85% for the last year. The gross profit in 2010 amounted to RMB37,155,000, increasing significantly by 163.15%, while gross profit margin decreased slightly to 71.98%, which was mainly due to the increase in the price of raw material and the labor cost.
From 1 January to 30 June 2011, the gross profit of Bi Te Communication amounted to RMB16,158,000, increasing by 24.78% as compared with the same period of last year (from 1 January to 30 June 2010: RMB12,949,000); while gross profit margin amounted to 74.18%, higher than 64.48% for the same period of last year, which is mainly due to the benefit of economy of scales starting to materialise, the growth of production cost is slower than the growth of sales income.
Net profit margin
The operating loss of Bi Te Communication for 2009 amounted to RMB209,000, while net loss amounted to RMB186,000, which turns better than the situation in 2008 (operating loss amounted to RMB1,003,000, while net loss amounted to RMB949,000). This is mainly because sales expense decreased significantly, making the growth of expenditure fall lower than the growth of gross profit. Operation profit of Bi Te Communication for 2010 amounted to RMB19,416,000, while net profit amounted to RMB18,040,000, which is mainly due to the remarkable growth of revenue for 2010. At the same time, Bi Te Communication has controlled the cost by building long term cooperating relationship with suppliers, and tried to control day-to-day expenditure by enhancing the ordinary operation management. As a result, net profit margin increased to 34.95%.
– VI-19 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
From 1 January to 30 June 2011, operation profit amounted to RMB5,277,000, increasing by 44.46% as compared with the same period of last year (from 1 January to 30 June 2010: RMB3,653,000); while net profit amounted to RMB3,805,000, which was mainly due to cost of sales Bi Te Communication was remarkably controlled. However, as the company is no longer entitled to the preferential tax rate, net profit rose slightly from 16.60% to 17.47%.
Segment analysis
There is no operating segment, as all the income and profits of Bi Te Communication is attributable to the manufacturing and sales of the domestic telecommunication products and all its assets are within China.
Liquidity, financial resources and capital structure
The ordinary operation and capital expenditure of Bi Te Communication is financed mainly by cash flows generated from operating activities.
31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Total borrowings – – – 5,000 Less: cash and cash equivalents 3,423 1,951 5,798 4,410 Net debt – – – 590 Total liabilities 1,781 9,474 6,572 12,884 Total owners’equity 26,007 25,821 43,861 47,666 Total capital 22,584 23,870 38,063 48,256 Total assets 27,788 35,295 50,433 60,550 Gearing Ratio – – – 1.22% Assets-liabilities Ratio 6.41% 26.84% 13.03% 21.28%
Gearing Ratio = Net debt/Total capital
Assets-liabilities Ratio = Total liabilities/Total assets
Borrowings and interest expenses
From 2008 to 2010, Bi Te Communication did not have any borrowings, mainly due to the sufficiency of cash so it is not necessary for Bi Te Communication to rely on external financing. During the first half of 2011, there are newly raised borrowings of RMB5,000,000 for a term from 15 April 2011 to 15 April 2012. The lending rate is 6.94%.
– VI-20 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Inventory
During the Reporting Period, the inventories of Bi Te Communication is mainly comprised of raw materials and projects under construction.
As of 31 December 2009, the balance of inventories was RMB12,907,000, representing a growth of 47.76% compared with that of the previous year (2008: RMB8,735,000). As of 31 December 2010, the inventories amounted to RMB9,873,000, representing a decrease of 23.51% compared with that of the previous year, mainly attributable to the acceleration of inventory consumption resulting from enhancement of production effort by Bi Te Communication to accomplish the delivery by the end of 2010 to meet the demand of the national military plans.
As at 30 June 2011, the balance of inventories amounted to RMB12,954,000, representing a growth of 31.21% compared to the end of the previous year, mainly because the year-on-year growth of raw material purchase was approximately RMB3.3 million or 140%, as Bi Te Communication has increased its procurement of raw materials based on the judgement on the delivery date for secured orders and the consideration on factors such as the national defence policy.
Receivables and payables
Trade and other receivables
Trade and other receivables of Bi Te Communication mainly includes trade receivables, prepayment made to suppliers, deposit and advances to staff, 90% of which generates from trade receivables.
As of 31 December 2009, the balance of trade and other receivables was RMB16,711,000, representing an increase of 27.74% compared with that of the previous year (2008: RMB13,082,000). As of 31 December 2010, the balance of trade and other receivables was RMB27,863,000, representing a substantial rise of 66.73%. The major reason is that the sales of Bi Te Communication were mainly conducted near the end of year, when the balance of receivables normally increased along with sales revenue.
As of 30 June 2011, the balance of trade and other receivables was RMB36,324,000, representing an increase of 30.37% compared with that of the end of the previous year, mainly because the products of Bi Te Communication are military products, the credit term of which is usually longer. Another reason of the increase of the balance of receivables is that the collection rate for the trade receivables of 2010 dropped in the first half of 2011, and that sales revenue continues to arise in the first half of 2011.
– VI-21 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Trade and other payables
Trade and other payables includes trade payables, dividend payable, advances from customers, payroll payable and other payables.
As of 31 December 2009, the balance of trade and other payables was RMB9,474,000, representing a rise of 431.95% compared with that of the previous year (2008: RMB1,781,000), mainly owing to the surge of advances from customers from nil in RMB in 2008 to RMB7,260,000 as Bi Te Communication received a large number of orders in 2009. As of 31 December 2010, the balance of trade and other payables amounted to RMB5,350,000, representing a drop of 43.53% from the previous year, mainly because of the substantial decrease of advances from customers to RMB950,000 along with the delivery of products.
As at 30 June 2011, the balance of trade and other payables was RMB6,461,000, mainly due to the consideration of the state policy and the delivery cycle Bi Te Communication increased its procurement in the first half of 2011 which leaded to trade payables surged from RMB2,799,000 at the end of 2010 to RMB4,539,000.
Commitments
The future minimum rental payables under the non-cancellable operating lease contracts signed by Bi Te Communication are as follows:
As at 30 As at 31 December June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Within 1 year 480 480 1,248 1,323 1 to 5 years 1,600 1,120 3,126 2,539
Total 2,080 1,600 4,374 3,862
– VI-22 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Capital expenditures
During the Reporting Period, the capital expenditures of Bi Te Communication are summarized as follows:
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Intangible assets 625 1,073 3,446 0 0
Property, plant and equipment 813 779 623 63 526
Total 1,438 1,852 4,069 63 526
During the Reporting Period, the major investment of Bi Te Communication was mainly the expenditures on intangible assets of RMB3,446,000 arisen in 2010, RMB3,230,000 of which was the expenses of research and development for the computers used for reinforcing the website management of the enterprise. Bi Te Communication acquired the patent certificate for that computer software copywriting in June 2011. As Bi Te Communication has sufficient cash flows, the capital expenditures are mainly financed by internal funds.
Number of employees and their remuneration
The remuneration of Bi Te Communication employees mainly includes wages, pension payment schemes, staff benefits, medical allowances and other expenses related to the services provided by the staff.
During the Reporting Period, the headcounts and remuneration of Bi Te Communication are as follows:
As at 31 December As at 30 June 2008 2009 2010 2010 2011
Number of employees 50 63 66 61 75
– VI-23 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Six months ended Year ended 31 December 30 June 2008 2009 2010 2010 2011 (unaudited)
Employee remuneration (RMB’000) 4,400 6,282 8,647 3,657 4,479
During the period between 2008 and 2010, annual remuneration per capita of Bi Te Communication employees rose with the annual growth rate of 13.31% and 31.39% respectively.
Business prospects
Currently, Bi Te Communication is mainly engaged in business such as the development and production of military electronic communication system and products. The products (technologies) it developed, researched and produced have been used in various armaments in China armed force. Along with requirements for digitization, intelligentization and integration of the information transmission system in the future, Bi Te Communication’s ability for large-scale research and development as well as production will be preliminarily formed through continually enhancing the technologies of the products, striving to enlarge the company scale and the applications of the products and realizing a wider use of products and technologies of the company. Thus, the competitiveness of Bi Te Communication in the market for military products will be stronger. Bi Te Communication will focus on the market to arouse the awareness of its brand and will incessantly widen the horizon of product and technology applications of the company to secure more orders to maintaining the stability and possibility for sustainable development of the company.
(III) Management discussion and analysis of AVIC-INTL Project Engineering Company (“Project Engineering Company”)
Business overview
Project Engineering Company was established on 28 April 2011 with registered capital of RMB210 million, and has not generated any income during the Reporting Period. Focusing on government projects on an on-going basis, Project Engineering Company will gradually take over the related operations of the Complete Set of Equipment Division of AVIC International while actively expanding the export business of large-scale complete equipments based on EPC.
– VI-24 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Revenue, cost of sales, gross profit, selling costs, administrative expenses, finance costs, other income, other (loss)/ gain, income tax and net profit
During the Reporting Period, Project Engineering Company has not commenced its operation of production, so that it has not recorded any income from the main operating business, cost of sales, gross profit, selling costs, other income and other gain/(loss). During the Reporting Period, the administrative expenses of Project Engineering Company has amounted to RMB94,000, mainly comprised of conference fees and registration fees. Project Engineering Company has not generate any finance expenses and the net finance income amounted to RMB109,000, mainly attributed to the interest income from bank deposits.
Therefore, although there is still no gross profit realized, having deducted administrative expenses and acquired net finance income of RMB109,000, Project Engineering Company has realized the net profit of RMB15,000. The applicable income tax rate for Project Engineering Company is 25%.
Liquidity, financial resources and capital structure
30 June 2011 RMB
Total borrowings 0 Less: Cash and cash equivalents 210,015 Net debt (210,015) Total liabilities 0 Total equity 210,015 Total capital 210,015 Total assets 210,015 Gearing Ratio – Assets-liabilities Ratio 0.00%
Gearing Ratio = Net debt/Total capital
Assets-liabilities Ratio = Total liabilities/Total assets
Borrowings and interest expenses, receivables and payables
During the Reporting Period, Project Engineering Company has not commenced its operation of production, so it has neither recorded any borrowings, liabilities nor trade and other receivables. There is also no trade and other payables.
Investment in associated companies, investment property and available-for-sale financial assets
During the Reporting Period, Project Engineering Company did not incur any investment in associated companies, hold any investment properties or available-for-sale financial assets.
– VI-25 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Commitments, pledged assets, financial guarantee and contingent liabilities, material investments/acquisitions and disposals as well as foreign exchange risk
During the Reporting Period, Project Engineering Company did not have any capital commitments or operating commitments. It has neither created any pledge to any assets, nor provided any financial guarantee to any external enterprise, or incur any material contingent liabilities or make any substantial acquisition or disposal of assets/operations. It did not recognize any assets or liabilities denominated in foreign currencies, or sign any forward foreign exchange contracts or currency exchange contracts.
Number of employees and their remuneration
During the Reporting Period, Project Engineering Company was still under the preparation stage for establishment, so no employee was employed and no employee remuneration was generated.
Business prospects
Focusing on government projects on an on-going basis, Project Engineering Company will gradually take over the related operations of the project engineering department in AVIC International, while actively expanding the export business of large-scale complete set of equipments based on EPC as the core.
The clients of government projects are foreign government authorities. In the course of development and operation, good communication among departments of both domestic and foreign governments is required. Involving variety of business relationship, complication of operation procedures, relatively long development time and relatively low level of marketization, this kind of projects is more suitable for enterprises with state-owned background. Therefore, government projects could generally acquired higher profit margins.
Complete set of equipments export is an important element for technology trading. As far as governments of different countries increasingly emphasize on civil projects and infrastructures, complete set of equipments export has become one of the most active and competitive kind of trade with one of the fastest growth, the largest scale and the biggest potential among international trades.
Historically, the Complete Set of Equipment Division of AVIC International has successfully carried out the operation of various projects, such as the Turkish Power Plant Project (土耳其電站項目), the Zambian Road, Bridge and Mobile Hospital Project (贊比亞路橋和移動醫院項目), the Kenyan Engineering, Tertiary Education and Drills Project (肯雅工程機械、高等教育和鑽機項目), the Egyptian Power Plant Project (埃及電站項目)、the Guinean Containers Inspection Facilities Project (幾內亞集裝箱檢測設備項目). Those projects involve a variety of aspects such as the government and civil services, energy, transportation, engineering and communication facilities. With the experiences accumulated over years, the division
– VI-26 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
have acquired good reputation and solid customer base in the traditional competitive regions such as Africa, the Middle East as well as Central and Southeast Asia.
(IV) Management Discussion and Analysis of AVIC Lutong Industrial Company Limited (“Lutong Company”)
Business Overview
Lutong Company was established on 1 February 2011, is mainly engaged in the wholesale and retail of products such as railway bearings (鐵路軸承), general bearings (通用軸泵) and insulating films (絕緣薄膜). Since its establishment, all operations of Lutong Company have been developing smoothly. However, owing to the short operations history, the gross profits is unable to cover the fixed costs and it is now still in a loss-making position. The acquisition of asphalt businesses (瀝青業 務) are still under process and have not yet been completed by the end of the reporting period. Therefore, no income has been attributable to the asphalt businesses.
Revenue and cost of sales
During the Reporting Period (1 February 2011 to 30 June 2011), the revenue of Lutong Company amounted to RMB8,862,000, which was primarily attributable to the bearings and insulating films businesses. The cost of sales amounted to RMB7,017,000, accounted for 79.18% of the revenue.
Other gains/(losses), net
During the Reporting Period, the other (losses)/gains, net amounted to RMB54,000, which was mainly attributable to the foreign exchange gains.
Selling expenses, administrative expenses and finance costs, net
Since the revenue of Lutong Company at the beginning of its operations was relatively low, these three items accounted for a relatively larger proportion of the total revenue. In the future, as the revenue of Lutong Company grows steadily, the proportion of these items will drop to a reasonable level.
During the Reporting Period, the selling expenses of Lutong Company amounted to RMB1,766,000, mainly including staff remuneration, transportation costs and other expenses, accounted for 19.93% of the total revenue. The administrative expenses amounted to RMB2,205,000, mainly including staff remuneration, depreciation and amortization charges and other expenses, accounted for 24.88% of the total revenue. The finance costs, net amounted to RMB324,000, accounted for 3.66% of the revenue. The interest expenses amounted to RMB589,000, mainly representing the interest expenses from the borrowings from related party. The interest income amounted to RMB265,000, mainly representing the interest income from bank deposits.
– VI-27 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Income tax
During the Reporting Period, the effective income tax rate was 19.87%, (pre-tax net loss at the Reporting Period of RMB2,396,000, was first used to calculate the deferred income tax assets of RMB599,000 at a tax rate of 25%, it was then charged to the undeductable expense of RMB123,000, and the current deferred income tax assets of RMB476,000 was ultimately recognized yielding an corresponding effective income tax rate of 19.87%.)
Gross profit and net profit
The period from 1 February 2011 (date of establishment) to 30 June 2011 RMB’000
Revenue 8,862 Gross profit 1,845 Gross profit margin 20.82% Operating profit (2,072) Profit (loss) before tax (2,396) Net profit (loss) attributable to parent company (1,920) Net profit margin –21.67%
During the Reporting Period, a gross profit of RMB1,845,000 and a gross profit margin of 20.82% were realized. However, during the beginning of operations of Lutong Company, the revenue from operations was relatively low. After the deduction of administrative expenses, selling expenses and finance costs, a loss from operations of RMB2,072,000 was incurred. After the adjustment of the deferred income tax (recognized the tax loss that was expected to recover as defined income tax asset) the net loss of Lutong Company amounted to RMB1,920,000 with a net loss margin of 21.67%.
– VI-28 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Segment analysis
The period from 1 February 2011 (date of establishment) to 30 June 2011 RMB’000 RMB’000 RMB’000 RMB’000 Cost of Gross Gross profit Revenue sales profit margin
Sales of railway bearing products 2,778 2,079 699 25.16% Sales of general bearing products 4,705 4,101 604 12.83% Aggregated bearing businesses 7,483 6,180 1,303 17.41% Sales of insulating film products 1,380 837 543 39.35%
Total 8,862 7,017 1,845 20.82%
During the Reporting Period, the bearing businesses, constituting the main component of revenue of Lutong Company, accounted for 84.44%, while the insulating film business accounted for 15.57% of the revenue. The overall profit margin of the bearing businesses was 17.41%, lower than that of the insulating films business of 39.32%.
Liquidity, financial resources and capital structure
As at 30 June 2011 RMB’000
Total borrowings 70,000 Less: Cash and cash equivalents 40,140 Net debts 29,860 Total liabilities 86,595 Total equity 298,080 Total capital 327,940 Total assets 384,675 Gearing Ratio 9.11% Assets to liabilities Ratio 22.51%
Gearing Ratio = Net debts/Total capital
Assets to liabilities Raio = Total liabilities/Total assets
– VI-29 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Borrowings and interest expenses
By 30 June 2011, Lu Tong Company had one borrowing of RMB70,000,000 from Aviation Industry Finance Company Limited (fellow subsidiary of Lutong Company), and the amount will be mature on 4 May 2012 and it bears an interest of 6.31% annually, with guarantee from defined.
Inventory
As of 30 June 2011, the balance of inventories of Lutong Company amounted to RMB37,389,000, mainly consisted of finished goods such as railway bearings, general bearings and insulating films. In specific terms, it included a total of approximately 1,020,000 sets of various bearing products and approximately 209 kilogram of insulating films. The management considers that there is no impairment risk for inventories, and no provision has been made for the impairment of inventories.
Receivables and payables
Trade and other receivables
The trade and other receivables of Lutong Company included trade receivables, prepayments to suppliers and others. Since the trade receivables mature in three months, no provision has been made for the impairment of the trade and other receivables. As at 30 June 2011, the balance of trade and other receivables amounted to RMB293,351,000, of which the trade receivables amounted to RMB3,958,000, prepayments amounted to RMB35,317,000 and the other receivables from related parties amounted to RMB247,723,000, accounted for 1.35%, 12.04% and 84.45%. The other receivables from related parties mentioned-above has not been recovered as of 30 June 2011, which is mainly consisted of the entrusted loans and fund provided to shareholders or subsidiaries, and in specific terms, included the fund provided to China National Aero-Technology Guangzhou Company Limited (中國航空技術廣州有限公司) of RMB236,054,349, entrusted loans provided to Guangdong International building Industrial Company Limited (廣東國際大廈實業 有限公司) of RMB5,549,000 (the entrusted loan agreement was entered in April 2011 with a term of 6 months at an interest rate of 6.31%), fund provided to Guizhou Qian He Logistics Company (貴州黔和物流有限公司) of RMB5,170,000 and fund provided to AVIC International Holding Corporation (中國航空技術國際控股有限公司)of RMB950,000.
Trade and other payables
The trade and other payables of Lutong Company mainly consisted the trade payables, advances from customers and other payables. The trade payables mature within 1 month. On 30 June 2011, the balance of the trade and other payables amounted to RMB16,595,000, of which the trade payables amounted to RMB14,421,000, accounted for 86.90%.
– VI-30 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Investment in associates companies, material investment, acquisition and disposal
During the Reporting Period, there was no investment in associates, material investment, acquisition and disposal by Lutong Company.
Investment properties and financial assets available for sale
During the Reporting Period, no investment properties or financial assets available for sale was held by Lutong Company.
Commitments
As of 30 June 2011, the commitment on capital expenses contracted but not yet delivered included properties, plant and equipment of RMB10,498,000 and intangible assets of RMB128,000. According to the irrevocable operating lease contract, the minimum rent payable within the next year and between 1 to 5 years by Lutong Company are RMB1,306,000 and RMB4,975,000 respectively.
Pledged assets
As of 30 June 2011, a bank deposit of RMB7,295,000 was pledged as the collateral for the letter of credit of bank and a bank deposit of RMB2,000,000 was pledged as the collateral of the bank guarantee letter.
Financial guarantee and contingent liabilities
During the Reporting Period, no financial guarantee has been provided to any external enterprises by Lutong Company. And there were no material contingent liabilities during the Reporting Period.
Capital expenditure
During the Reporting Period, a self-owned capital of RMB3,367,000 was made for the renovation of the office located at the Guangdong International Building by Lutong Company.
Number of employees and their remuneration
During the Reporting Period, the number of employees and their remuneration were as follows:
30 June 2011
Number of employees 60
– VI-31 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
The period from 1 February 2011 (date of establishment) to 30 June 2011
Remuneration expenses of employees (RMB’000) 1,140
The remuneration of Lutong Company’s employees mainly included wages, bonuses, allowance and subsidies, staff benefits, social insurance premiums and housing pensions, union fee and staff education fee. As at 30 June 2011, Lutong Company had a total headcount of 60 and the total employee remuneration for the reporting period of approximately RMB1,140,000, account for 12.86% of the revenue.
Foreign exchanges risks
Lutong Company primarily operates within the PRC, and its main operations are denominated in RMB. However, there are foreign exchange risks associated with the foreign exchange liabilities and future foreign exchange transactions (mainly in Japanese yen and US dollars) recognized by Lutong Company. As of 30 June 2011, the liabilities in Japanese yen and US dollars of Lutong Company were translated to RMB13,793,000 and RMB417,000, respectively. These foreign exchange liabilities were mainly trade and other payables.
The finance department of Lutong Company is responsible for monitoring the scale of foreign exchanges transactions and the foreign exchange assets and liabilities to minimize the exposure of foreign exchange risks. As such, Lutong Company may enter into forward foreign exchange contracts or currency swap contracts to avoid foreign exchange risks. During the period from 1 February 2011 (date of establishment) to 30 June 2011, no forward foreign exchange contracts or currency swap contracts have been entered into by Lutong Company.
Business prospects
For the railway bearings, since China’s current railway transportation capacity is still not enough, the need for construction of new railway compartments and the need for maintenance are growing at a steady pace and the demand for railway bearings will grow accordingly. As for general bearings, the general bearings under the “NTN” brand distributed by Lutong Company are under-provided. As the inventory increases and the sales network enhances, the sales volume is expected to continue to grow.
– VI-32 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
For the insulating films, as the high speed railway and aviation market in the PRC develop, it is expected that the future demand will grow gradually and there is a great potential for the high-end imported insulating films market. Despite the short development history of the insulating films business of the Company, which is still under the incubation period, with the reliance on the customer resource in the aviation industry system and the strong support of brand distributionship, there exists a promising business development outlook.
For asphalt, under the stimulation of the national financial policies and the expansion of the domestic highway construction scale in the recent years, the demand for asphalt grows steadily. The future maintenance of highway will become a major momentum for the demand. At present, the acquisition of asphalt business by Lutong Company is under process. Upon completion of such acquisition, the asphalt business will become one of the main businesses of Lutong Company. Lutong Company will steadily involve in the sales of asphalt for the maintenance of highway nation-wide, through the building of asphalt warehouses.
(V) Management Discussion and Analysis of Guizhou CATIC Resources Company Limited (“Guizhou CATIC Resources”)
Business overview
Guizhou CATIC Resources is mainly engaged in the trading of products such as thermal coal, refined coal and chemical coal. The coal trading business of Guizhou CATIC Resources was effectively commenced in September 2010. At present, it focuses on the Guizhou Province. It adopts the conventional sales model in their operations, which can be specifically divided into direct sales approach and the approach of purchase followed by selection and finally selling.
During the Reporting Period, since all businesses were still in the preliminary developing stage, no profits has been made. Revenue began to be realized in the third quarter in 2010 for Guizhou CATIC Resources. It saw smooth operations during the first half of 2011, and the revenue has shown an increasing trend. The net loss margin has reduced compared with that of last year.
Revenue
No revenue has been realized in 2008, 2009 and the first half of 2010, which was attributable to the fact that Guizhou CATIC Resources was still under the preparation and it did not start business until September 2010. The revenue in 2010 amounted to RMB40,384,000 and it reached RMB267,385,000 from 1 January to 30 June 2011. It was mainly attributable to the sales of coal products, that the operations of Guizhou CATIC Resources has been on the right track and that the customers and market have been significantly explored.
– VI-33 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Cost of sales
Guizhou CATIC Resources was still under preparation in 2008, 2009 and the first half of 2010, in which no cost of sales was incurred. The cost of sales amounted to RMB38,282,000 in 2010, accounted for 94.79% of the revenue of that year. The cost of sales from 1 January to 30 June 2011 amounted to RMB259,753,000, accounted for 97.15% of the revenue of the same period.
Other income
During the relevant period, other income of Guizhou CATIC Resources mainly comprised rental income. In the first half of 2011, Guizhou CATIC Resources subleted a warehouse located at Babu Village, Zhijin County, Guizhou Province to Xihu Xinyuan Anthracite Plant of Zhijin County (織金縣西湖鑫源無煙煤加工廠) for a term of 3 months at a monthly rental of RMB10,000. As of the end of Reporting Period, Guizhou CATIC Resources received a total of rental income of RMB30,000.
Selling and distribution expense
In the first half of 2008, 2009 and 2010, Guizhou CATIC Resources was at the planning stage of pre-establishment, in which no sales and distribution expense was incurred. In 2010, sales and distribution expenses was RMB1,422,000, representing 3.52% of revenue of that year, mainly since Guizhou CATIC Resources was at the stage of soliciting customers and the share of sales expenses was therefore relatively higher. During the period of 1 January to 30 June 2011, sales and distribution expenses was RMB4,070,000, the share of which in revenue in the same period of the year declined to 1.52%, mainly comprising staff remuneration, railway surcharge, rental of warehouse and properties and other expenses.
Administrative expenses
In 2008, the year of establishment, and 2009, Guizhou CATIC Resources incurred administrative expense of RMB6,000 and RMB139,000 respectively, mainly comprising start-up costs in early planning stage of pre-establishment. Up to the second half of 2010, after Guizhou CATIC Resources officially commenced operation, administrative expense of RMB4,117,000 was incurred in that year, mainly comprising staff remuneration, depreciation charge and other expenses.
Finance cost, net
Finance cost of Guizhou CATIC Resources mainly comprises interest cost of debt. Finance income mainly comprises interest income of bank deposits. In the first half of 2008, 2009 and 2010, Guizhou CATIC Resources did not incur any finance cost or income. The net of finance expense in 2010 was RMB519,000, of which
– VI-34 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
interest cost was RMB729,000 and interest income was RMB210,000. During the period from 1 January to 30 June 2011, the net of finance expense of Guizhou CATIC Resources was RMB2,146,000, of which interest cost was RMB2,405,000 and interest income was RMB259,000. The rapid increase in the net of finance expenses over the last year was due to the fact that Guizhou CATIC Resources had a new borrowing of RMB200 million.
Income tax
During the Reporting Period, the income applicable tax rate of Guizhou CATIC Resources was 25%. However, in 2008, 2009 and 2010 and the period from 1 January to 30 June 2011, the loss before tax of Guizhou CATIC Resources was RMB6,000, RMB139,000, RMB3,956,000 and RMB2,955,000 respectively, so Guizhou CATIC Resources did not recognize any income tax expense during the Reporting Period.
Gross profit and net profit
From December 1 (date of incorporation) Twelve months ended Six months ended to December 31 as of December 31 as of June 30 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Revenue 0 0 40,384 0 267,385 Gross profit 0 0 2,102 0 7,632 Profit margin – – 5.21% – 2.85% Operating profit (loss) (6) (139) (3,437) 0 (809) Profit (loss) before tax (6) (139) (3,956) 0 (2,955) Net profit (loss) attributable to parent company (6) (139) (3,956) 0 (2,955) Net profit (loss) margin – – –9.79% – –1.11%
Gross Profit margin
After Guizhou CATIC Resources officially commenced operation since September 2010, gross profit of RMB2,102,000 was recorded in that year, with a gross profit margin of 5.21%. During the period of 1 January to 30 June 2011, gross profit of Guizhou CATIC Resources amounted to RMB7,632,000, with a gross profit margin of 2.85%. Since the sales proportion of coal product with lower sales profit margin in 2011 was higher than that of 2010, overall profit margin relatively declined.
– VI-35 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Net profit margin
Guizhou CATIC Resources did not record revenue in 2008 and 2009, while the operating loss and net loss amounted to RMB6,000 and RMB139,000 respectively, mainly comprising administrative expense at the planning stage of pre-establishment. Guizhou CATIC Resources actually commenced operation in September 2010, but the gross profit created was not sufficient to cover all the expenses and therefore a net loss of RMB3,956,000 was still recorded with a net loss margin of -9.79%. After Guizhou CATIC Resources returned to right track during the period of 1 January to 30 June 2011, operating loss of RMB809,000, net loss of RMB2,955,000 and net loss margin of -1.11% was recorded, representing a significant decline over last year.
Liquidity, financial resources and capital structure
31 December 31 December 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Total borrowings 0 0 0 200,000 Less: Cash and cash equivalents 9,994 847 21,092 68,515 Net debt –9,994 –847 –21,092 131,485 Total liabilities 0 0 9,132 264,336 Total equity 9,994 9,855 95,899 92,944 Total capital 0 9,008 74,362 222,937 Total assets 9,994 9,855 105,031 357,280 Gearing Ratio – –9.40% –28.36% 58.98% Asset to liability Ratio 0.00% 0.00% 8.69% 73.99%
Gearing Ratio = Net debt/Total capital
Asset to liability Ratio = Total liabilities/Total assets
Borrowings and interest expenses
As of 31 December 2008, 2009 and 2010, Guizhou CATIC Resources had no borrowings. As of 30 June 2011, the balance of short-term bank borrowings of Guizhou CATIC Resources was RMB200,000,000. The bank borrowings were mainly used for the purchase of raw materials and the development of normal coal trading business. The bank borrowings were guaranteed by AVIC International Holding Company, at a weighted average annual interest rate of 6.99%.
– VI-36 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Inventory
Inventories of Guizhou CATIC Resources mainly comprise coal commodity inventories. Based on consideration of the current situation, the management believes that the inventories have no impairment risk and no impairment allowance for price decline of inventories was made. As of 31 December 2008 and 2009, Guizhou CATIC Resources had no inventories. As of 31 December 2010, the balance of inventories increased to RMB3,662,000, all of which were coal product. As of 30 June 2011, along with the increase in sales, the incoming inventories increased accordingly with the balance of inventories of RMB12,479,000, representing a significant increase of 240.77% compared with that of 31 December 2010.
Receivables and payables
Trade and other receivables
Trade and other receivables mainly comprise trade receivables, prepayments to suppliers, notes receivables, and others receivables. As of 31 December 2008, Guizhou CATIC Resources had no remaining balance of trade and other receivables. On 31 December 2009, the balance of trade and other receivables was RMB 9,001,000, mainly comprising borrowings due from Shenzhen CATIC Resources, which was recorded as other receivables and was fully repaid. As of 31 December 2010 and 30 June 2011, as Guizhou CATIC Resources started to sell coal products, the balance of trade and other receivables of RMB68,062,000 and RMB262,142,000 were incurred respectively, representing 168.54% and 98.04% of revenue of the same period respectively. As of 30 June 2011, the balance of trade and other receivables mainly comprise trade receivables, prepayments to suppliers and notes receivables, representing 39.36%, 50.43% and 7.89% of revenue respectively.
Trade and other payables
As of 31 December 2008 and 2009, Guizhou CATIC Resources had no remaining balance of trade and other payables. As of 31 December 2010 and 30 June 2011, along with the rapid increase in sales and procurement, the balance of trade and other payables was RMB9,132,000 and RMB64,336,000 respectively, accounted for 22.61% and 24.06% of the revenue in the same period. As of 30 June 2011, the balance of trade and other payables mainly comprised trade payables and advances from customers, accounted for 74.00% and 22.74% of the revenue respectively.
Investments in associated companies
During the Reporting Period, Guizhou CATIC Resources made investment of RMB10,000,000 to Cuizhou Zhongtiehang Logistics Company Limited (織金中鐵航 物流有限公司), holding 20% of the equity interest in the latter. As of 30 June 2011, the balance of net value of the equity investment was RMB10,000,000. As Cuizhou Zhongtiehang Logistics Company Limited (織金中鐵航物流有限公司) was still at the planning stage of establishment, Guizhou CATIC Resources did not receive investment gain (or loss) during the Reporting Period.
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Investment properties and available-for-sale financial assets
During the Reporting Period, Guizhou CATIC Resources did not hold any investment property and available-for-sale financial assets. The rental income of RMB30,000 as mentioned above was due to the fact that Guizhou CATIC Resources sublet a warehouse located at Babu Village, Zhijin County and the warehouse is not a property of Guizhou CATIC Resources.
Commitments
The future minimum rental payables under the non-cancellable operating lease contracts signed by Guizhou CATIC Resources are as follows:
31 December 31 December 31 December 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Within 1 year 0 0 591 1,381 1 to 5 years 0 0 500 3,288
Total 0 0 1,091 4,669
Pledged assets, capital expenditure, financial guarantee and contingent liabilities
During the Reporting Period, Guizhou CATIC Resources had no pledged asset, significant capital expenditure, and did not provide any financial guarantee to any external enterprise, and had no major or contingent liability.
Material investment, acquisition and disposal
Guizhou CATIC Resources made an investment of RMB10,000,000 to Cuizhou Zhongtiehang Logistics Company Limited (織金中鐵航物流有限公司), holding 20% of the equity interest in the latter.
Number of employees and their remuneration
During the Reporting Period, number of employees of Guizhou CATIC Resources and their remuneration were as follows:
31 December 31 December 31 December 30 June 30 June 2008 2009 2010 2010 2011
Number of employees 0 0 78 0 117
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For the six months For the year ended 31 December ended 30 June 2008 2009 2010 2010 2011
Remuneration expenses of employees (RMB’000) 0 0 1,352 0 2,896
The salary of employees of Guizhou CATIC Resources comprises two parts, namely basic salary and performance-based bonus. Employee benefit shall be subject to social security pursuant to the local social security bureau. The number of employees of Guizhou CATIC Resources was nil before August 2010 and 117 on 30 June 2011. In the first half of 2011, the average monthly salary per employee of Guizhou CATIC Resources was RMB4,407, representing an increase of 16.50% over last year (from September to December 2010: RMB3,783), which is mainly due to the fact that Guizhou CATIC Resources made the payment of double pay for 2010 (i.e. the thirteenth monthly salary) and subsidy for Lunar New Year in January 2011 and repaid the performance-based bonus of September to December 2010 in June 2011.
Business prospect
China is the largest coal consumption country in the world. In 2010, the domestic coal consumption was 1.71 billion tonnes of oil equivalent, representing 70.5% of domestic total primary energy consumption and 48.2% of total coal consumption in the world. In the long future, the energy structure of the PRC, in which coal is the main energy, will remain unchanged. Guizhou Province has abundant coal resources while its adjacent provinces are the regions short of coal resources. Following further development of coal production capacity, coal delivery to external provinces will further increase.
Guizhou CATIC Resources will focus on Guizhou Province, and will establish a coal logistics trade centre in Guiyang for the southern region of the PRC, which aims at consolidating and indirectly controlling coal resources through its provision of modern logistics service to coal consumers and suppliers, with the business coverage gradually extending to neighbouring regions such as Sichuan, Hunan, Guangxi and Guangdong.
(VI) Management Discussion and Analysis of China National Aero-Technology Cooperation Shanghai Limited Liability Company (“Shanghai Company”)
Business overview
Shanghai Company’s operation mainly involves import and export of various goods and commodities. At present, its conducts the following businesses: import and export trade of bulk commodities, shipbuilding, import and export trade of air
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separation plants and vessels and a small amount of other businesses. According to the business development plan, Shanghai Company will focus on three main business segments: ship manufacturing, trade of air separation plants and trade of bulk commodities.
During the reporting period, except in 2009 when the financial crisis stroke, Shanghai Company maintained a rapid growth in term of revenue (with the average annual growth rate of 25.62% 2008 – 2010). Since the company acquired AVIC Dingheng in July 2010, shipbuilding business has become a new source of revenue growth, and since AVIC International Logistics Company Limited (“AVIC International Logistics”) has been sold to AVIC International in June 2011, logistics operation is no longer deemed as continuing operation, and the revenue proportion represented by shipbuilding business has increased steadily.
Revenue
During the reporting period, Shanghai Company’s revenue (from continuing operations) mainly came from trading, shipbuilding and other businesses. In 2009, owing to the financial crisis, the import and export trading business, which account for large proportion of total revenue, witnessed a decline, consequently the revenue of Shanghai Company decreased slightly by 10.26% compared with the previous year, to RMB1,232,192,000. In 2010 the revenue increased to RMB2,166,926,000, higher than the previous year by 75.86%. This mainly resulted from the macro-economic rebound and the company’s promotion of business expansion which brought significant rise of import and export trade volume (especially for cashmere, photovoltaic products, etc.). Shanghai Company’s acquisition of AVIC Dingheng in July 2010 added additional RMB198,683,000 to revenue. The revenue from 1 January to 30 June 2011 reached RMB1,308,536,000 increased by 35.74% over the same period of last year. This was also due to the revenue contributed of RMB309,505,000 by AVIC Dingheng.
Cost of sales
The cost of sales of Shanghai Company in 2009 was RMB1,108,136,000 decreased by 11.02% compared with the previous year, corresponding to the revenue decline. The cost of sales in 2010 was RMB2,008,245,000 increased significant by 81.23% over the previous year, which is mainly because the rebound of trade volume has brought up the cost of sales. Also the acquisition of AVIC Dingheng added in consolidated cost of sales of RMB207,749,000. Cost of sales from 1 January 2011 to 30 June 2011 was RMB1,251,160,000, up by 42.51% than the same period of the previous year. This is largely attributed to the cost of sales of RMB319,350,000 generated by shipbuilding operation.
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Other income
Shanghai Company’s other income mainly comprised the dividend received from available for sale financial assets, government grants and interest income. Among this, the fluctuation of dividend received from available for sale financial assets is related to the dividend distribution policies of the companies whose equity interest are held by Shanghai Company, which are all private companies, including Shanghai Bao Ding Investment Company Limited (上海寶鼎投資股份有限公司), Changjiang Economic United Development Company Limited (長江經濟聯合發展有 限公司), Shen Yin Wan Guo Securities Company Limited (申銀萬國證券股份有限公 司), Guotai Junan Securities Company Limited (國泰君安證券股份有限公司), and Shanghai Yue Guan Mechanical and Electrical Equipment Company Limited (上海越 冠機電股份有限公司) and so on. Interest revenue came from interest income on bank deposits, and is related to the deposit amount of Shanghai Company.
Other income in 2008, 2009 and 2010 amounted to RMB6,743,000, RMB9,178,000 and RMB9,405,000 accounting for 0.49%, 0.74% and 0.43% of the revenue respectively. During the period from January 1, 2010 to June 30, 2010 and the period from January 1, 2011 to June 30, 2011 other income was RMB3,914,000 and RMB7,653,000 representing 0.41% and 0.58% of the revenue for the same period respectively. Other income increased significantly in the first half of 2011 is mainly because dividend received from available for sale financial assets increased RMB2,944,000 compared with the same period of previous year. Besides, bank deposit relatively increased in the first half of 2011, which made the interest income increase accordingly.
During the reporting period, the movement and structure of other income are as the following:
January January to June to June 2008 2009 2010 2010 2011
Dividend received from available-for-sale financial asset 46.36% 33.14% 53.78% 67.86% 73.17% Government grants 21.65% 46.85% 19.03% 13.46% 3.88% Interest income 31.99% 20.01% 27.19% 18.68% 22.95%
Total 100.00% 100.00% 100.00% 100.00% 100.00%
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Other gain/ (losses), net
During the reporting period, Shanghai Company’s other gain/(losses), net mainly comprised fair value gain on investment properties, gains/(losses) on disposal of investment properties, gains/(losses) on disposal of property, plant and equipment, gains on disposal of available-for-sale financial assets, gains on disposal of subsidiaries, net foreign exchange gains/(losses), etc. Net other gain of Shanghai in 2008, 2009, and 2010 was respectively RMB44,373,000, RMB95,790,000 and RMB107,179,000, accounting for 3.23%, 7.77% and 4.95% of revenue respectively, showing a clear rising trend year by year. The two major causes are that in 2009, Shanghai AVIC Real Estate Development Company (上海中航房地產開發公司), which was a subsidiary of Shanghai Company, and Hangzhou Company, gained tax rebates totaled RMB4,253,000; additionally, in 2010, Shanghai Company disposed part of the available for sale financial assets (3,802,070 shares of Guotai Junan Securities Company Limited) and gained a net profit of RMB36,100,000. In the first half of 2010, net other gain of Shanghai Company was RMB22,292,000. In the first half of 2011, Shanghai Company had net other gain of RMB42,569,000, which included gain of RMB3,757,000 from the disposal ASP plant.
During the reporting period, the structure of other gain/(losses), net are as the following:
January January to June to June 2008 2009 2010 2010 2011
Gains/(losses) on disposal of property, plant and equipment -4.18% 0.03% 0.07% 0.21% -6.26% Gains on disposal of available-for-sale financial assets 0.00% 0.00% 33.68% 0.00% 4.59% Gains on loss control of a subsidiary 0.00% 0.00% 0.00% 0.00% 14.23% Fair value gain on investment properties 93.80% 91.97% 59.59% 118.81% 80.42% Gains on disposal of investment properties 0.00% 3.93% 4.85% 23.30% 8.57% Net foreign exchange gains/(losses) 3.79% 2.42% 1.03% -42.26% -1.83% others 6.59% 1.65% 0.78% -0.06% 0.28%
Total 100.00% 100.00% 100.00% 100.00% 100.00%
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Selling and distribution expenses
During the reporting period, selling and distribution expenses of Shanghai Company mainly included commission, freight and insurance fee, staff remuneration and promotion expense. In 2009, selling and distribution expenses amounted to RMB67,667,000, increased slightly by 1.46%, mainly owing to the increased depreciation and labor costs. Selling and distribution expenses accounted for 4.86% and 5.49% of the revenue in 2008 and 2009 respectively. Selling and distribution expenses in 2010 were RMB82,959,000, increased 22.60% compared with the previous year, mainly because Shanghai Company’s effort to expand the markets of photovoltaic products as well as complete sets of equipment, which led to increased advertising cost, insurance cost, and so on. Selling and distribution expenses account for 3.83% of the revenue in 2010, lower than the previous year. The main reason is that the acquired AVIC Dingheng contributed higher revenue while relatively lower related costs. Selling and distribution expenses in the first half of 2011 amounted to RMB32,413,000, close to that of the same period of the previous year. Selling and distribution expenses account for 2.48% of the revenue, lower than that of the previous year, also mainly owing to the lower selling and distribution expenses rate of the newly acquired AVIC Dingheng.
Administrative expenses
During the reporting period, administrative expenses are mainly consisted of staff remuneration, depreciation and amortization expenses, travel expenses, rental expenses, and entertainment expenses, etc. In 2009, Shanghai Company’s administrative expenses amounted to RMB41,777,000, increased by 9.29% compared with the previous year, mainly due to the staff remuneration expense increased by RMB1,198,000. Apart from that, depreciation and amortization expenses increased by RMB3,994,000, and the administrative expenses represented 3.39% of revenue, higher than the 2.78% of the previous year. The administrative expenses in 2010 increased to RMB57,484,000, accounting for 2.65% of revenue, rose substantially by 37.60% compared with the previous year, mainly because the business expansion effort made administrative expenses increase correspondingly. Besides, the acquisition of AVIC Dingheng contributed to administrative expenses by RMB12,632,000. In the first half of 2011, administrative expenses were RMB40,534,000, up 51.86% year on year, mainly owing to the RMB15,430,000 contributed by shipbuilding business. The administrative expenses accounted for 3.10% of the revenue, slightly higher than the 2.77% of the same period of the previous year.
Finance cost, net
During the reporting period, finance cost of Shanghai Company mainly involves interest expenses on bank borrowings, finance lease liabilities and retirement benefit amortization etc. The financial revenue of Shanghai Company mainly comes from the interest income from related-party. Net finance costs in 2009 amounted to RMB20,391,000, decreased by 32.88% compared with the previous year.
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This was mainly because in 2009 China adopted loose monetary policies to stimulate economic growth, and the benchmark interest rate was significantly reduced (In 2009 Shanghai’s effective long-term loan interest rate was 4.40%, 1.24% lower than the previous year; effective short-term loan interest rate was 5.42%, 0.94% less than the previous year), therefore, led to an Interest expenses decrease of RMB7,811,000. In 2010 the net finance cost of Shanghai Company was RMB20,553,000 almost the same as the previous year. From 1 January to 30 June 2011, Shanghai’s net finance costs amounted to RMB32,977,000, increased significantly by 256.08% year on year (1 January to 30 June 2010: RMB9,261,000). This was mainly attributed to the significant increase of borrowings (total borrowing amounted to RMB1,191,487,000 on June 30 2011, increased 73.06% year on year, including the fund of RMB137,020,000 raised for the acquisition of AVIC Dingheng and a borrowing balance of RMB85,000,000 contributed by AVIC Dingheng). In addition, as the Central Bank gradually raised the benchmark interest rate, Shanghai Company’s weighted average interest rates on long-term and short-term borrowings increased respectively by 0.86% and 0.35% over the previous year, which also led to increased interest expenses.
Income tax
The applicable income tax rate of Shanghai Company is 25%, not including its subsidiary, Shanghai Gao Hang Industrial Company Limited which is a joint venture located in Wai Gao Qiao Free Trade Zone that engaged in logistics services business. According to relevant provisions of Income Tax Law, the applicable income tax rate for the subsidiary will gradually transmit to 25% during the five years from 2008 to 2012. From 2009 to 2011, the effective applicable income tax rate of Shanghai CATIC Industrial Company Limited is 20%, 22% and 24%.
Gross profit and net profit
January January to June to June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Revenue 1,373,116 1,232,192 2,166,926 964,003 1,308,536 Gross profit 127,779 124,056 158,681 86,085 57,376 Gross profit margin 9.31% 10.07% 7.32% 8.93% 4.38% Operating profit/(loss) 73,974 119,580 134,822 57,346 34,651 Profit/(loss) before income tax 43,469 98,999 113,717 47,841 1,465 Profit/(loss) attributable to the parent 40,138 74,324 79,757 35,493 5,035 Net profit margin 2.92% 6.03% 3.68% 3.68% 0.38%
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Gross profit margin
In 2009, gross profit of Shanghai Company was RMB124,056,000, close to that of the previous year. The gross profit rate was 10.07%, slightly higher than the 9.31% of the previous year. Gross profit in 2010 rose to RMB158,681,000, 27.91% higher than that of the previous year. This was mainly because trade revenue significantly increased owing to the recovery of international trade. However, the gross profit rate declined to 7.32%, since AVIC Dingheng contributed a negative gross profit of RMB9,066,000 to Shanghai Company because of the poor management of original shareholders, which dragged down the overall gross profit margin. From 1 January to 30 June 2011, the gross profit of Shanghai Company was RMB57,376,000, showed a decreased of 33.35% compared with the same period of the previous year (1 January to 30 June 2010: RMB86,085,000). The gross profit rate was 4.38%, lower than the 8.93% of the same period of the previous year, also mainly because the shipbuilding segment that is under integration contributed a negative gross profit of RMB9,845,000.
Net profit margin
In 2009, the operating profit of Shanghai Company was RMB119,580,000, and net profit attributed to the parent company was RMB74,324,000 which increased substantially by 85.17% over the previous year; the net profit margin was 6.03%, higher than the 2.92% of the previous year. The reason why the net profit and net profit rate increased greatly was that with the overall quick rising of China’s real estate price, the fair value gain on investment properties amounted to RMB88,100,000, 111.68% higher than that of the previous year. The operating profit in 2010 was RMB134,822,000, and net profit attributed to the parent company was RMB79,757,000, mildly increased by 7.31% over the previous year. The net profit margin was 3.68%, lower than the previous year, which is mostly because the acquisition of AVIC Dingheng brought a net loss of RMB17,020,000 thus trimming down the net profit margin. Besides, fair value gain on investment properties descended by 27.50%, which also impacted overall profit margin. During the first half of 2010, the operating profit of Shanghai Company was RMB57,346,000, and the net profit attributed to the parent company was RMB35,493,000, representing a net profit margin of 3.68%. However, from 1 January to 30 June, 2011, the operating profit decreased to RMB34,651,000, and the net profit attributed to the parent company decreased to RMB5,035,000, representing a net profit margin of 0.38%. The main reason was also that the shipbuilding business contributed a negative profit of RMB9,845,000, which pulled down the overall profit level.
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Segment analysis
Shanghai Company’s revenue (from continuing operations) was mainly derived from trading, shipbuilding, and other businesses. The following is an analysis about relevant revenue and cost.
January January to June to June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Revenue (from continuing operations) Trading 1,331,831 1,191,015 1,913,547 944,446 976,214 Shipbuilding 0 0 198,683 0 309,505 others 41,285 41,177 54,696 19,557 22,817
Total 1,373,116 1,232,192 2,166,926 964,003 1,308,536
Cost of sales Trading 1,235,513 1,103,519 1,779,701 868,301 924,833 Shipbuilding 0 0 207,749 0 319,350 Others 9,824 4,617 20,795 9,617 6,977
Total 1,245,337 1,108,136 2,008,245 877,918 1,251,160
Gross profit Trading 96,318 87,496 133,846 76,145 51,381 Shipbuilding 0 0 (9,066) 0 (9,845) Others 31,461 36,560 33,901 9,940 15,840
Total 127,779 124,056 158,681 86,085 57,376
Gross profit margin Trading 7.23% 7.35% 6.99% 8.06% 5.26% Shipbuilding – – -4.56% – -3.18% Others 76.20% 88.79% 61.98% 50.83% 69.42% Total 9.31% 10.07% 7.32% 8.93% 4.38%
– VI-46 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
In July 2010, Shanghai Company acquired AVIC Dingheng which brought 8.45% of the yearly revenue. With integration and adjustment effort gradually taken, shipyard business is becoming the new source of revenue growth for Shanghai Company, and from January to June 2011, revenue from shipbuilding business accounted for 23.65% of total revenue from continuing operation. In 2010, the gross profit margin of AVIC Dingheng was -4.56% which was basically attributed to the poor management of original shareholders making the ship construction progress slow; the price of raw material surged during the construction period while selling price was set in original contract. In the first half of 2011, this number narrowed to -3.18% and gross profit margin is expected to continue improving as Shanghai Company gradually accomplishes the optimization and integration of the shipbuilding business of AVIC Dingheng.
In December 2008, the company acquired 40% of AVIC International Logistics’ equity interest, making it a subsidiary, and the revenue from logistics operation amounted to RMB154,780,000 and RMB184,687,000 during 2009 and 2010 respectively. In April 2011, after AVIC International increase capital to the AVIC International Logistics, making the stake hold by Shanghai Company dropped from 50% to 23.44%, Shanghai Company stopped consolidated the statements of AVIC International Logistics. In June 2011, Shanghai Company transferred the remaining equity of AVIC International Logistics to AVIC International through negotiation, divesting the related logistics business. So as for reporting purpose, revenue from logistics operation is not included.
Liquidity, financial resources and capital structure
At 31 December At 30 June 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Total borrowings 402,790 527,306 1,018,022 1,191,487 Less: cash and cash equivalents 205,648 223,565 490,261 268,204 Net debt 197,142 303,741 527,761 923,283 Total debt 1,213,413 1,549,084 2,548,534 2,516,250 Total equity 528,963 608,807 820,506 707,855 Total capital 726,105 912,548 1,348,267 1,631,138 Total assets 1,742,376 2,157,891 3,369,040 3,224,105 Gearing Ratio 27.15% 33.28% 39.14% 56.60% Asset-liability ratio 69.64% 71.79% 75.65% 78.04%
Gearing Ratio = Net Debt/Total Capital
Asset-Liability Ratio = Total Debt/Total Assets
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Borrowing and interest expenses
By 30 June 2011, the total borrowings balance of Shanghai Company was RMB1,191,487,000, rose by 73.06% on a year-on-year basis, mainly constituted by short-term bank borrowings, long-term bank borrowings and financial lease liability, accounting for 89.32%, 8.73% and 1.95% respectively. Shanghai Company’s weighted average effective annual interest rates during the reporting period are as follows:
At At 31 December 31 December 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Long-term loans 5.63% 4.40% 4.59% 5.45% Short-term loans 6.36% 5.42% 5.02% 5.37%
Shanghai Company use its assets (property, plant and equipment, investment property, land use rights, trade and other receivables, inventory, equity interest in subsidiary, available for sale financial assets, etc.) as pledge of part of borrowings. Some others were guaranteed by AVIC International or a third party. For detail, please refer to related content that follows.
Inventory
During the reporting period, inventory of Shanghai Company was mainly consists of raw materials, work in progress and finished goods. By 31 December 2009, the balance of stock amounted to RMB222,642,000, up by 27.75% on a year-on-year basis, mainly because the Middle East air separation project added in unfinished goods of RMB95,700,000. By 31 December 2010, the balance of inventory reached RMB225,624,000, remain stable when compared with that of 2009. By 30 June 2011, inventory dropped back to RMB176,593,000, 21.73% lower than that of 2010, mainly because that AVIC Dingheng has finished and delivered one chemicals ship, reducing RMB54,221,000 of inventory.
Receivables and payables
Trade and other receivables
The trade and other receivables of Shanghai Company include trade receivables, prepayment to the suppliers, dividends receivable and other receivables. By 31 December 2009, the balance of trade receivables and other accounts amounted to RMB595,536,000, representing a sharp increase of 35.60% over that of the previous year, mainly because that Shanghai Company initiated the shipbuilding business in 2009 and signed contracts for 8 ships, resulting in a steep increase of prepayment for raw materials. By 31 December 2010, the balance of trade and other receivables reached RMB858,552,000, a sharp growth of 44.16% than that
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of 2009, mainly resulting from the acquisition of AVIC Dingheng, adding RMB143,109,000 of project receivables. By 30 June 2011, the balance of trade and other receivables was RMB948,060,000, showing a mild rise of 10.43% than that at the end of the previous year.
Trade and other payables
The trade and other payables of Shanghai Company mainly comprised of trade payables, notes payable and other payables (mainly including payroll payable, taxes payable, interest payable, advance from customers, etc). By 31 December 2009, since the Shanghai Company started its shipbuilding business in 2009, the billing cycle of foreign-purchased raw materials has been generally extended to half a year, balance of the trade and other payables reached RMB890,163,000, representing 26.49% rise from that of the previous year. By 31 December 2010, the balance of the trade and other payables reached RMB1,208,200,000, increased sustantially by 35.73% over that of 2009, which is mainly because that the acquisition of AVIC Dingheng directly brought trade and other payables of RMB480,474,000; in addition, the new shipbuilding business also contributed to the growth rate of Shanghai Company’s payable balance. By 30 June 2011, the balance of the trade and other payables was RMB1,095,275,000, mildly falling by 9.35% over that of the previous year.
Investment in associated companies
In August 2007, Shanghai Company invested RMB1,516,544 and held 24% of equity interest in Jincheng Motorcycle Egypt Company Limited (金城摩托車埃及公 司). By June 30, 2011, the net value of this investment was RMB399,000. The share of losses in 2008, 2009, 2010 and January to June in 2011 amounted to RMB167,040, RMB190,080, RMB551,040, and RMB209,040 respectively.
In March 2009, Shanghai Company, through its subsidiary the AVIC International Logistics, invested RMB2,550,000 to the associated company, Shenzhen AVIC Yi He Logistics Company Limited (深圳市中航亦禾物流有限公司, “AVIC Yi He”), and held 26% of the equity interest. In April 2011, since the AVIC International increased capital to AVIC International Logistics, the consolidated statements of Shanghai Company no longer included AVIC International Logistics, thus AVIC Yi He was no longer deemed an associated company of Shanghai Company. The share of losses for Shanghai Company were RMB308,100, RMB172,120, and RMB57,980 in 2009, 2010, and January to April in 2011 respectively.
Investment properties
Investment properties include the leased buildings and land use right, and are initially recorded at cost. By 30 June 2011, Shanghai Company owns a total of 8 investment properties, including commercial buildings, warehouses, etc., which are mainly located in Shanghai (No. 191 Warehouse, Lianyi Road, Baoshan District;
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Room A, B, D, F of Aijian Building, Lane 590, Wanping South Road; the 8th and 9th floor of No. 583 Lingling Road; The basement to the 5th floor, Room D on the 12th floor, the whole 14th floor, the 17th to 19th floor of the CATIC Building, No. 212 Jiangning Road; the Garden Hotel, No.100 Baise Road, Xuhui District, Shanghai; the factory building in Jinxing Village, Xianghua bridge township, Qingpu District; the office building, the Gaohang bonded warehouse and the Qualcomm office building on No. 9223 Beiqing Road, Qingpu District, etc.) By the end of year 2008, 2009, 2010 and by 30 June 2011, the net value of investment properties were RMB559,202,000, RMB641,653,000, RMB704,038,000 and RMB716,961,000 respectively, keeping a relatively steady growth.
In 2008, 2009, 2010, the first half of 2010 and the first half of 2011, Shanghai Company gained RMB24,554,000, RMB21,856,000, RMB15,236,000, RMB8,260,000 and RMB7,660,000 respectively from net rental income. The main reason for the decrease tendency is that Shanghai Company successively sold out some units of the CATIC Building, leading to moving out of original lessees, resulting in the decrease of the rental income. In 2008, 2009, 2010, the first half of 2010 and the first half of 2011, Shanghai Company gained RMB41,620,000, RMB88,100,000, RMB63,873,000, RMB26,486,000 and RMB34,236,000 respectively in terms of fair value gain on investment properties. The reason why the company got a relatively large profit from fair value gain on investment properties is that China’s real estate price keeps a rising trend during the reporting period, especially in 2009 and 2010 and the real estate price in Shanghai rose significantly.
Available for sale financial assets
By the end of the reporting period, the financial assets available for sale owned by Shanghai Company are mainly equity investment to unlisted companies that measured by fair values. By 30 June 2011, the balance of Shanghai Company’s available for sale financial assets was RMB47,542,000, 59.07% down than that of the end of 2010, mainly because that Shanghai Company transferred its equity interest in the AVIC International Leasing Company Limited (中航國際租賃有限公司)toits parent company, AVIC International.
Commitments
Shanghai Company’s commitments for the signed but not delivered capital expenditures are as follows:
31 December 31 December 30 June 2009 2010 2011 RMB’000 RMB’000 RMB’000
Property, plant and equipment 0 63,013 59,222
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Specifically, it mainly includes commitments for capital expenditures of the infrastructure, large-scale equipments and land use rights of the AVIC Dingheng, with those three items occupied 62.41%, 23.51% and 14.08% respectively, as of the end of 2010.
Pledged assets
By 30 June 2011, Shanghai Company pledges properties (mainly referring to Room A B C D, 26th & 27th floor, No. 212 Jiangning Road, Shanghai) with net value of RMB32,340,000 as collaterals of its RMB80,000,000 bank borrowings; its trade and other receivables with a net value of RMB298,923,000 as collaterals of its RMB130,521,000 bank borrowings; its investment properties with a net value of RMB39,238,000 as the collaterals of its RMB25,000,000 bank borrowings; its fixed-term deposits of RMB59,002,000 as the collaterals of its RMB58,170,000 bank borrowings; and inventories with net value of RMB77,252,000 as the collaterals of its RMB30,000,000 bank borrowings.
Material investments, acquisitions and disposals
In December 2008 and September 2010, Shanghai Company increased capital to its wholly-owned subsidiary, Hangzhou Company, with RMB8,744,000 and RMB10,000,000 respectively. The net profits/(losses) of Hangzhou Company in 2009, 2010, and January to June in 2011 were respectively RMB(4,014,799), RMB13,578,792 and RMB6,474,959.
On 15 July 2010, Shanghai Company acquired 30.6% and 29.4% of equity interest in Ding Heng (Jiangsu) Ship Building Company Limited (鼎衡（江蘇）造船有 限公司) respectively from Shanghai Ding Heng Shipping Company Limited, (上海鼎 衡船務有限責任公司) and Top Steady Shipping Company Limited (英國鼎衡運輸有限 公司), with a total consideration of RMB100,000,000. After that, the Ding Heng (Jiangsu) Ship Building Company Limited was renamed as AVIC Dingheng, of which Shanghai Company totally holds 60% of equity interest. During the period from the purchase to 31 December 2010, AVIC Dingheng, incurred a net loss of RMB17,019,000. This is because that the mismanagement of the original stockholders resulted in prolonged ship construction processes and rising price of raw materials during the processes. As the work of business integration got deepened in the first half of 2011, this number expanded to RMB35,076,019. But when Shanghai Company gradually accomplishes the integration and reform of the shipbuilding business of AVIC Dingheng, the shipbuilding business in future is expected to witness an obvious improvement.
In December 2008, with a consideration of RMB20,002,000, Shanghai Company purchased 40% of equity interest in AVIC International Logistics. On 15 April 2011, AVIC International offered a capital increase of RMB200,000,000, after which, the stake held by Shanghai Company fell to 23.44% from 50%, and Shanghai Company stopped consolidating statements of Logistics Company. On 22 June 2011, Shanghai Company signed an irrepealably transfer agreement with AVIC
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International, agree to transfer all equity interest in AVIC International Logistics to AVIC International with a consideration of RMB88,488,400 (meanwhile Shanghai Company move the long-term equity investment of AVIC International Logistics with a net value of RMB85,902,000 to the account of “Non current assets-held for sale assets”). This transfer was accomplished on 18 July 2011. In 2009 and 2010, the net income of AVIC International Logistics was respectively RMB8,955,104 and RMB4,562,308; and in the first half of 2011, the AVIC International Logistics incurred a net loss of RMB2,671,675.
On 4 November 2010, Shanghai Company transferred its 62% of equity interest in Shanghai Kai Xin Auto Insurance and Maintenance Equipment Company Limited (上海凱信汽車保修設備有限公司) to a third party, with a consideration of RMB1,550,000, after which Shanghai Kai Xin Auto Insurance and Maintenance Equipment Company Limited was no longer included in Shanghai Company’s consolidated statements. In 2009, Shanghai Kai Xin Auto Insurance and Maintenance Equipment Company Limited incurred a net loss of RMB136,659; from 1 January 2010 to the date of transfer, it gained a net profit of RMB33,403.
Financial guarantee and contingent liability
During the reporting period, Shanghai Company has not provided any financial guarantee to outside companies. And by the end of the reporting period, the company did not have any major contingent liability.
Capital expenditure
Shanghai Company’s capital expenditure in the reporting period is as follows:
January to June 2008 2009 2010 2011 RMB ’000 RMB’000 RMB’000 RMB’000
Land use right 0 0 69 130,930 Property, plants and equipment 4,989 25,540 127,331 50,117 Intangible assets 0 16 509 61 Total 4,989 25,556 127,909 181,108
In March 2011, the subsidiary of Logistics Company, Beijing AVIC International Material Company Limited (北京中航國際物產有限公司) purchased a 50-year land use right of a piece of land in Shunyi District, Beijing with its own funds of RMB113,000,000, and the land is used for the construction of logistics parks. Since AVIC International Logistics accomplished its equity interest transfer on 18 July 2011, Shanghai Company no longer holds equity interest of AVIC International Logistics. Thus the capital expenditure described above will not appear in the next issue of financial statements.
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Number of employees and their remuneration
In the reporting period, the number of employees and their remuneration are as follows:
At 31 December At 30 June 2008 2009 2010 2010 2011
Number of employees 350 348 344 497 857
12 months ended by 6 months ended by 31 December 30 June 2008 2009 2010 2010 2011 Employee remuneration expenses (RMB’000) 23,897 28,993 43,847 18,148 26,899
Employees’ remuneration of Shanghai Company is composed of basic salary and bonus. And social security expense is paid according to regulations of local Social Security Bureau. The average monthly remuneration expense per capita of Shanghai Company’s employees is RMB5,690, RMB6,943 and RMB10,622 respectively in 2008, 2009 and 2010, showing significant growths of 22.02% and 52.99% in 2009 and 2010 respectively. This is mainly because Shanghai Company offered a salary rise of about 20%, and raised the year-end bonus by of about 15-20% during 2008 and 2009. In the first half of 2010 and 2011, the average monthly remuneration expense per capita was RMB6,086 and RMB5,231 respectively, representing a decrease of 14.04% in the first half of 2011 over the corresponding period of the previous year. This is mainly due to the relatively lower average monthly salary per capita of the newly acquired AVIC Dingheng (In the first half of 2011, AVIC Dingheng had 505 employees, with a average per capita salary of RMB5,132), which diluted the overall level.
Foreign Exchange risk
By 30 June 2011, Shanghai Company’s assets measured by foreign currency were value at RMB262,919,000, 96.95% of which is measured by U.S. dollar; the liabilities measured by foreign currency were valued at RMB321,092,000, 98.95% of which is measured by U.S. dollar. The financial department of Shanghai Company is responsible to monitor foreign currency transactions and the sale of foreign currency assets and liabilities, in order to minimize the foreign exchange risks. In the reporting period, Shanghai Company did not sign any forward foreign exchange contracts or currency swap contracts.
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Business prospects
Shipbuilding is one of the new fields Shanghai Company will focus on. As the world’s need for bulk goods such as chemicals, liquefied gas, etc keeps increase steadily, the need for chemicals ships which are economical and convenient transportation tool will also increase. Thus the niche market of chemicals ships will keep relatively high level of prosperity in the future. Shanghai Company will make good use of its advantages such as regional economy, overseas marketing networks, financing channels and the base of ship design and building, etc. And it will transform itself from dealership or trader toward serving the ship-owners, by providing integrated solution during ship projects.
To Shanghai Company, air separation plant trade is one of the target areas with regards to its complete equipments business expansion. With the rapid development of chemical and industrial gas industries, the market need for air separation plants keeps a steady growth. Thus the air separation plant manufacturing industry should enjoy a promising prospect. At present, as subsidiary of Shanghai Company, Hangzhou Company is operating the air separation plant business using EPC project mode. Hangzhou Company is accumulating experiences in the industrial gas industry now, and in the future it will consider apply BOT mode (either export or domestic), which can provide stable return with relatively low risk. Also, it will transfer its business model from selling unit to directly providing gas to customs, offering complete gas solutions.
The conventional trade business of bulk goods is the traditional advantage of Shanghai Company, occupying a relatively high percentage of the total revenue. In the first half of 2011, China’s import and export business kept a strong growth, with the total trade volume rising by 25.8% on a year-on-year basis. Shanghai Company will continue to leverage on its advantages of being located in Shanghai and the Delta of Yangtze River, the integration of industry and trade, and the advantage of Aviation Industry Corporation of China so as to maintain a strong presences in conventional trade business of bulk goods which are represented by cashmere and auto-maintenance products, etc. In the future, with the transfer of business focus, the percentage of conventional trading business may gradually fall. Shipbuilding and complete equipment will become the core business. Despite of that, the conventional trade business will still be long-standing as a profit stabilizer.
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(VII) Management’s Discussion and Analysis of Chengdu Ya Guang Electronic Company Limited (“Chengdu Ya Guang”)
Business overview
Chengdu Ya Guang is a professional developer and manufacturer of general small signal/switching transistors (通用小信號╱開關三極管), microwave diodes (微 波二極管), microwave hybrid integrated circuits/microwave detectors (微波混合集 成電路╱微波探測器) and its products include all solid-state microwave circuits (固 態微波電路) in microwave system except antenna. It cooperates with all the domestic producers of military complete machine (軍工整機) on its main products. During the reporting period, Chengdu Ya Guang, with its expanding business size, the asset and revenue showed an increasing trend year by year. Except Chengdu Xin Hua Xin Chemical Engineering Material Company (成都欣華欣化工材料有限公司, “Xin Hua Xin Chemical”), a subsidiary, which was affected by the fluctuations of international crude oil prices in 2010, the overall net profit of Chengdu Ya Guang increased rapidly.
Revenue
The revenue of Chengdu Ya Guang in 2009 was RMB2,101,279,000, significantly up by 83.64% over the previous year (2008: RMB1,144,245,000), mainly due to the revenue rise of the subsidiary, Xin Hua Xin Chemical, from RMB1,117,678,000 in 2008 to RMB1,780,843,000. Xin Hua Xin Chemical’s rapid income growth in 2009 could be attributed to the acquisition of Sichuan Jing Yan Trading Company Limited (四川荊燕貿易有限公司, “Sichuan Jing Yan”) in May 2008, which engaged in the domestic sales of chemical materials. However, only the revenue of the second half year after the acquisition of Sichuan Jingyan was consolidated in 2008 while the entire revenue of 2009 of Sichuan Jingyan was consolidated. Moreover, the revenue of Sichuan Jingyan rose from RMB254,768,000 in 2008 to RMB428,587,000 in 2009. The revenue of Chengdu Ya Guang in 2010 was RMB3,998,504,000, substantially up by 90.29% over 2009, mainly due to, on one hand, Chengdu Ya Guang strengthened the co-operation with major customers, and on the other hand, the subsidiary Xin Hua Xin Chemical actively expanded market share to bring its revenue up to RMB3,176,846,938.
From 1 January to 30 June 2011, Chengdu Ya Guang’s revenue reached RMB3,743,449,000, realizing a significant increase of 121.40% over the same period of the previous year (from 1 January to 30 June 2010: RMB1,690,806,000), mainly attributed to the steady revenue increase of Chengdu Ya Guang’s headquarter, and the speedy growth period of Xin Hua Xin Chemical. In addition, Xin Hua Xin Chemical established the Hong Kong Ya Guang Trade Investment Company Limited (香港亞光貿易有限公司) in May 2010. Hong Kong Ya Guang, which is mainly responsible for the development of the Southeast Asian market, got on the right track in 2011, and achieved a revenue of RMB355,477,000 from January to June in 2011.
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Cost of sales
The cost of sales of Chengdu Ya Guang in 2009 was RMB1,868,742,000, representing a significant increase of 85.96% over the previous year (2008: RMB1,004,909,000), consistent with the revenue growth. The cost of sales of Chengdu Ya Guang in 2010 was RMB3,825,040,000, significantly increased by 104.69% over the previous year and slightly higher than the revenue growth, mainly attributed to the increasing fluctuations of world crude oil price in the second half of 2010, which raised the cost of sales of Xin Hua Xin Chemical that engaged in chemical material trade.
From 1 January to 30 June 2011, the cost of sales was RMB3,656,765,000, up by 127.03% over the same period of the previous year (1 January to 30 June 2010: RMB1,610,699,000), consistent with the income growth. In addition, the raise of the minimum level of wage and provision of housing fund in Chengdu area (from 6% to 9%) also led to the increase of the labor cost.
Other income
During the reporting period, the other income of Chengdu Ya Guang included government subsidies, rental income, rendering of service, and gains on sales of material.
Other income of Chengdu Ya Guang in 2008, 2009 and 2010 amounted to RMB23,527,000, RMB22,597,000 and RMB19,314,000 respectively. Other income accounted for a smaller proportion of sales income, i.e., 2.06%, 1.08% and 0.48% in these three years respectively. Other income decreased rapidly in 2010, mainly because Chengdu Ya Guang converted several projects under construction to fixed assets in 2010; consequently the amortization of government subsidies got reduced from RMB19,108,000 of 2008 and RMB20,201,000 of 2009 to RMB17,023,000 of 2010.
From 1 January to 30 June 2010 and from 1 January to 30 June 2011, the other income of Chengdu Ya Guang was RMB6,947,000 and RMB3,000,000 respectively, accounting for 0.41% and 0.08%, of the revenue in the same period. The decline of the other income could be attributed to, on one hand, the sales growth, which was higher than the growth rate of other income, and one the other hand, the decrease of government subsidies by RMB4,348,000.
Other gains/(losses), net
During the reporting period, the other gains/(losses) - net of Chengdu Ya Guang includes waiver of debt, gain/(loss) on disposal of property, plant and equipment, gains on disposal of subsidiary/associates compensation income, etc.
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The other net gains of Chengdu Ya Guang in 2008, 2009 and 2010 were RMB3,724,000, RMB3,257,000 and RMB451,000, accounting for 0.33%, 0.16% and 0.01%, respectively, of the revenue of the same period. The other gains/(losses), net declined year by year because, in 2008 the headquarter of Chengdu Ya Guang reached an agreement with its creditors to exempt from the debt of RMB2,728,000, therefore it recognized the debt not to be paid as the operating income. Moreover, in 2009, Xin Hua Xin Chemical, due to the quality problem of a batch of products, received the compensation of RMB1,700,000 from its supplier, and Shenzhen Ya Guang, a subsidiary of Chengdu Ya Guang, obtained the proceeds of RMB1,643,000, from the disposal of some subsidiaries.
From 1 January to 30 June 2010 and from 1 January to 30 June 2011, the other gains net of Chengdu Ya Guang were RMB396,000 and RMB0, accounting for 0.02% and 0% of total revenue of the same period. The year on year decline was mainly because, from 1 January to 30 June 2010 Chengdu Ya Guang received RMB332,000 from the disposal of associated companies, Hunan Rui Yuan Petrochemical Company Limit (湖南瑞源石化股份有限公司) and Chengdu Xin Hua Xin Import Export Trading Company Limited (成都市欣亞欣進出口貿易有限公司).
Selling and distribution expenses
During the reporting period, the selling and distribution expenses of Chengdu Ya Guang include depreciation expense, transportation cost, travel expenses, advertising costs, employee benefit expenses and so on.
The selling and distribution expenses of Chengdu Ya Guang in 2009 were RMB36,306,000, increased by 22.59% over the previous year (2008: RMB29,615,000). This was mainly due to the rapid rise of employee benefit expenses and transportation costs, from RMB8,397,000 and RMB5,168,000, respectively in 2008 to RMB9,924,000 and RMB6,074,000 in 2009. The selling and distribution expenses in 2010 were RMB41,997,000, up by 15.68% over the previous year, mainly due to the rise of employee benefit expenses and transportation costs.
From 1 January to 30 June 2011, the selling and distribution expenses were RMB24,426,000, significantly increased by 45.62% year on year (1 January to 30 June 2010: RMB16,774,000), mainly due to the increase of the employee benefit expenses from RMB3,738,000 to RMB9,433,000.
Administrative expenses
During the reporting period, the administrative expenses of Chengdu Ya Guang mainly included asset impairment losses, employee benefit expenses, depreciation and amortization expenses, office expenses, travel expenses, maintenance expenses and the bank charges.
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The administrative expenses of Chengdu Ya Guang in 2009 were RMB81,943,000, increased by 33.23% over the previous year (2008: RMB61,507,000); this was mainly due to the increase of business entertainment and travel resulting from group expansion and performance enhancement as well as the increase of R&D expenses for technology improvement projects. The administrative expenses in 2010 were RMB69,034,000, decreased by 15.75% over the previous year, mainly because the headquarter of Chengdu Ya Guang strengthened the reconciliation and collection of accounts receivable, therefore the loss from bad debt of accounts receivable drastically plunged from RMB10,484,000 in 2009 to RMB1,435,000.
From 1 January to 30 June 2011, the administrative expenses were RMB35,831,000, down by 31.51% over the same period of the previous year (1 January to 30 June 2010: RMB52,318,000), accounting for 0.96% of revenue, lower than 3.09% of the same period in the previous year, this was mainly because Chengdu Ya Guang strengthened the control over the collection, distribution and storage of inventory in 2011, therefore the inventory impairment loss decreased by RMB27,320,000 over the same period of the previous year.
Finance costs, net
The net finance costs refers to the difference between finance cost and income. During the reporting period, the finance cost of Chengdu Ya Guang mainly came from the interest on bank borrowings, net foreign exchange gains/(losses), interest on discounted bills, retirement benefit obligations interest cost, etc. The financial income of Chengdu Ya Guang mainly came from interest income on bank deposits.
The net finance cost in 2009 was RMB2,184,000, substantially decreased by 75.46% over the previous year (2008: RMB8,900,000), mainly due to the decrease of bank interest charges from RMB12,221,000 to RMB7,217,000 contrary to the increase of interest income on bank deposits from RMB5,081,000 to RMB5,903,000; in addition, Xin Hua Xin Chemical obtained foreign exchange gains of RMB944,000 by using forward foreign exchange settlement method. In 2010, bank interest charges of Chengdu Ya Guang in 2010 substantially increased by RMB19,740,000, but due to the continual appreciation of RMB against USD, Xin Hua Xin Chemical obtained exchange gains through the forward settlement method of exchange by RMB32,859,000, and the income of interest on bank deposits of Chengdu Ya Guang increased by RMB12,273,000, therefore the net financial income of the year was RMB22,848,000.
The net finance cost of Chengdu Ya Guang from 1 January to 30 June 2010 was RMB3,301,000, while the net financial income from January 1 January to 30 June 2011 was RMB48,554,000.
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Income tax
In 2008, 2009, 2010 and the first six months of 2011, the headquarter of Chengdu Ya Guang, eligible for western region tax incentives, adopted the tax rate of 15%; for the subsidiary incorporated in Hong Kong, adopted an tax rate of 16.5%; the subsidiaries in Shenzhen Special Economic Zone adopted an tax rate of 18%, 20%, 22% and 24% respectively for the four years. The weighted average tax rates of Chengdu Ya Guang as a whole were 15%, 21%, 20% and 21% respectively.
Gross profit and net profit
Six months ended Year ended as of December 31, as of June 30, 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Revenue 1,144,245 2,101,279 3,998,504 1,690,806 3,743,449 Gross profit 139,336 232,537 173,464 80,107 86,684 Gross profit margin 12.18% 11.07% 4.34% 4.74% 2.32% Operating profit 75,465 140,142 82,198 18,358 29,427 Profit before income tax 67,370 139,584 108,143 16,364 80,643 Net profit attributable to parent company 57,728 85,888 77,684 19,826 47,961 Net profit margin 5.05% 4.09% 1.94% 1.17% 1.28%
Gross profit margin
The gross profit of Chengdu Ya Guang in 2009 was RMB232,537,000, realizing a significant increase by 66.89% over the previous year (2008: RMB139,336,000) and the gross margin was 11.07%, a slight decline compared with 12.18% of the previous year. The gross profit in 2010 was RMB173,464,000, reducing by 25.40% over the previous year and hence the gross margin dropped to 4.34%, was mainly because the increase in the cost of sales of Xin Hua Xin Chemical, due to the global oil price fluctuations in 2010, was greater than the revenue growth.
From 1 January to 30 June 2011, the gross profit of Chengdu Ya Guang was RMB86,684,000, increasing by 8.21% over the previous year (from 1 January to 30 June 2010: RMB80,107,000), while the gross margin dropped down to 2.32% from 4.74% of the last year, mainly because the labor costs increased after Chengdu raised the minimum wage and the provision of housing fund in 2011 for employees.
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Net profit margin
The net profit attributable to the parent company in 2009 was RMB85,888,000, representing a significant increase of 48.78% over the previous year (2008: RMB57,728,000). This was because, on one hand, strong sales of Chengdu Ya Guang’s headquarter’s and Xin Hua Xin Chemical drove profit up, and on the other hand, Xin Hua Xin Chemical integrated the resources of Sichuan Jingyan acquired in the second half of 2008 and achieved profit in 2009 (Sichuan Jingyan lost RMB22,331,000 in 2008 and made a profit of RMB27,047,000 in 2009); but the net profit rate, 4.09%, was lower than 5.05% of the previous year, which was mainly because of the lower profitability of the chemicals trading business operated by Xin Hua Xin Chemical which accounted for an increasing proportion of the total revenue. The net profit attributable to the parent company in 2010 was RMB77,684,000, representing a slight decrease of 9.55% over the previous year, which was mainly because Xin Hua Xin Chemical suffered occasional losses resulting from the fluctuations of the global crude oil prices; the net profit margin continued to drop to 1.94%, mainly due to the temporary losses of Xin Hua Xin Chemical which represented an increasing part of total revenue.
From 1 January to 30 June 2011, the net profit attributable to the parent company was RMB47,961,000, representing a significant increase of 141.91% over the same period of last year (from 1 January to 30 June 2010: RMB19,826,000), this is mainly because the sales in 2011 increased by 121.40% over the same period of last year; the net profit margin of the period rose back to 1.28% from 1.17%, which was mainly because the administrative expense and the finance costs in 2011 decreased over the same period last year, offsetting the impact of the decline in gross profit margin on the net profit margin.
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Segment Analysis
The operating income and profits of Chengdu Ya Guang mainly came from the manufacture and sales of electronic products, the trading of chemical materials and the others. During the reporting period, the sales of chemical raw materials accounted for a rapidly rising proportion of revenue, which was mainly due to the growing market share of Xin Hua Xin Chemical. A segment analysis of Chengdu Ya Guang’s revenue and corresponding costs per products is made as follows:
Six months ended Yearendedasof31December as of 30 June 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Revenue Manufacturing and sale of Electronic Products 257,365 278,113 363,555 166,447 171,235 Trading of Chemical materials 813,533 1,776,860 3,503,888 1,504,662 3,466,508 Other 73,347 46,306 131,061 19,697 105,706
Total 1,144,245 2,101,279 3,998,504 1,690,806 3,743,449
Cost of sales Electronic Products –156,130 –163,523 –255,867 –116,051 –117,629 Chemicals –784,530 –1,666,628 –3,459,525 –1,479,283 –3,441,741 Other –64,249 –38,591 –109,648 –15,365 –97,395
Total –1,004,909 –1,868,742 –3,825,040 –1,610,699 –3,656,765
Gross profit Electronic Products 101,235 114,590 107,688 50,396 53,606 Chemicals 29,003 110,232 44,363 25,379 24,767 Other 9,098 7,715 21,413 4,332 8,311
Total 139,336 232,537 173,464 80,107 86,684
Gross profit margin Electronic Products 39.34% 41.20% 29.62% 30.28% 31.31% Chemicals 3.57% 6.20% 1.27% 1.69% 0.71% Other 12.40% 16.66% 16.34% 21.99% 7.86% Total 12.18% 11.07% 4.34% 4.74% 2.32%
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Liquidity, financial resources and capital structure
December December December June 30, 31, 2008 31, 2009 31, 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Total Borrowings 30,000 328,496 1,151,063 2,607,456 Less: Cash and cash equivalents 310,983 226,615 177,708 184,652
Net debt –280,983 101,881 973,355 2,422,804 Total liabilities 749,941 1,209,436 2,726,821 4,353,060
Total equity 847,143 920,055 952,146 973,858 Total capital 566,160 1,021,936 1,925,501 3,396,662 Total assets 1,597,084 2,129,491 3,678,967 5,326,918
Gearing Ratio –49.63% 9.97% 50.55% 71.33% Asset-liability ratio 46.96% 56.79% 74.12% 81.72%
Gearing Ratio= Net debt/total capital
Asset-liability ratio = total liabilities/total assets
Borrowing and borrowing costs
During the reporting period, the borrowings of Chengdu Ya Guang were totally composed of short-term bank borrowings (1 year or less). As of December 31, 2009, the balance was RMB328,496,000, nearly 11 times of that of the previous year (2008: RMB30,000,000). This was mainly because Xin Hua Xin Chemical started to use the forward settlement of exchange in 2009. Namely, Xin Hua Xin Chemical reaches an agreement with the bank that the banks pay for the goods for Xin Hua Xin Chemical in foreign currency, then Xin Hua Xin Chemical repays the bank at the exchange rate agreed between the two parties in the agreed period. Since such arrangement requires Xin Hua Xin Chemical to provide deposit as guarantee, related borrowings are classified as secured borrowings which grow with the growth of business volume of Xin Hua Xin Chemical. As of December 31, 2010, the total borrowings balance was RMB1,151,063,000, up by 250.40% over the previous year, and this was mainly because the secured borrowings forward from forward settlement of exchange rose to RMB1,033,991,000. As of June 30 2011, the total borrowings balance was RMB2,607,456,000, up by 126.53% over the previous year, and this was mainly because the secured borrowings forward from forward settlement of exchange rose to RMB2,406,210,000.
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In 2008, 2009, 2010 and the first six months of 2011, the effective annual interest rate of short-term borrowings of Chengdu Ya Guang were 7.13%, 4.86%, 4.77% and 6.68% respectively.
Inventory
During the reporting period, the inventory of Chengdu Ya Guang was mainly composed of raw material, work in process and finished goods.
As of December 31, 2009, the inventory amounted to RMB417,741,000, representing a substantial increase of 89.91% over the previous year (2008: RMB219,970,000), and this was mainly due to the inventory of Xin Hua Xin Chemical that increased along with the business scale in 2009 (as a trading company, its inventory was mainly comprised of finished goods). As of December 31, 2009, the balance of finished goods of Chengdu Ya Guang amounted to RMB352,520,000, increasing by RMB172,194,000 over 2008, of which RMB313,571,000 came from Xin Hua Xin Chemical.
As of December 31, 2010, the inventories amounted to RMB1,022,293,000, increasing by 144.72% over the previous year, and this was mainly due to the increase of purchase volume resulting from the continuous expansion of Xin Hua Xin Chemical’s market share. In 2010 inventory balance increased by RMB604,552,000 over that of 2009. In addition, the fixed assets converted by the headquarter of Chengdu Ya Guang in 2010 from projects under construction amounted to RMB130,084,000. Its production capacity increased, and so did the inventory which increased by RMB18,356,000 over 2009.
As of June 30th, 2011, the inventory balance amounted to RMB846,525,000, down by 17.19% over the last year, which was mainly because the sales of Xin Hua Xin Chemical in the first six months of 2011 reached RMB3,466,508,000, basically equal to the sales of the entire 2010. As a result, the inventory was digested faster.
Receivables and payables
Trade and other receivables
The trade and other receivables of Chengdu Ya Guang mainly include trade receivables, prepayment to suppliers, notes receivable and other receivables.
As of December 31, 2009, the balance of trade and other receivables amounted to RMB594,731,000, increasing by 13.36% over the previous year (2008: RMB524,639,000), and this was mainly because, as the sales revenue grew in 2009, the trade receivables increased by RMB41,995,000 in 2008, and due to the growth of purchase, the prepayments to suppliers increased by RMB28,419,000. As of December 31, 2010, the balance of trade and other receivables amounted to RMB899,981,000, representing a substantial increase of 51.33% over the previous year, and this was mainly due to the increase of sales revenue in 2010 by 90.29% over
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2009, as a result of which the trade receivables generates by the sales increased by RMB263,176,000 over 2009, and the prepayments to suppliers generated by the purchase increased by RMB36,850,000.
As of 30 June 2011, the balance of trade and other receivables amounted to RMB1,334,417,000, representing a substantial increase of 48.27% over the previous year, and this was mainly because the revenue in first six months of 2011 reached RMB3,743,449,000, basically equal to the sales of the entire year of 2010, since sales was not immediately collectable, the trade receivables grew accordingly.
Trade and other payables
Trade and other payables were mainly consisted of trade payables, bills payable, advances from customers, accrued payroll and other payments.
As of 31 December 2009, the balance of trade and other amounts were RMB690,711,000 increasing by 30.00% over the previous year (2008: RMB531,330,000), and this was mainly because of the significant increase in the purchase by Xin Hua Xin Chemical, which caused the trade payables increased by RMB236,112,000. As of 31 December 2010, the purchase of Xin Hua Xin Chemical continued to increase and the trade payable correspondingly increased by RMB667,566,000 over 2009, and consequentially, the balance of trade and other payables of Chengdu Ya Guang rose to RMB1,407,919,000, representing a substantial increase by 103.84% over the previous year.
As of 30 June 2011, the balance of trade and other amounts were RMB1,587,036,000, up by 12.72% over the previous year, and this was mainly due to the increase in trade payables resulting from the increase of purchase. Since Chengdu Ya Guang started to pay with notes in 2011, as of 30 June 2011, the balance of notes payable increased by RMB97,515,000 or by 97.15% over 2010.
Investment in associated companies
In 2007, Chengdu Ya Guang invested in Xi’an Starwave Communications Equipment Company Limited (西安達威通信設備有限公司) and held 39.91% of equity interest, the initial investment cost was USD 2,710,000. Chengdu Ya Guang added investment of USD 154,428 in 2007, and as of 30 June 2011, Chengdu Ya Guang held 62.65% of equity interest. Because of the continuous loss of Xi’an Starwave Communications Equipment Company Limited which was up for liquidation, Chengdu Ya Guang made full provision for impairment of its investment in 2008, and the net book value of the investment was RMB0. Since 2008, the share of profit has been RMB0.
– VI-64 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
In 2007, Chengdu Ya Guang invested into the associate, Hebi Starwave Communications Equipment Company Limited (鶴壁達威通信設備有限公司) and held 39.91% of equity interest. The initial investment cost was USD 1,852,000, and USD 1,055,250 was added in 2007, so as of 30 June 2011 Chengdu Ya Guang held 62.65% of equity interest. Because of the continuous loss of Hebi Starwave Communications Equipment Company Limited which was up for liquidation, Chengdu Ya Guang made full provision for impairment of its investment in 2008, and the net book value of the investment was RMB0. Since 2008, the share of profit has been RMB0.
In 2010, Chengdu Ya Guang invested into the associate Chengdu Hua Guang Rui Xin Microelectronics Company Limited (成都華光瑞芯微電子股份有限公司) and held 50% of equity interest. The initial investment cost was RMB5,590,339. As of 30 June 2011 Chengdu Ya Guang held 50% of equity interest, and the net book value of the investment was RMB5,590,339. In 2008, 2009, and 2010, the shared profits of the associate were RMB0, RMB0, and RMB590,500, and the shared loss in the first six months of 2011 was RMB155,500.
In 2011, Chengdu Ya Guang invested into the associate Chengdu Xin Hua Xin Logistics Company Limited (成都欣華欣物流有限公司) and held 50% of equity interest. The initial investment cost was RMB5,000,000. As of 30 June 2011, Chengdu Ya Guang held 50% of equity interest, and the net book value of the investment was RMB5,000,000. Since 2008, the share of profit has been RMB0.
In 2010, Chengdu Ya Guang invested into the associate Chengdu Xin Hua Xin Petrochemical Company Limited (成都欣華欣石化股份有限公司) and held 50% of equity interest. The initial investment cost was RMB50,000,000. As of 30 June 2011, Chengdu Ya Guang held 50% of equity interest, and the net book value of the investment was RMB50,000,000. From 2008 to 2010, the share of profit was RMB0, and in the first six months of 2011 the share of profit was RMB280,500.
In 2006, Chengdu Ya Guang invested into the associate Chengdu Ya Guang Mechanical and Electrical Equipment Company Limited (成都亞光機電設備製造有限 公司) and held 49% of equity interest. The initial investment cost was RMB147,000 in 2008, and the shared loss of the associate was RMB18,130. As of 30 June 2011 Chengdu Ya Guang held 49% of equity interest. As Chengdu Ya Guang Mechanical and Electrical Equipment Company Limited was in liquidation, Chengdu Ya Guang made full provision for impairment of its investment in 2009 and the net book value of the investment was RMB0. Since 2009, the share of profit has been RMB0.
– VI-65 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Commitments
The capital commitments of Chengdu Ya Guang but not incurred are as follows:
As of December 31, As of June 30, 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Property, plant and equipment 3,530 23,257 18,440 9,240
The future aggregate minimum lease expense under non-cancellable operating leases of Chengdu Ya Guang is payable as follows:
As of December 31, As of June 30, 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 No later than 1 year 1,222 809 1,464 548 1-5 years 2,034 2,096 3,293 1,488 Above 5 years 85000
Total 3,341 2,905 4,757 2,036
Pledged assets
As of the end of 2008, 2009, 2010 and June 2011, Chengdu Ya Guang held RMB86,653,000, RMB396,736,000, RMB1,035,269,000 and RMB2,410,611,000 of bank deposits in pledge for short-term bank borrowings, bank notes and letters of credit.
Capital expenditure
During the reporting period, the capital expenditure of Chengdu Ya Guang was as follows:
The year ended The six months ended as of December 31, as of June 30, 2008 2009 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000
Land use right 4,037 0 0 0 Property, plant and equipment 10,196 7,861 9,204 2,664
Total 14,233 7,861 9,204 2,664
– VI-66 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
During the reporting period, the major capital expenditure of Chengdu Ya Guang included:
1. The expenditure in land use rights in 2008 totaled RMB4,037,000, arising from an investment made by the subsidiary Chengdu Ya Guang Investment Management Company Limited (成都亞光投資管理有限公 司) into the construction of west area. The tenure of this land use right is 50 years.
2. The expenditure in Property, plant and equipment in 2008 totaled RMB, 10,196,000, of which RMB4,770,604 was the investment made by the headquarter of Chengdu Ya Guang into the purchase of equipment, and the rest by Chengdu Ya Guang Investment Management Company Limited into the building construction of west area and the purchase of equipment.
3. The expenditure in property, plant and equipment in 2009 and 2010 were RMB7,861,000 and 9,204,000, mainly spent by Chengdu Ya Guang into technological transformation projects.
The main sources of the above capital expenditure are own funds and government subsidies.
Material investments, acquisitions and disposals
During the reporting period, the material investments, acquisitions and disposals made by Chengdu Ya Guang were as follow:
Before 2009, Chengdu Ya Guang held 25% equity of Hunan Rui Yuan Petrochemical Company Limited (湖南瑞源石化股份有限公司). Chengdu Ya Guang sold 5% equity of Hunan Rui Yuan Petrochemical Company Limited at the price of RMB3,030,000 to a third party in 2009, and as a result recognized RMB30,000 as the gain on the disposal of the associated company. Chengdu Ya Guang sold 20% equity of Hunan Rui Yuan Petrochemical Company Limited at the price of RMB12,240,000 to a third party in 2010, and as a result recognized RMB240,000 as the gain on the disposal of the associated company. In 2008 the associate company made no profit; in 2009, it made a profit of RMB164,000.
Before 2010, Chengdu Ya Guang held 40% of equity interest in Chengdu Xin Hua Xin Import Export Trading Company Limited (成都市欣亞欣進出口貿易有限公 司). In May 2010, Chengdu Ya Guang sold 40% of equity interest in Chengdu Xin Hua Xin Import Export Trading Company Limited at the price of RMB8,685,000 to a third party and as a result recognized RMB92,000 as the gain on the disposal of the associated company. In 2008, the associate company made RMB2,000 profit; in 2009, it made RMB164,000.
– VI-67 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
Number of employees and their remuneration
During the reporting period, the number of employees and remuneration in Chengdu Ya Guang were as follows:
As of 31 December As of 30 June 2008 2009 2010 2010 2011
Number of employees 1,023 1,021 1,021 1,116 1,080
The six months The year ended 31 December ended 30 June 2008 2009 2010 2010 2011
Employee remuneration expense (RMB’000) 54,868 56,497 72,129 41,846 34,092
The salary of Chengdu Ya Guang’s employees consists of basic salary and performance-based salary, and social security benefits are paid in accordance with the provisions of local social security bureau. In 2008, 2009 and 2010, the average monthly remuneration expense per capita was RMB53,634, RMB55,335 and RMB70,645 respectively, showing an uptrend. From January to June 2011, the average monthly remuneration per capita dropped from RMB6,249 of the same period in the last year to RMB5,261, mainly because Chengdu Ya Guang no longer made provision for social security according to average salary level since 2011. Instead, Chengdu Ya Guang made no provision for social security for employees who did not pay social security expense and made capped provision for employees whose salary are higher than the cap, therefore the average monthly remuneration expense declined.
Business prospects
The “Twelfth Five-year Period” (“十二五”規劃期間) is critical to the development of China’s national defense industry, when a number of breakthroughs with regards to key military components (軍用關鍵元器件) would be made, making the industry catch up with the contemporary world level. During the period, the situation faced by Chengdu Ya Guang will exhibit many new characteristics: firstly, the high-tech represented by electronic information technology will develop at a high speed with innovation constantly emerging; secondly, the development of the international situation and the new war mode give prominence to the use of
– VI-68 – APPENDIX VI MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP
electronic information, providing a spacious scope for development of military electronic components; thirdly, the domestic demand for military electronics will remain at a high level, and the market has great potential; fourthly, the electronic information technology is trending to high-frequency (speed), digitalization, intellectualization, miniaturization and cost-efficiency (高頻（高速）化、數字化、智 能化、小型化和低成本化). Chengdu Ya Guang, fully aware of the opportunities and challenges brought by the changes in situation, has planned key development categories for different business fields such as microwave diode, transistor, microwave circuits and other components.
– VI-69 – APPENDIX VII GENERAL INFORMATION
RESPONSIBILITY STATEMENT
This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.
SHARE CAPITAL
As at the Latest Practicable Date, the registered capital of the Company was as follows:
Number of Shares Amount (RMB)
395,709,091 Domestic Shares 395,709,091 277,657,999 H Shares 277,657,999
673,367,090 673,367,090
All existing H Shares and Domestic Shares in issue rank pari passu in all respects, including all rights as to dividends, voting and capital.
DISCLOSURE OF INTERESTS
Directors, Supervisors and Chief Executives
As at the Latest Practicable Date, so far as was known to the Directors and the chief executives of the Company, none of the Directors or supervisors or chief executives of the Company was interested in any share, underlying share or debenture of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which was required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which and Director, supervisor or chief executive of the Company were taken or deemed to have under such provisions of the SFO) or which was required to be entered into the register maintained by the Company under section 352 of the SFO or which was required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers.
– VII-1 – APPENDIX VII GENERAL INFORMATION
Substantial Shareholders
As at the Latest Practicable Date, so far as was known to the Directors or the chief executives of the Company, the following are the details of the persons (other than the Directors, superiors or chief executives of the Company) who had an interest or short position in the Shares or underlying shares would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group:
Approximate Approximate percentage percentage of the same of total Number and class of registered Name of Shareholder Capacity class of securities securities capital
Substantial Shareholders
Aviation Industry (Note 1) Interest of controlled 395,709,091 Domestic 100% 58.77% corporation Shares AVIC International (Note 2) Interest of controlled 395,709,091 Domestic 100% 58.77% corporation Shares Shenzhen Company Beneficial owner 395,709,091 Domestic 100% 58.77% (Note 3) Shares Other Shareholders
Li Ka-Shing Interest of controlled 29,644,000 H Shares 10.68% 4.40% corporation and (Note 4) founder of discretionary trusts Cheung Kong (Holdings) Interest of controlled 29,644,000 H Shares 10.68% 4.40% Limited corporation (Note 4) Li Ka-Shing Unity Trustee Trustee and 29,644,000 H Shares 10.68% 4.40% Corporation Limited beneficiary of a (Note 4) trust Li Ka-Shing Unity Trustee and 29,644,000 H Shares 10.68% 4.40% Trustcorp Limited beneficiary of a (Note 4) trust Li Ka-Shing Unity Trustee Trustee and 29,644,000 H Shares 10.68% 4.40% Company Limited beneficiary of a (Note 4) trust Cheung Kong Investment Interest of controlled 14,823,000 H Shares 5.34% 2.20% Company Limited corporation (Note 4) Empire Grand Limited Beneficial owner 14,823,000 H Shares 5.34% 2.20% (Note 4)
– VII-2 – APPENDIX VII GENERAL INFORMATION
Approximate Approximate percentage percentage of the same of total Number and class of registered Name of Shareholder Capacity class of securities securities capital
Hutchison International Beneficial owner 14,821,000 H Shares 5.34% 2.20% Limited (Note 4) Hutchison Whampoa Interest of controlled 14,821,000 H Shares 5.34% 2.20% Limited corporation (Note 4) 華銀集團投資發展有限公司 Beneficial owner 17,534,000 H Shares 6.31% 2.60%
Notes:
(1) Aviation Industry owns 62.52% interest in AVIC International, AVIC international owns 100% interest in Shenzhen Company. Hence, Aviation Industry is deemed, or taken to be, interested in all Shares held by Shenzhen Company.
(2) AVIC International owns 100% interest in Shenzhen Company. Hence, AVIC International is deemed, or taken to be, interested in all Shares held by Shenzhen Company.
(3) Mr Wu Guang Quan, an executive Director, is currently the chairman of the board of directors of Shenzhen Company. Mr. You Lei, an executive Director, is currently the general manager of Shenzhen Company.
(4) The above references to 29,644,000 H Shares refer to the same equity interest comprising of:
14,823,000 H Shares held by Empire Grand Limited (“Empire Grand”), which is a wholly-owned subsidiary of Cheung Kong Investment Company Limited, which in turn is a wholly-owned subsidiary of Cheung Kong (Holdings) Limited (“CKH”); and 14,821,000 H Shares held by Hutchison International Limited (“HIL”), which is a wholly-owned subsidiary of Hutchison Whampoa Limited (“HWL”).
Li Ka-Shing Unity Holdings Limited, of which each of Mr. Li Ka-shing, Mr. Li Tzar Kuoi, Victor and Mr.Li Tzar Kai, Richard is interested in one-third of the entire issued share capital, owns the entire issued share capital of Li Ka-Shing Unity Trustee Company Limited (“TUT1”). TUT1 as trustee of The Li Ka-Shing Unity Trust, together with certain companies which TUT1 as trustee of The Li Ka-Shing Unity Trust is entitled to exercise or control the exercise of more than one-third of the voting power at their general meetings, hold more than one-third of the issued share capital of CKH. Certain subsidiaries of CKH are entitled to exercise or control the exercise of more than one-third of the voting power at the general meetings of HWL.
Substantial Shareholders’ Interests in Other Members of the Enlarged Group
Approximate % of equity interest in the Name of shareholders Name of subsidiary subsidiary
AVIC Trust CO., LTD Guangdong International 25% (中航信託股份有限公司) Building Industrial Co., Ltd. (廣東國際大廈實業有限公司)
– VII-3 – APPENDIX VII GENERAL INFORMATION
Approximate % of equity interest in the Name of shareholders Name of subsidiary subsidiary
Shanghai Zhang Jiang Shanghai Tian Ma 20% (Group) Company Limited Microelectronics Co., Ltd. (上海張江（集團）有限公司) (上海天馬微電子有限公司)
Shanghai Industrial (Group) Shanghai Tian Ma 10% Company Limited Microelectronics Co., Ltd. (上海工業（集團）有限公司) (上海天馬微電子有限公司)
Shanghai State-Owned Asset Shanghai Tian Ma 19% Management Company Microelectronics Co., Ltd. Limited (上海國有資產經營 (上海天馬微電子有限公司) 有限公司)
Chengdu Industrial Chengdu Tian Ma 42.8% Investment Group Microelectronics Co., Ltd. Company Limited (成都天馬微電子股份有限公司) (成都工業投資集團 有限公司)
Chengdu Gao Xin Investment Chengdu Tian Ma 27.2% Group Company Limited Microelectronics Co., Ltd. (成都高新投資集團 (成都天馬微電子股份有限公司) 有限公司)
Yunnan Hong Yuan Yunnan Hong Fu Chemical 49% Investment Company Fertilizer Company Limited Limited (雲南紅淵投資 (雲南紅富化肥有限公司) 有限公司)
Zhaoqing City Jin Ye Bi Te Communication 29% Investment Development Company Limited (肇慶市金葉投資發展 有限公司)
Wang Yue (王岳) Bi Te Communication 10%
Chengdu Chuang Xin Risk Chengdu Ya Guang 14.57% Investment Company Limited (成都創新風險 投資公司)
– VII-4 – APPENDIX VII GENERAL INFORMATION
Details of substantial shareholders’ interests in members of the Target Group are set out in the paragraph headed “Information of the Target Group” in the section headed “Letter from the Board” of this circular.
Save as disclosed above and so far as is known to the Directors, as at the Latest Practicable Date, no other person (other than the Directors, the supervisors or chief executives of the Company) had an interest or short position in the Company’s shares or underlying shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or was directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Enlarged Group.
Interests in the Group’s Assets or Contracts or Arrangements Significant to the Enlarged Group
As at the Latest Practicable Date, none of the Directors or supervisors of the Company had any interest in any asset which have been, since 31 December 2010 (being the date to which the latest published audited accounts of the Company were made up), acquired or disposed of by or leased to any member of the Enlarged Group, or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.
As at the Latest Practicable Date, none of the Directors or supervisors of the Company was materially interested in any contract or arrangement subsisting at the Latest Practicable Date and which is significant in relation to the businesses of the Enlarged Group.
Service Contracts
As at the Latest Practicable Date, there was no existing or proposed service contract, excluding contract expiring or determinable by the Enlarged Group within one year without payment of compensation (other than statutory compensation) between any of the Directors or supervisors of the Company and any member of the Enlarged Group.
Competing Interests
As at the Latest Practicable Date, none of the Directors or, so far as is known to them, any of their respective associates was interested in any business (apart from the Enlarged Group’s business) which competes or is likely to compete either directly or indirectly with the Enlarged Group’s businesses (as would be required to be disclosed under Rule 8.10 of the Listing Rules if each of them were a controlling shareholder).
Material Adverse Changes
The Directors confirm that there was no material adverse changes in the financial or trading position of the Enlarged Group since 31 December 2010 (being the date to which the latest published audited accounts of the Company were made up).
– VII-5 – APPENDIX VII GENERAL INFORMATION
Litigation
Shenzhen Rainbow Investment Development Company Limited (a subsidiary of Rainbow Department Store, hereinafter referred to as “Rainbow Investment”) lodged proceedings in 1999 against two related defendants for payments of term deposit amounting to RMB10,000,000 plus any interest so accrued. Upon hearing, the final judgment was delivered as follows: the third party shall repay RMB10, 000,000 to Rainbow Investment plus the interest based on the prevailing deposit rate accrued since 9 January 1998. As for the two defendants, one of them shall bear 20% of the compensation for the default in repayment of the principle by the third party, while the other shall bear the debt settlement obligation jointly with the said defendant. The judgement is currently being executed. Provisions for impairment in doubtful debts of this amount were fully made by Rainbow Department Store before 2004.
On 5 May 2011, AVIC International Guangzhou Company Limited, a target company under the 2010 Acquisition, filed a lawsuit in the Intermediate People’s Court of Guangzhou, claiming for the compensation by the defendant under the Coal Purchase and Sale Agreement entered into by both parties for various direct losses and loss of obtainable profits incurred by AVIC International Guangzhou Company Limited as a result of its misbehaviors, including direct losses amounting to RMB3,333,637.44 and a loss of obtainable profits of RMB7,140,000. The case is currently under first trial.
On 18 November 2011, a lease contract dispute was duly accepted by the Intermediate People’s Court of Changzhou, in which Changzhou Rainbow Shopping Mall Company Limited (hereinafter referred to as “Changzhou Rainbow”), a subsidiary of Rainbow Department Store, as a plaintiff, sued the defendant for failing to lease the related properties to Changzhou Rainbow to carry out the commercial project of operating the department store and relevant ancillary under the Tenancy Contract entered into by both parties. Changzhou Rainbow has terminated the related Tenancy Contract and filed a lawsuit in the Intermediate People’s Court of Changzhou on 4 November 2011.
As at the Latest Practicable Date, the Directors were not aware of any litigation or claim of material importance pending or threatened against any member of the Enlarged Group save as disclosed above.
Material Contracts
The following contracts have been entered into by the Enlarged Group (not being contracts entered into in the ordinary course of business) within the two years preceding the date of this circular:
(i) the agreement entered into between China National Aero-Technology Import & Export Xiamen Corporation (“Xiamen Company”), a target company under the 2010 Acquisition, and Xiamen Century Yanghe Stone Materials Co., Ltd. (廈門世紀陽和石材有限公司) on 23 November 2011, under which both parties agreed on the establishment of AVIC Stone Industry (Xiamen) Co., Ltd. (中航 石業(廈門)股份有限公司) by co-investments, with a registered capital of RMB20,000,000 and its equity interest is owned as to 60% by Xiamen Company and 40% by Xiamen Century Yanghe Stone Materials Co., Ltd. (廈門世紀陽和石 材有限公司);
– VII-6 – APPENDIX VII GENERAL INFORMATION
(ii) the joint venture agreement entered into between Xiamen Company, Fujian Zijin Real Estate Company Limited and Shenzhen CATIC Real Estate Co., Ltd. on 21 November 2011, pursuant to which the parties agreed to co-invest to form Xiamen Zhijin AVIC Real Estate Company Limited (廈門紫金中航置業有 限公司) with a registered capital of RMB250 million, where Fujian Zijin Real Estate Company Limited, Shenzhen CATIC Real Estate Co., Ltd. and Xiamen Company Limited made an injection of RMB125 million, RMB87.50 million and RMB37.50 million, respectively;
(iii) the tenancy contract entered into between Beijing Zhonghang Rixin Management and Investment Company Limited and Beijing Shiao Taida Times Business Services Co. Ltd. (北京世鰲泰達時代商務服務有限公司)on17 November 2011, pursuant to which Beijing Zhonghang Rixin Management and Investment Company Limited leased its property with an area of 1,180.04 sq. m located at Unit 30, 3/F, Nanlangjiayuan, Chaoyang, Beijing (北京市朝陽 區南郎家園18號樓3層30) to Beijing Shiao Taida Times Business Services Co. Ltd. (北京世鰲泰達時代商務服務有限公司), from 1 December 2011 to 30 November 2021, at a monthly rent and property management fee of nil from 1 December 2011 to 31 March 2012, RMB125,625 from 1 April 2012 to 30 November 2014, RMB136,392.9 from 1 December 2014 to 30 November 2017 and RMB147,160.8 from 1 December 2017 to 30 November 2021;
(iv) the Agreements;
(v) the agreement entered into between Xiamen Company, Wang Cheng (王承) and Chu Xingwen (朱星文) on 30 September 2011, pursuant to which the parties agreed to co-invest to form Xiamen Hang Xin Shi Ye Company Limited (廈門航信石業有限公司) with a corporate registered capital of RMB5 million, where RMB2.55 million was injected by Xiamen Company, RMB1.25 million by Wang Cheng and RMB1.25 million by Chu Xingwen;
(vi) the share transfer agreement entered into between Xiamen Company, Xiamen Fu Ming Real Estate Company Limited (廈門富銘置業有限公司) and Beijing Fu Ming Investment Development Company Limited (北京富銘投資 發展有限公司) on 30 September 2011, pursuant to which Beijing Fu Ming Investment Development Company Limited (北京富銘投資發展有限公司) transferred its 30% equity interest in Xiamen Fu Ming Real Estate Company Limited (廈門富銘置業有限公司) to Xiamen Company at a consideration of RMB120 million;
(vii) the share pledge agreement entered into between Shanghai Company and Yangzhou Ding Hang Shipping Consultancy Company Limited (揚州鼎航船舶 諮詢有限公司) on 18 September 2011, pursuant to which Yangzhou Ding Hang Shipping Consultancy Company Limited (揚州鼎航船舶諮詢有限公司) pledged its 6.4240153% equity interest in AVIC Ding Heng Ship Building Company Limited to Shanghai Company from 18 September 2011 to 17 September 2015;
– VII-7 – APPENDIX VII GENERAL INFORMATION
(viii) the share transfer agreement entered into between the Company and Shenzhen Company on 25 August 2011 in relation to the disposal of 60% of the equity interest in Shenzhen Maiwei Cable TV Equipments Co., Ltd. (深圳邁威 有線電視器材有限公司) by the Company to the Shenzhen Company at a consideration of RMB1,520,000;
(ix) the share transfer agreement entered into between China National Aero-Technology Guangzhou Company Limited (中國航空技術廣州有限公司) (“Guangzhou Company”), a target company under the 2010 Acquisition, and AVIC International on 22 June 2011, pursuant to which Guangzhou Company transferred its equity interest valued at RMB1 million in AVIC International Logistics Co., Ltd to AVIC International at a consideration of RMB1,185,700;
(x) the share transfer agreement entered into between Max Gold Ltd. and Shenzhen Aero Fasteners MFG Company Limited (深圳航空標準件有限公司), pursuant to which Max Gold Ltd. transferred its 100% equity interest in Zhuo Yue Fastening Systems (Shanghai) Company Limited (卓越緊固系統（上海）有 限公司) to Shenzhen Aero Fasteners MFG Company Limited at a consideration of RMB32,000,000;
(xi) the share transfer agreement entered into between Shanghai Company and AVIC International on 22 June 2011, pursuant to which Shanghai Company transferred its equity interest valued at RMB75.00 million in AVIC International Logistics Co., Ltd to AVIC International at a consideration of RMB88,488,400;
(xii) the share transfer agreement entered into between CATIC Beijing Company Limited (“Beijing Company”), a target company under the 2010 Acquisition, and AVIC International on 22 June 2011, pursuant to which Beijing Company transferred its equity interest valued at RMB2 million in AVIC International Logistics Co., Ltd to AVIC International at a consideration of RMB2,353,800;
(xiii) the share transfer agreement entered into between Xiamen Company and AVIC International on 22 June 2011, pursuant to which Xiamen Company transferred its equity interest valued at RMB1 million in AVIC International Logistics Co., Ltd to AVIC International at a consideration of RMB1,185,700;
(xiv) the share transfer agreement entered into between AVIC International Trade & Economic Development Ltd. and AVIC International on 22 June 2011, pursuant to which AVIC International Trade & Economic Development Ltd. transferred its 1% equity interest in AVIC International Logistics Co., Ltd to AVIC International at a consideration of RMB1,769,800;
– VII-8 – APPENDIX VII GENERAL INFORMATION
(xv) the entrusted management agreement entered into between Xiamen Tian Ma Microelectronics Co., Ltd. and Shanghai Tian Ma Microelectronics Co., Ltd. on 17 May 2011, pursuant to which Xiamen Tian Ma Microelectronics Co., Ltd. entrusted management of the related matters concerning its project construction and company operation to Shanghai Tian Ma Microelectronics Co., Ltd. at an entrusted fee of RMB30,000,000 for a term commencing from 17 May 2011 and ending on 28 February 2014;
(xvi) the asset and business acquisition agreement entered into between Chain Dragon Asia Limited and Zhuo Yue Metal Products (Huizhou) Company Limited (卓越五金製品（惠州）有限公司) on 5 May 2011, pursuant to which Chain Dragon Asia Limited transferred its fastener business and legally possessed related assets to Zhuo Yue Metal Products (Huizhou) Company Limited (卓越五金製品（惠州）有限公司) at a consideration of RMB16.65 million;
(xvii) the investment collaboration agreement entered into between the Company, China National Aero-Technology International Engineering Corporation Limited (中國航空技術國際工程有限公司), a target company under the 2010 Acquisition, (“CATIC International Engineering”) and Hunan Construction Engineering Group Corporation (湖南省建築工程集團總公司) (hereinafter referred to as “Hunan Construction”) on 22 April 2011, pursuant to which the parties agreed to undertake corporate transformation for Hunan First Engineering Company (湖南省第一工程公司) (hereinafter referred to as “Hunan First Construction”), a wholly-owned subsidiary of Hunan Construction, i.e. Hunan First Construction was to transfer from an enterprise owned by the whole people to a limited liability company, and Hunan Construction was to transfer 51% and 24.5% equity interest in Hunan First Construction to the Company and CATIC International Engineering at a consideration of RMB32,929,578 and RMB15,819,111, respectively;
(xviii) the share transfer agreement entered into between Guangzhou Company and AVIC International New Energy Development Company Limited on 20 April 2011, pursuant to which 100% equity interest in CATIC OCEANIA PTY. LTD. held by Guangzhou Company was transferred to AVIC International New Energy Development Company Limited, at a consideration of AUD203,128.00;
(xix) the agreement entered into between Xiamen Company and Fujian San Ye Group Company Limited (福建三葉集團有限公司) on 22 April 2011, pursuant to which the parties agreed to co-invest to form AVIC San Ye Logistics Investment Company Limited (中航三葉物流投資股份有限公司) with a registered capital of RMB500 million, of which both CATIC Xiamen Company Limited and Fujian San Ye Group Company Limited (福建三葉集團有限公司) made an investment of RMB250 million;
– VII-9 – APPENDIX VII GENERAL INFORMATION
(xx) the entrusted management agreement entered into between Tian Ma Microelectronics Co., Ltd. and Shenzhen CATIC Opto-electronics Limited on 25 February 2011, pursuant to which Shenzhen CATIC Opto-electronics Limited entrusted Tian Ma Microelectronics Co., Ltd. to manage it 70% equity interest in NEC LCD Technologies, Ltd for a term commencing from 25 February 2011 to 24 February 2012 at a management fee of RBM1 million;
(xxi) the joint venture agreement entered into between Shenzhen Company, Xiamen Company, Xiamen Jincai Investment Company (廈門金財投資有限公 司) and AVIC International on 20 February 2011 in respect of the 5.5 generation of LTPS TFT-LCD and CF production lines project, pursuant to which the parties agreed to co-invest to form Xiamen Tian Ma Microelectronics Co., Ltd. with registered capital of RMB2.8 billion, of which Shenzhen Company, CATIC Xiamen Company Limited, Xiamen Jincai Investment Company (廈門 金財投資有限公司) and AVIC International made an injection of RMB428.4 million, RMB168 million, RMB1.992 billion and RMB411.6 million, respectively;
(xxii) the acquisition agreement entered into between the Company and AVIC International on 30 November 2010 in relation to the acquisition of 100% equity interest in Beijing Company, 100% equity interest in Guangzhou Company, 100% equity interest in Xiamen Company, 97.5% equity interest in CATIC International Trade and Economic Development Ltd (中航技術國際經 貿發展有限公司), 100% equity interest in China National Aero-Technology International Engineering Corporation Limited (中國航空技術國際工程公司) and 40% equity interest in AVIC International Vanke Company Limited (中航 萬科有限公司) (“AVIC Vanke”) by the Company from AVIC International at a consideration not exceeding RMB3,264,332,390;
(xxiii)the acquisition agreement entered into between the Company and Shenzhen Company on 30 November 2010 in relation to the acquisition of 100% equity interest in Shenzhen Aero Fasteners MFG Company Limited (深圳航空標準件 有限公司) by the Company from Shenzhen Company at a consideration not exceeding RMB119,014,910;
– VII-10 – APPENDIX VII GENERAL INFORMATION
(xxiv) the acquisition agreement entered into between the Company and Beijing Raise Science Company Limited (北京瑞賽科技有限公司) (“Beijing Raise”) on 30 November 2010 in relation to the acquisition of 20% equity interest in AVIC Vanke, 90% equity interest in Beijing Zhonghang Rixin Management and Investment Company Limited (北京中航瑞信投資管理有限責任公司), 60% equity interest in Chengdu AVIC Raise Real Estate Company Limited (成都中 航瑞賽置業有限公司), 40% equity interest in Wuxi AVIC Raise Real Estate Company Limited (無錫中航瑞賽置業有限公司) (“Wuxi Raise”), 50% equity interest in Shenyang AVIC Raise Industry Company Limited (瀋陽中航產業發展 有限公司) and 51% equity interest in Xi’an AVIC Raise Xi Kong Real Estate Company Limited (西安中航瑞賽西控置業有限公司) by the Company from Beijing Raise at a consideration not exceeding RMB1,182,822,947;
(xxv) the cooperation agreement entered into between Xiamen CATIC Medical Machinery Company Limited, a wholly-owned subsidiary of Xiamen Company, and Fuzhou Kaizelin Trading Company Limited (褔州凱澤林經貿有 限公司) on 8 November 2010 in relation to the establishment of a joint venture company in the PRC with a registered capital of RMB3,000,000;
(xxvi) the agreement entered into between AVIC Vanke and Jiangxi Jiangnan Trust Company Limited on 30 September 2010, pursuant to which AVIC Vanke acknowledged (1) the transfer of 85% of the equity interest in Shanghai Chongwan Real Estate Company Limited (上海重萬置業有限公司) (“Shanghai Chongwan”) and the right to 85% of the shareholders’ loan owing from Shanghai Chongwan from Shanghai Vanke Real Estate Company Limited (上 海萬科房地產有限公司) to Jiangxi Jiangnan Trust Company Limited, and AVIC Vanke agreed to acquire the said interest in Shanghai Chongwan from Jiangxi Jiangnan Trust Company Limited at a consideration and at a time to be agreed; and (2) the transfer of 85% of the equity interest in Guangzhou Yinye Junrui Real Estate Development Company Limited (廣州銀業君瑞房地產開發有限公司) (“Guangzhou Yinye”) and the right to 85% of the shareholders’ loan owing from Guangzhou Yinye from Guangzhou City Vanke Real Estate Company Limited (廣州市萬科地產有限公司) to Jiangxi Jiangnan Trust Company Limited, and AVIC Vanke agreed to acquire the said interest in Guangzhou Yinye from Jiangxi Jiangnan Trust Company Limited at a consideration and at a time to be agreed;
(xxvii) the capital increase agreement entered into between Shenzhen CATIC Resources Company Limited (深圳中航資源有限公司), a wholly-owned subsidiary of the Company, Yunnan Hongyuan Investment Company Limited (雲南紅淵投資有限公司), and Yunnan Hongfu Chemical Fertilizer Company Limited (雲南紅富化肥有限公司) on 14 September 2010, pursuant to which Shenzhen CATIC Resources Company Limited agreed to make a capital contribution in the amount of RMB114,489,795.90 in cash to the registered capital and the capital reserve of Yunnan Hongfu Chemical Fertilizer Company Limited;
– VII-11 – APPENDIX VII GENERAL INFORMATION
(xxviii) the agreement entered into among AVIC Vanke, Jiangxi Jiangnan Trust Company Limited, Foshan City Vanke Real Estate Limited on 10 June 2010, pursuant to which AVIC Vanke agreed Foshan City Vanke Real Estate Limited to transfer 84.864% of the equity interest in Foshan City Shunde District AVIC Vanke Real Estate Limited held by it on trust for AVIC Vanke to Jiangxi Jiangnan Trust Company Limited at a consideration of RMB499,200,000 and AVIC Vanke agreed to acquire the said 84.864% of the equity interest in Foshan City Shunde District AVIC Vanke Real Estate Limited from Jiangxi Jiangnan Trust Company Limited at a consideration and at a time to be agreed;
(xxix) the agreement entered into between Shenzhen CATIC Resources Company Limited (深圳中航資源有限公司), a wholly-owned subsidiary of the Company, and Guodian Guizhou Electric Company Limited (國電貴州電力有限公司)on 26 May 2010, pursuant to which Shenzhen CATIC Resources Company Limited (深圳中航資源有限公司) agreed to transfer 67% interest of Xiao Jia Wan Coal Company Limited (貴州普定肖家灣煤業有限公司) to Guodian Guizhou Electric Company Limited (國電貴州電力有限公司) for a consideration of RMB50,095,200;
(xxx) the guarantee agreement entered into between Guodian Guizhou Electric Company Limited (國電貴州電力有限公司) and Guodian Anshun Electric Company Limited (國電安順發電有限公司) on 26 May 2010 in favour of CATIC Resources Company Limited (深圳中航資源有限公司), a wholly-owned subsidiary of the Company, in relation to the agreement referred to in paragraph (xxix) above;
(xxxi)the guarantee agreement entered into between Guodian Guizhou Electric Company Limited (國電貴州電力有限公司) and Guodian Anshun Electric Company Limited (國電安順發電有限公司) on 26 May 2010 in favour of CATIC Resources Company Limited (深圳中航資源有限公司), a wholly-owned subsidiary of the Company, in relation to the payment of the outstanding registered capital of Xiao Jia Wan Coal Company Limited (貴州普定肖家灣煤業 有限公司) under the agreement referred to in paragraph (xxix) above;
(xxxii) the agreement entered into between Shenzhen CATIC Resources Company Limited (深圳中航資源有限公司), a wholly-owned subsidiary of the Company, and Guodian Guizhou Electric Company Limited (國電貴州電力有限公司)on 26 May 2010, pursuant to which Shenzhen CATIC Resources Company Limited (深圳中航資源有限公司) agreed to transfer 67% interest of Guizhou Liu Zhi An Jia Zhai Coal Company Limited (貴州六枝安家寨煤業有限公司)to Guodian Guizhou Electric Company Limited (國電貴州電力有限公司) for a consideration of RMB124,504,600;
– VII-12 – APPENDIX VII GENERAL INFORMATION
(xxxiii) the guarantee agreement entered into between Guodian Guizhou Electric Company Limited (國電貴州電力有限公司) and Guodian Anshun Electric Company Limited (國電安順發電有限公司) on 26 May 2010 in favour of CATIC Resources Company Limited (深圳中航資源有限公司), a wholly-owned subsidiary of the Company, in relation to the agreement referred to in paragraph (xxxii) above;
(xxxiv) the subscription agreement entered into between the Company and Shenzhen Fiyta Holdings Limited (深圳市飛亞達（集團）股份有限公司), a non-wholly owned subsidiary of the Company, on 12 April 2010, pursuant to which the Company conditionally agreed to subscribe for the new shares at a total subscription amount of RMB80,000,000;
(xxxv) the share transfer agreement entered into between Wuxi Raise and Beijing Raise on 1 March 2010, pursuant to which Wuxi Raise agreed to transfer 35% of the equity interest in Suzhou AVIC Construction Development Company Limited at a consideration of RMB7,397,845;
(xxxvi) the share transfer agreement entered into between Wuxi Raise and Suzhou Chang Feng Company Limited on 1 March 2010, pursuant to which Wuxi Raise agreed to transfer 20% of the equity interest in Suzhou AVIC Construction Development Company Limited at a consideration of RMB4,227,340;
(xxxvii) the share transfer agreement entered into between Wuxi Raise and Wuxi Lei Hua Company in March 2010, pursuant to which Wuxi Raise agreed to transfer 20% of equity interest in Suzhou AVIC Construction Development Company Limited at a consideration of RMB4,277,340;
(xxxviii) the acquisition agreement in relation to the acquisition of equity interest in Shanghai Tian Ma Microelectronics Company Limited (上海天馬微電子有限公 司) (“Shanghai Tian Ma”), a non-wholly owned subsidiary of the Company entered into between Tian Ma Microelectronics Company Limited (天馬微電子 股份有限公司) (“Tian Ma”), a subsidiary of the Company and Shanghai Zhang Jiang (Group) Co., Ltd. (上海張江（集團）有限公司)(“Shanghai Zhang Jiang Company”) on 18 January 2010;
(xxxix) the acquisition agreement in relation to the acquisition of equity interest in Shanghai Tian Ma entered into between Tian Ma and Shanghai Industrial Investment (Group) Co., Ltd. (上海工業投資(集團)有限公司)(“Shanghai Investment Company’) on 18 January 2010;
(xl) the acquisition agreement in relation to the acquisition of equity interest in Shanghai Tian Ma entered into between Tian Ma and Shanghai State-owned Assets Operation Co., Ltd. (上海國有資產經營有限公司)(“Shanghai State Assets Company”) on 18 January 2010; and
– VII-13 – APPENDIX VII GENERAL INFORMATION
(xli) the acquisition agreement in relation to the acquisition of equity interest in Shanghai Tian Ma entered into between Tian Man and the Company on 18 January 2010.
Save as already disclosed or otherwise previously announced, no material contract (not being contract entered into in the ordinary course of business) has been entered into by any member of the Enlarged Group within the two years immediately preceding the date of this circular.
Experts
(a) The followings are the qualification of the experts who have given opinion or advice contained in this circular:
Name Qualification
Anglo Chinese Corporate Licensed under the SFO for type 1 (dealing in Finance, Limited securities), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities as defined under the SFO
Beijing Jia Yuan Law Firm PRC legal advisers (北京市嘉源律師事務所)
PricewaterhouseCoopers Certified Public Accountants, Hong Kong
LCH(Asia-Pacific) Surveyors Professional Surveyor Limited
(b) As at the Latest Practicable Date, Anglo Chinese Corporate Finance, Limited, Beijing Jia Yuan Law Firm, PricewaterhouseCoopers and LCH (Asia-Pacific) Surveyors Limited did not have any shareholding in any member of the Enlarged Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group.
(c) Each of Anglo Chinese Corporate Finance, Limited, Beijing Jia Yuan Law Firm, PricewaterhouseCoopers and LCH (Asia-Pacific) Surveyors Limited have given and have not withdrawn their written consent to the issue of this circular, with inclusion of its letter and references to its name in the form and context in which it appears.
(d) As at the Latest Practicable Date, Anglo Chinese Corporate Finance, Limited, Beijing Jia Yuan Law Firm, PricewaterhouseCoopers and LCH (Asia-Pacific) Surveyors Limited had no interest in any asset which have been since 31 December 2010 (being the date to which the latest published audited accounts of the Company were made up) acquired or disposed of by, or leased to, or are proposed to be acquired or disposed of by, or leased to, any member of the Enlarged Group.
– VII-14 – APPENDIX VII GENERAL INFORMATION
MISCELLANEOUS
Mr. Zeng Jun is the company secretary of the Company. Mr. Zeng Jun holds a MBA of Peking University.
The registered office of the Company is situated at Level 25, Hangdu Building, CATIC Zone, Shennan Road Central, Futian District, Shenzhen, PRC.
The Company’s principal place of business in Hong Kong is situated at Suites 2001–2005, 20th Floor, Jardine House, 1 Connaught Place, Central, Hong Kong. The H Share registrar of the Company, Hong Kong Registrars Limited, is situated at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Whanchai, Hong Kong.
Saved as otherwise stipulated in this circular, in the event of any inconsistency between the English version and the Chinese version, the English version shall prevail.
Documents for Inspection
Copies of the following documents are available for inspection during normal business hours at the Company’s principal place of business in Hong Kong at Suites 2001–2005, 20th Floor, Jardine House, 1 Connaught Place, Central, Hong Kong from the date of this circular up to and including the date of the EGM:
(i) the Agreements;
(ii) the articles of association of the Company;
(iii) the letter from the Board, the text of which is set out on pages 9 to 99 of this circular;
(iv) the letter from the Independent Board Committee, the text of which is set out on pages 100 to 101 of this circular;
(v) the letter from the Independent Financial Adviser, the text of which is set out on pages 102 to 128 of this circular;
(vi) the annual reports of the Company for the years ended 31 December 2009 and 2010;
(vii) the interim report of the Company for the 6 months ended 30 June 2011;
(viii) the accountant reports on the Target Group, the text of which is set out in Appendix II to this circular;
(ix) the report on the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix III to this circular;
(x) the property valuation report of the Enlarged Group, the text of which is set out in Appendix IV to this circular;
– VII-15 – APPENDIX VII GENERAL INFORMATION
(xi) the material contracts mentioned in the paragraph headed “Material Contracts” in this appendix;
(xii) the written consent of the experts referred to in the paragraph headed “Experts” in this appendix;
(xiii) a copy of each circular issued by the Company pursuant to the requirements set out in Chapter 14 and/or Chapter 14A of the Listing Rules since 31 December 2010; and
(xiv) this circular.
– VII-16 – NOTICE OF THE EGM
(a joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 00161)
NOTICE OF THE EXTRAORDINARY GENERAL MEETING
NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “EGM”) of CATIC Shenzhen Holdings Limited (the “Company”) will be held at Level 25, Hangdu Building, CATIC Zone, Shennan Road Central, Futian District, Shenzhen, the People’s Republic of China on Wednesday, 8 February 2012 at 10:00 a.m. for the purpose of considering and, if thought fit, passing (with or without modifications) the following resolutions:
SPECIAL RESOLUTIONS
1. “THAT:
(a) the conditional acquisition agreement entered into between the Company and AVIC International Holding Corporation (中國航空技術國 際控股有限公司) dated 16 November 2011 in relation to the proposed acquisition by the Company of 100% of the equity interest in China National Aero-Technology Corporation Shanghai Limited Liability Company (中國航空技術上海有限公司), 50% of the equity interest in AVIC Lutong Company Limited (中航路通實業有限公司), 90% of the equity interest in Guizhou CATIC Resources Company Limited (貴州中 航資源有限公司) and 100% of the equity interest in AVIC-INTL Project Engineering Company (中航國際成套設備有限公司) (collectively, the “Sale Interests 1”) at a consideration of RMB1,311,110,000, to be satisfied by the issue of perpetual subordinated convertible securities in the principal amount of RMB1,311,110,000 convertible into 368,289,325 new ordinary domestic shares of a nominal value of RMB1.00 each in the capital of the Company (the “Domestic Shares”) at the initial conversion price of RMB3.56 per Domestic Share (the “PSCS 1”) by the Company (the “Acquisition Agreement 1”), a copy of which has been produced to the EGM marked “A” and signed by the chairman of the EGM for the purpose of identification, and all the transactions contemplated thereunder, be approved, confirmed and ratified;
– EGM-1 – NOTICE OF THE EGM
(b) the conditional acquisition agreement entered into between the Company and AVIC International Shenzhen Company Limited (中國航 空技術深圳有限公司) dated 16 November 2011 in relation to the proposed acquisition by the Company of 55.91% of the equity interest in Chengdu Ya Guang Electronic Company Limited (成都亞光電子股份有限 公司) and 51% of the equity interest in Shenzhen AVIC Bi Te Communication Technology Company Limited (深圳市中航比特通訊技 術有限公司), (the “Sale Interests 2”) at a consideration of RMB637,920,000, to be satisfied by the issue of perpetual subordinated convertible securities in the principal amount of RMB637,920,000 convertible into 179,191,011 new Domestic Shares at the initial conversion price of RMB3.56 per Domestic Share (the “PSCS 2”) by the Company (the “Acquisition Agreement 2”), a copy of which has been produced to the EGM marked “B” and signed by the chairman of the EGM for the purpose of identification, and all the transactions contemplated thereunder, be approved, confirmed and ratified;
(c) subject to completion of the transactions contemplated under the Acquisition Agreement 1 and the Acquisition Agreement 2, the Directors be specifically authorised to issue the PSCS 1 to AVIC International Holding Corporation (中國航空技術國際控股有限公司) and the PSCS 2 to AVIC International Shenzhen Company Limited (中國航空 技術深圳有限公司) in accordance with the terms and conditions of the Acquisition Agreement 1 and the Acquisition Agreement 2, respectively;
(d) subject to completion of the transactions contemplated under the Acquisition Agreement 1 and the Acquisition Agreement 2, the Directors be specifically authorised to allot and issue such number of new Domestic Shares as may be required to be allotted and issued upon exercise of the conversion right attaching to the PSCS 1 and the PSCS 2 at the initial conversion price of RMB3.56 per Domestic Share in accordance with the terms and conditions of the Acquisition Agreement 1 and the Acquisition Agreement 2 and the PSCS 1 and the PSCS 2, respectively; and
(e) any one of the Directors be authorised to sign, execute, perfect, deliver, negotiate, agree and ratify all such documents, and take all such steps which may be in his opinion consider necessary, reasonable or expedient to implement and/or give effect to the Acquisition Agreement 1 and the Acquisition Agreement 2 and the transactions contemplated thereunder and/or agree to such variations, amendments, or waiver of matters relating there as are, in the opinion of such Director, in the interest of the Company.”
– EGM-2 – NOTICE OF THE EGM
2. “THAT:
(a) the conditional acquisition agreement entered into between the Company and AVIC International Shenzhen Company Limited (中國航 空技術深圳有限公司) dated 16 November 2011 in relation to the proposed acquisition by the Company of 316,257,000 shares of Rainbow Department Store Co., Ltd. (天虹商場股份有限公司), representing approximately 39.52% equity interest in Rainbow Department Store Co., Ltd. (天虹商場股份有限公司) (the “Sale Interests 3”) at a consideration of RMB6,328,302,570, to be satisfied by the issue of perpetual subordinated convertible securities in the principal amount of RMB6,328,302,570 convertible into 1,777,613,081 new Domestic Shares at the initial conversion price of RMB3.56 per Domestic Share (the “PSCS 3”) by the Company (the “Acquisition Agreement 3”), a copy of which has been produced to the EGM marked “C” and signed by the chairman of the EGM for the purpose of identification, and all the transactions contemplated thereunder, be approved, confirmed and ratified;
(b) subject to completion of the transactions contemplated under the Acquisition Agreement 3, the Directors be specifically authorised to issue the PSCS 3 to AVIC International Shenzhen Company Limited (中國航空技術深圳有限公司) in accordance with the terms and conditions of the Acquisition Agreement 3;
(c) subject to completion of the transactions contemplated under the Acquisition Agreement 3, the Directors be specifically authorised to allot and issue such number of new Domestic Shares as may be required to be allotted and issued upon exercise of the conversion right attaching to the PSCS 3 at the initial conversion price of RMB3.56 per Domestic Share in accordance with the terms and conditions of the Acquisition Agreement 3 and the PSCS 3; and
(d) any one of the Directors be authorised to sign, execute, perfect, deliver, negotiate, agree and ratify all such documents, and take all such steps which may be in his opinion consider necessary, reasonable or expedient to implement and/or give effect to the Acquisition Agreement 3 and the transactions contemplated thereunder and/or agree to such variations, amendments, or waiver of matters relating there as are, in the opinion of such Director, in the interest of the Company.”
By Order of the Board CATIC Shenzhen Holdings Limited Wu Guang Quan Chairman
Shenzhen, the PRC, 23 December 2011
– EGM-3 – NOTICE OF THE EGM
Notes:
1. Eligibility for the EGM
Shareholders of the Company who intend to attend the EGM must deliver all instruments of transfer, accompanied by the relevant share certificates, to the legal address of the Company (for holders of domestic shares) or to the H share registrar of the Company, Hong Kong Registrars Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong (for holders of H shares) on or before 4:30 p.m. on Friday, 6 January 2012.
2. Registration procedures for the EGM
(a) A shareholder or his proxy should produce proof of identity when attending the EGM;
(b) Shareholders of the Company who intend to attend the EGM should return the confirmation slip for the EGM to the Company on or before Thursday, 19 January 2012; and
(c) Shareholders of the Company may send the above confirmation slip to the legal address of the Company in person, by post or by facsimile.
3. Proxy
(a) A shareholder of the Company eligible to attend the EGM is entitled to appoint one or more proxies to attend and vote on his behalf in accordance with the articles of association of the Company. A proxy need not be a shareholder of the Company;
(b) A proxy shall be appointed by a written instrument signed by the appointer or its attorney. If the form of proxy is signed by the attorney of the appointer, the power of the attorney or other authorisation document(s) of such attorney should be notarised;
(c) To be valid, the power of attorney or other authorisation document(s) which have been notarised together with the completed form of proxy, must be delivered to the legal address of the Company (for holders of domestic shares) or to the H share registrar of the Company, Hong Kong Registrars Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong (for holders of H shares) not less than 24 hours before the time designed for the holding of the EGM or not less than 24 hours before the time appointed for taking the poll; and
(d) A shareholder of the Company who has appointed more than one proxy shall only vote on a poll at the EGM.
4. Closure of Register of Members of the Company
The register of members of the Company will be closed from Monday, 9 January 2012 to Wednesday, 8 February 2012 (both days inclusive), during which no transfer of shares of the Company will be effected. Holders of shares whose names stand on the register of members of the Company at 4:30 p.m. on Friday, 6 January 2012 are entitled to attend and vote at the EGM.
5. The EGM is expected not to last for more than half a day. Attendants shall bear their own traveling and accommodation expenses.
Legal address of the Company: Level 25, Hangdu Building Shennan Road Central, CATIC Zone Futian District, Shenzhen Guangdong Province the People’s Republic of China Tel.: 0755-8368 8956 Fax: 0755-8368 8209 Postal code: 518031 Website: www.avic161.com
– EGM-4 – NOTICE OF THE H SHARES CLASS MEETING
(a joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 00161)
NOTICE OF CLASS MEETING FOR HOLDERS OF H SHARES
NOTICE IS HEREBY GIVEN that the class meeting for holders of H shares (the “H Shares Class Meeting”) of CATIC Shenzhen Holdings Limited (the “Company”) will be held at Level 25, Hangdu Building, CATIC Zone, Shennan Road Central, Futian District, Shenzhen, the People’s Republic of China on Wednesday, 8 February 2012 at 11:00 a.m. (or immediately after the conclusion or adjournment of the extraordinary general meeting of the Company which will be held at the same place and on the same date) for the purpose of considering and, if thought fit, passing (with or without modifications) the following resolutions:
SPECIAL RESOLUTIONS
1. “THAT:
(a) the conditional acquisition agreement entered into between the Company and AVIC International Holding Corporation (中國航空技術國 際控股有限公司) dated 16 November 2011 in relation to the proposed acquisition by the Company of 100% of the equity interest in China National Aero-Technology Corporation Shanghai Limited Liability Company (中國航空技術上海有限公司), 50% of the equity interest in AVIC Lutong Company Limited (中航路通實業有限公司), 90% of the equity interest in Guizhou CATIC Resources Company Limited (貴州中 航資源有限公司) and 100% of the equity interest in AVIC-INTL Project Engineering Company (中航國際成套設備有限公司) (collectively, the “Sale Interests 1”) at a consideration of RMB1,311,110,000, to be satisfied by the issue of perpetual subordinated convertible securities in the principal amount of RMB1,311,110,000 convertible into 368,289,325 new ordinary domestic shares of a nominal value of RMB1.00 each in the capital of the Company (the “Domestic Shares”) at the initial conversion price of RMB3.56 per Domestic Share (the “PSCS 1”) by the Company (the “Acquisition Agreement 1”), a copy of which has been produced to the H Shares Class Meeting marked “A” and signed by the chairman of the H Shares Class Meeting for the purpose of identification, and all the transactions contemplated thereunder, be approved, confirmed and ratified;
– HCM-1 – NOTICE OF THE H SHARES CLASS MEETING
(b) the conditional acquisition agreement entered into between the Company and AVIC International Shenzhen Company Limited (中國航 空技術深圳有限公司) dated 16 November 2011 in relation to the proposed acquisition by the Company of 55.91% of the equity interest in Chengdu Ya Guang Electronic Company Limited (成都亞光電子股份有限 公司) and 51% of the equity interest in Shenzhen AVIC Bi Te Communication Technology Company Limited (深圳市中航比特通訊技 術有限公司), (the “Sale Interests 2”) at a consideration of RMB637,920,000, to be satisfied by the issue of perpetual subordinated convertible securities in the principal amount of RMB637,920,000 convertible into 179,191,011 new Domestic Shares at the initial conversion price of RMB3.56 per Domestic Share (the “PSCS 2”) by the Company (the “Acquisition Agreement 2”), a copy of which has been produced to the H Shares Class Meeting marked “B” and signed by the chairman of the H Shares Class Meeting for the purpose of identification, and all the transactions contemplated thereunder, be approved, confirmed and ratified;
(c) subject to completion of the transactions contemplated under the Acquisition Agreement 1 and the Acquisition Agreement 2, the Directors be specifically authorised to issue the PSCS 1 to AVIC International Holding Corporation (中國航空技術國際控股有限公司) and the PSCS 2 to AVIC International Shenzhen Company Limited (中國航空 技術深圳有限公司) in accordance with the terms and conditions of the Acquisition Agreement 1 and the Acquisition Agreement 2, respectively;
(d) subject to completion of the transactions contemplated under the Acquisition Agreement 1 and the Acquisition Agreement 2, the Directors be specifically authorised to allot and issue such number of new Domestic Shares as may be required to be allotted and issued upon exercise of the conversion right attaching to the PSCS 1 and the PSCS 2 at the initial conversion price of RMB3.56 per Domestic Share in accordance with the terms and conditions of the Acquisition Agreement 1 and the Acquisition Agreement 2 and the PSCS 1 and the PSCS 2, respectively; and
(e) any one of the Directors be authorised to sign, execute, perfect, deliver, negotiate, agree and ratify all such documents, and take all such steps which may be in his opinion consider necessary, reasonable or expedient to implement and/or give effect to the Acquisition Agreement 1 and the Acquisition Agreement 2 and the transactions contemplated thereunder and/or agree to such variations, amendments, or waiver of matters relating there as are, in the opinion of such Director, in the interest of the Company.”
– HCM-2 – NOTICE OF THE H SHARES CLASS MEETING
2. “THAT:
(a) the conditional acquisition agreement entered into between the Company and AVIC International Shenzhen Company Limited (中國航 空技術深圳有限公司) dated 16 November 2011 in relation to the proposed acquisition by the Company of 316,257,000 shares of Rainbow Department Store Co., Ltd. (天虹商場股份有限公司), representing approximately 39.52% equity interest in Rainbow Department Store Co., Ltd. (天虹商場股份有限公司) (the “Sale Interests 3”) at a consideration of RMB6,328,302,570, to be satisfied by the issue of perpetual subordinated convertible securities in the principal amount of RMB6,328,302,570 convertible into 1,777,613,081 new Domestic Shares at the initial conversion price of RMB3.56 per Domestic Share (the “PSCS 3”) by the Company (the “Acquisition Agreement 3”), a copy of which has been produced to the H Shares Class Meeting marked “C” and signed by the chairman of the H Shares Class Meeting for the purpose of identification, and all the transactions contemplated thereunder, be approved, confirmed and ratified;
(b) subject to completion of the transactions contemplated under the Acquisition Agreement 3, the Directors be specifically authorised to issue the PSCS 3 to AVIC International Shenzhen Company Limited (中國航空技術深圳有限公司) in accordance with the terms and conditions of the Acquisition Agreement 3;
(c) subject to completion of the transactions contemplated under the Acquisition Agreement 3, the Directors be specifically authorised to allot and issue such number of new Domestic Shares as may be required to be allotted and issued upon exercise of the conversion right attaching to the PSCS 3 at the initial conversion price of RMB3.56 per Domestic Share in accordance with the terms and conditions of the Acquisition Agreement 3 and the PSCS 3; and
(d) any one of the Directors be authorised to sign, execute, perfect, deliver, negotiate, agree and ratify all such documents, and take all such steps which may be in his opinion consider necessary, reasonable or expedient to implement and/or give effect to the Acquisition Agreement 3 and the transactions contemplated thereunder and/or agree to such variations, amendments, or waiver of matters relating there as are, in the opinion of such Director, in the interest of the Company.”
By Order of the Board CATIC Shenzhen Holdings Limited Wu Guang Quan Chairman
Shenzhen, the PRC, 23 December 2011
– HCM-3 – NOTICE OF THE H SHARES CLASS MEETING
Notes:
1. Eligibility for the H Shares Class Meeting
Holders of H shares of the Company who intend to attend the H Shares Class Meeting must deliver all instruments of transfer, accompanied by the relevant share certificates, to the H share registrar of the Company, Hong Kong Registrars Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong on or before 4:30 p.m. on Friday, 6 January 2012.
2. Registration procedures for the H Shares Class Meeting
(a) A holder of H shares of the Company or his proxy should produce proof of identity when attending the H Shares Class Meeting;
(b) Holders of H shares of the Company who intend to attend the H Shares Class Meeting should return the confirmation slip for the H Shares Class Meeting to the Company on or before Thursday, 19 January 2012; and
(c) Holders of H shares of the Company may send the above confirmation slip to the legal address of the Company in person, by post or by facsimile.
3. Proxy
(a) A holder of H shares of the Company eligible to attend the H Shares Class Meeting is entitled to appoint one or more proxies to attend and vote on his behalf in accordance with the articles of association of the Company. A proxy need not be a holder of H shares of the Company;
(b) A proxy shall be appointed by a written instrument signed by the appointer or its attorney. If the form of proxy is signed by the attorney of the appointer, the power of the attorney or other authorisation document(s) of such attorney should be notarised;
(c) To be valid, the power of attorney or other authorisation document(s) which have been notarised together with the completed form of proxy, must be delivered to the H Share Registrar of the Company, Hong Kong Registrars Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 24 hours before the time designed for the holding of the H Shares Class Meeting or not less than 24 hours before the time appointed for taking the poll; and
(d) A holder of H shares of the Company who has appointed more than one proxy shall only vote on a poll at the H Shares Class Meeting.
4. Closure of Register of Members of the Company
The register of members of the Company will be closed from Monday, 9 January 2012 to Wednesday, 8 February 2012 (both days inclusive), during which no transfer of shares of the Company will be effected. Holders of H shares of the Company whose names stand on the register of members of the Company at 4:30 p.m. on Friday, 6 January 2012 are entitled to attend and vote at the H Shares Class Meeting.
5. The H Shares Class Meeting is expected not to last for more than half a day. Attendants shall bear their own traveling and accommodation expenses.
Legal address of the Company: Level 25, Hangdu Building Shennan Road Central, CATIC Zone Futian District, Shenzhen Guangdong Province the People’s Republic of China Tel.: 0755-8368 8956 Fax: 0755-8368 8209 Postal code: 518031 Website: www.avic161.com
– HCM-4 – NOTICE OF THE DOMESTIC SHARES CLASS MEETING
(a joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 00161)
NOTICE OF CLASS MEETING FOR HOLDERS OF DOMESTIC SHARES
NOTICE IS HEREBY GIVEN that the class meeting for holders of Domestic Shares (the “Domestic Shares Class Meeting”) of CATIC Shenzhen Holdings Limited (the “Company”) will be held at Level 25, Hangdu Building, CATIC Zone, Shennan Road Central, Futian District, Shenzhen, the People’s Republic of China on Wednesday, 8 February 2012 at 11:30 a.m. (or immediately after the conclusion or adjournment of the extraordinary general meeting and class meeting for holders of H shares of the Company which will be held at the same place and on the same date) for the purpose of considering and, if thought fit, passing (with or without modifications) the following resolutions:
SPECIAL RESOLUTIONS
1. “THAT:
(a) the conditional acquisition agreement entered into between the Company and AVIC International Holding Corporation (中國航空技術國 際控股有限公司) dated 16 November 2011 in relation to the proposed acquisition by the Company of 100% of the equity interest in China National Aero-Technology Corporation Shanghai Limited Liability Company (中國航空技術上海有限公司), 50% of the equity interest in AVIC Lutong Company Limited (中航路通實業有限公司), 90% of the equity interest in Guizhou CATIC Resources Company Limited (貴州中 航資源有限公司) and 100% of the equity interest in AVIC-INTL Project Engineering Company (中航國際成套設備有限公司) (collectively, the “Sale Interests 1”) at a consideration of RMB1,311,110,000, to be satisfied by the issue of perpetual subordinated convertible securities in the principal amount of RMB1,311,110,000 convertible into 368,289,325 new ordinary domestic shares of a nominal value of RMB1.00 each in the capital of the Company (the “Domestic Shares”) at the initial conversion price of RMB3.56 per Domestic Share (the “PSCS 1”) by the Company (the “Acquisition Agreement 1”), a copy of which has been produced to the Domestic Shares Class Meeting marked “A” and signed by the chairman of the Domestic Shares Class Meeting for the purpose of identification, and all the transactions contemplated thereunder, be approved, confirmed and ratified;
– DCM-1 – NOTICE OF THE DOMESTIC SHARES CLASS MEETING
(b) the conditional acquisition agreement entered into between the Company and AVIC International Shenzhen Company Limited (中國航 空技術深圳有限公司) dated 16 November 2011 in relation to the proposed acquisition by the Company of 55.91% of the equity interest in Chengdu Ya Guang Electronic Company Limited (成都亞光電子股份有限 公司) and 51% of the equity interest in Shenzhen AVIC Bi Te Communication Technology Company Limited (深圳市中航比特通訊技 術有限公司), (the “Sale Interests 2”) at a consideration of RMB637,920,000, to be satisfied by the issue of perpetual subordinated convertible securities in the principal amount of RMB637,920,000 convertible into 179,191,011 new Domestic Shares at the initial conversion price of RMB3.56 per Domestic Share (the “PSCS 2”) by the Company (the “Acquisition Agreement 2”), a copy of which has been produced to the Domestic Shares Class Meeting marked “B” and signed by the chairman of the Domestic Shares Class Meeting for the purpose of identification, and all the transactions contemplated thereunder, be approved, confirmed and ratified;
(c) subject to completion of the transactions contemplated under the Acquisition Agreement 1 and the Acquisition Agreement 2, the Directors be specifically authorised to issue the PSCS 1 to AVIC International Holding Corporation (中國航空技術國際控股有限公司) and the PSCS 2 to AVIC International Shenzhen Company Limited (中國航空 技術深圳有限公司) in accordance with the terms and conditions of the Acquisition Agreement 1 and the Acquisition Agreement 2, respectively;
(d) subject to completion of the transactions contemplated under the Acquisition Agreement 1 and the Acquisition Agreement 2, the Directors be specifically authorised to allot and issue such number of new Domestic Shares as may be required to be allotted and issued upon exercise of the conversion right attaching to the PSCS 1 and the PSCS 2 at the initial conversion price of RMB3.56 per Domestic Share in accordance with the terms and conditions of the Acquisition Agreement 1 and the Acquisition Agreement 2 and the PSCS 1 and the PSCS 2, respectively; and
(e) any one of the Directors be authorised to sign, execute, perfect, deliver, negotiate, agree and ratify all such documents, and take all such steps which may be in his opinion consider necessary, reasonable or expedient to implement and/or give effect to the Acquisition Agreement 1 and the Acquisition Agreement 2 and the transactions contemplated thereunder and/or agree to such variations, amendments, or waiver of matters relating there as are, in the opinion of such Director, in the interest of the Company.”
– DCM-2 – NOTICE OF THE DOMESTIC SHARES CLASS MEETING
2. “THAT:
(a) the conditional acquisition agreement entered into between the Company and AVIC International Shenzhen Company Limited (中國航 空技術深圳有限公司) dated 16 November 2011 in relation to the proposed acquisition by the Company of 316,257,000 shares of Rainbow Department Store Co., Ltd. (天虹商場股份有限公司), representing approximately 39.52% equity interest in Rainbow Department Store Co., Ltd. (天虹商場股份有限公司) (the “Sale Interests 3”) at a consideration of RMB6,328,302,570, to be satisfied by the issue of perpetual subordinated convertible securities in the principal amount of RMB6,328,302,570 convertible into 1,777,613,081 new Domestic Shares at the initial conversion price of RMB3.56 per Domestic Share (the “PSCS 3”) by the Company (the “Acquisition Agreement 3”), a copy of which has been produced to the Domestic Shares Class Meeting marked “C” and signed by the chairman of the Domestic Shares Class Meeting for the purpose of identification, and all the transactions contemplated thereunder, be approved, confirmed and ratified;
(b) subject to completion of the transactions contemplated under the Acquisition Agreement 3, the Directors be specifically authorised to issue the PSCS 3 to AVIC International Shenzhen Company Limited (中國航空技術深圳有限公司) in accordance with the terms and conditions of the Acquisition Agreement 3;
(c) subject to completion of the transactions contemplated under the Acquisition Agreement 3, the Directors be specifically authorised to allot and issue such number of new Domestic Shares as may be required to be allotted and issued upon exercise of the conversion right attaching to the PSCS 3 at the initial conversion price of RMB3.56 per Domestic Share in accordance with the terms and conditions of the Acquisition Agreement 3 and the PSCS 3; and
(d) any one of the Directors be authorised to sign, execute, perfect, deliver, negotiate, agree and ratify all such documents, and take all such steps which may be in his opinion consider necessary, reasonable or expedient to implement and/or give effect to the Acquisition Agreement 3 and the transactions contemplated thereunder and/or agree to such variations, amendments, or waiver of matters relating there as are, in the opinion of such Director, in the interest of the Company.”
By Order of the Board CATIC Shenzhen Holdings Limited Wu Guang Quan Chairman
Shenzhen, the PRC, 23 December 2011
– DCM-3 – NOTICE OF THE DOMESTIC SHARES CLASS MEETING
Notes:
1. Eligibility for the Domestic Shares Class Meeting
Holders of domestic shares who intend to attend the Domestic Shares Class Meeting must deliver all instruments of transfer, accompanied by the relevant share certificates, to the legal address of the Company on or before 4:30 p.m. on Friday, 6 January 2012.
2. Registration procedures for the Domestic Shares Class Meeting
(a) A holder of domestic shares or his proxy should produce proof of identity when attending the Domestic Shares Class Meeting;
(b) Holders of domestic shares who intend to attend the Domestic Shares Class Meeting should return the confirmation slip for the Domestic Shares Class Meeting to the Company on or before Thursday, 19 January 2012; and
(c) Holders of domestic shares may send the above confirmation slip to the legal address of the Company in person, by post or by facsimile.
3. Proxy
(a) A holder of domestic shares eligible to attend the Domestic Shares Class Meeting is entitled to appoint one or more proxies to attend and vote on his behalf in accordance with the articles of association of the Company. A proxy need not be a holder of domestic shares of the Company;
(b) A proxy shall be appointed by a written instrument signed by the appointer or its attorney. If the form of proxy is signed by the attorney of the appointer, the power of the attorney or other authorisation document(s) of such attorney should be notarised;
(c) To be valid, the power of attorney or other authorisation document(s) which have been notarised together with the completed form of proxy, must be delivered to the legal address of the Company not less than 24 hours before the time designed for the holding of the Domestic Shares Class Meeting or not less than 24 hours before the time appointed for taking the poll; and
(d) A holder of domestic shares who has appointed more than one proxy shall only vote on a poll at the Domestic Shares Class Meeting.
4. Closure of Register of Members of the Company
The register of members of the Company will be closed from Monday, 9 January 2012 to Wednesday, 8 February 2012 (both days inclusive), during which no transfer of shares of the Company will be effected. Holders of domestic shares whose names stand on the register of members of the Company at 4:30 p.m. on Friday, 6 January 2012 are entitled to attend and vote at the Domestic Shares Class Meeting.
5. The Domestic Shares Class Meeting is expected not to last for more than half a day. Attendants shall bear their own traveling and accommodation expenses.
Legal address of the Company: Level 25, Hangdu Building Shennan Road Central, CATIC Zone Futian District, Shenzhen Guangdong Province the People’s Republic of China Tel.: 0755-8368 8956 Fax: 0755-8368 8209 Postal code: 518031 Website: www.avic161.com
– DCM-4 –