BOE TECHNOLOGY GROUP CO., LTD. ANNUAL REPORT 2007
Important Notes The Board of Directors, Supervisory Committee, as well as directors, supervisors and Senior Executives of BOE TECHNOLOGY GROUP CO., LTD. (hereinafter referred to as “the Company”) hereby confirm that there exists no omission, misstatement, or misleading information in this report, and accept, individually and collectively, the responsibility for the correctness, accuracy and completeness of the contents of this report.
Mr. Wang Dongsheng, Chairman of the Board, Mr. Chen Yanshun, President of the Company, Ms. Sun Yun, Chief Financial Officer of the Company, as well as Ms. Yang Xiaoping who is in charge of the Planning & Finance Department, hereby confirm that the Financial Statements in the Annual Report is true and complete.
Annual Report 2007 was prepared in accordance with the Accounting Standards for Business Enterprises and other relevant provisions. KPMG Huazhen Certified Public Accountants produced the standard unqualified Auditors’ Report for the Company.
This report was prepared in both Chinese and English. Should there be any difference in interpretation between the Chinese version and English version, the Chinese version shall prevail.
29 March 2008
Contents Chapter Ⅰ. Company Profile Chapter Ⅱ. Summary of Financial Highlights and Business Highlights Chapter Ⅲ. Changes in Share Capital and Particulars about Shareholders Chapter Ⅳ. Directors, Supervisors, Senior Executives and Employees Chapter Ⅴ. Corporate Governance Chapter Ⅵ. Introduction of Shareholders’ General Meeting Chapter Ⅶ. Report of the Board of Directors Chapter Ⅷ. Report of the Supervisory Committee Chapter Ⅸ. Significant Events Chapter Ⅹ. Financial Report Chapter Ⅺ. Documents for Reference
Explanation: Company, the Company is short form for BOE TECHNOLOGY GROUP CO., LTD. TFT-LCD is short form for Thin Film Transistor-Liquid Crystal Display BOEOT is short form for Beijing BOE Optoelectronics Technology Co., Ltd. BOE Land is short form for Beijing BOE Land Co., Ltd Zhejiang BOE is short form for Zhejiang BOE Display Technology Co., Ltd. Suzhou Chatani is short form for Suzhou BOE Chatani Electronics Co., Ltd. Beijing Chatani is short form for Beijing BOE Chatani Electronics Co., Ltd. BOE Special Display is short form for Beijing BOE Special Display Technology Co., Ltd. BOE HYDIS is short form for BOE HYDIS Technology Co., Ltd. CSRC is short form for: China Securities Regulatory Committee Beijing Securities Regulatory Bureau is short form for Beijing Securities Regulatory Bureau of China Securities Regulatory Committee Display Search is short form for a global famous research organization in TFT-LCD industry
1 Chapter I Company Profile 1. Legal Name of the Company: In Chinese: 京东方科技集团股份有限公司 In English: BOE TECHNOLOGY GROUP CO., LTD. Abbr. in Chinese: 京东方 Abbr. in English: BOE 2. Legal Representative: Wang Dongsheng 3. Secretary of the Board of Directors: Feng Liqiong Securities Affairs Representative: Liu Hongfeng Contact Address: No. 10, Jiuxianqiao Road, Chaoyang District, Beijing Tel: 010 – 64318888 ext. Fax: 010 – 64366264 E-mail: [email protected] [email protected] 4. Registered Address: No. 10, Jiuxianqiao Road, Chaoyang District, Beijing Office Address: No. 10, Jiuxianqiao Road, Chaoyang District, Beijing Post Code: 100016 The Company’s Internet Website: http://www.boe.com.cn E-mail: [email protected] 5. Newspapers Designated for Disclosing the Information: Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao Internet Website Designated from CSRC for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: The office of Secretary of the Board of Directors 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form for A-share:*ST BOE-A Stock Code for A-share: 000725 Short Form for B-share: *ST BOE-B Stock Code for B-share: 200725 7. Other Related Information: Initial registration date: Apr. 9, 1993 Initial registration place: No.10, Jiuxianqiao Road, Chaoyang District, Beijing The latest changing registrations date: Oct.15, 2007 Registration place after change: No.10, Jiuxianqiao Road, Chaoyang District, Beijing Registration number of enterprise legal person’s business license: 110000005012597 Registration number of taxation: GSJZ No.110105101101660 Organization Code: 10110166-0 Certified Public Accountants engaged by the Company: Name: KPMG Huazhen Certified Public Accountants Office Address: the 8th Floor, Office Tower E2, Oriental Plaza, No.1 East Chang An Avenue, Beijing
2 Chapter II Summary of Financial Highlights and Business Highlights I. Major accounting data of the year 2007 (Unit: RMB Yuan)
Item Amount
Operating profit 594,518,842
Total profit 840,799,064
Net profit attributable to listed companies’ shareholders 690,945,815
Net profit after deducting non-recurring gains and losses attributable to listed 656,453,416 companies’ shareholders
Net cash flow from operating activities 2,292,098,399
Note: ① Items of non-recurring gains and losses (Unit: RMB Yuan) Items of non-recurring gains and losses Amount Disposal of long-term equity investment, fixed assets, construction in progress, intangible assets, -25,331,152 other long-term assets Non-rationed Government grants 53,270,000 Adjustment on staff welfare fee 20,748,620 Other non-operating net income/expense 9,254,553 Subtotal 57,942,021
Less: Effect on income tax 15,956,225
Total 41,985,796 Equity shareholders of the Company 34,492,399
Minority interests 7,493,397
② There was no difference between the financial statement prepared in line with PRC GAAP and the financial statement prepared in line with IFRS. PRC GAAP IFRS Net profit 897,106,952 897,106,952 Net assets 5,521,339,174 5,521,339,174 Explanation on the difference No difference
II. Major accounting data and financial index over the past three years by the end of the reporting period
1. Major accounting data (Unit: RMB Yuan) Increase/decrease Item 2007 2006 compared with 2005 last year (%)
3 Before After Before After After Adjustment Adjustment Adjustment Adjustment Adjustment Operating income 11,170,448,855 8,881,914,054 8,839,664,291 26.37% 13,566,436,152 13,526,465,796 Total profit 840,799,064 -2,948,023,370 -1,774,051,251 147.39% -1,454,361,755 -1,113,777,333 Net profit attributable to the listed companies’ 690,945,815 -1,721,944,721 -1,770,802,475 139.02% -1,587,087,256 -1,245,993,960 shareholders Net profit after deducting non-recurring gains and losses attributable to the 656,453,416 -1,739,439,862 -1,788,310,829 136.71% -1,567,334,357 -1,371,121,301 listed companies’ shareholders Net cash flow from 2,292,098,399 843,112,560 836,205,986 174.11% -983,558,625 -990,439, 962 operating activities Increase/decrease compared with At the end of 2006 At the end of 2005 At the end of the end of last Item 2007 year (%) Before After Before After After Adjustment Adjustment Adjustment Adjustment Adjustment Total assets 13,381,274,861 16,212,082,151 16,554,514,012 -19.17% 20,922,521,843 21,490,400,732 Owners’ equity 4,570,579,149 3,540,702,703 3,889,076,397 17.52% 3,377,859,054 3,968,250,425 (Shareholders’ equity)
2. Major financial index (Unit: RMB Yuan) Increase/ decrease 2006 2005 compared with Items 2007 last year After Before After Before Adjustment After Adjustment Adjustment Adjustment Adjustment EPS-Basic 0.24 -0.73 -0.75 132.00% -0.72 -0.57 EPS-Diluted 0.24 -0.73 -0.75 132.00% -0.72 -0.57 Basic earnings per share after deducting non-recurring gains 0.23 -0.74 -0.76 130.26% -0.72 -0.62 and losses Fully diluted return on equity 15.12% -48.63% -45.53% 60.65% -46.99% -31.40% Weighted average return on 16.33% -57.75% -51.16% 67.49% -38.30% -26.97% equity Fully diluted return on equity after deducting non-recurring 14.36% -49.13% -45.98% 60.34% -46.40% -34.55% gains and losses Weighted average return on 15.51% -58.37% -51.66% 67.17% -38.79% -29.68% equity after deducting non-
4 recurring gains and losses Net cash flow per share from 0.80 0.29 0.29 175.86% -0.45 -0.45 operating activities Increase/ decrease At the end of 2006 compared with At the end of 2005 At the end of Item the end of last 2007 year After Before After Before Adjustment After Adjustment Adjustment Adjustment Adjustment Net assets per share attributable to listed 1.59 1.23 1.35 17.78% 1.54 1.81 companies’ shareholders Note: ① The aforesaid diluted data as of the year 2005 were calculated based upon the total share capital of 2,195,695,800 shares at the end of 2005, those of 2006 upon the total share capital of 2,871,567,895 shares at the end of 2006 and those of 2007 also upon the total share capital of 2,871,567,895 shares at the end of 2007. ② The above data were compiled in accordance with the consolidated statements.
5 Chapter III Changes in Share Capital and Particulars about Shareholders I. Changes in share capital 1. Statement of changes in share capital as at the end of report period (Unit: share)
Prior to the change Increase/ decrease（+, -） Subsequent to the change Item Number of Proportion Proportion Other Subtotal Number of shares shares (%) (%) I. Shares with conditional 1,360,452,778 47.377% -294,331,882 -294,331,882 1,066,120,896 37.127% subscription 1. Shares held by the 548,691,862 19.108% -257,994,187 -257,994,187 290,697,675 10.123% State 2. Shares held by state- 811,367,668 28.255% -36,009,865 -36,009,865 775,357,803 27.002% owned legal person 3. Shares held by other 143,648 0.005% -78,230 -78,230 65,418 0.002% domestic investors Including: Shares held by domestic non-stated 0 0.000% 0 0 0 0.000% legal persons Shares held by domestic 143,648 0.005% -78,230 -78,230 65,418 0.002% natural persons 4. Shares held by 249,600 0.009% -249,600 -249,600 0 0.000% foreign investors Including: Shares held by 0 0.000% 0 0 0 0.000% foreign legal persons Shares held by foreign 249,600 0.009% -249,600 -249,600 0 0.000% natural persons II.Shares with unconditional 1,511,115,117 52.623% 294,331,882 294,331,882 1,805,446,999 62.873% subscription 1. RMB ordinary shares 395,814,717 13.784% 294,082,282 294,082,282 689,896,999 24.025% 2. Domestically listed 1,115,300,400 38.839% 249,600 249,600 1,115,550,000 38.848% foreign shares 3. Overseas listed foreign 0 0.000% 0 0 0 0.000% shares 4. Other 0 0.000% 0 0 0 0.000% III. Total Shares 2,871,567,895 100.000% 0 0 2,871,567,895 100.000%
2. Issuance and listing of shares in recent three years as at the end of the reporting period As examined and approved by the 1st Extraordinary Shareholders’ General Meeting 2005 (held on Jul. 5, 2005), based on the total share capital amounting to 1,463,797,200 shares, the Company implemented the plan of transferring capital reserve into share capital at the rate of 5 shares for every 10 shares to all shareholders
6 dated Jul.19, 2005. After transferring capital reserve into share capital, the Company’s total shares capital has increased to 2,195,695,800 shares from the former 1,463,797,200 shares.
The Shareholders’ General Meeting Related the Share Merger Reform was held on Nov. 24, 2005, at which the Share Merger Reform Plan of BOE Technology Group Co., Ltd. was examined and approved. On Nov. 30, 2005, the Company implemented the Share Merger Reform Plan, which the original shareholders of non-tradable shares got the listing right for trading after paying the consideration to shareholders of tradable A shares totaling to 77,622,300 shares. The total share capital of the Company remained unchanged after implementation of the Share Merger Reform Plan.
As approved by CSRC with ZJFX Zi [2006] Document No.36, the Company finished the private offering of new share (A shares) amounting to 675,872,095 shares in Oct. 2006. The total share capital of the Company increased to 2,871,567,895 shares from 2,195,695,800 shares.
II. About shareholders 1. Number of shareholders and particulars about shares held by shareholders Particulars about top ten shareholders as at Dec. 31, 2007 (Unit: share) Total number of shareholders 73,752 shareholders in total (including 32,211 shareholders of B-share) Particulars about shares held by top-10 shareholders Proportion Share pledged Name of shareholder Nature of shareholders Total shares Conditional shares (%) or frozen BEIJING BOE INVESTMENT Stated-owned legal 27.27% 783,182,303 775,357,803 0 & DEVELOPMENT CO., LTD. person BEIJING ELECTRONICS State-owned shares 10.12% 290,697,675 290,697,675 01 HOLDINGS CO., LTD. BEIJING STATE-OWNED ASSETS MANAGEMENT CO., State-owned shares 3.95% 113,324,751 0 0 LTD. BEIJING INDUSTRIAL DEVELOPMENT State-owned shares 3.92% 112,645,349 0 0 INVESTMENT MANAGEMENT CO., LTD. FIELDS PACIFIC LIMITED Foreign legal person 3.75% 107,692,821 0 - SBCI FINANCE ASIA LTD A/C Unknown 1.14% 32,649,315 0 - SBC HONG KONG BOCI SECURITIES LIMITED Unknown 0.98% 28,108,090 0 - HUANG YING BIN Unknown 0.84% 24,005,968 0 - LI MING GONG Domestic natural 0.60% 17,170,419 0 -
7 person GUOTAI JUNAN SECURITIES Unknown 0.55% 15,706,569 0 - HONG KONG LIMITED Top ten shareholders of unconditional shares Name of shareholders Unconditional shares Nature of shares BEIJING STATE-OWNED ASSETS MANAGEMENT CO., LTD. 113,324,751 A-share BEIJING INDUSTRIAL DEVELOPMENT INVESTMENT 112,645,349 A-share MANAGEMENT CO., LTD. FIELDS PACIFIC LIMITED 107,692,821 B-share SBCI FINANCE ASIA LTD A/C SBC HONG KONG 32,649,315 B-share BOCI SECURITIES LIMITED 28,108,090 B-share HUANG YING BIN 24,005,968 B-share LI MING GONG 17,170,419 B-share GUOTAI JUNAN SECURITIES HONG KONG LIMITED 15,706,569 B-share PERSHING LLC 14,109,926 B-share SUN HUNG KAI INVESTMENT SERVICES LTD- 11,944,743 B-share CUSTOMERS A/C 1. BEIJING INDUSTRIAL DEVELOPMENT INVESTMENT MANAGEMENT Explanation on associated CO., LTD. is the wholly-owned subsidiary company of BEIJING STATE-OWNED relationship among the top ten ASSETS MANAGEMENT CO., LTD. There exists associated relationship. shareholders or action-in-concert 2. The Company is not aware of whether there is any associated relationship or not among top ten shareholders of tradable share. ① On Jan. 24, 2008, 145,348,837 shares of the Company held by BEIJING ELECTRONICS HOLDINGS CO., Ltd have been pledged. For details, please see the Company’s Public Notice about Pledging the Part of Equity of the Company held by actual controller.
2. Number of shares held by shareholders with conditional sales
Name of Number of Number of shareholders holding shares Date of listing No. additional shares Conditional sales with conditional with conditional for trade could list for trade sales sales
No trading and transfer may be taken within 12 months as of the date when corporate shares of BOE held by this company obtain the trading right in A shares market. After Beijing BOE expiration of the aforesaid undertaking, this Investment & After G+36 648,177,570 1 775,357,803 company could sale original non-tradable Development months shares shares through listing and trading on stock Co., Ltd. exchanges, but proportion of number of shares could be sold in total shares of BOE shall not exceed 5 percent within 12 months, as well as not exceed 10 percent within 24 months.
8 No trading and transfer may be taken within After T+36 127,180,233 36months as of the date when corporate months shares shares of BOE held by this company obtain the trading right in A shares market BEIJING No trading and transfer may be taken within ELECTRONICS After T+36 290,697,675 36months as of the date when corporate 2 290,697,675 HOLDINGS months shares shares of BOE held by this company obtain CO., LTD. the trading right in A shares market Note: G is Nov.30, 2005. I.e. the effective date of Share Merger Reform; T is Oct.9, 2006, that is: the registered and trusteeship date of the non-public offering of A shares in Shenzhen Branch of China Securities Depository and Clearing Corporation Limited.
3. Introduction on controlling shareholder and the actual controller (1) About the controlling shareholders Beijing BOE Investment & Development Co., Ltd. held 27.27 % of the Company’s total shares, therefore is the actual controlling shareholder of the Company, whose main information is as follows: Name: Beijing BOE Investment & Development Co., Ltd. Legal Representative: Wang Dongsheng Date of Foundation: Apr. 21, 2005 Address: No.10 Jiuxianqiao Road, Chaoyang District, Beijing Registered Capital: RMB 680.982 million Type of the company: Sino-foreign Equity Joint Ventures Enterprises (proportion of foreign-currency is lower than 25%) Business scope: R&D and production of electronic products, electronic raw materials and components; the relevant technical development, technical consultation, technical service and transfer; sales of self-produced products. (Other than projects with limit and special provision invested by foreign investors)
(2) About the actual controller Beijing Electronics Holding Co., Ltd. held 56.25% of shares of Beijing BOE Investment & Development Co., Ltd., and 10.12% of shares of the Company directly, it was the actual controller of the Company. Beijing Electronics Holding Co., Ltd. belonged to state-owned holding company directly under Beijing Municipality as well as a Beijing municipal state-owned assets authorized operation unit. The main information of Beijing Electronics Holding Co., Ltd. was as follows: Name of the enterprise: Beijing Electronics Holding Co., Ltd. Legal Representative: Bu Shicheng Date of Foundation: Apr. 8, 1997 Location: No.12 Jiuxianqiao Road, Chaoyang District, Beijing Registered Capital: RMB 1,307.37 million Type: Limited Company (State-owned sole corporations) Business scope: operation and management of state-owned assets within authorization;
9 communications equipments, audio & visual products for broadcasting and television; computer and its supporting equipments and the applied products; electronic raw material and components; home electric appliances and electronic products; electronic surveying instruments and meters; mechanical and electric equipments; electronic transportation products and investment in business fields other than electronics and its management; development of real estate, lease and sales of commodity apartments; property management. (3) The property right and controlling relationship between the actual controller and the Company are as follows:
Wang Dongsheng 20%, Jiang Yukun 10%, Liang Xinqing 10%, Zhao Caiyong 6.667%, Shi Dong 6.667%, Chen Yanshun 6.667%, Song Ying 6.667%, Han Guojian 6.667%, Gong Xiaoqing 3.333%, Wang Yanjun 3.333%, Wang State-owned Assets Supervision & Administration Jiaheng 3.333%, Liu Xiaodong 3.333%, Ren Jianchang 1.667%, Sun Jiping Commission of Beijing People’s Government 1.667%, Zhang Peng 1.667%, Wang Ai’zhen 1.667%, Mu Chengyuan 1.667%, Xu Yan 1.667%, Hua Yulun 1.667%, Zhong Huifeng 1.667% 100% 100%
Beijing Electronics Holding Co., Ltd. Marubeni Corporation Beijing Intelligent Kechuang Technology Development Co., Ltd.
56.25% 10% 33.75%
Beijing BOE Investment & Development Co., Ltd.
27.27% 10.12%
BOE Technology Group Co., Ltd.
Note: The Company regards Beijing Intelligent Kechuang Technology Development Co., Ltd. as a platform to implement equity incentive for wholly core technology manager, the aforesaid 20 subscribers are nominal shareholders, investment proportion was not actual equity proportion, the equity of Beijing Intelligent Kechuang Technology Development Co., Ltd. was held in common by all implemented objectives of simulate plan of equity incentive mechanism.
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Chapter IV Directors, Supervisors, Senior Executives and Employees I. Directors, supervisors and senior executives 1. Introduction of directors, supervisors and senior executives Number Number Receiving of shares of shares Beginning date of Ending date of payment from Name Position Sex Age held at the held at the office term office term the Company year- year- or not begin begin Chairman of the Board, Wang Director of Male 50 May 25, 2007 May 25, 2010 24,921 24,921 Yes Dongsheng Executive Committee Vice Han Chairman of Male 60 May 25, 2007 May 25, 2010 0 0 No Yansheng the Board Vice Liang Chairman of Male 55 May 25, 2007 May 25, 2010 9,969 9,969 Yes Xinqing the Board Executive Chen Director, Male 41 May 25, 2007 May 25, 2010 0 0 Yes Yanshun President Executive Han Director, Male 54 Nov. 16, 2007 May 25, 2010 9,968 9,968 Yes Guojian Vice President Executive Wang Director, Male 38 May 25, 2007 May 25, 2010 0 0 Yes Jiaheng Vice President Gui Director Female 34 May 25, 2007 May 25, 2010 0 0 No Jinghua Independent Xie Zhihua Male 48 May 25, 2007 May 25, 2010 0 0 No Director Zhang Independent Male 64 May 25, 2007 May 25, 2010 0 0 No Baizhe Director Dong Independent Male 56 May 25, 2007 May 25, 2010 0 0 No Ansheng Director Ouyang Independent Male 61 Nov. 16, 2007 May 25, 2010 0 0 No Zhongcan Director Convener of Wu Supervisory Male 41 May 25, 2007 May 25, 2010 0 0 No Wenxue Committee
0 Mu Supervisor Male 40 May 25, 2007 May 25, 2010 2,492 2,492 No Chengyuan Chen Ping Supervisor Female 47 May 25, 2007 May 25, 2010 0 0 No Employee Yang Anle Male 37 May 25, 2007 May 25, 2010 0 0 Yes Supervisor Employee Li Wei Male 43 May 25, 2007 May 25, 2010 0 0 Yes Supervisor Liu Vice Male 43 Aug. 29 2007 May 25, 2010 0 0 Yes Xiaodong President Vice Song Ying Female 50 May 25, 2007 May 25, 2010 24,921 24,921 Yes president Vice president, Wang Chief Male 38 Aug. 22, 2007 May 25, 2010 9,968 9,968 Yes Yanjun Investment Officer Dong Vice Female 44 Aug. 22, 2007 May 25, 2010 0 0 Yes Youmei President General Su Zhiwen Male 38 Oct. 30, 2007 May 25, 2010 0 0 Yes Auditor Chief Sun Yun Financial Female 38 Aug. 22, 2007 May 25, 2010 4,984 4,984 Yes Officer Feng Secretary of Female 35 Aug. 22, 2007 May 25, 2010 0 0 Yes Liqiong the Board Total - - - - - 87,223 87,223 -
2. Main work experience and part-time job of directors, supervisors and senior executives (1) Mr. Wang Dongsheng, 50 years old, Master of Engineering, ever took the posts of st nd Chairman of the Board and President of the 1 and 2 Board of Directors, and rd Chairman of the 3 Board of Directors of the Company, as well as Chairman of Executive Committee, CEO, and the Chairman of the 4th Board of Directors of the Company and Chairman of Executive Committee. Now he takes the posts of Chairman of the 5th Board of Directors, Director of Executive Committee, Director and President of Beijing Electronics Holding Co., Ltd. and concurrently takes the posts of Chairman of the Board of Beijing BOE Investment and Development Co., Ltd., Chairman of the Board of Beijing BOE Optoelectronics Technology Co., Ltd., Director of Beijing Intelligent Kechuang Technology Development Co., Ltd. and Vice President of China Electronic Chamber of Commerce.
(2) Mr. Han Yansheng, 60 years old, Associated Colleges Degree, he had taken the posts of Factory Managing Director, a member of the Communist Party of Beijing No.1 Semiconductor Device Factory, Manager of Adjustment Office of Beijing
1 Government Electronic Office, Deputy Manager of Beijing Government Electronic Office, Director and Deputy General Manager of Beijing Electronic Information Industry (Group) Co., Ltd., Vice Chairman of the 4th Board of Directors. Now he served as Vice Chairman of the 5th Board of Director, Director and Executive Vice President of Beijing Electronic Holding Co., Ltd., Vice Chairman of Beijing BOE Investment and Development Co., Ltd.
(3) Mr. Liang Xinqing, is 55 years old and Senior Engineer. He has taken the posts of Managing Director, Vice President of the 1st Board of Directors, Director of the 2nd Board of Directors, Executive Director, President, COO of the 3rd Board of the Directors, Vice Chairman of 4th Board of Directors. Now he takes the posts of Vice Chairman of the 5th Board of Directors, Chairman of the Board of Beijing Nittan Electronics Co., Ltd., Chairman of the Board of Beijing Asahi Glass Electronic Co., Ltd., Chairman of the Board of Beijing Nissin Electronics Precision Component Co., Ltd, Director of Beijing Matsushita Color CRT Co., Ltd., Director of Beijing Intelligent Kechuang Technology Development Co., Ltd, Director and President of Beijing BOE Investment Development Co., Ltd.
(4) Mr. Chen Yanshun, 41 years old, Master of economics, has ever taken the posts of lecturer of Chongqing Industry & Commerce University. He had served in the Company form the year of 1993, has taken the posts of Secretary of the Board of the 1st Board of Directors of the Company, Secretary and Vice President of the 2nd Board of Directors and Executive Director and Senior Vice President of the 3rd Board of Directors, Executive Director and President of the 4th Board of Directors. Now he th takes the posts of Executive Director and the President of the 5 Board of Directors, Director of Beijing BOE Optoelectronics Technology Co., Ltd., Director of Zhejiang BOE Display Technology Co., Ltd., Chairman of the Board of Directors of Beijing Intelligent Kechuang Technology Development Co., Ltd.
(5) Mr. Han Guojian, 54 years old, Bachelor Degree, Senior Engineer, he successively took Technical Chief Officer in Division under the Company, Deputy General Manager of Beijing Asahi Glass Electronics Co., Ltd. and Chairman of the Board of Beijing BOE YAMATO Photoelectron Co., Ltd., Representative Director and Deputy Proprietor of BOE HYDIS Technology Co., Ltd, Senior Vice President of Beijing BOE Investment Development Co., Ltd. Now he takes the posts of Executive Director of the 5th Board of Directors, Vice President of the Company, Director and General Manager of Beijing BOE Optoelectronics Technology Co., Ltd.
(6) Mr. Wang Jiaheng, 38 years old, MBA, ever took the post of General Manager of Electronic Components Division of the Company. Now he takes the posts of Executive Director of the 5th Board of Directors, Vice President of the Company, Chairman of the Board of BOE Hyundai (Beijing) Display Technology Co., Ltd, Chairman of the Board of BOE (Hebei) Mobile Display Technology Co., Ltd., Chairman of the Board of Suzhou BOE Chatani Electronics Co., Ltd., Chairman of
2 the Board of Beijing BOE Chatani Electronics Co., Ltd., Director of Zhejiang BOE Technology Co., Ltd.
(7) Ms. Gui Jinghua, is 34 years old and Master. She has taken the posts of Project Manager of China National Aero-Technology Import & Export Company, Assistant Manager of Sun Media Group Holdings Limited and Manager of Investment Department of Panasia International Media Holdings Co., Ltd., Director of the 4th Board of Directors of the Company. Now she takes the posts of Director of the 5th Board of the Directors, Deputy Manager of Infrastructure Investment Department and Manager of Strategy Investment Department of Beijing State-owned Assets Management Co., Ltd.
(8) Mr. Xie Zhihua, 48 years old, Doctor in economics, Professor, Instructor of Doctorate and China certified public accountant, ever took the posts of Independent Director of the 3rd and 4th Board of Directors. He now is an Independent Director of th the 5 Board of Directors of the Company, Vice President of Beijing Technology and Business University, Independent Director of Beijing Gehua VATV Network Co., Ltd., Vice President of Accounting Society of Beijing, Vice President of Beijing Society of Finance, Managing Director of Auditing Society of Beijing, Committeeman of Teaching Assessment Experts’ Committee by Ministry of Education, Committeeman of Business Administration Teaching Guidance Committee by Ministry of Education, Committeeman of Title and Vocation Certificate Examination of China Insurance Regulatory Commission, Specially Engaged Professor and Researcher of many Institute for Fiscal Science Research under the State Ministry of Finance.
(9) Mr. Zhang Baizhe, 64 years old, senior engineer of Tsinghua University, Expert in LCD. He has ever worked as Independent Director of the 3rd and 4th Board of the Directors. He is now an Independent Director of the 5th Board of the Directors; Deputy General Manager of Beijing Tsinghua Liquid Crystal Materials Co., Ltd., Executive Director of Beijing TSING Electronics Co., Ltd. and consular of Beijing Tsinghua ERC of Liquid Crystal Technology.
(10) Mr. Dong Ansheng, 56 years old and Doctor of Law, Professor of School of Law of Remin University of China, Doctor Advisor, Researcher of Financial and Securities Institute, Researcher of Finance and Financial Policy Institute, Deputy Director of Civil and Commercial Law Center, he also held the posts of Chinese Counselor-at-law on A shares, B shares, H shares and Hong Kong shares’ issuing and listing for more than 40 companies, had wrote more works in securities field and had rich practical experience. Now he takes the posts of Independent Director of the 5th Board of Directors, Independent Director of Beijing Wangfujing Department Store (Group) Co., Ltd, Independent Director of Beijing Capital International Airport Co., Ltd, Independent Director of Zhejiang New Jialian Electronics Co., Ltd; concurrently councilman and members for many law societies, and Arbitrator of Shenzhen
3 Arbitration Commission.
(11) Ouyang Zhongcan, is 61 years old, Theoretical Physical Scientist. He graduated from Tsinghua University as Automation Major. He worked at Lanzhou Chemical Factory as Assistant Engineer from 1968 to 1978. In 1978 he studied to proceed the Doctor with the major of Liquid Crystal Nonlinear Optics Theroy and won Doctor Degree in 1984. From 1987 to 1988, he researched the fractal growth theory as post- doctoral in Institute of Theoretical Physical, Chinese Academy of Science; during 1987 to 1988, he invited the Free University of Berlin with the position of Alexander von Humboldt Fellow to study the theory of liquid morphology of vesicles following up the professor W. Helfrich who invented the Twisted Nematic Liquid Crystal Display. Then in the year of 1989, he returned to work in Institute of Theoretical Physical, Chinese Academy of Science as Associate Researcher and became researcher in 1992, as the Director there from Dec. 1998 to Mar. 2007. Now he takes the posts of Director of Academic Committee Institute of Theoretical Physical, Chinese Academy of Science; Director of the Council of the national science foundation for post-doctoral Scientists of China; Executive Director of Beijing Science & Technology Committee, Executive Director of Chinese Physical Society, Director of Liquid Crystals Physics Branch; Editor of International Journal of Modern Physics B ( Singapore, from 2004 up to now), Journal of Computational and Theoretical Nanoscience ( America, from 2004 up to now), Soft Materials ( German, from 2004 up to now), and Electronic Communication of Liquid Crystals( America, from 2003 up to now). He was elected as an academician of Chinese Academy of Sciences in 1997, as an academician of the Third World Academy of Sciences.
(12) Mr. Wu Wenxue, 41 years old, Master of Economics, he has taken the posts of the project manager of China Securities Issuing Development, Deputy Director of Beijing Foster Automobile Decorations Factory, Deputy Chief of Comprehensive Management, Deputy Directors of Policies Research Office of Beijing Gongmei Group Company, Deputy General Manager of Beijing Wangfujing Gongmei Building General Manager of Beijing Wolafey Decoration Co., Ltd., Deputy General Manager and a member of CPC Committee of Beijing Gongmei Co., Ltd., Deputy General Manager of China Youfa International Project Design Consulting Co., Ltd, the Convener of the 4th Supervisory Committee. Now he is the convener of the 5th Supervisory Committee, Vice President of Beijing Electronics Holdings Co., Ltd.
(13) Mr. Mu Chengyuan, 40 years old, Bachelor Degree, Economist, ever took the posts of Manager of comprehensive department of Guomao Branch of the Company, Deputy General Manager of Beijing Orient Lighting Lamps Engineering Co., Ltd., Division Chief of Assets Operating and Management Division of Beijing Electronic Tube Factory, Supervisor of the 3rd and 4th Supervisory Committee of the Company, Secretary of the 4th Supervisory Committee. Now he is the Supervisor and Secretary of the 5th Supervisory Committee, Secretary of the Board and standing Vice President of Beijing BOE Investment and Development Co., Ltd.
4
(14) Ms. Chen Ping, is 47 years old, Associated College Agree, and Senior Accountant. He has taken the posts of Deputy General Accountant, Manager of Planning and Financing Department of BOE Investment Development Co., Ltd., Supervisor of the 4th Supervisory Committee of the Company; she is now the Supervisor of the 5th Supervisory Committee, Chief Accountant and Manager of Planning and Financing Department of Beijing Dongdian Industrial Development Co., Ltd.
(15) Mr. Yang Anle is 37 years old, Master. He has taken the posts of Deputy Section Chief of Financing and Accounting Section of Beijing Vacuum Tube Co., Ltd. Manager of Financing and Accounting Department of BOE Investment Development Co., Ltd. Chief Financial Officer of Beijing Dongdian Enterprise Development Co., nd rd th Ltd., Supervisor of the 2 , 3 and 4 Supervisory Committee. He is now the Assistant President, Staff Supervisor of the 5th Supervisory Committee, Deputy Chairman of Beijing BOE Special Display Technology Co., Ltd., Director of Beijing Orient Vacuum Electric Co., Ltd.
(16) Mr. Li Wei is 43 years old, Master. He has taken the posts of Secretary of Communist Youth League and Director of Publicity Department of Beijing·Matsushita Color VRT Co., Ltd., General Manager of Beijing Yansong Hongda Electronics Components Co., Ltd. Now he is Staff Supervisory of the 5th Supervisory Committee of the Company.
(17) Mr. Liu Xiaodong, 43 years old, Undergraduate, Engineer, he ever worked in Research Institute of Beijing Information Optics Apparatus. He successively took the posts of Director, Deputy General Manager and Secretary of CPC of Beijing·Matsushita Color CRT Co., Ltd. and Director of Suzhou BOE Chatani Electronics Co., Ltd. Director and General Manager of Beijing BOE Optoelectronics Technology Co., Ltd., Senior Vice President of Beijing BOE Investment Development Co., Ltd. Now he is President of the Company, Director of Beijing BOE Optoelectronics Technology Co., Ltd., Chairman of the Board of Xiamen BOE Electronics Co., Ltd.
(18) Ms. Song Ying, 50 years old, Senior Accountant, she has ever taken the posts of Division Chief of Planning and Financial Division in Beijing Electronic Tube Factory, Manager of Financial Department, Chief Financial Officer of the Company, Director nd and Executive Vice President of the 2 Board of Directors of the Company, Executive rd Director and Senior Vice president of the 3 Board of Directors. Now she takes the posts of Secretary of CPC and Vice President of the Company and concurrently Vice Chairman of the Board of Zhejiang BOE Display Technology Co., Ltd., Director of Beijing · Matsushita Color CRT Co., Ltd. and Director of Beijing Intelligent Kechuang Technology Development Co., Ltd.
5 (19) Mr. Wang Yanjun, is 38 years old, Graduate Student, EMBA, and Accountant. He ever took the posts of Division Chief in Financial Division of Beijing Electronic Tube Factory, Director of Financial Department, Chief Financial Officer of the Company, Director of Beijing Asahi Glass Electronics Co., Ltd., Director of Beijing Nissin Electronics Precision Component Co., Ltd., Director of Beijing Orient Top Victory Electronics Co., Ltd., Director of Zhejiang BOE Display Technology Co., Ltd., Director of Beijing Star City Real Estate Development Co. Ltd., Director of TPV Technology Co., Ltd, Chairman of the Board of Beijing BOE Land Co., Ltd., Chairman of the Board of Beijing Yinghe Century Science & Technology Development Co., Ltd. Now he is the Vice President concurrently Investment Chief Director, Supervisor of Zhejiang BOE Display Technology Co., Ltd., Director of Beijing Star City Real Estate Co. Ltd, Chairman of the Board of Beijing BOE Land Co., Ltd., and Chairman of the Board of Beijing Yinghe Century Science & Technology Development Co., Ltd.
(20) Ms. Dong Youmei is 44 years old, Bachelor Degree. She has successively taken the posts of Deputy Director of New Product Development Department, Shuguang Electronic Group Co., Ltd, Deputy Chief Engineer, and Deputy Director of Liquid Crystal Center, Tsinghua University, Deputy Chief Technical Officer, and Strategic Chief Technical Officer of the Company. Now she takes the posts of Vice President of the Company, Director of Suzhou BOE Chatani Electronics Co., Ltd., Director of Beijing BOE Chatani Electronics Co., Ltd., Beijing BOE Special Display Technology Co., Ltd., Member of Advisory Committee for the State Information, Part-time Professor of Science School, Beijing Jiaotong University; Executive Vice Director of LCD Division, China Optics and Optoelectronics Manufactures Association; team leader of working group for flat display technology standard, Ministry of Information Industry the Editor of Chinese Journal of Liquid Crystals and Displays, Advanced Display etc. magazines.
(21) Mr. Su Zhiwen, is 38 years old, native of Hong Kong of China, MBA in Hong Kong Technology University, a member of Hong Kong Accountant Association and experienced member of the Association of Chartered Certified Accountants in UK. He has taken the posts of Manager of Check and Consulting Department of PriceWaterhouseCoopers CPAs, Chief Financial Officer of Hong Kong Economic Daily Group and Chairman’s Assistant of the Board of Directors of the Company. He is now the Chief Auditor of the Company, Chief Auditor of Beijing BOE Optoelectronics Technology Co., Ltd.
(22) Ms. Sun Yun is 38 years old, Master of Business. She is the member of CPA Australia and Senior Accountant. She has successively taken the posts of deputy Director, Director of Financial Department of the Company, Deputy Chief Financial Officer, Chief Auditor, Now he is Chief Financial Officer of the Company, Director of Beijing Asahi Glass Electronic Co., Ltd, Director of Beijing BOE Land Co., Ltd., Director of Beijing Yinghe Century Science & Technology Development Co., Ltd.
6 and Supervisor of Beijing Orient Vacuum Electric Co., Ltd.
(23) Ms. Feng Liqiong, is 35 years old, Bachelor Degree and Lawyer. She has taken the posts of Director of Law Affairs Department of the Company. Now she is Chief Law Officer, Secretary of the Board of Directors, Director of BOE Hyundai (Beijing) Display Technology Co., Ltd., Director of BOE (Hebei) Mobile Display Technology Co., Ltd., Director of Beijing BOE Land Co., Ltd., Director of Beijing Yinghe Science & Century Technology Development Co., Ltd.
3. Status of directors and supervisors in employment and receiving payment from Shareholding Units Position in Employment in shareholding Units Name the Name of Shareholders Position Company Vice Beijing BOE Investment Vice Chairman of the Board Chairman Development Co., Ltd. Han Yansheng of the Beijing Electronics Holdings Co., Ltd Director, Executive Vice President Board Deputy Manager of Bejing State-owned Assets Gui Jinghua Director Infrastructure Investment Management Co., Ltd. Department Wu Wenxue Supervisor Beijing Electronics Holdings Co., Ltd Vice President Beijing Dongdian Industrial Chief Accountant, Manager of Chen Ping Supervisor Development Co., Ltd. Planning Financial Department Beijing BOE Investment Vice President, Secretary of the Mu Chengyuan Supervisor Development Co., Ltd. Board of Directors
II. Remunerations for directors, supervisors and senior executives The Nomination, Remuneration and Appraisal Committee of the Board of Directors set down the methods on remuneration, welfare and appraisal for directors and senior executives of the Company, and also conducted the performance appraisal to directors and senior executives. The remuneration and welfare standards would set according to the market remuneration level as well as the real status of the Company and the individual status of the directors and senior executives. The actual remuneration proposed by the Nomination, Remuneration and Appraisal Committee according to the remuneration and welfare standards as well as the results of the performance appraisal, and then would be implemented after submitting to the Board of Directors for examination and approval.
The remunerations (including basic salary, as well as the various rewards, welfare, subsidy, housing allowance, and other subsidies) for the current directors, supervisors and senior executives totaled RMB 7,476,000 (pretax) in the year 2007.
The total amount of remunerations paid to the top three directors that enjoy the
7 highest salaries totaled RMB 2,120,000 (pretax), while the total amount of remunerations paid to the top three senior executives that enjoy the highest salaries totaled RMB 2,285,000 (Pretax).
Allowance for Independent Directors (after-tax): The equivalence in RMB for USD 10,000 per year paid to for Mr. Xie Zhihua, Mr. Zhang Baizhe, Mr. Dong Ansheng and Mr. OuYang Zhongcan, the payment is calculated with actual months in their office term.
In the year 2007, there were 14 directors, supervisors and senior executives that had drawn salaries from the Company, with 1 person drawing salaries below RMB 200,000, 5 persons between RMB 200,000 and RMB 500,000 and 8 persons above RMB 500,000.
III. Changes of directors, supervisors and senior executives in the reporting period Because of adjustment in operation structure of big-size TFT-LCD, as examined and approved by the 32nd meeting of the 4th Board of Directors on Mar. 2, 2007, both Mr. Han Guojian and Mr. Liu Xiaodong, Vice Presidents of the Company, were transferred as Senior Executives of Beijing BOE Investment Development Co., Ltd., the principal shareholder of the Company. They no longer took Vice Presidents of the Company.
On May 21, 2007, as examined and approved by the Group’s Team leader Meeting of Employment Representative Conference of Labor Union, Mr. Yang Anle and Mr. Li Wei were elected as Staff Supervisor of the 5th Supervisory Committee.
On May 25, 2007, examined and approved by the Annual Shareholders’ General Meeting 2006, Mr. Wang Dongsheng, Mr. Han Yansheng, Mr. Liang Xinqing, Mr. Chen Yanshun, Mr. Wang Jiaheng, Ms. Gui Jinghua, Mr. Xie Zhihua, Mr. Zhang Baizhe together with Mr. Dong Ansheng were composed of the 5th Board of Directors, among which, Mr. Xie Zhihua, Mr. Zhang Baizhe and Mr. Dong Ansheng were Independent Directors. Mr. Wu Wenxue, Mr. Mu Chengyuan and Ms. Chen Ping were composed of the 5th Supervisory Committee.
On May 25, 2007, as examined and approved by the 1st Meeting of the 5th Board of Directors, Mr. Wang Dongsheng was selected as Chairman of the Board of Directors, Mr. Han Yansheng and Mr. Liang Xinqing respectively was selected as Vice Chairman of the 5th Board of Directors of the Company, Mr. Chen Yanshun was engaged as President, Mr. Wang Jiaheng was engaged as Executive Vice President, Ms. Song Ying was engaged as Vice President, Mr. Wang Yanjin was engaged as Chief Financial Officer, Mr. Zhong Huifeng was engaged as Secretary of the Board of Directors.
On May 25, 2007, as examined and approved by the 1st Meeting of the 5th Supervisory
8 Committee, Mr. Wu Wenxue was selected as Convener of Supervisory Committee, Mr. Mu Chengyuan was engaged as Secretary of Supervisory Committee.
On Aug.22, 2007, as examined and approved by the 2nd Meeting of the 5th Board of Directors, Mr. Wang Yanjun was appointed as Vice President concurrently Chief Investment Officer who would not take Chief Financial Officer of the Company any more; Ms. Sun Yun was engaged as Chief Financial Officer of the Company, Ms. Dong Youmei was engaged as Vice President of the Company, Mr. Feng Liqiong was engaged as Secretary of the Board of Directors after Mr. Zhong Huifeng resigned from this position.
On Aug. 29, 2007, as examined and approved by the 3rd Meeting of the 5th Board of Directors, Mr. Han Guojian and Mr. Liu Xiaodong were respectively engaged as Vice President of the Company.
On Oct. 30, 2007, as examined and approved by the 6th Meeting of the 5th Board of Directors, the Board of the Directors recommended Mr. Ouyang Zhongcan as a Independent Directors candidate of the 5th Board of Directors, recommended Mr. Han Guojian as a Director candidate of the 5th Board of Directors; and engaged Mr. Su Zhiwen as Chief Auditor of the Company.
On Nov. 16, 2007, as examined and approved by the 5th Extraordinary Shareholder’s General Meeting, Mr. OuYang Zhongcan was elected as Independent Director of the 5th Board of Directors, Mr. Han Guojian was elected as Director of the 5th Board of Directors.
IV. Statement on the employees of the Company By the end of 2007, the number of the employees in service of the Company (including headquarter of the Company and main controlling subsidiaries) totaled 9995, with their work divisions and education levels as follows (Unit: person):
Work Technology Professional Marketing Management Financial Production Other division R & D skills personnel personnel personnel personnel Number 324 996 227 770 130 7269 279 proportion 3.24% 9.97% 2.27% 7.70% 1.30% 72.73% 2.79%
Junior Vocational Educational Doctor & Post- Master Bachelor College School Other background Doctor Graduate Graduate Number 35 274 1235 1357 4801 2293 Proportion 0.35% 2.74% 12.36% 13.58% 48.03% 22.94%
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Chapter V Corporate Governance I. Corporate Governance The Company positively perfected its corporate governance continuously and standardized the operation of the Company in strictly accordance with relevant laws, regulations, rules and normative documents such as Company Law, Administrative Rules of Corporate Governance Rules for Listed Companies in China, Guiding Opinions on the Establishment of Independent Director System in Listed Companies and Rules of Governing The Listing of Stork on Shenzhen Stock Exchange.
In the reporting period, with the requirements of China Securities Regulatory Commission and Beijing Securities Regulatory Bureau, the Company launched the Special Campaign of listed Corporate Governance in time and fulfilled the self- inspection, public comments and rectification. From Aug. 2 to Aug. 3, 2007, Beijing Securities Regulatory Bureau inspected and checked the special campaign in site then issued Supervision Opinion Paper on Corporate Governance of BOE Technology Group Co., Ltd. with JZGSFa [2007] Document No.119.
On Sep.11, 2007, the Company submitted the Reply and Rectification Plan of Supervision Opinion on Corporate Governance with the content of bringing forth the definite rectification scheme and finished time in view of supervision suggestion item by item.
On Oct. 23, 2007, the Synthetic Appraisal Opinion on Corporate Governance of BOE Technology Group Co., Ltd. (JZGSF[2007] Document No.193) issued from Beijing Securities Bureau, which considered that the Three Meetings of the Company operated in accordance with relevant rules; the special committee acted with sufficient effect; Supervisory Committee took the supervision function, also evaluated the Company positively in terms of basic system construction and execution, the control to branch organization, management of raised capital, independency, related transaction, the standardization of controlling shareholder and actual controller, the validity of information disclosure. At the meantime, the General Evaluation Suggestion on Corporate Governance of BOE Technology Group Co., Ltd also brought forward the farther rectification suggestion to request the Company comply with commitment strictly and completed the rectification work on time so as to further improve the level and quality of corporate governance.
In the reporting period, combing to actual situation of the Company and in compliance with the requirements of relevant laws and regulations, the Company revised and perfected the Articles of Association, Rules of Procedure for the Board of Directors, Working Rules on Executive Council of the Board as well as Management Rules on Information Disclosure Affairs, established President Working Rules and compiled the Collection of Corporate Governance and Operating Rules under
10 summarizing the criterion and procedure in aspects of corporate governance and operation, further perfected its corporate governance and internal rules and regulations, and standardized its information disclosure, so as to safeguard the legal right and interests of the Company, shareholders and creditors.
On Nov. 30, 2007, the Company disclosed the Rectification Report of Special Campaign on Corporate Governance, fulfilled the Special Campaign on Corporate Governance smoothly.
II. Duty performance of independent directors The current Independent Directors engaged by the Company are experts in areas of Finance, Law and TFT-LCD etc. respectively. In the reporting period, the Independent Directors had fulfilled their duty strictly in conformity with the Guidelines on Establishing the Independent Director System in Listed Companies, participated the work of all kinds of special committee actively and had expressed independent opinions on resolutions examined and approved by the Board of Directors, also played the important role for strategic decision-making so as to played the Independent Directors’ functions effectively and completely.
1. Attendance of independent directors at the Board meetings in the reporting period: Times of meetings Times of meetings Times of present in person Times of meetings Name should be attended meetings Note (including presenting present by proxy this year absent from written opinions) Zhang Baizhe 12 11 0 1 Xie Zhihua 12 9 0 3 Li Zhaojie 5 5 0 0 Tai Zhonghe 5 2 0 3 Dong Ansheng 7 7 0 0 Ouyang 1 1 0 0 Zhongcan Note: (1) Mr. Zhang Baizhe, Mr. Xie Zhihua, Mr. Li Zhaojie and Mr. Tai Zhonghe were the Independent Directors of the 4th Board of Directors. On May 26, 2007, the Board of Directors of Company operated the regular selection. Mr. Zhang Baizhe, Mr. Xie Zhihua, Mr. Dong Ansheng were elected as Independent Directors of the 5th Board of Directors, which was examined and approved by the Annual Shareholders’ General Meeting 2006. (2) The resolution on electing Mr. Ouyang Zhongcan as Independent Director of the 5th Board of Directors was examined and approved by the 6th Meeting of the 5th Board of Directors held on Oct. 30, 2007 and the 5th Extraordinay Shareholders’ General Meeting held on Nov.16, 2007.
2. In the reporting period, the Independent Directors of the Company expressed their independent opinions concerning related transaction, external guarantee, and senior executives’ engagement in compliance with relevant regulations. 3. The Independent Directors of the Company had no objection to all resolutions
11 examined and approved by the Board of Directors in the reporting period. III. Independence of the Company in business, personnel, assets, organizations, finance and internal audit from the controlling shareholder The Company was separated from the controlling shareholder and the actual controller in terms of businesses, personnel, assets, organizations, finance and internal audit with its independent personnel, independent finance, independent organizations and independent internal audit and integrated assets. The Company owned independent and integrated business and operate capability independently. 1. Businesses: The Company was independent in the business aspect from the controlling shareholder and the actual controller and held its own independent purchase and sales systems; the purchase of main raw materials and the sales of products were all conducted through its own supply and sales systems; the Company also made its own decisions and assumed sole responsibility for its profits and losses, and it had independent and completed businesses and operate capability independently. The related transactions had been conducted according to the market principles in normative, and there were no cases that had done harm to the legal interests of all the shareholders or the Company. 2. Personnel: The Company was completely independent in labor, personnel and remunerations, etc. President, Vice President, Chief Financial Officer, Secretary of the Board as well as other senior executives of the Company all worked full-time and had not held any concurrent posts at the controlling shareholder’s units. 3. Assets: The Company had independent and complete assets and clear ownership, and independently owned the production system, ancillary production system as well as supporting facilities, land use rights and intellectual property rights, etc. Neither the controlling shareholder nor the actual controller had any cases of occupying the Company’s assets. 4. Organizations: The Company had established organizations completely independent from the controlling shareholder and the actual controller, had independent and sound organizations and corporate governance, and had not carried out any work together with the controlling shareholder or the actual controller. 5. Finance: The Company had established independent financial departments, and the finance personnel all worked full-time. The Company had formulated a standard and independent finance accounting system as well as a financial management system targeting at subsidiaries, established the corporate financial management archives and also arranged with relevant management personnel. 6. Internal Audit: The Company established independent internal audit department with full-time auditors. The Company standardized the rules on internal audit and set up the sound internal audit system.
IV. Establishment and improvement of internal audit system of the Company 1. Profile of internal audit of the Company Aiming to fulfill the target of building the normative corporate governance, the Company perfected and improved the internal control continuously. The Company have set up and perfected the relevant rules and regulations such as Shareholders’
12 General Meeting, the Board of Directors and Supervisory Committee to ensure they can exercise the decision-making power, execution power and supervision power. There are three special committees subordinate to the Board of Directors which are Executive Committee, Audit Committee and Committee for Domination, Remuneration and Appraisal. In accordance with related working detailed rules, these three committees undertook the functions of discussing and decision-making for significant events in order to improve the operation efficiency of the Board of Directors. The Company has set up a series of integrated internal control regulations covering corporate governance, financial management, human resource management, external investment management, technology management and information disclosure management. All these rules formed the whole internal control system completely.
2. Internal control on key activities of the Company The internal control on key activities of the Company included the control to controlling subsidiaries, significant investment, related transaction, external guarantee, raised proceeds, information disclosure and IT management. The Company would embody the internal control rules in details; abide laws and regulations of the State strictly during the operation and development of the Company, cultivate the core competencies of their owned anti-risk and control management and act as a corporate citizen of honesty, standardization, transparency and responsibility.
3.The Company produced the Self-appraisal Report on Internal Control for 2007, which KPMG Huazhen Certified Public Accountants examined and approved the said Report and issued the Special Statement of Self-appraisal Report on Internal Control of BOE TECHNOLOGY GROUP CO., LTD.. The said report was disclosed on http://www.cninfo.com.cn on Apr.1, 2008.
V. Performance Appraisal and Incentives Mechanism for the senior executives According to the performance appraisal method, the senior executives would sign an Annual Target Responsibility Paper with the Company and set the work targets, key performance indicators (KPI) as well as the evaluation, reward and punishment standards. Into the work targets accomplishment appraisal would be introduced the quarterly analyses, semi-annual reports and annual appraisal. The examination and evaluation results would decide the remunerations, position shifts as well as the trainings to receive of the senior executives.
13 Chapter VI Shareholders’ General Meeting In the reporting period, The Company held Shareholders’ General Meeting for 6 times, for detail as follow: I. The 1st Extraordinary Shareholders’ General Meeting 2007 On Jan.16, 2007, the 1st Extraordinary Shareholders’ General Meeting was held at Beijing Guomen Hotel. The Public Notice on Resolutions of the 1st Extraordinary Shareholders’ General Meeting 2007 of BOE Technology Group Co., Ltd was published in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Pung Pao on Jan.17, 2007.
II. The 2nd Extraordinary Shareholders’ General Meeting 2007 On Apr. 25, 2007, the 2nd Extraordinary Shareholders’ General Meeting 2007 was held at the Company’s meeting room. The Public Notice on Resolutions of the 2nd Extraordinary Shareholders’ General Meeting 2007 of BOE Technology Group Co., Ltd was published in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Pung Pao on Apr.26, 2007.
III. Shareholders’ General Meeting 2006 On May 25, 2007, the Annual Shareholders’ General Meeting 2006 was held at the Company’s meeting room. The Public Notice on Resolutions of the Shareholders’ General Meeting 2007 of BOE Technology Group Co., Ltd was published in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Pung Pao on May 26, 2007.
IV. The 3rd Extraordinary Shareholders’ General Meeting 2007 On May 31, 2007, the 3rd Extraordinary Shareholders’ General Meeting 2007 was held at the Company’s meeting room. The Public Notice on Resolutions of the 3rd Extraordinary Shareholders’ General Meeting 2007 of BOE Technology Group Co., Ltd was published in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Pung Pao on Jun.1, 2007.
V. The 4th Extraordinary Shareholders’ General Meeting 2007 On Sep. 26, 2007, the 4th Extraordinary Shareholders’ General Meeting 2007 was held at the Company’s meeting room. The Public Notice on Resolutions of the 4th Extraordinary Shareholders’ General Meeting 2007 of BOE Technology Group Co., Ltd was published in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Pung Pao on Sep. 27, 2007. VI. The 5th Extraordinary Shareholders’ General Meeting 2007 On Nov. 16, 2007, the 5th Extraordinary Shareholders’ General Meeting 2007 was held at the Company’s meeting room. The Public Notice on Resolutions of the 5th Extraordinary Shareholders’ General Meeting 2007 of BOE Technology Group Co., Ltd was published in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Pung Pao on Nov.17, 2007.
14 Chapter VII Report of the Board of Directors
I. Operation of the Company
(I) Retrospection of the operation of the company in the report period 2007 is the pivotal year in the development course of the Company and TFT-LCD Business. Suffering market depression and great consecutive reduction of the price for two years, the market is becoming stable gradually. For the products of TET-LCD, the price has been raised since April, and the industry trends to a favorable development of regular supply, reinstitution of cycle and stable expanding of the market. The Company executed the metaphase activity compendium and annual operation firmly, seized the opportunity, and got the best operation achievement after entering into TFT-LCD industry by actualizing “Four Stratagems”, strengthening management, reducing cost, increasing margin profit and improving profit capability. Main achievements:
1. Realizing overall the operation target and other main operation index In the reporting period, benefit from revivification of TFT-LCD market, increment of the price, implementation of measures such as reducing cost, increasing benefit, enhancing production capacity, improving localized raw material supporting ratio, and decreases in financial expense, operation of the Company in 2007 has ultimately improved, and the profitability of the main operations has raised much compared with the same period of last year. The Company realized annual sales revenue about RMB 11.17 billion, operating profit about RMB 595 million and the net profit attributable to owners of the listed company about RMB 691 million, which has increased by large margins compared with the same period of the last year. The company has realized the overall operation target and other main operation index brought by the Board of Directors. In the report period, production of TFT-LCD, which used in IT and small-sized television, has realized 10.1 million pieces and sales volume has realized 10.66 million pieces. The production capacity and sales volumes created the new highest since put into production; Mobile display business has realized module sales about 13.75 million pieces 93% up compared with the same period of the last year, operation of most other business increased at different range and the comprehensive core competition competence promoted obviously.
2. Realizing the profit of TFT-LCD business of the Company and promoting overall core competition competence
The Company made breakthrough progress in TFT-LCD business in 2007, achieved a significant increase in profit and obviously promoted the comprehensive core competition competence. The overall profit capability, operation capability and sale capability promoted obviously by actualizing “Four Stratagems”, expanding sales, reducing cost and strengthening management of supply and demand.
15 In the reporting period, the abilities of technology research & development, technics progress and extending new product were obviously. The effect of increasing production capability is obviously by improving the technics and enhancing the production efficiency; extending new product and promoting the quality of products to meet the need of customers; expanding contribution margin of unit product and the annual sales revenue from new products accounted for over 60% of the revenue.
3. Continuously optimizing financial structure of the Company
The Company fundamentally reversed the financial crisis at the beginning of the year with one year’s effort and the financial structure optimized continuously. The Company paid about RMB 4 billion for the loan of bank in 2007, including BOEOT paid about RMB 1.537 billion. The liabilities of the Company as at the end of 31 December 2007 decreased much compared with that of the last year from 71.9% at the beginning of 2007 down to 58.7%, which was comparatively safe.
4. Pushing the great project orderly as scheduled
(1) BOEOT project of increasing capital and expanding production: Owing the firm actualization of “Four Stratagems” and execution of expanding production from 60K/month to 85K/month, the comprehensive core competition competence of BOEOT has been promoted, which offer guarantee for operation profit. The project of 85K/ month to 100K/month is pushing energetically. (2) Project of Non-public issuance of securities in China: According to the Shareholders’ Meeting, the Board of Directors was energetically pushing non-public issuance of Share A in the reporting period ing and the Company received the Formal Invitation Letter from China Securities Regulatory Commission on 28 December 2007. (3) Project of the 4.5 generation TFT-LCD production line in Chengdu: According to the authorization of Shareholders’ General Meeting, the Board of Directors actively pushed construction of the 4.5 generation TFT-LCD production line in Chengdu. The approval documents, Notice of Record-keeping of the Enterprise Investment of Sichuan Development and Reform Commission with file No. CTZB [5100000710161] 7963, Reply on Environment Impact Report of 4.5 generation TFT-LCD of BOE Technology Group Co., Ltd in Chengdu of State Environmental Protection Administration with file HS[207] No.599, Contract on the Transfer of State-owned Land Use Right with serial No. 5101GXX [2007] CRHT No. 79, has been signed. The tendering and biding of the early project has been completed and order of main equipments has been mostly finished. The construction of 4.5 generation production line will be started in March 2008.
5. As for operations of mobile & application display and product of lighting display, overcame the fiercer market competition, enhanced overall management, improved capability and promoted core competition competence; Enhanced management
16 optimize market structure to overcome sliding down of the industry and market competition, steady the market and ensure normal operation; Pushed the general planning and construction of base of headquarters as scheduled.
(Ⅱ ) Main business scope and overall operation 1. Main operation scope The Company belongs to electronic information industry was engaged in manufacture, sale and research & development of TFT-LCD. The main business scope includes operations of TFT-LCD used in IT & small-sized televisions and mobile and application products, product of lighting display, display system and solutions, other display parts, other display devices & fitting products and international headquarters base.
2. Operation of main business
(1) Breakdown of main operations classified according to products Unit: RMB Yuan Sales income Sales cost Gross Increase or decrease Increase or decrease Increase or decrease Products profit of sales income year- of sales cost year-on- of gross profit ratio ratio on-year (%) year (%) year-on-year (%) TFT-LCD 9,629,527,400 8,048,844,900 16.41% 12.20% -18.96% 204.45% Small-size 1,044,927,900 970,483,400 7.12% 57.05% 72.44% -53.77% flat display Other 1,609,368,600 1,311,528,200 18.51% 26.79% 24.59% 8.44% business Internal -1,113,375,000 -1,066,986,200 4.17% -33.63% -31.04% -46.40% offset Total 11,170,448,900 9,263,870,300 17.07% 26.37% -7.36% 230.06%
(2) Breakdown according to regional distribution Unit: RMB Yuan Regions Operating income in 2007 Increase or decrease of operating income year-on-year China 5,558,000,700 52.90% Other Asian countries 4,857,598,000 9.38% America 473,988,400 0.72% Europe 29,489,500 -86.86% Other countries 251,372,300 266.39% Offset 11,170,448,900 26.37% Total 5,558,000,700 52.90%
(3) Main suppliers and clients The sales of the clients placed before the fifth of sales revenue totaled RMB 4,265,550,000, accounted for 38.19% of the gross sales of the Company; The purchase amount which the front fifth suppliers totaled MRB 2,540,030,000, accounted for 27.42% of the gross purchase.
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3. Analysis on finance
(1) Analysis on change of the assets and the liabilities Unit: RMB’000 Items 31 Dec. 2007 31 Dec. 2006 Increase or decrease margin Main influence factors Notes receivable Revivification of TFT industry, sales volume 17,578 4,911 257.93% increased much compared with that of 1 Jan. 2007 Accounts receivable Revivification of TFT industry, sales volume 179,361 110,625 62.13% increased much compared with that of 1 Jan. 2007 Advance payment Advance Payment for 11,204 5,108 119.34% equipment Interest receivable Due to decrement of fixed 152 288 -47.22% deposit Other receivables Decrement of deposit for 8,060 17,825 -54.78% customs inseption Inventories Revivification of TFT industry, Speeding up 79,170 125,125 -36.73% inventory turnover and decrement of average inventory Financial assets Transfer from long-term 12,911 - - available for sale equity investment of TYP Long-term equity Mainly owing to sale of investment part of equity of associated 64,165 314,436 -79.59% companies and great decrement of net assets of Matsushita Color CRT Long-term deferred Amortization in 2007 127 525 -75.81% expenses Deferred income tax Owing to revivification of assets TFT industry, loss to be 7,633 183 4071.04% recovered up to 31 Dec. 2007 affirmed to be Deferred tax assets Short-term loans Owing to pay for the loan 42,801 244,618 -82.50% of the Company Notes payable Decrease in cost of 5,500 7,487 -26.54% materials and quickening turnover
18 Accounts payable Decrease in cost of 149,899 185,171 -19.05% materials and quickening turnover Accounts collected in TFT industry has reverted advance to prosperous situation and 17,644 2,070 752.37% increase of sales volume than the beginning of year Pay roll Expansion of production and increase of staffs as 15,306 10,502 45.74% well as growth of achievement outstanding Taxes payable Overpaid VAT at the end of 5,027 -9,659 152.04% 2006 Non-current liabilities The Company refunded 69,270 209,830 -66.99% due within one year borrowing Deferred income tax Deferred income tax liabilities 1,933 3 68333.33% liabilities newly recognized by the Company in 2007 Other non-current The Company transferred liabilities 4,680 6,548 -28.53% government subsidies to profit & Loss Retained profit TFT industry has reverted -154,041 -223,135 30.97% to prosperous situation and increase of profit Conversion margin in Appreciation of RMB foreign currency -30 359 -108.36% statements Minority interests TFT industry has reverted to prosperous situation and 95,076 75,799 25.43% increase of profit attributable to minority shareholders
(2) Analysis on change of composition of assets Unit: RMB’0000 31 Dec. 2007 31 Dec. 2006 Increase or Items Main influence factors Amount Proportion Amount Proportion decrease margin Total assets 1,338,127 100.00% 1,655,451 100.00% 0.00% - Accounts Revivification of TFT receivable industry, sales volume 179,361 13.40% 110,625 6.68% 100.60% increased much compared with that of 1 Jan. 2007
19 Inventories Revivification of TFT industry, speeding up 79,170 5.92% 125,125 7.56% -21.69% inventory turnover and decrement of average inventory Investment real - 12,637 0.94% 13,555 0.82% 14.63% estate Long-term equity Mainly owing to sale of investment part of equity of associated companies 64,165 4.80% 314,436 18.99% -74.72% and great decrement of net assets of Matsushita Color CRT Net amount of 689,728 51.54% 791,348 47.80% 7.82% fixed assets Construction in 5,475 0.41% 6,443 0.39% 5.13% progress Short-term loans Owing to pay for the 42,801 3.20% 244,618 14.78% -78.35% loan of the Company Long-term loans Owing to pay for the 449,467 33.59% 508,364 30.71% 9.38% loan of the Company
(3) Analysis on change of expense and income tax in the reporting period Unit: RMB’0000 Items 31 Dec. 2007 31 Dec. 2006 Increase or Main influence factors decrease margin Sales expenses The former subsidiary Company BOEHYDIS Co., Ltd of the Company was 19,785 22,536 -12.21% not in range of consolidation since Sep. 2006, which caused sales expenses of 2007 much lower compared with that of 2006 Administrative The former subsidiary Company expenses BOEHYDIS Co., Ltd of the Company was not in range of consolidation since Sep. 55,982 88,653 -36.85% 2006, which caused administative expenses of 2007 much lower compared with that of 2006 Financial Expenses 1. The former subsidiary Company BOEHYDIS Co., Ltd of the Company was not in range of consolidation since Sep. 28,985 63,075 -54.05% 2006, which caused financial expenses of 2007 much lower compared with that of 2006 2. Interest of the loan of bank paid by the
20 Company decreased. Income tax Owing to revivification of TFT industry, loss -5,631 1,290 -536.51% to be recovered up to 31 Dec. 2007 affirmed to be Deferred tax assets
(4) Analysis on Cash flow change of the Company Unit: RMB’0000 Items 31 Dec. 2007 31 Dec. 2006 Increase or decrease margin Main influence factors Net cash flow arising from Revivification of TFT operating activity 229,210 83,621 174.11% industry and great increase of profitability Net cash flow arising from selling equity of 201,659 -19,327 1143.41% investing activity associated of companies Net cash flow arising from Due to pay for loan of -429,320 -33,338 1187.78% financing activity the bank
4. Analysis on the operations and business achievements of the major controlling companies and shareholding companies
(1) Subsidiary companies Unit: RMB’0000 Name of Company Main products Registered Total Net assets Operation Operation Net capital assets income profit profit Beijing BOE Development USD 550 Photoelectricity and production million 920,775 361,003 962,953 82,229 98,046 Technology Co., Ltd. of TFT-LCD (2) Shareholding companies Unit: RMB’0000 Name of Company Main Registered Total Net assets Operation Operation Net profit products capital assets income profit Beijing Panasonic Color picture JPY Color Picture Tubes tubes 28,412,282,664 237,223 171,280 232,327 -16,801 -59,388 Co., Ltd. Note: With influence of substitution effect of LCD industry, the global CRT industry shrunk rapidly and trend the whole industry appear to loss. The subsidiary cooperated company of the Company appeared to operation loss in 2007, and the trend of shrink of the whole industry will be lasted in the coming years. The subsidiary cooperated company of the Company evaluated the relevant assets of the Company according to relevant regulations.
Ⅱ Outlook of the development of the Company in future
1. The macro-economy policy
21 Development of TFT-LCD industry is largely encouraged by the country, which brought forward definitely to develop display products with high definition and large screen and to establish industry chain between flat panel display materials and device in National Outlines for Medium and Long-term Planning for Scientific and Technological Development (2006-2020). The Ninth Five-Year Plan of the People's Republic of China for National Economic and Social Development and the Outline of the Long-Term Target for the Year 2010 indicated that electronics is the pillar industry of national economy of China; LCD will be one of the development keys in new-type electronic components and LCD is listed into the Catalogue of Industries, Products and Technology Currently Particularly Encouraged by the State for Development. The State Council claimed definitely that TFT-LCD industry shall be the one of the special items of electronic components which was greatly pushed and supported in the period of the eleventh five-year plan. Development of display products with high definition and large screen was listed to be the preceded selection which is supported emphatically by the country in National Outlines for Medium and Long-term Planning for Scientific and Technological Development. General Office of National Development and Reform Commission Concerning Announcement on Execution of Organization of Special Items of New-typed LCD Industry Structure issued by National Development and Reform Commission on 6 Dec. 2007, and organize to execute Special Items of New-typed LCD Industry Structure by Development and Reform Commission.
TFT-LCD industry has become the basis of the industry in the information era and the strategic meaning of the country is very important. The development of TFT-LCD industry in Chinese mainland plays a very important role in accelerating the healthy development of electronic information industry in our country and improvement of technology of information, material, equipment, system and safety of the country. Premier Minister Wen jiabao brought forward “Continue to execute special items of a passel high technology industry such as new-typed display, broadband telecommunication and network and biological medicine” in government report of the First Session of 11th National People’s Congress, which pointed out the policy direction of the development of flat panel display and parts.
2. Development trend of the industry and opportunity of the Company
Electronic information industry is still the upgrade and development motivation of global industry and the important position of FPD, as representative product of TFT- LCD, was more obviously. The research of DisplaySearch indicated that total production sales of global FPD achieved USD 101.9 billion, which will break through USD 150 million. The rapid development of FPD industry urged the overall display industry trend to be state of flat panelize. It forecasted that proportion of FPD will rise further in the coming three years. As for the leading of current flat panel technology, the market scale of TFT-LCD accounts for 85% of FPD. According to the information offered by DisplaySearch,
22 TFT-LCD industry shall increase at the average annual growth rate 15% in the coming four years. TFT-LCD industry in Chinese mainland shall meet the rare opportunity. TFT-LCD industry experienced the first development step which characterized “persistent investment, promotion of performance and reduction of cost” and shall enter in the second development step which characterized “creation of value, innovation of technology and transformation of mode”. The application area of TFT- LCD is expanding, which experienced notebook, monitor and television three steps, then expanded to wider field like public information display, more advanced television, electronic newspaper, multifunctional integrate information product, personal digital product etc. TFT-LCD display exists in everywhere.
3. Development stratagem of the Company The vision for BOE Technology Group Co., Ltd is to become the leading enterprise in global display field. The Company will keep firm in ideal and faith, with Concept of Scientific Development as guide, with accumulation and promotion of core competition competence and actualization of maximizing enterprise value as target, persist in stratagem direction of accuracy and dealing with concrete matters relating to work, enhance the execution; persist in with market and client as guide and seek active development; persist in independent innovation, branding BOE Technology Group Co., Ltd with technology; persist in intensive development and pursue maximum of resource benefit; persist in “teamwork, speed and quality” and enhance competition competence; persist in human-oriented and ensure many elites in the Company.
4. Outlook of development of relevant operation unit
(1) TFT-LCD operation used in IT and small-sized television
Further, firmly and continuously fulfill the four stratagems “Maximum of margin profit of each mother glass, sales drives production, high efficiency of working capital and getting the upper hand by quality and speed”, continuously promote the innovation of technology, sales & marketing and management, reduce the cost, enhance profitability and tap potential of the fifth TET-LCD.
(2) TFT-LLCD used in mobile and application products
Elaborate layout, organization and direction of project of the 4.5 generation production line, not only ensuring the quality, budget, plan and successful volume production, but also the pivotal works such as increasing the clients, research and development of products, management of supply and employer training. Meanwhile, make use of the accumulative knowledge and successful experience of the Fifth Line to guarantee the success of operation.
(3) Display lighting products
23 With the object of establishing long-term stable benefit model, establish the competitive supply system, promote innovation ability of technology and management continuously, reduce cost, increase added-value, improve marketing capability, solidify and expand strategic client’s relationship, improve the clients’ class and increase the enterprise value.
(4) Display system and solutions
Strengthen the cooperation with clients and suppliers by improvement ability of sales, technology and management, and established high value extending operation when actualize creation of value.
(5) Other display devices & fitting products Exert fully the advantage of current resource, optimize product structure and promote ability of benefit. Manoeuvre every positive energy and active factors to guarantee the products to be the most competitive and most effective; meanwhile, make full use of human resources, material resources and management technology and seek new opportunity of development.
(6) International headquarters base Accelerate the integration of property of the base, cultivate the talent, amplify the organization, strengthen the management and improve the capacity of operation development. Accumulate fund, talent and experience by development of the base to extent development, follow in order and advance step by step and operate steadily, and supply long-term stable cash flow and profit.
Ⅲ. Investment in the report period of the Company 1. Usage of proceeds raised in the report period (1) Usage of primary proceeds raised in the report period Unit: RMB’0000 Total amount of Total amount of raised proceeds used as of the 6,989 raised proceeds 186,000 report year Total amount of raised proceeds used 52,261 accumulatively Committed Projects Changed Planned Actual Compliance with Estimated Accrued amount projects or not investment investment planned progress earnings of earnings amount amount or not Increase capital and production capacity project of No Yes 32,971 Good 74,520 39,112 Beijing BOE Optoelectronics Technology Co., Ltd. Production line 250,000 - - 33,017 -
24 project of Color Yes Filter used by large-size TFT-LCD Total - 324,520 39,112 - 65,988 - Explanation on failing to catch up with the planned progress or get the expected gains (with No details down to each project) Explanation on the Owing to the raised proceeds was not enough, CF project cannot actualize investment and construction project changes and as scheduled. procedure of changes (with details down to each project) Usage of the raised Usage changed to the second Increase investment and production of the fifth TFT-LCD production line proceeds not used yet of Beijing BOE Optoelectronics Technology Co., Ltd and complementarity of the liquid capital of the Company.
(2) Usage of raised proceeds after change Unit: RMB’0000 Total amount of changed investment 80,419 project Projects after change The relevant Planned Actual Compliance Estimated Accrued committed investment investment with earnings of amount of projects amount of amount of planned changed earnings changed changed projects progress or project projects not the second Increase Production investment and production line project of the fifth TFT-LCD of CF used Yes 67,739 - 21,668 - production line of Beijing by large-size BOE Optoelectronics TFT-LCD Technology Co., Ltd Complementarity of the Production working capital line project of CF used 12,680 12,680 Yes 747 - by large-size TFT-LCD Total - 80,41912,680 22,415 - Explanation on failing to catch up with the planned progress or get the -
25 expected gains (with details down to each project)
2. Significant investments with non-raised fund Unit: RMB’0000 Name of projects Investment amount of Progress of projects Accrued earnings of project project Invested and established Xiamen BOE Technology 3,750 Completed Good Group Co., Ltd Special display 4,000 Completed Good Invested and established Vacuum Technology Co., 2,315 Completed Good Ltd Workshop construction of BOE Technology Group 3,576 Completed Good Ltd in Heibei Workshop of reconstruction of UP3 6,939 Processing as schedule Good
Ⅳ Routine work of the Board of Directors (Ⅰ) In the report period, particulars and resolutions of the Board of Directors of the Company In the report period, the Board of Directors held twelve meetings, including six meeting held through telecommunication. Details of the meetings are as follows: 1. The 31st meeting of the 4th Board of Directors was held on Feb. 10, 2007. Public notice on resolutions was disclosed on Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Feb. 13, 2007. 2. The 32nd meeting of the 4th Board of Directors was held on Mar. 12, 2007. Public notice on resolutions was disclosed on Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Mar. 28, 2007. 3. The 33rd meeting of the 4th Board of Directors was held on Apr. 5, 2007. Public notice on resolutions was disclosed on Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Apr. 6, 2007. 4. The 34th meeting of the 4th Board of Directors was held on Apr. 25, 2007. Public notice on resolutions was disclosed on Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Apr. 27, 2007. 5. The 35th meeting of the 4th Board of Directors was held on May 14, 2007. Public notice on resolutions was disclosed on Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on May 15, 2007. 6. The 1st meeting of the 5th Board of Directors was held on May 25, 2007. Public notice on resolutions was disclosed on Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on May 26, 2007. 7. The 2nd meeting of the 5th Board of Directors was held on Aug. 22, 2007. Public notice on resolutions was disclosed on Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Aug. 28, 2007. On Sep. 1, 2007, the Correction Announcement was disclosed on the above media. 8. The 3rd meeting of the 5th Board of Directors was held on Aug. 29, 2007. Public notice on resolutions was disclosed on Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Aug. 31, 2007.
26 9. The 4th meeting of the 5th Board of Directors was held on Oct. 8, 2007. Public notice on resolutions was disclosed on Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Oct. 9, 2007. 10. The 5th meeting of the 5th Board of Directors was held on Oct. 25, 2007. The Third Quarter Report of the BOE Technology Group Co., Ltd in 2007 has been reviewed and approved. Public notice on resolutions was disclosed on Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Oct. 29, 2007. 11. The 6th meeting of the 5th Board of Directors was held on Oct. 30, 2007. Public notice on resolutions was disclosed on Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Nov. 1, 2007. 12. The 7th meeting of the 5th Board of Directors was held on Nov. 29, 2007. Public notice on resolutions was disclosed on Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Nov. 30, 2007.
(Ⅱ) Execution of the proposals passed at the Board of Directors In the report period, the Board of Directors actively pushed the execution of the proposals passed at the Shareholders’ Meeting. Details of execution are as follows: 1. Execution of application on mortgage loan Owing to the improvement of operation and liquid capital of the Company, the mortgaged loan has not been executed in the report period.
2. Execution of parts of equity reorganization of big-sized TFT-LCD business In order to actualization of no loss in 2007 and avoid the risk of suspension of stock trading, the Second Special Shareholders’ Meeting in 2007 was held on Apr. 25, 2007. Proposals on Part of Equity Transfer of Big-sized TFT-LCD Business has been reviewed and approved. According to the proposals, the Board of Directors authorized to transact the part of equity transfer of big-sized TFT-LCD (referred as Divestiture and Reorganization hereinafter) Owing to the hypothesis of Divestiture and Reorganization in the second half year of 2007 has been changed greatly: TFT-LCD industry was resuscitated and profit of the relevant operation increased and the investor of capital market was optimistic about the outlook of development of TFT-LCD industry. Meanwhile, part of shareholders of the company advised to review the proposal of Divestiture and Reorganization of big- sized TFT-LCD business by calls, E-mails and letters. In condition that TFT-LCD industry and capital market turn resuscitated, in order to protect all shareholders’ profit, proposal of Divestiture and Reorganization of big-sized TFT-LCD business will be stopped, which shall be reviewed and approved by the Fourth Special Shareholders’ Meeting on Sep. 26, 2007. In the process of execution of the above-mentioned proposals passed at the Shareholders’ Meeting, in order to guarantee the execution of proposals, the Board of Directors communicated with Shareholders, the examination & approval government institution and relevant supervision institution many times and got understanding and approval of them, executed the overall proposals passed at the Shareholders’ Meeting and safeguard the shareholders’ legal equity furthest.
27 3. Execution of resolution of sales of equity of TPV Technology Limited In the reporting period, the Board of Directors, authorized by the Shareholders’ General Meeting, placed 200 million equities of shareholding company TPV Technology Limited to Hongkong Securities Market at the price of HKD 5.3/share (The transaction amount was HKD 1.06 billion) on Jan. 23, 2007; signed Agreement on Share Transfer with China Great-Wall Computer Shenzhen Co., Ltd (referred as Great-wall Computer hereinafter) On May 14, 2007, and sales 200 million equities of shareholding company TPV Technology Limited to Great wall Company at the price of USD 5.7/ share(The transaction amount was HKD 1.14 billion ). The two above-mentioned placement and transaction has been completed. Nowadays, the Company is still holding 24,360,192 shares of TPV Technology Limited.
4. Execution of non-public issuance of Share A In the report period, the Board of Directors, authorized by the Shareholders’ Meeting, actively pushed the non-public issuance of Share A and has reported Application Document on Non-public Issuance of Share A of BOE Technology Group Co., Ltd in 2007 to China Securities Regulatory Commission on Dec. 21, 2007 and received the Formal Invitation Letter on Dec. 28, 2007. At present, the project is in process of review and approval.
(Ⅲ ) Responsibility Performance of the Special Committee of the Board of Directors In the report period, according to regulations stipulated by Administrative Rules of Corporate Governance for Listed Companies, the Articles of Association of the Company, and the investitive responsibilities and obligations regulated by Regulations and Rules of the Special Committee, the three Special Committee of the Board of Directors performed the responsibilities and developed prominent work:
1. Responsibility Performance of Executive Committee of the Board of Directors In the reporting period, according to regulations stipulated by Code of Corporate Governance for Listed Companies in China, Articles of Association and Rules of Executive Committee of the Board of Directors, Executive Committee of the Board of Directors execute stratagem management, harmony and supervision of important operation activities. In the period of adjournment, the Board of Directors planned the great stratagem of the Company; prepared investment and financing project; examined and verified annual business plan seriously; closely supervise important operation activities, and play an important role in the healthy and stable development of the Company in 2007.
2. Responsibility Performance of Audit Committee of the Board of Directors In the reporting period, according to regulations stipulated by Code of Corporate Governance for Listed Companies in China, Articles of Association and Rules of Audit Committee of the Board of Directors, Audit Committee of the Board of Directors seriously performed its responsibility. Before deliberation of the periodic report of the Board of Directors, the Audit Committee held special meeting to discuss, heard the report of head of auditors, express opinion and gave constructive proposals
28 on internal control and finance audit of the Company. Audit Committee considered that the accounting policy of the Company was stable and health, the finance report was comprehensive and authentic, which complied with the According to the realize and communication with KPMG Certified Public Accountants, the Audit Committee considered that Accounts owned professional teams of auditors and advance technology, the team of auditors were precise and conscientious and were familiar with operation development of the Company. The Audit Committee advised to retain KPMG Certified Public Accountants as the annual auditor for 2008. The Audit Committee always concerned the recruitment and setup of supervision department which was responsible for the internal control of the Company and requested to report and explain the internal control of the Company. The Audit Committee considered that the internal audit system was actualized effectively and the internal control is effective.
3. Responsibility Performance of Nomination Committee, Remuneration Committee and Appraisal Committee of the Board of Directors In the reporting period, according to regulations stipulated by Administrative Rules of Corporate Governance for Listed Companies, the Articles of Association of the Company, and Rules of Nomination Committee, Remuneration Committee and Appraisal Committee of the Board of Directors, Nomination Committee, Remuneration Committee and Appraisal Committee of the Board of Directors seriously performed responsibilities and obligations endued by the Board of Directors, strictly executed the procedure of election of directors and examination & appraisal of directors and senior managers. Nomination Committee, Remuneration Committee and Appraisal Committee of the Board of Directors has examined and verified the remuneration of directors, supervisors and senior managers of the Company, which is considered to be authentic and accurate.
Ⅴ Preplan on profit distribution and preplan on capitalization of public reserves of 2007 As audited by KPMG Huazhen Certified Public Accountants, the consolidated net profit of the Group was RMB 897,106,952 in 2007, and the net profit attributable to the parent company was RMB 690,945,815. Up to Dec. 31, 2007, the accumulative retained profit of the Group, which was accumulative loss, was RMB -1,540,405,268.
According to the provisions stipulated by laws and regulations such as the Company Law of the People's Republic of China, Questions and Answers on the Standards for Information Disclosure by Companies that Offer Securities to the Public (No. 3) China Securities Regulatory Commission: Source, Procedure and Disclosure of Reparation of Accumulative Loss and regulations stipulated in Article Association of the Company, owing to accumulative loss has not been repaired, the profit distribution and plan on capitalization of public reserves of the Company of 2007 was not
29 implemented.
Ⅵ The disclosure newspapers selected by the Company in 2008 were China Securities Journal, Securities Times , Shanghai Securities News and Hong Kong Ta Kung Pao.
30 Chapter VIII. Report of the Supervisory Committee
I. Work of the Supervisory Committee In 2007, the Supervisory Committee fulfilled its duties strictly in accordance with the Company Law, Article of Association and the Rules of Procedure of the Supervisory Committee. Moreover, members of the Supervisory Committee conducted supervision over the convening procedures and the decision-making procedures of the Shareholders’ General Meeting and the Board of Directors, the implementation of the resolutions of the Shareholders’ General Meeting by the Board, as well as the operation on the decision of the Company. The Supervisory Committee supervised the Board of Directors and the Managements to work legally and make decision reasonably, which ensured the Company’s finance could be worked out canonically and safeguarded the interest of the Company and its shareholders. The Supervisory Committee held 4 meetings in the report period. All of the supervisors presented the Board meetings and participated in the discussion on significant events, as well as appraised the periodic reports and issued the written review opinions. The meetings held by the Supervisory Committee were listed with details as follows:
1. On Apr. 25 2007, the 11th meeting of the 4th Supervisory Committee of the Company was held, at which some documents were examined and approved, including the Work Report of the Supervisory Committee 2006, the Text and Summary of the Annual Report 2006, the 1st Quarterly Report 2007, Annual Internal Control Self-evaluation Report 2006, the Proposal on the Routine Related Transaction in 2007, Self-inspection Report on Special Campaign to Strengthen the Corporate Governance of Listed Company, and the Proposal on the Election at Expiration of Office Terms for the Supervisory Committee. The public notices on the resolutions were published by the Company in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on Apr. 27, 2007.
2. On May 25, 2007, the 1st meeting of the 5th Supervisory Committee of the Company was held, in which considered and approved the Proposal on Electing Convener of the Supervisory Committee for the Company, and the Proposal on Employing Secretary of the Supervisory Committee. The public notices on the resolutions were published by the Company in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao on May 26, 2007.
3. On Aug. 22, 2007, the 2nd meeting of the 5th Supervisory Committee of the Company was held, in which considered and approved the Semi-annual Report 2007.
4. On Oct. 25, 2007, the 3rd meeting of the 5th Supervisory Committee of the Company was held, in which considered and approved the 3rd Quarterly Report 2007.
31 II. The Supervisory Committee issued opinions on the following matters:
1. Operation according to the laws According to the related national laws and rules and the Article of Association of the Company, in the report period the Company established sound Legal Person Governance and relatively perfect Internal Control System. The procedure on decision-making of the Company was in line with the laws and rules. Moreover, no directors and the senior management staff of the Company were found to violate laws, regulations and the Articles of Association of the Company or harm the interests of the Company and shareholders when they performed duties.
2. Financial inspection In the opinion of the Supervisory Committee, the Company had sound financial system and standardized accounting calculation. The financial report objectively, fairly and truly reflected the Company's financial position and operating results. The KPMG Huazhen certified Public Accountants audited the Financial Report of the Company 2007 and issued the standard unqualified auditor's reports on the Company's financial affairs for 2007.
3. Application of raised funds The Company non-publicly issued A share for 675,872,095 shares on Oct. 2006, utilized the raised proceeds for increase investment capacity project in BOE Optoelectronics (Increase Investment Capacity Project) and the project of Color Filter (CF) production line for large size TFT-LCD (CF Project). In the report period, the capital for Increase Investment Capacity Project followed project plan and was implemented successfully, while the CF Project wasn’t implemented due to the shortage of raised proceeds. The Company would implement CF Project by postponement, which was considered and approved in the 3rd meeting of the 5th Board of Directors and the 4th Annual Shareholders’ General Meeting 2007 of the Company. Therefore, the untapped raised proceeds was used for the second Increase Investment Capacity Project in Gen5 production line of TFT-LCD and working capital of the Company for complement based on the additional investment required by BOE Optoelectronics. The Supervisory Committee believed that, the stop of the previous raised proceeds projects and the changes on usage of the raised proceeds complied with the actual producing and operating statue of the Company, of which the procedure was legal and effective as the Company conducted special management for the raised proceeds based on rules.
4. Opinions on transaction of purchase and sales of assets In the reporting period, the Company conducted the transaction of selling the held shares of TPV Technology Limited and the held equities of Beijing Star City Real Estate Development Co., Ltd (Star City Real Estate). In the opinion of the Supervisory Committee, the voting procedure on the previous transaction was legal,
32 public, fair and reasonable; no internal transaction harmed part of shareholders’ equity or caused the asset loss of the Company, which was in line with the demand on the business development of the Company.
5. Opinions on the related transaction In the reporting period, the related transactions existing between the Company and the related parties were equal with fair value, which did not harm the interest of the Company and its shareholders.
33 Chapter IX. Significant Events I. Significant lawsuits and arbitrations 1. Beijing Star City Real Estate Development Co., Ltd paid RMB 44,579,247 for counterclaim & debt, guarantee expense and removal expense. So far, the case has been mediated by the Second Intermediate People Court of Beijing and the Reconciliation Agreement was signed on Sep. 26, 2007, in which prescribed the 6th and 12th floor of office building of C building of Star City International Edifice (tagging floor) and 2 parking spots located underground 3rd floor and RMB 1,801,945.35 was paid for the debt to the Company of RMB 44,579,247. On Sep. 27, 2007, the court issued Civil Mediation Agreement based on the above Reconciliation Agreement. On Oct. 18, 2007, Star City Real Estate handed over the land and money for debt to the Company. Star City Real Estate should discharge all the loan interest that needed paying for the mortgage of the 6th and 12th floor of office building (tagging floor) within 300 days since the date of signing the reconciliation agreement due to the 6th and 12th floor of office building of C building of Star City International Edifice being mortgaged to Beijing Zhongguan Village Branch, China Minsheng Banking Corp., Ltd. Otherwise, the Company had the rights to quit the above agreement on liquidation of debt and apply to execute the above resolution on debt compulsively by the court. So far, the Company has sealed up the land usufruct of garden in No. 10 Jiuxing Bridge Road, Beijing belonged to Star City Real Estate and underground 1st, 2nd, 3rd floor of garage in the construction of Star City International Edifice, as well as the property of FC6-F6, FC12-F12, FC13-F15 of C building of Star City International Edifice, with quota RMB 44,579,247.
2. Beijing BOE Real Estate Co., Ltd., subsidiary of the Company, claimed for compensation, economic loss and caution money total RMB 49,909,384.60 from Star City Real Estate. So far, the case has been mediated by the Second Intermediate People Court of Beijing and the Reconciliation Agreement was signed on Sep. 26, 2007, in which prescribed the 19th and 20th floor of office building of C building of Star City International Edifice (tagging floor) and 46 parking spots located underground 3rd floor and RMB 2,017,395.74 was paid for the debt to Beijing BOE Real Estate Co., Ltd of RMB 49,909,382. On Sep. 27, 2007, the court issued Civil Mediation Agreement based on the above Reconciliation Agreement. On Oct. 18, 2007, Beijing BOE Real Estate Co., Ltd and Star City Real Estate signed the Contract about Buying and Selling Houses for the 19th and 20th floor of office building of C building of Star City International Edifice (tagging floor) on net, also handed over all the above property for debt. So far, Beijing BOE Real Estate Co., Ltd has sealed up in turn the land usufruct of garden in No. 10 Jiuxing Bridge Road, Beijing belonged to Star City Real Estate and underground 1st, 2nd, 3rd floor of garage in the construction of Star City International Edifice, as well as the property of FC6-F6, FC12-F12, FC13-F15 of C building of Star City International Edifice, with quota RMB 49,909,384.60.
34
II. Events on purchase and sales of assets and enterprises combination 1. Event on integrating with domestic TFT-LCD enterprises On Dec. 21, 2006, the Company signed Letter of Intent with the following companies: Shanghai SVA (Group) Co., Ltd, SVA Electron Co., Ltd, SVA Information Industry Co., Ltd, Kunshan Economic & Technological Development Zone Asset Management Co., Ltd, and Dragon Soaring Holding Limited. All the sides wanted to set up new companies or choose the existing ones to be specialized companies due to their own business of TFT-LCD (including large size TFT-LCD display and the capital and cash from upstream and downstream), which would be the TFT-LCD union platform for each other. Given the asset for the reorganization and integration project was huge, the work was complicated, and the time to get the prophase approval from government was expected a little longer, each side signed Agreement of Intent on Complement for Letter of Intent on Jun. 21, 2007, in which agreed to prolong the period of validity for the Letter of Intent on reorganization project, i.e. changing the date before Jun. 30, 2007 to Sep. 30, 2007 or before, as well as the final legal document for reorganization project (including but not restricted to the Restructuring Agreement and the Joint Venture Contract and Article on specialize companies. On Dec. 29, 2007, the Company published Reminder Announcement, telling the technological obstacle in integration operation caused the general proposal achieved by all parties couldn’t be carried out and the Three Parties Integration did not developed substantively.
2. Event on selling the held shares of TPV Technology Limited On Jan.23, 2007, the Company conducted a placement of 200 million held shares of TPV Technology Limited (TPV Technology for short) to Hong Kong Securities Market at the price of HKD 5.3 per share, totaling HKD 1.06 billion. On May 14, 2007, the Company and China Greatwall Computer Shenzhen Co., Ltd (Greatwall Computer for short) signed Share Transfer Agreement. The Company sold 200 million held shares of TPV Technology to Greatwall Computer at the price of HKD 5.7 per share, totaling 1.14 billion, which was completed on Dec. 24, 2007. The above sales affairs has won No Comment Letter (ZJGS Zi [2007] No. 70) issued by CSRC and was considered and approved in the 3rd Extraordinary Shareholders’ General Meeting of the Company 2007 (held on May 31, 2007). On Nov. 16, 2007, the Ministry of Finance published Notice of the Ministry of Finance on Printing and Distributing Interpretation No.1 to the Accounting Standards for Enterprises (CH [2007] No. 14). As the Company belonged to dually listed company, the long-term investment balance of TPV Technology from the Company should be made accordingly by retroactive adjustment on Jan. 1, 2007 (the date of initial implementation) according to the notice requirement. Please refer to the financial report for details.
3. Event on reorganization in part of equities of Large Size TFT-LCD The event on reorganization of Large Size TFT-LCD was considered and approved at the 32nd meeting of the 4th Supervisory Committee of the Company held on Mar. 12, 2007 and the 2nd Shareholders’ General Meeting 2007 held on Apr. 25, 2007.
35 In view of the TFT-LCD industry having got better since May, 2007, part of the shareholders suggested that the Company should suspend the reorganization work on bolt-off divestment to Large Size TFT-LCD via phones and e-mails. The proposal on Stopping Implementation on Transferring Part of Equities of Large Size TFT-LCD was considered and approved at the 3rd meeting of the 5th Board of Directors held on Aug. 29, 2007 and the 4th Extraordinary Shareholders’ General Meeting 2007 held on Sep. 26, 2007.
4. Event on selling the held equities of Beijing Star City Real Estate On Oct. 30, 2007, the Proposal on Transferring the Held Equity of Beijing Star City Real Estate was considered and approved at the 6th meeting of the 5th Board of Directors. The Company would transfer 40% held equity of Beijing Star City Real Estate to Xiong Shi Investment Pte Ltd, with consideration equaling to RMB 60 million in Singapore Dollar. By the end of the report period, the transaction was still under way.
5. Event on non-public issuance of A share The Proposal non-public issuance of A share was considered and approved at the 3rd meeting of the 5th Board of Directors held on Aug. 29, 2007 and the 4th Extraordinary Shareholders’ General Meeting held on Sep. 26, 2007. On Dec. 28, 2007, the Company received Official Acceptance Letter from CSRC.
III. Significant related transactions 1. Related transaction correlated to daily business The transactions of the Company with the related parties were carried out based on market principle and the Annual Daily Related Transaction Limit 2007 which was approved at the Shareholders’ General Meeting. Please refer to relationship of related parties and relevant contents in Note of Accounting Statements with details. 2. No related transaction on purchased and sales of assets occurred. 3. No related transaction on external investment by the Company and related parties occurred. 4. Claim & debt and guarantee between the Company and the related parties At the end of the report period, Beijing Electronics Holding Co., Ltd, actual controller of the Company, provided a joint responsibility guarantee for loan of RMB 740,000,000 of BOE Optoelectronics, the shareholding subsidiary company. The guarantee amount paid by the Company in 2007 was RMB 5,739,395.
IV. Significant contract and their implementation 1. There were no events of trusteeship, contract and tenancy in the report period.
2. Significant guarantees (1) External guarantees Zhejiang BOE provided guarantee for Zhejiang Huanyu Construction Group Co., Ltd., and the ceiling of guarantee was RMB 45.41 million (year 2006: RMB 40 million). On Dec. 31, 2007, the actual balance of this guarantee debt was RMB 45.41 million (year 2006: RMB 32,207,100). The term of this debt is from Jun. 12, 2007 to Jul. 6, 2008. Zhejiang BOE provided guarantee for Zhejiang Yuegong Steel Structure Co., Ltd., and the ceiling of guarantee was RMB 20 million (year 2006: RMB 0). On Dec. 31,
36 2007, the actual balance of this guarantee debt was RMB 15 million (year 2006: RMB 0). The term of this debt is from Oct. 8, 2007 to Jan. 8, 2009.
(2) Internal guarantees In the report period, the Company provided guarantee to Zhejiang BOE, the subsidiary company of the Company, for loan of RMB 62 million (year 2006: RMB 79,120,567), as well as offering guarantee of RMB 1,385,289,575 (year 2006: RMB 870,351,352) to BOEOT, the subsidiary company of the Company, for loan of RMB 740 million (year 2006: RMB 740 million) (BOEOT had provided its fixed assets with total net book value of RMB 6,037,470,641(year 2006: RMB 6,931,629,650) as mortgage) and charged the guarantee fee from BOEOT.
On Dec. 31, 2007, Zhejiang BOE provided guarantees for its subsidiary Shaoxing BOE for a loan of RMB 1.8 million (year 2006: 6.5 million). On Dec. 31, 2007, Suzhou Chatani provided guarantees for its subsidiary Beijing Chatani for a loan of RMB 21.7million (year 2006: 41.7million).
3. In the report period, the Company consigned no one to manage cash assets.
4. The Company had no other significant contract.
V. Implementation of the commitments 1. Commitments on the Share Merger Reform All non-circulating shareholders promised no trading or transfer of shares of the Company held by them occurred before Nov. 29, 2006. Meanwhile, the controlling shareholder of Beijing BOE Investment Development Co., Ltd further committed: after the accomplishment of the former commitment period, the proportion of sold shares of the total shares listing and trading through Shenzhen Stock Exchange is no more than 5% within 12 months and no more 10% within 24 months. As at Dec. 31, 2007, Beijing BOE Investment Development Co., Ltd held 783,182,203 shares of the Company, and reduced 64,195,230 shares of the Company in 2007, presenting 2.24% of the total shares of the Company, which followed the above commitment.
2. Please refer to the relevant contents of commitments in Note of Accounting Statements.
3. In the report period, the Company and shareholders holding over 5% have no other commitments.
VI. The engagement or dismissal of certified public accountants' firm and payment of remuneration In 2007, the Company engaged KPMG Huazhen Certified Public Accountants as its accounting body which has served for the Company for 3 years. The payment for KPMG Huazhen Certified Public Accountants by the Company amounted to RMB 3,225,000.
VII. In the report period, neither the Company, nor its Board ,directors, supervisors or any other senior executives had been received any administrative punishments of
37 circulating criticism from the CSRC, or publicly criticized by the Shenzhen Stock Exchange.
VIII. Form on investigation and visit acceptance of the Company in the report period Topics discussed Date Venue Manner Visitors and information provided
Atlantic Investment Feb. 1, 2007 The Company Field study Management Feb. 16, 2007 The Company Field study Oak Tree Mar. 8, 2007 The Company Field study Alliance Bernstein Computer-mediated Shareholders and Apr. 20, 2007 www.p5w.com Communication investors Conference Jun. 15, 2007 The Company Field study Evolution securities Daiwa Institute of Jul. 6, 2007 The Company Field study Research ltd. Major content for Aug. 16, 2007 The Company Field study fair capital discussion： Sep. 3, 2007 The Company Field study Morgan Stanley (1) The operating status and development Sep. 11, 2007 The Company Field study Industrial Securities strategy of the Company. Computer-mediated Shareholders and Sep. 25, 2007 www.p5w.com Communication investors Conference
Sep. 26, 2007 The Company Field study China Asset （ 2 ） status of YIMIN Asset, the industry and Changsheng Fund, its Oct. 16, 2007 The Company Field study Orient Fund, development. Industrial Securities Oct. 17, 2007 The Company Field study Guosen Securities （3）The actual situation of conformity work Oct. 19, 2007 The Company Field study CJIS Securities in three domestic plant of TFT- LCD. Oct. 22, 2007 The Company Field study Capital Securities （ 4 ） Situation about selling held equities Oct. 26, 2007 The Company Field study Qi Lu Securities of TPV Technology
38 Limited Nov. 7, 2007 The Company Field study Capital Securities （ 5 ） Situation about new project of Gen Nov. 12, 2007 The Company Field study CITICS 4.5 Production Line Hanlun Investing Information Nov. 14, 2007 The Company Field study Consultant (Shanghai) provided: Co.,Ltd Wanlian Securities ； Nov. 20, 2007 The Company Field study Daiwa Institute of Research Ltd. Insurance Asset, Sino Life, Soochow Asset, Such public Huafu Fund, HSBC information as Jintrust, Fortune regular reports Promotion SGAM, Baoying and throwaways Conference from Fund, HaiFuTong of the Company Nov. 22, 2007 Xiamen Industrial Fund, Sino Wealth Securities Fund, Chang Xin Asset, Wanlian Securities, Founder Securities, Lynch Investment, etc. Nov. 23, 2007 The Company Field study Goldman Sachs Nov. 29, 2007 The Company Field study Pioneer Investerment Dec. 5, 2007 The Company Field study Mitsubishi Securities CNGC NORTH INDUSTRIES GROUP FINANCE, China Nature Asset, CITIC Fund, Guotai Junan 、 BOCI, CCB Promotion Principal Asset, Conference from Dec. 6, 20007 Lijiang Huaan Fund, China Changjiang Merchants Fund, Securities China Asset, Lord Abbett China Asset, BoHai Investment, Social Security Fund, m Hongta Securities, etc. Crimson Rongxing Dec. 11, 2007 The Company Field study Capital
39 Acru Asset Dec. 12, 2007 The Company Conference call Management
Company Dec. 13, 2007 The Company Field study Moon Capital IX. Explanation to some issues on implementing the New Standard Before Jan. 1, 2007, the Company executed Accounting Standard for Business Enterprises (Old Standard for short) and Accounting System for Business Enterprises. Since Jan. 1, 2007, according to the regulation (CH [2006] No. 3) issued by Ministry of Finance, the Company has executed Accounting Standard for Business Enterprises ( New Standard) issued by Ministry of Finance on Feb. 15, 2006. Since the Company disclosed the Annual Report for 2006, the regulations and interpretation related to Accounting Standard for Business Enterprises (2006) (including Interpretation No1 to the Accounting Standards for Enterprises and Expert View on Implementation on Issue of New CASs) were published in succession. The Company had made a retroactive adjustment to the disclosed Balance Sheet at the beginning of 2007, which mainly included the policy change on implementing New Accounting Standard and the adjustment to the change on consolidation scope, when the Company made the Annual Financial Statements. The details were stated as follows: Consolidated Balance Sheet - Before Adjusted amount Adjuted amount After adjustment adjustment by the change in by the change in accounting consolidated policies scope Monetary funds 1,809,217,235 - (5,393,007) 1,803,824,228
Notes receivable 57,068,391 - (7,957,707) 49,110,684
Net account 1,117,873,492 - (11,621,134) 1,106,252,358 receivable
Account paid in 51,157,753 - (73,700) 51,084,053 advance
Interest - 2,879,304 - 2,879,304 receivable
Other account 180,356,253 (1,857,456) (251,414) 178,247,383 receivable Inventories 1,266,043,525 - (14,797,607) 1,251,245,918
Expense to be 4,611,412 (4,600,285) (11,127) - apportioned
Other non- - 4,600,285 - 4,600,285 current assets Long-term account - - - - receivable
Long-term equity 2,817,778,818 274,673,052 51,908,699 3,144,360,569 investment
40 Long-term investment on - - - - bonds
Net investing - 135,553,995 - 135,553,995 property Net fixed asset 8,092,661,676 (158,440,770) (20,737,083) 7,913,483,823
Project in 64,403,867 77,653 64,430,107 construction (51,413) Intangible assets 746,989,431 48,002,484 - 794,991,915
GOODWILL - 47,364,310 - 47,364,310
Long-term expense to be 1,066,696 4,557,049 (370,419) 5,253,326 apportioned
Other long-term 1,021,848 (1,021,848) - - assets
Deferred tax 1,831,754 - - 1,831,754 assets
Short-term (2,446,176,689) - - (2,446,176,689) borrowings Notes payable (74,872,077) - - (74,872,077)
Account payable (1,856,976,749) - 5,268,099 (1,851,708,650)
Account received (20,696,877) - - (20,696,877) in advance Employee’s compensation - (105,015,400) - (105,015,400) payable Wage payable (35,670,674) 34,994,017 676,657 -
Welfarism (31,140,502) 28,030,692 3,109,810 - payable Tax payable 96,466,617 (162,785) 287,589 96,591,421
Interest payable - (20,929,722) - (20,929,722)
Dividend payable (6,668,965) - - (6,668,965)
Other fund in conformity with (960,899) 960,899 - - paying
Other account (212,403,663) 36,020,561 855,275 (175,527,827) payable Provisions for contingent (33,629,835) 33,629,835 - - expense
Long-term (2,111,027,205) 12,730,634 - (2,098,296,571) liabilities within
41 1 year
Other current - (54,995,000) - (54,995,000) liabilities
Long-term (5,088,771,029) 5,133,600 - (5,083,637,429) liabilities
Deferred tax (28,274) - - (28,274) liabilities
Other non- (163,800) (65,320,601) - (65,484,401) current liabilities
Specific purpose (62,307,320) 62,307,320 - - account payable Provisions for contingent (29,602,669) 29,602,669 - - liabilities Minority interest (756,748,838) 756,748,838 - -
Total 3,540,702,703 1,105,523,330 841,518 4,647,067,551
When making the Annual Financial Statements for 2007, the Company followed the regulations and interpretation published afterward, also reviewed the consolidated profit and shareholders’ equity amount at the beginning of 2007. The differences and reasons between the consolidated profit and shareholders’ equity amount after revision and the disclosed amount in approved reconciliation statement were analyzed as follows: The Group Net profit as of 2006 Shareholders’ equity as of 2006 Net profit and shareholders’ equity as at Dec. 31, 2006 (Old Standard) -1,721,944,721.00 3,540,702,703.00 1. Credit balance of other long-term equity investment measured based on equity method -3,997,086.00 22,282,537.00 2. Difference arising from the separation by 99,422,036.00 financial instruments -11,935,206.00 3. Minority interest 756,748,838.00 4. Retroactive adjustment of listed company holding B and H shares a) Measurement of long-term equity investment of TPV Technology 246,368,526.00 202,691,244.00 b) Capitalization of the general borrowing costs, and deducting the related depreciation -3,434,051.00 29,750,411.00 Disposal of the subsidiary (BOE-Hydis Co., Ltd -280,370,855.00 - c) Others 4,510,918.00 -4,530,218.00 Total -48,857,754.00 1,106,364,848.00 Net profit and shareholders’ equity after adjustment -1,770,802,475.00 4,647,067,551.00
42
(1) Assess the long-term equity investment credit difference by equity method For the long-term equity investment assessed by equity method and in line with Accounting Standard for Business Enterprises No. 2---- Long-term Equity Investment, the Company sterilized the equity investment credit difference by Dec. 31, 2006 of RMB 22,282,537, the retained earnings shall be modulated. (2) The increase equity due to separation by financial instruments For the Convertible Company Bonds with liability and equity components published before Dec. 31, 2006 by the Associated Company of the Company, the Company would separate the liability and equity components on Jan. 1, 2007 according to Accounting Standard for Business Enterprises No. 37 - Presentation of Financial. Instruments. The book value of the Convertible Company Bonds published on Dec. 31, 2006 by the Associated Company was USD 255,050,000, besides the separated liability fair value of USD 196,779,000 affirmed based on the market interest rate of the Convertible Company Bonds under the same condition, the rest of USD 58,271,000 being part of the separated equity value. The Company took up the equity proportion of 21.85% of the Associated Company on Dec. 31, 2006, accordingly increasing the shareholders’ equity of the Company by RMB 99,422,036. (3) Minority shareholders’ equity The Company adjusted the accounting treatment on minority shareholders’ equity according to New Accounting Standard, which caused the consolidated shareholders’ equity increasing by RMB 756,748,838. (4) Retroactive adjustment on the listed company publishing B share at the same time The Company had published B share, the former Annual Financial Statements was offered according to the PRC Accounting Standard and International Financial Reporting Standards. In view of the requirement of Question and Response in Interpretation No. 1 issued by Ministry of Finance on Nov, 2007, which concerned with the different principles constituted in Accounting Standard for Business Enterprises (2006) and adopting the Accounting Standard before, if the Company had adopted the principle in Accounting Standard for Business Enterprises to make the Financial Statements before according to International Financial Reporting Standards, the Company should make a retroactive adjustment to the alteration of accounting policies caused by Accounting Standard for Business Enterprises (2006) based on the information that the Company adopted to work out the Financial Statements before in view of International Financial Reporting Standard. Influences by the retroactive adjustment on the Financial Statements made in line with International Financial Reporting Standards were mentioned as followed: a) Accounting on long-term equity investment of TPV Technology On Dec. 31, 2006, the Company owned the long-term equity investment of TPV Technology, the Associated Company. The Company accordingly made a retroactive adjustment on the investment for TPV Technology with RMB 202,691,244. The main adjustment s were stated as follows: -- Cost measurement for long-term equity investment On Jun. 15, 2005, the Company signed Agreement on Transferring Equity of Beijing Oriental Top Victory Electronic Co., Ltd with TPV Technology, and exchanged the
43 held 45.21% equity of Oriental Top Victory to new added shares of TPV Technology. Non-monetary trade was allowed to confirm the cost of the assets received based on the carrying value of the assets according to Old Accounting Standard for Business Enterprises while based on fair value according to New Standard and International Financial Reporting Standards, their difference was recognized into the profit of loss of the current period. -- Recognition and amortization on the long-term equity investment debit difference According to Old Accounting Standard for Business Enterprises, the initial investment cost and the investing enterprise’ attributable share of the book net asset of the invested entity was recognized into long-term equity investment difference and amortized in installments. Given New Standard and International Financial Reporting Standards, if the initial investment cost is more than the investing enterprise' attributable share of the fair value of the invested entity's identifiable net assets for the investment, the initial investment cost was not amortized any more. The Company accordingly made a retroactive adjustment on the long-term equity investment debit difference recognized and amortized before. b) Capitalization of general borrowing costs minus related discount The general borrowing costs for acquisition and construction of fixed assets, the borrowing costs from part of untapped specially borrowed loan (minus the income of interests earned on the unused borrowing loans as a deposit in the bank or as a temporary investment) and the borrowing costs for acquisition and construction of intangible assets of production of inventories eligible for condition were directly recorded into the profit or loss of the current period before Jan. 1, 2007 by the Company. Provided the information that the Company adopted to work out the Financial Statements before in view of the former B share and International Financial Reporting Standard, the Consolidated Financial Statements were accordingly made retroactive adjustment, being capitalized when eligible for condition and recording related asset costs. The fixed asset and the project in construction was modulated to increase by RMB 29,750,411 and the retained earnings were increased accordingly. c) Others The retained earnings were reduced by RMB 4,530,218 by other adjustment. X. Other significant events The Korean wholly-owned subsidiary of the Company, BOE HYDIS was operating difficultly because of the consistent operating losses, facing the payment of bank loan. As to realize the self-saving of the enterprise, BOE HYDIS applied for starting Legal Reorganization Procedure to Central District Court in Seoul, Korea on Sep. 29, 2006 according to the Korean Law. The Company would not have the shareholder right to BOE HYDIS when the Company received Decision for Approval on the Draft of Reorganization to Enterprise for BOE HYDIS Technology Co., Ltd on Jun, 2007, which BOE HYDIS sent to Central District Court in Seoul, Korea. XI. Events post to balance sheet Please refer to the details post to balance sheet in Financial Statements.
44 Chapter X Financial Report
I. Financial Statements (refer to Appendix)
II. Accounting Statement Subsidiary (refer to Attachments)
Chapter XI. Documents Available for Inspection
1. The financial statements bearing the seal and signature of the Company's legal representative, financial supervisor and the person in charge of the accounting organ.
2. Original the auditor's report bearing the seal of the certified public accountants and the signature of C.P.A.
4. The original of all the Company's documents and the original manuscripts of announcements publicly disclosed on the newspapers designated by China Securities Regulatory Commission in the report period.
Wang Dongsheng Chairman of the Board
Board of Directors of BOE Technology Group Co., Ltd Mar. 29, 2008
45
BOE TECHNOLOGY GROUP COMPANY LIMITED
ENGLISH VERSION OF FINANCIAL STATEMENTS FOR THE YEAR 1 JANURAY 2007 TO 31 DECEMBER 2007 IF THERE IS ANY CONFLICT OF MEANING BETWEEN THE CHINESE AND ENGLISH VERSIONS, THE CHINESE VERSION WILL PREVAIL
AUDITORS’ REPORT
KPMG-A(2008)AR No.0144
All Shareholders of BOE Technology Group Company Limited:
We have audited the accompanying financial statements of the Company, which comprise the consolidated balance sheet and balance sheet as at 31 December 2007, the consolidated income statement and income statement, the consolidated statement of changes in equity and statement of changes in equity, the consolidated cash flow statement and cash flow statement for the year then ended, and notes to the financial statements.
Management’s Responsibility for the Financial Statements
The Company’s management is responsible for the preparation of these financial statements in accordance with China Accounting Standards for Business Enterprises (2006) issued by the Ministry of Finance of the People’s Republic of China. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with China Standards on Auditing for Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
1
Opinion
In our opinion, the financial statements comply with the requirements of China Accounting Standards for Business Enterprises (2006) issued by the Ministry of Finance of the People’s Republic of China and present fairly, in all material respects, the consolidated financial position and financial position of the Company as at 31 December 2007, and the consolidated results of operations and results of operations and the consolidated cash flows and cash flows of the Company for the year then ended.
KPMG Huazhen Certified Public Accountants Registered in the People’s Republic of China
Zhang Jun
Beijing, the People’s Republic of China Zhang Yansheng
29 March 2008
2
BOE Technology Group Company Limited Consolidated balance sheet as at 31 December 2007 (Expressed in Renminbi)
Note 2007 2006
Assets Current assets Cash at bank and on hand 7 1,704,436,404 1,803,824,228 Bills receivable 8 175,783,058 49,110,684 Accounts receivable 9 1,793,612,342 1,106,252,358 Prepayments 10 112,038,696 51,084,053 Interest receivable 11 1,516,906 2,879,304 Other receivables 13 80,595,468 178,247,383 Inventories 14 791,698,020 1,251,245,918 Other current assets 4,841,501 4,600,285
Total current assets 4,664,522,395 4,447,244,213 ------
Non-current assets Available-for-sale financial assets 15 129,109,597 - Held-to-maturity investments 16 - - Long-term equity investments 17 641,652,657 3,144,360,569 Investment property 18 126,367,406 135,553,995 Fixed assets 19 6,897,275,352 7,913,483,823 Construction in progress 20 54,745,615 64,430,107 Intangible assets 21 742,637,961 794,991,915 Goodwill 22 47,364,310 47,364,310 Long-term deferred expenses 23 1,266,496 5,253,326 Deferred tax assets 24 76,333,072 1,831,754
Total non-current assets 8,716,752,466 12,107,269,799 ------Total assets 13,381,274,861 16,554,514,012
The notes on pages 20 to 132 form part of these financial statements.
3
BOE Technology Group Company Limited Consolidated balance sheet (continued) as at 31 December 2007 (Expressed in Renminbi)
Note 2007 2006
Liabilities and shareholders’ equity
Current liabilities Short-term loans 27 428,011,512 2,446,176,689 Bills payable 28 55,000,000 74,872,077 Accounts payable 29 1,498,985,231 1,851,708,650 Advances from customers 30 176,435,585 20,696,877 Employee benefits payable 31 153,060,763 105,015,400 Taxes payable 5(3) 50,273,186 (96,591,421) Interest payable 21,207,784 20,929,722 Dividends payable 32 6,668,965 6,668,965 Other payables 33 159,051,186 175,527,827 Non-current liabilities due within one year 34 692,700,000 2,098,296,571 Other current liabilities 35 57,740,852 54,995,000
Total current liabilities 3,299,135,064 6,758,296,357 ------
Non-current liabilities Long-term loans 36 4,494,667,804 5,083,637,429 Deferred tax liabilities 24 19,333,205 28,274 Other non-current liabilities 37 46,799,614 65,484,401
Total non-current liabilities 4,560,800,623 5,149,150,104 ------
Total liabilities 7,859,935,687 11,907,446,461 ------
The notes on pages 20 to 132 form part of these financial statements.
4
BOE Technology Group Company Limited Consolidated balance sheet (continued) as at 31 December 2007 (Expressed in Renminbi)
Note 2007 2006
Liabilities and shareholders’ equity (continued)
Shareholders’ equity Share capital 38 2,871,567,895 2,871,567,895 Capital reserve 39 2,740,627,893 2,746,176,454 Surplus reserve 40 499,092,613 499,092,613 Retained earnings 41 (1,540,405,268) (2,231,351,083) Foreign currency translation differences for foreign operations (303,984) 3,590,518
Total equity attributable to equity holders of the Company 4,570,579,149 3,889,076,397
Minority interests 950,760,025 757,991,154
Total equity 5,521,339,174 4,647,067,551 ------Total liabilities and shareholders’ equity 13,381,274,861 16,554,514,012
These financial statements have been approved by the Board of Directors on 29 March 2008.
Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board [President Chief Financial Officer and CEO
The notes on pages 20 to 132 form part of these financial statements.
5
BOE Technology Group Company Limited Balance sheet as at 31 December 2007 (Expressed in Renminbi)
Note 2007 2006
Assets Current assets Cash at bank and on hand 7 936,584,272 940,625,651 Bills receivable 8 6,119,683 7,335,011 Accounts receivable 9 28,017,264 40,238,118 Prepayments 10 2,542,716 1,902,105 Interest receivable 11 1,516,906 2,879,304 Dividends receivable 12 8,204,147 - Other receivables 13 106,249,337 110,680,392 Inventories 14 9,789,493 41,684,323 Other current assets - 34,535
Total current assets 1,099,023,818 1,145,379,439 ------
Non-current assets Available-for-sale financial assets 15 129,109,597 - Held-to-maturity investments 16 - - Long-term receivables - 30,000,000 Long-term equity investments 17 4,679,889,634 7,073,097,546 Investment property 18 35,603,254 37,034,861 Fixed assets 19 163,064,649 192,646,587 Construction in progress 20 18,510,239 11,589,020 Intangible assets 21 52,095,063 46,952,358
Total non-current assets 5,078,272,436 7,391,320,372 ------Total assets 6,177,296,254 8,536,699,811
The notes on pages 20 to 132 form part of these financial statements.
6
BOE Technology Group Company Limited Balance sheet (continued) as at 31 December 2007 (Expressed in Renminbi)
Note 2007 2006
Liabilities and shareholders’ equity
Current liabilities Short-term loans 27 - 1,897,000,000 Accounts payable 29 4,798,143 10,329,605 Advances from customers 30 3,338,989 61,011,094 Employee benefits payable 31 24,323,520 39,460,075 Taxes payable 5(3) 5,965,964 17,906,503 Interest payable 12,054,232 8,298,713 Dividends payable 32 6,455,264 6,455,264 Other payables 33 42,350,819 103,734,531 Non-current liabilities due within one year 34 682,500,000 727,500,000
Total current liabilities 781,786,931 2,871,695,785 ------
Non-current liabilities Long-term loans 36 277,500,000 432,500,000 Other non-current liabilities 37 26,797,146 59,144,664
Total non-current liabilities 304,297,146 491,644,664 ------Total liabilities 1,086,084,077 3,363,340,449 ------
The notes on pages 20 to 132 form part of these financial statements.
7
BOE Technology Group Company Limited Balance sheet (continued) as at 31 December 2007 (Expressed in Renminbi)
Note 2007 2006
Liabilities and shareholders’ equity (continued)
Shareholders’ equity Share capital 38 2,871,567,895 2,871,567,895 Capital reserve 39 2,770,165,978 2,775,714,539 Surplus reserve 40 499,092,613 499,092,613 Retained earnings 41 (1,049,614,309) (973,015,685)
Total equity 5,091,212,177 5,173,359,362 ------Total liabilities and shareholders’ equity 6,177,296,254 8,536,699,811 ------
These financial statements have been approved by the Board of Directors on 29 March 2008.
Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board [President Chief Financial Officer and CEO
The notes on pages 20 to 132 form part of these financial statements.
8
BOE Technology Group Company Limited Consolidated income statement for the year ended 31 December 2007 (Expressed in Renminbi)
Note 2007 2006
Operating income 43 11,170,448,855 8,839,664,291
Less: Operating costs 44 9,263,870,340 9,999,735,790 Business taxes and surcharges 45 16,445,071 12,888,872 Selling and distribution expenses 197,845,776 225,356,491 General and administrative expenses 559,821,122 886,525,995 Financial expenses 46 289,848,468 630,752,384 Impairment loss 47 119,783,374 368,459,722 Add: Investment (losses)/income 48 (128,315,862) 1,381,856,120 Including: (loss)/income from investment in associates and jointly controlled enterprises (83,656,078) 418,780,123
Operating profit (loss) 594,518,842 (1,902,198,843)
Add: Non-operating income 49 278,274,136 133,191,777 Less: Non-operating expenses 50 31,993,914 5,044,185 (Including: loss (gain) from non-current assets disposal) 3,078,825 2,889,415
Profit (loss) before income tax 840,799,064 (1,774,051,251)
The notes on pages 20 to 132 form part of these financial statements.
9
BOE Technology Group Company Limited Consolidated income statement (continued) for the year ended 31 December 2007 (Expressed in Renminbi)
Note 2007 2006
Profit (loss) before income tax 840,799,064 (1,774,051,251)
Less: Income tax expenses 51 (56,307,888) 12,899,610
Net profit (loss) for the year 897,106,952 (1,786,950,861)
Attributable to: Equity shareholders of the Company 690,945,815 (1,770,802,475) Minority shareholders 206,161,137 (16,148,386)
Earnings (loss) per share 61(1) Basic and Diluted earnings/(loss) per share 0.24 (0.75)
These financial statements have been approved by the Board of Directors on 29 March 2008.
Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board President Chief Financial Officer and CEO
The notes on pages 20 to 132 form part of these financial statements.
10
BOE Technology Group Company Limited Income statement for the year ended 31 December 2007 (Expressed in Renminbi)
Note 2007 2006
Operating income 43 207,253,580 193,971,711
Less: Operating costs 44 129,275,928 120,037,726 Business taxes and surcharges 45 3,941,274 4,086,723 Selling and distribution expenses 2,460,586 3,837,797 General and administrative expenses 81,743,957 102,074,393 Financial expenses 46 41,317,382 171,519,494 Impairment loss 47 12,270,098 58,840,686 Add: Investment loss 48 (118,074,757) (376,937,661) Including: (loss)/income from investment in associates and jointly controlled enterprises (83,656,078) 418,780,123
Operating profit (loss) (181,830,402) (643,362,769)
Add: Non-operating income 49 91,692,474 1,580,668 Less: Non-operating expenses 50 2,085,647 2,243,466 Including: loss (gain) from disposal of non-current assets 1,753,361 2,009,340
Loss before income tax (92,223,575) (644,025,567)
Less: Income tax expenses 51 (15,624,951) 4,477,785
Net loss for the year (76,598,624) (648,503,352)
These financial statements have been approved by the Board of Directors on 29 March 2008.
Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board [President Chief Financial Officer and CEO
The notes on pages 20 to 132 form part of these financial statements.
11
BOE Technology Group Company Limited Consolidated cash flow statement for the year ended 31 December 2007 (Expressed in Renminbi)
Note 2007 2006
Cash flows from operating activities: Cash received from sale of goods and rendering of services 11,237,354,875 9,860,373,410 Refund of taxes 12,648,968 9,341,173 Other cash received relating to operating activities 116,063,939 505,704,613
Sub-total of cash inflows 11,366,067,782 10,375,419,196 ------Cash paid for goods and services (8,245,828,893) (8,054,485,538) Cash paid to and for employees (557,309,348) (847,242,567) Cash paid for all types of taxes (114,212,824) (160,082,965) Other cash paid relating to operating activities (156,618,318) (477,402,140)
Sub-total of cash outflows (9,073,969,383) (9,539,213,210) ------Net cash flow from operating activities 52(1) 2,292,098,399 836,205,986 ------Cash flows from investing activities: Cash received from disposal of investments 2,159,086,728 2,786,771 Cash received from disposal of subsidiaries - 33,736,000 Cash received from return on investments 86,169,745 147,176,543 Net cash received from disposal of fixed assets, intangible assets and other long-term assets 64,459,631 77,729,142 Cash received from return on restricted deposits 52,416,698 565,518,086 Other cash received relating to investing activities 33,924,559 29,699,356
Sub-total of cash inflows 2,396,057,361 856,645,898 ------Disposal of subsidiaries, net of cash disposed - (44,380,478) Disposal of discontinued operation, net of cash disposed - (240,533,287) Cash paid for acquisition of fixed assets, intangible assets and other long-term assets (374,009,390) (755,379,718) Cash paid for acquisition of investments (5,454,000) (8,000,000) Other cash paid relating to investing activities - (1,622,526)
Sub-total of cash outflows (379,463,390) (1,049,916,009) ------Net cash flow from investing activities 2,016,593,971 (193,270,111) ------
The notes on pages 20 to 132 form part of these financial statements.
12
BOE Technology Group Company Limited Consolidated cash flow statement (continued) for the year ended 31 December 2007 (Expressed in Renminbi)
Note 2007 2006
Cash flows from financing activities: Cash received from investors - 1,200,000,005 Cash received from borrowings 1,721,033,502 4,366,028,595
Sub-total of cash inflows 1,721,033,502 5,566,028,600 ------Cash repayments of borrowings (5,493,863,572) (5,092,850,750) Cash paid for dividends, profits distribution or interest (514,475,334) (794,018,074) (Including: dividends and profits paid to minority shareholders by subsidiaries) (1,152,000) (3,330,000) Other cash paid relating to financing activities (5,895,098) (12,543,692)
Sub-total of cash outflows (6,014,234,004) (5,899,412,516) ------Net cash flow from financing activities (4,293,200,502) (333,383,916) ------Effect of foreign exchange rate changes on cash and cash equivalents (16,046,045) (17,577,026) ------Net (decrease)/increase in cash and cash equivalents 52(3) (554,177) 291,974,933
Add: Cash and cash equivalents at the beginning of the year 1,452,714,377 1,160,739,444
Cash and cash equivalents at the end of the year 1,452,160,200 1,452,714,377
These financial statements have been approved by the Board of Directors on 29 March 2008.
Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board President Chief Financial Officer and CEO
The notes on pages 20 to 132 form part of these financial statements.
13
BOE Technology Group Company Limited Cash flow statement for the year ended 31 December 2007 (Expressed in Renminbi)
Note 2007 2006
Cash flows from operating activities: Cash received from sale of goods and rendering of services 178,176,343 257,990,123 Refund of taxes 760,952 605,383 Other cash received relating to operating activities 359,688,715 99,212,555
Sub-total of cash inflows 538,626,010 357,808,061 ------Cash paid for goods and services (88,966,023) (102,304,992) Cash paid to and for employees (54,075,409) (61,165,923) Cash paid for all types of taxes (13,621,433) (18,539,160) Other cash paid relating to operating activities (384,466,381) (66,509,983)
Sub-total of cash outflows (541,129,246) (248,520,058) ------Net cash flow from operating activities 52(1) (2,503,236) 109,288,003 ------Cash flows from investing activities: Cash received from disposal of investments 2,189,018,147 26,522,771 Cash received from return on investments 86,069,746 163,342,566 Net cash received from disposal of fixed assets, intangible assets and other long-term assets 951,495 5,687,961 Cash received from return on restricted deposits in financial institution 34,920,000 216,909,127 Other cash received relating to investing activities 112,309,096 16,625,114
Sub-total of cash inflows 2,423,268,484 429,087,539 ------Cash paid for acquisition of fixed assets, intangible assets and other long-term assets (13,495,244) (8,250,081) Cash paid for acquisition of investments (106,104,076) (602,576,111) Other cash paid relating to investing activities (113,500,000) (69,010,037)
Sub-total of cash outflows (233,099,320) (679,836,229) ------Net cash flow from investing activities 2,190,169,164 (250,748,690) ------
The notes on pages 20 to 132 form part of these financial statements.
14
BOE Technology Group Company Limited Cash flow statement (continued) for the year ended 31 December 2007 (Expressed in Renminbi)
Note 2007 2006
Cash flows from financing activities: Cash received from investors - 1,200,000,005 Cash received from borrowings 467,000,000 2,217,000,000
Sub-total of cash inflows 467,000,000 3,417,000,005 ------Cash repayments of borrowings (2,564,000,000) (2,389,000,000) Cash paid for dividends, profits distribution or interest (54,708,438) (193,850,836) Other cash paid relating to financing activities - (12,543,692)
Sub-total of cash outflows (2,618,708,438) (2,595,394,528) ------Net cash flow from financing activities (2,151,708,438) 821,605,477 ------Effect of foreign exchange rate changes on cash and cash equivalents (5,078,869) (1,366,867) ------Net increase in cash and cash equivalents 52(3) 30,878,621 678,777,923
Add: Cash and cash equivalents at the beginning of the year 897,305,651 218,527,728
Cash and cash equivalents at the end of the year 928,184,272 897,305,651
These financial statements have been approved by the Board of Directors on 29 March 2008.
Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board President Chief Financial and CEO Officer
The notes on pages 20 to 132 form part of these financial statements.
15
BOE Technology Group Company Limited Consolidated statement of changes in shareholder’s equity for the year ended 31 December 2007 (Expressed in Renminbi)
Attributable to equity shareholders of the Company Foreign currency translation differences Share Capital Surplus Retained for foreign Minority Note capital reserve reserve earnings operations Subtotal interests Total
Balance at 31 December 2006 2,871,567,895 2,746,176,454 499,092,613 (2,231,351,083) 3,590,518 3,889,076,397 757,991,154 4,647,067,551
Balance at 1 January 2007 2,871,567,895 2,746,176,454 499,092,613 (2,231,351,083) 3,590,518 3,889,076,397 757,991,154 4,647,067,551 ------Changes in equity for the year
1. Net profit for the year - - - 690,945,815 - 690,945,815 206,161,137 897,106,952 2. Gain and loss recognised directly in equity - Net changes in fair value of available-for-sale financial assets - (5,548,561) - - - (5,548,561) - (5,548,561) - Others - - - - (3,894,502) (3,894,502) (12,240,266) (16,134,768)
Sub-total of 1&2 - (5,548,561) - 690,945,815 (3,894,502) 681,502,752 193,920,871 875,423,623 ------Appropriation of profits 42 - Distributions to shareholders ------(1,152,000) (1,152,000)
Balance at 31 December 2007 2,871,567,895 2,740,627,893 499,092,613 (1,540,405,268) (303,984) 4,570,579,149 950,760,025 5,521,339,174
These financial statements have been approved by the Board of Directors on 29 March 2008.
Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board President Chief Financial and CEO Officer
The notes on pages 20 to 132 form part of these financial statements.
16
BOE Technology Group Company Limited Consolidated statement of changes in shareholders’ equity (continued) for the year ended 31 December 2006 (Expressed in Renminbi)
Attributable to equity shareholders of the Company Foreign currency translation differences Share Capital Surplus Retained for foreign Minority Note capital reserve reserve earnings operations Subtotal interests Total
Balance at 31 December 2005 2,195,695,800 1,616,639,249 494,122,613 (1,095,418,183) 166,819,575 3,377,859,054 233,662,540 3,611,521,594 Changes in accounting policies 4(2) - (63,725,666) 4,970,000 634,869,575 14,277,462 590,391,371 428,318 590,819,689
Balance at 1 January 2006 2,195,695,800 1,552,913,583 499,092,613 (460,548,608) 181,097,037 3,968,250,425 234,090,858 4,202,341,283 ------Changes in equity for the year
1. Net loss for the year - - - (1,770,802,475) - (1,770,802,475) (16,148,386) (1,786,950,861) 2. Gain and loss recognised directly in equity - Lost of control right over BOE-Hydis 6(3) ------509,070,073 509,070,073 - Disposal of subsidiaries ------(5,711,391) (5,711,391) - Others - - - - (177,506,519) (177,506,519) - (177,506,519)
Sub-total of 1&2 - - - (1,770,802,475) (177,506,519) (1,948,308,994) (487,210,296) (1,461,098,698) ------Changes in equity for the year
3. Shareholders’ contributions and decrease of capital - Contribution by shareholders 675,872,095 1,193,262,871 - - - 1,869,134,966 40,020,000 1,909,154,966 4. Appropriation of profits - Distributions to shareholders ------(3,330,000) (3,330,000)
Balance at 31 December 2006 2,871,567,895 2,746,176,454 499,092,613 (2,231,351,083) 3,590,518 3,889,076,397 757,991,154 4,647,067,551
These financial statements have been approved by the Board of Directors on 29 March 2008.
Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board President Chief Financial and CEO Officer
The notes on pages 20 to 132 form part of these financial statements. 17
BOE Technology Group Company Limited Statement of changes in equity for the year ended 31 December 2007 (Expressed in Renminbi)
Share Capital Surplus Retained capital reserve reserve earnings Total
Balance at 31 December 2006 2,871,567,895 2,775,714,539 499,092,613 (973,015,685) 5,173,359,362
Balance at 1 January 2007 2,871,567,895 2,775,714,539 499,092,613 (973,015,685) 5,173,359,362 ------Changes in equity for the year
1. Net loss for the year - - - (76,598,624) (76,598,624) 2. Loss recognised directly in equity - Net changes in fair value of available-for-sale financial assets - (5,548,561) - - (5,548,561)
Sub-total of 1&2 - (5,548,561) - (76,598,624) (82,147,185) ------Balance at 31 December 2007 2,871,567,895 2,770,165,978 499,092,613 (1,049,614,309) 5,091,212,177
These financial statements have been approved by the Board of Directors on 29 March 2008.
Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board President Chief Financial and CEO Officer
The notes on pages 20 to 132 form part of these financial statements. 18
BOE Technology Group Company Limited Statement of changes in equity (continued) for the year ended 31 December 2006 (Expressed in Renminbi)
Share Capital Surplus Retained capital reserve reserve earnings Total
Balance at 31 December 2005 2,195,695,800 1,644,981,467 494,122,613 (1,095,418,183) 3,239,381,697 Changes in accounting policies - (63,725,666) 4,970,000 770,905,850 712,150,184
Balance at 1 January 2006 2,195,695,800 1,581,255,801 499,092,613 (324,512,333) 3,951,531,881 ------Changes in equity for the year
1. Net loss for the year - - - (648,503,352) (648,503,352) 2. Gain recognised directly in equity - Others - 1,195,867 - - 1,195,867
Sub-total of 1&2 - 1,195,867 - (648,503,352) (647,307,485) ------3. Shareholders’ contributions and decrease of capital - Contribution by shareholders 675,872,095 1,193,262,871 - - 1,869,134,966
Balance at 31 December 2006 2,871,567,895 2,775,714,539 499,092,613 (973,015,685) 5,173,359,362
These financial statements have been approved by the Board of Directors on 29 March 2008.
Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board President Chief Financial and CEO Officer
The notes on pages 20 to 132 form part of these financial statements. 19
BOE Technology Group Company Limited Notes to the financial statements (Expressed in Renminbi)
1 COMPANY STATUS
BOE Technology Group Company Limited (the “Company”) is a company limited by shares established on 9 April 1993 at Beijing, with its head office located in Beijing. The parent of the Company is Beijing Electronic Tube Factory, (after “debt-equity swap” restructuring converted to “Beijing Orient Investment and Development Company Limited” (“BOID”) ). The Company’s ultimate holding company is Beijing Electronics Holdings Co., Ltd. (“Electronics Holdings”) .
With the approval of the Office of Economic Restructuring of Beijing Municipality JTGBZ [1992] No. 22, the Company was founded by the former Beijing Electronic Tube Factory as the main promoter by way of directional stock flotation. In accordance with relevant China laws and regulations, the related assets and liabilities transferred from the former Beijing Electronic Tube Factory were revalued and the revaluation amount was certified by the governmental state-owned assets supervision and administration department. The Company used the revaluation amount as the initial value for Company’s accounting records.
As approved by the State Council Securities Commission through ZWF [1997] No. 32 document, the Company issued 115,000,000 B shares on 19 May 1997 at Shenzhen Stock Exchange, with a face value of RMB 1.00 each, getting listed on 10 June, 1997 on the Shenzhen Stock Exchange. As approved by China Securities Regulatory Commission through ZJGSZ [2000] No. 197 document, the Company issued 60,000,000 ordinary shares denominated in renminbi on 23 November 2000 at Shenzhen Stock Exchange, with a face value of RMB 1.00 each, getting listed on 12 January 2001 on the Shenzhen Stock Exchange.
As approved by the China Securities Regulatory Commission through ZJFXZ [2004] No. 2 document, “The Notice on approving BOE Technology Group Company Limited’s further share offering”, the Company additionally issued 316,400,000 B shares on 16 Jan 2004, with a face value of RMB 1.00 and issuing value of HKD 6.32, which raised capital amounting to HKD 1,999,648,000. After accounting for all the relevant issuance fees, the B shares further offering raised capital of HKD 1,922,072,431 (RMB 2,048,160,383), with total share capital increased to RMB 975,864,800.
Pursuant to the resolution approved by the 2003 annual shareholders meeting held on 28 May 2004, the Company implemented its plan of transferring capital reserve into share capital at the rate of “5 shares for every 10 shares” to all shareholders in June 2004. Upon the completion of the transfer, the Company’s total share capital increased to RMB 1,463,797,200.
Pursuant to the resolution passed by the 2005 1st extraordinary shareholders meeting held in 5 July 2005, based on the total share capital of 1,463,797,200 shares at 31 December 2004, the Company transferred capital reserve into share capital at the rate of 5 shares for every 10 share to all shareholders on 19 July 2005. Upon completion of the transfer, the Company’s total share capital increased to RMB 2,195,695,800.
20
1 COMPANY STATUS (CONTINUED)
In accordance with “T he Approval Notice on BOE’s State-owned Share Reform Plan” issued by Stated-owned Assets Supervision and Administration Commission of Beijing Municipality (JGZCQZ [2005] No. 119), the Company implemented its state-owned share reform plan agreed by the shareholders on 29 November 2005. According to the plan, those registered tradable A-Share shareholders on 29 November 2005 would receive 4.2 shares for every 10 listed shares. This had contributed to the change in percentage of tradable and non-tradable shares of the Company.
Pursuant to the 21st session of the 4th directors meeting and the extraordinary shareholders meeting held on 18 April 2006 and 19 May 2006 respectively, and the approval from the China Securities Regulatory Commission through ZJFXZ [2006] No. 36 document, the Company issued 675,872,095 non-public targeted ordinary shares (A shares) with face value of RMB 1. On 9 October 2006, the Company completed shares registration and escrow in China Securities Depository and Clearing Corporation Limited Shenzhen branch. Upon completion of the issuance, the Company’s total share capital increased to RMB 2,871,567,895.
At 31 December 2007, there were 257,994,187 state owned shares, 160,716,730 state owned legal person shares, and 8,814,200 domestic legal person shares in circulation.
The Company and its subsidiaries (“the Group”) comprise two main business segments on a worldwide basis : Thin Film Transistor-Liquid Crystal Display (“TFT-LCD”) business, and Application Special Device (“ASD”) business. The other businesses include precision electronic parts and materials business and proprietary property development and management business, etc.
2 BASIS OF PREPARATION
These financial statements have been translated into English from the Company’s financial statements issued in Chinese.
(1) Statement of compliance
The financial statements have been prepared in accordance with the requirements of the China Accounting Standards for Business Enterprises (CAS (2006)) issued by the Ministry of Finance (“MOF”). These financial statements present truly and completely the consolidated financial position and financial position, the consolidated results of operations and results of operations and the consolidated cash flows and cash flows of the Group.
These financial statements also comply with the disclosure requirements of “Regulation on the Preparation of Information Disclosures of Companies Issuing Public Shares, No. 15: General Requirements for Financial Reports” revised by the China Securities Regulatory Commission (“CSRC”) in 2007.
(2) Accounting year
The accounting year of the Group is from 1 January to 31 December.
21
2 BASIS OF PREPARATION (CONTINUED)
(3) Measurement basis
The measurement basis used in the preparation of the financial statements is historical cost basis except that the assets and liabilities set out below:
- Available-for-sale financial assets(See Note 3(12))
(4) Functional currency and presentation currency
The Company’s functional currency is renminbi. These financial statements are presented in renminbi.
3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES
(1) Business combination and consolidated financial statements
(a) Business combination involving entities under common control
A business combination involving enterprises under common control is a business combination in which all of the combining enterprises are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory. The assets and liabilities obtained are measured at the carrying amounts as recorded by the enterprise being absorbed at the combination date. The difference between the carrying amount of the net assets obtained and the carrying amount of consideration paid for the combination (or the total face value of shares issued) is adjusted to share premium in the capital reserve. If the balance of share premium is insufficient, any excess is adjusted to retained earnings. The combination date is the date on which the Group effectively obtains control of the enterprise being absorbed.
(b) Business combinations involving entities not under common control
A business combination involving entities not under common control is a business combination in which all of the combining entities are not ultimately controlled by the same party or parties both before and after the business combination. The cost of a business combination paid by the Group is the aggregate of the fair value at the acquisition date of assets given, liabilities incurred or assumed, and equity securities issued by the Group, in exchange for control of the acquiree plus any cost directly attributable to the business combination. The difference between the fair value and the carrying amount of the assets given is recognised in profit or loss. The acquisition date is the date on which the Group effectively obtains control of the acquiree.
22
3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
The Group, at the acquisition date, allocates the cost of the business combination by recognising the acquiree’s identifiable asset, liabilities and contingent liabilities at their fair value at that date.
Any excess of the cost of a business combination over the Group’s interest in the fair value of the acquiree’s identifiable net assets is recognised as goodwill (See Note 3(10)).
Any excess of the Group’s interest in the fair value of the acquiree’s identifiable net assets over the cost of a business combination is recognised in profit or loss.
(c) Consolidated financial statements
The consolidated financial statements comprise the Company and its subsidiaries. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
Where the Company combines a subsidiary during the reporting period through a business combination involving entities under common control, the financial statements of the subsidiary are included in the consolidated financial statements as if the combination had occurred at the beginning of the earliest comparative period presented or, if later, at the date that common control was established. Therefore the opening balances and the comparative figures of the consolidated financial statements are restated. In the preparation of the consolidated financial statements, the subsidiary’s assets, liabilities and results of operations are included in the consolidated balance sheet and the consolidated income statement, respectively, based on their carrying amounts in the subsidiary’s financial statements, from the date that common control was established.
Where the Company acquires a subsidiary during the reporting period through a business combination involving entities not under common control, the identifiable assets, liabilities and results of operations of the subsidiaries are consolidated into consolidated financial statements from the date that control commences, base on the fair value of those identifiable assets and liabilities at the acquisition date.
Minority interest is presented separately in the consolidated balance sheet within equity. Net profit or loss attributable to minority shareholders is presented separately in the consolidated income statement below the net profit line item.
23
3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
Where the amount of losses attributable to the minority shareholders of a subsidiary exceeds the minority shareholders’ portion of the equity of the subsidiary, the excess, and any further losses attributable to the minority shareholders, are allocated against the equity attributable to the Company except to the extent that the minority shareholders have a binding obligation under the articles of association or an agreement and are able to make additional investment to cover the losses. If the subsidiary subsequently reports profits, such profits are allocated to the equity attributable to the Company until the minority shareholders' share of losses previously absorbed by the Company has been recovered.
When the accounting period or accounting policies of a subsidiary are different from those of the Company, the Company makes necessary adjustments to the financial statements of the subsidiary based on the Company’s own accounting period or accounting policies. Intra-group balances and transactions, and any unrealised profit or loss arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealized gains but only to the extent that there is no evidence of impairment.
(2) Translation of foreign currencies
When the Group receives capital in foreign currencies from investors, the capital is translated to renminbi at the spot exchange rate on the date of the receipt. Other foreign currency transactions are, on initial recognition, translated to renminbi at the spot exchange rates on the dates of the transactions.
A spot exchange rate is an exchange rate quoted by the People’s Bank of China, the State Administration of Foreign Exchanges or a cross rate determined based on quoted exchange rates.
Monetary items denominated in foreign currencies are translated to renminbi at the spot exchange at the balance sheet date. The resulting exchange differences are recognised in profit or loss, except those arising from the principals and interests on foreign currency borrowings specifically for the purpose of acquisition, construction of qualifying assets (see Note 3(18)). Non-monetary items denominated in foreign currencies that are measured at historical cost are translated to renminbi using the foreign exchange rate at the transaction date. Non-monetary items denominated in foreign currencies that are measured at fair value are translated using the foreign exchange rate at the date the fair value is determined; the exchange differences are recognised in profit or loss, except for the differences arising from the translation of available-for-sale financial assets, which is recognised in capital reserve.
24
3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
(3) Cash and Cash equivalents
Cash and cash equivalents comprise cash on hand, demand deposits, and short- term, highly liquid investments, which are readily convertible into known amounts of cash and are subject to an insignificant risk of change in value.
(4) Inventories
Inventories are carried at the lower of cost and net realisable value.
Cost of inventories comprises all costs of purchase, costs of conversion and other costs. Inventories are initially measured at their actual cost. Cost of inventories is calculated using the weighted average method. In addition to the purchasing cost of raw materials, work in progress and finished goods include direct labour costs and an appropriate allocation of production overheads.
Any excess of the cost over the net realisable value of each class of inventories is recognised as a provision for diminution in the value of inventories. Net realisable value is the estimated selling price in the normal course of business less the estimated costs to completion and the estimated expenses and related taxes necessary to make the sale.
Reusable materials, such as low-value consumables, packaging materials and other materials, are amortised in full when received for use. The amounts of the amortisation are included in the cost of the related assets or profit or loss.
The Group maintains a perpetual inventory system.
(5) Long-term equity investments
(a) Investments in subsidiaries
In the Group’s consolidated financial statements, investment in subsidiaries are accounted for in accordance with the principles described in Note 3(1)(c).
In the Company’s financial statements, investments in subsidiaries are accounted for using the cost method. The investments are stated at cost less impairment losses (see Note 3(11)) in the balance sheet. At initial recognition, such investments are measured as follows:
- The initial investment cost of a long-term equity investment obtained through a business combination involving entities under common control is the absorbing enterprise’s share of the subsidiary’s equity at the combination date. The difference between the initial investment cost and the carrying amounts of the consideration given is adjusted to share premium in capital reserve. If the balance of the share premium is insufficient, any excess is adjusted to retained earnings.
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3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
- The initial investment cost of a long-term equity investment obtained through a business combination involving entities not under common control is the cost of acquisition determined at the acquisition date.
- An investment in a subsidiary acquired otherwise than through a business combination is initially recognised at actual payment cost if the Group acquires the investment by cash, or at the fair value of the equity securities issued if an investment is acquired by issuing equity securities, or at the value stipulated in the investment contract or agreement if an investment is contributed by investors.
(b) Investment in jointly controlled enterprises and associates
A jointly controlled enterprise is an enterprise which operates under joint control in accordance with a contractual agreement between the Group and other parties. Joint control is the contractual agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing the control.
An associate is an enterprise over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of an investee but is not control or joint control over those policies.
An investment in a jointly controlled enterprise or an associate is accounted for using the equity method, unless the investment is classified as held for sale. (The investment is classified as held for sale when the Group has made a decision and signed a non-cancellable agreement on the transfer of the investment with the transferee, and the transfer is expected to be completed within one year). The investment held for sale is measured at the lower of its carrying amount and fair value less costs to sell. Any excess of its carrying amount over fair value less costs to sell is recognised as a provision for impairment loss of the investment.
At year-end, the Group makes provision for impairment loss of investments in jointly controlled enterprises and associates (see Note 3(11)).
An investment in a jointly controlled enterprise or an associate is initially recognised at actual payment cost if the Group acquires the investment by cash, at the fair value of the equity securities issued if an investment is acquired by issuing equity securities, or at the value stipulated in the investment contract or agreement if an investment is contributed by an investor.
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The Group makes the following accounting treatments when using the equity method:
- Where the initial investment cost of a long-term equity investment exceeds the Group’s interest in the fair value of the investee’s identifiable net assets at the time of acquisition, the investment is initially recognised at the initial investment cost. Where the initial investment cost is less than the Group’s interest in the fair value of the investee’s identifiable net assets at the time of acquisition, the investment is initially recognised at the investor’s share of the fair value of the investee’s identifiable net assets, and the difference is charged to profit or loss.
- After the acquisition of the investment, the Group recognises its share of the investee’s net profits or losses after deducting the amortisation of the debit balance of equity investment difference as investment income or losses, and adjusts the carrying amount of the investment accordingly. Once the investee declares any cash dividends or profits distributions, the carrying amount of the investment is reduced by that attributable to the Group.
The Group recognises its share of the investee’s net profits or losses after making appropriate adjustments to align the accounting policies or accounting periods with those of the Group based on the fair values of the investee’s individual separately identifiable assets at the time of acquisition. Unrealised profits and losses resulting from transactions between the Group and its associates or jointly controlled enterprises are eliminated for the part attributable to the Group calculated based on its share of the associates or jointly controlled enterprises. Unrealised losses resulting from transactions between the Group and its associates or jointly controlled enterprises are eliminated in the same way as unrealized gains but only to the extent that there is no evidence of impairment.
- The Group discontinues recognising its share of net losses of the investee after the carrying amount of the long-term equity investment and any long-term interest that in substance forms part of the Group’s net investment in the associate or the jointly controlled enterprise is reduced to zero, except to the extent that the Group has an obligation to assume additional losses. Where net profits are subsequently made by the associate or jointly controlled enterprise, the Group resumes recognising its share of those profits only after its share of the profits exceeds the share of losses not recognised.
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(c) Other long-term equity investments
Other long-term equity investments refer to investments for which the Group does not have the right to control, have joint control or exercise significant influence over the investees, and for which the investments are not quoted in an active market and their fair value cannot be reliably measured.
Such investments are initially recognised at the cost determined in accordance with the same principles as those for jointly controlled enterprises and associates, and then accounted for using the cost method. At year-end the Group makes provision for impairment losses on such investments (see Note 3(12)).
(6) Investment property
Investment property is a property held either to earn rental income or for capital appreciation or for both. Investment property is accounted for using the cost model and stated in the balance sheet at cost less accumulated depreciation and impairment loss (see Note 3(11)). Investment property is depreciated using the straight-line method over its estimated useful life.
Estimated Estimated Depreciation useful life residual value rate
Building 25-35 years 3%-10% 2.6%-3.9%
(7) Fixed assets and construction in progress
Fixed assets represent the tangible assets held by the Group for use in the production of goods or supply of services for rental to others or for operation and administrative purposes with useful lives over one year.
Fixed assets are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see Note 3(11)). Construction in progress is stated in the balance sheet at cost less impairment losses (see Note 3(11)).
The cost of a purchased fixed asset comprises the purchase price, related taxes, and any directly attributable expenditure for bringing the asset to working condition for its intended use. The cost of self-constructed assets includes the cost of materials, direct labour, capitalised borrowing costs (see Note 3(18)), and any other costs directly attributable to bringing the asset to working condition for its intended use.
Construction in progress is transferred to fixed assets when it is ready for its intended use. No depreciation is provided against construction in progress.
Where the individual component parts of an item of fixed asset have different useful lives or provide benefits to the Group in different patterns thus necessitating use of different depreciation rates or methods, they are recognised as a separate fixed asset.
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The subsequent costs including the cost of replacing part of an item of fixed assets are recognised in the carrying amount of the item if the recognition criteria are satisfied, and the carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of fixed assets are recognised in profit or loss as incurred.
Gains or losses arising from the retirement or disposal of an item of fixed asset are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.
Fixed assets are depreciated using the straight-line method over their estimated useful lives. The useful lives, residual values and depreciation rates of each class of fixed assets are as follows:
Useful Estimated Depreciation life residual value rate
Plants and buildings 20-40 years 3%-10% 2.3%-4.9% Equipment 2-15 years 0-10% 6%-50% Others 2-10 years 0-10% 9%-50%
Useful lives, residual values and depreciation methods are reviewed at least each year-end.
(8) Leases
A lease is classified as either a finance lease or an operating lease. A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of a leased asset to the lessee, irrespective of whether the legal title to the asset is eventually transferred or not. An operating lease is a lease other than a finance lease.
(a) Assets acquired under finance leases
When the Group acquires an asset under a finance lease, the asset is measured at an amount equal to the lower of its faire values and the present value of the minimum lease payments, each determined at the inception of the lease. The minimum lease payments are recorded as long-term payables. The difference between the value of the leased assets and the minimum lease payments is recognised as unrecognised finance charges. Initial direct costs that are attributable to a finance lease incurred by the Group are added to the amounts recognised for the leased asset. Depreciation and impairment losses are accounted for in accordance with the accounting policies described in Notes 3(7) and 3(11), respectively.
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3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
If there is reasonable certainty that the Group will obtain ownership of a leased asset at the end of the lease term, the leased asset is depreciated over its estimated useful life. Otherwise, the leased asset is depreciated over the shorter of the lease term and its estimated useful life.
Unrecognised finance charge under finance lease is amortised using an effective interest method over the lease term. The amortisation is accounted for in accordance with policies described in Note 3(18).
At the balance sheet date, long-term payables arising from finance leases, net of the unrecognised finance charges, are presented into long-term payables and non-current liabilities due within one year, respectively in the balance sheet.
(b) Operating lease charges
Rental payments under operating leases are recognized as costs or expenses on a straight-line basis over the lease term.
(c) Assets leased out under operating leases
Fixed assets leased out under operating leases, except for investment property (see Note 3(6)), are depreciated in accordance with the Group’s depreciation policies described in Note 3(7). Impairment losses are provided for in accordance with the accounting policy described in Note 3(11). Income derived from operating leases is recognised in the income statement using the straight-line method over the lease term. If initial direct costs incurred in respect of the assets leased out are material, the costs are initially capitalised and subsequently amortised in profit or loss over the lease term on the same basis as the lease income. Otherwise, the costs are charged to profit or loss immediately.
(9) Intangible assets
Intangible assets are stated in the balance sheet at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see Note 3(11)). For an intangible asset with finite useful life, its cost less residual value and impairment loss is amortised on the straight-line method over its estimated useful life. The respective amortisation periods for such intangible assets are as follows:
Useful lives
Land use right 35-50 years Technology rights 8-20 years Patent 5-10 years Computer software 3-10 years
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3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
An intangible asset is regarded as having an indefinite useful life and is not amortised when there is no foreseeable limit to the period over which the asset is expected to generate economic benefits for the Group. At the balance sheet date, the Group doesn’t have any intangible assets with indefinite useful lives.
Expenditures on an internal research and development project are classified into expenditures on the research phase and expenditures on the development phase. Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding. Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products or processes before the start of commercial production or use.
Expenditures on research phase are recognised in profit or loss when incurred. Expenditures on development phase are capitalised if development costs can be measured reliably, the product or process is technically and commercially feasible, and the Group intends to and has sufficient resources to complete development. Capitalised development costs are stated at cost less impairment losses (see Note 3(11)). Other development expenditures are recognised as expenses in the period in which they are incurred.
(10) Goodwill
Goodwill represents the excess of cost of acquisition over the Group’s interest in the fair value of the identifiable net assets of the acquiree under the business combination involving entities not under common control.
Goodwill arising on the acquisition of a minority interest in a subsidiary represents the excess of the cost of the additional investment over the carrying amount of the net asset acquired at the date of exchange.
Goodwill is not amortised and is stated at cost less accumulated impairment losses (see Note 3(11)). On disposal of an asset group or a set of asset groups, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.
(11) Impairment of non-financial long-term assets
The carrying amounts of the following assets are reviewed at each balance sheet date based on the internal and external sources of information to determine whether there is any indication of impairment:
- fixed assets - construction in progress - intangible assets - investment property measured using a cost model - investments in subsidiaries, associates and jointly controlled entities.
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If any indication exists that an asset may be impaired, recoverable amount of the asset is estimated. In addition, for goodwill and intangible assets with indefinite useful lives, the Group estimates the recoverable amount of intangible assets with indefinite useful lives at least each year and the recoverable amounts of goodwill at at least each year-end, irrespective of whether there is any indication of impairment or not. Goodwill is tested for impairment together with its related asset groups or sets of asset groups.
An asset group is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or asset groups. An asset group is composed of assets directly relating to cash-generation. Identification of an asset group is based on whether major cash inflows generated by the asset group are largely independent of the cash inflows from other assets or asset groups. In identifying an asset group, the Group also considers how management monitors the Group’s operations and how management makes decisions about continuing or disposing of the Group’s assets.
The recoverable amount of an asset, asset group or set of asset groups is the higher of its fair value less costs to sell and its present value of expected future cash flows.
An asset’s fair value less costs to sell is the amount determined by the price of a sale agreement in an arm’s length transaction, less the costs that are directly attributable to the disposal of the asset. The present value of expected future cash flows of an asset is determined by discounting the future cash flows, estimated to be derived from continuing use of the asset and from its ultimate disposal, to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in profit or loss. A provision for impairment loss of the asset is recognised accordingly. Impairment losses related to an asset group or a set of asset groups first reduce the carrying amount of any goodwill allocated to the asset group or set of asset groups, and then reduce the carrying amount of the other assets in the asset group or set of asset groups on a pro rata basis. However, that the carrying amount of an impaired asset will not be reduced below the highest of its individual fair value less costs to sell (if determinable), the present value of expected future cash flows (if determinable) and zero.
An impairment loss is not reversed in subsequent periods.
(12) Financial instruments
Financial instruments comprise cash at bank and on hand, investments in debt and equity securities other than long-term equity investments, receivables, payables, loans and borrowings and share capital, etc.
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(a) Recognition and measurement of financial assets and financial liabilities
A financial asset or financial liability is recognised in the balance sheet when the Group becomes a party to the contractual provisions of a financial instrument.
The Group classifies financial assets and liabilities into different categories at initial recognition based on the purpose of acquiring assets or assuming liabilities: financial assets and financial liabilities at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for- sale financial assets and other financial liabilities.
Financial assets and financial liabilities are measured initially at fair value. For financial assets and financial liabilities at fair value through profit or loss, any directly attributable transaction costs are charged to profit or loss; for other categories of financial assets and financial liabilities, any attributable transaction costs are included in their initial costs. Subsequent to initial recognition financial assets and liabilities are measured as follows:
- Financial assets and financial liabilities at fair value through profit or loss (including financial assets or financial liabilities held for trading)
A financial asset or financial liability is classified as at fair value through profit or loss if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term or if it is a derivative.
Subsequent to initial recognition, financial assets and financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss.
- Receivables
Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
Subsequent to initial recognition, receivables are subsequently stated at amortised cost using the effective interest method.
- Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group has the positive intention and ability to hold to maturity.
Subsequent to initial recognition, held-to-maturity investments are stated at amortised cost using the effective interest method.
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3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
- Available-for-sale financial assets
Available-for-sale financial assets include non-derivative financial assets that are designated upon initial recognition as available for sales and other financial assets which do not fall into any of the above categories.
An investment in equity instrument which does not have a quoted market price in an active market and whose fair value cannot be reliably measured is measured at cost subsequent to initial recognition.
Besides investments in equity instruments whose fair value cannot be measured reliably as described above, subsequent to initial recognition, other available-for-sale financial assets are measured at fair value and changes therein, except for impairment losses and foreign exchange gains and losses from monetary financial assets, which are recognised directly in equity. When an investment is derecognised, the cumulative gain or loss in equity is removed from equity and recognised in profit or loss.
- Other financial liabilities
Financial liabilities other than the financial liabilities at fair value through profit or loss are classified as other financial liabilities.
Among other financial liabilities, financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the holder) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Where the Group issues a financial guarantee, subsequent to initial recognition, the guarantee is measured at the higher of the amount initially recognised less accumulated amortisation and the amount of a provision determined in accordance with the principles of contingent liabilities (see Note 3(15)).
Except for the other financial liabilities described above, subsequent to initial recognition, other financial liabilities are measured at amortised cost using the effective interest method.
(b) Impairment of financial assets
The carrying amounts of financial assets (other than those at fair value through profit or loss) are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any such evidence exists, impairment loss is provided.
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3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
- Receivables and held-to-maturity investments
Receivables and held-to-maturity investments are all assessed for impairment on an individual basis.
Where impairment is assessed on an individual basis, an impairment loss in respect of a receivable or held-to-maturity investment is calculated as the excess of its carrying amount over the present value of the estimated future cash flows (exclusive of future credit losses that have not been incurred) discounted at the original effective interest rate. All impairment losses are recognised in profit or loss.
If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss. A reversal of an impairment loss will not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years.
- Available-for-sale financial assets and other long-term equity investments
Available-for-sale financial assets and other long-term equity investments are assessed for impairment on an individual basis.
When an available-for-sale financial asset is impaired, the cumulative loss arising from decline in fair value that has been recognised directly in equity is removed from equity and recognised in profit or loss even though the financial asset has not been derecognised.
If, after an impairment loss has been recognised on an available-for-sale debt instrument, the fair value of the debt instrument increases in a subsequent period and the increase can be objectively related to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss. An impairment loss recognised for an investment in an equity instrument classified as available-for-sale is not reversed through profit or loss.
For other long-term equity investments (see Note 3(5)(c)), the amount of the impairment loss is measured as the difference between the carrying amount of the investment and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss is not reversed.
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3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
(c) Determination of fair values
If there is an active market for a financial asset or financial liability, the quoted price in the active market without adjusting for transaction costs that may be incurred upon future disposal or settlement is used to establish the fair value of the financial asset or financial liability. For a financial asset held or a financial liability to be assumed, the quoted price is the current bid price and, for a financial asset to be acquired or a financial liability assumed, it is the current asking price.
If no active market exists for a financial instrument, a valuation technique is used to establish the fair value. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties; reference to the current fair value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models. The Group calibrates the valuation technique and tests it for validity periodically.
(d) Derecognition of financial assets and financial liabilities
A financial asset is derecognised if the Group’s contractual rights to the cash flows from the financial asset expire or if the Group transfers substantially all the risks and rewards of ownership of the financial asset to another party.
Where a transfer of a financial asset in its entirely meets the criteria of the derecognition, the difference between the two amounts below is recognised in profit or loss:
- carrying amount of the financial asset transferred
- the sum of the consideration received from the transfer and any cumulative gain or loss that has been recognised directly in shareholders’ equity.
The Group derecognises a financial liability (or part of it) only when the underlying present obligation (or part of it) is discharged.
(e) Equity instrument
An equity instrument is a contract that proves the ownership interest of the assets after deducting all liabilities in the Company.
The consideration received from the issuance of equity instruments net of transaction costs is recognised in share capital and capital reserve.
Consideration and transaction costs paid by the Company for repurchasing its own equity instrument are deducted from shareholders’ equity.
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3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
(13) Employee benefits
Employee benefits are all forms of considerations given and other related expenditures incurred in exchange for services rendered by employees. Except for termination benefits, employee benefits are recognised as a liability in the period in which the associated services are rendered by employees, with a corresponding increase in cost of relevant assets or expenses in the current period.
(a) Retirement benefits
Pursuant to the relevant laws and regulations of the PRC, the Group has joined a defined contribution basic retirement scheme for the employees arranged by local Labour and Social Security Bureaus. The Group makes contributions to the retirement scheme at the applicable rates based on the amounts stipulated by the government organisation. The contributions are charged to profit or loss on an accrual basis. When employees retire, the local Labour and Social Security Bureaus are responsible for the payment of the basic retirement benefits to the retired employees.
(b) Housing fund and other social insurances
Besides the retirement benefits, pursuant to the relevant laws and regulations of the PRC, the Group has joined defined social security contributions for employees, such as a housing fund, basic medical insurance, unemployment insurance, injury insurance and maternity insurance. The Group makes contributions to the housing fund and other social insurances mentioned above at the applicable rate(s) based on the employees’ salaries. The contributions are recognised as cost of assets or charged to profit or loss on an accrual basis.
(c) Termination benefits
When the Group terminates the employment relationship with employees before the employment contracts have expired, or provides compensation as an offer to encourage employees to accept voluntary redundancy, a provision for the termination benefits provided, is recognised in profit or loss when both of the following conditions have been satisfied:
- The Group has a formal plan for the termination of employment or has made an offer to employees for voluntary redundancy, which will be implemented shortly.
- The Group is not allowed to withdraw from termination plan or redundancy offer unilaterally.
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3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
(14) Income tax
Current tax and deferred tax are recognised in profit or loss except to the extent that they relate to items recognised directly in equity, in which case they are recognised in equity.
Current tax is the expected tax payable calculated at the applicable tax rate on taxable income for the year, and any adjustment to tax payable in respect of previous years.
Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases, which include the deductible losses and tax credits carry forward to subsequent periods. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which deductible temporary differences can be utilised.
Deferred tax is not recognised for the temporary differences arising from the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting profit nor taxable profit (or tax loss). Deferred tax is not recognised for taxable temporary differences arising from the initial recognition of goodwill.
At the balance sheet date, the amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates that are expected to be applied in the period when the asset is realised or the liability is settled in accordance with tax laws.
(15) Provisions and contingent liabilities
A provision is recognised if, as a result of a past event, the Group has a present obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Where the effect of time value of money is material, provisions are determined by discounting the expected future cash flows.
In terms of a possible obligation resulting from a past transaction or event, whose existence will only be confirmed by the occurrence or non-occurrence of uncertain future events or a present obligation resulting from a past transaction or event, where it is not probable that the settlement of the above obligation will cause an outflow of economic benefits, or the amount of the outflow can not be estimated reliably, the possible or present obligation is disclosed as a contingent liability.
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3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
(16) Revenue recognition
Revenue is the gross inflow of economic benefit in the periods arising in the course of the Group’s ordinary activities when the inflows result in increase in shareholder’s equity, other than increase relating to contributions from shareholders. Revenue is recognised in profit or loss when it is probable that the economic benefits will flow to the Group, the revenue and costs can be measured reliably and the following respective conditions are met:
(a) Sale of goods
Revenue from sale of goods is recognised when all of the general conditions stated above and following conditions are satisfied:
- The significant risks and rewards of ownership of goods have been transferred to the buyer.
- The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold.
Revenue from the sale of goods is measured at the fair value of the considerations received or receivable under the sales contract or agreement.
(b) Rendering of services
When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue from the rendering of services is recognised in the income statement by reference to the stage of completion of the transaction based on the progress of work performed.
Where the outcome of rendering of services cannot be estimated reliably, if the costs incurred are expected to be recoverable, revenues are recognised to the extent that the costs incurred that are expected to be recoverable, and an equivalent amount is charged to profit or loss as service cost; if the costs incurred are not expected to be recoverable, the costs incurred are recognised in profit or loss and no service revenue is recognised.
(c) Interest income
Interest income is recognised on a time proportion basis with reference to the principal outstanding and the applicable effective interest rate.
(d) Operating lease income
Rental income generated from operating lease income is recognized as revenue based on straight line method.
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3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
(17) Government grants
Government grants are transfers of monetary assets or non-monetary assets from the government to the Group at no consideration except for the capital contribution from the government as a shareholder of the Group. Special funds such as investment grants allocated by the government, if clearly defined in official documents as part of “capital reserve” are dealt with as capital contributions, and not regarded as government grants.
A government grant is recognised when there is reasonable assurance that the grant will be received and that the Group will comply with the conditions associated with the grant.
If a government grant is in the form of a transfer of a monetary asset, it is measured at the amount that is received or receivable. If a government grant is in the form of a transfer of a non-monetary asset, it is measured at its fair value.
A government grant related to an asset is recognised initially as deferred income and amortised to profit or loss on a straight-line basis over the useful life of the asset. A grant that compensates the Group for expenses to be incurred in the subsequent periods is recognised initially as deferred income and recognised in profit or loss in the same periods in which the expenses are recognised. A grant that compensates the Group for expenses incurred is recognised in profit or loss immediately.
(18) Borrowing costs
Borrowing costs incurred directly attributable to the acquisition, construction of a qualifying asset are capitalised as part of the cost of the asset.
Except for the above, other borrowing costs are recognised as financial expenses in the income statement when incurred.
In the capitalisation period, the amount of interest (including amortisation of any discount or premium on borrowing) to be capitalised in each accounting period is determined as follows:
- Where funds are borrowed specifically for the acquisition, construction of a qualifying asset, the amount of interest to be capitalised is the interest expense calculated using effective interest rates during the period less any interest income earned from depositing the borrowed funds or any investment income on the temporary investment of those funds before being used on the asset.
- Where funds are borrowed generally and used for the acquisition, construction of a qualifying asset, the amount of interest to be capitalised on such borrowings is determined by applying a capitalisation rate to the weighted average of the excess amounts of cumulative expenditures on the asset over the above amounts of specific borrowings. The capitalisation rate is the weighted average of the interest rates applicable to the general-purpose borrowings.
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3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
The effective interest rate is determined as the rate that exactly discounts estimated future cash flow through the expected life of the borrowing or, when appropriate, a shorter period to the carrying amount of the borrowings.
The capitalisation period is the period from the date of commencement of capitalisation of borrowing costs to the date of cessation of capitalisation, excluding any period over which capitalisation is suspended. Capitalisation of borrowing costs commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities of acquisition, construction or production that are necessary to prepare the asset for its intended use or sale are in progress, and ceases when the assets become ready for their intended use or sale. Capitalisation of borrowing costs is suspended when the acquisition, construction activities are interrupted abnormally and the interruption lasts over three months.
(19) Dividends appropriated to investors
Dividends or distributions of profits proposed in the profit appropriation plan which will be authorised and declared after the balance sheet date, are not recognised as a liability at the balance sheet date but disclosed in the notes separately.
(20) Related parties
If the Group has the power to control, jointly control or exercise significant influence over another party, or vice versa, or where the Group and one or more parties are subject to common control, jointly control, or significant influence from another party, they are considered to be related parties. Related parties may be individuals or enterprises. Enterprises with which the Company is under common control only from the State and that have no other related party relationships are not regarded as related parties of the Group. The Company’s and its subsidiaries’ related parties include, but are not limited to:
(a) the Company’s parent (b) the Company’s subsidiaries (c) enterprises that are controlled by the Company’s parent (d) investors that have joint control over the Group (e) investors that exercise significant influence over the Group (f) joint ventures of the Group (g) associates of the Group (h) principal individual investors and close family members of such individuals (i) key management personnel of the Group and close family members of such individuals (j) key management personnel of the Company’s parent (k) close family members of key management personnel of the Company’s parent (l) other enterprises that are controlled, jointly controlled or significantly influenced by principal individual investors, key management personnel of the Group, and close family members of such individuals.
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3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
Besides the related parties stated above determined in accordance with the requirements of CAS (2006), the following enterprises and individuals are considered as (but not restricted to) related parties based on the disclosure requirements of “Administrative Procedures on the Information Disclosures of Listed Companies” issued by the CSRC:
(m) enterprises that hold 5% or more of the Company’s shares or persons that act in concert (n) individuals who directly or indirectly hold 5% or more of the Company’s shares and close family members of such individuals (o) enterprises that satisfy any of the aforesaid conditions in (a), (c) and (m) during the past 12 months or will satisfy them within the next 12 months pursuant to a relevant agreement; (p) individuals who satisfy any of the aforesaid conditions in (i), (j) and (n) during the past 12 months or will satisfy them within the next 12 months pursuant to a relevant agreement; and (q) enterprises, other than the Company and subsidiaries controlled by the Company, which are controlled directly or indirectly by an individual defined in (i), (j), (n) or (p), or in which such individual assumes the position of a director or senior executive.
(21) Segment reporting
Segment information is presented in respect of the Group’s business and geographical segments. A business segment is a distinguishable component of the Group that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other component. A geographical segment is a distinguishable component of the Group that is engaged in providing products or services within a particular economic environment, which is subject to risks and rewards that are different from those of other segments. In accordance with the Group’s internal financial reporting system, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format for the purposes of these financial statements.
Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. Segment revenue, expenses, assets and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group entities within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties.
Segment capital expenditure is the total cost incurred during the period to acquire or construct segment fixed assets and intangible assets.
42
3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
Unallocated items mainly comprise interest income and expenses, dividend income, investment income or loss arising from long-term equity investment, non- operating income and expenses, and income tax expenses.
(22) Significant accounting estimates and judgments
The preparation of financial statements requires management to make estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
Notes 22 and 54 contain information about the assumptions and their risk factors relating to impairment of goodwill and fair value of financial instruments. Other key sources of estimation uncertainty are as follows:
(a) Impairment of receivables
As described in Note 3(12)(b), receivables that are measured at amortisation cost are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any such evidence exists, impairment loss is provided. Objective evidence of impairment includes observable data that comes to the attention of the Group about loss events such as a significant decline in the estimated future cash flow of an individual debtor or the portfolio of debtors, and significant changes in the financial condition that have an adverse effect on the debtor. If there is an indication that there has been a change in the factors used to determine the provision for impairment, the impairment loss recognised in prior years is reversed.
(b) Impairment of non-financial long-term assets
As described in Note 3(11), non-financial long-term assets are reviewed at each balance sheet date to determine whether the carrying amount exceeds the recoverable amount of the assets. If any such indication exists, impairment loss is provided.
The recoverable amount of an asset (asset group) is the greater of its net selling price and its present value of expected future cash flows. Since a market price of the asset (the asset group) cannot be obtained reliably, the fair value of the asset cannot be estimated reliably. In assessing value in use, significant judgements are exercised over the asset’s production, selling price, related operating expenses and discounting rate to calculate the present value. All relevant materials which can be obtained are used for estimation of the recoverable amount, including the estimation of the production, selling price and related operating expenses based on reasonable and supportable assumption.
43
3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
(c) Depreciation and amortisation
As described in Note 3(6), (7) and (9), investment property, fixed assets and intangible assets are depreciated and amortised using the straight-line method over their estimated useful lives after taking into account residual value. The estimated useful lives are regularly reviewed to determine the depreciation and amortisation costs charged in each reporting period. The estimated useful lives are determined based on historical experiences of similar assets and the estimated technical changes. If there is an indication that there has been a change in the factors used to determine the depreciation or amortisation, the amount of depreciation or amortisation is revised.
(d) Warranty provisions
As described in Note 35, the Group makes provisions under the warranties it gives on sale of its Thin Film Transistor-Liquid Crystal Display (“TFT- LCD”) products taking into account the group’s recent claim experience. Any increase or decrease in the provision will affect profit or loss in future years.
4 CHANGES IN ACCOUNTING POLICIES
(1) Changes in accounting policies and their effects
The Group adopted CAS (2006) on 1 January 2007. The significant accounting policies applicable to the Group under CAS (2006) are summarised in Note 3.
The Group has issued B shares. The financial statements in prior years were reported by using the applicable PRC accounting regulations and the International Financial Reporting Standards (IFRS). Pursuant to the requirements of the “Q&A No.1 in China Accounting Standards Bulletin No.1” (CAS Bulletin 1) issued by the Minister of Finance in November 2007, the Group, at the date of first-time adoption, made retrospective adjustments based on the following principles.
Where the principles stipulated in CAS (2006) differ from those of the applicable PRC accounting regulations, and these principles in CAS (2006) are same as those adopted by the Group in preparing the financial statements in accordance with IFRS in prior years, the Group made retrospective adjustments to those items affected by the changes in accounting policies due to the first-time adoption of CAS (2006), based on the information used in preparing the financial statements in accordance with IFRS. In addition, the Group made retrospective adjustments to other items in accordance with the requirements of “CAS 38 – First-time Adoption of CAS” (CAS 38) and CAS Bulletin 1.
44
4 CHANGES IN ACCOUNTING POLICIES (CONTINUED)
Except for the retrospective adjustments described in item (a), (b), (c), (d), (f), (h) and (i) which were made in accordance with the requirements of CAS 38 and CAS Bulletin 1, no other retrospective adjustments resulted from the changes in accounting policies.
Upon the adoption of CAS (2006), the Group’s significant accounting policies changed as follows:
(a) Business combinations and goodwill
The business combinations of the Group completed before 1 January 2007 are all the business combinations involving entities not under common control, and are all completed before the promulgation of “Answers to Questions Relevant to the Implementation of the (Enterprise Accounting System) and Relevant Accounting Guidelines (2)” by MOF. The previous accounting policy for business combination required that the excess of the cost of acquisition over the Group’s interest in the shareholder’s equity of the acquiree be recognised as equity investment differences, which was amortised to profit and loss on a straight line basis. Under CAS (2006), goodwill recognised in a business combination involving enterprises not under common control is no longer amortised (see Note 3(1)). For business combinations completed before 1 January 2007, the Group retrospectively adjusted it in accordance with the same principles as those for investments in subsidiaries (see Note 4(1) (b)). Except that, the Group performed an impairment test on the goodwill on 1 January 2007. Any provision for impairment is provided against the carrying amount of the goodwill. The 2006 comparative items were accordingly retrospectively adjusted.
(b) Investments in subsidiaries
In the Company’s separate financial statements, investments in subsidiaries were accounted for using the equity method before 1 January 2007. Such investments are now accounted for using the cost method.
On 1 January 2007, the Company made retrospective adjustments on such investments obtained before 1 January 2007 in accordance with the policies described in Note 3(5) (a) in its separate financial statements. The Group made retrospective adjustments which is presented in Note3 (10) based on information used in preparing the financial statements in accordance with IFRS.
(c) Investments in jointly controlled entities and associates
When the equity method is used to account for investments in jointly controlled entities and associates, the major policies are changed as follows:
- Before 1 January 2007, the excess of the acquisition cost over the Group’s interest in the shareholder’s equity of the acquiree was amortised to profit and loss on a straight line basis. As of 1 January 2007, such excess or shortfall is accounted for in accordance with the principles described in Note 3(5) (b).
45
4 CHANGES IN ACCOUNTING POLICIES (CONTINUED)
- Before 1 January 2007, subsequent to the initial recognition, the Group adjusted the carrying amount of such investment according to its attributable share of the investee’s net profit or loss stated in the investee’s financial statements and recognised it as investment income for the current period accordingly. As of 1 January 2007, the Group adjusted the carrying amount of such investment in accordance with principles described in Note 3(5) (b).
On 1 January 2007, for an investment in a jointly controlled entity or an associate recognised before 1 January 2007, if the equity investment difference is a debit balance, any un-amortised debit balance on 1 January 2007 being treated as the deemed cost and the relevant comparative items have been retrospectively adjusted based on the information used in preparing the financial statements in accordance with IFRS.
Investments in jointly controlled entities were accounted for on a proportionate consolidation basis before 1 January 2007 in the consolidated financial statements. Such investments are now accounted for using the equity method.
(d) Investment property
Properties held either to earn rental income or for capital appreciation, or for both were recognised as fixed assets before 1 January 2007. These properties are now accounted for as investment properties using the cost model. There is no effect on the opening retained earnings and prior years’ retained earnings.
(e) Financial instruments
Before 1 January 2007, financial assets, financial liabilities and equity instruments were measured at historical costs. As of 1 January 2007, they are now measured at fair value, amortisation cost or cost according to the classification based on the principle in Note 3(12).
On January 1, 2007, no retrospective adjustment has been made by the Group since there is no significant difference between the fair value and the carrying amount of the financial assets and financial liabilities.
(f) Intangible assets
Before 1 January 2007, expenditures on the development phase of an internal research and development projects were previously recognised in profit or loss when incurred. As of 1 January 2007, such expenditures are now capitalised if certain criteria are met.
The Group made retrospective adjustment for the above change of accounting policy on intangible assets. The comparative figure for 2006 was adjusted based on the information used in preparing the financial statements in accordance with IFRS.
46
4 CHANGES IN ACCOUNTING POLICIES (CONTINUED)
(g) Reversal of impairment loss of non-financial long-term assets
Before 1 January 2007, for an asset, such as a long-term equity investment, fixed asset, intangible asset, if there is an indication that there has been a change in the factors used to determine the provision for impairment and as a result the estimated recoverable amount is greater than its carrying amount, the impairment loss recognised in prior years was to be reversed. The impairment loss is reversed only to the extent of the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. As of 1 January 2007, such impairment loss is no longer permitted to be reversed.
No retrospective adjustment has been made by the Group for the above change of accounting policy on asset impairment.
(h) Government grants
Before 1 January 2007, a government grant related to an asset (excluding capital contribution from the government) was recognised in capital reserve once it complied with the conditions associated. As of 1 January 2007, such government grant is recognised initially as deferred income.
The Group made retrospective adjustment for the above change of accounting policy on government grants. The comparative figure for 2006 was adjusted based on the information used in preparing the financial statements in accordance with IFRS.
(i) Borrowing costs
Before 1 January 2007, borrowing costs on funds borrowed for general purposes and used for the acquisition or construction of fixed assets, and borrowing costs on parts of the funds borrowed specifically for the acquisition or construction of fixed assets which have not been put into use (less any interest income earned from depositing the borrowed funds or any investment income on the temporary investment of those funds before being used on the asset), and borrowing costs on the funds borrowed and used for the acquisition or construction of intangible assets, were recognised in profit or loss when incurred. As of 1 January 2007, such borrowing costs are now capitalised as part of the cost of assets, when certain conditions are satisfied.
The Group made retrospective adjustment for the above change of accounting policy on borrowing costs. The comparative figure for 2006 was adjusted based on the information used in preparing the financial statements in accordance with IFRS.
47
4 CHANGES IN ACCOUNTING POLICIES (CONTINUED)
(j) Staff welfare fees
Before 1 January 2007, the Group accrued staff welfare fees based on 14% of the total salaries. As of 1 January 2007, they are measured based on the Group’s actual conditions and employee benefit plan.
The balance of staff welfare payable was transferred to employee benefits payable (staff welfare) at 1 January 2007. Subsequently any difference between such balance and the amount of a liability incurred for employee benefits measured based on the Group’s actual conditions and employee benefit plan has been adjusted to general and administrative expenses for 2007, resulting in an increase in 2007 net profit by RMB 20,748,620.
48
4 CHANGES IN ACCOUNTING POLICIES (CONTINUED)
(2) Effects of the above changes in accounting policies on the Group’s net profits and shareholders’ equity for 2006 and prior years are summarised as follows:
The Group The Company 2006 2006 2006 2006 2006 2006 Net (loss) Closing Opening Net (loss) Closing Opening balance of balance of balance of balance of shareholders’ shareholders’ shareholders’ shareholders’ equity equity equity equity RMB RMB RMB RMB RMB RMB Net (loss) and shareholders’ equity before adjustments (1,721,944,721) 3,540,702,703 3,377,859,054 (1,725,562,101) 3,570,265,012 3,239,381,697 ------Credit balance of other long-term equity investment differences measured using the equity method (3,997,086) 22,282,537 26,279,623 - - -
Minority interest - 756,748,838 233,662,540 - - - Retrospective adjustment on investment in subsidiaries measured using cost method - - - 1,120,398,831 1,302,493,414 187,138,971
Retrospective adjustment for B shares’ listed company 1. Adjustment on TPV Technology Ltd.’s 246,368,526 202,691,244 134,795,493 246,368,526 202,691,244 134,795,493 long-term equity investments
2. Derivative financial instruments (11,935,206) 99,422,036 111,357,242 (11,935,206) 99,422,036 111,357,242
3. Capitalisation of borrowing cost after deducted relevant depreciation (3,434,051) 29,750,411 33,184,462 - - -
4. Lost of control right over BOE-Hydis Technology Co., Ltd. (280,370,855) - 280,370,855 (280,370,855) - 280,370,855
5. Others 4,510,918 (4,530,218) 4,832,014 2,597,453 (1,512,344) (1,512,377)
Total (48,857,754) 1,106,364,848 824,482,229 1,077,058,749 1,603,094,350 712,150,184 ------Net (loss) and shareholders’ equity after adjustments (1,770,802,475) 4,647,067,551 4,202,341,283 (648,503,352) 5,173,359,362 3,951,531,881
49
4 CHANGES IN ACCOUNTING POLICIES (CONTINUED)
Affected assets and liabilities items in the balance sheet as at 31 December 2006
The Group The Company Adjustment Adjustments Adjustments led by changes led by changes led by changes Before in accounting in consolidated After Before in accounting After Notes adjustment policy scope adjustment adjustment policy adjustment RMB RMB RMB RMB RMB RMB RMB
Cash at bank and on hand 1,809,217,235 - (5,393,007) 1,803,824,228 940,625,651 - 940,625,651 Bills receivable 57,068,391 - (7,957,707) 49,110,684 7,335,011 - 7,335,011 Accounts receivables-net 1,117,873,492 - (11,621,134) 1,106,252,358 40,238,118 - 40,238,118 Prepayments 51,157,753 - (73,700) 51,084,053 1,902,105 - 1,902,105 Interest receivable * - 2,879,304 - 2,879,304 - 2,879,304 2,879,304 Other receivables 180,356,253 (1,857,456) (251,414) 178,247,383 113,559,696 (2,879,304) 110,680,392 Inventory 1,266,043,525 - (14,797,607) 1,251,245,918 41,684,323 - 41,684,323 Deferred expenses 4,611,412 (4,600,285) (11,127) - 34,535 (34,535) - Other current assets * - 4,600,285 - 4,600,285 - 34,535 34,535 Long-term receivables - - - - - 30,000,000 30,000,000 Long-term equity investments 2,817,778,818 274,673,052 51,908,699 3,144,360,569 5,468,490,851 1,604,606,695 7,073,097,546 Long-term debt investments - - - - 30,000,000 (30,000,000) - Investment property-net * - 135,553,995 - 135,553,995 - 37,034,861 37,034,861 Fix assets -net 8,092,661,676 (158,440,770) (20,737,083) 7,913,483,823 229,681,448 (37,034,861) 192,646,587 Construction-in-process 64,403,867 77,653 (51,413) 64,430,107 11,589,020 - 11,589,020 Intangible assets * 746,989,431 48,002,484 - 794,991,915 46,952,358 - 46,952,358 Goodwill - 47,364,310 - 47,364,310 - - - Long-term deferred expenses 1,066,696 4,557,049 (370,419) 5,253,326 - - - Other long-term assets * 1,021,848 (1,021,848) - - - - - Deferred income tax assets 1,831,754 - - 1,831,754 - - - Short-term borrowings (2,446,176,689) - - (2,446,176,689) (1,897,000,000) - (1,897,000,000) Bills payable (74,872,077) - - (74,872,077) - - - Accounts payable (1,856,976,749) - 5,268,099 (1,851,708,650) (10,329,605) - (10,329,605) Advances from customers (20,696,877) - - (20,696,877) (61,011,094) - (61,011,094) Employee benefits payable * - (105,015,400) - (105,015,400) - (39,460,075) (39,460,075)
50
4 CHANGES IN ACCOUNTING POLICIES (CONTINUED)
Affected assets and liabilities items in the balance sheet as at 31 December 2006 (continued)
The Group The Company Adjustment Adjustments Adjustments led by changes led by changes led by changes Before in accounting in consolidated After Before in accounting After Notes adjustment policy scope adjustment adjustment policy adjustment RMB RMB RMB RMB RMB RMB RMB
Staff welfare payable * (35,670,674) 34,994,017 676,657 - (1,423,104) 1,423,104 - Employee benefits payable * (31,140,502) 28,030,692 3,109,810 - (16,442,778) 16,442,778 - Taxes payable 96,466,617 (162,785) 287,589 96,591,421 (17,841,006) (65,497) (17,906,503) Interest payable * - (20,929,722) - (20,929,722) - (8,298,713) (8,298,713) Dividends payable (6,668,965) - - (6,668,965) (6,455,264) - (6,455,264) Other creditor ＊ (960,899) 960,899 - - (845,067) 845,067 - Other payables (212,403,663) 36,020,561 855,275 (175,527,827) (112,788,696) 9,054,165 (103,734,531) Accrued expenses ＊ (33,629,835) 33,629,835 - - (14,573,570) 14,573,570 - Long-term liabilities due within one year ＊ (2,111,027,205) 12,730,634 - (2,098,296,571) (727,852,000) 352,000 (727,500,000) Other current liabilities ＊ - (54,995,000) - (54,995,000) - - - Long-term loans * (5,088,771,029) 5,133,600 - (5,083,637,429) (437,633,600) 5,133,600 (432,500,000) Deferred income tax liability (28,274) - - (28,274) - - - Other long-term liabilities (163,800) (65,320,601) - (65,484,401) - (59,144,664) (59,144,664) Special payables * (62,307,320) 62,307,320 - - (57,632,320) 57,632,320 - Provisions * (29,602,669) 29,602,669 - - - - - Minority interests * (756,748,838) 756,748,838 - - - - -
Total 3,540,702,703 1,105,523,330 841,518 4,647,067,551 3,570,265,012 1,603,094,350 5,173,359,362
* Apart from the retrospective adjustments made on relevant items in the balance sheet as at 31 December 2006 described in Note 4(1), certain items in the comparative figures of 2006 have been reclassified to conform with the requirements of CAS 38.
51
4 CHANGES IN ACCOUNTING POLICIES (CONTINUED)
Affected income and expenses items in the income statement for the year ended 31 December 2006
The Group The Company Adjustment Adjustments Adjustments led by changes led by changes led by changes Before in accounting in consolidated After Before in accounting After Notes adjustment policy scope adjustment adjustment policy adjustment RMB RMB RMB RMB RMB RMB RMB
Sales from principal activities * (8,781,394,325) 8,781,394,325 - - (172,120,561) 172,120,561 - Operation income * - (8,881,914,054) 42,249,763 (8,839,664,291) (193,971,711) (193,971,711) Cost of sales from principal activities * 9,958,263,062 (9,958,263,062) - - 107,444,336 (107,444,336) - Operation cost * - 10,028,601,304 (28,865,514) 9,999,735,790 120,037,726 120,037,726 Sales taxes and surcharges * 11,427,851 1,461,021 - 12,888,872 2,757,218 1,329,505 4,086,723 Profit from other operations * (34,346,577) 34,346,577 - - (9,359,863) 9,359,863 - Operating expenses 227,074,656 - (1,718,165) 225,356,491 3,837,797 - 3,837,797 General and administrative expenses 1,033,154,825 (137,885,630) (8,743,200) 886,525,995 133,790,090 (31,715,697) 102,074,393 Impairment loss * - 368,459,722 - 368,459,722 - 58,840,686 58,840,686 Financial expenses 624,295,282 6,629,342 (172,240) 630,752,384 172,584,794 (1,065,300) 171,519,494 Investment income (157,168,368) (1,222,805,198) (1,882,554) (1,381,856,120) 1,479,191,503 (1,102,253,842) 376,937,661 Subsidy income * (91,502,937) 91,502,937 - - - - - Non-operating income (28,811,136) (104,380,641) - (133,191,777) (983,214) (597,454) (1,580,668) Non-operating expenses 187,031,037 (181,955,762) (31,090) 5,044,185 3,942,216 (1,698,750) 2,243,466 Income tax 13,333,832 - (434,222) 12,899,610 4,477,785 - 4,477,785 Minority interests (18,673,247) 2,525,408 (547) (16,148,386) - - - Unrecognized investment loss * (1,220,739,234) 1,220,739,234 - - - - -
Total 1,721,944,721 48,455,523 402,231 1,770,802,475 1,725,562,101 (1,077,058,749) 648,503,352
* Apart from the retrospective adjustments made on relevant items in the income statement for the year then ended 31 December 2006 described in Note 4(1), certain items in the comparative figures of 2006 have been reclassified to conform with the requirements of CAS 38.
52
5 TAXATION
(1) The types of taxes applicable to the Group’s sale of goods and rendering of services include business tax, value added tax (VAT), city construction tax and education surcharge. Their tax rates are as follows:
Business tax rate: 5% VAT rate: 13% or 17% City construction tax rate: 7% Education surcharge rate: 1-5%
(2) Income tax
The income tax rate applicable to the Company for the year is 15% (2006: 15%).
Pursuant to the JKYXZ No.0150053F document issued by Administrative Committee of Zhongguancun Science Park, the Company is recognised as a high- tech enterprise. In accordance with the policy of State Administration of Taxation’s GSH [1999] No.373 document, approved by Beijing Chaoyang Local Taxation Bureau through its (S) Z 2000 No.104 document, the Company is subject to a preferential income tax rate of 15% as an enterprise with new technology in the Beijing New Technology Development Zone.
There is no change in the tax rates and preferential treatments that the Company and its subsidiaries and branches are entitled to compared with the previous year.
53
5 TAXATION (CONTINUED)
The Group’s subsidiaries that are entitled to preferential tax treatments are as follows:
Name Preferential rate Reason
Beijing BOE Vacuum 15% Recognised by Beijing Municipal Science Electronics Co., Ltd. and Technology Commission as a high- tech enterprise, in accordance with tax laws and the “Interim Regulations of Beijing New Technology Development Zone” No. 5 document, it is subject to income tax rate of 15%, entitled to a 50% reduction in enterprise income tax from 2002 to 2003, and from 2004 onwards, the company’s income tax rate is 15%.
Beijing BOE Chatani - Recognised by Beijing Municipal Science Electronics Co., Ltd. and Technology Commission as a high- tech enterprise，it is subject to the rules of Beijing Municipal People’s Government JZF [1998] No.49 document which is approved by the State Council of China H [1998] No. 74 document - “with a preferential income tax rate of 15%”“From the establishing date the enterprise will be entitled to full exemption of income tax for the first 3 years, followed by 50% deduction of income tax from 4th to 6th year.” Thus, as the enterprise was founded in 2005, it is entitled to full exemption of income tax for 2007.
BOE Semi-conductor 15% Recognised by Beijing Municipal Science Co., Ltd. and Technology Commission as a high- tech enterprise, approved by Beijing Chaoyang Local Taxation Bureau (J) ZDSSP No.104 document, it is subject to income tax rate of 15%.
Beijing BOE Special 15% Recognised by Beijing Municipal Science Display Technology and Technology Commission as high-tech Co., Ltd. enterprise, approved by Beijing Chaoyang Local Taxation Bureau (J) ZDSSP No.161, it is subject to income tax rate of 15%.
Suzhou BOE Chatani 7.5% Recognised by Suzhou Industrial Park Electronics Co., Ltd. Administrative Committee as a high-tech enterprise, it is entitled to full exemption of income tax from the 1st and 2nd profit making year, followed by a 50% reduction of income tax from the 3rd to 5th year. 2005 is its first profit making year. 2007 is the first entitlement year for 50% reduction of enterprise income tax.
54
5 TAXATION (CONTINUED)
Name of enterprises Preferential rate Reason
BOE Hyundai LCD 7.5% Recognised by Beijing Municipal Science (Beijing) Display and Technology Commission as a high- Technology Co., Ltd. tech enterprise on 28 June 2002, in accordance with tax law and the rules of “Interim Regulations of Beijing New Technology Development Zone” No. 5 document, the enterprise is subject to a preferential income tax rate of 15% , and entitled to full exemption of income tax from 2002 to 2004, followed by a 50% reduction of enterprise income tax from 2005 to 2007. From 2002 onwards, it is entitled to full exemption of the municipal income tax.
Beijing BOE 7.5% Recognised by Beijing Municipal Science Optoelectronics and Technology Commission as a high- Technology Co., Ltd. tech enterprise, it is subject to the rules of Beijing Municipal People's Government JZF [1998] No.49 document approved by the State Council of China H [1998] No. 74 document - “with a preferential income tax rate of 15%”“From the establishing date the enterprise entitled full exemption of income tax for the first 3 years, followed by 50% deduction of income tax from 4th to 6th year.” The enterprise was founded in 2003. In 2007, the enterprise is entitled to 50% deduction of enterprise income tax.
Beijing Yinghe Century 15% Recognised by Beijing Municipal Science Co., Ltd. and Technology Commission as high-tech enterprise, subject to a preferential income tax rate of 15%.
Apart from above companies, other domestic subsidiaries are subject to income tax rate of 33%.
“The Corporate Income Tax Law of the People’s Republic of China” (“New Tax Law”) was passed at the 5th Full Session of the 10th National People’s Congress of the People’s Republic of China on 16 March 2007 and was promulgated. It came into effect on 1 January 2008. In accordance with the requirements of new tax law, the Company and the Group’s subsidiaries which are recognised as high- tech enterprise and subject to the preferential income tax rate will be continually recognised in 2008. The Group’s other domestic subsidiaries’ income tax rate will be changed to 25% effective from 1 January 2008. The movement of carrying amount of deferred tax assets and liabilities contributed by the change of tax rate is reflected in the Group’s financial statements for current year.
55
5 TAXATION (CONTINUED)
(3) Taxes payable
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
VAT payable 28,948,263 (126,277,407) 4,598,255 363,046 Business tax payable 985,994 1,649,885 412,462 1,049,807 Income tax payable 8,163,713 20,802,497 - 15,624,949 Education surcharge payable 1,273,923 162,785 150,322 65,497 Land value increment tax 1,904,180 62,063 - - Employee-Personal income tax 6,201,168 4,037,856 454,175 704,304 Others 2,795,945 2,970,900 350,750 98,900
Total 50,273,186 (96,591,421) 5,965,964 17,906,503
56
6 BUSINESS COMBINATION AND THE CONSOLIDATED FINANCIAL STATEMENTS
(1) At 31 December 2007, the Company's subsidiaries are as follows. The consolidated financial statements include the following subsidiaries except BOE Technology Incorporation (Note 5).
Closing Direct Direct Amount of the Actual Direct and indirect and indirect Organization Registration Obtain Issued Business nature Company’s investment shareholding shareholding shareholding Name code place method capital and scope investment net value percentage percentage percentage
Zhejiang BOE Display 145908749 China, Shao Xing Business RMB Research, development RMB RMB 69.29% 69.29% 69.29% Technology Co., Ltd. combination 129,194,000 manufacture and sale of 106,546,516 106,546,516 (ZJBOE) involving entity monitors and related parts not under common control
Beijing BOE Vacuum 633709503 China Beijing Cash RMB manufacture and sale of RMB RMB 55% 55% 55% Electronics Co., Ltd. investment 35,000,000 vacuum electronic products 19,250,000 19,250,000 (Vacuum Electronics) and related service
BOE Semi-conductor 101711477 China Beijing Cash RMB Manufacture and sale of RMB RMB 63% 63% 63% Co., Ltd. investment 15,000,000 semi-conductor products 9,450,000 9,450,000 (BOE Semi- conductor)
Beijing BOE Special 700222069 China Beijing Cash RMB Research and development RMB RMB 100% 100% 100% Display Technology investment 60,000,000 of network and 60,000,000 60,000,000 Co., Ltd. telecommunications (Special Display) (Note 1) products
Beijing Yinghe Century 600066484 China Beijing Cash RMB Leasing of commercial RMB RMB 100% 100% 100% Co., Ltd. (Yinghe Century) investment 9,931,560 facilities 63,271,833 63,271,833
57
6 BUSINESS COMBINATION AND THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Closing Direct Direct Amount of the Actual Direct and indirect and indirect Organization Registration Obtain Issued Business nature Company’s investment shareholding shareholding shareholding Name code place method capital and scope investment net value percentage percentage percentage
Suzhou BOE Chatani 735740093 China Suzhou Cash USD Development, manufacture RMB RMB 75% 75% 75% Electronics Co., Ltd. investment 8,552,000 and sale of flat screen 53,087,904 53,087,904 (Suzhou Chatani) products and related services
BOE Hyundai LCD 73765024-3 China Beijing Cash USD Development, manufacture RMB RMB 75% 75% 75% (Beijing) Display investment 5,000,000 and sale of related parts 31,038,525 31,038,525 Technology Co., Ltd. of STN-LCD products and (BOE Hyundai) related services
Beijing BOE 749353393 China Beijing Cash USD Development, manufacture RMB RMB 78.54% 78.54% 78.54% Optoelectronics investment 550,000,000 and sale of TFT-LCD 3,494,892,513 3,494,892,513 Technology Co., Ltd. products and related services (BOEOT)
BOE Land Co., Ltd. 600038889 China Beijing Cash RMB Leasing of commercial RMB RMB 70% 70% 70% (BOE Land) investment 55,420,000 facilities 7,731,474 7,731,474
Beijing BOE Chatani 772550854 China Beijing Cash RMB Development, manufacture RMB RMB 1% 75.25% 75.25% Electronics Co., Ltd. investment 37,244,248 and sale of flat screen 372,443 372,443 (Beijing Chatani) display products and related parts
Beijing BOE Digital 600086442 China Beijing Cash USD Research, development RMB RMB 75% 75% 75% Technology Co., Ltd. investment 10,000,000 manufacture and sale of 12,416,550 12,416,550 (BOE Digital) (Note 2) digital cameras and other digital visual wireless transfer platform
BOE Optoelectronics N/A British Virgin Cash USD Design, manufacture and RMB RMB 100% 100% 100% Holding Company Ltd. Island investment 600,000 trading of electronics 1,654,700 1,654,700 (Optoelectronics Holding) information technology products and investing activities
BOE (Hebei) Mobile 785747138 China Langfang Cash USD Manufacture and sale of RMB RMB 75% 75% 75% Technology Co., Ltd. investment 20,000,000 flat screen display 120,307,500 120,307,500 (BOE Hebei) technical products and related services
58
6 BUSINESS COMBINATION AND THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Closing Direct Direct Amount of the Actual Direct and indirect and indirect Organization Registration Obtain Issued Business nature Company’s investment shareholding shareholding shareholding Name code place method capital and scope investment net value percentage percentage percentage
Beijing BOE Sales 79160756-1 China Beijing Cash RMB Sale of electronic products, RMB RMB 100% 100% 100% and Marketing Co., Ltd. investment 500,000 telecommunication 500,000 500,000 (BOE Sales &Marketing) equipment and related services
BOE (Korea) Co., Ltd. N/A Korea Cash USD Sale of TFT-LCD products RMB RMB 100% 100% 100% BOE (Korea) investment 100,000 and related services 788,450 788,450
Beijing BOE Vacuum 66050630-6 China Beijing Cash RMB Research, development, RMB RMB 100% 100% 100% Technology Co., Ltd. investment 32,000,000 manufacture and sale of 32,000,000 32,000,000 (Vacuum Technology) vacuum electronic products ((Note 3) and related services
Xiamen BOE Electronics 66474162-9 China Xiamen Cash RMB Development, manufacture RMB RMB 100% 100% 100% Co., Ltd. (Xiamen BOE) investment 37,500,000 and sale of LCD products 37,500,000 37,500,000 (Note 4) and related parts
Shaoxing BOE Ueno 71549059-2 China Shaoxing Cash RMB Development, manufacture and - - - 41.57% 41.57% Electronics Apparatus investment 27,000,000 sale of electronics products Co., Ltd. (Shaoxing BOE)
BOE Optoelectronics N/A Bermuda Cash USD Investment holding - - 100% 100% 100% Technology Co., Ltd. investment 600,000 (Optoelectronics Technology)
BOE Technology N/A USA Cash USD Research, development, RMB RMB 100% 100% 100% Incorporation investment 200,000 manufacture and sale of 1,743,697 1,743,697 (BOE Technology) high technology electronic (Note5) infrastructure products
59
6 BUSINESS COMBINATION AND THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1: In 2007, pursuant to the resolution passed by the Board of Directors, the Company injected additional capital investment amounting to RMB 40 million to its wholly-owned subsidiary, Special Display. The total investment in Special Display after the capital injection amounting to RMB 60 million. Beijing Xinhua Certified Public Accountants Company Limited has verified the capital injection and issued the capital verification report.
Note 2: BOE Digital is a subsidiary which has discontinued operation. It is excluded from the group consolidation in 2006. According to Enterprise Accounting Standard No. 33 - Consolidated Financial Statements, BOE Digital is included in group consolidation in 2007. The former year’s comparative consolidated financial statements are restated accordingly.
Note 3: Pursuant to the resolution passed by the Board of Directors, Vacuum Technology (formerly known as the Company’s Vacuum Electric Division) was registered as the Company’s wholly-owned subsidiary on 20 April 2007. It has been included in the consolidated financial statements for the current reporting period.
Note 4: XiaMen BOE is a wholly owned subsidiary established by the Company on 30 November 2007. For the current reporting period, it has been included in the consolidated financial statements.
Note 5: BOE Technology Incorporation has substantially commenced the corporate cancellation procedure. The Company has lost the control right over BOE Technology Incorporation which is not included in the consolidated financial statements.
Note 6: Last year, the jointly controlled entity Beijing Ashai Glass Electronics Co., Ltd. (Beijing Ashai) has been included in the consolidated financial statements using proportion method. In accordance with the requirements of the “Accounting Standards for Business Enterprises No. 33 - Consolidated Financial Statements”, investment in a jointly controlled entity is accounted for using equity method and is no longer included in the consolidated financial statements using proportion method. The relevant adjustments have been made using equity method for comparative figures. Beijing Ashai has not been included in prior year’s consolidated financial statements.
(2) Minority interests in each of the major subsidiaries
Minority interests Minority interests Subsidiary at closing date at beginning date RMB RMB
BOEOT 774,713,365 564,306,263 ZJBOE 41,051,530 70,148,675 BOE Hebei 36,310,429 38,024,871 Suzhou Chatani 30,637,982 19,320,453
60
6 BUSINESS COMBINATION AND THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) Lost of control right over BOE-Hydis
BOE-Hydis Technology Co., Ltd. (“BOE-Hydis”), a wholly-owned subsidiary of the Company, has commenced the corporate rehabilitation procedure under the order by the Seoul Central District Court on 29 September 2006. The Company has lost the control right over BOE-Hydis since 29 September 2006. Since BOE- Hydis held 21.46% of the shareholder’s equity of BOEOT (a subsidiary of the Group) as at 29 September 2006, the equity interest of BOE-Hydis in BOEOT will be transferred to minority interest when the balance sheet of BOE-Hydis is not consolidated into the Group’s balance sheet.
7 CASH AT BANK AND ON HAND
2007 2006 Original Exchange RMB/RMB Original Exchange RMB/RMB currency rate equivalents currency rate equivalents
The Group Cash on hand - RMB 220,688 350,077 - USD 101,410 7.3046 740,756 176,134 7.8087 1,375,382 - Korean Won 2,899,356 0.0077 22,291 2,590,911 0.0083 21,471 - Japanese Yen 3,716,226 0.0641 238,076 4,889,265 0.0656 320,882 - Hong Kong Dollar 26,647 0.9364 24,953 28,441 1.0047 28,575 - Euro 3,236 10.6669 34,518 3,406 10.2665 34,958 - Taiwan Dollar 85,696 0.2249 19,273 69,443 0.2395 16,641 - Singapore Dollar 1,640 5.0518 8,285 1,763 5.0926 8,980 - Great Britain Pound 543 14.5807 7,917 543 15.3232 8,325 - Schweizer Franken 710 6.4855 4,605 710 6.4103 4,551
Total 1,321,362 2,169,842 ------
Deposits with banks Current deposit - RMB 422,551,177 365,710,709 - USD 18,348,894 7.3046 134,031,328 41,375,985 7.8087 323,089,145 - Korean Won 93,033,338 0.0077 714,403 1,016,518 0.0083 8,436 - Japanese Yen 707,585 0.0641 45,331 129,635,123 0.0656 8,503,097 - Hong Kong Dollar 1,596,644 0.9364 1,495,097 1,580,664 1.0047 1,588,093 - Taiwan Dollar 7,405,948 0.2249 1,665,847 3,159,697 0.2395 752,990 - Singapore Dollar 2,050 5.0518 10,357 97,416 5.0926 496,005
560,513,540 700,148,475 ------
Time deposit - RMB 882,000,611 778,098,660 - USD 2,289,610 7.3046 16,724,687 2,000,000 7.8087 15,617,400 - Korean Won 200,000,000 0.0077 1,535,800 - - -
900,261,098 793,716,060 ------
Other monetary funds - RMB 152,670,746 307,789,851 - USD 10,587,576 7.3046 77,338,015 - - - - Japanese Yen 192,000,201 0.0641 12,300,377 - - - - Taiwan Dollar 139,000 0.2249 31,266 - - -
242,340,404 307,789,851 ------Total 1,704,436,404 1,803,824,228
61
7 CASH AT BANK AND ON HAND (CONTINUED)
2007 2006 Original Exchange RMB/RMB Original Exchange RMB/RMB currency rate equivalents currency rate equivalents
The Company Cash on hand - RMB 33,569 74,813 - USD 96,014 7.3046 701,344 109,259 7.8087 853,174 - Korean Won 249,265 0.0077 1,914 2,178,465 0.0083 18,081 - Japanese Yen 3,172,241 0.0641 203,226 4,362,572 0.0656 286,316 - Hong Kong Dollar 25,965 0.9364 24,314 28,441 1.0047 28,575 - Euro 3,236 10.6669 34,518 3,406 10.2665 34,958 - Singapore Dollar 1,381 5.0518 6,977 1,381 5.0926 7,033 - Great Britain Pound 543 14.5807 7,917 543 15.3232 8,325 - Schweizer Franken 710 6.4855 4,605 710 6.4103 4,551
1,018,384 1,315,826 ------
Deposits with banks Current deposit - RMB 75,247,973 138,201,418 - USD 499,448 7.3046 3,648,268 743,306 7.8087 5,804,254 - Hong Kong Dollar 1,596,644 0.9364 1,495,097 1,580,664 1.0047 1,588,093
80,391,338 145,593,765 ------
Time deposit - RMB 840,565,350 778,098,660 - USD 2,000,000 7.3046 14,609,200 2,000,000 7.8087 15,617,400
855,174,550 793,716,060 ------Total 936,584,272 940,625,651
At 31 December 2007, the Group’s time deposits with banks with maturity over 3 months amounting to RMB 8,400,000, KRW 200,000,000 (2006: RMB 43,320,000) which can not be readily withdrawn on demand. Included in other monetary funds are the deposits with commercial banks as security amounting to RMB 152,670,746, USD 10,587,576, JPY 192,000,201, and TYD 139,000 (2006: RMB 307,789,851) .
At 31 December 2007, the Company’s time deposits with banks with maturity over 3 months amounting to RMB 8,400,000 (2006: RMB 43,320,000), which can not be readily withdrawn on demand.
62
8 BILLS RECEIVABLE
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Bank acceptance bills 145,683,058 49,060,684 6,119,683 7,285,011 Commercial acceptance bills 30,100,000 50,000 - 50,000
Total 175,783,058 49,110,684 6,119,683 7,335,011
All of the above bills held by the Group are due within one year.
At 31 December 2007, the Group’s bank acceptance bills that have been pledged amounting to RMB 26,316,216 (2006: nil), due by 3 March 2008.
At 31 December 2007, the Group’s outstanding endorsed bank acceptance bills (with recourse) amounting to RMB 153,143,621, due by 4 June 2008. The Group’s outstanding discounted bank acceptance bills (without recourse) amounting to RMB 12,633,000, due by 15 May 2008.
No amount due from shareholders who hold 5% or more of the voting rights of the Company is included in the balance of bills receivable.
9 ACCOUNTS RECEIVABLE
(1) Accounts receivable by customer type：
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Amounts due from subsidiaries - - 20,337,582 16,078,515 Amounts due from other related parties 51,253,410 366,810,012 1,438,953 1,379,757 Amounts due from other customers 1,761,447,563 758,616,057 8,359,495 24,326,245
Subtotal 1,812,700,973 1,125,426,069 30,136,030 41,784,517
Less: provision for bad and doubtful debts 19,088,631 19,173,711 2,118,766 1,546,399
Total 1,793,612,342 1,106,252,358 28,017,264 40,238,118
63
9 ACCOUNTS RECEIVABLE (CONTINUED)
The Group’s accounts receivable by currency type:
2007 2006 Original Exchange RMB/RMB Original Exchange RMB/RMB currency rate equivalents currency rate equivalents
- RMB 1,115,785,434 389,134,037 - USD 95,407,762 7.3046 696,915,539 94,181,440 7.8087 735,434,610 - Korean Won - - - 97,450,484 0.0083 808,839 - Singapore Dollar - - - 9,540 5.0926 48,583
1,812,700,973 1,125,426,069
Less: provision for bad and doubtful debts 19,088,631 19,173,711
Total 1,793,612,342 1,106,252,358
The Group’s accounts receivable due from related parties amounting to RMB 51,253,410 (2006: RMB 366,810,012), 3% (2006: 33%) of the total accounts receivable.
The Company’s accounts receivable due from subsidiaries and other related parties amounting to RMB 21, 776,535 (2006: RMB 17,458,272), 72% (2006: 42%) of the total accounts receivable.
No amount due from shareholders who hold 5% or more of the voting rights of the Company is included in the balance of account receivables.
At 31 December 2007, account receivables balance of RMB 150,455,565 (2006: RMB 102,412,014) is pledged by the Group as security for short-term loans amounting to RMB 117,363,290 (2006: RMB 81,929,150) (Notes 26).
At 31 December 2007, the total amounts of accounts receivable due from the Group and Company’s the top five debtors are as follows:
The Group The Company 2007 2006 2007 2006
Amounts (RMB) 814,560,912 581,079,606 20,488,355 13,086,620 Percentage of accounts receivable 45% 52% 68% 31%
At 31 December 2007, all the balances of accounts receivable due from the Group’s top five debtors are due within one 1 year (2006: RMB 6,694,430).
At 31 December 2007, all the balances of accounts receivable due from the Company’s top five debtors are due within one 1 year (2006: nil).
64
9 ACCOUNTS RECEIVABLE (CONTINUED)
(2) The ageing analysis of accounts receivable is as follows:
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Within 1 year (inclusive) 1,746,212,907 1,098,989,711 28,214,192 37,019,022 1 and 2 years (inclusive) 56,735,761 16,426,888 372,058 1,896,798 2 and 3 years (inclusive) 5,416,347 6,464,786 269,423 1,362,975 Over 3 years 4,335,958 3,544,684 1,280,357 1,505,722
Subtotal 1,812,700,973 1,125,426,069 30,136,030 41,784,517 Less: provision for bad and doubtful debts 19,088,631 19,173,711 2,118,766 1,546,399
Total 1,793,612,342 1,106,252,358 28,017,264 40,238,118
The ageing is counted starting from the date accounts receivable is recognised.
(3) An analysis of provision for bad and doubtful debts is as follows:
The Group
2007 2006 Percentage Percentage of total of total accounts Bad debts Rate of accounts Bad debts Rate of Amount receivable provision provision Amount receivable provision provision RMB RMB RMB RMB
Accounts receivable - Individually significant 1,683,128,561 93% 5,206,327 27% 1,008,019,461 90% 13,241,248 69% - Other immaterial item 129,572,412 7% 13,882,304 73% 117,406,608 10% 5,932,463 31%
Total 1,812,700,973 100% 19,088,631 100% 1,125,426,069 100% 19,173,711 100%
The Company
2007 2006 Percentage Percentage of total of total accounts Bad debts Rate of accounts Bad debts Rate of Amount receivable provision provision Amount receivable provision provision RMB RMB RMB RMB
Accounts receivable - Individually significant 17,813,382 59% 811,144 38% 18,775,820 45% 39,063 3% - Other immaterial items 12,322,648 41% 1,307,622 62% 23,008,697 55% 1,507,336 97%
Total 30,136,030 100% 2,118,766 100% 41,784,517 100% 1,546,399 100%
65
9 ACCOUNTS RECEIVABLE (CONTINUED)
At 31 December 2007, the Group and the Company assessed all the account receivable balances for impairment on an individual basis. The impairment loss will be recognized immediately, if there exists the objective evidence indicating that the amount could not be recovered. If the balance is confirmed or estimated not to be recovered within the credit period, a provision of impairment loss will be made as the excess of its carrying amount over the present value. The group calculated the present value of the estimated future cash flows based on the overdue collection period and the bank loan interest rates for the same period.
In 2007, the Group and the Company do not have any individually significant accounts receivable with full bad-debts provision or with a significant bad-debts provision made in previous years which have been fully or partly recovered during the year.
10 PREPAYMENTS
The ageing analysis of prepayments is as follows:
The Group
2007 2006 Amount Percentage Amount Percentage RMB RMB
Within 1 year (inclusive) 111,238,291 99% 48,376,193 95% 1 and 2 years ((inclusive) 167,143 - 2,616,015 5% 2 and 3 years (inclusive) 548,467 1% 24,147 - Over 3 years 84,795 - 67,698 -
Total 112,038,696 100% 51,084,053 100%
The Company
2007 2006 Amount Percentage Amount Percentage RMB RMB
Within 1 year (inclusive) 2,537,716 100% 1,707,539 90% 1 and 2 years (inclusive) 5,000 - 104,208 5% 2 and 3 years (inclusive) - - 70,357 4% Over 3 years - - 20,001 1%
Total 2,542,716 100% 1,902,105 100%
66
10 PREPAYMENTS (CONTINUED)
The ageing is counted starting from the date prepayments is recognised.
At 31 December 2007, the Group’s prepayments with ageing more than one year are mainly prepayment make in relation to the purchasing activities which has yet to make settlement.
No amount due from shareholders who hold 5% or more of the voting rights of the Company is included in the balance of prepayment.
The Group’s prepayments due from related parties amounting to RMB 50,000,000 (2006: nil), 45% (2006: nil) of the total prepayments.
At 31 December 2007, an analysis of individual prepayments that are 30% or more of the total amount is as follows:
Percentage of total Debtors Reasons for prepayment Balance year-end balance RMB
Beijing Sevenstar Huasheng Electronics and Machinery Co., Ltd. purchase of equipment 50,000,000 45% (“Sevenstar”)
11 INTERESTS RECEIVABLE
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Time deposit interest 1,516,906 2,879,304 1,516,906 2,879,304
At 31 December 2007, no significant amount of interest receivable of the Group and the Company is denominated in foreign currency.
12 DIVIDENDS RECEIVABLE
The Company 2007 2006 RMB RMB
Yinghe Century 8,204,147 -
67
13 OTHER RECEIVABLES
(1) Other receivables by customer type
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Amounts due from subsidiaries - - 102,681,475 68,706,391 Amounts due from other related parties 35,267,681 32,258,609 35,267,681 32,258,609 Amounts due from other customers 79,332,673 179,087,564 5,143,336 39,996,782
Subtotal 114,600,354 211,346,173 143,092,492 140,961,782
Less: Provision for bad and doubtful debts 34,004,886 33,098,790 36,843,155 30,281,390
Total 80,595,468 178,247,383 106,249,337 110,680,392
The Group’s other receivables due from related parties amounting to RMB 35,267,681 (2006: RMB 32,258,609), 31% (2006: 15%) of the total other receivables.
The Company’s other receivables due from subsidiaries and other related parties amounting to RMB 137,949,156 (2006: RMB 100,965,000), 96% (2006: 72%) of the total other receivables.
The Group’s other receivables by currency type:
2007 2006 Original Exchange RMB/RMB Original Exchange RMB/RMB currency rate equivalents currency rate equivalents
The Group - RMB 112,918,363 210,324,325 - Korean Won 170,000,000 0.0077 1,305,430 99,983,012 0.0083 829,859 - Singapore Dollar 36,713 5.0518 185,469 - - - - Taiwan Dollar 849,548 0.2249 191,092 801,624 0.2395 191,989
Sub Total 114,600,354 211,346,173
Less：Provision 34,004,886 33,098,790
Total 80,595,468 178,247,383
No amount due from shareholders who hold 5% or more of the voting rights of the Company is included in the balance of other receivables.
68
13 OTHER RECEIVABLES (CONTINUED)
At 31 December 2007, the total amount of other receivables due from the Group’s and the Company’s top five debtors were as follows:
The Group The Company 2007 2006 2007 2006
Amounts (RMB) 86,840,854 181,567,582 131,112,676 128,916,925 Percentage of other receivables 76% 86% 92% 91%
At 31 December 2007, the balance of the Group’s other receivables due from the Group’s top five debtors amounting to RMB 30,046,679 (2006: RMB 30,046,679), due after 3 years.
At 31 December 2007, the balance of the Company’s other receivables due from the Company’s top five debtors, which amounting to RMB 58,134,856 (2006: RMB 31,541,679), is due after 3 years.
(2) The ageing analysis of other receivables is as follows:
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Within 1 year (inclusive) 71,866,267 125,827,574 72,914,317 71,283,366 1 and 2 years (inclusive) 7,803,195 51,496,559 556,621 10,043,725 2 and 3 years (inclusive) 3,303,754 2,930,701 9,991,698 26,704,775 Over 3 years 31,627,138 31,091,339 59,629,856 32,929,916
Total 114,600,354 211,346,173 143,092,492 140,961,782
The ageing is counted starting from the date of recognition of other receivables.
(3) An analysis of provision for bad or doubtful debts for other receivables is as follows:
The Group
2007 2006 Percentage Percentage of total other Bad debts Rate of of total other Bad debts Rate of Amount receivables provision provision Amount receivables provision provision RMB RMB RMB RMB
Other receivables - Individually significant 83,240,883 73% 30,071,188 88% 182,482,847 86% 30,315,736 92% - Other immaterial item 31,359,471 27% 3,933,698 12% 28,863,326 14% 2,783,054 8%
Total 114,600,354 100% 34,004,886 100% 211,346,173 100% 33,098,790 100%
69
13 OTHER RECEIVABLES (CONTINUED)
The Company
2007 2006 Percentage Percentage of total other Bad debts Rate of of total other Bad debts Rate of Amount receivables provision provision Amount receivables provision provision RMB RMB RMB RMB
Other receivables - Individually significant 134,121,464 94% 35,801,572 97% 130,513,630 93% 30,046,679 99% - Other immaterial item 8,971,028 6% 1,041,583 3% 10,448,152 7% 234,711 1%
Total 143,092,492 100% 36,843,155 100% 140,961,782 100% 30,281,390 100%
At 31 December 2007, the Group and the Company assessed all the other receivable balances for impairment on an individual basis. The impairment loss will be recognised immediately, if there exists the objective evidence indicating that the amount could not be recovered. If the balance is confirmed or estimated not to be recovered within the credit period, a provision of impairment loss will be made as the excess of its carrying amount over the present value. The group and the Company calculated the present value of the estimated future cash flow based on the overdue collection period and the bank loan interest rates for the same period.
In year 2007, the Group and the Company do not have any individually significant accounts receivable with full bad-debts provision or with a significant bad-debts provision made in previous years which have been fully or partly recovered during the year.
14 INVENTORIES
(1) An analysis of the movements of inventories for the year is as follows:
The Group
Opening balance Addition Reduction Closing balance at the beginning during during at the end of the year the year the year of the year RMB RMB RMB RMB
Raw materials 536,213,784 9,900,112,650 （9,971,484,156) 464,842,278 Work in progress 151,719,831 7,590,593,804 (7,610,242,355) 132,071,280 Finished goods 689,692,730 10,840,345,906 (11,258,902,880) 271,135,756 Consumables 23,391,974 178,424,637 (161,709,906) 40,106,705
Subtotal 1,401,018,319 28,509,476,997 (29,002,339,297) 908,156,019
Less: Provision for diminution in value of inventories 149,772,401 82,294,188 (115,608,590) 116,457,999
Total 1,251,245,918 28,427,182,809 (28,886,730,707) 791,698,020
70
14 INVENTORIES (CONTINUED)
The Company
Opening balance Addition Reduction Closing balance at the beginning during during at the end of the year the year the year of the year RMB RMB RMB RMB
Raw materials 8,693,515 12,981,480 (18,861,978) 2,813,017 Work in process 32,026,110 55,101,068 (71,648,643) 15,478,535 Finish goods 19,945,416 29,812,712 (42,376,972) 7,381,156 Consumables 162,410 91,922 (162,410) 91,922
Subtotal 60,827,451 97,987,182 (133,050,003) 25,764,630
Less: Provision for diminution in value of inventories 19,143,128 4,741,740 (7,909,731) 15,975,137
Total 41,684,323 93,245,442 (125,140,272) 9,789,493
(2) An analysis of provision for diminution in value of inventories is as follows:
Opening balance Provision Written back Closing balance at the beginning made for during the year at the end of the year the year Reversal Write-off of the year RMB RMB RMB RMB RMB
The Group Raw materials 39,955,089 24,241,754 (6,515,364) (15,494,365) 42,187,114 Work in progress 14,648,654 5,395,155 (26,766) (5,976,927) 14,040,116 Finished goods 95,162,808 51,355,682 (2,258,172) (85,336,996) 58,923,322 Consumables 5,850 1,301,597 - - 1,307,447
Total 149,772,401 82,294,188 (8,800,302) (106,808,288) 116,457,999
The Company Raw materials 609,856 407,536 (137,057) (646,273) 234,062 Work in progress 11,122,303 1,223,562 (26,766) (2,450,576) 9,868,523 Finished goods 7,405,119 3,091,725 (5,940) (4,643,119) 5,847,785 Consumables 5,850 18,917 - - 24,767
Total 19,143,128 4,741,740 (169,763) (7,739,968) 15,975,137
Any excess of the cost over the net realisable value of each class of inventories is recognised as a provision for diminution in value of inventories. When the previous factors which contributed to the diminution in value of inventories no longer exist, the provision for diminution in value of inventories will be reversed. In financial year 2007, the Group’s and the Company’s total reversal on provision for diminution in value of inventories amounting to 1% and 0.7% of total inventory balances respectively.
71
15 AVAILABLE-FOR-SALE FINANCIAL ASSETS
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Bonds 129,109,597 - 129,109,597 -
At 31 December 2007, the Group and the Company’s available-for-sale financial assets are all equity investment in TPV Technology Limited and the ending balance is measured at fair value. TPV Technology Limited is listed on Hongkong Stock Exchange (Stock code: 0903). The Group and the Company calculated the fair value at year end according to the closing price.
16 HELD-TO-MATURITY INVESTMENTS
The Group and the Company
Hyundai HYE LCD INC. RMB
Investment cost Balance at the beginning of the year 17,960,946 Decrease during the year -
Balance at the end of the year 17,960,946 ------Less: Provisions Balance at the beginning of the year 17,960,946 Increase during the year -
Balance at the end of the year 17,960,946 ------Carrying amount At the end of the year -
At the beginning of the year -
At 31 December 2007, the Group and the Company’s held-to-maturity investments are convertible bonds of Hyundai LCD Inc. (Hyundai LCD). Due to operational difficulties, Hyundai LCD could not pay back the Company on the convertible bond balances. Thus, the Company has made full provisions for the convertible bond balances amounting to USD 2,170,000 (RMB 17,960,946) in 2005.
72
16 HELD-TO-MATURITY INVESTMENTS (CONTINUED)
On 11 May 2007, the Central District Court in Seoul, Korea, made judgment on the remaining convertible bond balance. The judgment exempts 67.93% of the balance, and orders that 31.36% should be paid to the Company in cash by 5 years installments from December 2009 and the remaining 0.71% should be paid by debtor company shareholders’ equity on 31 May 2007. The total certified obligatory right of the Company is USD 902,910 (including the interest arisen before the date of rehabilitation procedure of Hyundai LCD). Meanwhile, Hyundai LCD should pay interest at the annual interest rate of 1% to the Company with effect from the judgment date. On 13 July 2007, the Court made judgment on the rehabilitation procedure of Hyundai LCD that Hyundai HYE LCD Inc. (HYLCD) will accept the assets and liabilities of Hyundai LCD, and Hyundai LCD is to be liquidated. However, as at the balance sheet date, the Company has not received any settlements via shareholder’s equity or any interest payment, thus it is not probable to estimate the recoverability of such obligatory right and the Group and the Company keeps the provision for impairment loss.
17 LONG-TERM EQUITY INVESTMENTS
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Investments in subsidiaries - - 4,050,653,527 3,941,153,527 Investments in joint ventures 47,821,261 51,908,698 47,821,261 51,908,698 Investments in associates 603,321,242 3,101,941,717 603,321,242 3,101,941,717 Other long-term equity investments 19,866,697 19,866,697 19,866,697 19,866,697
Sub total 671,009,200 3,173,717,112 4,721,662,727 7,114,870,639 Less: Provision for impairment 29,356,543 29,356,543 41,773,093 41,773,093
Total 641,652,657 3,144,360,569 4,679,889,634 7,073,097,546
73
17 LONG-TERM EQUITY INVESTMENTS (CONTINUED)
(1) At 31 December 2007, the Company’s investments in major subsidiaries are as follows:
Vacuum Yinghe BOE Semi- Suzhou Electronics Century conductor Chatani BOE Special Beijing Optoelectronics BOE BOE Sales BOE Vacuum Xiamen ZJBOE Co., Ltd. Co., Ltd. Co., Ltd. Co., Ltd. Hyundai BOE Land BOEOT Display Chatani BOE Hebei Holding Korea and Marketing Digital Technology BOE Total RMB RMB RMB RMB RMB RMB RMB RMB RMB RMB RMB RMB RMB RMB RMB RMB RMB RMB
Initial investment cost 56,391,635 19,250,000 63,271,833 9,450,000 53,087,904 31,038,525 7,731,474 3,103,777,052 20,000,000 372,443 120,307,500 1,654,700 788,450 500,000 12,416,550 32,000,000 37,500,000 3,569,538,066
Movement of investment costs Balance at the beginning of the year 106,391,635 19,250,000 63,271,833 9,450,000 53,087,904 31,038,525 7,731,474 3,494,892,513 20,000,000 372,443 120,307,500 1,654,700 788,450 500,000 12,416,550 - - 3,941,153,527 Add: addition ------40,000,000 ------32,000,000 37,500,000 109,500,000
Balance at the end of the year 106,391,635 19,250,000 63,271,833 9,450,000 53,087,904 31,038,525 7,731,474 3,494,892,513 60,000,000 372,443 120,307,500 1,654,700 788,450 500,000 12,416,550 32,000,000 37,500,000 4,050,653,527
Less: Provision for impairment Balance at the beginning of the year ------12,416,550 - - 12,416,550 Balance at the end of the year ------12,416,550 - - 12,416,550 ------
Carrying amounts At the year end 106,391,635 19,250,000 63,271,833 9,450,000 53,087,904 31,038,525 7,731,474 3,494,892,513 60,000,000 372,443 120,307,500 1,654,700 788,450 500,000 - 32,000,000 37,500,000 4,038,236,977
At the beginning of the year 106,391,635 19,250,000 63,271,833 9,450,000 53,087,904 31,038,525 7,731,474 3,494,892,513 20,000,000 372,443 120,307,500 1,654,700 788,450 500,000 - - - 3,928,736,977
For detailed information about the subsidiaries, please refer to Note 6.
74
17 LONG-TERM EQUITY INVESTMENTS (CONTINUED)
(2) At 31 December 2007, the Group and the Company’s investments in major joint ventures were as follows:
(a) The Company’s major joint ventures
Beijing Asahi RMB
Initial investment cost 30,788,400
Movement of investment costs Balance at the beginning of the year 51,908,698 Add: adjustments under equity method (1,087,437) Less: cash dividends receivable/received 3,000,000
Balance at the end of the year 47,821,261 ------Carrying amounts At the year end 47,821,261
At the beginning of the year 51,908,698
(b) Details of major joint ventures of the Company are as follows:
The Company’s The Company’s Registered Registered Shareholding proportion of Name of investee Organization code place Business nature capital percentage voting rights
Beijing Asahi 600015572 Beijing Manufacture and USD 50% 50% PRC sales of 8,626,000 electronic products
The voting rights held by the Company are the same as its shareholding percentage of the joint ventures.
75
17 LONG-TERM EQUITY INVESTMENTS (CONTINUED)
(3) At 31 December 2007, the Group and Company’s investments in major associates are as follows:
(a) The Company’s major associates
Beijing Nissin Beijing Beijing Orient Beijing Electronics Beijing Star City Mosler Security Chengdu BOE TPV Matsushita Precision Nittan Julong Real Estate Technology Optoelectronics Technology Color Component Electronic Electronics Development System Technology Limited CRT Co., Ltd. Co., Ltd. Co., Lt d. Co., Ltd. Co., Ltd. Co., Ltd. Co., Ltd. (“TPV”) (“Matsushita”) (“Nissin”) (“Nittan”) (“Julong”) (“Star City”) (“Mosler”) (“Chengdu BOE”) Total RMB RMB RMB RMB RMB RMB RMB RMB RMB
Initial investment cost 1,078,440,560 361,303,605 18,613,234 6,650,640 8,000,000 48,637,846 5,794,740 5,454,000 1,532,894,625
Movement of investment costs Balance at the beginning of the year 2,299,966,606 714,396,639 40,798,067 11,814,934 8,000,000 26,857,846 107,625 - 3,101,941,717 Add: Addition ------5,454,000 5,454,000 Add: Adjustments under equity method 73,812,028 (156,030,282) 219,788 (462,550) - - (107,625) - (82,568,641) Less: Disposal 2,339,027,109 ------2,339,027,109 Less: Cash dividends received/receivable 34,751,525 44,527,200 3,200,000 - - - - - 82,478,725
Balance at the end of the year - 513,839,157 37,817,855 11,352,384 8,000,000 26,857,846 - 5,454,000 603,321,242 ------
Less: Provision for impairment Balance at the beginning of the year - - - - - 26,857,846 - - 26,857,846
Balance at the end of the year - - - - - 26,857,846 - - 26,857,846 ------
Carrying amounts At the year end - 513,839,157 37,817,855 11,352,384 8,000,000 - - 5,454,000 576,463,396
At the beginning of the year 2,299,966,606 714,396,639 40,798,067 11,814,934 8,000,000 - 107,625 - 3,075,083,871
76
17 LONG-TERM EQUITY INVESTMENTS (CONTINUED)
(b) Details of the Company’s major associates are as follows:
The Company’s The Company' Name of Organisation Registered Business Registered Shareholding proportion of investee code place nature capital percentage voting rights
Matsushita 600000143 No.9 Manufact ure and JPY 30% 30% Jiuxianqiao North Road sale of color picture 28,412,280,000 Chaoyang District tubes and color Beijing display tubes
Nissin 600042335 No. 10 Manufacture and USD 40% 40% Jiuxianqiao Road sale of electronics 7,100,000 Chaoyang District, tubes and related Beijing spare parts
Nittan 600042036 No. 10, Manufacture and USD 40% 40% Jiuxianqiao Road sale of terminals 2,000,000 Chaoyang District, connectors and Beijing stampers
Julong 785258297 13th floor Research, RMB 40% 40% Skyworth Tower development, 20,000,000 Gao Xin South 1 manufacture and Avenue sale of TFT-LCD Shennan District, products and Shenzheng related services
Star City 60006063X No. 10, Development, USD 40% 40% Jiuxianqiao Road construction, 8,000,000 Chaoyang District, repair, cleaning Beijing and sale of properties
Chengdu 667556648 Guixi Industrial Park, Design, research RMB 18% 40% BOE Chengdu High-tech and development 30,000,000 Development Zone, of display products Chengdu
77
17 LONG-TERM EQUITY INVESTMENTS (CONTINUED)
(4) At 31 December 2007, other long-term equity investments of the Group and Company are as follows:
The Group and the Company’s major other equity investments:
Beijing Municipal Beijing Beijing Beijing Orient Beijing Damei Administration Chinatelecom Teralane Electronics Zone Electronics Texfile & Communication Xinke Network Semiconductor BOE Co., Ltd. Industry Co., Ltd. Group Corp. Card Co., Ltd. System Co., Ltd. Inc. Technology Total RMB RMB RMB RMB RMB RMB RMB RMB
Initial investment cost 3,000,000 180,000 100,000 2,500,000 475,000 11,868,000 1,743,697 19,866,697
Movement of investment costs Balance at the beginning of the year 3,000,000 180,000 100,000 2,500,000 475,000 11,868,000 1,743,697 19,866,697 Add: Addition ------
Balance at the end of the year 3,000,000 180,000 100,000 2,500,000 475,000 11,868,000 1,743,697 19,866,697 ------
Less: Provision for impairment Balance at the beginning of the year - 180,000 100,000 - 475,000 - 1,743,697 2,498,697
Balance at the end of the year - 180,000 100,000 - 475,000 - 1,743,697 2,498,697 ------
Carrying amount Balance at the end of the year 3,000,000 - - 2,500,000 - 11,868,000 - 17,368,000
Balance at the beginning of the year 3,000,000 - - 2,500,000 - 11,868,000 - 17,368,000
78
18 INVESTMENT PROPERTY
The Group The Company Buildings Total Buildings Total RMB RMB RMB RMB
Cost: Balance at the beginning of the year 177,219,977 177,219,977 53,846,304 53,846,304
Balance at the end of the year 177,219,977 177,219,977 53,846,304 53,846,304 ------
Accumulated depreciation or amortization: Balance at the beginning of the year 41,665,982 41,665,982 16,811,443 16,811,443 Charge for the year 9,186,589 9,186,589 1,431,607 1,431,607
Balance at the end of the year 50,852,571 50,852,571 18,243,050 18,243,050 ------
Carrying amounts: At the end of the year 126,367,406 126,367,406 35,603,254 35,603,254
At the beginning of the year 135,553,995 135,553,995 37,034,861 37,034,861
At 31 December 2007, the group mortageded the buildings in investment property with the carrying amount of RMB 80,621,887 (2006: RMB 98,519,134) as security for short- term loans, long-term loans and non-current liabilities due within one year.
79
19 FIXED ASSETS
The Group
Plant & buildings Equipment Others Total RMB RMB RMB RMB
Cost: As at the beginning of the year 1,338,178,055 8,541,995,131 23,710,808 9,903,883,994 Additions 16,851,918 50,156,407 2,747,261 69,755,586 Transfer from construction in progress 41,180,197 38,937,506 - 80,117,703 Transfer to construction in progress (6,982,800) - - (6,982,800) Disposals (26,758,576) (32,714,334) (1,661,156) (61,134,066)
As at the end of the year 1,362,468,794 8,598,374,710 24,796,913 9,985,640,417 ------
Accumulated depreciation: As at the beginning of the year 180,916,214 1,774,984,598 11,437,561 1,967,338,373 Charge for the year 46,425,212 1,034,020,503 3,391,540 1,083,837,255 Transfer to construction in progress (2,565,558) - - (2,565,558) As at the end of the year (782,047) (13,781,126) (1,126,492) (15,689,665)
As at the end of the year 223,993,821 2,795,223,975 13,702,609 3,032,920,405 ------
Less: Provision for impairment: As at the beginning of the year - 23,061,798 - 23,061,798 Charge for the year - 44,716,195 - 44,716,195 Written off on disposals - (12,333,333) - (12,333,333)
As at the end of the year - 55,444,660 - 55,444,660 ------
Net book valve: As at the end of the year 1,138,474,973 5,747,706,075 11,094,304 6,897,275,352
As at the beginning of the year 1,157,261,841 6,743,948,735 12,273,247 7,913,483,823
80
19 FIXED ASSETS (CONTINUED)
The Company
Plant & buildings Equipment Others Total RMB RMB RMB RMB
Cost: As at the beginning of the year 217,659,040 137,390,887 4,523,857 359,573,784 Additions 545,000 3,350,639 100,000 3,995,639 Transfer from construction in progress - - - - Transfer to construction in progress (6,982,800) - - (6,982,800) Disposals (705,900) (52,282,845) (859,160) (53,847,905)
As at the end of the year 210,515,340 88,458,681 3,764,697 302,738,718 ------
Accumulated depreciation: As at the beginning of the year 63,319,670 84,013,705 2,104,139 149,437,514 Charge for the year 10,750,368 8,028,236 378,099 19,156,703 Transfer to construction in progress (2,565,558) - - (2,565,558) Written off on disposals (225,237) (31,220,821) (353,174) (31,799,232)
As at the end of the year 71,279,243 60,821,120 2,129,064 134,229,427 ------
Less: Provision for impairment: As at the beginning of the year - 17,489,683 - 17,489,683 Charge for the year - 288,292 - 288,292 Written off on disposals - (12,333,333) - (12,333,333)
As at the end of the year - 5,444,642 - 5,444,642 ------
Net book value: As at the end of the year 139,236,097 22,192,919 1,635,633 163,064,649
As at the beginning of the year 154,339,370 35,887,499 2,419,718 192,646,587
(a) At 31 December 2007, the Group mortgaged plants and buildings with net book value of RMB 834,166,644 (2006: RMB 762,404,140) and equipment with net book value of RMB 5,423,190,473 (2006: RMB 6,321,502,827) as security for short-term loans, long-term loans due within one year and long-term loans.
81
19 FIXED ASSETS (CONTINUED)
(b) At 31 December 2007, the Group had not received the property certificates for plant and buildings it applied for with net book value of RMB 19,622,999 (2006: RMB 34,282,605).
(c) At 31 December 2007, certain fixed assets with the original cost of RMB 104,537,114 (2006: RMB 83,716,970) are fully depreciated but still in use by the Group.
(d) A number of machines of the Group were partially not in use and partially damaged. At 31 December 2007, the original cost of these machines is RMB 126,538,835, with accumulated depreciation amounting to RMB 88,772,193 and net book value of RMB 37,766,642. These fixed assets are depreciated using the straight-line method. The group performed an impairment test on these machines at year end and determined the recoverable amounts by reference to the present value of expected future cash flows. In respect that these machines are highly specialized and will hardly be used pursuant to the future development plan of the Group, the estimated recoverable amounts of these machines will be extremely low. Therefore, the Group makes full provision for impairment.
(e) At 31 December 2007, the group’s fixed assets acquired under finance leases are set out as follows:
The Group The Company RMB RMB
Balance at the end of the year Cost 11,291,665 11,291,665 Less: Accumulated depreciation 1,506,026 1,506,026
Net book value 9,785,639 9,785,639
Balance at the beginning of the year Cost 11,291,665 11,291,665 Less: Accumulated depreciation 1,232,203 1,232,203
Net book value 10,059,462 10,059,462
82
20 CONSTRUCTION IN PROGRESS
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Cost Balance at the beginning of the year 86,059,102 305,550,265 33,218,015 33,218,015 Additions during the year 67,633,322 365,977,242 2,503,977 - Transfer from fixed assets 4,417,242 - 4,417,242 - Transfer to fixed assets (80,117,703) (555,099,417) - - Transfer to intangible assets (1,197,952) (4,730,000) - - Decrease during the year (419,401) - - - Transfer out of unconsolidated subsidiary - (25,638,988) - -
Balance at the end of the year 76,374,610 86,059,102 40,139,234 33,218,015 ------
Less: Provision for impairment Balance at the beginning of the year 21,628,995 20,306,246 21,628,995 19,930,245 Charge for the year - 1,717,720 - 1,698,750 Transfer out of unconsolidated subsidiary - (394,971) - -
Balance at the end of the year 21,628,995 21,628,995 21,628,995 21,628,995 ------
Carrying amounts At the end of the year 54,745,615 64,430,107 18,510,239 11,589,020
At the beginning of the year 64,430,107 285,244,019 11,589,020 13,287,770
The provision for impairment loss was made in prior years. Because the construction work has resumed during the year, no further provision has been made.
83
20 CONSTRUCTION IN PROGRESS (CONTINUED)
At 31 December 2007, the group’s major construction in progress is set out as follows:
Opening Transfer to Other decreases Ending Percentage of Source of Project Budget Balance Additions fixed assets and impairment Balance total input/budget funds RMB RMB RMB RMB RMB RMB RMB
5th generation TFT-LCD production line 288,628,000 16,600,302 - (16,537,631) (62,671) - 64% Self-financing and loans Yinghe Century UP3 workshop reconstruction 69,390,000 4,811,048 13,077,189 - - 17,888,237 26% Self-financing Suzhou Chatani workshop project 39,358,000 3,956,642 5,475,121 (9,426,763) (5,000) - 99% Self-financing BOE Hebei workshop construction 35,757,230 21,080,314 10,194,424 (31,274,738) - - 87% Self-financing BOE Electronic workshop project 30,000,000 11,589,020 548,000 - - 12,137,020 113% (a) Self-financing ZJBOE RTP project 23,710,000 - 1,264,676 - - 1,264,676 5% Self-financing Xiamen BOE workshop project 15,245,000 - 11,565,300 - - 11,565,300 76% Self-financing Others - 6,392,781 29,925,854 (22,878,571) (1,549,682) 11,890,382 Self-financing
Total 64,430,107 72,050,564 (80,117,703) (1,617,353) 54,745,615
(a) At 31 December 2007, the Group has made provision of impairment loss amounting to RMB 21,628,995 for BOE Electronic workshop project.
84
21 INTANGIBLE ASSETS
The Group
Land Technology use right rights Patent Software Total RMB RMB RMB RMB RMB
Cost Balance at the beginning of the year 113,050,945 655,128,883 1,750,000 129,429,599 899,359,427 Addition for the year 6,696,908 - - 3,505,856 10,202,764 Transfer from CIP - - - 1,197,952 1,197,952 Decrease for the year (12,691,563) (1,070,489) - (154,600) (13,916,652)
Balance at the end of the year 107,056,290 654,058,394 1,750,000 133,978,807 896,843,491 ------
Less: Accumulated Amortisation Balance at the beginning of the year 11,099,536 70,900,361 1,239,583 21,128,032 104,367,512 Charge for the year 2,651,528 35,277,454 175,000 13,625,844 51,729,826 Decrease for the year (782,052) (955,156) - (154,600) (1,891,808)
Balance at the end of the year 12,969,012 105,222,659 1,414,583 34,599,276 154,205,530 ------
Less: Provision for impairment Balance at the beginning of the year - - - - - Addition for the year - 115,333 - - 115,333 Written off on disposal - (115,333) - - (115,333)
Balance at the end of the year ------
Carrying amounts At the end of the year 94,087,278 548,835,735 335,417 99,379,531 742,637,961
At the beginning of the year 101,951,409 584,228,522 510,417 108,301,567 794,991,915
85
21 INTANGIBLE ASSETS (CONTINUED)
The Company
Land Technology use right rights Patent Software Total RMB RMB RMB RMB RMB
Cost Balance at the beginning of the year 53,095,023 280,000 - 1,891,470 55,266,493 Addition for the year 6,696,908 - - 298,720 6,995,628 Decrease for the year - (280,000) - - (280,000)
Balance at the end of the year 59,791,931 - 2,190,190 61,982,121 ------
Less: Accumulated Amortisation Balance at the beginning of the year 6,724,657 136,667 - 1,452,811 8,314,135 Charge for the year 1,214,277 28,000 - 495,313 1,737,590 Decrease for the year - (164,667) - - (164,667)
Balance at the end of the year 7,938,934 - - 1,948,124 9,887,058 ------
Less: Provision for impairment Balance at the beginning of the year - - - - - Addition for the year - 115,333 - - 115,333 Written off on disposal - (115,333) - - (115,333)
Balance at the end of the year ------
Carrying amounts At the end of the year 51,852,997 - - 242,066 52,095,063
At the beginning of the year 46,370,366 143,333 - 438,659 46,952,358
At 31 December 2007, the Group mortgaged land use right in intangible assets with net book value of RMB 33,384,419 (2006: RMB 46,882,283) as security for short-term loans, long-term loans and non-current liabilities due within one year.
86
22 GOODWILL
The Group
Yinghe Century Others Total RMB RMB RMB
Cost Balance at the beginning of the year 42,940,434 4,423,876 47,364,310
Balance at the end of the year 42,940,434 4,423,876 47,364,310 ------
Less: Provision for impairment Balance at the beginning of the year - - -
Balance at the end of the year ------
Carrying amounts Balance at the end of the year 42,940,434 4,423,876 47,364,310
Balance at the beginning of the year 42,940,434 4,423,876 47,364,310
(a) Beijing Yinghe Century., Ltd.
The Group paid RMB 63,271,833 as combination cost for the purchase of 95% equity interest of Beijing Yinghe Century., Ltd. in 2001. The excess of combination cost over the Group’s interest in the book value of Yinghe Century’s identifiable assets and liabilities, amounting to RMB 53,340,273, was recognised as goodwill attributable toYinghe Century. During prior periods, the goodwill was amortised on a straight line basis and recorded into profit or loss for the periods. Pursuant to the requirements of Notes 4(1) (a), the retrospectively adjusted amount of this goodwill at 1 January 2007 is RMB 42,940,434. The Group performed an impairment test on the goodwill on 1 January 2007 and 31 December 2007 and determined that no provision on impairment loss needs to be made.
The recoverable amount of Yinghe Century is determined based on the present value of expected future cash flows. According to the most recent past performance before the budget period, assuming future cash flows to be stable, the Group calculated the present value of expected future cash flows for future operation period, based on a pre-tax discount rate of 7.74%. Key assumptions used by management for the future cash projections are subject to changes. However, management believes that any adverse change in the assumptions would cause the carrying amount to exceed the recoverable amount.
87
23 LONG-TERM DEFERRED EXPENSES
The Group 2007 2006 RMB RMB
Cost of operating lease assets improvement 1,266,496 5,253,326
24 DEFERRED TAX ASSETS AND LIABILITIES
The Group
2007 2006 Deductible Deferred Deductible Deferred temporary tax temporary tax difference assets difference assets RMB RMB RMB RMB
Deferred tax assets Provision for bad and doubtful debts 4,265,313 676,266 3,574,039 979,752 Provision for diminution in value of inventories 65,312,086 5,937,107 - - Impairment loss of fixed assets 4,008,343 601,251 - - Difference of Depreciation/ amortisation 3,208,900 488,306 5,585,345 845,994 Provisions 26,550,561 1,991,292 - - Pre-operating expenses 735,383 55,154 40,053 6,008 Unutilised tax losses 882,603,558 66,200,338 - - Unrealised profit and loss within the group 3,336,748 383,358 - -
Total 990,020,892 76,333,072 9,199,437 1,831,754
The Group
2007 2006 Taxable Deferred Taxable Deferred temporary tax temporary tax difference liabilities difference liabilities RMB RMB RMB RMB
Deferred tax liabilities Difference of Depreciation/ amortisation 142,339,764 19,333,205 - - Others - - 371,844 28,274
Total 142,339,764 19,333,205 371,844 28,274
88
24 DEFERRED TAX ASSETS AND LIABILITIES (CONTINUED)
At 31 December 2007, the Company is still under a cumulative losses condition. The Company has not recognised deferred tax assets in respect of cumulative tax losses as it is not probable that future taxable profits will be available against which that can be utilised.
Unrecognised deferred tax assets
In accordance with the accounting policy set out in Note 3(14), the Group has not recognised deferred tax assets in respect of cumulative tax losses of RMB 68,213,178 (2006: RMB 2,057,046,348) as it is not probable that future taxable profits against which the losses can be utilised will be available in related taxable entities. The deductible tax losses expire in 2011 under current tax law.
25 PROVISIONS FOR IMPAIRMENT
At 31 December 2007, the provisions for impairment of the Group are set out as follows:
Balance at Balance the beginning Charge at the end Note of the year for the year Decreasing during the year of the year Item Reversal Write off RMB RMB RMB RMB RMB
Account Receivables 9 19,173,711 14,704,599 (14,397,837) (391,842) 19,088,631 Other Receivables 13 33,098,790 7,434,787 (6,283,589) (245,102) 34,004,886 Inventories 14 149,772,401 82,294,188 (8,800,302) (106,808,288) 116,457,999 Held-to-maturity investments 16 17,960,946 - - - 17,960,946 Long-term equity investments 17 29,356,543 - - - 29,356,543 Fixed assets 19 23,061,798 44,716,195 - (12,333,333) 55,444,660 Construction in progress 20 21,628,995 - - - 21,628,995 Intangible assets 21 - 115,333 - (115,333) -
Total 294,053,184 149,265,102 (29,481,728) (119,893,898) 293,942,660
At 31 December 2007, the provisions for impairment losses of the Company are set out below:
Balance at Balance the beginning Charge at the end Note of the year for the year Decreasing during the year of the year Item Reversal Write off RMB RMB RMB RMB RMB
Account Receivables 9 1,546,399 3,557,513 (2,833,889) (151,257) 2,118,766 Other Receivables 13 30,281,390 6,657,305 (86,433) (9,107) 36,843,155 Inventories 14 19,143,128 4,741,740 (169,763) (7,739,968) 15,975,137 Held-to-maturity investments 16 17,960,946 - - - 17,960,946 Long-term equity investments 17 41,773,093 - - - 41,773,093 Fixed assets 19 17,489,683 288,292 - (12,333,333) 5,444,642 Construction in progress 20 21,628,995 - - - 21,628,995 Intangible assets 21 - 115,333 - (115,333) -
Total 149,823,634 15,360,183 (3,090,085) (20,348,998) 141,744,734
89
26 RESTRICTED ASSETS
At 31 December 2007, the Group’s assets with restrictions placed on their ownership are as follows:
Type Balance at Balance the beginning Charge Decrease at the end Notes of the year for the year during the year of the year RMB RMB RMB RMB
Assets guaranteed -Plant & buildings 19 860,923,274 210,531,434 (156,666,177) 914,788,531 -Land use right 21 46,882,283 7,796,650 (21,294,514) 33,384,419 -Equipment 19 6,321,502,827 7,985,756 (906,298,110) 5,423,190,473 -Account receivables 9 102,412,014 230,387,546 (182,343,995) 150,455,565 -Bank deposits 7 307,789,851 85,895,644 (151,345,091) 242,340,404 -Bills receivables 8 - 26,316,216 - 26,316,216 ------Total 7,639,510,249 568,913,246 (1,417,947,887) 6,790,475,608
At 31 December 2007, The Group and the Company mortgaged 15% (2006: 15%) of the equity interest in BOEOT as security to secure the long-term loans and long-term loans due within one year.
27 SHORT-TERM LOANS
The Group
2007 Exchange RMB/RMB Interest Secured/ Principal rate equivalent rate guaranteed RMB RMB
Bank loans - RMB loans 125,180,000 7.03% -8.75% Secured - RMB loans 137,600,000 7.02% -8.45% Mortgage - RMB loans 36,720,000 5.59% -6.57% Pledge - RMB loans 16,400,000 5.22% -9.48% Mortgage & Secured
Foreign currency bank loans - USD 13,778,070 7.3046 100,643,290 5.97% -6.38% Pledge - USD 1,570,000 7.3046 11,468,222 5.24% -7.78% Secured
428,011,512
90
27 SHORT-TERM LOANS (CONTINUED)
2006 Exchange RMB/RMB Interest Secured/ Principal rate equivalent rate guaranteed RMB RMB
Bank loans - RMB loans 1,897,000,000 4.86% -6.3% Credit - RMB loans 155,797,742 5.85% -7.34% Secured - RMB loans 204,500,000 4.05% -7.97% Mortgage Foreign currency bank loans - USD 2,635,075 7.8087 20,576,510 5.39% -6.46% Credit - USD 14,943,848 7.8087 116,692,026 6.07% -6.23% Mortgage - JPY 131,196,267 0.0656 8,610,411 1.61% -1.70% Credit Discounted commercial acceptance bills - RMB 43,000,000
2,446,176,689
The Company
2007 2006 Secured/ Secured/ Principal Interest rate guaranteed Principal Interest rate guaranteed RMB RMB
Bank loans - RMB loans - - - 1,897,000,000 4.86% -6.3% Credit
At 31 December 2007,
(a) The secured short-term loans of ZJBOE, amounting to RMB 56,480,000 and USD 1,570,000 are guaranteed by Zhejiang Huanyu Construction Company Limited and Zhejiang Yuegong Steel Structure Co., Ltd. The other secured short-term loans are guaranteed by the entities within the Group.
(b) The short-term loan of the group, amounting to RMB 154,000,000, is mortgaged by plant and buildings, equipment and land use right with total net book value of RMB 224,532,665.
(c) The short-term loan of the group, amounting to RMB 20,000,000, is pledged by bills receivable with the carrying amount of RMB 21,316,216.
(d) The short-term loans of the group, amounting to RMB 16,720,000 and USD 13,778,070, are pledged by account receivables with the carrying amount of RMB 150,455,565.
(e) No amount due to shareholders who hold 5% or more of the voting rights of the Company is included in the above balance of short-term loans.
91
28 BILLS PAYABLE
The Group 2007 2006 RMB RMB
Bank acceptance bills 55,000,000 74,872,077
The above bills are due within one year.
No amount due to shareholders who hold 5% or more of the voting rights of the Company is included in the above balance of bills payable.
29 ACCOUNTS PAYABLE
The Group
Accounts payable by currency type:
2007 2006 Original Exchange RMB/ Original Exchange RMB/ currency rate RMB equivalents currency rate RMB equivalents
- RMB 489,473,409 779,992,172 - USD 78,868,307 7.3046 576,101,437 93,670,270 7.8087 731,453,408 - Korean Won 57,864,699 0.0077 444,342 52,384,237 0.0083 434,715 - JPY 6,758,301,370 0.0641 432,966,043 5,177,751,520 0.0656 339,806,329 - SGD - - - 4,326 5.0926 22,026
Total 1,498,985,231 1,851,708,650
No amount due to shareholders who hold 5% or more of the voting rights of the Company is included in the balance of accounts payable.
At 31 December 2007, there is no individually significant account payable of the Group and the Company with aging of more than one year.
30 ADVANCES FROM CUSTOMERS
No amount due to shareholders who hold 5% or more of the voting rights of the Company is included in the balance of advances from customers.
At 31 December 2007, there is no individually significant advance from customers the Group and the Company with aging of more than one year.
92
31 EMPLOYEE BENEFITS PAYABLE
The Group
Balance at the Increase Decrease Balance at the beginning of the year during the year during the year end of the year RMB RMB RMB RMB
Salaries, bonuses, allowances 49,644,157 489,945,155 (427,782,414) 111,806,898 Staff welfare fees 23,505,998 60,124,827 (83,630,825) - Social insurances Medical insurance premium 5,563,433 20,649,244 (15,305,993) 10,906,684 Basic old age insurance premium 3,467,582 31,554,108 (31,153,089) 3,868,601 Unemployment insurance premium 253,202 2,472,153 (2,355,596) 369,759 Staff and workers’ injury insurance premium 53,278 1,391,726 (1,329,000) 116,004 Maternity insurance premium 43,465 844,110 (749,673) 137,902 Housing fund 1,547,736 14,788,570 (14,873,359) 1,462,947 Labour union fee, staff and workers’ education fee 13,402,100 17,447,389 (13,297,631) 17,551,858 Termination benefits - 2,684,141 (2,684,141) - Staff bonus and welfare fund 7,094,363 1,746,627 (2,569,668) 6,271,322 Others 440,086 3,803,750 (3,675,048) 568,788
Total 105,015,400 647,451,800 (599,406,437) 153,060,763
The Company
Balance at the Accrued Paid Balance at the beginning of the year during the year during the year end of the year RMB RMB RMB RMB
Salaries, bonuses, allowances 16,073,244 40,060,803 (42,034,840) 14,099,207 Staff welfare fees 16,442,778 1,079,702 (17,522,480) - Social insurances Medical insurance premium 3,055,863 5,329,197 (2,593,760) 5,791,300 Basic old age insurance premium 838,278 4,585,123 (4,588,499) 834,902 Unemployment insurance premium 1,744 338,946 (281,771) 58,919 Staff and workers’ injury insurance premium 3,517 223,950 (195,412) 32,055 Maternity insurance premium - 166,290 (116,453) 49,837 Housing fund 47,809 2,917,404 (2,967,673) (2,460) Labour union fee, staff and workers’ education fee 2,983,568 1,654,765 (1,180,740) 3,457,593 Termination benefits - 403,245 (403,245) - Others 13,274 2,013,062 (2,024,169) 2,167
Total 39,460,075 58,772,487 (73,909,042) 24,323,520
There is no arrear on employee benefits payable.
93
32 DIVIDENDS PAYABLE
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
BOID 1,504,649 1,504,649 1,504,649 1,504,649 Beijing Huayin Industrial Development Company 1,436,963 1,436,963 1,436,963 1,436,963 Internal employee’s share 2,607,119 2,607,119 2,607,119 2,607,119 Others 1,120,234 1,120,234 906,533 906,533
Total 6,668,965 6,668,965 6,455,264 6,455,264
Included in dividend payables are mainly the unclaimed dividends for non-transferable shareholders.
33 OTHER PAYABLES
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Lessees deposits 22,476,810 16,754,193 3,167,740 761,677 Agency fee payable 10,071,526 11,922,561 9,018,667 11,315,528 Accrued freight charges for export 15,240,452 11,202,080 - - Technical commission 21,419,277 4,926,085 - - Deposit - - - 71,639,000 Advanced disbursement payable on import value added tax 22,649,139 21,824,531 - - Others 67,193,982 108,898,377 30,164,412 20,018,326
Total 159,051,186 175,527,827 42,350,819 103,734,531
Other payables expressed by currency:
2007 2006 Original Exchange RMB/RMB Original Exchange RMB/RMB currency rate equivalents currency rate equivalents
- RMB 158,674,595 175,524,333 - TWD 1,438,659 0.2249 323,603 - - - - SGD 10,489 5.0518 52,988 - - - - KRW - - - 421,004 0.0083 3,494
Total 159,051,186 175,527,827
No amount due to the shareholders who hold 5% or more of the voting rights of the Company is included in the balance of other payables.
At 31 December 2007, there are no individually significant other payables of the Group and the Company with aging of more than one year.
94
34 NON-CURRENT LIABILITIES DUE WITHIN ONE YEAR
Note The Group The Company 2007 2006 2007 2006 RMB RMB RMB RM B
Long-term loans (1) 242,700,000 1,648,296,571 232,500,000 277,500,000 Long-term payables (2) 450,000,000 450,000,000 450,000,000 450,000,000
Total 692,700,000 2,098,296,571 682,500,000 727,500,000
(1) The analysis of loans due within one year is set out as follows:
The Group
2007 Original Exchange RMB/ Annual Secured/ currency rate RMB equivalent interest rate guaranteed RMB
Bank loans - RMB loans 10,200,000 7.38% Mortgage
Other loans - RMB Entrust loans 232,500,000 7.74% Mortgage
Total 242,700,000
2006 Original Exchange RMB/ Annual Secured/ currency rate RMB equivalent interest rate guaranteed RMB
Bank loans - RMB loans 612,237,142 4.92%-5.72% Mortgage - USD loans 97,142,857 7.8087 758,559,429 LIBOR+1.8% Mortgage
Other loans - RMB Entrust loans 77,500,000 5.58% Mortgage - RMB Entrust loans 200,000,000 5.76% Credit
Total 1,648,296,571
95
34 NON-CURRENT LIABILITIES DUE WITHIN ONE YEAR (CONTINUED)
The Company
2007 2006 Annual Secured/ Annual Secured/ Principal interest rate guaranteed Principal interest rate guaranteed RMB RMB
Other loans - RMB Entrust loans 232,500,000 7.74% Mortgage 77,500,000 5.58% Mortgage - RMB Entrust loans - - - 200,000,000 5.76% Credit
232,500,000 277,500,000
At 31 December 2007,
(a) The group has mortgaged its 15% (2006: 15%) equity interest in BOEOT to secure loans due within one year, amounting to RMB 232,500,000 and long- term loans amounting to RMB 77,500,000.
(b) Please refer to Notes 36(b) for the mortgage information for loans due within one year of the group, amounting to RMB 10,200,000.
(c) No amount due to the shareholders who hold 5% or more of the voting rights of the Company is included in the above balance of long-term loans due within one year.
(2) The Group and the Company’s other long-term payables due within one year are as follows:
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Entrusted investment 450,000,000 450,000,000 450,000,000 450,000,000
At 31 December 2007, the Group and the Company’s non-current liability due within one year is the entrusted investment of RMB 450,000,000 from Beijing Economic-Technological Investment & Development Corp. (“BETIDC”) . In 2004, BETIDC provided capital of RMB 450,000,000 to the Company as its investment in BOEOT to encourage the establishment of the production facilities of the 5th generation TFT-LCD project. The Company would hold interest in BOEOT on behalf of BETIDC while the related benefits derived from the equity interest in BOEOT (including but not limited to the entitlement to dividends, the right to share the results of BOEOT and right to exercise the voting right) still belong to the Company. The Company is required to purchase from BETIDC its interest in BOEOT for RMB 450,000,000 within three years from the receipts of the above capital. The entrusted investment matured on September 2007.
96
34 NON-CURRENT LIABILITIES DUE WITHIN ONE YEAR (CONTINUED)
The Group signed the “Agreement on Settlement of the RMB 450 Million Debt” with BETIDC on 29 December 2007. The agreement stated that the debt maturity is to be extended to 7 September 2008. If the Company would be approved to issue non-public targeted A shares before 7 September 2008, pursuant to the relating regulations of China Securities Regulatory Commission, BETIDC promised to subscribe the issued non-public A shares in 2008 with the obligatory right of RMB 450 million. If the Company would not be approved to issue non- public A shares up to 7 September 2008, BETIDC agreed that the debt maturity could be extended by half a year. And the Company should pay a fee to BETIDC for occupying the capital from 7 September 2007 to the day when the RMB 450 million debt is fully repaid.
35 OTHER CURRENT LIABILITIES
The Group 2007 2006 RMB RMB
Deferred income -Subsidies on interest payment 24,135,844 25,392,331 -Research and development fund 6,982,572 - Provisions -warranty 26,622,436 29,602,669
Total 57,740,852 54,995,000
The deferred income of the group consists of subsidies on interest payment and unclaimed portion of research & development fund for the in progress projects, please refer to Note 49 for more detailed information.
The provision for warranties mainly relates to the after-sales repair warranty to the customers of its TFT-LCD products. The provision is estimated by the Management, based on historical warranty data and a weighting of all possible outcomes against current year sales situation.
97
36 LONG-TERM LOANS
The Group
2007 Exchange RMB/RMB Annual Secured/ Principal rate equivalent interest rate guaranteed RMB RMB Bank loans -RMB 1,689,393,249 6.30-7.74% Mortgage/secured -RMB 36,400,000 7.38% Mortgage -USD 340,822,845 7.3046 2,489,574,555 LIBOR+1.8% Mortgage/secured Other loans - Entrust loans 200,000,000 Interest exempted Credit - Entrust loans 77,500,000 7.74% Mortgage - Loan transferred from national debt 1,800,000 2.55% Credit
4,494,667,804
2006 Exchange RMB/RMB Annual Secured/ Principal rate equivalent interest rate guaranteed RMB RMB Bank loans -RMB 2,128,242,858 5.85%-6.48% Mortgage/secured -USD 322,857,143 7.8087 2,521,094,571 LIBOR+1.8% Mortgage/secured Other loans - Entrust loans 200,000,000 Interest exempted Credit - Entrust loans 232,500,000 5.58% Mortgage - Loan transferred from national debt 1,800,000 2.55% Credit
5,083,637,429
The Company
2007 2006 Annual Secured/ Annual Secured/ Principal interest rate guaranteed Principal interest rate guaranteed RMB RMB Other loans - Entrust loans 200,000,000 Interest Credit 200,000,000 Interest Credit Exempted exempted - Entrust loans 77,500,000 7.74% Mortgage 232,500,000 5.58% Mortgage
Total 277,500,000 432,500,000
98
36 LONG-TERM LOANS (CONTINUED)
At 31 December 2007:
(a) The long-term bank loans of the group, amounting to RMB 1,689,393,249 and USD 340,822,845, are partially secured by Beijing Electronics Holdings Co., Ltd.
(b) The long-term bank loan of the group, amounting to RMB 1,725,793,249 and USD 340,822,845, and long-term loans due within one year amounting to RMB 10,200,000 are mortgaged by plant and buildings, equipment and land use right with total net book value of RMB 6,146,830,768.
(c) Please refer to Notes 34(1) (a) for the pledge information of long-term loans of the group, amounting to RMB 77,500,000.
(d) The loan transferred from national debt was provided to ZJBOE by the Finance Bureau of Shaoxing in 2003, with a maturity of 10 years and interest rate of 2.55%.
(e) No amount due to the shareholders who hold 5% or more of the voting rights of the Company is included in the above balance of long-term loans.
The maturity analysis of the Company and Group’s long-term loan is set out below:
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Due after 1 year but within 2 years (inclusive) 2,706,202,362 2,886,142,572 277,500,000 155,000,000 Due after 2 years but within 3 years (inclusive) 1,227,374,986 1,556,296,571 - 277,500,000 Due after 3 years 561,090,456 641,198,286 -
Total 4,494,667,804 5,083,637,429 277,500,000 432,500,000
37 OTHER NON-CURRENT LIABILITIES
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Deferred income Fund for research and development(i) 31,355,814 65,320,601 26,797,146 59,144,664 Workshop construction fund(ii) 15,280,000 - - - Deposits of employees’ apartments 163,800 163,800 - -
Total 46,799,614 65,484,401 26,797,146 59,144,664
99
37 OTHER NON-CURRENT LIABILITIES (CONTINUED)
(i) The balance of fund for research and development is the unclaimed portion of research and development for the in-progress projects.
(ii) The workshop construction fund is provided by Administration Committee of Langfang Gu’an Industrial Area to BOE (Hebei) Mobile Technology Co., Ltd. The construction of the workshop (using the workshop construction fund) was completed on 16 October 2007. The estimated workshop value recorded in fixed assets amounting to RMB 16,000,000, with depreciation charged for the year amounting to RMB 720,000. The Group has recognised non-operating income - government grants, amounting to RMB 720,000, with regard to the government grant portion of the related assets.
38 SHARE CAPITAL
The Company’s share capital status at 31 December is as follows:
2007 2006 RMB RMB
(1)Shares subject to selling restrictions - State-owned shares (a) 290,697,675 548,691,862 - Shares held by state-owned legal persons (b) 775,357,803 811,367,668 - Shares held by domestic natural persons (c) 65,418 143,648 - Shares held by overseas natural persons (c) - 249,600
(2)Shares not subject to selling restrictions - RMB-denominated ordinary shares 689,896,999 395,814,717 - Domestically listed foreign shares 1,115,550,000 1,115,300,400
Total 2,871,567,895 2,871,567,895
(a) The movement of state-owned shares is due to the transfer of 257,994,187 state- owned shares into A-shares in circulation at 10 October 2007, according to the non-public A-share placement report (Notice 2006-036) issued by the Company.
(b) The movement of state-owned shares is due to the transfer of 36,009,865 state- owned legal person shares into A-shares in circulation at 30 November 2007, according to the JGZCQZ [2005] No. 119 document, “Approval on Matters Related to BOE Technology Group Co., Ltd.’s Share Reform”, issued by the State-owned Assets Supervision and Administration Commission of Beijing Municipal Government.
(c) The shares which are subject to selling restriction are held by senior executives. The movement was due to departure or position changes of the senior executives.
(d) The shareholders with 5% or more shareholding are as follow:
Name of Shareholder Percentage in total issued shares
BOID 27.27% Electronics Holdings 10.12%
100
39 CAPITAL RESERVE
The Group
Balance at the Addition Decrease beginning during during Balance at the of the year the year the year end of the year RMB RMB RMB RMB
Share premiums 2,746,176,454 - - 2,746,176,454 Other capital reserves - Available-for-sale financial assets (a) - - (5,548,561) (5,548,561)
Total 2,746,176,454 - (5,548,561) 2,740,627,893
The Company
Balance at the Addition Decrease beginning during during Balance at the of the year the year the year end of the year RMB RMB RMB RMB
Share premiums 2,746,176,454 - - 2,746,176,454 Other capital reserves - Available-for-sale financial assets (a) - - (5,548,561) (5,548,561) - Transfer from items under previous standards (b) 29,538,085 - - 29,538,085
Total 2,775,714,539 - (5,548,561) 2,770,165,978
(a) Available-for-sale financial assets arise from the change in the fair value of the equity interest in TPV Technology Limited. (note 15)
(b) Transfer from previous capital reserves arises from price differences of related party transactions in previous years.
40 SURPLUS RESERVE
Statutory Discretionary surplus reserve surplus reserve Total RMB RMB RMB
Balance at the beginning of the year 209,421,304 289,671,309 499,092,613
Balance at the end of the year 209,421,304 289,671,309 499,092,613
As the group and the company are at accumulated losses by the end of 2007, it is not required to transfer the annual net profits after taxation to the statutory surplus reserve and discretionary surplus reserve.
101
41 RETAINED EARNINGS
The increase is arising from net profit transferred.
42 APPROPRIATION OF PROFITS
The Group and the Company are at accumulated losses by the end of 2007.
During 2007, Vacuum Electronics has declared and paid a cash dividend of RMB 1,152,000 to its minority shareholders.
43 OPERATING INCOME
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Operating income from principal activities - Sale of TFT-LCD products 9,348,608,810 7,387,945,770 - - - Sale of ASD products 788,237,009 653,707,867 - - - Others 784,142,737 697,490,925 179,220,225 172,120,560
Subtotal 10,920,988,556 8,739,144,562 179,220,225 172,120,560 ------
Other operating income - Sale of LCD Screen 231,418,462 64,826,296 - - - Sale of raw material 5,318,259 2,105,308 266,420 10,150 - Others 12,723,578 33,588,125 27,766,935 21,841,001
Subtotal 249,460,299 100,519,729 28,033,355 21,851,151 ------Total 11,170,448,855 8,839,664,291 207,253,580 193,971,711
The Group’s operating income is mainly derived from producing and selling TFT-LCD products, ASD and other operations. The Group’s segment reporting has been presented in note 53.
The Company’s operating income is mainly from domestic sales of precise electronic parts, materials and development of proprietary property management business.
The Group’s sales to the top five customers for the year amount to RMB 4,267,691,074 (2006: RMB 2,370,306,928), which accounts for 39% of the total sales (2006: 27%).
102
44 OPERATING COSTS
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Operating cost from principal activities - Sale of TFT-LCD products 7,265,874,409 8,448,349,059 - - - Sale of ASD products 471,742,549 524,279,300 - - - Others 1,379,343,853 962,395,301 120,730,068 107,444,336
Subtotal 9,116,960,811 9,935,023,660 120,730,068 107,444,336 ------Other operating costs - Sale of LCD Screen 136,642,904 60,101,869 - - - Sale of raw material 4,140,101 1,208,630 202,598 4,787 - Others 6,126,524 3,401,631 8,343,262 12,588,603
Subtotal 146,909,529 64,712,130 8,545,860 12,593,390 ------Total 9,263,870,340 9,999,735,790 129,275,928 120,037,726
The Group’s operating costs are mainly incurred from producing and selling TFT-LCD products, ASD and other operating activities. The Group’s segment reporting has been presented in note 53.
The company’s operating costs are mainly incurred from selling precise electronic parts, materials and developing the proprietary property management business.
45 BUSINESS TAXES AND SURCHARGES
The Group The Company Taxation basis and rates 2007 2006 2007 2006 RMB RMB RMB RMB
Business tax 3-5% of taxable income 7,405,837 9,304,445 2,817,738 3,402,728 City maintenance and construction tax 7% of VAT and business tax paid 5,645,649 2,247,792 786,474 469,977 Education surcharge 1-5% of VAT and business tax paid 3,393,585 1,336,635 337,062 214,018
Total 16,445,071 12,888,872 3,941,274 4,086,723
103
46 FINANCIAL EXPENSES
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Interest expenses 513,663,316 807,987,717 58,463,957 169,531,913 Interest income (32,630,742) (30,469,790) (22,433,862) (12,455,277) Net exchange (gains)/losses (203,680,256) (175,103,413) 5,078,869 762,031 Other financial expenses 12,496,150 28,337,870 208,418 13,680,827
Total 289,848,468 630,752,384 41,317,382 171,519,494
47 IMPAIRMENT LOSSES
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Receivables 1,457,960 32,710,402 7,294,496 25,908,795 Inventories 73,493,886 126,935,712 4,571,977 4,375,295 Long-term equity investment - 26,857,846 - 26,857,846 Fixed assets 44,716,195 180,257,012 288,292 - Construction in progress - 1,698,750 - 1,698,750 Intangible assets 115,333 - 115,333 -
Total 119,783,374 368,459,722 12,270,098 58,840,686
104
48 INVESTMENT (LOSS)/INCOME
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Long-term equity (loss)/investments (i) (82,965,059) 419,093,179 (72,723,954) (381,786,786) (Loss)/income from disposal of investments (ii) (47,105,150) (1,414,670) (47,105,150) 4,849,125 Income from sale of available -for-sale financial assets (iii) 1,754,347 - 1,754,347 - Investment income from lost of control right over BOE-Hydis (iv) - 964,177,611 - -
Total (128,315,862) 1,381,856,120 (118,074,757) (376,937,661)
No severe restrictions exist on transferring the Group’s and Company’s investment income to the investors.
(i) The analysis of the Group’s long-term equity investment (loss)/income from major investees is as follows:
2007 2006 RMB RMB
Jointly controlled entities - Beijing Asahi (1,087,437) 972,517 Associates - TPV 73,812,028 389,603,159 - Matsuhita (156,030,282) 24,958,765 - Nissin 219,788 4,384,112 - Nittan (462,550) (614,892) - Mosler (107,625) (523,538)
Subtotal (83,656,078) 418,780,123 ------
Other enterprises 691,019 313,056 ------Total (82,965,059) 419,093,179
105
48 INVESTMENT (LOSS)/INCOME (CONTINUED)
The analysis of the Company’s long-term equity investment (loss)/income from major investees is as follows:
2007 2006 RMB RMB
Subsidiaries - BOE-Hydis - (811,351,086) - Semi-conductor - 5,670,000 - Yinghe Century 8,833,105 4,801,121 - Vacuum Electronics 1,408,000 -
Subtotal 10,241,105 (800,879,965) ------Jointly controlled entities - Beijing Asahi (1,087,437) 972,517
Associates - TPV 73,812,028 389,603,159 - Matsuhita (156,030,282) 24,958,765 - Nissin 219,788 4,384,112 - Nittan (462,550) (614,892) - Mosler (107,625) (523,538)
Subtotal (83,656,078) 418,780,123 ------Other enterprises 691,019 313,056 ------Total (72,723,954) (381,786,786)
(ii) (Loss)/income from disposal of investments
The Group and the Company’s net investment disposal loss for 2007 is mainly due to its sale of 0.2 billion TPV shares in January 2007.
At the date of first adoption of new accounting standards, the Group and the Company made a retrospective adjustment in its long-term equity investment in TPV in accordance with IFRS, adding RMB 302.11 million (99.42 million from split of financial instruments of TPV) to the book value. At the same time, equity investment provision of RMB 221.73 million recorded as capital reserve under old accounting standards was transferred into undistributed profits at the beginning of the period. These two adjustments resulted in an increase of 523.84 million in undistributed profits at the beginning of the period for the Group and the Company.
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48 INVESTMENT (LOSS)/INCOME (CONTINUED)
In 2007, the Group and the Company sold 0.4 billion TPV shares, 94% of its total holding in TPV as of 31 December 2006. The adjustments described above increase the TPV selling cost for 2007, and cause the capital reserve that used to transfer to profit or loss to be transferred directly into undistributed profits at the beginning of the period. Therefore, the Group and the Company’s investment transfer gain significantly differs with its expected investment transfer gain under the old accounting standards.
(iii) Income from sale of available-for-sale financial assets
Since 30 November 2007, the Group and the Company’s holding shares in TPV has been transferred from long-term equity investment to available-for-sale financial assets. After that, the income created from the second sale of TPV’s 0.2 billion shares in December 2007 was recorded in investment income.
(iv) Investment income from lost of control right over BOE-Hydis
BOE- Hydis Technology Co., Ltd. has commenced the corporate rehabilitation procedure under the order of Seoul Central District Court on 29 September 2006. The Company has lost the control right over BOE-Hydis since 29 September 2006. The Company recognised the difference between the accumulated losses from January 2006 to September 2006 of BOE-Hydis which was consolidated into the income statement and the carrying amount of long-term investment to BOE-Hydis as investment income.
49 NON-OPERATING INCOME
Notes The Group The Comp any 2007 2006 2007 2006 RMB RMB RMB RMB
Gains on disposal of fixed assets 21,608,566 2,021,820 1,847,669 148,038 Gains on disposal of intangible assets 1,489,910 - 56,700 - Gains on disposal of other long-term assets - 23,387,941 - -
Total gains on disposal of non-current assets 23,098,476 25,409,761 1,904,369 148,038 ------Government grants (1) 217,006,018 104,380,641 84,079,790 597,454 Penalty income 1,830,197 1,127,458 201,045 662,943 Others 36,339,445 2,273,917 5,507,270 172,233
Total 278,274,136 133,191,777 91,692,474 1,580,668
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49 NON-OPERATING INCOME (CONTINUED)
(1) Government grants
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
-LCD project (Note (i)) 91,393,665 91,502,937 - - - Key technology research for the 5th generation of TFT-LCD (Note (ii)) 27,800,000 - 6,000,000 - - Research on large dimension liquid crystal TV (Note (iii)) 8,567,428 - 600,000 - -International economic & technology cooperation project (Note (iv)) 53,270,000 53,270,000 -Others 35,974,925 12,877,704 24,209,790 597,454
Total 217,006,018 104,380,641 84,079,790 597,454
Note (i) According to the B.M.S& T.C’s document [2003] No. 47 – “Reply of Preferential Policies Concerning BOE Technology Company’s LCD Project”, Beijing Municipal Science & Economic Commission agrees to provide preferential loan interest subsidies on the Group’s total borrowings of USD 740 million for the TFT-LCD project. The loan interest subsidies are calculated at 2 percent of the total loan amount. Starting from 2005, the interest subsidies will be remitted to the Group’s account annually by 25th December for three consecutive years, amounting to RMB 116 million annually. In 2007, the Group received interest subsidies of RMB 90,140,000, of which RMB 24,135,844 in advances was recognized as deferred income and the remaining RMB 66,004,156, together with the 2006 deferred income balance of RMB 25,389,509, was recognized as non- operating income.
Note (ii) According to the B.M.S &T.C’s document [2004] No. 653 - “Reply of Beijing Municipal Science &Technology Commission Concerning Beijing Science &Technology Planned Project, the 5th TFT-LCD Key Technology Research”, as of December 2005, the Group received from Beijing Municipal Science &Technology Commission development funds of RMB 8,500,000 for large dimension UFFS1+4MASK technology, development funds of RMB 7,000,000 for ODF technology used in large dimension TV with FFS technique, development funds of RMB 6,300,000 for Direct Method technology on Backlight used in large dimension LCD TV, and research funds of RMB 6,000,000 for color optical filtering membrane materials. These projects have all been completed in 2007. Therefore, the Group recognised these government grants as non-operating income for 2007.
Note (iii) According to “Key Aspects of Beijing Technology Development (2005- 2008)”, the Company received from Beijing Municipal Science &Technology Commission research funds amounting to RMB 4,000,000 in 2006 and RMB 8,000,000 in 2007 respectively, for research and development of large dimension LCD TV screen. The Company recognized RMB 8,567,428 as non-operating income based on related expenses incurred in 2007.
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49 NON-OPERATING INCOME (CONTINUED)
Note (iv) According to Measures on Special Funds Management in Foreign Economic Cooperation and Notice on Questions on Special Funds Management in Foreign Economic Cooperation (Caiqi [2006] No. 124) issued by the Ministry of Finance and Ministry of Commerce, and the Allocation Plan for Special Funds for 2003-2005 to Beijing Finance Bureau’ (Caiqi [2006] No.436), the Group received government grant of RMB 53,270,000 in 2007 for the Company’s involvement in foreign economic cooperation project from 2003 to 2005. This grant is used to compensate the related expenses incurred in prior periods, so the Group recognise it as non-operating income in 2007.
50 NON-OPERATING EXPENSES
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Losses on disposal of fixed assets 3,078,825 2,889,415 1,753,361 2,009,340
Total losses on disposal of non-current assets 3,078,825 2,889,415 1,753,361 2,009,340 ------Donation expense - 111,582 - - Penalty expense 22,322,458 195,000 - - Others 6,592,631 1,848,188 332,286 234,126
Total 31,993,914 5,044,185 2,085,647 2,243,466
51 INCOME TAX
(1) Income tax expenses for the year represent
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Current tax expenses for the year (1,111,501) 13,351,231 (15,624,951) 4,477,785 Deferred taxation (55,196,387) (451,621) - -
Total (56,307,888) 12,899,610 (15,624,951) 4,477,785
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51 INCOME TAX (CONTINUED)
The analysis of deferred tax expenses is set out below:
The Group 2007 2006 RMB RMB
Origination and reversal of temporary differences 11,003,951 (451,621) Recognition of previously unutilized tax losses (66,200,338) -
(55,196,387) (451,621)
(2) Reconciliation between income tax expenses and accounting profits is as follows:
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Profits/(Losses) before taxation 840,799,064 (1,774,051,251) (92,223,575) (644,025,567) Expected income tax expenses at a tax rate of 15% 126,119,860 (266,107,688) (13,833,536) (96,603,835) Difference in effective tax rate of subsidiaries (13,630,400) (1,988,689) - - Non-deductible expenses 68,972,414 74,266,059 34,950,299 45,432,147 Tax exempt income (14,845,392) (2,547,719) (3,789,092) - Tax concession (75,518,645) 114,171,996 - - Utilisation of prior year unrecognised tax losses (94,283,419) - (17,327,671) - Current year losses for which no deferred tax is recognised 18,138,627 95,105,651 - 55,649,473 Recognition of previously unrecognised temporary differences in current year (55,635,982) - - - Adjustment on prior year’s - - - over provision (15,624,951) - (15,624,951) -
Income tax expenses (56,307,888) 12,899,610 (15,624,951) 4,477,785
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52 SUPPLEMENT TO CASH FLOW STATEMENT
(1) Reconciliation of net profit to cash flows from operating activities:
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Net loss 690,945,815 (1,770,802,475) (76,598,624) (648,503,352) Add: Provisions for impairment 119,783,374 368,459,722 12,270,098 58,840,686 Depreciation of fixed assets and investment property 1,093,023,844 1,575,772,737 20,588,310 24,023,191 Amortisation of intangible assets 51,729,826 55,393,375 1,737,590 1,847,647 Amortisation of long-term deferred expenses 3,986,830 13,214,209 - 13,353,476 Losses/(gains) on disposal of fixed assets, intangible assets and other long-term assets (23,098,476) (25,409,761) (1,904,369) (148,038) Losses on scrapping of fixed assets 3,078,825 2,889,415 1,753,361 2,009,340 Financial expense 309,445,380 673,363,519 43,306,369 158,443,503 Losses/(gains) arising from investments 128,315,862 (1,381,856,120) 118,074,757 376,937,661 Decrease/(increase) in deferred tax assets (74,501,318) (368,773) - - Increase/(decrease) in deferred tax liabilities 19,304,931 (560,476) - - Decrease/(increase) in gross inventories 492,862,300 (62,268,819) 27,322,852 (6,332,872) Decrease/(increase) in operating receivables (817,663,165) 862,593,304 41,831,595 (3,795,855) Increase/(decrease) in operating payables 88,723,234 541,934,515 (190,885,175) 132,612,616 Losses/(gains) on minority interests 206,161,137 (16,148,386) - -
Net cash flow from operating activities 2,292,098,399 836,205,986 (2,503,236) 109,288,003
(2) Investing and financing activities not requiring the use of cash or cash equivalents:
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Conversion of debt into capital - 660,000,000 - 660,000,000 Conversion of credit into long-term equity investment - 11,868,000 - 51,868,000
(3) Change in cash and cash equivalents:
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Cash at the end of the year 1,452,160,200 1,452,714,377 928,184,272 897,305,651 Less: Cash at the beginning of the year 1,452,714,377 1,160,739,444 897,305,651 218,527,728
Net increase (decrease) in cash and cash equivalents (554,177) 291,974,933 30,878,621 678,777,923
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52 SUPPLEMENT TO CASH FLOW STATEMENT (CONTINUED)
(4) Cash and cash equivalents held by the Group and Company are as follows:
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
(a) Cash at bank and on hand 1,704,436,404 1,803,824,228 936,584,272 940,625,651 - Cash on hand 1,321,362 2,169,842 1,018,384 1,315,826 - Bank deposits available on demand 1,450,838,838 1,450,544,535 927,165,888 895,989,825 - Cash with restricted usage 252,276,204 351,109,851 8,400,000 43,320,000
(c) Closing balance of cash and cash equivalents 1,704,436,404 1,803,824,228 936,584,272 940,625,651 Less: cash with restricted usage 252,276,204 351,109,851 8,400,000 43,320,000
(d) Closing balance of cash and cash equivalents available on demand 1,452,160,200 1,452,714,377 928,184,272 897,305,651
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53 SEGMENT REPORTING
In accordance with the Group’s internal financial reporting process, business segment information is chosen as the primary reporting format, and geographical segment information as the secondary reporting format. The Group comprises business segments, namely Thin Film Transistor-Liquid Crystal Display (“TFT-LCD”) and Application Special Device (“ASD”) and other businesses. Other businesses include Digital Products and Services business, Precision Electronic Components and materials business, and real estate management business.
Reportable information on each of the Group’s business segment is set out as follows:
Primary segment reporting (business segments)
Item TFT -LCD ASD Others Elimination Remained item Total 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 RMB RMB RMB RMB RMB RMB RMB RMB RMB RMB RMB RMB
Operating income 9,629,527,390 8,582,604,955 1,044,927,914 665,338,458 1,609,368,592 1,269,271,662 (1,113,375,041) (1,677,550,784) - - 11,170,448,855 8,839,664,291 Including: external transaction 9,583,708,940 7,470,960,663 813,426,857 658,716,533 773,313,058 709,987,095 - - - - 11,170,448,855 8,839,664,291 Inter-segment transaction 45,818,450 1,111,644,292 231,501,057 6,621,925 836,055,534 559,284,567 (1,113,375,041) (1,677,550,784) - - - - Operating expenses/ (profits) 8,599,778,653 11,111,153,430 1,132,742,833 645,227,206 1,533,633,706 1,341,341,966 (1,108,389,509) (1,604,755,732) 418,164,330 (751,103,736) 10,575,930,013 10,741,863,134 Operating profits/ (losses） 1,029,748,737 (2,528,548,475) (87,814,919) 20,111,252 75,734,886 (72,070,304) (4,985,532) (72,795,052) (418,164,330) 751,103,736 594,518,842 (1,902,198,843) Total assets 9,136,138,665 10,305,809,283 1,176,758,808 843,388,089 7,417,696,716 8,573,530,569 (4,425,652,400) (3,170,045,683) 76,333,072 1,831,754 13,381,274,861 16,554,514,012 Total liabilities 1,399,413,527 1,718,915,841 559,067,567 291,417,027 640,983,305 706,057,584 (374,241,233) (437,082,954) 5,634,712,521 9,628,138,963 7,859,935,687 11,907,446,461
Supplementary information: 1 Depreciation and amortization expense 1,024,813,504 1,516,649,368 63,095,730 57,126,515 55,754,394 57,390,229 1,090,042 - - - 1,144,753,670 1,631,166,112 2 Impairment loss for current period 31,174,490 291,953,602 73,323,082 51,336 11,620,095 75,081,750 3,665,707 1,373,034 - - 119,783,374 368,459,722 3 Capital expenditure 48,659,750 301,140,006 34,431,859 21,749,488 72,477,748 147,281,886 (7,977,685) - - - 147,591,672 470,171,380
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53 SEGMENT REPORTING (CONTINUED)
Secondary segment reporting (geographical segments)
Item Revenue from external customers Total assets 2007 2006 2007 2006 RMB RMB RMB RMB
PRC 5,558,000,667 3,635,102,867 17,723,617,081 19,719,808,411 Other Asian regions 4,857,598,018 4,440,846,504 6,920,264 2,852,083 Europe 473,988,387 470,600,718 56,844 67,447 America 29,489,477 224,506,227 - - Other regions 251,372,306 68,607,975 - - Elimination - - (4,425,652,400) (3,170,045,683) Unallocated items - - 76,333,072 1,831,754
Total 11,170,448,855 8,839,664,291 13,381,274,861 16,554,514,012
54 RISK ANALYSIS, SENSITIVITY ANALYSIS, AND DETERMINATION OF FAIR VALUES FOR FINANCIAL INSTRUMENTS
The Group has exposure to the following risks from its use of financial instruments:
· Credit risk · Liquidity risk · Interest rate risk · Foreign currency risk
This note presents information about the Group’s exposure to each of the above risks and their sources, the Group’s objectives, policies and processes for measuring and managing risks, etc.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The internal audit of the Group undertakes both regular and ad hoc reviews of risk management controls and procedures.
(1) Credit risk
The Group’s credit risk is primarily attributable to receivables. Exposure to these credit risks are monitored by management on an ongoing basis.
In respect of receivables, the risk management committee of the Group’s Board of Director has established a credit policy under which individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the external ratings of the customers and their bank credit records where available. Receivables are due within 15 to 120 days from the date of billing. Debtors with balances past due are requested to settle all outstanding balances before any further credit is granted. Normally, the Group does not demand collateral from customers.
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54 RISK ANALYSIS, SENSITIVITY ANALYSIS, AND DETERMINATION OF FAIR VALUES FOR FINANCIAL INSTRUMENTS (CONTINUED)
At the balance sheet date, the Group had a certain concentration of credit risk, as 42% (2006: 43%) of the total accounts receivable and other receivables was due from the Group ’s top five customers within LCD products business segment.
The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. Except for the financial guarantees given by the Group as set out in Note 56(b), the Group does not provide any other guarantees which would expose the Group to credit risk. The maximum exposure to credit risk in respect of these financial guarantees at the balance sheet date is disclosed in Note 56(b).
(2) Liquidity risk
The individual operating entities within the group are responsible for their own cash management, including short-term investment of cash surpluses and the raising of loans to cover expected cash demands, subject to approval by the parent company’s board when the borrowings exceed certain predetermined levels of authority. The Group’s policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash, readily realisable marketable securities and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term.
The maturity analysis of long-term debts is disclosed in Note 36.
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54 RISK ANALYSIS, SENSITIVITY ANALYSIS, AND DETERMINATION OF FAIR VALUES FOR FINANCIAL INSTRUMENTS (CONTINUED)
(3) Interest rate risk
The Group adopts an interest rate policy of ensuring that interest rate risk lies within a reasonable range. The Group has achieved an appropriate mix of fixed and floating rate exposure consistent with the Group’s policy.
(a) At 31 December, the Group and the Company held the following interest- bearing financial instruments:
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Financial assets -Cash at bank and on hand 1,703,115,042 1,801,654,386 935,565,888 939,309,825
Financial liabilities -Short-term loans (428,011,512) (2,446,176,689) - (1,897,000,000) -Non-current liabilities due within one year (692,700,000) (2,098,296,571) (682,500,000) (727,500,000) -Long-term loans (4,494,667,804) (5,083,637,429) (277,500,000) (432,500,000)
(3,912,264,274) (7,826,456,303) (24,434,112) (2,117,690,175)
(b) Sensitivity analysis
At 31 December 2007, it is estimated that a general increase/decrease of 100 basis points in interest rates, with all other variables held constant, would decrease/increase the Group’s equity by RMB 43,310 thousand (2006: RMB 74,240 thousand), and net profit decreased/increased by RMB 43,310 thousand (2006: RMB 74,240 thousand).
At 31 December 2007, it is estimated that a general increase/decrease of 100 basis points in interest rates, with all other variables held constant, would decrease/increase the Company’s equity by RMB 4,700 thousand (2006: RMB 25,000 thousand), and net profit decreased/increased by RMB 4,700 thousand (2006: RMB 25,000 thousand).
The above sensitivity analysis has been determined assuming that the change in interest rates had occurred at the balance sheet date and had been applied to the Group’s exposure to interest rate risk for both derivative and non-derivative financial instruments in existence at that date. The 100 basis point increase or decrease represents management’s assessment of a reasonably possible change in interest rates over the period until the next annual balance sheet date. The analysis is performed on the same basis for 2006.
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54 RISK ANALYSIS, SENSITIVITY ANALYSIS, AND DETERMINATION OF FAIR VALUES FOR FINANCIAL INSTRUMENTS (CONTINUED)
(4) Foreign currency risk
In respect of accounts receivables and payables denominated in foreign currencies other than the functional currency of the Group, the Group ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.
(a) The Group’s and the Company’s exposure to major currency risk based on nominal amounts at 31 December is as follows:
The Group
2007 2006 USD KRW KPY USD KRW JPY
Cash at bank and on hand 31,327,490 295,932,694 196,424,012 43,552,119 3,607,429 134,524,388 Accounts receivables 95,407,762 - - 94,181,440 97,450,484 - Short -term loans (15,348,070) - - (17,578,923) - (131,196,267) Non-current liabilities due within one year - - - （97,142,857） - - Long-term loans (340,822,845) - - (322,857,143) - - Accounts payables (78,868,307) (57,864,699) (6,758,301,370) (93,670,270) (52,384,237) (5,177,751,520)
Gross balance sheet exposure (308,303,970) 238,067,995 (6,561,877,358) (393,515,634) 48,673,676 (5,174,423,399) ------
The Company
2007 2006 USD KRW JPY USD KRW JPY
Cash at bank and on hand 2,595,462 249,265 3,172,241 2,852,565 2,178,465 4,362,572 Accounts payables (5,423) - - - - -
Gross balance sheet exposure 2,590,039 249,265 3,172,241 2,852,565 2,178,465 4,362,572 ------
(b) The following are the significant exchange rates applied by the Group and Company:
Reporting date Average rate mid-spot rate 2007 2006 2007 2006
USD 7.5567 7.9395 7.3046 7.8087 KRW 0.0080 0.0081 0.0077 0.0083 JPY 0.0648 0.0672 0.0641 0.0656
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54 RISK ANALYSIS, SENSITIVITY ANALYSIS, AND DETERMINATION OF FAIR VALUES FOR FINANCIAL INSTRUMENTS (CONTINUED)
(c) Sensitivity analysis
A 5% strengthening of the renminbi against the US dollar, KRW and JPY dollar at 31 December would have increased (decreased) equity and profit or loss by the amount shown below:
Equity Profit or loss The Group The Company The Group The Company RMB RMB RMB RMB
31 December 2007 USD 107,239,865 (900,914) 107,239,865 (900,914) KRW (94,094) (99) (94,094) (99) JPY 20,498,055 (9,909) 20,498,055 (9,909)
31 December 2006 USD 146,325,977 (1,060,706) 146,325,977 (1,060,706) KRW (17,798) (797) (17,798) (797) JPY 15,785,441 (13,309) 15,785,441 (13,309)
A 5% weakening of the renminbi against US dollar, KRW and JPY dollar at 31 December would have had the equal but opposite effect on them to the amounts shown above, on the basis that all other variables remain constant.
The above sensitivity analysis has been determined assuming that the change in foreign exchange rates had occurred at the balance sheet date and had been applied to the Group’s exposure to currency risk for both derivative and non-derivative financial instruments in existence at that date. The stated changes of 5% represent management’s assessment of a reasonably possible change in foreign exchange rates over the period until the next annual balance sheet date. The analysis is performed on the same basis for 2006.
(5) Other price risks
Other price risks include stock price risk, commodity price risk, etc.
(6) Fair values
All financial instruments are carried at amounts not materially different from their fair values as at 31 December.
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54 RISK ANALYSIS, SENSITIVITY ANALYSIS, AND DETERMINATION OF FAIR VALUES FOR FINANCIAL INSTRUMENTS (CONTINUED)
(7) Estimation of fair values
The following summarises the major methods and assumptions used in estimating the fair values of financial assets and liabilities held for trading and available-for- sale financial assets on the balance sheet date.
(a) Debts and equity investments
Fair value is based on quoted market prices at the balance sheet date for available-for-sale financial assets.
(b) Interest rates used for determining fair value
The interest rates used to discount estimated cash flows are based on the benchmark lending rate over the same period quoted by the People’s Bank of China at the balance sheet.
55 COMMITMENTS
(1) Capital commitments
As at 31 December, the capital commitments of the Group are summarised as follows:
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Investment contracts entered into but not performed or performed partially 564,182,226 31,522,846 4,781,200 -
(2) Operating lease commitments
As at 31 December, the total future minimum lease payments under non- cancellable operating leases of properties of the Group were payable as follows:
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Within 1 year (inclusive) 12,536,225 13,478,708 955,200 2,524,666 After 1 year but within 2 years (inclusive) 548,160 1,156,400 - 974,400 After 2 years but within 3 years (inclusive) 566,432 121,000 - 121,000 After 3 years (inclusive) 937,354 - - -
Total 14,588,171 14,756,108 955,200 3,620,066
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56 CONTINGENCIES
As at 31 December 2007, the contingent liabilities of the Group and the Company are summarized as follows:
(a) Outstanding litigations and arbitration
The Group is a defendant in certain lawsuits as well as the plaintiff in other proceedings arising in the ordinary course of business. While the outcomes of such contingencies, lawsuits or other proceedings cannot be determined at present, management believes that any resulting liabilities will not have a material adverse impact on the financial position or opening results of the Group.
(b) Guarantees provided for other entities
(i) Guarantees provided for external entites
Zhejiang BOE Display Technology Co., Ltd.(ZJBOE) provides maximum guarantees of RMB 45,410,000 (2006:RMB 40,000,000）in respect of credit facilities granted by banks to Zhejiang Huanyu Construction Company Limited. At 31 December 2007，the borrowing balance is RMB 45,410,000 (2006: RMB 32,207,100). The borrowing period is from 12 June 2007 to 6 July 2008.
ZBOE provides guarantees in respect of bank credit facilities granted by banks to Zhejiang Yuegong Steel Structure Co., Ltd. At 31 December 2007，the borrowing balance is RMB 15,000,000 (2006: nil). The borrowing period is from 8 October 2007 to 8 January 2009.
(ii) Guarantees provided for internal entities
The Company provides guarantees for loans borrowed by its subsidiaries, ZJBOE, with amount of RMB 62,000,000 (2006: RMB 79,120,567) and BOEOT, with amount of USD 740,000,000 (2006: USD 740,000,000). Meanwhile, BOEOT mortgaged its fixed assets amounting to RMB 6,037,470,641（2006: RMB 6,931,629,650）as security for the credit facilities. The Company provides guarantees with total amount of RMB 1,385,289,575（2006: RMB 870,351,352） and receives guarantee fee from the above companies.
At 31 December 2007, ZJBOE provided guarantee for bank loan of Shaoxing BOE, amounting to RMB 1,800,000 (2006: RMB 6,500,000).
At 31 December 2007, Suzhou Chatani provided guarantee for bank loans of its subsidiary, Beijing Chatani, amounting to RMB 21,700,000 (2006: RMB 41,700,000).
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57 NON-ADJUSTING POST BALANCE SHEET EVENTS
(1) The Company’s subsidiary, BOE Land is involved in litigation against Star City. for debt disputes. On 18 February 2008, BOE Land Co., Ltd. obtained ownership certificates for 19-20 floor, Tower C, Star City Tower. The certificates numbers are “X JFQZSQZ No.009436”、“X JFQZSQZ No.009429”, respectively.
On 23 July 2007, The Transfer Agreement on Equity of Beijing Star City Real Estate Development Co., Ltd. was concluded between the Company and Xiong Shi Investment Pte Ltd. Star City received Beijing Commerce Department’s approval for investor changes in Beijing Star City Real Estate Development Co., Ltd. on 10 December 2007, obtained the approval document for its changing into a foreign invested enterprise on 10 January 2008 and obtained the new business license for an enterprise as a legal person on 2 February 2008.
(2) On 10 March 2008, the Company, Chengdu Industrial Investment Group Co., Ltd. and China Construction Bank Corporation Chengdu No.8 Sub-branch entered into the CCB Entrustment RMB Loan Contract, which provides that China Construction Bank Corporation Chengdu No.8 Sub-branch will extend an entrustment loan of RMB 120 million to the Company on behalf of Chengdu Industrial Investment Group Co., Ltd., for the project of Chengdu BOE Optoelectronics Technology Co., Ltd.
On 13 March 2008, the Company, Chengdu Hi-tech Investment Group Co., Ltd. and China Construction Bank Corporation Chengdu High-tech Sub-branch entered into the CCB Entrustment RMB Loan Contract, which provides that China Construction Bank Corporation Chengdu High-tech Sub-branch will extend an entrustment loan of RMB 76.3680 million to the Company on behalf of Chengdu Hi-tech Investment Group Co., Ltd., for the project of Chengdu BOE Optoelectronics Technology Co., Ltd.
(3) On 28 March 2008, the Company obtained conditional approval from China Securities Regulatory Commission on non-public A shares issuance, but has yet to obtain the approval document from China Securities Regulatory Commission.
121
58 RELATED PARTY RELATIONSHIPS AND TRANSACTIONS
(1) Information on the parent of the Company is listed as follows:
Directly shareholding Proportion of Company name Organisation code Registered place Business nature Registered capital percentage voting rights RMB’000
Beijing Electronics 633647998 No. 12, Jiuxianqiao Road Operation and 1,307,370 10.12% 10.12% Holding Co., Ltd. Chaoyang District, Beijing management of state-owned assets within authorization
Beijing Orient Investment and 101101249 No. 10, Jiuxianqiao Road Manufacture and sale 680,982 27.27% 27.27% Development Co., Ltd. (BOID) Chaoyang District, Beijing electronic product
122 58 RELATED PARTY RELATIONSHIPS AND TRANSACTIONS (CONTINUED)
(2) For the information on the subsidiaries of the Company, refer to Note 6.
(3) Transactions between the Group and the Company’s key management personnel
2007 2006 RMB’000 RMB’000
Remuneration of key management personnel 7,476 9,498
The above transactions with key management personnel were conducted under normal commercial terms or relevant agreements.
(4) Transactions between the Company, the Group and other related parties
2007 2006 RMB RMB
Sales of goods 25,435,691 1,328,197 Purchase of goods 3,383,527 - Rendering of services 57,042,061 47,002,030 Rental 12,936,145 6,968,333
123 58 RELATED PARTY RELATIONSHIPS AND TRANSACTIONS (CONTINUED)
(5) Transactions between the Company, the Group and other related parties
(a) Transactions with other related parties:
The Group The Company 2007 2006 2007 2006 Percentage Percentage Percentage Percentage on similar on similar on similar on similar Amount deals Amount deals Amount deals Amount deals RMB % RMB % RMB % RMB %
Sales of go ods 869,064,624 8% 1,113,467,027 13% 1,686,283 3% 2,833,617 2% TPV Technology 826,127,178 8% 1,053,256,078 12% - - - - Beijing Matsushita 42,369,085 0% 60,168,451 1% 1,686,283 3% 2,799,771 2% Others 568,361 0% 42,498 0% - - 33,846 0% Purchase of goods 264,560,603 3% 1,065,451,803 11% 29,414 0% 18,465 0% Marubeni Corpoeration (i) 212,842,165 2% 1,042,372,644 10% - - - - Sevenstar 50,003,528 1% ------Others 1,714,910 0% 23,079,159 0% 29,414 0% 18,465 0% Rendering of services 16,524,637 32% 12,501,489 5% 16,524,637 77% 12,501,489 65% Receiving services 3,899,470 56% 1,039,862 1% 3,842,210 56% 935,060 7% Advanced disbursement payable 3,008,889 100% - - 3,008,889 100% - - Lease income 4,056,114 4% 4,440,725 63% 4,050,745 12% 4,288,917 24% Payment for rental expenses 568,782 19% 1,259,516 42% - - - - Payment for guarantee fee 5,739,395 100% 5,971,948 100% - - - - Payment for interest 22,472,423 4% 44,190,996 6% 22,472,423 38% 44,190,996 26%
(i) No director from Marubeni Corporation stayed in the Company since 25 May 2007. Therefore, Marubeni Corporation (“Marubeni”) has not been regarded as related party of the Company since June 2007. The above figure of the transaction amount between the Company and Marubeni Corporation is the amount of transactions from January to May 2007.
The above transactions with related parties were conducted under normal commercial terms or relevant agreements.
124 58 RELATED PARTY RELATIONSHIPS AND TRANSACTIONS (CONTINUED)
(b) The balances of transactions with other related parties at 31 December are set out as follows:
The Group The Company 2007 2006 2007 2006 RMB RMB RMB RMB
Accounts receivable 51,253,410 366,810,012 1,438,953 1,379,757 TPV Technology - 308,609,265 - - Beijing Matsushita 6,748,339 13,851,573 - 30,582 Star City 43,000,000 43,000,000 - 283,236 Others 1,505,071 1,349,174 1,438,953 1,065,939
Other receivables 35,267,681 32,258,609 35,267,681 32,258,609 Star City 30,046,679 30,046,679 30,046,679 30,046,679 Others 5,221,002 2,211,930 5,221,002 2,211,930
Prepayment 50,000,000 - - - Accounts payables (167,321) (1,401,721) - (1,118) Other payables (5,200,000) (6,989,949) - (6,525,558)
(c) Relationships between the Company, the Group and other related parties under the transactions stated in 5(a)(b) above
Relationship with the Company
Electronics Holdings Ultimate holding company BOID Direct holding company Beijing State-owned Assets Management Co., Ltd. Investors that exercise significant influence over the Group Marubeni Investors that exercise significant influence over the Group Beijing Dongdian Industrial Development Co., Enterprises that are controlled by the Company’s ultimate holding company Sevenstar Enterprises that are controlled by t he Company’s ultimate holding company Beijing Orient Electronics Material Corp. Enterprises that are controlled or significant influenced by the Company’s ultimate holding company Star City Associates Nissin Associates Nittan Associates Beijing Matsushita Associates TPV Associates Julong Associates Chengdu BOE Associates Beijing Asahi Joint ventures
59 COMPARATIVE FIGURES
The Group and the Company adopted the CAS (2006) on 1 January 2007, relevant adjustments of comparative figures are disclosed in Note 4.
125 60 EXTRAORDINARY GAIN AND LOSS
In accordance with Questions and Answers on the Preparation of Information Disclosures of Companies Issuing Public Shares No. 1 – Extraordinary Gain and Loss (2007 revised), the extraordinary gain and loss of the Group is listed as follows:
2007 2006 RMB RMB Note
Extraordinary gain and loss for the year Disposal of long-term equity investment, fixed assets, construction in progress, intangible assets, other long-term assets (25,331,152) 19,777,615 Non-rationed Government grants 53,270,000 - Adjustment on staff welfare fee 20,748,620 - Other non-operating net income 9,254,553 1,251,035
Subtotal 57,942,021 21,028,650
Less: Effect on taxation 15,956,225 3,154,298
Total 41,985,796 17,874,352
Attributable to: Equity shareholders of the Company 34,492,399 17,508,354 Minority interests 7,493,397 365,998
Note: The above figures for 2006 have been adjusted. These retrospective adjustments were made as a result of first-time adoption of CAS (2006) in this year (detailed in Note 4).
126 61 EARNINGS PER SHARE AND RETURN ON NET ASSETS
(1) The Group’s earnings per share
2007 2006 Basic Diluted Basic Diluted RMB RMB RMB RMB
(a) Earnings per share inclusive of extraordinary gain and loss 0.24 0.24 (0.75) (0.75) - Profit attributable to the Company’s ordinary equity shareholders 690,945,815 690,945,815 (1,770,802,475) (1,770,802,475) - Weighted average number of the Company’s ordinary shares 2,871,567,895 2,871,567,895 2,364,663,824 2,364,663,824
(b) Earnings per share net of extraordinary gain and loss 0.23 0.23 (0.76) (0.76) - Profit deducted extraordinary gains and loss attributable to the Company’s ordinary equity shareholders 656,453,416 656,453,416 (1,788,310,829) (1,788,310,829) - Weighted average number of the Company’s ordinary shares 2,871,567,895 2,871,567,895 2,364,663,824 2,364,663,824
Weighted average number of the Company’s ordinary shares:
2007 2006
Issued ordinary shares at 1 January 2,871,567,895 2,195,695,800 Add: Weighted average number of ordinary shares issued during current period - 168,968,024
Weighted average number of ordinary shares at 31 December 2,871,567,895 2,364,663,824
Weighted average number of the Company’s ordinary shares (diluted):
2007 2006
Issued ordinary shares at 1 January 2,871,567,895 2,195,695,800 Add: Weighted average number of ordinary shares issued during current period - 168,968,024
Weighted average number of ordinary shares (diluted) at 31 December 2,871,567,895 2,364,663,824
127 61 EARNINGS PER SHARE AND RETURN ON NET ASSETS (CONTINUED)
(2) Return on net assets of the Group
In accordance with “Regulation on the Preparation of Information Disclosures of Companies Issuing Public Shares No. 9 - Calculation and Disclosure of the Return on Net Assets and Earnings Per Share” (2007 revised) issued by the CSRC, the Group’s return on net assets are calculated as follows:
2007 2006 Fully diluted Weighted average Fully diluted Weighted average
(a) Return on net assets inclusive of extraordinary gain and loss 0.15 0.16 (0.46) (0.51) - Net profit attributable to the Company’s ordinary equity shareholders 690,945,815 690,945,815 (1,770,802,475) (1,770,802,475) - Year-end equity attributable to the Company’s ordinary equity shareholders 4,570,579,149 - 3,889,076,397 - - Weighted average of equity attributable to the Company’s ordinary equity shareholders - 4,232,139,673 - 3,461,379,671
(b) Return on net assets net of extraordinary gain and loss 0.14 0.16 (0.46) (0.52) - Net profit deducted extraordinary gain and loss attributable to the Company’s ordinary equity shareholders 656,453,416 656,453,416 (1,788,310,829) (1,788,310,829) - Year-end equity attributable to the Company’s ordinary equity shareholders 4,570,579,149 - 3,889,076,397 - - Weighted average of equity attributable to the Company’s ordinary equity shareholders - 4,232,139,673 - 3,461,379,671
128 SUPPLEMENTARY INFORMATION TO THE FINANCIAL STATEMENTS
1 RECONCILIATION STATEMENT OF NET PROFIT IN THE PRO FORMA INCOME STATEMENT FOR 2006
In accordance with the requirements of “Questions and Answers on the Preparation of Information Disclosures of Companies Issuing Public Shares No.7 - the Preparation and Disclosure of Comparative Figures in the Transitional Period of the Adoption of CAS (2006)” (Q&A No. 7）, the Group is assumed to have fully adopted CAS (2006) as of 1 January 2006, and on the basis of the assumption prepared pro forma consolidated income statement for 2006.
The Group has issued B shares. The pervious financial statements were prepared using the applicable PRC accounting standards and the International Financial Reporting Standards (IFRS). The Group has made retrospective adjustments to the financial statements based on the data on which pervious financial statements under IFRS were prepared. Therefore, there is no difference between the pro forma consolidated income statement and the consolidated income statement.
2 COMPARISON OF DIFFERENCES IN CONSOLIDATED SHAREHOLDERS’ EQUITY BETWEEN THE NEW AND OLD PRC GAAP IN RECONCILIATION STATEMENTS
According to the requirements of “Notice on the Preparation of Information Disclosures related to the Adoption of CAS (2006) by Listed Companies and Companies Applying for Listing”, the Group prepared the reconciliation statement of differences in consolidated shareholders’ equity between the new and old PRC GAAP as at 31 December 2006 and 1 January 2007 (“the reconciliation statement”) on 25 April 2007. The reconciliation statement has been reviewed by KPMG Huazhen and disclosed in the 2006 annual report.
After the publication of 2006 annual report, further interpretations on CAS (2006), (including CAS Bulletin 1 and Opinions on the Implementation of CAS (2006) from the Professional Working Group of the China Accounting Standards Committee) were issued in succession. The Group reviewed the shareholders’ equity as at 1 January 2007 in accordance with these further interpretations during the preparation of the 2007 annual financial statements. The differences and the reasons for the differences between the shareholders’ equity after review and those disclosed in the previous reconciliation statement are analysed as follows:
2007 annual report 2006 annual report Disclosed Previously disclosed Notes amounts amounts Variance RMB RMB RMB
Shareholders’ equity as at 31 December 2006 (Under PRC old GAAP) 3,540,702,703 3,540,702,703 -
1. Long-term equity investment differences Including: credit balance of other long-term equity investment differences measured using the equity method (1) 22,282,537 22,282,537 - 2. Increase in equity arising from separation of compound financial instruments (2) 99,422,036 99,422,036 - 3. Minority interests (3) 756,748,838 756,748,838 - 4. Special retrospective adjustments made by B share companies (4) 227,911,437 - 227,911,437
Shareholders’ equity as at 1 January 2007 (Under PRC new GAAP) 4,647,067,551 4,419,156,114 227,911,437 ]
129 2 COMPARISON OF DIFFERENCES IN CONSOLIDATED SHAREHOLDERS’ EQUITY BETWEEN THE NEW AND OLD PRC GAAP IN RECONCILIATION STATEMENTS (CONTINUED)
(1) Long-term equity investment differences accounted for using the equity method
The Group has written off the credit balance of equity investment differences amounting to RMB 22,282,537 and adjusted on retained earnings as at 31 December 2006 for the long-term equity investments which are qualified to be accounted for using the equity method in accordance with “Accounting Standards for Business Enterprises No. 2— Long-Term Equity Investment”,
(2) Increase in equity arising from separation of compound financial instruments
For the convertible company debentures comprising liabilities and equity components issued by the company’s associated entity before 31 December 2006, the company partitioned the liabilities and equity components on 1 January 2007 in accordance with “Accounting Standards for Business Enterprises No. 37- Presentation of Financial Instruments”. At 31 December 2006, the carrying value of convertible company debentures issued was USD 255,050,000. After deduction of the partitioned liabilities whose fair value amounting to USD 196,779,000 and which was determined at market rate for inconvertible debenture under equal conditions, the residual USD 58,271,000 represented the value of the partitioned equity. At 31 December 2006, the Company hold 21.85% of the associate entity’s equity. Correspondingly, the Company increased shareholder’s equity by RMB 99,422,036.
(3) Minority interests
In accordance with new PRC GAAP, the Company has made adjustments in its accounting treatment of minority interests. This has contributed to the increase of RMB 756,748,838 in consolidated shareholder’s equity.
(4) Special retrospective adjustments made by B share companies
The Company has issued B shares, and the financial statements in prior years were prepared using the applicable PRC accounting regulations and the International Financial Reporting Standards (IFRS). Pursuant to the requirements of the Q&A No.1 in China Accounting Standards Bulletin No.1 (CAS Bulletin 1) issued by the MOF in November 2007, the Company, at the date of first-time adoption, made retrospective adjustments based on the following principles.
Where the principles stipulated in CAS (2006) differ from those of the applicable PRC accounting regulations, and these principles in CAS (2006) are same as those adopted by the Company in preparing the financial statements in accordance under IFRS in prior years, the Company made retrospective adjustments to those items affected by the changes in accounting policies due to the first-time adoption of CAS (2006), based on the information used in preparing the financial statements in accordance under IFRS.
130 2 COMPARISON OF DIFFERENCES IN CONSOLIDATED SHAREHOLDERS’ EQUITY BETWEEN THE NEW AND OLD PRC GAAP IN RECONCILIATION STATEMENTS (CONTINUED)
The special retrospective adjustments in accordance with the requirements of IFRS are as follows:
a) Adjustment for long-term equity investment in TPV
At 31 December 2006, the Group held a long-term equity investment in its associated company, TPV. In accordance with the accounting requirements under IFRS, the special retrospective adjustments of increase by RMB 202,691,244 have been made by the Group. The main adjustments are described as follows:
- Measurement of long-term equity investment cost
In accordance with the “Agreement about Disposing Beijing Orient Top Victory Electronics Co., Ltd.’s Shares” signed by the Company and TPV on 15 June 2005, the Group used its holding of 45.21% of Beijing Orient Top Victory Electronics Co., Ltd.’s equity to purchase TPV’s newly issued shares. Under former accounting standards, the carrying amount of the transfer-out assets is used as the basis to determine the cost of transfer-in assets for non-monetary transactions. Under CAS (2006) and IFRS, the fair value can be used as the basis to determine the cost of transfer-in assets, with the difference being charged to profit or loss.
- Recognition and amortization of debit balance of the long-term equity investment difference
Under the previous accounting standards, the excess or shortfall of the acquisition cost over the Group’s interest in the shareholder’s equity of the acquiree was recognized as long-term equity investment difference and amortised to profit or loss on a straight line basis. Under CAS (2006) and IFRS, where the initial investment cost of a long-term equity investment exceeds the Group’s interest in the fair value of the investee’s identifiable net assets at the time of acquisition, the investment is recognised at the initial investment cost and not required to amortise. The Group made retrospective adjustments to the debit balance of long-term equity investment differences recognized and amortized in previous years.
131 2 COMPARISON OF DIFFERENCES IN CONSOLIDATED SHAREHOLDERS’ EQUITY BETWEEN THE NEW AND OLD PRC GAAP IN RECONCILIATION STATEMENTS (CONTINUED)
b) Capitalisation of the borrowing costs after deducting relevant depreciation
Before 1 January 2007, the Group directly recorded the borrowing costs in profit or loss for current period. Those costs included the general borrowing costs used in purchase of fixed assets and special borrowing costs related to the unused portion of the special loans (excluding any interest income earned from depositing the borrowed funds or any investment income on the temporary investment of those funds before being used on the asset), and the borrowing costs in purchases of intangible assets or inventories. The relevant retrospective adjustment has been made based on the information used in preparing the financial statements under IFRS. Those borrowing costs which fulfil the capitalization criteria will be capitalized. This adjustment contributed to the increases in the net book value of fixed assets and construction in progress amounting to RMB 29,750,411 as well as a corresponding increase in retained earnings.
c) Others
Other adjustments caused the decrease in retained earnings which amounting to RMB 4,530,218.
132