長城科技股份有限公司 Great Wall Technology Company Limited

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares in Great Wall Technology Company Limited, you should at once hand this circular to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. GWT 長城科技股份有限公司 Great Wall Technology Company Limited (A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 0074)

(1) VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE PROPOSED ACQUISITION OF PHILIPS TV BUSINESS IN EUROPE AND CERTAIN SOUTH AMERICAN COUNTRIES THROUGH A JOINT VENTURE WITH PHILIPS

(2) POSSIBLE VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE PROPOSED GRANTING OF THE PHILIPS PUT OPTIONS

(3) CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE PROPOSED LICENSING OF THE PHILIPS TRADEMARKS AND THE PHILIPS SECONDARY TRADEMARKS

(4) CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE PROPOSED ENTERING INTO THE INTELLECTUAL PROPERTY AGREEMENT, THE AUXILIARY AGREEMENTS AND THE REVERSED AUXILIARY AGREEMENTS REGARDING THE JOINT VENTURE WITH PHILIPS

Independent financial adviser to the Independent Board Committee and the independent Shareholders

SOMERLEY LIMITED

A letter from the Board is set out on pages 14 to 76 of this circular and a letter from the Independent Board Committee is set out on pages 77 to 78 of this circular. A letter from Somerley, containing its advice to the Independent Board Committee and the independent Shareholders is set out on pages 79 to 129 of this circular. A notice convening an extraordinary general meeting of the Company to be held at 16th Floor, Great Wall Technology Building, No. 2 Keyuan Road, Technology and Industry Park, Nanshan District, Shenzhen, PRC on 21 February 2012 at 9:30 a.m. is set out on pages 356 to 357 of this circular. Whether or not you are able to attend the meeting, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 24 hours before the time of meeting to the office of the Company’s H shares registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong (in the case of holders of H shares) or to the Company’s legal address at No. 2 Keyuan Road, Technology and Industry Park, Nanshan District, Shenzhen, PRC (in the case of holders of domestic shares). Completion of the form of proxy will not preclude you from attending and voting at the meeting should you so wish. 23 December 2011 CONTENTS

Page

DEFINITIONS ...... 1

LETTER FROM THE BOARD ...... 14

LETTER FROM INDEPENDENT BOARD COMMITTEE ...... 77

LETTER FROM SOMERLEY ...... 79

APPENDIX I – FINANCIAL INFORMATION OF THE GROUP ...... 130

APPENDIX II – ACCOUNTANT’S REPORT ON THE PHILIPS BUSINESS . . . . . 240

APPENDIX III – UNAUDITED PRO FORMA FINANCIAL STATEMENT OF THE ENLARGED GROUP ...... 291

APPENDIX IV – MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP ...... 308

APPENDIX V – GENERAL INFORMATION ...... 343

NOTICE OF EXTRAORDINARY GENERAL MEETING ...... 357 DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions have the following meaning:

“2010 Trademark License an agreement dated 29 September 2010 entered into between Agreement” Philips, AOC and TPV for granting to AOC and its affiliates an exclusive right and license to use the certain Philips trademarks on certain TVs and related promotional materials in the PRC

“3D Patents” patents that enable an auto-stereoscopic three-dimensional viewing experience (glasses-free three-dimensional)

“Acquisition” the proposed acquisition by MMD of a 70% equity interest in JVCo from Philips pursuant to the terms and conditions of the Sale and Purchase Agreement

“acting in concert” has the meaning ascribed to it under the Takeovers Code

“Announcement” the announcement dated 9 November 2011 issued by the Company in respect of, among other things, the Sale and Purchase Agreement and Proposed Transactions

“Annual Cap(s)” the maximum annual aggregate value(s) for the transaction contemplated under the Trademark License Agreement (including the consumer care service for the Scope Products sold prior to Completion), the Secondary Trademark License Agreement, the Intellectual Property Agreement, the Transitional Services Agreement, the IT Transitional Service Level Agreement, the Remote Control Sale Agreement, the NET TV License and Services Agreement, the Online Shop and My Shop Agreement, the Brazil Lease Agreement, the Dixtal Lease Agreement, the Hungary Lease and Service Agreement and the Tax Audit Service Agreement for the period from the date of Completion to 31 December of various years as set out in this announcement

“AOC” AOC Holdings Limited, a wholly-owned subsidiary of TPV

“Argentina JV” Fabrica Austral de Productos Eléctricos S.A., a company incorporated in Argentina, which will be owned as to 63.4% by JVCo and 36.6% by Philips Argentina immediately upon Completion (subject to adjustment)

“Argentina JV Shareholders the agreement to be entered into at Completion among JVCo, Agreement” Philips Argentina S.A., the Argentina JV and Philips in respect of, among other things, the relationship of the shareholders of the Argentina JV

1 DEFINITIONS

“Argentina Non-TV Transactions” continuing transactions between Argentina JV and Philips relating to the non-TV business unit of Argentina JV, the details of which are set out in sub-paragraph headed “Argentina Non-TV Transactions” under the section headed “(III) The entering into of the Argentina JV Shareholders Agreement”

“associate(s)” has the meaning ascribed to it under the Listing Rules

“Assumed Employees” those persons proposed to be employed by the JV Group at Completion pursuant to the Disentanglement

“Auxiliary Agreements” collectively, the Transitional Services Agreement, the IT Transitional Service Level Agreement and the Remote Control Sale Agreement

“Board” the board of Directors

“Brazil Lease Agreement” an agreement to be entered into at Completion between TP Vision Indústria Eletrônica Ltda., a wholly-owned of JVCo, and Philips Do Brasil Ltda., which is ultimately owned by Philips, in respect of the lease by TP Vision Indústria Eletrônica Ltda.to Philips Do Brasil Ltda. of a property in Brazil.

“Bridge Facility” the revolving facility in the amount of EUR100 million (equivalent to approximately US$140 million) to be provided by Philips (or its nominee) to JVCo at Completion

“CEC” China Electronic Corporation, a state-owned company incorporated in the PRC, being the ultimate parent of the Company

“CKD” complete knock down assembly kit

“CEC Group” CEC and its subsidiaries from time to time

“Company” Great Wall Technology Company Limited (長城科技股份有限公司), a joint stock limited company incorporated in the PRC with limited liability, whose H shares are listed on the Hong Kong Stock Exchange

“Completion” completion of the Acquisition

“Completion Date” date of Completion

“Continuing Connected the Trademark License Agreement, the Secondary Trademark Transactions” License Agreement, the Intellectual Property Agreement, the Auxiliary Agreement, the Reversed Auxiliary Agreement and the transactions contemplated thereunder

2 DEFINITIONS

“connected person(s)” has the meaning ascribed to it under the Listing Rules

“Consumer Care” the after sales service and support as set out in the Trademark License Agreement

“CRT” cathode ray tube

“Deferred Purchase Price” an amount equal to 70% of JV Group’s average audited consolidated EBIT in each financial year commencing from (and including) the year ending 31 December 2012 to (and including) the Last Year multiplied by four, provided that, if the above calculation results in a negative number, then the Deferred Purchase Price is deemed to be zero

“Director(s)” the directors of the Company from time to time

“Disentanglement” all the steps which are necessary to be carried out by Philips or a relevant member of the Philips Group in order to transfer the Philips Contributed Business to the JV Group (including, for the avoidance of doubt, the joint venture arrangement with respect to the Argentina JV and related “spin off” as contemplated under the Argentina JV Shareholders Agreement)

“Dixtal” Dixtal Biomedica Industria e Comércio Ltda., a wholly-owned subsidiary of Philips

“Dixtal Lease Agreement” an agreement dated 22 September 2009 entered into between Philips Brazil, and Dixtal, which is ultimately owned by Philips

“EBIT” earnings before interest and taxes and adjusted pursuant to the terms of the Sale and Purchase Agreement

“EGM” the extraordinary general meeting of the Company to be convened on 21 February 2012 for the purpose of considering and, if thought fit, approving the Sale and Purchase Agreement, the Shareholders Agreement, the Argentina JV Shareholders Agreement, the Trademark License Agreement, the Secondary Trademark License Agreement, the Intellectual Property Agreement, the Auxiliary Agreements, the Reversed Auxiliary Agreements, the Funding Documents, and the respective transactions contemplated thereunder and the Annual Caps

“Employee Shop” the relevant wholly-owned subsidiary of Philips in the local jurisdiction which will enter into the Employee Shop Agreements with Local JVCo Subsidiary

3 DEFINITIONS

“Employee Shop Agreement” agreements to be entered into at Completion between Employee Shop and the Local JVCo Subsidiary in respect of the sale by the Local JVCo Subsidiary and purchase by Employee Shop of various TV products as well as other products that may be offered by the Local JVCo Subsidiary from time to time as specified in the agreement

“Enlarged Group” the Group as enlarged by the Acquisition

“EU” the European Union

“EUR”, “Euro” or “€” The Euro as defined in Council Regulation (EC) No. 1103/97 of 17 June 1997

“Existing Philips Transaction” the existing continuing connected transactions with Philips contemplated under the 2010 Trademark License Agreement

“Funding Documents” the loan agreements for each of the Bridge Facility, the Shareholder Loan and the TPV Loan to be entered into by the relevant parties at Completion

“Great Wall Kaifa” Shenzhen Kaifa Technology Co., Ltd (深圳長城開發科技有限公司), a company incorporated in the PRC, whose shares are listed on Shenzhen Stock Exchange, a subsidiary of the Company

“Group” the Company and its subsidiaries from time to time

“GWSZ” China Great Wall Computer Shenzhen Company Limited (中國長城計算機深圳股份有限公司), a company incorporated in the PRC, whose shares are listed on the Shenzhen Stock Exchange, a subsidiary of the Company

“Hong Kong” Hong Kong Special Administrative Region of the PRC

“Hong Kong Stock Exchange” The Stock Exchange of Hong Kong Limited

“Hungary Lease and Service an agreement to be entered into at Completion between TP Vision Agreement” Hungary and Philips Hungary in respect of the lease of a factory building and provision of services in the factory building by TP Vision Hungary to Philips Hungary

“Independent Board Committee” an independent committee of the board of Directors comprising all independent non-executive Directors, namely Mr. Zeng Zhijie, Mr. Yao Xiaocong and Mr. James Kong Tin Wong

“Intellectual Property Agreement” an agreement to be entered into at Completion between Philips and JVCo relating to the transfer, license or non-assert of certain Intellectual Property Rights relating to the Scope Products

4 DEFINITIONS

“Intellectual Property Right” all patents and patent rights, trademarks and trademark rights, trade names and trade name rights, service marks and service mark rights, service names and service name rights, brand names, logos and slogans, inventions, formulae, copyrights and copyright rights, trade dress, business and product names, logos, slogans, trade secrets, industrial models, processes, designs, plans, proposals, methodologies, computer programs (including all source codes) and related documentation, technical data and information, manufacturing, engineering and technical drawings, know-how design rights, all pending applications for and registrations of any of the foregoing and rights to apply for such registrations

“IT” information technology

“IT Transitional Service Level an agreement to be entered into at Completion between Philips Agreement” Electronics and JVCo relating to the provision of information technology services by Philips Electronics to JVCo

“JVCo” T.P. Vision Holding B.V., a company incorporated in the Netherlands with limited liability which, immediately prior to Completion, will own and control the Philips Contributed Business directly or indirectly through local subsidiaries

“JV Group” JV Co and its subsidiaries from time to time

“JVCo Sale Shares” 70% of the issued shares in the share capital of JVCo as at the Completion Date

“Last Year” the later of (a) 2014 and (b) the last completed financial year prior to the date on which Philips gives notice in writing to MMD of its election to receive the Deferred Purchase Price

“LCD” liquid crystal display

“Latest Practicable Date” 20 December 2011, being the latest practicable date for ascertaining certain information referred to in this circular prior to printing of this circular

“Licensed Patents” any patents other than the Transfer Patents which are owned and/ or controlled by Philips as of the Completion Date, which are entitled to the benefit of a filing date prior to the Completion Date and for which Philips has the free right to grant licenses, all to the extent used or intended to be used, at Completion, in commercially released Scope Products (either current or under development) of the Philips Contributed Business, but in any case excluding any 3D Patents

5 DEFINITIONS

“Listing Rules” the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange

“Local JVCo Subsidiary” the relevant wholly-owned subsidiary of JVCo in the local jurisdiction which will enter into the Employee Shop Agreements with Employee Shop

“Material Adverse Effect” an effect that is or is reasonably likely to be materially adverse to the business, financial condition or results of operations of the JV Group or the Philips Contributed Business, in each case taken as a whole or which is or is reasonably likely to materially and adversely affect the ability of the JV Group to carry on the Philips Contributed Business in the same manner and to the same extent as the Philips Contributed Business is carried on by the Philips Group as at the date of the Sale and Purchase Agreement, provided that in no event shall any of the following be taken into account (alone or in combination with any other event identified in this provision) in determining whether there has been such a Material Adverse Effect: (i) any change in applicable law or accounting standards or interpretations thereof applicable to the Philips Contributed Business, (ii) any change in economic or business conditions or industry-wide or financial market conditions generally, (iii) any currency exchange rate fluctuations, (iv) any political conditions (including effects arising out of acts of terrorism, sabotage, armed hostilities or war) or other force majeure events, and (v) any loss of customers or suppliers of, or employees to, the Philips Contributed Business as a result of the execution of the Sale and Purchase Agreement or the announcement of the transactions contemplated thereunder, except to the extent that such effect disproportionately affects the JV Group or the Philips Contributed Business, taken as a whole

“Mitsui” Mitsui & Co., Ltd.

“MMD” Coöperatie MMD Meridian U.A., a cooperative established in the Netherlands with limited liability, being a wholly-owned subsidiary of TPV

“Monitor” a display device primarily intended for connecting to a PC via wired or wireless means and having a screen size between thirteen (13”) and twenty-three (23”) inches

“Net TV” the access by hardware devices of Philips of the NET TV Portal using the NET TV or other use by hardware devices of Philips of the NET TV Technology pursuant to which such hardware devices of Philips can use or access an application

6 DEFINITIONS

“Net TV License and Services an agreement to be entered into at Completion between Philips Agreement” Consumer Lifestyle B.V. and JVCo relating to the provision of Net TV Services by JVCo to the Philips Group

“Net TV Portal” a website, such as the website currently operated by Philips under the name Net TV Portal, but to be further designed, hosted and maintained as of Completion by JVCo or any of its subcontractors or members of the JV Group, providing access to various entertainment and information applications for the Scope Products

“Net TV Services” services related to the operation, hosting, maintenance and support of the Net TV Portal

“Net TV Technology” the software development kit and all intellectual property rights, documents, know-how and information, related to NET TV and Smart TV

“Non-Exclusive Contracts” those contracts to which a member of the Philips Group is a party which relate in part to, or are used in part by, the Philips Contributed Business

“ODM” original design manufacturer

“OEM” original equipment manufacturer

“Online Shop” Philips Consumer Relations B.V., a wholly-owned subsidiary of Philips

“Online Shop and My Shop an agreement to be entered into at Completion amongst Philips Agreement” Consumer Relations B.V., Philips Electronics Nederland B.V. and JVCo in respect of the sale by JVCo and purchase by Philips Consumer Relations B.V. and Philips Electronics Nederland B.V. of various TV products as well as other products that may be offered by JVCo from time to time as specified in the agreement

“PC” personal computer

“Philips” Koninklijke Philips Electronics N.V., a public limited liability company incorporated in the Netherlands, the shares of which are listed on NYSE Euronext

“Philips Argentina” Philips Argentina S.A., a wholly-owned subsidiary of Philips

“Philips Brand” any product brand represented by or associated with the Philips Trademark

“Philips Brazil” Philips Do Brasial Ltda, a wholly-owned subsidiary of Philips

7 DEFINITIONS

“Philips Business” the entire business of the product management, innovation and development, manufacturing, operation, marketing, sale and distribution of the Scope Products as carried on by the Philips Group under the Philips Trademarks immediately prior to Completion, but excluding the marketing, sale and distribution of the Scope Products under the Philips Trademarks carried on by those third parties having received a license from Philips under certain Philips trademarks

“Philips Consumer Lifestyle” Philips Consumer Lifestyle B.V., a wholly-owned subsidiary of Philips

“Philips Contracts” (i) a list of the key contracts set out in the Sale and Purchase Agreement; (ii) all other contracts to which any member of the Philips Group is a party entered into before the date of the Sale and Purchase Agreement in the course of conducting the Philips Business, except for any Non-Exclusive Contracts; and (iii) the contracts entered into by any member of the Philips Group or any member of the JV Group in the course of conducting the Philips Business between the date of the Sale and Purchase Agreement and the Completion Date, except for any Non-Exclusive Contracts, which are not fully performed as at the Completion Date or which have not been terminated without any further rights or obligations as at the Completion Date

“Philips Contributed Business” the Philips Business including (i) all of the rights and assets of the Philips Group fully or partly dedicated to the Philips Business to be reorganised pursuant to the Disentanglement and to be contributed by the Philips Group to the JV Group pursuant to the Disentanglement, including the Philips Contracts and the Non-Exclusive Contracts, to the extent such contracts relate to the Philips Contributed Business; (ii) the Intellectual Property Rights owned by the Philips Group which will be licensed or transferred to the JV Group pursuant to the Intellectual Property Agreement, the Trademark License Agreement and the Secondary Trademark License Agreement; (iii) the Assumed Employees; (iv) all liabilities related to any Philips Contracts subsisting at Completion and arising in respect of matters to be performed after Completion, but excluding, amongst others, (v) any litigation and claims related to the Philips Business before Completion; (vi) the Philips Receivables; and (vii) liabilities in relation to any Non- Exclusive Contract, to the extent that such contract does not relate to the Philips Business

8 DEFINITIONS

“Philips Control Put Option” an option granted, pursuant to the Shareholders Agreement, pursuant to which Philips shall have the right to sell and transfer all, and not less than all, of its shares of JVCo to MMD, in the event of the occurrence of the TPV Change of Control as set out in sub-paragraph headed “Philips Control Put Option” under the paragraph headed “Principal Terms” in the section headed “(II) The entering into of the Shareholders Agreement” in this circular

“Philips Default Put Option” an option granted, pursuant to the Shareholders Agreement, pursuant to which Philips shall have the right to sell and transfer all, and not less than all, of its shares of JVCo to MMD, in the event of the occurrence of an Event of Default as set out in sub-paragraph headed “Default” under the paragraph headed “Principal Terms” in the section headed “(II) The entering into of the Shareholders Agreement” in this circular

“Philips Electronic” or “My Shop” Philips Electronics Nederland B.V., a wholly-owned subsidiary of Philips

“Philips Exit Put Option” an option granted, pursuant to the Shareholders Agreement, pursuant to which Philips shall have the right to sell and transfer all, and not less than all, of its shares in JVCo to MMD

“Philips Group” Philips and its subsidiaries from time to time

“Philips Hungary” Philips Ltd., a wholly-owned subsidiary of Philips

“Philips Payables” the amounts owed by Philips or the relevant members of the Philips Group as at the Completion Date in respect of the Philips Business

“Philips Put Options” the Philips Exit Put Option, the Philips Control Put Option and the Philips Default Put Option

“Philips Receivables” all receivables and other amounts owing to Philips or relevant members of the Philips Group as at the Completion Date in respect of the Philips Business prior to the Completion Date

“Philips Secondary Trademarks” the trademarks of ARISTONA, ERRES, PYE, RADIOLA, SCHNEIDER and SIERA

“Philips Singapore” Philips Electronics Singapore Pte Ltd, a wholly-owned subsidiary of Philips

“Philips Trademarks” the word mark “Philips”, the Philips shield emblem, the Ambilight mark and the wordmark “Sense and Simplicity”

9 DEFINITIONS

“PRC” or “China” the People’s Republic of China, and for the purpose of this circular, specifically excluding Hong Kong, Macau Special Administrative Region of the People’s Republic of China and Taiwan

“Proposed Transactions” the transactions contemplated under the Sales and Purchase Agreement, the Shareholders Agreement, the Argentina JV Shareholders Agreement, the Trademark License Agreement, the Secondary Trademark License Agreement, the Intellectual Property Agreement, the Auxiliary Agreement, the Reversed Auxiliary Agreement and the Funding Documents

“R&D” research and development

“Remote Control Sale Agreement” an agreement to be entered into at Completion between Philips Electronics Singapore Pte Ltd and JVCo relating to the sale of remote control products and other products and the granting of a license to use remote control products by Philips Electronics Singapore Pte Ltd to JVCo

“Reversed Auxiliary Agreements” collectively, the NET TV License and Services Agreement, the Online Shop and My Shop Agreement, the Employee Shop Agreement, the Brazil Lease Agreement, the Amendments to the Dixtal Lease Agreement, the Hungary Lease and Service Agreement and the Tax Audit Service Agreement

“Sale and Purchase Agreement” the agreement dated 1 November 2011 entered into between TPV, MMD, Philips and JVCo in respect of the Acquisition

“Scope Products” TVs but excluding: (i) any display product for exclusively displaying information, advertising and the like to the general public; (ii) any display product for use in combination with medical systems; (iii) any display product for automotive use; (iv) any display product that is a hand-held or portable device with a screen size of less than fifteen inches (15”); or (v) any display product primarily intended for being connected to and displaying signals originating from PCs

10 DEFINITIONS

“Secondary Trademark Scope TVs and remote control devices (including remote control devices Products” with a display) bundled with TVs (meaning sold, distributed and/or marketed with the TV inside the packaging of the TV) bearing the Philips Secondary Trademarks, including replacements of such remote control devices, but excluding: (i) any display product for exclusively displaying information, advertising and the like to the general public; (ii) any display product for use in combination with medical systems; (iii) any display product for automotive use; (iv) any display product that is a hand-held or portable device with a screen size of less than fifteen inches (15”); or (v) any display product primarily intended for being connected to and displaying signals originating from PCs

“Secondary Trademark License the agreement to be entered into at Completion between Philips Agreement” and JVCo in respect of the grant by Philips to JVCo and certain of its affiliates an exclusive trademark license in respect of the Philips Secondary Trademarks under which JVCo and certain of its affiliates may design, manufacture, source, sell, distribute and market Scope Products in the Territory

“SFO” Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong

“Share(s)” ordinary shares of RMB1.00 each in the share capital of the Company

“Shareholders Loan” the term loan in the total amount of EUR170 million (equivalent to approximately US$238 million) to be provided by Philips (or its nominee) and MMD (or its nominee) to JVCo at Completion

“Shareholder(s)” holder(s) of Share(s)

“Shareholders Agreement” the agreement to be entered into at Completion between Philips, TPV, MMD and JVCo in respect of, among other things, the corporate governance arrangements of JVCo, restrictions on transfer of JVCo shares and the Philips Put Options

“Singapore Stock Exchange” Singapore Exchange Securities Trading Limited

“SKD” semi-knock down assembly kit

“Smart TV” the Philips consumer branded feature that includes NET TV and the Philips consumer branded function for sharing content between certain devices and applications for personal computer, smartphone and tablets and TV-only features for advanced programming of the TV and new ways to control the Smart TV enabled device

11 DEFINITIONS

“Smart TV Dashboard” the Smart TV start-up screen that provides an integrated user experienced combining the various Smart TV elements

“Somerley” Somerley Limited, a corporation licensed by the Securities and Futures Commission to conduct type 1 (dealing in securities), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO, the independent financial adviser appointed by the Company to advise the Independent Board Committee and the Shareholders in respect of the Continuing Connected Transactions (including the relevant Annual Caps)

“substantial shareholder(s)” has the meaning ascribed to it in the Listing Rules

“Takeovers Code” The Hong Kong Code on Takeovers and Mergers

“Tax Audit Service Agreement” an agreement to be entered into at Completion between TP Vision Hungary and Philips Hungary in respect of various services in relation to tax audits with respect to Philips

“Territory” worldwide, with the exception of the PRC, India, the US, Canada, Mexico and South America (with the exception of Brazil, Uruguay and Paraguay which will be included in the Territory and Argentina where a non-exclusive trademark license will be granted by Philips to the JV Group pursuant to the Trademark License Agreement)

“Term Sheet” the term sheet dated 17 April 2011 between TPV and Philips relating to, among other things, the Acquisition, the granting of the Philips Put Options, the entering into of the Trademark License Agreement and the Auxiliary Agreements and the transactions contemplated thereunder

“TP Vision Brazil” TP Vision Indústria Electronica Ltda., which will be a wholly- owned subsidiary of JVCo upon Completion

“TP Vision Hungary” TP Vision Hungary Ltd., which will be a wholly-owned subsidiary of JVCo upon Completion

“TP Vision Netherlands” TP Vision Netherlands B.V., which will be a wholly-owned subsidiary of JVCo upon Completion

“TPV” TPV Technology Limited, a company incorporated in Bermuda with limited liability, the shares of which are primarily listed on the main board of the Hong Kong Stock Exchange and secondarily listed on the Singapore Stock Exchange, a subsidiary of the Company

“TPV Group” TPV and its subsidiaries

12 DEFINITIONS

“TPV Loan” the term loan in the total amount of EUR100 million (equivalent to approximately US$140 million) to be provided by Philips (or its nominees) to TPV (or its nominees) at Completion

“Trademark License Agreement” the agreement to be entered into at Completion between Philips and JVCo in respect of the grant by Philips to JVCo and certain of its affiliates of an exclusive trademark license under which JVCo and certain of its affiliates may design, manufacture, source, sell, distribute and market Philips-branded Scope Products in the Territory

“Transfer Patents” certain patents or inventions owned by Philips and/or its members which are solely used within the Philips Contributed Business as of the Completion Date and which are not incorporated in a licensing program of Philips to third parties (excluding 3D Patents)

“Transitional Services Agreement” the agreement to be entered into at Completion between Philips and JVCo in respect of the provision of certain transitional services by the Philips Group to the JV Group

“Transitional Service Level the transitional service level agreements in relation to the Agreements” provision of services pursuant to the Transitional Services Agreement in effect as of Completion

“Turnover” the number of the Scope Products invoiced or shipped by the JV Group times the relevant net selling price of the Scope Products

“TV” electronic devices with a display primarily intended for displaying television signals receivable via off-air television transmissions, via cable, or satellite or internet (whether intended for sale to the mass retail market or to hotels, restaurants, ships, planes, trains and locations including sleeping accommodations such as hospitals, army bases, student dormitories and elderly home estates)

“TVIL” Top Victory Investments Ltd., a wholly-owned subsidiary of TPV

“RMB” Reminbi, the lawful currency of the PRC

“R$” Real, the lawful currency of Brazil

“US” the United States of America

“US$” or “USD” US dollar(s), the lawful currency of the US

“%” per cent

Unless otherwise specified in this circular, amounts denominated in EUR and R$ have been converted, for illustrative purpose only, into US$ at exchange rates of EUR1.00 = US$1.4 and R$1.00 = US$0.6279. Such exchange rates are for the purpose of illustration only and do not constitute a representation that any amount has been, could have been or may be converted at any of the above rates and any other rates or at all. 13 LETTER FROM THE BOARD

GWT 長城科技股份有限公司 Great Wall Technology Company Limited (A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 0074)

Executive Directors Legal address and head office: Mr. Liu Liehong (Chairman) No.2 Keyuan Road Mr. Lu Ming Technology and Industry Park Mr. Tam Man Chi Nanshan District Mr. Yang Jun Shenzhen, PRC Mr. Su Duan Mr. Du Heping

Independent non-executive Directors Mr. Yao Xiaocong Mr. James Kong Tin Wong Mr. Zeng Zhijie

23 December 2011

To the Shareholders

Dear Sir and Madam,

(1) VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE PROPOSED ACQUISITION OF PHILIPS TV BUSINESS IN EUROPE AND CERTAIN SOUTH AMERICAN COUNTRIES THROUGH A JOINT VENTURE WITH PHILIPS

(2) POSSIBLE VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE PROPOSED GRANTING OF THE PHILIPS PUT OPTIONS

(3) CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE PROPOSED LICENSING OF THE PHILIPS TRADEMARKS AND THE PHILIPS SECONDARY TRADEMARKS

14 LETTER FROM THE BOARD

INTRODUCTION

Reference is made to the Announcement.

The purpose of this circular is to provide you with, among other things, (i) further information on the Proposed Transactions; (ii) the recommendation of the Independent Board Committee regarding the Continuing Connected Transactions (including the Annual Caps); (iii) the advice of Somerley regarding the Continuing Connected Transactions (including the Annual Caps); and (iv) notice of the EGM.

THE PROPOSED TRANSACTIONS

(I) PURCHASE OF THE PHILIPS CONTRIBUTED BUSINESS

The Sale and Purchase Agreement

On 1 November 2011, MMD, the wholly-owned subsidiary of TPV, a subsidiary of the Company, has conditionally agreed to acquire the JVCo Sale Shares and TPV has agreed to guarantee the obligations of MMD under the Sale and Purchase Agreement on and subject to the terms and conditions of the Sale and Purchase Agreement. Philips will complete the Disentanglement in all material respects prior to Completion so that all the assets of the Philips Contributed Business are owned, directly or indirectly, by JVCo.

The Philips Contributed Business

The principal business of the Philips Contributed Business is the design, manufacture, distribution, marketing and sale of Philips branded TVs worldwide, with the exception of mainland China, India, United States, Canada, Mexico and certain countries in South America. Upon Completion, JVCo will, directly or indirectly, own and control the Philips Contributed Business comprising, amongst others, the following:

• innovation and development sites in Eindhoven (Netherlands), Bruges (Belgium), Bangalore (India) and Singapore;

• manufacturing plants in Szekesfehervar (Hungary), Manaus (Brazil) and Tierra del Fuego (Argentina);

• sales organizations in various countries, including but not limited to Germany, Austria, Switzerland, France, Russia, Brazil, Belgium, the Netherlands, Luxembourg, Italy, Denmark, Finland, Norway, Sweden, Spain, Argentina, Turkey, Poland and the United Kingdom;

• the Philips Contracts;

• inventory owned at Completion by the Philips Group used exclusively in connection with the Philips Business;

15 LETTER FROM THE BOARD

• the Assumed Employees; and

• the Intellectual Property Rights owned by the Philips Group which will be licensed or transferred to the JV Group pursuant to the Intellectual Property Agreement, the Trademark License Agreements and the Secondary Trademark License Agreement.

Completion of the Sale and Purchase Agreement is subject to the conditions precedents as referred to in the sub-paragraph headed “Conditions for the Sale and Purchase Agreement” below.

Date

1 November 2011

Parties

(1) MMD

(2) Philips

(3) TPV

(4) JVCo

MMD is principally engaged in investment holding and is a wholly-owned subsidiary of TPV, a subsidiary of the Company.

As at the Latest Practicable Date, to the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, save for Philips owning approximately 2.69% of the issued share capital of TPV as at the Latest Practicable Date, Philips and the ultimate beneficial owner of Philips are third parties independent of the Company and its connected persons.

Pursuant to the Sale and Purchase Agreement, TPV guarantees to Philips the due and punctual discharge by MMD of its obligations thereunder.

Consideration and payment terms

MMD will purchase the JVCo Sale Shares at the Deferred Purchase Price, which will be an amount equal to 70% of JV Group’s average audited consolidated EBIT in each financial year commencing from (and including) the year ended 31 December 2012 to (and including) the Last Year multiplied by four, provided that, if the above calculation results in a negative number, then the Deferred Purchase Price is deemed to be zero.

16 LETTER FROM THE BOARD

The Deferred Purchase Price was agreed after arm’s length negotiation between TPV and Philips. The Deferred Purchase Price has been determined with reference to, among other things, (i) the future prospects and performance of the JVCo leveraging on the Philips Contributed Business and Philips Trademark; (ii) the future economic and commercial prospects of the Territory; and (iii) Philips TV’s global presence and innovation capabilities. The Directors consider that the Deferred Purchase Price is fair and reasonable because the Deferred Purchase Price provides an incentive to Philips (as the vendor of the Philips Contributed Business and owner of the Philips Brand) to show more commitment and support to the JV Group and to contribute to the turnaround of the Philips Contributed Business.

It is anticipated that the Deferred Purchase Price shall be satisfied from TPV’s internal resources and be settled by telegraphic transfer in immediately available funds of TPV as and when the Deferred Purchase Price becomes due and payable. Given that the Deferred Purchase Price will be calculated based on the JV Group’s average audited consolidated EBIT in financial years 2012 to the Last Year and is not subject to a cap, it is not possible to ascertain the amount of the Deferred Purchase Price at the present time.

Conditions for the Sale and Purchase Agreement

Pursuant to the Sale and Purchase Agreement, Completion is conditional upon the satisfaction, on or prior to the Completion Date (or their satisfaction subject only to Completion), of, among other things, the following conditions:

(A) the obtaining by MMD of all relevant governmental approvals as set out in the Sale and Purchase Agreement;

(B) (i) the Disentanglement having been completed in all material respects and, taking account of the arrangements set out in the relevant transaction documents, the JV Group being able to carry on the Philips Contributed Business, in all material respects, in the same manner and to the same extent as the Philips Business is carried on by the Philips Group as at the date of the Sale and Purchase Agreement;

(ii) not less than six of the eight key individuals of the Philips Contributed Business as set out in the Sale and Purchase Agreement having entered into a new employment contract with the relevant member of the JV Group or been transferred to the relevant member of the JV Group by operation of relevant laws and regulations, and each such employee not having resigned or their employment not having been terminated in accordance with the terms thereof;

(iii) not less than 70% of the 53 selected key employees of senior management of the Philips Contributed Business listed in the Sale and Purchase Agreement having entered into a new employment contract with the relevant member of the JV Group or been transferred to the relevant member of the JV Group by operation of relevant laws and regulations, and each such employee not having resigned or their employment not having been terminated in accordance with the terms thereof; 17 LETTER FROM THE BOARD

(iv) all key employees of the research and development and sales force departments of the Philips Contributed Business listed in the Sale and Purchase Agreement having entered into a new employment contract with the relevant member of the JV Group or been transferred to the relevant member of the JV Group by operation of relevant laws and regulations, and each such employee not having resigned or their employment not having been terminated in accordance with the terms thereof; and

(v) completion by Philips of applicable mandatory consultation procedures with employee representative bodies (including workers councils and trade unions);

(C) TPV having convened a special general meeting at which resolutions shall have been duly passed by the independent shareholders of TPV to approve (i) the entering into of the Sale and Purchase Agreement and the other relevant transaction documents and the acquisition by MMD of the JVCo Sale Shares, and (ii) the entering into of the Transitional Services Agreement, and such other continuing connected transactions that may be entered into between any members of the TPV Group and the Philips Group and which require the approval of the independent shareholders of TPV, in each case, in compliance with relevant laws and regulations, including the Listing Rules, and the by-laws of TPV;

(D) The Company having convened an extraordinary general meeting at which resolutions shall have been duly passed by the Shareholders and having convened a Board meeting at which resolutions shall have been duly adopted by the Directors, in each case to approve (i) the entering into of the Sale and Purchase Agreement and the other relevant transaction documents and the acquisition by MMD of the JVCo Sale Shares, and (ii) the entering into of the Transitional Services Agreement, and such other continuing connected transactions that may be entered into between any members of the Group and the Philips Group and which require the approval of the Shareholders of the Company, in each case, in compliance with relevant laws and regulations, including the Listing Rules, and the by-laws of the Company;

(E) if required by relevant laws and regulations, GWSZ having convened a general meeting at which resolutions shall have been duly passed by the shareholders of GWSZ and having convened a board meeting at which resolutions shall have been duly adopted by the directors of GWSZ, in each case to approve (i) the entering into of the Sale and Purchase Agreement and the other relevant transaction documents and the acquisition by MMD of the JVCo Sale Shares, and (ii) the entering into of the Transitional Services Agreement, and such other continuing connected transactions that may be entered into between any members of the TPV Group and the Philips Group and which require the approval of the shareholders of GWSZ, in each case, in compliance with relevant laws and regulations including the rules of the Shenzhen Stock Exchange, and the by-laws of GWSZ;

18 LETTER FROM THE BOARD

(F) none of the warranties and representations given by Philips under the Sale and Purchase Agreement being found to be, or no event occurring or matter arising which renders any of such warranties and representations being, untrue or incorrect in any respect on and as at Completion, where the event or matter which causes such warranties and representations to be untrue or incorrect has or is reasonably likely to have a material adverse effect to the JV Group or the Philips Contributed Business;

(G) none of the warranties and representations given by Philips under the Sale and Purchase Agreement which is expressed to be “as at the date of the Sale and Purchase Agreement” being found to be, or no event occurring or matter arising which renders any such warranties and representations being, untrue or incorrect in any respect if such warranties and representations were instead deemed to be “as at the Completion Date”, where the event or matter which would cause such warranties and representations to be untrue or incorrect has, or is reasonably likely to have, a material adverse effect to the JV Group or the Philips Contributed Business;

(H) none of the warranties and representations given by MMD or TPV under the Sale and Purchase Agreement being found to be, and no event occurring or matter arising which renders any of such warranties and representations given by MMD or TPV being, untrue or incorrect in any respect on and as at Completion, where the event or matter which causes such warranties and representations given by MMD or TPV to be untrue or incorrect has or is reasonably likely to have a material adverse effect on the transactions contemplated under the Sale and Purchase Agreement;

(I) (i) the European Commission adopting a decision under Article 6(1)(b) of Council Regulation (EC) 139/2004 as amended (“EUMR”) in terms reasonably satisfactory to MMD declaring such acquisition to be compatible with the common market; or

(ii) such acquisition being deemed to have been declared compatible with the common market pursuant to Article 10(6) EUMR; and

(iii) in the event that a request under Article 9(2) EUMR has been made by a Member State of the European Union, the European Commission indicating that it does not intend to refer such acquisition or any aspect of it to the competent authorities of such state in accordance with Article 9 EUMR and no such referral being deemed to have been made pursuant to Article 9(5) EUMR;

(J) there shall not be pending by any government any proceeding (or by any other person any proceeding under any anti-trust or competition law that has a substantial likelihood of success) challenging or seeking to restrain, prohibit or modify the transactions contemplated by the Sale and Purchase Agreement;

19 LETTER FROM THE BOARD

(K) a written clearance from the relevant government has been obtained or the waiting period under the applicable anti-trust or competition law in any other affected non-European Union jurisdictions expiring, and all material related approvals, registrations, or declarations of, or filings with any government in any such jurisdictions required to be obtained or made prior to Completion having been obtained or made on a basis reasonably satisfactory to MMD;

(L) there being no fact or circumstance having occurred between the date of the Sale and Purchase Agreement and Completion which, in each case individually or in the aggregate, has or is reasonably likely to have a Material Adverse Effect;

(M) the conditions precedent to drawdown under the Funding Documents (except any condition precedent to the effect that the conditions in the Sale and Purchase Agreement have been satisfied or waived) shall have been satisfied or waived (as the case may be) in accordance with the terms of such Funding Documents;

(N) the delivery to MMD of the audited combined accounts of the Philips Business, for each of the years ended 31 December 2008, 31 December 2009 and 31 December 2010 and for the period ended 3 July 2011 signed by PricewaterhouseCoopers within 10 business days prior to the date on which the circular is dispatched by TPV to its shareholders;

(O) a director of the Argentina JV having transferred all of his legal and beneficial interest in the share capital of the Argentina JV to Philips Argentina S.A.; and

(P) the registration with the Real Estate Registry Office having been updated to show that no social security premiums are due by Philips do Brasil Ltda in connection with the factory site in Manaus.

The conditions as set out in (B), (F), (G), (L), (M), (N), (O) and (P) above are inserted for the benefit of MMD, as such, MMD may waive in whole or in part all or any of such conditions. Philips may waive in whole or in part all or any of the conditions as set out in (H) above. The remaining conditions may be waived only by mutual agreement of MMD and Philips. In the event that all the conditions above are not satisfied or waived (as the case may be) on or before 30 April 2012, or such other date as the parties to the Sale and Purchase Agreement may agree, the Sale and Purchase Agreement shall lapse and none of the parties to the Sale and Purchase Agreement shall make any claim against any other in respect thereof.

As at the Latest Practicable Date, save for Conditions (N), none of the conditions above have been satisfied.

Reasons for conditions (D) and (E) above

To the best of the directors of TPV’s knowledge, information and belief having made all reasonable enquiries, as at the Latest Practicable Date, (i) GWSZ owns approximately 8.5% of the issued share capital of TPV; (ii) China Great Wall Computer (H.K.) Holding Limited (“CGCHK”),

20 LETTER FROM THE BOARD a wholly-owned subsidiary of GWSZ, owns approximately 15.8% of the issued share capital of TPV; and (iii) GWSZ is owned as to 53.92% by the Company. The Company and GWSZ are listed on the Hong Kong Stock Exchange and Shenzhen Stock Exchange, respectively. As such, it is a prerequisite for the Company and GWSZ to obtain the approval from their respective boards and shareholders on the Proposed Transaction for GWSZ and CGCHK to vote in the special general meeting of TPV.

Treatment of the Philips Receivables and the Philips Payables

Pursuant to the Sale and Purchase Agreement, it is agreed that the Philips Receivables shall remain with the Philips Group (excluding the JV Group) and shall not be transferred to the JV Group under the Disentanglement. Accordingly, the Philips Group (excluding the JV Group) shall remain entitled to the Philips Receivables. The Philips Payables shall remain with the Philips Group (excluding the JV Group) and shall not be transferred to the JV Group under the Disentanglement. Accordingly, the Philips Group (excluding the JV Group) shall remain responsible for settling the Philips Payables.

Based on the financial information on the Philips Business, trade and other receivables of the Philips Business amounted to US$616 million as at 31 December 2010. Trade and other payables and accruals of the Philips Business amounted to US$1,484 million as at 31 December 2010. Management of Philips considers that the nature of these receivables and payables are broadly within the definitions of Philips Receivables and Philips Payables.

Trade and other receivables primarily represent receivables from customers arising from sales. Trade payables, other payables and accruals mainly comprise, among others, payables to suppliers for purchases of inventories, sales-related taxes and social security contributions payables, material related and other accruals, sales related accruals, and salary and wages payable. Philips Receivables and Philips Payables refer to balances as at the Completion Date, and accordingly, the net assets position as of 3 July 2011 and the net liabilities position as of 31 December 2010 (as set out in the paragraph headed “Information on JVCo” below) do not include Philips Receivables and Philips Payables. However, they include the aforementioned trade and other receivables, trade payables, other payables and accruals as at 3 July 2011 and 31 December 2010, which management of Philips considers that they should be of a similar nature as Philips Receivables and Philips Payables as at the Completion Date.

Assumed Employees

Pursuant to the Sale and Purchase Agreement, the key treatment of the Assumed Employees will be, among others, as follow:

(i) subject to Completion, in respect of any Assumed Employees employed by a member of the Philips Group (excluding the JV Group), who will transfer to JVCo or another member of the JV Group by operation of the relevant laws and regulations of the relevant jurisdiction (the “Automatic Transfer Employees”), the relevant member of the JV Group shall, with effect from the moment of transfer:

21 LETTER FROM THE BOARD

(a) employ, on terms as to the capacity and place in which such Assumed Employee will be employed and as to other terms and conditions of his or her employment (including the pension arrangements) which, when considered overall, are no less favourable than the corresponding provisions of his or her contract of employment immediately prior to the transfer; and

(b) count the Assumed Employee’s period of continuous service with the Philips Group as continuous service with the JV Group;

(ii) in respect of any Assumed Employees employed by a member of the Philips Group (excluding the JV Group), but who will not transfer to JVCo or another member of the JV Group in connection with the Disentanglement on or before Completion by operation of the relevant laws and regulations of the relevant jurisdiction (the “Non- Automatic Transfer Employees”), in sufficient time to allow proper contractual or statutory notice of termination of employment to be given to Non-Automatic Transfer Employees or at such time as Philips and MMD may agree but in any event not later than the Completion Date, Philips shall cause the relevant member of the JV Group to make an offer to each Non-Automatic Transfer Employee (other than those under notice of termination of employment) to employ such Assumed Employee under a new contract of employment commencing, subject to Completion, on or prior to the Completion Date. The offer to be made shall be such that:

(a) the provisions of the new contract shall be, as to the capacity and place in which the Assumed Employee will be employed, and as to the other terms and conditions of his or her employment (including the pension arrangements), when considered overall, no less favourable than the corresponding provisions of his or her contract of employment as existing immediately prior to the offer; and

(b) it provides that the Assumed Employee’s period of continuous service with the Philips Group shall be counted as continuous service with the JV Group.

The relevant member of the Philips Group shall terminate the employment of each Non-Automatic Transfer Employee with effect from the Completion Date.

(iii) MMD shall procure that the JV Group will retain all Assumed Employees for a period of at least 12 months after Completion on terms and conditions which, when considered overall, are not less favourable to the relevant Assumed Employee compared to those by which the relevant Assumed Employee was employed immediately prior to Completion (save for the right to terminate an employment contract with any Assumed Employee at any time for cause under the relevant employment contracts and applicable laws).

22 LETTER FROM THE BOARD

Funding of JVCo

Pursuant to the Sale and Purchase Agreement, Philips and MMD have agreed to financially support the JV Group by way of the following:

The Shareholder Loan

(i) Philips or one of its wholly-owned subsidiaries shall provide to JVCo at Completion its share of the Shareholder Loan in an amount of EUR51.0 million (equivalent to approximately US$71.4 million) for the general corporate funding needs of the JV Group;

(ii) MMD (or its nominee) shall provide at Completion its share of the Shareholder Loan in an amount of EUR119.0 million (equivalent to approximately US$166.6 million) for the general corporate funding needs of the JV Group;

The Shareholder Loan will be split into two tranches being:

(A) a 3-year EUR70.0 million (equivalent to approximately US$98.0 million) tranche bearing an interest rate, subject to an extension of the tenor, of EURIBOR plus 2.20% per annum (increasing to 2.70% per annum following an extension of the tenor); and

(B) a 5-year EUR100.0 million (equivalent to approximately US$140.0 million) tranche bearing an interest rate of EURIBOR plus 2.70% per annum.

In certain circumstances the tenor of each tranche of the Shareholder Loan may be extended pursuant to the terms of the Shareholder Loan up to a maximum of 10 years after Completion and may become repayable in instalments prior to maturity if Philips ceases to hold an interest in JVCo in accordance with the Shareholders Agreement;

Equity contribution

(iii) immediately after the transfer of the JVCo Sale Shares, Philips shall make an additional contribution in cash to its remaining shares in JVCo in the amount of EUR30.0 million (equivalent to approximately US$42.0 million), to be regarded as share premium reserve;

(iv) immediately after the transfer of the JVCo Sale Shares, MMD shall make an additional contribution in cash to the JVCo Sale Shares in the amount of EUR70.0 million (equivalent to approximately US$98.0 million), to be regarded as share premium reserve;

Philips Brand promotion and marketing support

(v) at Completion, Philips shall pay in cash to JVCo the amount of EUR135.0 million (equivalent to approximately US$189.0 million), which amount JVCo shall apply towards its promotion and marketing activities which benefit the Philips brand. Pursuant to the Trademark License Agreement, there is an additional EUR50.0 million (equivalent to approximately US$70.0 million) to be paid by Philips to JVCo in four equal quarterly

23 LETTER FROM THE BOARD

amounts in the second year after Completion – please refer to the sub-paragraph headed “Philips Brand promotion and marketing support” in section (IV) “Licensing of Philips Trademarks and Philips Secondary Trademarks for the Philips Contributed Business”.

The Bridge Facility

(vi) Philips or one of its wholly-owned subsidiaries shall make available to JVCo as of Completion the Bridge Facility (which will be revolving in nature) in the total amount of EUR100.0 million (equivalent to approximately US$140.0 million) for the working capital funding needs of the JV Group, the 9-month Bridge Facility bears an interest rate, subject to an extension of the tenor, of EURIBOR plus 1.80% per annum. (increasing to 2.70% per annum following an extension of the tenor). In certain circumstances the tenor of the Bridge Facility may be extended pursuant to the terms of the Bridge Facility to a maximum of 5 years and may become repayable in instalments prior to maturity if Philips ceases to hold an interest in JVCo in accordance with the Shareholders Agreement; the refinancing of the Bridge Facility has been agreed between the parties to the Shareholders Agreement. Please refer to details of such refinancing arrangements as set out in sub-paragraph headed “Financing” under the paragraph headed “Principal Terms” in the section headed “(II) The entering into of the Shareholders Agreement” below.

In the instance where there is a refinancing of the Bridge Facility, if JVCo requests, Philips will provide a guarantee to the respective lender(s) under such new facility for 30% of the outstandings under such facility contingent on: (i) TPV providing at the same time a guarantee to the respective lender(s) under such new facility for 70% of the outstandings under such facility; and (ii) JVCo providing a counter-indemnity to Philips in respect of Philips’s obligations under its above mentioned guarantee; and

The TPV Loan

(vii) Philips or one of its wholly-owned subsidiaries shall make available to MMD (or its nominee) at Completion the 3-year TPV Loan in an amount of EUR100.0 million or its equivalent in US$ (equivalent to approximately US$140.0 million) for the purpose of funding MMD’s obligations under the Shareholder Loan. TPV guarantees to Philips punctual performance by MMD or its nominee of MMD’s (or its nominee’s) obligations under the TPV Loan. The currency of the loan may be US$ or EUR and the interest rate will be, (if drawn in US$) LIBOR plus 3.8% per annum or, (if drawn in EUR) EURIBOR plus 3.8 % per annum.

The TPV Loan may be mandatorily prepayable prior to its originally stated maturity in certain circumstances including Philips requiring prepayment following the exercise of the Philips Control Put Option.

The references to EURIBOR and LIBOR above refer in each case to a rate in EUR or US$ respectively aimed at reflecting the prevailing market rates for interbank lending between leading banks for the relevant currency and period of the respective interest periods applicable to each loan.

24 LETTER FROM THE BOARD

Completion

Upon satisfaction or the waiver (as the case may be) of all the conditions set out above, Completion shall take place on the Completion Date. Upon Completion, JVCo will become a 70% owned subsidiary of TPV and will carry on the Philips Contributed Business. The accounts of JVCo will be consolidated into the Company’s consolidated accounts.

Termination

Either MMD or Philips may terminate the Sale and Purchase Agreement by written notice if, amongst others, any of the following events occurs at any time before Completion:

(A) either party commits any material breach of, or omits to observe any of its material obligations or undertakings under, the Sale and Purchase Agreement and it is not reasonable to expect that such breach or omission will be cured within the period set out in the Sale and Purchase Agreement; or

(B) there occurs a material adverse effect to the JV Group or the Philips Contributed Business.

If (i) TPV has not dispatched the circular in connection with its special general meeting referred to in paragraph (C) in the section headed “Conditions for the Sale and Purchase Agreement” in this circular to its shareholders on or before 31 December 2011; or (ii) the general meetings of each of TPV, the Company and GWSZ referred to in paragraphs (C), (D) and (E) in the section headed “Conditions for the Sale and Purchase Agreement” in this circular are not held on or before 29 February 2012, then Philips may in its sole and absolute discretion terminate the Sale and Purchase Agreement.

Information on JVCo

JVCo, with its statutory seat in Eindhoven, the Netherlands, is incorporated by Philips to hold the Philips Contributed Business. Pursuant to the Disentanglement to be carried out by Philips or the members of the Philips Group prior to Completion, the assets which constitutes the Philips Contributed Business, will be transferred to the JV Group. Upon Completion, JVCo will, directly or indirectly, own and control the Philips Contributed Business.

The Philips Contributed Business, which is currently part of Philips’ Consumer Lifestyle, has its headquarters in Amsterdam (Netherlands), innovation/development sites in Eindhoven (Netherlands), Bruges (Belgium), Bangalore (India) and Singapore, manufacturing sites in Szekesfehervar (Hungary), Manaus (Brazil) and Tierra del Fuego (Argentina) and sales organisations in 31 countries in Europe and South America.

The Philips Contributed Business also consists of employees (either directly employed by Philips or through a third party), assets (both tangible and intangible) and liabilities to the extent owned by or fully dedicated (or attributable) to the Scope Products.

25 LETTER FROM THE BOARD

The assets include certain intellectual property rights, material contracts, distribution and marketing, customer care, research and developments, websites and contracts with manufacturers and suppliers, order portfolio, inventory (including goods in transit), product roadmaps, IT hardware and software systems.

Set out below is a summary of the financial information on the Philips Business, which is prepared based on the accounting policies of the Company which are consistent with Hong Kong Financial Reporting Standards.

For the period from 1 January 2011 to 3 July 2011 US$ (million)

Turnover 1,658

Net loss before income tax and interest costs (335)

Net loss before income tax (336)

Net loss after income tax (341)

For the year ended 31 December 2010 2009 US$ (million) US$ (million)

Turnover 4,083 3,951

Net loss before income tax and interest costs (104) (211)

Net loss before income tax (105) (212)

Net loss after income tax (125) (231)

As of 3 July 2011, the net assets position of the Philips Business was US$39 million. Notwithstanding a net loss of US$341 million for the period from 1 January to 3 July 2011, the net assets position of the Philips Business has improved from net liabilities of US$310 million as of 31 December 2010 due to a net additional funding of US$713 million from Philips.

As of 31 December 2010, the total assets and the net liabilities position of the Philips Business were US$1,404 million and US$310 million, respectively.

26 LETTER FROM THE BOARD

Reasons for the net loss for the period from 1 January 2011 to 3 July 2011

Price erosion, partly driven by stock depletion of high inventory levels from 2010, drives the gross profit decline in the first six months of 2011 compared to the same period last year. The industrial and Philips Business overstock at the end of 2010 has led to relatively high stock in the retail stores. Competitors have also driven excessive price erosion to try and clear their oversupply. This has driven the market to experience higher than normal price erosion in 2011.

Total operating expenses increased mainly due to a rise in research and development expenses largely resulted from exceptional impairments as a result of lower returns. In addition substantial amounts were incurred to speed up the time to market for 2012.

The results deteriorated due to the increased price erosion that materialized during the first six months of 2011 and the subsequent decline in gross profit and increased total operating expenses.

Price erosion and pressure is common for consumer electronics goods in general (and not just for TVs) due to economies of scale and continued advance in manufacturing research and technology. TPV hopes that the adverse impact from price erosion can be better managed using an improved cost structure, enhanced economies of scale with the acquisition of the Philips Contributed Business and more effective management of inventories.

Reasons for the net loss for the year ended 31 December 2010

In 2010, there was a lower gross profit driven by price pressure across the range. In the second half of 2010 there were high inventory levels at all global TV manufacturers and lower sales due to temporary component shortage.

Reasons for the net loss for the year ended 31 December 2009

Following the global recession caused by the financial crisis, in 2009, revenues decreased by 24% due to a world-wide sales decline in the Scope Products that mainly incurred in Brazil, Russia, the United Kingdom and France.

(II) THE ENTERING INTO OF THE SHAREHOLDERS AGREEMENT

Pursuant to the Sale and Purchase Agreement, the Shareholders Agreement in respect of the operations of JVCo will be entered into at Completion. The principal terms of the Shareholders Agreement are summarized below.

The Shareholders Agreement

Parties

(1) Philips

(2) TPV 27 LETTER FROM THE BOARD

(3) MMD

(4) JVCo

Pursuant to the Shareholders Agreement, TPV guarantees to Philips the due and punctual discharge by MMD of its obligations thereunder.

Principal terms

Managing Board The Managing Board (as defined below) shall consist of five members, four of whom shall be nominated by MMD and one of whom shall be nominated by Philips. The Managing Board shall comprise the chief executive officer and the chief financial officer (both of which must be nominated by MMD).

MMD has the approval rights, and not Philips, in respect of the nomination of any new member to be appointed to the Managing Board at the general meeting of JVCo. Each nomination by MMD, however, shall be subject to consultation with Philips and Philips shall be offered a reasonable opportunity to review such nomination and discuss the nomination with MMD and the nominee.

The Supervisory Board has the power to suspend or remove, at any time, any member of the Managing Board.

The day-to-day business and affairs of JVCo shall be managed by a statutory managing board of JVCo (the “Managing Board”) which may exercise all powers of JVCo save as otherwise provided pursuant to any applicable laws and regulations, the Shareholders Agreement or the articles of association of JVCo, and the Managing Board shall be supervised by a non-executive supervisory board of JVCo (the “Supervisory Board”).

Supervisory Board The Supervisory Board shall consist of 4 members, of which MMD and Philips are entitled to nominate three members and one member respectively at the general meeting of JVCo.

It is the duty of the Supervisory Board to supervise the Managing Board and the general course of affairs in JVCo and its subsidiaries, and the business connected with them. The Supervisory Board shall also advise

28 LETTER FROM THE BOARD

the Managing Board and it has the right to approve or resolve, by way of unanimous resolution, certain material matters of JVCo including, among other things:

(i) any related party transaction (or series of related transactions) between any member of the JV Group and any connected person, other than the following related party transactions which do not require unanimous approval by the Supervisory Board:

a. that the related party transaction that are on arm’s length terms with a value of not more than EUR4.0 million (equivalent to approximately US$5.6 million) on an individual basis, provided that such related party transactions are on arm’s length terms and the terms of which (including as to quality, pricing and other material terms, taking into account the nature and extent of the commercial relationship with its relevant related party and taking into account the quality, pricing and other material terms available in the relevant market from reputable third parties), taken as a whole, are fair and reasonable to the relevant member of the JV Group;

b. that the related party transactions that relate to the supply to any member of the JV Group of a Scope Product or a product used in the manufacturing of a Scope Product, provided that such transactions are on arm’s length terms and the terms of which (including as to quality, pricing and other material terms, taking into account the nature and extent of the commercial relationship with its relevant connected person and taking into account the quality, pricing and other material terms available in the relevant market from reputable third parties), taken as a whole, are fair and reasonable to the relevant member of the JV Group;

c. that the related party transactions that relate to the provision of a service to or by any member of the JV Group, provided that such transactions are on arm’s length terms and the terms of which (including as to quality, pricing and other material terms, taking into account the nature and extent of the commercial relationship with its relevant connected person and taking into account the quality, pricing and other material terms available in the relevant market from reputable third parties), taken as a whole, are fair and reasonable to the relevant member of the JV Group;

29 LETTER FROM THE BOARD

d. related party transactions that relate to the transfer of assets to or by any member of the JV Group, provided that such assets are transferred at a value that would have been paid in an arm’s length negotiation;

(With respect to

a. related party transactions set out in paragraphs b. above, if the value of such transactions is more than EUR30.0 million (equivalent to approximately US$42.0 million) on an annual basis or EUR10.0 million (equivalent to approximately US$14.0 million) on an individual basis; and

b. related party transactions set out in paragraphs c. and d. above, if the value of such transactions is more than EUR10.0 million (equivalent to approximately US$14.0 million) on an annual basis or EUR5,000,000 (equivalent to approximately US$7.0 million) on an individual basis,

then details of such transactions shall be notified in writing to the shareholder of JVCo who is not qualifying as a connected person to the subject transaction, prior to the execution of the transaction.)

(ii) any proposal for merger, de-merger, spin-off, or corporate restructuring of any kind of any member of the JV Group (other than any corporate restructuring necessary in order to reorganize and integrate the Philips Contributed Business, including redundancies and/or termination of employment contracts or closing down of premises and/or facilities);

(iii) initiating any bankruptcy, liquidation or winding up proceedings, moratorium or suspension of payments (or any similar proceedings in the relevant jurisdiction) with respect to any subsidiary of JVCo, other than any voluntary solvent restructuring;

(iv) any proposal for amendment to the articles of association of any subsidiary of JVCo;

(v) any proposal for distribution of dividends or any other form of distribution by a non-wholly owned subsidiary of the JV Group, including any distribution of reserves or premiums;

(vi) any proposal for issuance, redemption or repurchase of securities, or other increase or reduction of the share capital, by a non-wholly owned subsidiary of JVCo; 30 LETTER FROM THE BOARD

(vii) any proposal for listing or public offering of securities issued by a member of the JV Group and any action required to be taken by the relevant member of the JV Group in connection therewith;

(viii) changes in accounting principles, to the extent that the proposed changes are inconsistent with International Financial Reporting Standards or to the extent that the proposed changes may affect the calculation of EBIT;

(ix) any acquisition or disposal of assets by any member of the JV Group, other than in the ordinary course of business on arm’s length terms, having individually or in the aggregate, in a single transaction or a series of related transactions over a 12-month period, a value, including any assumed or assigned financial debt, in excess of EUR25.0 million (equivalent to approximately US$35.0 million) on a consolidated basis;

(x) entering into any financing transaction by any member of the JV Group, other than in the ordinary course of business on arm’s length terms, of any kind, in amounts in excess of EUR25.0 million (equivalent to approximately US$35.0 million), and the provision of any guarantees (or counter-guarantees) by any member of the JV Group of any kind in favour of third parties covering (directly or indirectly) payment obligations for amounts in excess of EUR25.0 million (equivalent to approximately US$35.0 million), the foregoing amounts to be calculated on a consolidated basis (i.e., taking into account the amount involved in the same kind of transactions performed by JVCo and its subsidiaries during the same period);

(xi) any capital expenditure by any member of the JV Group in excess of EUR25.0 million (equivalent to approximately US$35.0 million), per transaction or series of related transactions;

(xii) any agreement for the formation of a joint venture, consortium or partnership (other than ordinary commercial contracts) the combined net asset value or share capitalization of which is in excess of EUR25.0 million (equivalent to approximately US$35.0 million); and

(xiii) the initiation, choice of a defense strategy or settlement by a member of the JV Group of any litigation or arbitral proceedings where the claimed amount is in excess of EUR10.0 million (equivalent to approximately US$14.0 million).

31 LETTER FROM THE BOARD

General meeting Any of MMD, Philips, the Supervisory Board or the Managing Board may convene a general meeting of JVCo by notice to each of MMD and Philips.

The following matters shall be decided by the general meeting of JVCo or, as the case may be, require the prior written approval of the general meeting of JVCo, and resolutions of the general meeting of JVCo on these matters shall require unanimous approval in a meeting where both Philips and MMD are present:

(i) the allocation and issuance by a member of the JV Group of stock options;

(ii) amendment of the articles of association of JVCo;

(iii) modification or waiver of the pre-emptive rights attaching to shares of JVCo;

(iv) any legal merger, demerger or liquidation of JVCo;

(v) any issuance, redemption or repurchase of securities, or other increase or reduction of the share capital of JVCo;

(vi) approval of a transfer of shares of JVCo;

(vii) initiating any bankruptcy, dissolution, liquidation or winding up proceedings, moratorium or suspension of payments (or any similar proceedings in the relevant jurisdiction) with respect to JVCo; and

(viii) declaration or payment of any dividends or distributions.

Voluntary wind-up If, notwithstanding that the full amount of the additional funding has option been provided to JVCo pursuant to an increase of the Shareholder Loan:

(i) JVCo records accumulated EBIT losses in excess of EUR300.0 million (equivalent to approximately US$420.0 million) (before taking into account EUR125 million (equivalent to approximately US$175 million) paid by Philips as part of the brand promotion and marketing support fee or otherwise received by JVCo for the same purposes) following Completion; or

(ii) there is insufficient funding to sustain JVCo as a going concern and MMD and Philips fail to implement a remedial plan within three months,

32 LETTER FROM THE BOARD

MMD or Philips may in its sole and absolute discretion elect to initiate a voluntary wind-up process by giving written notice to the other party and JVCo at any time within 30 business days after the occurrence of one of the abovementioned events.

Financing Initial funding

For further details of the initial funding of JVCo, please refer to the paragraph headed “Funding of JVCo” in the section headed “(I) Purchase of the Philips Contributed Business”.

Refinancing of the Bridge Facility

If, on the date falling 6 months after Completion, JVCo determines that it has insufficient funds available to it, taking into account its projected funding needs during the year following the date falling 9 months after Completion (the “Bridge Facility Termination Date”) with any such shortfall in funds as compared against the funds available to it (the “Bridge Facility Funding Shortfall”) to repay the amounts outstanding under the Bridge Facility on the Bridge Facility Termination Date:

(i) JVCo shall apply towards repayment of the outstanding loan such amount as it determines as being available to it to make such repayment without a Bridge Facility Funding Shortfall occurring; and

(ii) MMD (or its nominee) shall purchase by way of a transfer of part of the loan from Philips or its relevant wholly-owned subsidiary that is the lender under the Bridge Facility so that, on and following such transfer, the outstanding loan (taking into account any repayment made under paragraph (i) above) is provided by MMD (or its nominee) as to 70% and by Philips or its relevant wholly-owned subsidiary that is the lender under the Bridge Facility as to 30%.

Further funding

If, at any time after Completion, JVCo requires funding additional to the funding available to it to enable the JVCo Group to meet its working capital requirements and liabilities as they fall due and carry on its business without a significant curtailment of operations, TPV and Philips, in proportion to its shareholding in JVCo, shall provide (or arrange for its respective nominee to provide) additional funding to JVCo up to EUR140.0 million (equivalent to approximately US$196.0 million) and EUR60 million (equivalent to approximately US$84.0 million) respectively.

33 LETTER FROM THE BOARD

Dividend policy JVCo shall not make any distributions, dividends or other payments on any shares of JVCo or any other security rights issued by JVCo at any time while the Bridge Facility and the Shareholder Loan are outstanding and have not been repaid or, in the case of the Bridge Facility, cancelled in full.

Transfer of shares Neither MMD nor Philips may sell, transfer or otherwise assign, or dispose of, or undertake to assign or dispose of, whether by way of transfer of the legal and/or beneficial ownership of the shares of JVCo (including for the avoidance of doubt a conditional or unconditional transfer or voting rights), any shares of JVCo held by it, whether directly or indirectly (the “Share Transfer”), except if and to the extent that it complies with certain provisions, including, among others, the other shareholder of JVCo has given its approval in writing to the Share Transfer.

There is a tag-along provision in the Shareholders Agreement in the event that a bona fide third party acquirer (the “Third Party Acquirer”) wishes to acquire a shareholder’s shares of JVCo, and such shareholder (the “Seller”) wishes to accept the offer, the Seller shall immediately give notice thereof to the other shareholder of JVCo (the “Tag- along Seller”) disclosing the details of the offer. And the Tag-Along Seller shall have the right to require the Seller to procure the Third Party Acquirer to acquire all of the Tag-along Seller’s shares of JVCo concurrently with the transfer of the Seller’s shares of JVCo.

Philips Exit Put Option As from expiry of a period of 6 years commencing on the date of the Shareholders Agreement, Philips shall have the right to sell and transfer all, and not less than all, of its shares of JVCo to MMD. Philips shall deliver to MMD a notice to exercise the Philips Exit Put Option (the “Philips Exit Put Option Notice”). Philips shall cease to have the Philips Exit Put Option if it has sold and transferred its shares of JVCo pursuant to the Philips Control Put Option.

The price to be paid by MMD for the shares of JVCo owned by Philips pursuant to an exercise of the Philips Exit Put Option (the “Philips Exit Put Option Price”) shall be payable in cash and shall be the higher of nil and an amount calculated as:

A x B, where:

A = JVCo’s average consolidated EBIT in 2012 to the last completed financial year prior to the date on which Philips has delivered the Philips Exit Put Option Notice, multiplied by 4; and

B = the percentage of the shares of JVCo held by Philips at the time of the Philips Exit Put Option Notice. 34 LETTER FROM THE BOARD

The price to be paid by MMD for the shares of JVCo owned by Philips upon the exercise of the Philips Exit Put Option has been arrived at after arm’s length negotiations between TPV and Philips with reference to, among other factors, actual earnings performance of the Philips Contributed Business between Completion and the most recently completed financial year prior to the exercise of the Philips Exit Put Option.

The directors of TPV consider that the Exit Put Option Price is fair and reasonable.

Philips Control Put Upon a change of control of TPV by way of the following (the “TPV Options Change of Control”):

(a) TPV or any of the members of the TPV Group enters into an alliance, joint venture, consortium, partnership or similar agreement relating to Scope Products with any person listed as a competitor as set out in the Trademark License Agreement (as updated from time to time);

(b) (i) CEC together with any of the members of the CEC Group and associated companies, either as a group or acting in concert with Mitsui, ceases to hold, directly or indirectly, at least 30% of the then outstanding Shares; or (ii) a person (or persons acting in concert), other than CEC together with any of the members of the CEC Group and associated companies, either as a group or acting in concert with Mitsui, become the owner of (or become entitled to vote), directly or indirectly, 30% or more of the then outstanding shares of TPV;

(c) TPV and/or any members of the TPV Group undertakes any act or thing pursuant to which a person (or persons acting in concert), other than CEC together with any of the members of the CEC Group or associated companies, either as a group or parties acting in concert with Mitsui, is able to direct or cause the direction of the management and policies of TPV;

(d) a person, other than a member of the TPV Group, becomes owner of more than 50% of the assets of TPV (by book value, by market value or by volume); or

(e) TPV ceases to hold, directly or indirectly, 100% of the equity interests in MMD.

Philips shall have the rights to sell and transfer all, and not less than all, of its shares of JVCo to MMD.

35 LETTER FROM THE BOARD

In the event that Philips elects to exercise the Philips Control Put Option, Philips shall deliver to MMD a notice (the “Philips Control Put Option Notice”), stating the irrevocable decision of Philips to exercise the Philips Control Put Option.

The price to be paid by MMD for the shares of JVCo owned by Philips pursuant to an exercise of the Philips Control Put Option (the “Control Put Option Price”) shall be payable in cash and shall be the higher of nil and an amount calculated as:

A x B, where:

A = JVCo’s average consolidated EBIT in 2012 to the last completed financial year prior to the date on which Philips has delivered the Philips Control Put Option Notice, multiplied by a factor of 4; and

B = 1 in case the TPV Change of Control occurs before Philips has exercised its right to receive the Deferred Purchase Price, in which case MMD will be released from any obligation to pay the Deferred Purchase Price and/or the Philips Exit Put Option Price; or

B = the percentage of the shares of JVCo held by Philips at the time of the Philips Control Put Option Notice in case the TPV Change of Control occurs after payment of the Deferred Purchase Price but before exercise of the Philips Exit Put Option.

The directors of TPV consider that the Control Put Option Price is fair and reasonable.

Default A shareholder (the “Defaulting Shareholder”) shall be deemed to be in material breach of the Shareholders Agreement if any of the following occurs (each an “Event of Default”):

(i) an order by a court of competent jurisdiction, declaring the Defaulting Shareholder bankrupt, or the passing of a resolution for the dissolution or liquidation of the Defaulting Shareholder;

(ii) the convening of a meeting of creditors of the Defaulting Shareholder, or the drawing up and publication of a proposal or an arrangement with or any assignment for the benefit of creditors of the Defaulting Shareholder; and

36 LETTER FROM THE BOARD

(iii) any material failure by the Defaulting Shareholder to comply with any of its material obligations under the Shareholders Agreement which is not cured within 30 business days from receiving written notice of default.

Upon an Event of Default, the non-defaulting shareholder of JVCo shall have the right, exercisable upon delivery of a notice to the Defaulting Shareholder (the “Default Notice”), to (i) terminate the Shareholders Agreement; and (ii) in the event (a) Philips is the defaulting shareholder, to call on Philips to sell and transfer to MMD (and Philips shall be obliged to thus sell and transfer) the shares of JVCo held by Philips (“Philips Default Put Option”) against payment by MMD of the Default Option Price (as defined below); and (b) MMD is the defaulting shareholder, to sell and transfer to MMD (and MMD shall be obliged to thus purchase and accept) the shares of JVCo held by Philips against payment by MMD of the Default Option Price (as defined below).

The price to be paid by MMD for the shares of JVCo owned by Philips pursuant to an exercise of the Philips Default Put Option (the “Default Option Price”) shall be payable in cash and shall be the higher of nil and an amount calculated as:

A x B, where:

A = JVCo’s average consolidated EBIT in 2012 to the last completed financial year prior to the date on which the Event of Default occurred, multiplied by 4; and

B = the percentage of the shares of JVCo held by Philips at the time of the Event of Default.

The price to be paid by MMD for the shares of JVCo owned by Philips upon the exercise of the Philips Default Put Option has been arrived at after arm’s length negotiations between TPV and Philips with reference to, among other factors, actual earnings performance of the Philips Contributed Business between Completion and the most recently completed financial year prior to the exercise of the Philips Default Put Option.

The directors of TPV consider that the Default Option Price is fair and reasonable.

Term

The Shareholders Agreement shall commence on the Completion Date and shall continue to be in effect for an indefinite period of time, unless it is terminated as per the paragraph below.

37 LETTER FROM THE BOARD

Termination

The Shareholders Agreement shall terminate upon the occurrence of either of MMD or Philips ceasing to own directly or indirectly shares of JVCo, the related transfer being in accordance with the terms of the Shareholders Agreement and the acquiror not acceding to the Shareholders Agreement.

(III) THE ENTERING INTO OF THE ARGENTINA JV SHAREHOLDERS AGREEMENT

In order to preserve the preferential tax treatment currently enjoyed by the Argentina JV, the Argentina JV Shareholders Agreement in respect of the operations of the Argentina JV will be entered into at Completion pursuant to the Sale and Purchase Agreement. The principal terms of the Argentina JV Shareholders Agreement are summarized below.

The Argentina JV Shareholders Agreement

Date

At the Completion Date.

Parties

(1) JVCo

(2) Philips Argentina S.A. (“Philips Argentina”)

(3) Fabrica Austral de Productos Eléctricos S.A. (the “Argentina JV”)

(4) Philips, as a guarantor

Philips Argentina is principally engaged in the import and sale of Philips branded products (lighting, consumer lifestyle and health care products) and is ultimately owned by Philips.

The Argentina JV is principally engaged in the manufacturing and sale of electronic products and is ultimately owned by Philips.

Pursuant to the Argentina JV Shareholders Agreement, there will be two business units within the Argentina JV : the TV Business and the non-TV business unit. Philips guarantees to JVCo the due and punctual discharge by Philips Argentina of its obligations related to the non-TV business unit. The split of TV business units are put in place in order to preserve the preferential tax treatment currently enjoyed by the Argentina JV and to reflect the commercial deal between the parties that JVCo will be entitled to the economics and results of the TV business unit only.

It is currently intended that the Argentina JV will be owned as to 63.4% by JVCo and 36.6% by Philips Argentina. Pursuant to the Sale and Purchase Agreement, such percentage shareholding is subject to an adjustment mechanism based on the fair market valuation of the tangible assets

38 LETTER FROM THE BOARD and liabilities, commitments and contingencies of the Argentina JV at Completion. Depite such percentage shareholding, pursuant to the Argentina JV Shareholders Agreement, JVCo will be entitled to 100% of the economics and results of the TV business unit, whereas Philips Argentina will be entitled to 100% of the economics and results of the non-TV business unit. At Completion, pursuant to the Argentina JV Shareholders Agreement, the assets and liabilities related to the Philips Contributed Business in Argentina JV will be for the account of JVCo.

Principal terms

Board of directors The structure, size and composition of the board of directors will be in accordance with the following principles:

(i) The management of the Argentina JV shall be the responsibility of the board of directors; and

(ii) JVCo shall appoint the majority of the members of the board of directors and the chairman of the board of directors.

The directors appointed by JVCo, including the chairman, shall be assigned to take care of the management of and to assume exclusive responsibility for the TV business unit. The directors appointed by Philips Argentina shall be assigned to the management of and to assume exclusive responsibility for the non-TV business unit.

The board of directors of the Argentina JV shall form two executive committees, to which it will delegate the supervision of the regular operations of the TV business unit and the non-TV business unit, respectively.

Shareholders meetings The shareholders shall hold formal meetings at least once a year. Quorum for ordinary shareholders’ meeting on first call shall be achieved with the presence of shareholders holding a majority of the votes. Quorum for extraordinary shareholders’ meetings on first call shall be achieved upon the presence of shareholders holding 80% of the votes.

Dividend policy The shareholders agree that whenever the Argentina JV’s financial statements show profits, the board of directors will recommend to establish special reserves for each business unit, allocating to the TV business unit’s special reserve the profits generated by the TV business unit, and to the non-TV business unit’s special reserve the profits generated by the non-TV business unit. The special reserves will be distributed to each shareholder upon implementation of the spin-off (see “Spin-off” paragraph below). Upon the spin-off date, each shareholder shall be entitled to receive the special reserve corresponding to its particular business unit.

39 LETTER FROM THE BOARD

Allocation of business JVCo shall benefit from all profits and shall suffer all losses resulting units’ profit and from the TV business unit; and Philips Argentina shall benefit from all losses profits and shall suffer all losses resulting from the non-TV business unit.

Cross-indemnities From a legal perspective, Argentina JV ( as the legal entity within which both the TV business unit and the non-TV business unit are housed) will be legally liable if there is litigation or other liabilities relating to the TV business unit or the non-TV business unit of Argentina JV. However, from a contractual perspective as between JVCo and Philips Argentina, at Completion, pursuant to the Argentina JV Shareholders Agreement, litigation or other liabilities relating to the non-TV business unit will be for the account of Philips Argentina, whereas litigation or other liabilities relating to the TV business unit will be for the account of JVCo. The Argentina JV Shareholders Agreement also provides for cross-indemnities, pursuant to which:

(i) Philips Argentina will indemnify JVCo, the directors appointed by JVCo to the board of the Argentina JV and JVCo’s affiliates, officers, directors and employees for any loss or expense suffered or paid, directly or indirectly as a result of or arising from, amongst others, any claims or liabilities or obligations derived from the non-TV business unit activities carried out by the Argentina JV; and

(ii) JVCo will indemnify Philips Argentina, the directors appointed by Philips Argentina to the board of the Argentina JV and Philips Argentina’s affiliates, officers, directors and employees for any loss or expense suffered or paid, directly or indirectly as a result of or arising from, amongst others, any claims or liabilities or obligations derived from the TV business unit activities carried out by the Argentina JV after the Completion Date.

Spin-off The Argentina JV will spin-off, on the second anniversary of the date of the Argentina JV Shareholders Agreement, all the assets and liabilities related to the TV business unit (the “Spin-Off”) and transfer them to a new company created for such purposes. After the Spin-Off, the Argentina JV will continue developing the non-TV business and the new company will develop the TV business. JVCo will cease to hold any shares or have any interest in the Argentina JV after the Spin- Off. It is currently contemplated that (i) such results will be achieved by cancellation of all of JVCo’s shares in Argentina JV. The detailed Spin-Off plan will be discussed and agreed between the parties post- Completion and prior to the implementation of the Spin-Off; and (ii) the spun-off new company will be 100% owned by JVCo, subject to local law or regulatory restrictions. The new company will become a subsidiary of the Company after the Spin-Off.

40 LETTER FROM THE BOARD

The staff providing services for the non-TV business unit shall remain working in the Argentina JV, while the staff providing services for the TV business unit shall be transferred to the new company.

Rationale for the It is the local statutory requirement of the preferential tax regime Spin-Off in Argentina that a new shareholder (that is, JVCo) needs to be a shareholder of Argentina JV for at least two years before the date of the Spin-Off and that, subject to the approval of the local authority, the current structure should allow the spun-off new company to maintain the existing preferential tax treatment after the Spin-Off.

Term

The Argentina JV Shareholders Agreement shall commence on the Completion Date and shall remain in effect for as long as both Philips Argentina and JVCo hold equity shares in the Argentina JV.

Termination

The Argentina JV Shareholders Agreement shall terminate upon any of the parties not complying with any of the obligations set forth in the Argentina JV Shareholders Agreement and the default is not remedied within 30 days of the receipt of the notice.

Argentina Non-TV Transactions

Based on the information provided by Philips to TPV, there will be two types of continuing transactions between Argentina JV and Philips relating to the non-TV business unit of Argentina JV (“Argentina Non-TV Transactions”), the details of which are set out below:

(i) a trademark license agreement between Argentina JV and Philips, pursuant to which Philips will grant Argentina JV the right to use certain trademarks relating to the non-TV products in Argentina. There is no payment obligation under such trademark license agreement; and

(ii) the provision of certain general corporate services, component purchase for non-TV products, sale of non-TV products and purchase of fixed assets for the production of non-TV products between Argentina JV and Philips. The provision of general corporate services comprises shared business services in relation to finance and accounting, sourcing and purchasing services, information systems support services, real estate and facility management services, general management services such as in-house legal services, corporate communications, public relations management and treasury services (such as payroll administration).

Philips has confirmed to TPV that the Argentina Non-TV Transactions will be on normal commercial terms.

41 LETTER FROM THE BOARD

On the basis that the economics and results of the non-TV business unit of Argentina JV are for the account of Philips Argentina (and not JVCo), and that it would be impractical and unduly burdensome for the Company to monitor the continuing transactions between Philips and Argentina JV relating to the non-TV business unit of Argentina JV, the Company has applied to the Hong Kong Stock Exchange for a waiver from compliance with the requirements of Chapter 14A in relation to the Argentina Non-TV Transactions. A waiver from compliance with the requirements of Chapter 14A in relation to the Argentina Non-TV Transactions was granted by the Hong Kong Stock Exchange on 13 December 2011 . The Company will disclose details of the waiver application in relation to the Argentina Non-TV Transactions in its subsequent annual reports.

On the basis that the economics and results of the non-TV business unit of Argentina JV are for the account of Philips Argentina (and not JVCo), the Company considers that information related to the non-TV business unit of Argentina JV is unlikely to constitute price-sensitive information of the Group pursuant to Rule 13.09 of the Listing Rules. However, considering that the TV business unit and the non-TV business unit are housed within the same legal entity (that is, Argentina JV) and that, from a legal perspective, Argentina JV (as the legal entity within which the non-TV business is housed) will be legally liable if there is litigation or other liabilities relating to the non-TV business unit of Argentina JV, the Company will assess any litigation or claims against argentina JV which are related to the non-TV business unit of Argentina JV on a case-by-case basis and will comply with Rule 13.09 of the Listing Rules if the Company considers that any such litigation or claims would constitute price-sensitive information of the Group. Going forward, if the activities of Argentina JV have any other implications under the Listing Rules, the Company will continue to comply with the requirements of the Listing Rules or to consult the Hong Kong Stock Exchange if strict compliance with the requirements of the Listing Rules is not feasible in the circumstances.

(IV) LICENSING OF PHILIPS TRADEMARKS AND PHILIPS SECONDARY TRADEMARKS FOR THE PHILIPS CONTRIBUTED BUSINESS

Pursuant to the Sale and Purchase Agreement, the Trademark License Agreement and the Secondary Trademark License Agreement in respect of licensing of the Philips Trademarks and the Philips Secondary Trademarks will be entered into at Completion.

(A) The Trademark License Agreement

Parties

(1) Philips, as the licensor

(2) JVCo, as the licensee

Principal terms

As part of the Proposed Transactions and under the Trademark License Agreement, Philips will grant an exclusive (except with respect to Argentina) right and license to the JV Group for an initial period of five years from the date of Completion, under which the JV Group can use the Philips Trademark in the Territory, including the right and license to

42 LETTER FROM THE BOARD assemble and manufacture outside the Territory for sales, marketing and distribution in the Territory, in relation to the Scope Products, marketing materials, consumer care delivery and the provision of Net TV Services.

Royalty payable

JVCo will pay a royalty to Philips on an annual basis, which is based on a percentage of the turnover of the Scope Products. Details of the annual royalty payable throughout the License Term (as defined in the paragraph headed “Term and renewal” below) are set out in the table below.

Guaranteed minimum Year of the License Term Annual royalty annual royalty

First year Nil Nil

Second year to fifth year 2.2% of the Turnover EUR50.0 million (equivalent to approximately US$70.0 million)

The royalty shall be payable in arrears by JVCo to Philips in cash (in EUR) within 30 days after the end of each quarter.

The royalty has been arrived at after arm’s length negotiations between TPV and Philips with reference to, among other factors, the historical performance and future prospects of the Philips Contributed Business, including its earnings potential and synergies with the TPV Group.

Term and renewal

The Trademark License Agreement will have an initial term of five years starting from the date of Completion and will be automatically renewed for a subsequent five- year period if JVCo meets certain key performance indicators as set out in the Trademark License Agreement. After the second 5-year term, the Trademark License Agreement may be extended by mutual agreement for successive 5-year periods against such terms and conditions as may be agreed between Philips and JVCo (but including in any event guaranteed minimum royalty obligations for JVCo) (the “License Term”).

Termination

Philips may terminate the Trademark License Agreement by giving JVCo at least 3 months’ written notice if, among others, the following events occurr: (i) there is a TPV Change of Control (as set out in the sub-paragraph headed “Philips Control Put Option” under the paragraph headed “Principal Terms” in the section headed “(II) The entering into of the Shareholders Agreement” in this circular); or (ii) TPV or JV Group enters into an alliance or joint venture or similar agreement for its TV operations with a company which is considered by Philips as a competitor of Philips. 43 LETTER FROM THE BOARD

Each party to the Trademark License Agreement may terminate the Trademark License Agreement by written notice in case of material breach, by the other party of certain terms as set out in the Trademark License Agreement and provided that the aforesaid breaches, which are capable of being cured, have not been cured within the period set out in the Trademark License Agreement.

Non-compete

During the License Term, Philips shall not (other than with respect to Argentina) (i) grant to any other party a license for the use of the Philips Trademarks in the Territory in relation to any Scope Products, whether with or without fee or royalty or (ii) be engaged or involved in the manufacture, assembly, sale, distribution or marketing of any Scope Products in the Territory with the Philips Trademarks, or be interested in any business that is engaged or involved in any of abovementioned activities.

Philips Brand promotion and marketing support

(i) an initial advance payment of EUR135 million (equivalent to approximately US$189 million) which shall be payable by Philips to JVCo at Completion as set out in the Sale and Purchase Agreement – please refer to the sub-paragraph headed “Philips Brand promotion and marketing support” under the paragraph headed “Funding of JVCo” in section (I) “Purchase of the Philips Contributed Business”; and

(ii) an additional advance payment of EUR50 million (equivalent to approximately US$70 million) in the second year after Completion which shall be payable by Philips to JVCo.

Consumer Care for the Scope Products sold prior to Completion

Philips will keep the warranty liabilities for the Scope Products sold prior to Completion (except for certain Scope Products supplied by TPV to Philips under certain arrangement). JVCo shall pay the costs of the warranty claims related to the repair and exchange of the Scope Products sold prior to Completion to the consumer care providers.

Philips shall pay EUR9 million (equivalent to approximately US$12.6 million) to JVCo as compensation for JVCo’s cost of organization to fulfil its Consumer Care obligations relating to the Scope Products sold prior to Completion (except for certain Scope Products supplied by TPV to Philips under certain arrangement) of which EUR6 million (equivalent to approximately US$8.4 million) and the remaining EUR3 million (equivalent to approximately US$4.2 million) shall be paid in the first year and the second year from Completion respectively. From the third year onwards, JVCo shall continue to render the consumer care services for the Scope Products sold prior to Completion (except for certain 44 LETTER FROM THE BOARD

Scope Products supplied by TPV to Philips under certain arrangement) and Philips and JVCo shall in good faith negotiate a fair compensation for such services based on the actual hours spent.

The consumer care compensation has been arrived at after arm’s length negotiations between TPV and Philips with reference to, among other factors, the number of the Assumed Employees that will work in the consumer care team and quality team of the JV Group, historical trend of claims volumes, historical amount of consumer care expenses and warranty of the Scope Products.

(B) The Secondary Trademark License Agreement

Parties

(1) Philips, as the licensor

(2) JVCo, as the licensee

Principal terms

As part of the Proposed Transactions and under the Secondary Trademark License Agreement, Philips will grant an exclusive right and license to the JV Group for an initial period of five years from the date of Completion, under which the JV Group can use the Philips Secondary Trademarks in the Territory, including the right and license to assemble and manufacture outside the Territory for sales, marketing and distribution in the Territory, in relation to the Secondary Trademark Scope Products, marketing materials and consumer care delivery.

Royalty payable

JVCo will pay a royalty to Philips on an annual basis, which is based on 1% of the turnover of the Secondary Trademark Scope Products. The royalty shall be payable in arrears by JVCo to Philips in cash (in EUR) within 30 days after the end of each quarter.

The royalty has been arrived at after arm’s length negotiations between TPV and Philips with reference to, among other factors, the historical performance and future prospects of the Philips Contributed Business in respect of the Philips Secondary Trademarks, including its earnings potential and synergies with the TPV Group.

Term and renewal

The Secondary Trademark License Agreement will have an initial term of five years starting from the date of Completion and will be automatically renewed for subsequent five- year periods, provided that the Trademark License Agreement has been extended as well.

45 LETTER FROM THE BOARD

Termination

The Secondary Trademark License Agreement will terminate automatically upon the termination of the Trademark License Agreement. Philips may terminate the Secondary Trademark License Agreement by giving JVCo at least 3 months’ written notice if, among others, the following events occur: (i) there is a TPV Change of Control (as set out in the sub-paragraph headed “Philips Control Put Option” under the paragraph headed “Principal Terms” in the section headed “(II) The entering into of the Shareholders Agreement” in this circular); or (ii) TPV or the JV Group enters into an alliance or joint venture or similar agreement for its TV operations with a company which is considered by Philips as a competitor of Philips.

Each party to the Secondary Trademark License Agreement may terminate the Secondary Trademark License Agreement by written notice in case of material breach by the other party to the Secondary Trademark License Agreement, of certain terms as set out in the Secondary Trademark License Agreement and provided that the aforesaid breaches, which are capable of being cured, have not been cured within the period set out in the Secondary Trademark License Agreement.

Non-compete

During the Secondary Trademarks License Term, Philips shall not (i) grant to any other party a license for the use of the Philips Secondary Trademarks in the Territory in relation to any Secondary Trademark Scope Products, whether with or without fee or royalty or (ii) be engaged or involved in the manufacture, assembly, sale, distribution or marketing of any Secondary Trademark Scope Products in the Territory with the Philips Secondary Trademarks, or be interested in any business that is engaged or involved in any of abovementioned activities.

Annual Caps for the royalty under the Trademark License Agreement

Set out below is a summary of the Annual Caps for the royalty payable by JVCo to Philips under the Trademark License Agreement for the financial year ending 31 December 2012 up to and including the financial year ending 31 December 2017:

2012: Nil 2013: EUR81.4 million (equivalent to approximately US$114.0 million) 2014: EUR91.3 million (equivalent to approximately US$127.8 million) 2015: EUR96.8 million (equivalent to approximately US$135.5 million) 2016: EUR100.1 million (equivalent to approximately US$140.1 million) 2017: EUR50.1 million (equivalent to approximately US$70.1 million)

46 LETTER FROM THE BOARD

The Annual Caps were determined by TPV after taking into account, amongst other things, (i) the Group’s estimates for the increase in the future demand for the Scope Products, which was determined with reference to the historical and estimated future demand and production trend for the Scope Products; (ii) the prospects, outlook and the competitive environment of the global market for the Scope Products; (iii) the pricing trend for the Scope Products; and (iv) additional buffers to cater for possible fluctuation of materials costs as a result of possible changes in market conditions.

Annual Caps for the consumer care compensation for the Scope Products sold prior to Completion

Set out below is a summary of the Annual Caps for the consumer care compensation payable by Philips to JVCo for the financial year ending 31 December 2012 up to and including the financial year ending 31 December 2017:

2012: EUR6.00 million (equivalent to approximately US$8.40 million) 2013: EUR4.50 million (equivalent to approximately US$6.30 million) 2014: EUR1.88 million (equivalent to approximately US$2.63 million) 2015: EUR0.44 million (equivalent to approximately US$0.62 million) 2016: EUR0.07 million (equivalent to approximately US$0.10 million) 2017: EUR0.02 million (equivalent to approximately US$0.03 million)

The Annual Caps were determined by TPV after taking into account, amongst other things, (i) the compensation for JVCo’s cost of organization to fulfil its consumer care obligations relating to the Scope Products sold prior to Completion (except for certain Scope Products supplied by TPV to Philips under certain arrangement); and (ii) possible change of the Completion Date.

Annual Caps for the royalty under the Secondary Trademark License Agreement

Set out below is a summary of the Annual Caps for the royalty payable by JVCo to Philips under the Secondary Trademark License Agreement for the financial year ending 31 December 2012 up to and including 31 December 2017:

2012: EUR1.10 million (equivalent to approximately US$1.54 million) 2013: EUR1.98 million (equivalent to approximately US$2.77 million) 2014: EUR3.30 million (equivalent to approximately US$4.62 million) 2015: EUR4.62 million (equivalent to approximately US$6.47 million) 2016: EUR6.05 million (equivalent to approximately US$8.47 million) 2017: EUR3.03 million (equivalent to approximately US$4.24 million)

The Annual Caps were determined by TPV after taking into account, amongst other things, (i) the TPV Group’s estimates of future demand and production trend for the Secondary Trademark Scope Products; (ii) the prospects, outlook and the competitive environment of the global market for the Secondary Trademark Scope Products; (iii) the pricing trend for the Secondary Trademark Scope Products; and (iv) additional buffers to cater for possible fluctuation of materials costs as a result of possible changes in market conditions.

47 LETTER FROM THE BOARD

(D) Reasons for term in excess of three years

JVCo and Philips have agreed to enter into the Trademark License Agreement and the Secondary Trademark License Agreement for a period in excess of three years (i.e. for an initial term of five years) as normally required under the Listing Rules after arm’s length negotiations between JVCo, TPV and Philips. The term in excess of three years is beneficial to TPV because (i) any term shorter than the License Term and the Secondary Trademark License Term would increase the risks associated with, and lower the returns on, the TPV Group’s investment in its brand building of the Philips Contributed Business; (ii) following Completion, the TPV Group is expected to invest substantial management effort to broaden the Philips Contributed Business’ product range and market share, the benefits of which will extend beyond three years; and (iii) it is the intention of TPV to strengthen the Philips Contributed Business and the presence of the Philips Trademarks and the Philips Secondary Trademark in the markets where the Scope Products are sold.

Somerley has explained in the circular to be despatched to the Shareholders in this circular why a term in excess of three years is required for the Trademark License Agreement and the Secondary Trademark License Agreement and will confirm that it is normal business practice for contracts of this type to be longer than three years.

(V) ENTERING INTO OF THE INTELLECTUAL PROPERTY AGREEMENT

Pursuant to the Sale and Purchase Agreement, the Intellectual Property Agreement in respect of the transfer and license of patents, know-how and software to JVCo in relation to the Scope Products in the Territory will be entered into at Completion.

Parties

(1) Philips, as the licensor

(2) JVCo, as the licensee

Principal terms

(i) Transfer Patents

Philips will assign and agree to transfer and will cause its members to assign and transfer to JVCo, effective as of the Completion Date, all of Philips’ and, as applicable, its members’ rights, title and interest in and to the Transfer Patents (excluding the right to sue for past infringements), subject to an unrestricted license under the Transfer Patents to be retained by Philips.

(ii) Licensed Patents

48 LETTER FROM THE BOARD branded Scope Products within the Territory), under the Licensed Patents, for the continued use of the Licensed Patents in (i) Philips-branded Scope Products and (ii) the Net TV Portal, in each case limited to the Territory.

(iii) 3D Patents

In the event Philips asserts any 3D Patents against suppliers of JVCo, and where such a supplier pays Philips a royalty for any 3D Patents in respect of display panels or components supplied to JVCo for use in Philips-branded Scope Products in the Territory, Philips will pay to JVCo 70% of the 3D Patent royalty revenue (after deduction of any taxes, agent fees, bank and administration costs) it has received for such supplied display panels or components.

(iv) Business know-how

Philips will assign and transfer to JVCo all its rights, title and interest in and to certain business know-how, being know-how owned by Philips and/or its members, which originated within the Philips Contributed Business and which is solely used within the Philips Contributed Business as of the Completion Date, subject to an unrestricted license under such business know- how to be retained by Philips.

Philips will grant to JVCo a non-exclusive, non-transferable, non-encumberable, fully paid- up and royalty-free license, without the right to grant sublicenses under certain other know-how of Philips, to the extent that such know-how is used within the Philips Contributed Business, for the continued use of such know-how in Philips-branded Scope Products in the Territory.

(v) Business software

Philips will assign and transfer to JVCo all its rights, title and interest in and to certain business software owned by Philips and/or its members, which originated in the Philips Contributed Business, and which is solely used within the Philips Contributed Business as of the Completion Date (excluding the right to sue for past infringements), subject to an unrestricted license under such business software to be retained by Philips.

Philips will grant to JVCo an irrevocable, royalty-free, non-exclusive and non-transferable license under certain other software of Philips to use (in the broadest sense) such software within the scope of the Philips Contributed Business in the Territory, including without limitation, the right to modify, create derivative works, the right to have Philips-branded Scope Products manufactured by a third party outside or inside the Territory solely for the use, sale or other disposal by JVCo of Philips-branded Scope Products within the Territory and the right to grant sublicenses in the context of and to the extent necessary for selling or marketing Philips-branded Scope Products.

49 LETTER FROM THE BOARD

(vi) Design rights

Philips will grant JVCo, effective as of the Completion Date, a non-exclusive, non- transferable, non-encumbered, fully paid-up and royalty-free license, without the right to grant sublicenses (other than the rights to have Philips-branded Scope Products made by a third party outside or inside the Territory solely for the use, sale or other disposal by JVCo of Scope Products within the Territory), under certain registered design rights of Philips as set out in the Intellectual Property Agreement and any unregistered design rights and/or copyrights on non-technical designs of Scope Products owned by any members of the Philips Group which are used within the Philips Contributed Business as of the Completion Date, for the continued use of such registered design rights in Philips-branded Scope Products, in each case limited to the Territory.

Pricing

The transfers and licenses of the aforementioned patents, business know-how, business software and design rights shall be on a royalty-free basis. JVCo shall also be entitled to receive from Philips a rebate of 70% of the 3D Patent royalty. The consideration for the patents, business know-how, business software and design rights and the 3D Patent royalty rebate have been arrived at after arm’s length negotiations between TPV and Philips.

Term and renewal

The Intellectual Property Agreement shall commence on the Completion Date and any license granted by Philips under the Intellectual Property Agreement shall continue in force until, among other things, the date that the Trademark License Agreement has terminated.

Termination

Any license granted by Philips under the Intellectual Property Agreement can be terminated by Philips by giving notice thereof to JVCo in case of a material breach by JVCo or any of the members of the JV Group of any of its obligations under the Intellectual Property Agreement, which breach is not curable, or if curable, is not cured within 30 calendar days written notice by Philips to JVCo specifying such breach and requiring it to be remedied.

Annual Caps

Set out below is a summary of the Annual Caps for the royalty fee rebate payable for the 3D Patents by the Philips Group to JV Group for each of the financial years ending 31 December 2015 during the term of the Intellectual Property Agreement:

2012: EUR262,500 (equivalent to approximately US$367,500) 2013: EUR525,000 (equivalent to approximately US$735,000) 2014: EUR1,050,000 (equivalent to approximately US$1,470,000) 2015: EUR525,000 (equivalent to approximately US$735,000)

50 LETTER FROM THE BOARD

The Annual Caps were determined by TPV after taking into account, amongst other things, (i) the TPV Group’s estimates for the increase in the future demand for the Scope Products (utilizing any 3D Patents), which was determined with reference to the estimated future demand and production trend for the Scope Products; (ii) the prospects, outlook and the competitive environment of the global market for the Scope Products; (iii) the pricing trend for the Scope Products; (iv) the sharing percentage of the 3D Patents royalty rebate as agreed in the Intellectual Property Agreement; (v) the estimated 3D Patents royalty rate; and (vi) possible change of the Completion Date.

(VI) ENTERING INTO OF THE AUXILIARY AGREEMENTS

To facilitate the operation of the Philips Contributed Business after Completion, the Philips Group and JVCo will enter into various Auxiliary Agreements on Completion. Set out below are the details of each of the Auxiliary Agreements.

(A) The Transitional Services Agreement

Parties

(1) Philips

(2) JVCo

Principal terms

Pursuant to the Transitional Services Agreement, the Philips Group will provide to the JV Group after Completion certain transitional services for a certain period in order to enable the JV Group to put definitive arrangements in place. The transitional services to be provided under the Transitional Services Agreement include but are not limited to, innovation and design, finance, human resources, distribution, sales, marketing, warehousing, purchasing, consumer care, legal and real estate.

The provision of the transitional services shall be governed by the terms in the Transitional Services Agreement and each and every Transitional Service Level Agreement shall comply with the Listing Rules and all applicable laws. If any of the provisions as contained in any of the Transitional Service Level Agreements conflicts in any material matter with the provisions of the Transitional Services Agreement, the provisions of the Transitional Services Agreement shall prevail, except if such provisions are contained in a Transitional Service Level Agreement which was in agreed form between Philips and TPV prior to the issuance of this circular, in which case the provisions of such Transitional Service Level Agreement shall prevail.

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Pricing

The prices for the transitional services provided shall be either (i) on normal commercial terms (as defined in the Listing Rules) and determined on an arm’s length basis having regard to the price levels applicable to the Philips Contributed Business immediately prior to Completion or (ii) on terms more beneficial to the JV Group, except for the prices for services relating to office space, for which the price shall be the lower of the price level applicable to the Philips Contributed Business immediately prior to Completion and the market price as established by a reputable broker. The prices for the transitional services have been arrived at after arm’s length negotiations between TPV and Philips.

Term and renewal

The Transitional Services Agreement shall commence on the Completion Date and shall continue in force until the last contract period set out in the relevant Transitional Service Level Agreement terminates or expires. The Transitional Service Level Agreement will not have a term of over 3 years.

Termination

The JV Group may terminate any transitional service provided under a Transitional Service Level Agreement by giving to the Philips Group not less than two calendar months’ notice in writing (with a few exceptions).

Annual Caps

Set out below is a summary of the Annual Caps for the service fee payable for the transitional services by the JV Group to the Philips Group for each of the financial year ending 31 December 2012 up to and including the financial year ending 31 December 2015:

2012: EUR24.61 million (equivalent to approximately US$34.45 million) 2013: EUR19.32 million (equivalent to approximately US$27.05 million) 2014: EUR9.48 million (equivalent to approximately US$13.27 million) 2015: EUR2.47 million (equivalent to approximately US$3.46 million)

The Annual Caps were determined by TPV after taking into account, amongst other things, (i) expected volume of the services to be supplied by the Philips Group; (ii) the pricing of the services; (iii) a buffer for additional services; and (iv) possible change of the Completion Date.

(B) The IT Transitional Service Level Agreement

Pursuant to the Transitional Services Agreement, the IT Transitional Service Level Agreement in respect of the provision of certain transitional IT services by Philips Electronics (as defined below) to JVCo will be entered into at Completion.

52 LETTER FROM THE BOARD

Parties

(1) Philips Electronics Nederland B.V. (“Philips Electronics”)

(2) JVCo

Philips Electronics is principally engaged in the development, manufacturing and sale of electronic products and is ultimately owned by Philips.

Principal terms

Pursuant to the IT Transitional Service Level Agreement, Philips Electronics shall procure the provision of the IT services to JVCo as set out in the IT Transitional Service Level Agreement and additional IT services at JVCo’s request.

Pricing

The price for the IT services is a fixed amount of EUR20.0 million (equivalent to approximately US$28.0 million). Additional IT services shall be charged on terms and fees to be agreed by both parties and based on normal commercial terms, or on terms no less favourable to JVCo than terms available from independent third parties. The prices for the IT services and the additional IT services have been arrived at after arm’s length negotiations between TPV and Philips after considering the required IT functions to safeguard the continuity of the Philips Contributed Business, the estimated services for provision of IT application and infrastructure services and historical charges of the IT services to the Philips Contributed Business.

Term and renewal

The IT Transitional Service Level Agreement shall commence on the Completion Date and shall continue in force for one year. If necessary, JVCo may request an extension of the contract period. Subject to compliance with the Listing Rules as amended from time to time, any extension will be on existing conditions and terms to be agreed by both parties on an arm’s length basis and based on normal commercial terms, or on terms no less favourable to JVCo than terms available from independent third parties.

Termination

Unless previously terminated in accordance with the IT Transitional Service Level Agreement or the Transitional Services Agreement, each IT service shall be supplied until expiry of the term of the IT Transitional Service Level Agreement. In deviation of the termination provision of the Transitional Services Agreement, JVCo shall be entitled to terminate each IT service on prior notice to Philips, where possible taking into account a notice term of at least 30 calendar days.

53 LETTER FROM THE BOARD

Annual Caps

Set out below is a summary of the Annual Caps for the service fee payable for the IT transitional services by the JV Group to the Philips Group for the financial year ending 31 December 2012 up to and including the financial year ending 31 December 2013 during the term of the IT Transitional Service Level Agreement:

2012: EUR24.0 million (equivalent to approximately US$33.6 million) 2013: EUR12.0 million (equivalent to approximately US$16.8 million)

The Annual Caps have been determined by TPV after taking into account, amongst other things, (i) the fixed fee of EUR20.0 million (equivalent to approximately US$28.0 million) for the IT services as agreed under the IT Services Level Agreement; (ii) a buffer for additional IT services; and (iii) possible change of the Completion Date.

Pursuant to the Sale and Purchase Agreement, the Remote Control Sale Agreement in respect of sale of remote control products and other products by Philips Singapore (as defined below) to JVCo will be entered into at Completion.

Parties

(1) Philips Electronics Singapore Pte Ltd (“Philips Singapore”)

(2) JVCo

Philips Singapore is amongst others the local headquarter and the local sales organisation for all Philips sectors (lighting, healthcare and consumer lifestyle) and is ultimately owned by Philips.

Principal terms

Philips Singapore will sell remote control products and other products to JVCo and will grant a license to JVCo for using remote control products. Any purchase order, product, price and invoice agreement and amendment to the Remote Control Sale Agreement must be negotiated on an arm’s length basis and based on normal commercial terms or on terms no more favourable to Philips Singapore than terms available to independent third parties.

Pricing

Prices will be based on delivery free on board Singapore or Shanghai Philips Singapore’s manufacturing facility or other facility designated by Philips Singapore. The pricing and payment terms are determined at arm’s length basis and based on normal commercial terms, or on terms no less favourable to JVCo than terms available to or from independent third parties taking in consideration the volumes and terms and conditions.

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Term and renewal

The Remote Control Sale Agreement shall commence on the Completion Date and shall continue in force for an initial term of three years. Thereafter, subject to the compliance with the Listing Rules, the Remote Control Sale Agreement shall be automatically renewed for additional successive periods of three years each, unless terminated by either party.

Termination

Either party may terminate the Remote Control Sale Agreement by giving six months’ prior notice in writing.

Either party may, by written notice to the other party, terminate with immediate effect the Remote Control Sale Agreement if, among other things:

(a) the other party violates or breaches any material term of the Remote Control Sale Agreement; or

(b) any proceedings in insolvency, bankruptcy (including reorganization) liquidation or winding up are instituted against the other party.

Annual Caps

Set out below is a summary of the Annual Caps for the fee payable for the services by the JV Group to Philips Singapore for the financial year ending 31 December 2012 up to and including the financial year ending 31 December 2015 during the term of the Remote Control Sale Agreement:

2012: EUR2.75 million (equivalent to approximately US$3.85 million) 2013: EUR3.30 million (equivalent to approximately US$4.62 million) 2014: EUR3.85 million (equivalent to approximately US$5.39 million) 2015: EUR1.93 million (equivalent to approximately US$2.70 million)

The Annual Caps were determined by TPV after taking into account, amongst other things, (i) the estimate of the future demand for the Scope Products, which was determined with reference to the historical demand and production trend for the Scope Products; (ii) the historical demand for remote control in respect of the Scope Products; and (iii) the pricing trend of the Scope Products and remote control; (iv) additional buffer to cater for possible fluctuation of material costs as a result of possible changes in market conditions; and (v) possible change of the Completion Date.

(VII) ENTERING INTO OF THE REVERSED AUXILIARY AGREEMENTS

To facilitate the operation of the Philips Contributed Business after Completion, the Philips Group and JVCo will enter into various Reversed Auxiliary Agreements on Completion. Set out below are the details of each of the Reversed Auxiliary Agreements.

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(A) The NET TV License and Services Agreement

Pursuant to the Sale and Purchase Agreement, the NET TV License and Services Agreement in respect of provision of services by JVCo to Philips Consumer Lifestyle (as defined below) and its subsidiaries related to the operation, hosting, maintenance and support of the Net TV/Smart TV Portal will be entered into at Completion.

Parties

(1) Philips Consumer Lifestyle B.V. (“Philips Consumer Lifestyle”)

(2) JVCo

Philips Consumer Lifestyle is principally engaged in manufacturing, developing and selling consumer lifestyle products and is ultimately owned by Philips.

Principal terms

Under NET TV licensing program, JVCo will grant Philips Consumer Lifestyle a non- exclusive, non-transferable, worldwide license to use or to have used, under the technology related to NET TV and Smart TV in the devices so that consumers can access the NET TV Portal, the Smart TV Dashboard and to the websites of content service providers.

JVCo shall render services for the operation of the NET TV Portal, the Smart TV and the Smart TV Dashboard so that these are accessible via Internet by the Philips Consumer Lifestyle devices.

JVCo shall put in place an automated partner portal for validating and uploading of applications and electronically contract content service providers. JVCo shall manage the relationship and enter into agreements with content service providers in its own name.

Pricing and financing arrangements

The pricing and payment terms are determined on an arm’s length basis.

All revenues that may be generated by advertising by Philips Consumer Lifestyle on the Philips Consumer Lifestyle devices shall be shared on an equal basis. This may include revenue shares for user purchase on services and advertising. All revenues generated by the use of applications on Philips’ active devices that has connected to the Net TV Service Portal, will be shared as to 50% of the net revenues to JVCo and 50% of the net revenues to Philips Consumer Lifestyle. Net revenues generally represent the revenues minus the costs for payment and handling, and specific costs related to the type of service offering.

Philips Consumer Lifestyle shall pay to JVCo for the license to use the NET TV Portal and Smart TV Dashboard from the Completion Date. Parties will agree on the annual costs to be paid by Philips Consumer Lifestyle to JVCo for the managed operations of the service portal, the use of the services and the day to day operations. 56 LETTER FROM THE BOARD

Term and renewal

The NET TV License and Services Agreement shall commence on the Completion Date and shall continue in force for an initial term of three years. Thereafter, subject to the compliance with the Listing Rules, the NET TV License and Services Agreement shall be automatically renewed for additional successive periods of one year each, unless terminated by either party.

Termination

Either party may terminate the NET TV License and Services Agreement by giving six months’ prior notice in writing as of the end of a calendar year. In case of material breach by a party which, if curable, is not cured within 30 days, the other party shall have the right to terminate the NET TV License and Services Agreement.

Annual Caps

Set out below is a summary of the Annual Caps for the fee payable for the services by Philips Consumer Lifestyle to JVCo for each of the financial years ending 31 December 2015 during the term of the NET TV License and Services Agreement:

2012: EUR2.40 million (equivalent to approximately US$3.36 million) 2013: EUR2.90 million (equivalent to approximately US$4.06 million) 2014: EUR3.40 million (equivalent to approximately US$4.76 million) 2015: EUR1.70 million (equivalent to approximately US$2.38 million)

The Annual Caps were determined by TPV after taking into account, amongst other things, (i) the TPV Group’s estimates of the advertising revenue that may be generated and the sharing percentage under the NET TV License and Services Agreement; (ii) the estimated annual costs to be paid by Philips Consumer Lifestyle to JVCo for the managed operations of the service portal, the use of the services and the day-to-day operations; and (iii) the possible change of the Completion Date.

(B) The Online Shop and My Shop Agreement

Pursuant to the Sale and Purchase Agreement, the Online Shop and My Shop Agreement in respect of the sale by TP Vision Netherlands (as defined below) and the purchase by Online Shop and My Shop of various Scope Products as well as other products that may be offered by TP Vision Netherlands from time to time as specified in the Online Shop and My Shop Agreement, will be entered into at Completion. The products will be distributed by Online Shop and My Shop to (i) the current employees of the Philips Group; (ii) the retired Philips persons; and (iii) certain former Philips employees working for companies which have been spun off and are no longer part of the Philips Group. Former employees of the Philips Group located in The Netherlands can purchase with My Shop, and current employees located in France, the United Kingdom and Germany can purchase with the Online Shop.

57 LETTER FROM THE BOARD

Parties

(1) Philips Consumer Relations B.V. (“Online Shop”)

(2) Philips Electronics (“My Shop”)

(3) TP Vision Netherlands B.V. (“TP Vision Netherlands”)

Online Shop is principally engaged in selling consumer products and is ultimately owned by Philips.

As at the Latest Practicable Date, TP Vision Netherlands does not have any business activities. Upon Completion, TP Vision Netherlands will be a wholly-owned subsidiary of JVCo and will principally engage in the business of, among other things, the design, development, manufacture and sale of a wide range of televisions on a global basis.

Principal terms

The Online Shop and My Shop Agreement and the terms contained therein apply to and form an integral part of all quotations and offers made by TP Vision Netherlands, all acceptances, acknowledgements or confirmations by TP Vision Netherlands of any orders by Online Shop and Philips Electronics and any agreements regarding the sale by TP Vision Netherlands and purchase by Online Shop and Philips Electronics of different TV products, unless and to the extent the parties to the Online Shop and My Shop Agreement explicitly agree otherwise in writing. Any amendment must be negotiated on an arm’s length basis and based on normal commercial terms or on terms no more favourable to Online Shop and/or Philips Electronics than terms available to independent third parties.

Furthermore, certain special offers will be made by Philips for its customers from time to time and will be done in conjunction with TP Vision Netherlands. TP Vision Netherlands will discuss and agree with Online Shop and Philips Electronics on a regular basis to operate the special offer programs.

Pricing

The sale prices (excluding taxes, duties and similar levies) applicable for the products are set out in the Online Shop and My Shop Agreement TP Vision Netherlands will add taxes, duties and similar levies to the sale price where TP Vision Netherlands is required or enabled by law to pay or collect them and these will be paid by Online Shop and/or Philips Electronics together with the sale price. The sale prices and payment terms are determined on an arm’s length basis and on normal commercial terms or on terms no more favourable to Online Shop and/or Philips Electronics than terms available to independent third parties. The principles for the pricing are the following: (i) TP Vision Netherlands, Online Shop and Philips Electronics will have bi-annual price negotiations; (ii) notwithstanding the foregoing TP Vision Netherlands, Online Shop and Philips Electronics shall separately agree on prices for the special offer programs; and (iii) the prices for both (i) and (ii) will be negotiated on

58 LETTER FROM THE BOARD an arm’s length basis and based on normal commercial terms or on terms no more favourable to Online Shop and/or Philips Electronics than terms available to independent third parties.

Term and renewal

The Online Shop and My Shop Agreement shall commence on the Completion Date and shall continue in force for three years. Thereafter, subject to compliance with the Listing Rules, the Online Shop and My Shop Agreement shall renew automatically for additional successive periods of two years each, unless terminated earlier by either party.

Termination

TP Vision Netherlands may terminate the Online Shop and My Shop Agreement if, among other things, Online Shop and Philips Electronics violate or breach any term of the Online Shop and My Shop Agreement and Online Shop and Philips Electronics after having been notified by TP Vision Netherlands thereof and have not cured the breach within thirty days after such notification.

Annual Caps

Set out below is a summary of the Annual Caps for the sales price payable by Online Shop and Philips Electronics to TP Vision Netherlands for each of the financial years ending 31 December 2015 during the term of the Online Shop and My Shop Agreement:

2012: EUR7.26 million (equivalent to approximately US$10.16 million) 2013: EUR7.26 million (equivalent to approximately US$10.16 million) 2014: EUR7.26 million (equivalent to approximately US$10.16 million) 2015: EUR3.63 million (equivalent to approximately US$5.08 million)

The Annual Caps were determined by TPV after taking into account, amongst other things, (i) TPV Group’s estimates for the future demand for the Scope Products, which was determined with reference to the historical and estimated future demand and for the Scope Products; (ii) the pricing trend for the Scope Products; (iii) additional buffers to cater for possible fluctuation of materials costs as a result of possible changes in market conditions; and (iv) the possible change of the Completion Date.

In addition to the Online Shop and My Shop Agrement, the Local JVCo Subsidiary will enter into the Employee Shop Agreements in certain jurisdictions (namely, Belgium, Brazil, the Czech Republic, France, Greece, Italy, Malaysia, Russia, Singapore, Switzerland and Ukraine) in respect of the sale by the Local JVCo Subsidiary and the purchase by Employee Shop of various Scope Products as well as other products that may be offered by the Local JVCo Subsidiary from time to time as specified in the Employee Shop Agreements, at Completion. It is currently contemplated that the products will be distributed by Employee Shop to the current employees of the Philips Group.

59 LETTER FROM THE BOARD

Parties

(1) the relevant wholly-owned subsidiaries of Philips in the local Jurisdiction (“Employee Shop”)

(2) the relevant wholly-owned subsidiary of JVCo in the local jurisdiction (“Local JVCo Subsidiary”)

Employee Shop is principally engaged in selling consumer lifestyle products and is ultimately owned by Philips.

Principal terms

The Employee Shop Agreements and the terms contained therein apply to and form an integral part of all quotations and offers made by Local JVCo Subsidiary, all acceptances, acknowledgements or confirmations by JVCo of any orders by Employee Shop and any agreements regarding the sale by the Local JVCo subsidiary and purchase by Employee Shop of different TV products, unless and to the extent the parties to the Employee Shop Agreements explicitly agree otherwise in writing. Any amendment must be negotiated on an arm’s length basis.

Furthermore, certain special offers will be made by Philips for its customers from time to time and will be done in conjunction with the Local JVCo Subsidiary. The Local JVCo Subsidiary will discuss and agree with Employee Shop on a regular basis to operate the special offer programs.

Pricing

The sale prices (excluding taxes, duties and similar levies) applicable for the products are set out in the Employee Shop Agreements. The Local JVCo Subsidiary will add taxes, duties and similar levies to the sale price where the Local JVCo Subsidiary is required or enabled by law to pay or collect them and these will be paid by Employee Shop together with the sale price. The sale prices and payment terms are determined on an arm’s length basis and on normal commercial terms. The principles for the pricing are the following: (i) The Local JVCo Subsidiary and Employee Shop will have bi-annual price negotiations; (ii) notwithstanding the foregoing the Local JVCo Subsidiary and Employee Shop shall separately agree on prices for the special offer programs.

Term and renewal

The Employee Shop Agreement shall commence on the Completion Date and shall continue in force for three years. Thereafter, subject to compliance with the Listing Rules, the Employee Shop Agreement shall renew automatically for additional successive periods of three years each, unless terminated earlier by either party on six months’ prior notice in writing.

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Termination

The Local JVCo Subsidiary may terminate the Employee Shop Agreements if, among other things, Employee Shop violates or breaches any term of the Employee Shop Agreements and Employee Shop, after having been notified by the Local JVCo Subsidiary thereof, has not cured the breach within thirty days after such notification.

Annual Caps

Set out below is a summary of the Annual Caps for the sales price payable for by Employee Shop to the Local JVCo Subsidiary for each of the financial years ending 31 December 2015 during the term of the Employee Shop Agreement:

2012 : EUR5.28 million (equivalent to approximately US$7.39 million) 2013 : EUR5.28 million (equivalent to approximately US$7.39 million) 2014 : EUR5.28 million (equivalent to approximately US$7.39 million) 2015 : EUR2.64 million (equivalent to approximately US$3.70 million)

The Annual Caps were determined by TPV after taking into account, amongst other things, (i) TPV Group’s estimates for the future demand for the Scope Products, which was determined with reference to the historical and estimated future demand and for the Scope Products; (ii) the pricing trend for the Scope Products; and (iii) the possible change of the Completion Date.

(D) The Brazil Lease Agreement

Pursuant to the Sale and Purchase Agreement, the Brazil Lease Agreement in respect of the lease by TP Vision Brazil (as defined below) to Philips Brazil (as defined below) of a property of 8,600 square metre at Avenida Torquato Tapajós, No. 2236, Bairro Flores, municipality of Manaus, Amazonas state, Brazil will be entered into at Completion.

Parties

(1) TP Vision Indústria Eletrônica Ltda. (“TP Vision Brazil”), as the lessor

(2) Philips Do Brasil Ltda. (“Philips Brazil”), as the lessee

As at the Latest Practicable Date, TP Vision Brazil does not have any business activities. Upon Completion, TP Vision Brazil will be a wholly-owned subsidiary of JVCo and will principally engage in the manufacture and trade of TVs in Brazil.

Philips Brazil is principally engaged in the activity of manufacture, marketing and sale of lighting, healthcare and consumer lifestyle products and is ultimately owned by Philips.

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Principal terms

Pursuant to the Brazil Lease Agreement, TP Vision Brazil will lease an industrial property in Brazil to Philips Brazil.

Pricing

The lease payment will be R$142,666.67 (equivalent to approximately US$89,580) per month, which shall be adjusted annually by the variation of the general market price index.

During the term of the lease agreement, taxes, utility bills for electricity, phone, water, gas which Philips Brazil incurs or comes to incur shall be borne by TP Vision Brazil. Every month Philips Brazil shall pay TP Vision Brazil an amount related to the services and facilities costs related to the use of the building. Such amount shall be calculated monthly, based on actual expenditure and apportioned among the parties as defined in the Brazil Lease Agreement.

The lease payment and the additional condominium charge were determined with reference to, among other factors, (i) the market rate of the rental in similar area; (ii) the size of the area of the subject property; (iii) the general market price index; and (iv) the actual amount of condominium expenditure incurred by Philips Brazil.

Term and renewal

The Brazil Lease Agreement shall commence on Completion and shall continue in force for 2 years. Thereafter the term of the Brazil Lease Agreement may be extended at the discretion of Philips Brazil for an additional term of 1 year. Subject to the compliance with the Listing Rules, the Brazil Lease Agreement may also be renewed for the same period by mutual agreement between the parties to the Brazil Lease Agreement.

Termination

The Brazil Lease Agreement may be terminated or rescinded before the term of the Brazil Lease Agreement (i) by Philips Brazil in writing in advance of 180 days; (ii) in the event of bankruptcy, insolvency or dissolution of any of party to the Brazil Lease Agreement; and (iii) default of any clauses or conditions of the Brazil Lease Agreement by either party to the Brazil Lease Agreement.

Annual Caps

Set out below is a summary of the Annual Caps for the rental and additional condominium charge payable for the lease by Philips Brazil to TP Vision Brazil for each of the financial years ending 31 December 2013 during the term of the Brazil Lease Agreement:

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2012: EUR1.97 million (equivalent to approximately US$2.76 million) 2013: EUR2.26 million (equivalent to approximately US$3.16 million) 2014: EUR2.60 million (equivalent to approximately US$3.64 million) 2015: EUR1.30 million (equivalent to approximately US$1.82 million)

The Annual Caps were determined by TPV after taking into account, amongst other things, (i) the monthly rental payment as agreed in the Brazil Lease Agreement; (ii) the duration, including the possible extension of the Brazil Lease Agreement; (iii) the projected inflation rate; (iv) potential changes in the exchange rate; and (v) a buffer for additional condominium expenditure incurred.

(E) Amendment to the Dixtal Lease Agreement

The Dixtal Lease Agreement in respect of the lease by Philips Brazil to Dixtal (as defined below) of a property of 2,880 square metre at Avenida Torquato Tapajós, No. 2236, Bairro Flores, municipality of Manaus, Amazonas state, Brazil (“Manaus Manufacturing Plant”) was entered into on 22 September 2009. Pursuant to the Disentanglement, TP Vision Brazil will become owner of the Manaus Manufacturing Plant at Completion. As such, TP Vision Brazil will enter into an amendment agreement to the Dixtal Lease Agreement (“Amendment to the Dixtal Lease Agreement”) with Philips Brazil and Dixtal as follows:

Parties

(1) TP Vision Brazil, as the landlord

(2) Philips Brazil, as the original lessor

(3) Dixtal Biomédica Indústria e Comércio Ltda. (“Dixtal”), as the lessee Dixtal is principally engaged in health care activities and is ultimately owned by Philips.

Principal terms

Pursuant to the Amendment to the Dixtal Lease Agreement, TP Vision Brazil will replace Philips Brazil in the Dixtal Lease Agreement and will continue to lease part of the Manaus Manufacturing Plant to Dixtal.

Pricing

The lease payment is R$27,014.4 (equivalent to approximately US$16,962) per month, which shall be adjusted annually by the variation of the general market price index, and additional condominium charge based on defined pro-rating keys. The lease payment and the additional condominium charge were determined with reference to, among other factors, (i) the monthly rental payment as agreed in the Amendment to the Dixtal Lease Agreement (ii) the market rate of the rental in similar area; (iii) the size of the area of the property, (iv) the

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general market price index; and (v) the actual amount of condominium expenditure incurred by Dixtal.

Term and renewal

The Dixtal Lease Agreement commenced on 1 August 2009 and will expire as of 31 July 2014.

Termination

The Dixtal Lease Agreement may be terminated or ended prior to the term (i) by both parties in writing in advance of 180 days; (ii) in the event of bankruptcy, insolvency or dissolution of either party; and (iii) default of any clauses or conditions of the Dixtal Lease Agreement by either party.

Annual Caps

Set out below is a summary of the Annual Caps for the rental and additional condominium charge payable for the lease by Philips Brazil to Dixtal for each of the financial years ending 31 December 2014 during the term of the Dixtal Lease Agreement:

2012: EUR304,000 (equivalent to approximately US$425,600) 2013: EUR350,000 (equivalent to approximately US$490,000) 2014: EUR268,000 (equivalent to approximately US$375,200)

The Annual Caps were determined by TPV after taking into account, amongst other things, (i) the monthly rental payment and the additional condominium charge as agreed in the Amendment to the Dixtal Lease Agreement; (ii) the duration of the Dixtal Lease Agreement; (iii) the estimated inflation rate; and (iv) potential changes in the exchange rate.

(F) The Hungary Lease and Service Agreement

Pursuant to the Sale and Purchase Agreement, the Hungary Lease and Service Agreement in respect of the lease of a factory building and provision of services in the factory building will be entered into between TP Vision Hungary (as defined below), as the lessor and services provider, and Philips Hungary (as defined below) as the lessee and services receiver upon Completion.

Parties

(1) TP Vision Hungary Ltd. (“TP Vision Hungary”);

(2) Philips Ltd. (“Philips Hungary”)

As at the Latest Practicable Date, TP Vision Hungary does not have any business activities. Upon Completion, TP Vision Hungary will be a wholly-owned subsidiary of JVCo and will principally engage in the manufacture of consumer products.

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Philips Hungary is principally engaged in the manufacture of several consumer products and is ultimately owned by Philips.

Principal terms

Pursuant to the Hungary Lease and Service Agreement, TP Vision Hungary will lease to Philips Hungary a factory building located at 8000 Székesfehérvár, Holland fasor 6., Szekesfehervar, Hungary. Furthermore, TP Vision Hungary will also provide services to Philips Hungary comprising (i) the site area for production and warehousing including infrastructure and canteen; (ii) supply chain management including procurement and planning; (iii) human resources, including direct labour management; (iv) quality management including supplier quality management and process quality management; (v) finance and controlling; and (vi) blistering or production activity.

Pricing

The total service fee for the lease and the services will be EUR468,750 (equivalent to approximately US$656,250) for 3 months.

The costs of services not covered in the Hungary Lease and Service Agreement will be agreed by both parties on an arm’s length basis and based on normal commercial terms, or on terms no more favourable to Philips Hungary than terms available to independent third parties.

Term and extension

The Hungary Lease and Service Agreement shall commence on the Completion Date and end on 31 March 2012. Philips Hungary is entitled to extend the term of the Hungary Lease and Service Agreement with subsequent periods of one month but in no event will the Hungary Lease and Service Agreement be valid after 30 June 2012 unless agreed differently and subject to compliance with the Listing Rules. In the event that the Completion Date is beyond the last date of the term of the Hungary Lease and Service Agreement, the Hungary Lease and Service Agreement will not take effect.

Annual Cap

The Annual Cap for the fee payable by Philips Hungary to TP Vision Hungary pursuant to the Hungary Lease and Service Agreement for the financial year ending 31 December 2012 will be EUR1.04 million (equivalent to approximately US$1.46 million). The Annual Cap was determined by TPV after taking into account, amongst other things, (i) the lease payment as agreed in the Hungary Lease and Service Agreement; (ii) duration and possible extension of the Hungary Lease and Service Agreement; and (iii) a buffer for potential additional services costs.

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(G) The Tax Audit Service Agreement

Pursuant to the Sale and Purchase Agreement, the Tax Audit Service Agreement in respect of the provision of various services in relation to tax audits with respect to Philips will be entered into at Completion.

Parties

(1) TP Vision Hungary

(2) Philips Hungary

Principal terms

Pursuant to the Tax Audit Service Agreement, TP Vision Hungary will provide to Philips Hungary various services in relation to tax audits with respect to Philips, including (i) accounting and financial support for tax audits; (ii) data retrieval and archiving support; (iii) support internal and external groups with timely submission and/or documentation and answers to inquiries on historical transactions and or business operations; and (iv) assist with historical data in preparation for any filing requirement.

Pricing

The costs of services not covered in the Tax Audit Service Agreement will be agreed by both parties at arm’s length basis and based on normal commercial terms, or on terms no more favourable to Philips Hungary than terms available to independent third parties.

Term and renewal

The Tax Audit Service Agreement shall commence on the Completion Date and shall continue in force until 31 March 2013 or completion of the services, whichever is earlier.

Annual Caps

Set out below is a summary of the Annual Caps for the fee payable for the services by Philips Hungary to TP Vision Hungary for each of the financial years ending 31 December 2013 during the term of the Tax Audit Service Agreement:

2012: EUR100,000 (equivalent to approximately US$140,000) 2013: EUR100,000 (equivalent to approximately US$140,000)

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The Annual Caps were determined by TPV after taking into account, amongst other things, (i) the expected number of hours required for and the agreed hourly rate of the services under the Tax Audit Service Agreement; and (ii) a buffer for potential additional services costs.

CORPORATE STRUCTURE BEFORE AND AFTER COMPLETION

The following diagram shows a simplified corporate structure of the Philips Contributed Business upon completion of the Disentanglement and immediately prior to Completion:

Philips 100% 100%

JVCo Philips Argentina

100% 100%

Subsidiaries of JVCo Argentina JV

Philips Contributed Business

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The following diagram shows a simplified corporate and shareholding structure of the Enlarged Group upon Completion:

The Company

49.64% 53.92%

Great Wall Kaifa GWSZ

2.7% 24.32%

TPV

20-100% 100% Existing MMD Philips subsidiaries 70% 30% and associated 100% companies JVCo Philips Argentina

100% 63.4%(1) 36.6%(1) Subsidiaries of Argentina JV JVCO

Philips Contributed Business

Note:

(1) It is currently intended that the Argentina JV will be owned as to 63.4% by JVCo and 36.6% by Philips Argentina. Pursuant to the Sale and Purchase Agreement, such percentage shareholding is subject to an adjustment mechanism based on the fair market valuation of the tangible assets and liabilities, commitments and contingencies of the Argentina JV at Completion. Despite such percentage shareholding, pursuant to the Argentina JV Shareholders Agreement, JVCo will be entitled to 100% of the economics and results of the TV business unit, where as Philips Argentina will be entitled to 100% of the economics and results of the non-TV business unit.

THE EXISTING PHILIPS TRANSACTION

Reference is made to the announcement of TPV dated 29 September 2010 in relation to, among other things, the 2010 Trademark License Agreement. As mentioned in the aforesaid announcement, the TPV Group would conduct a continuing connected transaction with the Philips Group. It is expected that the TPV Group will continue to carry out such transaction with Philips upon Completion. Details of the Existing Philips Transaction are set out below.

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The 2010 Trademark License Agreement

Introduction

On 29 September 2010, TPV, AOC and Philips entered into the 2010 Trademark License Agreement which Philips will grant to AOC and its affiliates an exclusive right and license to use certain Philips trademarks (i.e. the word mark “Philips” and the Philips Shield Emblem) on certain TVs in the PRC and on related promotional materials.

Date

29 September 2010

Parties

(1) Philips, as the licensor

(2) AOC, as the licensee

(3) TPV as guarantor

AOC is principally engaged in investment holding and a wholly-owned subsidiary of TPV.

Principal terms

Philips has agreed to grant to AOC and its affiliates an exclusive right and license to use certain Philips trademarks (i.e. the word mark “Philips” and the Philips Shield Emblem) on certain TVs and related promotional materials in the PRC. TPV has agreed to guarantee the obligations of AOC and its affiliates under the 2010 Trademark License Agreement.

The scope products, being certain TVs, shall be manufactured only by AOC and its affiliates, or for AOC by those manufacturers as set out in the 2010 Trademark License Agreement or as may be approved by Philips from time to time.

The effective time of the 2010 Trademark License Agreement is the time of completion of the transfer of TV sales and distribution business in the PRC by Philips to AOC (the “PRC TV Transfer”), i.e. at 24: 00 on 31 December 2010.

Royalty payable

Under the 2010 Trademark License Agreement, AOC agreed to pay royalty on an annual basis, which is based on certain percentage of the turnover of the scope products which ranges from 2.5% to 3.0% based on a sliding scale of turnover of the scope products. AOC is required to pay a guaranteed minimum annual royalty of EUR6.8 million (equivalent to approximately US$9.5 million) under the 2010 Trademark License Agreement. The royalty payments are to be made in arrears every three months until the expiry or earlier termination (pro-rated accordingly) of the 2010 Trademark License Agreement.

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The royalty has been arrived at after arm’s length negotiations among AOC, TPV and Philips with reference to trademark license arrangements of a similar nature. The minimum annual royalty has also been agreed based on arm’s length negotiations with reference to the historical revenue trend of the scope products.

Terms and renewal

The 2010 Trademark License Agreement will have a term of five years as from the time of completion, i.e. at 24: 00 on 31 December 2010. As soon as practicable after the fourth anniversary of the date of completion of the PRC TV Transfer, subject to AOC meeting certain agreed key performance indicators, Philips and AOC will enter into good faith negotiations on an exclusive basis as to the terms of an extension or renewal of the 2010 Trademark License Agreement.

Termination

Under the 2010 Trademark License Agreement, both AOC and Philips have a right to terminate by giving three months’ written notice to the other upon the occurrence of certain events. In addition, Philips has further rights to terminate by giving 12 months’ written notice after the second anniversary of the 2010 Trademark License Agreement if certain changes occur within Philips’ TV business in Europe and Philips is required to pay AOC certain specified compensation if it exercises such early termination right.

Reasons for and the benefits of the 2010 Trademark License Agreement

It is considered that Philips trademarks (i.e. the word mark “Philips” and the Philips Shield Emblem) are among the most renowned brands for televisions in the world. The entering into of the 2010 Trademark License Agreement offers a valuable opportunity for TPV to strengthen its leadership in the display industry in the PRC as well as being a significant step towards its strategy of diversifying into downstream operations. The then directors of TPV consider the terms of the 2010 Trademark License Agreement are fair and reasonable and in the interests of TPV and its shareholders as a whole.

INFORMATION ON THE TPV GROUP

The TPV Group is a leading display solutions provider. The TPV Group designs and produces a full range of PC Monitors and LCD TVs on ODM basis for its distribution worldwide. The TPV Group’s products add value to customers through cost leadership, timely delivery and superior quality. Today, the TPV Group is the world’s largest PC monitor manufacturer and ODM LCD TV maker in terms of unit shipments. TPV is listed on both Hong Kong and Singapore stock exchanges.

INFORMATION ON PHILIPS

Royal Philips Electronics of the Netherlands (NYSE: PHG, AEX: PHI) is a diversified health and well-being company, focused on improving people’s lives through timely innovations. As a world leader in healthcare, lifestyle and lighting, Philips integrates technologies and design into people-centric solutions, based on fundamental customer insights and the brand promise of “sense and simplicity”. Headquartered in the Netherlands, Philips employs over 120,000 employees in more than 100 countries worldwide. With sales of EUR22.3 billion (equivalent to approximately US$31.2 billion) in 2010, the

70 LETTER FROM THE BOARD company is a market leader in cardiac care, acute care and home healthcare, energy efficient lighting solutions and new lighting applications, as well as lifestyle products for personal well-being and pleasure with strong leadership positions in male shaving and grooming, portable entertainment and oral healthcare.

REASONS FOR AND BENEFITS OF THE PROPOSED TRANSACTIONS

It is believed that the entering into of the Proposed Transactions will have the following benefits:

Solidifying a leading position in LCD TV market

The global demand for LCD TVs continues to grow at double-digit rate attributable to the strong growth in the emerging markets including China, the stable replacement and upgrade demand in Europe and the US, and the fast-changing TV technologies. The 2011 global LCD TVs’ shipping volume is expected to reach approximately 211 million units, up by 16% when compared with approximately 182 million units in 2010. The acquisition of the Philips Contributed Business represents a long term strategy of the Group to become a leading global LCD TV manufacturer. Together with the acquisitions of Philips’ LCD TVs business in the PRC last year and the monitors business in 2009, this Proposed Transactions will enable the TPV Group to strengthen its long term strategic relationship with Philips.

Continuing development needs of the TPV Group

The TPV Group is a leading monitor and television producer in the world. It commands leadership in product development, manufacturing and cost control. Its scale is backed up by an enhanced supply chain and back-end integration well-recognized in the industry. With Philips Brand, innovation and development capabilities, the TPV Group will be better placed to compete with leading Japanese and Korean brands in the future. The Proposed Transactions will enable TPV to build on its strong fundamentals with a reputable brand with global market presence.

Economies of scale and creation of synergies

With the acquisition of the Philips Contributed Business, the TPV Group will increase market share in LCD TVs production and this will enhance the TPV Group’s cost effectiveness by centralizing procurement of components, streamlining the sales channels and increasing research and development efficiencies. Costs savings are expected to arise from improvement in economies of scale in procurement of components given the increased volumes contributed by the Philips Contributed Business. The benefits of increased scale will be further enhanced by sharing best practices, consolidating vendor lists and increasing common product platforms and product line realignment between the TPV Group’s business and that of the Philips Contributed Business. The Acquisition enables TPV to have a well established sales and distribution network without significant set up costs.

Stronger research and development

The Philips Contributed Business includes research and development organization in Eindhoven, Bruges, Singapore and Bangalore, including highly skilled and experienced research and development staff teams. This will complement and enhance the TPV Group’s current research and development strengths and technological capabilities in TVs and TV products.

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Enhanced product portfolio

The Acquisition provides the TPV Group with a more comprehensive and innovative product range to address high-end market segment which will enhance the TPV Group’s overall product delivery.

As integral parts to facilitate the Proposed Transactions, the entering into of the Auxiliary Agreements and the Reversed Auxiliary Agreements is premised on the extent that certain operational activities could not be organised on a timely and an independent manner by either the JV Group or the Philips Group prior to and after Completion (the “Transitional Period”). Therefore, Philips or its members will in principle provide certain transitional services to JVCo or its members (or vice versa) to enable each party to carry out these operational activities during the Transitional Period. It is expected that after the Transitional Period, each party will be able to maintain independent operational and management structures to organise their operational activities independently.

The Board (including the independent non-executive Directors) considers that the terms of the Sale and Purchase Agreement, the Shareholders Agreement, the Argentina JV Shareholders Agreement and the Funding Documents are fair and reasonable and on normal commercial terms following arm’s length negotiations between the parties, and the entering into of the transactions contemplated under the Sale and Purchase Agreement, the Shareholders Agreement, the Argentina JV Shareholders Agreement and the Funding Documents is in the interests of the Company and the Shareholders as a whole.

The Board (including the independent non-executive Directors) considers that the terms of the Trademark License Agreement, the Secondary Trademark License Agreement, the Intellectual Property Agreement, the Auxiliary Agreements and the Reversed Auxiliary Agreements and the Annual Caps are fair and reasonable and on normal commercial terms following arm’s length negotiations between the parties, and the entering into of the transactions contemplated under the Trademark License Agreement, the Secondary Trademark License Agreement, the Intellectual Property Agreement, the Auxiliary Agreements and the Reversed Auxiliary Agreements is in the interests of the Company and the Shareholders as a whole.

None of the Directors has any material interest in the transactions contemplated under the Sale and Purchase Agreement, the Shareholders Agreement, the Argentina JV Shareholders Agreement, the Trademark License Agreement, the Secondary Trademark License Agreement, the Auxiliary Agreements and the Reversed Auxiliary Agreements; and none of them was required to abstain from voting on the board resolution in respect of the approving the aforesaid transactions.

INFORMATION ON THE GROUP

The Group is principally engaged in the development, manufacture, sale and research and development of PC and information terminal products, storage products, power supply products, monitoring terminal, LCD TV products and EMS business.

FINANCIAL EFFECTS OF THE ACQUISITION AND THE EXERCISE OF ANY OF THE PHILIPS PUT OPTIONS

Upon Completion and the exercise of any of the Philips Put Options, the JVCo will become 70%-owned and a wholly-owned subsidiary of TPV respectively and the JV Group’s results will be

72 LETTER FROM THE BOARD consolidated into the Group’s consolidated financial statements. The unaudited pro forma consolidated financial information of the Enlarged Group illustrating the financial impact of the Acquisition and the exercise of any of the Philips Put Options on the results, assets and liabilities of the Group is set out in appendix III to this circular.

Based on the unaudited pro forma consolidated balance sheet of the Enlarged Group as set out in appendix III to this circular and assuming Completion had taken place on 30 June 2011, as a result of Completion, (i) the total assets would be increased by approximately 25.5% from approximately RMB41,602 million to approximately RMB52,221 million; (ii) the total liabilities would be increased by approximately 39.9% from approximately RMB25,765 million to approximately RMB36,053 million; and (iii) the net assets attributable to the Shareholders would be decreased by approximately 1.4% from approximately RMB4,603 million to approximately RMB4,537 million.

Based on the unaudited pro forma consolidated balance sheet of the Enlarged Group as set out in appendix III to this circular and assuming Completion and the exercise of any of the Philips Put Options had taken place on 30 June 2011, as a result of Completion and the exercise of any of the Philips Put Options, (i) the total assets would be increased by approximately 25.5% from approximately RMB41,602 million to approximately RMB52,221 million; (ii) the total liabilities would be increased by approximately 39.7% from approximately RMB25,765 million to approximately RMB36,010 million; and (iii) the net assets attributable to the Shareholders would be increased by approximately 10% from approximately RMB4,603 million to approximately RMB5,061 million.

Based on the unaudited pro forma consolidated income statement of the Enlarged Group as set out in appendix III to this circular and assuming Completion had taken place on 1 January 2010, as a result of Completion, (i) the total revenue would be increased by approximately 19.5% from approximately RMB104,932 million to approximately RMB125,356 million; and (ii) the net profit attributable to the Shareholders would be decreased by approximately 19.7% from approximately RMB649 million to approximately RMB521 million.

Based on the unaudited pro forma consolidated income statement of the Enlarged Group as set out in appendix III to this circular and assuming Completion and the exercise of any of the Philips Put Options had taken place on 1 January 2010, as a result of Completion and the exercise of any of the Philips Put Options, (i) the total revenue would be increased by approximately 19.5% from approximately RMB104,932 million to approximately RMB125,356 million; and (ii) the net profit attributable to the Shareholders would be decreased by approximately 48.4% from approximately RMB649 million to approximately RMB335 million.

Since the values of the assets and liabilities of the JV Group may be different at the Completion Date and the date of completion of the exercise of any of the Philips Put Options from their respective values used in the preparation of the unaudited pro forma financial information of the Enlarged Group, the actual amounts of the assets and liabilities of the JV Group to be recorded in the financial statements of the Group may be different from the estimated amounts shown in the unaudited pro forma financial information of the Enlarged Group.

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FINANCIAL AND TRADING PROSPECT OF THE ENLARGED GROUP

Financial and trading prospect of the Group

Notwithstanding gradual revival of the global economy from serious decline, the growth around the globe is still imbalanced, while the growth in many developed economic systems remain weak. Economic activities in the United States are weaker than expected, and the worsened European debt crisis, the effects of Japanese earthquake, the political instability among the regions of the Middle East and North Africa, and together with worldwide inflation has created more obstacles on the pace of the revival of the global economy. There is slow progress in the economic revival in Europe and the Unites States, being the major markets of the Group which caused inevitable effects to the Group’s business. Confronted with an economic situation that allows no optimism, in the second half of 2011, the Company has accelerated its innovative ability and promoted industrial shift and upgrade. Meanwhile, the Group proactively explores strategic emerging business sector and unceasingly consolidates and enhances its influence and driving force with an aim to become a large-scale electronic information technology enterprise that is core technology guided, key industry dominated, first-class domestically, and internationally competitive in a short run. The Group continues to focus on strengthening and expanding its main business i.e. self- independent brand business and EMS segment. With the solid foundation, the Company remains confident that it is well-positioned for the development of the operations of the Group.

Financial and trading prospects of the Philips Business

The global economic outlook is uncertain with the continuing European sovereign debt crisis and Standard & Poor’s downgrade of US credit rating in early august. The market demand in the EU is likely to shrink with the Greece bailout package and austerity measures to be applied in various EU member states. On the other hand, emerging markets like Eastern Europe and Latin-America continues to grow.

Over the first nine months of 2011 the Philips Business results have deteriorated mainly because of the inventory and supply chain commitments carry over from 2010 into 2011. This high stock carry over in combination with oversupply in the industry have resulted in strong price erosion and exceptional low margins of the 2010 range. In addition, total operating expenses increased mainly due to overrun on research and development expenses largely resulting from exceptional impairments of capitalized development expenses, triggered by lower results. Furthermore, substantial amounts were incurred to speed up the time-to-market for 2012. The net loss of the Philips Business continues for the first nine months of 2011 due to the increased price erosion materialized and the subsequent decline in gross profit and increased total operating expenses. Going into the fourth quarter of 2011 it is expected that the result will improve compared to the first three quarters of 2011. The new 2011 product range has better margins and the relative share of 2010 range sales with exceptional low margins is declining in the fourth quarter.

LISTING RULES IMPLICATIONS

The Acquisition and the Philips Put Options

As the consideration for the Acquisition and the Philips Put Options cannot be determined at this stage, the acquisition of a 70% equity interest in JVCo by TPV from Philips and the acquisition of the remaining 30% equity interest in JVCo by TPV from Philips through the exercise of any of the Philips

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Put Options constitutes a very substantial acquisition and a possible very substantial acquisition for the Company under Chapter 14 of the Listing Rules. Accordingly, the Acquisition and the granting of the Philips Put Options are therefore subject to reporting, announcement and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

Under the Bridge Facility, which is revolving in nature, the amounts advanced by Philips to JVCo will constitute the provision of financial assistance by a connected person, and will therefore constitute a continuing connected transaction under Chapter 14A of the Listing Rules. As the terms of the aforesaid financial assistance is on normal commercial terms where no security over the assets of the Group is granted in respect of the financial assistance, the financial assistance is exempt from reporting, announcement and independent shareholders’ approval under the Listing Rules.

The entering into of the Trademark License Agreement, the Secondary Trademark License Agreement, the Intellectual Property Agreement, the Auxiliary Agreements and the Reversed Auxiliary Agreements

Immediately upon Completion, Philips will hold a 30% equity interest in JVCo and will become a connected person of the Company by virtue of being a substantial shareholder of JVCo. Each of Philips Electronics, Philips Singapore, Philips Consumer Lifestyle, Online Shop, Employee Shop, Philips Brazil, Dixtal and Philips Hungary are direct or indirect wholly-owned subsidiaries of Philips. The transactions contemplated under the Trademark License Agreement, the Secondary Trademark License Agreement, the Intellectual Property Agreement, the Auxiliary Agreements and the Reversed Auxiliary Agreements and the transactions contemplated thereunder will therefore constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules. As certain applicable percentage ratios of the Annual Caps are more than 5%, the Trademark License Agreement, the Secondary Trademark License Agreement, the Intellectual Property Agreement, the Auxiliary Agreements and the Reversed Auxiliary Agreements and the transactions contemplated thereunder are subject to the reporting, annual review, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

THE EGM

A notice convening the EGM to be held on 21 February 2012 is set out on pages 356 to 357 to this circular. A form of proxy for use at the EGM is enclosed with this circular.

Pursuant to the Listing Rules, any vote of Shareholders at a general meeting must be taken by poll. As such, the chairman of the EGM will exercise his power under article 77 of the Articles of Association of the Company to put the resolution to be proposed at the EGM to vote by way of poll. An announcement on the poll results will be made by the Company after the EGM in the manner prescribed under Rule 13.39(5) of the Listing Rules.

No Shareholders is required to abstain from voting on the resolutions to be proposed at the EGM.

75 LETTER FROM THE BOARD

RECOMMENDATIONS

The Board (including the independent non-executive Directors) considers that the terms of the Acquisition and Philip Put Options are fair and reasonable and the entering into the Proposed Transactions is in the interests of the Company and the Shareholders as a whole. The Board (including the independent non-executive Directors) also considers that the terms of the Continuing Connected Transactions (including the Annual Caps) are on normal commercial terms and fair and reasonable so far as the independent Shareholders are concerned and in the interest of the Company and the Shareholders as a whole. The Board therefore recommends the Shareholders to vote in favour of the resolutions to be proposed at the EGM.

ADDITIONAL INFORMATION

Your attention is drawn to the advice of the Independent Board Committee set out on pages 77 to 78 in this circular and the letter of advice from Somerley to the Independent Board Committee and the independent Shareholders set out on pages 79 to 129 in this circular.

Your attention is also drawn to the information contained in the appendices to this circular and the notice of EGM.

The Board wishes to emphasize that completion of the Proposed Transactions may or may not take place. Shareholders and potential investors are reminded to exercise caution when dealing in the securities of the Company.

By order of the Board Great Wall Technology Company Limited Liu Liehong Chairman

76 LETTER FROM INDEPENDENT BOARD COMMITTEE

GWT 長城科技股份有限公司 Great Wall Technology Company Limited (A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 0074)

23 December 2011

To: the independent Shareholders

Dear Sir and Madam,

(1) CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE PROPOSED LICENSING OF THE PHILIPS TRADEMARKS AND THE PHILIPS SECONDARY TRADEMARKS AND (2) CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE PROPOSED ENTERING INTO OF THE INTELLECTUAL PROPERTY AGREEMENT, THE AUXILIARY AGREEMENTS AND THE REVERSED AUXILIARY AGREEMENTS REGARDING THE JOINT VENTURE WITH PHILIPS

We refer to this circular dated 23 December 2011 issued by the Company to its shareholders, of which this letter forms part. Unless the context otherwise requires, terms defined in this circular shall have the same meanings when used in this letter.

We have been appointed as the Independent Board Committee to advise the independent Shareholders as to whether, in our opinion, the entering into of the Continuing Connected Transactions (including the Annual Caps) is in the ordinary and usual course of business of the Company and in the interests of the Company and independent shareholders as a whole and whether the terms of the Continuing Connected Transactions (including the Annual Caps) are on normal commercial terms and fair and reasonable so far as the independent Shareholders are concerned. Somerley has been appointed as the independent financial adviser to advise the Independent Board Committee and the independent Shareholders in the same regard.

77 LETTER FROM INDEPENDENT BOARD COMMITTEE

We wish to draw your attention to (i) the letter of advice from Somerley as set out on pages 79 to 129 of this circular; and (ii) the letter from the Board as set out on pages 14 to 76 of this circular, which set out information relating to, and the reasons for and benefits of the Continuing Connected Transactions (including the Annual Caps).

We have considered the factors and reasons considered by, and the opinions and recommendations of Somerley as set out on pages 76 to 129 of this circular. We consider that the entering into of the Continuing Connected Transactions (including the Annual Caps) is part and parcel of the Acquisition, in the ordinary and usual course of business of the Company when the Company decided to acquire 70% interest in JVCo and in the interests of the Company and the independent Shareholders as a whole. We also consider that the terms of the Continuing Connected Transactions, (including the Annual Caps) are on normal commercial terms, fair and reasonable as far as the independent Shareholders are concerned. Accordingly, we recommend the independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM in relation to the Continuing Connected Transactions (including the Annual Caps).

Yours faithfully, Independent Board Committee Great Wall Technology Company Limited Yao Xiaocong James Kong Tin Wong Zeng Zhijie

78 LETTER FROM SOMERLEY

The following is the letter of advice from Somerley to the Independent Board Committee and the independent Shareholders, which has been prepared for the purpose of inclusion in this circular.

SOMERLEY LIMITED 10th Floor The Hong Kong Club Building 3A Chater Road Central Hong Kong

23 December 2011

To: the Independent Board Committee and the independent Shareholders of Great Wall Technology Company Limited

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS IN RELATION TO

(1) THE PROPOSED LICENSING OF THE PHILIPS TRADEMARKS AND THE PHILIPS SECONDARY TRADEMARKS;

AND

(2) THE PROPOSED ENTERING INTO OF THE INTELLECTUAL PROPERTY AGREEMENT, THE AUXILIARY AGREEMENTS AND THE REVERSED AUXILIARY AGREEMENTS REGARDING THE JOINT VENTURE WITH PHILIPS

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in relation to the Continuing Connected Transactions (including the Annual Caps). Details of the terms of the Continuing Connected Transactions (including the Annual Caps) are set out in the letter from the Board contained in the circular (the ‘‘Circular’’) of the Company to the Shareholders dated 23 December 2011, of which this letter forms part. Unless otherwise defined, capitalised terms used in this letter shall have the same meanings as those defined in the Circular.

On 1 November 2011, MMD, a non wholly-owned subsidiary of the Company, and Philips entered into the Sale and Purchase Agreement. The Sale and Purchase Agreement involves, among other things, (i) the acquisition by MMD of 70% interest in JVCo, which will hold the Philips Contributed Business; and (ii) the granting of the Philips Put Options to Philips for selling the remaining 30% interest in JVCo to MMD. The Acquisition and the granting of the Philips Put Options constitute a very substantial acquisition and a possible very substantial acquisition for the Company respectively but neither of them is

79 LETTER FROM SOMERLEY not a connected transaction under the Listing Rules. In the circumstances, it is not part of our assignment to advise on the Acquisition and the granting of the Philips Put Options or to advise the Independent Board Committee or the independent Shareholders on voting on the resolution in this regard.

Immediately upon Completion, Philips will hold 30% equity interest in JVCo shares and will become a connected person of the Company by virtue of being a substantial shareholder of JVCo. Consequently, the transactions contemplated under the Trademark License Agreement, the Secondary Trademark License Agreement, the Intellectual Property Agreement, the Auxiliary Agreements and the Reversed Auxiliary Agreements between the Philips Group and the Group, including the JV Group, will constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules upon and after Completion. As certain applicable percentage ratios of the Annual Caps are more than 5%, the Trademark License Agreement, the Secondary Trademark License Agreement, the Intellectual Property Agreement, the Auxiliary Agreements and the Reversed Auxiliary Agreements and the transactions contemplated thereunder are subject to the reporting, annual review, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules. We understand that the terms of the Continuing Connected Transactions were negotiated as a package with the Acquisition and the granting of the Philips Put Options. Consequently, in considering the terms of the Continuing Connected Transactions, we have taken into account the strategic effect of the Acquisition and the granting of the Philips Put Options by MMD.

The Independent Board Committee, comprising all of the independent non-executive Directors, namely Mr. Zeng Zhijie, Mr. Yao Xiaocong and Mr. James Kong Tin Wong, has been established to make a recommendation to the independent Shareholders as to the Continuing Connected Transactions (including the Annual Caps). We, Somerley Limited, have been appointed as the independent financial adviser to advise the Independent Board Committee and the independent Shareholders in the same regard.

We are not associated with the Company, Philips, or their respective substantial shareholders or associates, and accordingly, are considered eligible to give independent advice on the Continuing Connected Transactions (including the Annual Caps). Apart from normal professional fees payable to us in connection with this and other similar appointments, no arrangement exists whereby we will receive any fees or benefits from the Company, Philips, or their substantial shareholders or associates.

In formulating our opinion and recommendation, we have reviewed, among other things, the Trademark License Agreement, the Secondary Trademark License Agreement, the Intellectual Property Agreement, the Auxiliary Agreements and the Reversed Auxiliary Agreements, the annual reports of the Company for the two years ended 31 December 2010, the interim report of the Company for the six months ended 30 June 2011 and the financial information on the Group, the JV Group and the Enlarged Group as set out in the appendices to the Circular. We have also discussed with and reviewed information provided by the management of the Company regarding the businesses of the Group and the JV Group and the prospects of the Philips Contributed Business.

In addition, we have relied on the information and facts supplied, and the opinions expressed, by the management of the Company and have assumed that the information and facts provided and opinions expressed to us are true, accurate and complete in all material aspects at the time they were made and will remain true, accurate and complete up to the date of the EGM. We have also sought and received confirmation from the Company that no material facts have been omitted from the information supplied by them and that their opinions expressed to us are not misleading in any material respect. We consider 80 LETTER FROM SOMERLEY that the information we have received is sufficient for us to formulate our opinion and recommendation as set out in this letter and have no reason to believe that any material information has been withheld, nor to doubt the truth or accuracy of the information provided to us. We have not, however, conducted any independent investigation into the business and affairs of the Group or the JV Group, nor have we carried out any independent verification of the information supplied.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion and recommendation with regard to the Continuing Connected Transactions, we have taken into account the following principal factors and reasons:

1. Information on the Group

2. Reasons for entering into the Continuing Connected Transactions

As set out in the letter from the Board, it is believed that the entering into of the Proposed Transactions, which include the Continuing Connected Transactions, will have the benefits of: (i) solidifying a leading position in LCD TV market; (ii) continuing development needs of the Group; (iii) economies of scale and creation of synergies; (iv) stronger research and development; and (v) enhanced product portfolio. We also consider that the Proposed Transactions allow the Group to acquire more well-known upscale brand products in addition to the brands currently sold by the Group. Furthermore, as integral parts to facilitate the Proposed Transactions, the Intellectual Property Agreement in respect of the transfer and license of patents, know-how and software to JVCo in relation to the Scope Products in the Territory will be entered into at Completion. In addition, the entering into of the Auxiliary Agreements and the Reversed Auxiliary Agreements is premised on the extent that certain operational activities could not be organised on a timely and an independent manner by either the JV Group or the Philips Group prior to and after Completion (the ‘‘Transitional Period’’). Therefore, Philips or its members will in principle provide certain transitional services to JVCo or its members (or vice versa) to enable each party to carry out these operational activities during the Transitional Period. It is expected that after the Transitional Period, each party will be able to maintain independent operational and management structures to organise their operational activities independently. In summary, the Continuing Connected Transactions are part and parcel of the Acquisition. It is impracticable for the JV Group to operate after Completion without the Continuing Connected Transactions in place.

Based on the above, we consider that the entering into of the Continuing Connected Transactions is part and parcel of the Acquisition, in the ordinary and usual course of the business of the Company when the Company decided to acquire 70% interest in JVCo and in the interests of the Company and the independent Shareholders as a whole.

81 LETTER FROM SOMERLEY

3. Principal terms of the Trademark License Agreement, the Secondary Trademark License Agreement and the Intellectual Property Agreement

(a) The Trademark License Agreement

Pursuant to the Sale and Purchase Agreement, the Group will enter into the Trademark License Agreement in respect of licensing of the Philips Trademarks at Completion.

Parties

(1) Philips, as the licensor

(2) JVCo, as the licensee

Principal terms

As part of the Proposed Transactions and under the Trademark License Agreement, Philips will grant an exclusive (except with respect to Argentina, which will be non- exclusive) right and license to the JV Group for an initial period of five years from the date of Completion, under which the JV Group can use the Philips Trademarks in the Territory, including the right and license to assemble and manufacture outside the Territory for sales, marketing and distribution in the Territory, in relation to the Scope Products, marketing materials, consumer care delivery and the provision of Net TV Services.

Royalty payable

JVCo will pay a royalty to Philips on an annual basis, which is based on a percentage of the turnover of the Scope Products. Details of the annual royalty payable throughout the License Term (as defined in the paragraph headed ‘‘Term and renewal’’ below) are set out in the table below.

Year of Guaranteed minimum the License Term Annual royalty annual royalty

First year Nil Nil

Second year to 2.2% of the EUR50.0 million (equivalent to fifth year Turnover approximately US$70.0 million)

The royalty shall be payable in arrears by JVCo to Philips in cash (in EUR) within 30 days after the end of each quarter.

The royalty has been arrived at after arm’s length negotiations between the Company and Philips with reference to, among other factors, the historical performance and future prospects of the Philips Contributed Business, including its earnings potential and synergies with the Group.

82 LETTER FROM SOMERLEY

In assessing the terms of the royalty payable to Philips under the Trademark License Agreement, we have reviewed a number of comparable transactions involving the granting of licenses to use trademarks or brands (the ‘‘Comparable Trademark Transactions’’). The Comparable Trademark Transactions are selected based on the following criteria: (i) one of the parties (including their parent companies) to such transaction is listed on the Stock Exchange; (ii) such transactions are publicly announced by way of announcement made pursuant to the Listing Rules; and (iii) such transactions relate to the granting of licenses to use recognised brands and/or trademarks in relation to TV products and/or display devices (as to primary comparables) or other consumer products (as to secondary comparables). Although some of the Comparable Trademark Transactions (i.e. under the secondary comparables category) involve products not directly related to televisions or display devices products, we consider they provide good references to our analysis on the basis that both the Scope Products and the products under the secondary comparables category are consumer products.

The Comparable Trademark Transactions are set out in the table below. To the best of our knowledge, the Comparable Trademark Transactions represent an exhaustive list of comparable transactions for our assessment in this section.

Company Date of announcement (stock code) Nature of transaction Rate of royalty fee

Primary comparables (announced in the period from October 2008 up to the Latest Practicable Date)

9 October 2008 TCL Multimedia Grant of an exclusive, non sub-licensable and non-transferable Ranges from 0% to 1.5% of the net sales Technology Holdings license to use certain of licensor’s registered trademarks for the of the television products depending on the Limited (1070) manufacture and sale of television products trademarks, territories and performance

9 February 2009 TPV (903) Grant of an exclusive right and license to use certain trademarks 1.2% of the net selling price of the relevant on certain monitors and business to business two dimensional LCD products display devices

15 October 2009 Nanjing Panda Grant of the non-exclusive right to use the licensor’s trademark by Ranges from RMB2.0 to RMB5.0 per unit Electronics Company the licensee in respect of certain television sets and other electronic depending on the type of colour television Limited (553) products set. Such licence fee per unit can be reduced in respect of products that are manufactured and sold for export purpose or incurred loss, in view of greater costs and resources required to penetrate into the overseas markets

29 September 2010 TPV (903) Grant of an exclusive right and licence to use the licensor’s Based on a percentage of the turnover of trademarks on certain TVs and related promotional materials in the certain TVs, subject to the payment of a PRC guaranteed minimum annual royalty

16 December 2011 The Company Grant of a non-exclusive right and license to use the trademarks on A royalty of 0.15% of the annual sales licensee’s PC and PC peripheral products, operational, marketing amount of the products on which the and promotion activities trademarks are used by licensee and its affiliates in the PRC

83 LETTER FROM SOMERLEY

Company Date of announcement (stock code) Nature of transaction Rate of royalty fee

Secondary comparables (announced during the period from January 2010 up to the Latest Practicable Date)

4 February 2010 CCT Telecom Grant of (i) an exclusive license and right to use the licensor’s Undisclosed Holdings Limited brand on certain telecommunication products for sale and (138) distribution by the licensees worldwide; (ii) a non-exclusive license to use the licensor’s brand on accessories sold for use with such telecommunication products, for sale and distribution by the licensees worldwide; and (iii) a non-exclusive license and right to use the licensor’s brand on mobile cellular phones, for sale and distribution by the licensees in China only

2 March 2010 Hua Han Bio- Grant of a licence to the licensee to use certain trademarks in the A nominal amount Pharmaceutical sale, marketing and distribution of cosmetics and skincare products Holdings Limited business in greater China region (587)

1 April 2010 San Miguel Brewery Grant of an exclusive right or non-exclusive right (as the case 2.5% of net sales value (gross billings less Hong Kong Limited maybe) to use the licensed trademarks in direct connection with the certain outgoings) of all products bearing the (236) distribution and sale of beer products licensed trademarks

28 June 2010 One Media Group Grant of (i) exclusive, non-assignable right and license to use Ranges from 3.5% to 7% of the net revenue Limited (426) certain magazine trademarks; (ii) non-exclusive, non-assignable depending on the level of contents as right and license to use past editorial and other contents associated contained in the magazines with certain magazines, and a non-exclusive; and (iii) non- assignable right to sub-license the use certain magazine trademarks and/or to sub-license past editorial and other contents associated with certain magazines to other parties

5 November 2010 Starlight International Grant of a licence in relation to the production and distribution of Undisclosed Holdings Limited branded instant photography products, digital still cameras, digital (485) video cameras, digital photo frames and mobile products in the US and Canada

10 February 2011 Telefield International Grant of an exclusive license to distribute phone systems bearing a Based on a percentage of the net sales or the (Holdings) Limited trademark estimated sales of phone systems made by the (1143) licensee. As reference, the royalty fee paid by the licensee for the year ended 31 December 2009 and the eight months ended 31 August 2010 accounted for less than 1% of the licensee’s total revenue for the corresponding periods

19 March 2011 China Billion Grant of an exclusive license to use certain trademarks in respect of A total royalty of 10% of the licensee’s Resources Limited the cosmetics and skincare business owned by the licensor annual gross revenue of those merchandise or (formerly known as articles being manufactured by the licensee “Global Green Tech for 10 years with the minimum guaranteed Group Limited”) (274) amount of HK$60.0 million in aggregate

84 LETTER FROM SOMERLEY

Company Date of announcement (stock code) Nature of transaction Rate of royalty fee

22 March 2011 First Pacific Company Grant of an exclusive license to use, manufacture, sell, distribute, Licensing royalty fees of 1% on the net sales Limited (142) advertise and promote its sugar products under the licensor’s value of the sugar products trademark

21 April 2011 Lenovo Group Limited Grant of a license to use certain letters and mark of the licensor 0.21% of the gross sales amount of licensee (992) to use on the business of the licensee and certain products and/or to customers other than the licensor and/or services of the licensee’s personal computer business the licensor’s consolidated subsidiaries, plus 0.21% of the total gross sales amount of the licensee

31 May 2011 Stella International Grant of (i) the exclusive right to manufacture shoes under A royalty representing certain percentage of Holdings Limited licensor’s brand name at factories in the PRC and Vietnam; (ii) the the total wholesale of the licensee, and an (1836) exclusive right to distribute such shoes in stores and shops to be one-off architectural fixed fee for each of opened by licensee worldwide (with certain exclusions); (iii) the the free standing stores of a size greater than right to sell such manufactured shoes directly to certain distributors 120 square meters opened by the licensee outside certain pre-agreed sales territories as agreed by the licensor; or sub-licensees in certain pre-agreed sales and (iv) the right to use under certain terms and conditions of the territories trademark and the intellectual property rights for the manufacturing, marketing, sales and distribution of such shoes

13 July 2011 China Post Grant of the sole and exclusive license to use the licensor’s Payment of an upfront fee (undisclosed) upon E-Commerce trademarks of certain fashion apparels in Hong Kong and the PRC signing of the relevant license agreement and (Holdings) Limited royalties on the net profits of products sold in (8041) Hong Kong and the PRC

21 September 2011 TCL Communication Grant of an exclusive worldwide right and license to use certain A lump sum of US$40 million Technology Holdings trademarks solely on or in connection with the manufacture, sale, Limited (2618) marketing, advertising, promotion, distribution and use of mobile handsets, tablets and wireless mobile network appliance equipment manufactured or assembled by the licensee

6 October 2011 Epicurean and Grant of the exclusive licenses and rights to use the trademarks, HK$1 million and certain shares in an Company, Limited trade names and logos and all other proprietary rights and indirect wholly-owned subsidiary of the (8213) intellectual property rights whatsoever relating to the operation of licensee restaurants

4 November 2011, 24 San Miguel Brewery Grant of trademarks (i) exclusive for the production, sale and Ranges from US$0.025 per hectoliter to December 2010, Hong Kong Limited distribution of branded beer in Hong Kong; (ii) exclusive for the US$0.1 per hectoliter depending on the 8 December 2009 and (236) sale and distribution of branded beer in Macau; (iii) non-exclusive amount of beer produced by the licensee 24 December 2008 only for the importation, sale and distribution in the PRC, Guam and Vietnam of branded pilsener beer produced in Hong Kong by the licensee; and (iv) exclusive for the production, sale and distribution of branded beer in Hong Kong; exclusive for the importation, sale and distribution of branded beer in Macau and the continental United States, such beer to be produced in Hong Kong by the licensee

85 LETTER FROM SOMERLEY

Company Date of announcement (stock code) Nature of transaction Rate of royalty fee

4 November 2011 Tingyi (Cayman (i) the appointment by the licensor of the licensee as its franchise Undisclosed Islands) Holding Corp. bottler, which together with the other bottlers engaged by the (322) licensor in the PRC, will manufacture, package, bottle, distribute and sell on an exclusive basis, and advertise and promote on a non- exclusive basis, carbonated soft drink products under certain of the licensor’s trademarks in the PRC;

(ii) the licensing of the licensee to manufacture, package, bottle, distribute and sell, on an exclusive basis, and advertise and promote on a non-exclusive basis, sports drink products under certain trademarks in the PRC;

(iii) the granting of the exclusive license to manufacture and distribute pure juices, nectars/blended juices and juice drinks under certain brand and co-branded juice drinks in the PRC; and

(iv) the granting of a non-exclusive and royalty-free license to the licensee to manufacture, package, distribute, sell, advertise and promote non-carbonated water beverage products under certain trademarks in the PRC

As set out in the table above, the annual royalty rate of the primary comparables of the Comparable Trademark Transactions are ranged from 0% to 1.5% of turnover and therefore the annual royalty of 2.2% of the turnover payable under the Trademark License Agreement is above the aforesaid range. The annual royalty rate of the secondary comparables of the Comparable Trademark Transactions are ranged from at least 0.21% to 10.0% of turnover and therefore the annual royalty of 2.2% of the turnover payable under the Trademark License Agreement falls within the range of the secondary comparables of the Comparable Trademark Transactions.

It should be noted that, as discussed in the paragraph headed ‘‘Philips brand promotion and marketing support’’ in this section below, the Group, through JVCo, will be entitled to receive a total amount of EUR185 million (equivalent to approximately US$259 million) from Philips under the Trademark License Agreement. Taking into consideration of this payment and no royalty payment is required for the first year and based on the projected sales amount of the Scope Products, the effective annual royalty rate will decrease to slightly below 1% of the Turnover, which is in line with the primary comparables of the Comparable Trademark Transactions.

The guaranteed minimum annual royalty payable will be EUR50.0 million (equivalent to approximately US$70.0 million) starting from the second year of the License Term.

We have reviewed the sales projection of the JV Group prepared jointly by the management of the Group and the JV Group. We note that the projected turnover of the JV Group for 2013 will be EUR3,350 million (equivalent to approximately US$4,690 million) and the corresponding royalty will be EUR73.7 million (equivalent to approximately

86 LETTER FROM SOMERLEY

US$103.2 million). The projected turnover of the JV Group is anticipated to increase during the remaining period of the initial 5-year term of the Trademark License Agreement. Therefore, the management of the Group expects that the royalty payable during the License Term will not be less than the guaranteed minimum annual royalty payable of EUR50.0 million (equivalent to approximately US$70.0 million).

In addition, based on the historical turnover of the JV Group, the implied annual royalty at the rate of 2.2% would be approximately EUR82.1 million (equivalent to approximately US$114.9 million), EUR62.1 million (equivalent to approximately US$86.9 million) and EUR64.2 million (equivalent to approximately US$89.9 million) for 2008, 2009 and 2010 respectively, all of which would exceed the guaranteed minimum annual royalty.

Furthermore, as discussed above, Philips will contribute to JVCo a total amount of EUR185 million (equivalent to approximately US$259 million) in the first two years after Completion towards JVCo’s promotion and marketing activities which benefit the Philips brand. The provision of such funding will reduce the cash outlay of the JV Group for the promotion and marketing activities for the Scope Products and is beneficial to the JV Group.

Based on the above, we consider the pricing terms of the Trademark License Agreement are fair and reasonable.

Term and renewal

The Trademark License Agreement will have an initial term of five years starting from the date of Completion and will be automatically renewed for a subsequent five- year period if JVCo meets certain key performance indicators as set out in the Trademark License Agreement. After the second five-year term, the Trademark License Agreement may be extended by mutual agreement for successive five-year periods against such terms and conditions as may be agreed between Philips and JVCo (but including in any event guaranteed minimum royalty obligations for JVCo) (the ‘‘License Term’’).

Termination

Philips may terminate the Trademark License Agreement by giving JVCo at least 3 months’ written notice if, among others, the following events occur: (i) there is a TPV Change of Control; or (ii) the Company or the JV Group enters into an alliance or joint venture or similar agreement for its TV operations with a company which is considered by Philips as a competitor of Philips.

87 LETTER FROM SOMERLEY

Non-compete

Philips brand promotion and marketing support

Philips will pay to JVCo a total amount of EUR185 million (equivalent to approximately US$259 million), which amount JVCo shall apply towards its promotion and marketing activities which benefit the Philips brand. Such amount is payable as follows: (i) an initial advance payment of EUR135 million (equivalent to approximately US$189 million) which shall be payable by Philips to JVCo at Completion; and (ii) an additional advance payment of EUR50 million (equivalent to approximately US$70 million) in the second year after Completion which shall be payable by Philips to JVCo.

Consumer care for the Scope Products sold prior to Completion

Philips will keep the warranty liabilities for the Scope Products sold prior to Completion (except for certain Scope Products supplied by the Company to Philips under certain arrangement). JVCo shall pay the costs of the warranty claims related to the repair and exchange of the Scope Products sold prior to Completion to the consumer care providers.

Philips shall pay EUR9.0 million (equivalent to approximately US$12.6 million) to JVCo as compensation for JVCo’s cost of organisation to fulfill its consumer care obligations relating to the Scope Products sold prior to Completion (except for certain Scope Products supplied by the Company to Philips under certain arrangement) of which EUR6.0 million (equivalent to approximately US$8.4 million) and the remaining EUR3.0 million (equivalent to approximately US$4.2 million) shall be paid in the first year and the second year from Completion, respectively. From the third year onwards, JVCo shall continue to render the consumer care services for the Scope Products sold prior to Completion (except for certain Scope Products supplied by the Company to Philips under certain arrangement) and Philips and JVCo shall in good faith negotiate a fair compensation for such services based on the actual hours spent.

The consumer care compensation has been arrived at after arm’s length negotiations between the Company and Philips with reference to, among other factors, the number of the Assumed Employees that will work in the consumer care team and quality team of the JV Group, historical trend of claims volumes, historical amount of consumer care expenses and warranty of the Scope Products.

88 LETTER FROM SOMERLEY

We have reviewed and note that the historical costs in relation to the warranty claims regarding the repair and exchange of the Scope Products to consumer care providers were approximately EUR8.5 million (equivalent to approximately US$11.9 million) per annum. We have also reviewed the historical statistics of the timing of warranty claims made by consumer care providers and the expected split of warranty claims to be made between the Scope Products (except for certain Scope Products supplied by the Company to Philips under certain arrangement) sold prior to and after Completion. Based on the above, it is estimated that approximately 65% (approximately EUR5.5 million (equivalent to approximately US$7.6 million)) and 32% (approximately EUR2.7 million (equivalent to approximately US$3.8 million)) of the warranty claims would be made in the first and second years subsequent to Completion while those in the third year and onwards would not be very significant. Given the total compensation to JVCo to fulfill its consumer care obligations relating to the Scope Products (except for certain Scope Products supplied by the Company to Philips under certain arrangement) sold prior to Completion will be EUR9.0 million (equivalent to approximately US$12.6 million), which exceed the estimated costs, we consider the total compensation amount is fair and reasonable.

(b) The Secondary Trademark License Agreement

Pursuant to the Sale and Purchase Agreement, the Secondary Trademark License Agreement in respect of licensing of the Philips Secondary Trademarks will be entered into at Completion.

Parties

(1) Philips, as the licensor

(2) JVCo, as the licensee

Principal terms

Royalty payable

89 LETTER FROM SOMERLEY

The royalty has been arrived at after arm’s length negotiations between the Company and Philips with reference to, among other factors, the historical performance and future prospects of the Philips Contributed Business in respect of the Philips Secondary Trademarks, including its earnings potential and synergies with the Group.

As set out in the table of the Comparable Trademark Transactions in the section 3(a) headed ‘‘The Trademark License Agreement’’ above, the annual royalty rate of primary comparables and the secondary comparables of the Comparable Trademark Transactions are ranging from 0% to 1.5% and from at least 0.21% to 10.0% of turnover respectively and therefore the annual royalty rate of 1.0% of the turnover payable under the Secondary Trademark License Agreement is within the range of the Comparable Trademark Transactions.

Furthermore, there will be no guaranteed minimum annual royalty payable under the Secondary Trademark License Agreement. The absence of such minimum royalty payment is favorable to the Company as the JV Group has the flexibility to sell the Secondary Trademark Scope Products only when it is beneficial to do so.

Term and renewal

Termination

The Secondary Trademark License Agreement will terminate automatically upon the termination of the Trademark License Agreement. Philips may terminate the Secondary Trademark License Agreement by giving JVCo at least 3 months’ written notice if, among others, the following events occur: (i) there is a TPV Change of Control; or (ii) the Company or the JV Group enters into an alliance or joint venture or similar agreement for its TV operations with a company which is considered by Philips as a competitor of Philips.

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Non-compete

Parties

(1) Philips, as the licensor

(2) JVCo, as the licensee

Principal terms

(i) Transfer Patents

Philips will assign and agree to transfer and will cause its members to assign and transfer to JVCo, effective as of the Completion Date, all of Philips’ and, as applicable, its members’ rights, title and interest in and to the Transfer Patents (excluding the right to sue for past infringements) at no cost, subject to an unrestricted license under the Transfer Patents to be retained by Philips.

(ii) Licensed Patents

Philips will grant JVCo, effective as of the Completion Date, a non- exclusive, non- transferable, non-encumbered, fully paid-up and royalty-free license, without the right to grant sublicenses (other than the rights to have Philips-branded Scope Products made by a third party outside or inside the Territory solely for the use, sale or other disposal by licensee of Philips-branded Scope Products within the Territory), under the Licensed Patents, for the continued use of the Licensed Patents in (i) Philips-branded Scope Products and (ii) the Net TV Portal, in each case limited to the Territory.

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(iii) 3D Patents

(iv) Business know-how

Philips will grant to JVCo a non-exclusive, non-transferable, non- encumberable, fully paid-up and royalty-free license, without the right to grant sublicenses under certain other know-how of Philips, to the extent that such know-how is used within the Philips Contributed Business, for the continued use of such know-how in Philips-branded Scope Products in the Territory.

(v) Business software

Philips will grant to JVCo an irrevocable, royalty-free, non-exclusive and non- transferable license under certain other software of Philips to use (in the broadest sense) such software within the scope of the Philips Contributed Business in the Territory, including without limitation, the right to modify, create derivative works, the right to have Philips- branded Scope Products manufactured by a third party outside or inside the Territory solely for the use, sale or other disposal by JVCo of Philips-branded Scope Products within the Territory and the right to grant sublicenses in the context of and to the extent necessary for selling or marketing Philips-branded Scope Products.

(vi) Design rights

92 LETTER FROM SOMERLEY of the Scope Products within the Territory), under certain registered design rights of Philips as set out in the Intellectual Property Agreement and any unregistered design rights and/or copyrights on non-technical designs of the Scope Products owned by any members of the Philips Group which are used within the Philips Contributed Business as of the Completion Date, for the continued use of such registered design rights in Philips-branded Scope Products, in each case limited to the Territory.

Pricing

The transfers and licenses of the aforementioned patents, business know- how, business software and design rights shall be on a royalty-free basis. As the relevant intellectual properties are essential for the Philips Contributed Business, we are of the view that the royalty-free arrangement is beneficial to the Company.

JVCo shall also be entitled to receive from Philips a rebate of 70% of the 3D Patent royalty. The consideration for the patents, business know-how, business software and design rights and the 3D Patent royalty rebate have been arrived at after arm’s length negotiations between the Company and Philips.

Although JVCo shall be entitled to receive 70% of the 3D Patent royalty rebate from Philips, we are of the view that such arrangement may not be favourable to JVCo on the basis that the suppliers of JVCo, which will make the 3D Patent royalty payment to Philips, may pass on such additional cost and raise the price of products to be sold to JVCo in long run. In other word, JVCo may indirectly subsidise 30% of 3D Patent royalty payment to Philips as a result of the aforesaid arrangement. Based on our discussion with the management of the Group and after considering the anticipated 3D Patent royalty rate of not exceeding EUR1.5 (equivalent to approximately US$2.1) per panel and the projected production volume of the Philips-branded Scope Products (with 3D Patents in respect of display panels or components) in the Territory of not more than 250,000 units, 500,000 units and 1 million units for the first, second and third year of the term of the Intellectual Property Agreement, the total amount of the 3D Patent royalty rebate shared by Philips is anticipated to be insignificant as compared to the projected turnover of the JV Group. Having taken into account the terms of the Proposed Transactions, we consider the pricing terms of the Intellectual Property Agreement are acceptable.

Term and renewal

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Termination

4. Principal terms of the Auxiliary Agreements

(a) The Transitional Services Agreement

Pursuant to the Sale and Purchase Agreement, the Transitional Services Agreement in respect of the provision of certain transitional services by the Philips Group to the JV Group will be entered into at Completion. The entering into of the Transitional Services Agreement will ensure a smooth transition of the JV Group from the Philips Group to the Group immediately after Completion for a transitional period.

Parties

(1) Philips

(2) JVCo

Principal terms

Pursuant to the Transitional Services Agreement, the Philips Group will provide to the JV Group after Completion certain transitional services for a certain period in order to enable the JV Group to put definitive arrangements in place. The transitional services to be provided under the Transitional Services Agreement include, but are not limited to, innovation and design, finance, human resources, distribution, sales, marketing, warehousing, purchasing, consumer care, legal and real estate.

The provision of the transitional services shall be governed by the terms in the Transitional Services Agreement and each and every Transitional Service Level Agreement shall comply with the Listing Rules and all applicable laws. If any of the provisions as contained in any of the Transitional Service Level Agreements conflicts in any material matter with the provisions of the Transitional Services Agreement, the provisions of the Transitional Services Agreement shall prevail, except if such provisions are contained in a Transitional Service Level Agreement which was in agreed form between Philips and the Company prior to the issuance of the Circular, in which case the provisions of such Transitional Service Level Agreement shall prevail.

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Pricing

We have reviewed the Transitional Service Level Agreements and note that the pricing are determined based on the basis as set out above. Given the pricing will be determined based on normal commercial terms or on terms more beneficial to the JV Group (except for the prices for services relating to office space, which shall be the lower of the prior price level and the market price), we are of the view that the terms of the Transitional Services Agreement are on normal commercial terms and are fair and reasonable.

Term and renewal

Termination

The JV Group may terminate any transitional service provided under a Transitional Service Level Agreement by giving to the Philips Group not less than two calendar month’s notice in writing (with a few exceptions).

(b) The IT Transitional Service Level Agreement

Parties

(1) Philips Electronics

(2) JVCo

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Principal terms

Pricing

The price for the IT services is a fixed amount of EUR20.0 million (equivalent to approximately US$28.0 million). Additional IT services shall be charged on terms and fees to be agreed by both parties and based on normal commercial terms, or on terms no less favourable to JVCo than terms available from independent third parties. The prices for the IT services and the additional IT services have been arrived at after arm’s length negotiations between the Company and Philips after considering the required IT functions to safeguard the continuity of the Philips Contributed Business, the estimated services for provision of IT application and infrastructure services and historical charges of the IT services to the Philips Contributed Business.

We have discussed with the management of the Group and they considered that the IT services and applications currently utilised or to be utilised in the year after Completion by the JV Group have been included in the EUR20.0 million (equivalent to approximately US$28.0 million) IT service package. Based on the financial information on the JV Group, the total IT services cost incurred by the JV Group were approximately EUR58.0 million (equivalent to approximately US$81.2 million), EUR44.0 million (equivalent to approximately US$61.6 million) and EUR40.0 million (equivalent to approximately US$56.0 million) for 2008, 2009 and 2010 respectively. Given the IT services to be provided under the IT Transitional Service Level Agreement will be similar to those in the past, the payment of EUR20 million (equivalent to approximately US$28.0 million) by JVCo for the IT services under the IT Transitional Service Level Agreement is favourable to the Company. Moreover, additional IT services shall be charged on terms and fees to be agreed by both parties and based on normal commercial terms, or on terms no less favourable to JVCo than terms available from independent third parties. Based on the above, we consider that the pricing terms of the IT Transitional Service Level Agreement are fair and reasonable.

Term and renewal

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Termination

Pursuant to the Sale and Purchase Agreement, the Remote Control Sale Agreement in respect of sale of remote control products and other products by Philips Singapore to JVCo will be entered into at Completion.

Parties

(1) Philips Singapore

(2) JVCo

Principal terms

Philips Singapore will sell remote control products and other products to JVCo and will grant a license to JVCo for using remote control products. Any purchase order, PPIA and amendment to the Remote Control Sale Agreement must be negotiated on an arm’s length basis and based on normal commercial terms or on terms no more favourable to Philips Singapore than terms available to independent third parties.

Pricing

Prices will be based on delivery free on board Singapore or Shanghai Philips, Singapore’s manufacturing facility or other facility designated by Philips Singapore. The pricing and payment terms are determined at arm’s length basis and based on normal commercial terms, or on terms no less favorable to JVCo than terms available to or from independent third parties taking in consideration the volumes and terms and conditions.

We have discussed with the management of the Group and we note that Philips Singapore has sold remote control and related products to third party customers based on pricing mechanism above, i.e. delivery free on board Singapore or Shanghai or Philips Singapore’s manufacturing facility or other facility designated by Philips Singapore. Given the pricing terms of the products to be sold to JVCo will be based on normal commercial terms, or on terms no less favorable to JVCo than terms available to or from independent third parties taking into consideration the volumes, terms and conditions, we consider that the pricing terms of the Remote Control Sale Agreement are fair and reasonable.

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Term and renewal

The Remote Control Sale Agreement shall commence on the Completion Date and shall continue in force for an initial term of three years. Thereafter, subject to compliance with the Listing Rules, the Remote Control Sale Agreement shall be automatically renewed for additional successive periods of three years each, unless terminated by either party.

Termination

Either party may terminate the Remote Control Sale Agreement by giving six months’ prior notice in writing. Either party may, by written notice to the other party, terminate with immediate effect the Remote Control Sale Agreement if, among other things: (a) the other party violates or breaches any material term of the Remote Control Sale Agreement; or (b) any proceedings in insolvency, bankruptcy (including reorganisation) liquidation or winding up are instituted against the other party.

5. Principal terms of the Reversed Auxiliary Agreements

(a) The NET TV License and Services Agreement

Pursuant to the Sale and Purchase Agreement, the NET TV License and Services Agreement in respect of provision of services by JVCo to Philips Consumer Lifestyle and its subsidiaries related to the operation, hosting, maintenance and support of the Net TV/Smart TV Portal will be entered into at Completion.

Parties

(1) Philips Consumer Lifestyle

(2) JVCo

Principal terms

Under NET TV licensing program, JVCo will grant Philips Consumer Lifestyle a non- exclusive, non-transferable, worldwide, license to use or to have used, under the technology related to NET TV and Smart TV in the devices so that consumers can access the NET TV Portal, the Smart TV Dashboard and to the websites of content service providers.

JVCo shall render services for the operation of the NET TV Portal, the Smart TV and the Smart TV Dashboard so that these are accessible via Internet by the Philips Consumer Lifestyle devices.

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Pricing and financing arrangements

The pricing and payment terms are determined on an arm’s length basis.

We have discussed with the management of the Group and we understand that the NET TV Services is now in the planning stage and has not been activated. Based on the current plan, the NET TV Services will be operated by a joint venture company to be owned by JVCo and a number of partners. The shareholding of the aforesaid joint venture company has yet to be determined at this stage. The NET TV Services Portal can be accessed by Philips’ active devices (e.g. the Scope Products) or devices (e.g. mobile phones) of other participants. The revenues generated will be split among Philips Consumer Lifestyle and the other participants based on the number of subscribers to the NET TV Services. The share receivable by Philips Consumer Lifestyle will then be equally split between JVCo and Philips Consumer Lifestyle pursuant to the NET TV License and Services Agreement. JVCo will not be entitled to share any of the revenue receivable by other participants.

Based on our review of the NET TV License and Services Agreement, we note that Philips Consumer Lifestyle will pay the aforesaid costs based on the actual costs planned for that year and the proportion of Philips Consumer Lifestyle’s total installed base of active devices to the total Net TV installed base for that year. We have discussed with the management of the Group and we understand that no agreement has been made with other participants on the sharing of annual costs for the managed operations of the service portal, the use of the services and the day to day operations.

Based on the above, we consider the pricing terms of the NET TV License and Services Agreement are fair and reasonable.

Term and renewal

The NET TV License and Services Agreement shall commence on the Completion Date and shall continue in force for an initial term of three years. Thereafter, subject to compliance with the Listing Rules, the NET TV License and Services Agreement shall be automatically renewed for additional successive periods of one year each, unless terminated by either party. 99 LETTER FROM SOMERLEY

Termination

(b) The Online Shop and My Shop Agreement

Pursuant to the Sale and Purchase Agreement, the Online Shop and My Shop Agreement in respect of the sale by TP Vision Netherlands and the purchase by Online Shop and My Shop of various Scope Products as well as other products that may be offered by TP Vision Netherlands from time to time as specified in the Online Shop and My Shop Agreement, will be entered into at Completion. The products will be distributed by Online Shop and My Shop to (i) the current employees of the Philips Group; (ii) the retired Philips persons; and (iii) certain former Philips employees working for companies which have been spun off and are no longer part of the Philips Group. Employees of the Philips Group located in The Netherlands can purchase with My Shop, and employees located in France, the United Kingdom and Germany can purchase with the Online Shop.

Parties

(1) Online Shop

(2) My Shop

(3) TP Vision Netherlands

Principal terms

The Online Shop and My Shop Agreement and the terms contained therein apply to and form an integral part of all quotations and offers made by TP Vision Netherlands, all acceptances, acknowledgements or confirmations by TP Vision Netherlands of any orders by Online Shop and My Shop and any agreements regarding the sale by TP Vision Netherlands and purchase by Online Shop and My Shop of different TV products, unless and to the extent the parties to the Online Shop and My Shop Agreement explicitly agree otherwise in writing. Any amendment must be negotiated on an arm’s length basis and based on normal commercial terms or on terms no more favourable to Online Shop and/or My Shop than terms available to independent third parties.

Furthermore, certain special offers will be made by Philips for its customers from time to time and will be done in conjunction with TP Vision Netherlands. TP Vision Netherlands will discuss and agree with Online Shop and My Shop on a regular basis to operate the special offer programs.

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Pricing

The sale prices (excluding taxes, duties and similar levies) applicable for the products are set out in the Online Shop and My Shop Agreement. TP Vision Netherlands will add taxes, duties and similar levies to the sale price where TP Vision Netherlands is required or enabled by law to pay or collect them and these will be paid by Online Shop and/or My Shop together with the sale price. The sale prices and payment terms are determined on an arm’s length basis and on normal commercial terms or on terms no more favourable to Online Shop and/or My Shop than terms available to independent third parties. The principles for the pricing are the following: (i) TP Vision Netherlands, Online Shop and My Shop will have bi-annual price negotiations; (ii) notwithstanding the foregoing TP Vision Netherlands, Online Shop and My Shop shall separately agree on prices for the special offer programs; and (iii) the prices for both (i) and (ii) will be negotiated on an arm’s length basis and based on normal commercial terms or on terms no more favourable to Online Shop and/or My Shop than terms available to independent third parties.

Given the pricing will be determined based on normal commercial terms or on terms no more favourable to Online Shop and/or My Shop than terms available to independent third parties, we are of the view that the pricing terms under the Online Shop and My Shop Agreement are fair and reasonable.

Term and renewal

Termination

TP Vision Netherlands may terminate the Online Shop and My Shop Agreement if, among other things, Online Shop and My Shop violate or breach any term of the Online Shop and My Shop Agreement and Online Shop and My Shop after having been notified by TP Vision Netherlands thereof and have not cured the breach within thirty days after such notification.

The Employee Shop Agreements are similar to the Online Shop and My Shop Agreement except for the locations of the Scope Products to be sold by the Philips Group. The Local JVCo Subsidiary will enter into the Employee Shop Agreements in certain jurisdictions (namely, Belgium, Brazil, the Czech Republic, France, Greece, Italy, Malaysia, Russia, Singapore, Switzerland and Ukraine) in respect of the sale by the Local JVCo Subsidiary and the purchase by Employee Shop of various Scope Products as well as other products that may be offered by the Local JVCo Subsidiary from time to time as specified in the Employee Shop Agreements at Completion. It is currently contemplated that the products will be distributed by Employee Shop to the current employees of the Philips Group. 101 LETTER FROM SOMERLEY

Parties

(1) Employee Shop

(2) Local JVCo Subsidiary

Principal terms

The Employee Shop Agreements and the terms contained therein apply to and form an integral part of all quotations and offers made by Local JVCo Subsidiary, all acceptances, acknowledgements or confirmations by JVCo of any orders by Employee Shop and any agreements regarding the sale by the Local JVCo Subsidiary and purchase by Employee Shop of different TV products, unless and to the extent the parties to the Employee Shop Agreements explicitly agree otherwise in writing. Any amendment must be negotiated on an arm’s length basis.

Pricing

The sale prices (excluding taxes, duties and similar levies) applicable for the products are set out in the Employee Shop Agreements. The Local JVCo Subsidiary will add taxes, duties and similar levies to the sale price where the Local JVCo Subsidiary is required or enabled by law to pay or collect them and these will be paid by Employee Shop together with the sale price. The sale prices and payment terms are determined on an arm’s length basis and on normal commercial terms. The principles for the pricing are the following: (i) the Local JVCo Subsidiary and Employee Shop will have bi-annual price negotiations; (ii) notwithstanding the foregoing the Local JVCo Subsidiary and Employee Shop shall separately agree on prices for the special offer programs.

Given the pricing will be determined on an arm’s length basis and on normal commercial terms, we are of the view that the pricing terms under the Employee Shop Agreements are fair and reasonable.

Term and renewal

The Employee Shop Agreements shall commence on the Completion Date and shall continue in force for three years. Thereafter, subject to compliance with the Listing Rules, the Employee Shop Agreements shall renew automatically for additional successive periods of three years each, unless terminated earlier by either party on six months’ prior notice in writing.

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Termination

(d) The Brazil Lease Agreement

Pursuant to the Sale and Purchase Agreement, the Brazil Lease Agreement in respect of the lease by TP Vision Brazil to Philips Brazil of an industrial property of 8,600 square metres at Avenida Torquato Tapajós, No. 2236, Bairro Flores, municipality of Manaus, Amazonas state, Brazil will be entered into at Completion.

Parties

(1) TP Vision Brazil, as the lessor

(2) Philips Brazil, as the lessee

Principal terms

Pursuant to the Brazil Lease Agreement, TP Vision Brazil will lease an industrial property in Brazil to Philips Brazil.

Pricing

The lease payment will be R$142,666.67 (equivalent to approximately US$89,580) per month, which shall be adjusted annually by the variation of the general market price index.

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We have reviewed an independent valuation of the market rates of similar properties in the same area and rental rates paid by the factories of the Group operated in the similar area. We note that lease payment amount under the Brazil Lease Agreement is in line with the prevailing market rates. The inflation adjustment clause will result in the future rental payment continue to be aligned with the future market rental in general. The condominium charges will be determined based on the actual expenditure and apportionment parameters as set out in the Brazil Lease Agreement. We have reviewed the apportionment parameters and we consider the basis of apportionment is reasonable. Based on the above, we consider the pricing terms of the Brazil Lease Agreement are fair and reasonable.

Term and renewal

The Brazil Lease Agreement shall commence on Completion and shall continue in force for 2 years. Thereafter the term of the Brazil Lease Agreement may be extended at the discretion of Philips Brazil for an additional term of 1 year. Subject to compliance with the Listing Rules, the Brazil Lease Agreement may also be renewed for the same period by mutual agreement between the parties to the Brazil Lease Agreement.

Termination

(e) Amendment to the Dixtal Lease Agreement

The Dixtal Lease Agreement in respect of the lease by Philips Brazil to Dixtal of an industrial property of 2,880 square metres at Avenida Torquato Tapajós, No. 2236, Bairro Flores, municipality of Manaus, Amazonas state, Brazil (‘‘Manaus Manufacturing Plant’’) was entered into on 22 September 2009. Pursuant to the Disentanglement, TP Vision Brazil will become owner of the Manaus Manufacturing Plant at Completion. As such, TP Vision Brazil will enter into an amendment agreement to the Dixtal Lease Agreement with Philips Brazil and Dixtal as set out below.

Parties

(1) TP Vision Brazil, as the landlord

(2) Philips Brazil, as the original lessor

(3) Dixtal, as the lessee

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Principal terms

Pricing

The lease payment is R$27,014.4 (equivalent to approximately US$16,962) per month, which shall be adjusted annually by the variation of the general market price index, and additional condominium charge based on defined pro- rating keys. The lease payment and the additional condominium charge were determined with reference to, among other factors, (i) the monthly rental payment as agreed in the Amendment to the Dixtal Lease Agreement (ii) the market rate of the rental in similar area; (iii) the size of the area of the property, (iv) the general market price index; and (v) the actual amount of condominium expenditure incurred by Dixtal.

We have reviewed an independent valuation of the market rates of similar properties in the same area and the rental rates paid by the factories of the Group operated in similar area. We note that lease payment amount under the Dixtal Lease Agreement (as amended) is close to the lower end of the range of the prevailing market rates. The inflation adjustment clause will result in the future rental payment continue to be aligned with the future market rental in general. The condominium charges will be determined based on the actual expenditure and apportionment parameters as set out in the Amendment to the Dixtal Lease Agreement. We have reviewed the apportionment parameters and we consider the basis of apportionment is reasonable. Based on the above and after having considered that the undercharged lease payment amount is not very material in terms of the Proposed Transactions as a whole, we consider the pricing terms of the Dixtal Lease Agreement (as amended) are acceptable.

Term and renewal

The Dixtal Lease Agreement commenced on 1 August 2009 and will expire as of 31 July 2014.

Termination

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(f) The Hungary Lease and Service Agreement

Pursuant to the Sale and Purchase Agreement, the Hungary Lease and Service Agreement in respect of the lease of a factory building and provision of services in the factory building will be entered into between TP Vision Hungary, as the lessor and services provider, and Philips Hungary, as the lessee and services receiver, upon Completion.

Parties

(1) TP Vision Hungary

(2) Philips Hungary

Principal terms

Pursuant to the Hungary Lease and Service Agreement, TP Vision Hungary will lease to Philips Hungary a factory building located at 8000 Székesfehérvár, Holland fasor 6., Szekesfehervar, Hungary. Furthermore, TP Vision Hungary will also provide services to Philips Hungary comprising (i) the site area for production and warehousing including infrastructure and canteen; (ii) supply chain management including procurement and planning; (iii) human resources including direct labour management; (iv) quality management including supplier quality management and process quality management; (v) finance and controlling; and (vi) blistering or production activity.

Pricing

The total service fee for the lease and the services will be EUR468,750 (equivalent to approximately US$656,250) for 3 months. The costs of services not covered in the Hungary Lease and Service Agreement will be agreed by both parties on an arm’s length basis and based on normal commercial terms, or on terms no more favourable to Philips Hungary than terms available to independent third parties.

We have reviewed the actual expenditure incurred for the aforesaid operations in the subject building and the apportionment parameters in respect of the services to be provided to Philips Hungary, and we consider the basis of apportionment is reasonable. In addition, given the services not covered in the Hungary Lease and Service Agreement will be agreed by both parties at arm’s length basis and based on normal commercial terms, or on terms no more favourable to Philips Hungary than terms available to independent third parties, we consider the pricing terms under the Hungary Lease and Service Agreement are fair and reasonable.

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Term and extension

(g) The Tax Audit Service Agreement

Parties

(1) TP Vision Hungary

(2) Philips Hungary

Principal terms

Pricing

The services to be provided under the Tax Audit Service Agreement will be charged at an hourly rate and based on the number of hours spent by TP Vision Hungary to deliver the services with a maximum of EUR100,000 (equivalent to approximately US$140,000) per annum. The service fees have been arrived at after arm’s length negotiations between the Company and Philips. The costs of services not covered in the Tax Audit Service Agreement will be agreed by both parties on an arm’s length basis and based on normal commercial terms, or on terms no more favourable to Philips Hungary than terms available to independent third parties.

We have reviewed of the Tax Audit Service Agreement and we note that the services will be charged based on the numbers of hours incurred by the relevant personnel and the hourly rate of EUR50 (equivalent to approximately US$70). Based on our discussion with the management of the Group, they considered that the aforesaid hourly rate is in line with

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the cost of services to be performed by relevant level of personnel. Additional items will be agreed based on normal commercial terms, or on terms no more favourable to Philips Hungary than terms available to independent third parties. Based on the above, we consider the pricing terms of the Tax Audit Service Agreement are fair and reasonable.

Term and renewal

The Tax Audit Service Agreement shall commence on the Completion Date and shall continue in force until 31 March 2013 or completion of the services, whichever is earlier.

Based on the above and given (i) the independent non-executive Directors will, pursuant to Rule 14A.37 of the Listing Rules, review, amongst other things, whether the Continuing Connected Transactions are conducted on normal terms; and (ii) the auditors of the Company, for the purpose of Rule 14A.38 of the Listing Rules, will review, amongst other things, whether the Continuing Connected Transactions are conducted in accordance with the terms of the relevant agreement, we are of the view that (i) the overall terms under the Trademark License Agreement, the Secondary Trademark License Agreement, the Intellectual Property Agreement, the Auxiliary Agreement, the Reversed Auxiliary Agreement and the transactions contemplated thereunder are on normal commercial terms and are fairly and reasonably determined; and (ii) adequate measures have been put in place, as required under the Listing Rules mentioned above, to monitor the Continuing Connected Transactions in order to protect the interests of the Company and the independent Shareholders.

6. Reasons for term in excess of three years

JVCo and Philips have agreed to enter into the Trademark License Agreement, the Secondary Trademark License Agreement and the Intellectual Property Agreement for a period in excess of three years (i.e. for an initial term of five years) as normally required under the Listing Rules after arm’s length negotiations among JVCo, the Company and Philips. The term in excess of three years is beneficial to the Company because (i) any term shorter than the License Term would increase the risks associated with, and lower the returns on, the Group’s investment in its brand building of the Philips Contributed Business; (ii) following Completion, the Group is expected to invest substantial management effort to broaden the Philips Contributed Business’ product range and market share, the benefits of which will extend beyond three years; and (iii) it is the intention of the Company to strengthen the Philips Contributed Business and the presence of the Philips Trademarks and the Philips Secondary Trademarks in the markets in which the Scope Products are sold.

In arriving at our opinion, we have relied on the intentions of the Company as described in this section. In considering whether it is normal business practice for contracts of a similar nature to the Trademark License Agreement, the Secondary Trademark License Agreement and the Intellectual Property Agreement to have a term of such duration, we have reviewed a number of comparable transactions involving the granting of licences to use intellectual properties, trademarks and/or brands (the ‘‘Comparable Licensing Transactions’’). The Comparable Licensing Transactions selected are based on the following criteria: (i) one of the parties (including their parent companies) to such transaction is listed on the Stock Exchange; (ii) such transactions are publicly announced by way of announcement made pursuant to the Listing Rules; and (iii) such

108 LETTER FROM SOMERLEY transactions relate to the granting of licences to use intellectual properties, recognised brands and/or trademarks of consumer electronic products (including TVs and display devices). We note that the terms of the Comparable Licensing Transactions are ranging from five to twenty years. Accordingly, the License Term falls on the lower end of the range of the terms of the Comparable Licensing Transactions. On the basis of the above and having considered the annual guaranteed minimum amount of royalty payable under the Trademark License Agreement, we are of the view that the License Term (i.e. for an initial term of five years) balances the business risk of and the benefit expected to be generated from the Philips Contributed Business.

Having considered that (i) the distribution of the Scope Products under the Philips Trademarks and the Philips Secondary Trademarks requires a medium to long term commitment; (ii) the License Term of longer than three years would facilitate the Group’s continuous marketing initiatives and generate income from the Philips Contributed Business for a longer period; (iii) any term shorter than the License Term would increase the risks associated with, and lower the returns on, any investment made by the Group in relation to its brand building of the Philips Contributed Business; (iv) the Group is expected to invest substantial management effort to broaden the Philips Contributed Business’ product range and market share, the benefits of which will extend beyond three years; (v) the intellectual properties under the Intellectual Property Agreement are essential for the operations of the Philips Contributed Business; (vi) the terms of the Comparable Licensing Transactions are ranging from five to twenty years; and (vii) it is economically beneficial for the Group to avoid renegotiating the terms of the Trademark License Agreement, the Secondary Trademark License Agreement and the Intellectual Property Agreement after three years as it is expected that the Group will take the first one or two years to streamline the operations of the JV Group and the benefits of the Acquisition and the entering into of the Trademark License Agreement, the Secondary Trademark License Agreement and the Intellectual Property Agreement are likely to be materialised beyond the third year, we are of the view that a term of longer than three years is required for the Trademark License Agreement, the Secondary Trademark License Agreement and the Intellectual Property Agreement and confirms that it is normal business practice for contracts similar to this type to be of such duration.

7. The Annual Caps

(a) The royalty under the Trademark License Agreement

For the year ending 31 December 2012 2013 2014 2015 2016 2017

In EUR (million) Nil 81.4 91.3 96.8 100.1 50.1

Approximately equivalent US$ (million) Nil 114.0 127.8 135.5 140.1 70.1

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The Annual Caps for the royalty payable by JVCo to Philips under the Trademark License Agreement were determined by the Company after taking into account, amongst other things, (i) the Group’s estimates for the increase in the future demand for the Scope Products, which was determined with reference to the historical and estimated future demand and production trend for the Scope Products; (ii) the prospects, outlook and the competitive environment of the global market for the Scope Products; (iii) the pricing trend for the Scope Products; and (iv) additional buffers to cater for possible fluctuation of materials costs as a result of possible changes in market conditions.

In assessing the fairness and reasonableness of the aforesaid Annual Caps, we have reviewed the followings:

(i) Historical and projected sales volumes of the Scope Products

The projected sales volumes of the JV Group are determined with reference to the historical sales volumes of the Scope Products. The historical sales volumes of the JV Group were approximately 8.6 million units, approximately 7.7 million units and approximately 7.7 million units for 2008, 2009 and 2010 respectively. We have reviewed the projected sales volumes of the JV Group jointly prepared by the management of the Group and the JV Group and we note that they are generally in line with the projected sales volumes of TVs in general estimated by an independent industry researcher.

(ii) Unit sales price of the Scope Products

The projected unit sales price of the Scope Products is determined with reference to the historical unit sales price of the Scope Products and the projected unit sales price of similar models of TVs in the market. We have reviewed the projected average unit sales price of the Scope Products and we note that the pricing trend is in line with that of similar models of TVs in the market estimated by the independent industry researcher.

(iii) Buffer to accommodate changes in market conditions

In light of the volatility of the industry that the JV Group is involved in, a buffer of 10% for each of the five years ending 31 December 2017 has been added to the aforesaid Annual Caps. The management of the Group were of the view that sales price of the Scope Products and cost of goods sold might change considerably subject to the then prevailing market demand and conditions. Based on our review of the historical average selling prices of the Group’s TV products, we note that average selling prices have varied significantly and might fluctuate by more than 10% in the same year. Accordingly, we are of the view that a buffer of 10% is reasonable and will allow more flexibility to the Group when market conditions change.

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(iv) Possible change of the Completion Date

The Trademark License Agreement will commence on the Completion Date, which may not fall at the beginning of the financial year of the Group. The actual payment date therefore will be subject to change due to the possible change of the Completion Date. As a result, part of the payment in the fifth year of the term of the Trademark License Agreement may fall into 2017. The Annual Cap for 2017, which represents the amount for less than one full year, therefore is less than the Annual Cap for 2016, which represents a full year amount. We have reviewed the estimation of the aforesaid Annual Caps due to the possible change of the Completion Date and we consider the estimation is reasonable.

(v) Direct relationship between royalty payment and turnover of the JV Group

The royalty payment is equivalent to 2.2% of the Turnover. A higher royalty payment implies a higher revenue generated by JVCo, which is in turn beneficial to JVCo and the Group. Accordingly, a higher annual cap for royalty payment gives room to generate higher revenue for the JV Group and the Group.

Having considered the basis on which the Annual Caps for the royalty payable by JVCo to Philips under the Trademark License Agreement were determined as described above, we are of the view that the aforesaid Annual Caps are fair and reasonable.

(b) The consumer care compensation for the Scope Products sold prior to Completion under the Trademark License Agreement

For the year ending 31 December 2012 2013 2014 2015 2016 2017

In EUR (million) 6.00 4.50 1.88 0.44 0.07 0.02

Approximately equivalent US$ (million) 8.40 6.30 2.63 0.62 0.10 0.03

The Annual Caps were determined by the Company after taking into account, amongst other things, (i) the compensation for JVCo’s cost of organisation to fulfill its consumer care obligations relating to the Scope Products sold prior to Completion (except for certain Scope Products supplied by the Company to Philips under certain arrangement) as agreed in the Trademark License Agreement; and (ii) possible change of the Completion Date.

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In assessing the fairness and reasonableness of the aforesaid Annual Caps, we have reviewed the followings:

(i) Consumer care compensation agreed under the Trademark License Agreement

Pursuant to the Trademark License Agreement, the consumer care compensation payable by Philips to JVCo will be EUR6.0 million (equivalent to approximately US$8.4 million) and EUR3.0 million (equivalent to approximately US$4.2 million) for the first and second years from Completion. We have reviewed computation and we note the estimation of the aforesaid Annual Caps has incorporated the above amounts.

From the third year onwards, Philips and JVCo shall in good faith negotiate a fair compensation for consumer care services based on the actual hours spent. We have also reviewed the historical statistics of the timing of claims made by consumer care providers and the expected split of claims made between the Scope Products sold prior to and after Completion (except for certain Scope Products supplied by the Company to Philips under certain arrangement) from the third year onwards, we note that the expected amounts of claims will be approximately EUR0.76 million (equivalent to approximately US$1.06 million), EUR0.11 million (equivalent to approximately US$0.15 million) and EUR0.03 million (equivalent to approximately US$0.04 million) for the third, fourth and fifth years from Completion. We have reviewed computation and we note the estimation of the aforesaid Annual Caps has incorporated the above amounts.

(ii) Possible change of the Completion Date

Having considered the basis on which the Annual Caps for the consumer care compensation were determined as described above, we are of the view that the aforesaid Annual Caps are fair and reasonable.

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For the year ending 31 December 2012 2013 2014 2015 2016 2017

In EUR (million) 1.10 1.98 3.30 4.62 6.05 3.03

Approximately equivalent US$ (million) 1.54 2.77 4.62 6.47 8.47 4.24

The Annual Caps were determined by the Company after taking into account, amongst other things, (i) the Group’s estimates of future demand and production trend for the Secondary Trademark Scope Products; (ii) the prospects, outlook and the competitive environment of the global market for the Secondary Trademark Scope Products; (iii) the pricing trend for the Secondary Trademark Scope Products; and (iv) additional buffers to cater for possible fluctuation of materials costs as a result of possible changes in market conditions.

In assessing the fairness and reasonableness of the aforesaid Annual Caps, we have reviewed the followings:

(i) Projected sales volume of the Secondary Trademark Scope Products

Based on our discussion with the management of the Group, we note that there was no sale of the Secondary Trademark Scope Products in the last few years. It is the intention of the management of the Group and the JV Group that the JV Group will launch the Secondary Trademark Scope Products, which equipped with basic features of TVs, to the western European countries. Based on the business plan jointly prepared by the management of the Group and the JV Group, the projected sales volumes of the Secondary Trademark Scope Products, in the best scenario, will be approximately 0.3 million units, 0.6 million units, 1.0 million units, 1.5 million units and 2.1 million units for each of the five years from Completion. We have reviewed the historical sales volume of TV of less-known brands and we note there were significant growths of shipment of these products in the last two years. After considering the historical trend of sales volume of TV of less-known brands, we are of the view that the projected sales volumes of the Secondary Trademark Scope Products are within a reasonable range.

(ii) Unit price of sales

The unit price of sales under the aforesaid Annual Caps are determined with reference to the projected unit sale price of the Scope Products, i.e. the TV products with the Philips Trademarks. Given brand names of the Secondary Trademark Scope Products are less- known to the consumer market, it is the intention of the management of the Group to price the Secondary Trademark Scope Products at a discount to the price of the Scope Products. We have reviewed target pricing level of the Secondary Trademark Scope Products and the historical discount of pricing of certain secondary brand products sold by the Group in the past, we note the pricing discount applied in the estimation of the aforesaid Annual Caps is within a reasonable range.

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(iii) Buffer to accommodate changes in market conditions

Similar to the Annual Caps for the royalty payable under the Trademark License Agreement, a buffer of 10% for each of the five years ending 31 December 2017 has been added to the Annual Caps for the royalty payable under the Secondary Trademark License Agreement. Likewise, we are of the view that a buffer of 10% is reasonable and will allow more flexibility to the Group when market conditions change.

(iv) Possible change of the Completion Date

The Secondary Trademark License Agreement will commence on the Completion Date, which may not fall at the beginning of the financial year of the Group. The actual payment date therefore will be subject to change due to the possible change of the Completion Date as discussed above. Therefore the Annual Cap for 2017, which represents the amount for less than one full year, is less than the Annual Cap for 2016, which represents a full year amount. We have reviewed the estimation of the aforesaid Annual Caps due to the possible change of the Completion Date and we consider the estimation is reasonable.

(v) Direct relationship between royalty payment and turnover of the JV Group

The royalty payment is equivalent to 1.0% of the turnover. A higher royalty payment implies a higher revenue generated by JVCo, which is in turn beneficial to JVCo and the Group. Accordingly, a higher annual cap for royalty payment gives room to generate higher revenue for the JV Group and the Group.

Having considered the basis on which the Annual Caps for the royalty payable by JVCo to Philips under the Secondary Trademark License Agreement were determined as described above, we are of the view that the aforesaid Annual Caps are fair and reasonable.

(d) The Intellectual Property Agreement

Set out below is a summary of the Annual Caps for the 3D Patent royalty rebate payable by Philips to JVCo under the Intellectual Property Agreement for the financial year ending 31 December 2012 up to and including the financial year ending 31 December 2015.

For the year ending 31 December 2012 2013 2014 2015

In EUR 262,500 525,000 1,050,000 525,000

Approximately equivalent US$ 367,500 735,000 1,470,000 735,000

The Annual Caps were determined by the Company after taking into account, amongst other things, (i) the Group’s estimates for the increase in the future demand for the Scope Products (utilising any 3D Patents), which was determined with reference to the estimated future demand

114 LETTER FROM SOMERLEY and production trend for the Scope Products; (ii) the prospects, outlook and the competitive environment of the global market for the Scope Products; (iii) the pricing trend for the Scope Products; (iv) the sharing percentage of the 3D Patents royalty rebate as agreed in the Intellectual Property Agreement; (v) the estimated 3D Patents royalty rate; and (vi) possible change of the Completion Date.

In assessing the fairness and reasonableness of the aforesaid Annual Caps, we have reviewed the followings:

(i) Projected sales volume of the Scope Products with 3D technology

Based on our discussion with the management of the Group, no Scope Products with three-dimensional (‘‘3D’’) technology has been sold by the JV Group so far. It is currently anticipated that the Scope Products with 3D technology will be rolled out to the market as soon as in 2012 and the projected sales volumes will not be more than 250,000 units, 500,000 units and 1 million units for the first, second and third years from Completion respectively. We

have reviewed the projected sales volumes of the Scope Products of the JV Group and we note that the projected sales volumes of the Scope Products with 3D technology represent approximately 2.8% 5.0% and 8.3% of that of the Scope Products for each of the three years from Completion respectively. After considering the Scope Products with 3D technology have not launched to the market so far and percentages to the projected sales volumes of the total Scope Products, we consider the projected maximum sales volumes of the Scope Products with 3D technology is reasonable.

(ii) Sharing percentage of the 3D Patents royalty rebate

As set out in the Intellectual Property Agreement, JVCo shall be entitled to receive 70% of the 3D Patent royalty rebate from Philips. We have reviewed and note the computation of the aforesaid Annual Caps has taken into account such sharing percentage.

(iii) Estimated 3D Patents royalty

As discussed with the management of the Group, we note that no 3D Patent royalty has been asserted against any suppliers by Philips so far. Based on the experience of the Group’s management, it is anticipated that the royalty rate will not exceed EUR1.5 (equivalent to approximately US$2.1) per panel.

(iv) Possible change of the Completion Date

The Intellectual Property Agreement will commence on the Completion Date, which may not fall at the beginning of the financial year of the Group. The actual payment date therefore will be subject to change due to the possible change of the Completion Date as discussed above. We have reviewed the estimation of the aforesaid Annual Caps due to the possible change of the Completion Date and we consider the estimation is reasonable.

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Having considered the basis on which the Annual Caps for the 3D Patent royalty rebate payable by Philips to JVCo under the Intellectual Property Agreement were determined as described above, we are of the view that the aforesaid Annual Caps are fair and reasonable.

(e) The Transitional Services Agreement

Set out below is a summary of the Annual Caps for the service fee payable for the transitional services by the JV Group to the Philips Group under the Transitional Services Agreement for the financial year ending 31 December 2012 up to and including the financial year ending 31 December 2015.

For the year ending 31 December 2012 2013 2014 2015

In EUR (million) 24.61 19.32 9.48 2.47

Approximately equivalent US$ (million) 34.45 27.05 13.27 3.46

The Annual Caps were determined by the Company after taking into account, amongst other things, (i) expected volume of the services to be supplied by the Philips Group; (ii) the pricing of the services; (iii) a buffer for additional services; and (iv) possible change of the Completion Date.

In assessing the fairness and reasonableness of the aforesaid Annual Caps, we have reviewed the followings:

(i) Expected volume of the services

We have discussed and reviewed the historical and the expected volumes of the services under the Transitional Services Agreement with the management of the Group. We note that the expected volume of the services has been adjusted based on the anticipated usage of the relevant services (e.g. number of headcounts and hours performing services, area size of building, etc.) and the duration of the relevant services required for the JV Group after Completion. In the event that the relevant services can be replaced ‘‘in-house’’ by the Group or provided by third party vendors, such services are accordingly reduced in the estimation of the aforesaid Annual Caps.

(ii) Pricing of the services

We have reviewed the pricing of the transitional services and we note that the pricing is determined either based on current price levels applicable to the Philips Business or the anticipated actual costs to be incurred by the Philips Group.

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(iii) Buffer to accommodate changes in market conditions and potential taxes

Similar to the Annual Caps for the royalty payable under the Trademark License Agreement and the Secondary Trademark License Agreement, a buffer of 10% for each of the four years ending 31 December 2015 has been added to the Annual Caps for the service fee payable for the transitional services under the Transitional Services Agreement. Similarly, we are of the view that a buffer of 10% is reasonable and will allow more flexibility to the Group when market conditions change as well as potential taxes are payable by the Group for the services rendered by the members of the Philips Group.

(iv) Possible change of the Completion Date

The Transitional Services Agreement will commence on the Completion Date, which may not fall at the beginning of the financial year of the Group. The actual payment date therefore will be subject to change due to the possible change of the Completion Date as discussed above. We have reviewed the estimation of the aforesaid Annual Caps due to the possible change of the Completion Date and we consider the estimation is reasonable.

Having considered the basis on which the Annual Caps for the service fee payable for the transitional services under the Transitional Services Agreement were determined as described above, we are of the view that the aforesaid Annual Caps are fair and reasonable.

(f) The IT Transitional Service Level Agreement

Set out below is a summary of the Annual Caps for the service fee payable for the IT transitional services by the JV Group to the Philips Group under the IT Transitional Service Level Agreement for the financial year ending 31 December 2012 up to and including the financial year ending 31 December 2013.

For the year ending 31 December 2012 2013

In EUR (million) 24.0 12.0

Approximately equivalent US$ (million) 33.6 16.8

The Annual Caps have been determined by the Company after taking into account, amongst other things, (i) the fixed fee of EUR20.0 million (equivalent to approximately US$28.0 million) for the IT services as agreed under the IT Transitional Service Agreement; (ii) a buffer for additional IT services; and (iii) possible change of the Completion Date.

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In assessing the fairness and reasonableness of the aforesaid Annual Caps, we have reviewed the followings:

(i) The fixed fee agreed under the IT Transitional Service Level Agreement

The total fee agreed for the provision of IT services under the IT Transitional Service Level Agreement is fixed at EUR20.0 million (equivalent to approximately US$28.0 million). Based on our discussion with the management of the Group, we note that they considered that the EUR20.0 million (equivalent to approximately US$28.0 million) IT service package has included all necessary IT services and applications to be required for the operations of the JV Group in the year after Completion. We have reviewed and we note that the EUR20.0 million (equivalent to approximately US$28.0 million) has been included in the computation of the aforesaid Annual Caps.

(ii) Buffer for additional IT services

As discussed with the management of the Group, the EUR20 million (equivalent to approximately US$28.0 million) IT service package has covered all the IT services required for the JV Group during the term of the IT Transitional Service Level Agreement as envisaged by the management of the Group. In light of the potential developments in new products and/or markets where additional IT services may be required, we are of the view that a buffer of 20% is reasonable.

(iii) Possible change of the Completion Date

The IT Transitional Service Level Agreement will commence on the Completion Date, which may not fall at the beginning of the financial year of the Group. The actual payment date therefore will be subject to change due to the possible change of the Completion Date as discussed above. We have reviewed the estimation of the aforesaid Annual Caps due to the possible change of the Completion Date and we consider the estimation is reasonable.

Having considered the basis on which the Annual Caps for the service fee payable for the IT transitional services under the IT Transitional Service Level Agreement were determined as described above, we are of the view that the aforesaid Annual Caps are fair and reasonable.

(g) The Remote Control Sale Agreement

Set out below is a summary of the Annual Caps for the purchase costs payable by the JV Group to Philips Singapore under the Remote Control Sale Agreement for the financial year ending 31 December 2012 up to and including the financial year ending 31 December 2015.

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For the year ending 31 December 2012 2013 2014 2015

In EUR (million) 2.75 3.30 3.85 1.93

Approximately equivalent US$ (million) 3.85 4.62 5.39 2.70

The Annual Caps were determined by the Company after taking into account, amongst other things, (i) the estimate of the future demand for the Scope Products, which was determined with reference to the historical demand and production trend for the Scope Products; (ii) the historical demand for remote control in respect of the Scope Products; (iii) the pricing trend of the Scope Products and remote control; (iv) additional buffer to cater for possible fluctuation of material costs as a result of possible changes in market conditions; and (v) possible change of the Completion Date.

In assessing the fairness and reasonableness of the aforesaid Annual Caps, we have reviewed the followings:

(i) Projected sales volume of the Scope Products

The remote control products, after bundling together with the Scope Products, will be sold to customers. The quantity of remote control products purchased by the JV Group therefore should be in line with the projected sales volume of the Scope Products. We understand from the management of the Group that the Philips Business purchased remote control products from both the Philips Group (approximately 2 million units for each of 2009 and 2010) and independent third party suppliers in the past and the Philips Business will continue to do so in the foreseeable future. We have reviewed the projected sales volumes of the Scope Products (as discussed in the paragraph 7(a)(i) above) and we note that the growth of projected purchase volumes of remote control products are largely in line with that of projected sales volumes of the Scope Products.

(ii) Unit purchase price

The estimated unit purchase price of the remote control products is approximately EUR1.0 (equivalent to approximately US$1.4) to EUR1.5 (equivalent to approximately US$2.1) per unit. We have compared with the actual unit purchase price of the remote control products purchased by the Group recently and we note that the estimated unit purchase price is generally in line with the actual unit purchase price.

(iii) Buffer to accommodate changes in market conditions

Similar to the Annual Caps for the royalty payable under the Trademark License Agreement and the Secondary Trademark License Agreement, a buffer of 10% for each of the four years ending 31 December 2015 has been added to the Annual Caps for the purchase costs under the Remote Control Sale Agreement. Similarly, we are of the view that a buffer of 10% is reasonable and will allow more flexibility to the Group when market conditions change. 119 LETTER FROM SOMERLEY

(iv) Possible change of the Completion Date

The Remote Control Sale Agreement will commence on the Completion Date, which may not fall at the beginning of the financial year of the Group. The actual payment date therefore will be subject to change due to the possible change of the Completion Date as discussed above. We have reviewed the estimation of the aforesaid Annual Caps due to the possible change of the Completion Date and we consider the estimation is reasonable.

Having considered the basis on which the Annual Caps for the purchase costs under the Remote Control Sale Agreement were determined as described above, we are of the view that the aforesaid Annual Caps are fair and reasonable.

(h) The NET TV License and Services Agreement

Set out below is a summary of the Annual Caps for the fee payable for the services by Philips Consumer Lifestyle to JVCo under the NET TV License and Services Agreement for the financial year ending 31 December 2012 up to and including the financial year ending 31 December 2015.

For the year ending 31 December 2012 2013 2014 2015

In EUR (million) 2.40 2.90 3.40 1.70

Approximately equivalent US$ (million) 3.36 4.06 4.76 2.38

The Annual Caps were determined by the Company, after taking into account, amongst other things, (i) the Group’s estimates of the revenue that may be generated and the sharing percentage under the NET TV License and Services Agreement; (ii) the estimated annual costs to be paid by Philips Consumer Lifestyle to JVCo for the managed operations of the service portal, the use of the services and the day-to-day operations; and (iii) possible change of the Completion Date.

In assessing the fairness and reasonableness of the aforesaid Annual Caps, we have reviewed the followings:

(i) Projected revenue generated from the NET TV Services and the sharing percentage under the NET TV License and Services Agreement

As discussed in the paragraph headed ‘‘pricing and financing arrangements’’ in section 5(a) above, we understand that the NET TV Services are now in the planning stage and have not been activated. Accordingly, there was no historical track record of revenue can be referenced to. Based on the estimation of the management of the Group and after taking into account, among other things, the structure of the NET TV Services and the revenue sharing mechanism among the participants and subject to the timing of the activation of the NET TV Services, it is anticipated that the revenue to be generated from user purchase on services and advertising to be shared by the JV Group will be EUR1.0 million (equivalent

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to approximately US$1.4 million), EUR1.5 million (equivalent to approximately US$2.1 million) and EUR2.0 million (equivalent to approximately US$2.8 million) for the first, second and third years from Completion respectively. Given the NET TV Services are still in planning stage, we consider the above estimate is not unreasonable.

(ii) Estimated annual costs payable by Philips Consumer Lifestyle

Pursuant to the NET TV License and Services Agreement, Philips Consumer Lifestyle shall pay to JVCo for the license to use the NET TV Portal and Smart TV Dashboard, which will be based on the actual costs planned for that year and the proportion of Philips Consumer Lifestyle’s total installed base of active devices for that year to the total Net TV installed base for that year. We have discussed with the management of the Group, we understand that the Philips Group has funded approximately EUR1.0 million (equivalent to approximately US$1.4 million) for the development of the NET TV Services in 2011. Moreover, we also note that additional contributions of up to EUR0.4 million (equivalent to approximately US$0.6 million) may be made by Philips in relation to some joint know how programs for the Net TV Services, which will be discussed and agreed on a case-by- case basis. Accordingly, we consider it reasonable that the total costs payable by Philips Consumer Lifestyle will be up to EUR1.4 million (equivalent to approximately US$1.96 million) per year during the term of the NET TV License and Service Agreement.

(iii) Possible change of the Completion Date

The NET TV License and Services Agreement will commence on the Completion Date, which may not fall at the beginning of the financial year of the Group. The actual payment date therefore will be subject to change due to the possible change of the Completion Date as discussed above. We have reviewed the estimation of the aforesaid Annual Caps due to the possible change of the Completion Date and we consider the estimation is reasonable.

Having considered the basis on which the Annual Caps for the fee payable for the services under the NET TV License and Services Agreement were determined as described above, we are of the view that the aforesaid Annual Caps are fair and reasonable.

(i) The Online Shop and My Shop Agreement

Set out below is a summary of the Annual Caps for the sales price payable by Online Shop and My Shop to TP Vision Netherlands, a wholly-owned subsidiary of JVCo, under the Online Shop and My Shop Agreement for the financial year ending 31 December 2012 up to and including the financial years ending 31 December 2015.

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For the year ending 31 December 2012 2013 2014 2015

In EUR (million) 7.26 7.26 7.26 3.63

Approximately equivalent US$ (million) 10.16 10.16 10.16 5.08

The Annual Caps were determined by the Company after taking into account, amongst other things, (i) the Group’s estimates for the future demand of Online Shop and My Shop for the Scope Products, which was determined with reference to their historical and estimated future demand for the Scope Products; (ii) the pricing trend for the Scope Products; (iii) additional buffers to cater for possible fluctuation of materials costs as a result of possible changes in market conditions; and (iv) possible change of the Completion Date.

In assessing the fairness and reasonableness of the aforesaid Annual Caps, we have reviewed the followings:

(i) Historical and projected sales amount of the Scope Products to the Philips Group

The amount of sales of the Scope Products to the Philips Group under similar arrangements of the Online Shop and My Shop Agreement were approximately EUR6.3 million (equivalent to approximately US$8.8 million), EUR6.6 million (equivalent to approximately US$9.2 million) and EUR6.5 million (equivalent to approximately US$9.1 million) for 2008, 2009 and 2010 respectively. It is currently expected that the projected sales during the term of the Online Shop and My Shop Agreement will be approximately EUR6.6 million (equivalent to approximately US$9.2 million) per year. We have reviewed the track record of sales of the Scope Products to the Philips Group in the last few years as mentioned above and the projected employees’ demand for the Scope Products provided by Philips, we consider the Company’s sales projection is reasonable.

(ii) Buffer to accommodate changes in market conditions

Similar to the Annual Caps for the royalty payable under the Trademark License Agreement and the Secondary Trademark License Agreement, a buffer of 10% for each of the four years ending 31 December 2015 has been added to the Annual Caps for the sales under the Online Shop and My Shop Agreement. Likewise, we are of the view that a buffer of 10% is reasonable and will allow more flexibility to the Group when market conditions change.

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(iii) Possible change of the Completion Date

The Online Shop and My Shop Agreement will commence on the Completion Date, which may not fall at the beginning of the financial year of the Group. The actual payment date therefore will be subject to change due to the possible change of the Completion Date as discussed above. We have reviewed the estimation of the aforesaid Annual Caps due to the possible change of the Completion Date and we consider the estimation is reasonable.

Having considered the basis on which the Annual Caps for the sales price under the Online Shop and My Shop Agreement were determined as described above, we are of the view that the aforesaid Annual Caps are fair and reasonable.

(j) The Employee Shop Agreements

Set out below is a summary of the Annual Caps for the sales price payable by Employee Shop to Local JVCo Subsidiary under the Employee Shop Agreements for the financial year ending 31 December 2012 up to and including the financial years ending 31 December 2015.

For the year ending 31 December 2012 2013 2014 2015

In EUR (million) 5.28 5.28 5.28 2.64

Approximately equivalent US$ (million) 7.39 7.39 7.39 3.70

The Annual Caps were determined by the Company after taking into account, amongst other things, (i) the Group’s estimates for the future demand of Employee Shop for the Scope Products, which was determined with reference to the historical and estimated future demand and for the Scope Products; (ii) the pricing trend for the Scope Products; and (iii) possible change of the Completion Date.

In assessing the fairness and reasonableness of the aforesaid Annual Caps, we have reviewed the followings:

(i) Historical and projected sales of the Scope Products to the Philips Group

The amount of sales of the Scope Products to the Philips Group under similar arrangements of the Employee Shop Agreements were in the range of approximately EUR4 million (equivalent to approximately US$5.6 million) and EUR5 million (equivalent to approximately US$7.0 million) in 2009 and 2010. It is currently expected that the projected sales during the term of the Online Shop and My Shop Agreement will be approximately EUR4.8 million (equivalent to approximately US$6.7 million) per annum. We have reviewed the track record of sales of the Scope Products to the Philips Group as mentioned above and the projected employees’ demand for the Scope Products provided by Philips, we consider the Company’s sales projection is reasonable.

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(ii) Buffer to accommodate changes in market conditions

Similar to the Annual Caps for the royalty payable under the Trademark License Agreement and the Secondary Trademark License Agreement, a buffer of 10% for each of the four years ending 31 December 2015 has been added to the Annual Caps for the sales under the Employee Shop Agreements. Likewise, we are of the view that a buffer of 10% is reasonable and will allow more flexibility to the Group when market conditions change.

(iii) Possible change of the Completion Date

The Employee Shop Agreements will commence on the Completion Date, which may not fall at the beginning of the financial year of the Group. The actual payment date therefore will be subject to change due to the possible change of the Completion Date as discussed above. We have reviewed the estimation of the aforesaid Annual Caps due to the possible change of the Completion Date and we consider the estimation is reasonable.

Having considered the basis on which the Annual Caps for the sales price under the Employee Shop Agreements were determined as described above, we are of the view that the aforesaid Annual Caps are fair and reasonable.

(k) The Brazil Lease Agreement

Set out below is a summary of the Annual Caps for the rental and additional condominium charge payable for the lease by TP Vision Brazil to Philips Brazil under the Brazil Lease Agreement for the financial year ending 31 December 2012 up to and including the financial years ending 31 December 2015.

For the year ending 31 December 2012 2013 2014 2015

In EUR (million) 1.97 2.26 2.60 1.30

Approximately equivalent US$ (million) 2.76 3.16 3.64 1.82

The Annual Caps were determined by the Company after taking into account, amongst other things, (i) the monthly rental payment as agreed in the Brazil Lease Agreement; (ii) the duration, including the possible extension, of the Brazil Lease Agreement; (iii) the projected inflation rate; (iv) potential changes in the exchange rate; and (v) a buffer for additional condominium expenditure incurred.

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In assessing the fairness and reasonableness of the aforesaid Annual Caps, we have reviewed the followings:

(i) The agreed monthly rental

Pursuant to the Brazil Lease Agreement, the monthly lease payment will be R$142,666.67 (equivalent to approximately US$89,580). The total rental per year will be approximately EUR768,000 (equivalent to approximately US$1,075,200).

(ii) Projected inflation rate

The monthly rental under the Brazil Lease Agreement will be adjusted annually by the variation of the general market price index. A projected inflation rate of 15% therefore has been included in the estimation of aforesaid Annual Caps. We have reviewed the history of inflation in Brazil, we note that the inflation rate has been in single digit in recent years but it did surge up to around 17% in 2003. On the above basis, we consider the inclusion of inflation rate of 15% is reasonable for the purpose of estimation of aforesaid Annual Caps.

(iii) Potential changes in the exchange rate

The rental and condominium charges under the Brazil Lease Agreement will be payable in R$. A buffer of 20% has been included in the estimation of the aforesaid Annual Caps due to the potential changes in the exchange rate between R$ and EUR. We have reviewed the exchange rate of R$ against EUR and we note that the exchange rate has fluctuated as much as 15% during the current year up to the Latest Practicable Date. Accordingly, we consider a buffer of 20% for the potential changes in the exchange rate is reasonable for the purpose of estimation of the aforesaid Annual Caps.

(iv) Condominium expenditure

The condominium charges payable are estimated to be approximately EUR594,000 (equivalent to approximately US$831,600) per annum. We have reviewed and we note that the actual condominium expenditure recently incurred was close to the estimated condominium charges. In addition, a buffer of 10% for each of the four years ending 31 December 2015 has been added to the condominium charges for estimation of the Annual Caps. This will allow the Group to recover additional condominium expenditure incurred by Philips Brazil. Based on the above, we consider the estimation of the condominium charges and the buffer of 10% is reasonable.

Having considered the basis on which the Annual Caps for the rental and additional condominium charge under the Brazil Lease Agreement were determined as described above, we are of the view that the aforesaid Annual Caps are fair and reasonable.

125 LETTER FROM SOMERLEY

(l) Amendment to the Dixtal Lease Agreement

Set out below is a summary of the Annual Caps for the rental and additional condominium charge payable for the lease by Philips Brazil to Dixtal under the Dixtal Lease Agreement (as amended) for the financial year ending 31 December 2012 up to and including the financial year ending 31 December 2014.

For the year ending 31 December 2012 2013 2014

In EUR 304,000 350,000 268,000

Approximately equivalent US$ 425,600 490,000 375,200

The Annual Caps were determined by the Company after taking into account, amongst other things, (i) the monthly rental payment and the additional condominium charge as agreed in the Amendment to the Dixtal Lease Agreement; (ii) the duration of the Dixtal Lease Agreement; (iii) the estimated inflation rate; and (iv) potential changes in the exchange rate.

In assessing the fairness and reasonableness of the aforesaid Annual Caps, we have reviewed the followings:

(i) The agreed monthly rental

Pursuant to the Dixtal Lease Agreement, the monthly rental was R$27,014.4 (equivalent to approximately US$16,962) in 2009. After adjusted for inflation, the current monthly rental has been adjusted upwards to R$30,960 (equivalent to approximately US$19,440) and the yearly rental has become approximately EUR167,000 (equivalent to approximately US$233,800).

(ii) Condominium expenditure

The condominium charges payable are estimated to be approximately EUR48,000 (equivalent to approximately US$67,200) per annum. We have reviewed and note that the actual condominium expenditure recently incurred was close to the estimated condominium charges. In addition, a buffer of 10% for each of the two years ending 31 December 2014 has been added to the condominium charges for estimation of the Annual Caps. This will allow the Group to recover additional condominium expenditure incurred by Dixtal. Based on the above, we consider the estimation of the condominium charges and the buffer of 10% is reasonable.

126 LETTER FROM SOMERLEY

(iii) Projected inflation rate

Same as the Brazil Lease Agreement, the rental rate under the Dixtal Lease Agreement (as amended) will be adjusted annually for inflation. A projected inflation rate of 15% therefore has been included in the estimation of the aforesaid Annual Caps. Based on our review above, we consider the projected inflation rate of 15% is reasonable for the purpose of estimation of the aforesaid Annual Caps.

(iv) Potential changes in the exchange rate

Also same as the Brazil Lease Agreement, the amount payable under the Dixtal Lease Agreement (as amended) will be payable in R$. A buffer of 20% has been included in the estimation of the aforesaid Annual Caps due to the potential changes in the exchange rate between R$ and EUR. Based on our work above, we consider the buffer of 20% for the potential changes in the exchange rate is reasonable for the purpose of estimation of the aforesaid Annual Caps.

(v) Duration of the Dixtal Lease Agreement (as amended)

The Dixtal Lease Agreement (as amended) will expire on 31 July 2014. We have reviewed and we note that the computation of the aforesaid Annual Caps for 2014 has taken into account the expiry of the Dixtal Lease Agreement (as amended) on 31 July 2014.

Having considered the basis on which the Annual Caps for the rental and additional condominium charge under the Dixtal Lease Agreement (as amended) were determined as described above, we are of the view that the aforesaid Annual Caps are fair and reasonable.

(m) The Hungary Lease and Service Agreement

The Annual Cap was determined by the Company after taking into account, amongst other things, (i) the lease payment as agreed in the Hungary Lease and Service Agreement; (ii) duration and possible extension of the Hungary Lease and Service Agreement; and (iii) a buffer for potential additional services costs.

127 LETTER FROM SOMERLEY

In assessing the fairness and reasonableness of the aforesaid Annual Cap, we have reviewed the followings:

(i) The agreed lease and service fee and the duration of the Hungary Lease and Service Agreement

Pursuant to the Hungary Lease and Service Agreement, the total service for lease and related services will be EUR468,750 (equivalent to approximately US$656,250) for three months. The management of the Group anticipates that the Hungary Lease and Service Agreement may commence as soon as 1 January 2012 and, assuming an extension is made, may end on 30 June 2012. Accordingly, the maximum amount of the total service fee will become approximately EUR937,500 (equivalent to approximately US$1,312,500).

(ii) Buffer for potential additional services costs

In addition to the lease and services as defined in the Hungary Lease and Service Agreement to be provided by TP Vision Hungary, other services will be agreed by both parties on an arm’s length basis separately. Accordingly, a buffer of 10% for the year ending 31 December 2012 has been included to the aforesaid Annual Cap for such additional services. We are of the view that such buffer of 10% is reasonable and will allow the Group to recover the costs incurred by TP Vision Hungary for provision of additional services.

Having considered the basis on which the Annual Cap for the fee pursuant to the Hungary Lease and Service Agreement were determined as described above, we are of the view that the aforesaid Annual Cap is fair and reasonable.

(n) The Tax Audit Service Agreement

Set out below is a summary of the Annual Caps for the fee payable by Philips Hungary to TP Vision Hungary under the Tax Audit Service Agreement for the financial year ending 31 December 2012 up to and including the financial year ending 31 December 2013.

For the year ending 31 December 2012 2013

In EUR 100,000 100,000

Approximately equivalent US$ 140,000 140,000

The Annual Caps were determined by the Company after taking into account, amongst other things, (i) the expected number of hours required for and the agreed hourly rate for the services under the Tax Audit Service Agreement; and (ii) a buffer for potential additional services costs.

128 LETTER FROM SOMERLEY

In assessing the fairness and reasonableness of the aforesaid Annual Caps, we have reviewed (i) the maximum charges for the services under the Tax Audit Service Agreement; and (ii) the expected number of hours and the agreed hourly rate. We have reviewed the Tax Audit Service Agreement and we note that the maximum charges for the services will be EUR100,000 (equivalent to approximately US$140,000). In addition, based on our discussion with the management of the Group, it is currently expected that maximum number of hours required for the provision of various services, including any potential additional services, in relation to tax audits with respect to Philips will not be more than 2,000 hours. The agreed rate for the provision of services will be approximately EUR50 (equivalent to approximately US$70) per hour, which, based on our understanding with the management of the Group, is in line with the costs of services provided by the relevant level of staff.

Having considered the basis on which the Annual Caps for the fee under the Tax Audit Service Agreement were determined as described above, we are of the view that the aforesaid Annual Caps are fair and reasonable.

OPINION AND RECOMMENDATION

Based on the above principal factors and reasons, we consider the entering into of the Continuing Connected Transactions (including the Annual Caps) is part and parcel of the Acquisition, in the ordinary and usual course of business of the Company when the Company decided to acquire 70% interest in JVCo and in the interests of the Company and the Independent Shareholders as a whole. We also consider the terms of the Continuing Connected Transactions (including the Annual Caps) are on normal commercial terms and fair and reasonable as far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Board Committee to recommend, and we ourselves recommend, the Independent Shareholders, to vote in favor of the ordinary resolution to be proposed at the EGM in relation to the Continuing Connected Transactions (including the Annual Caps).

Yours faithfully for and on behalf of SOMERLEY LIMITED Jenny Leung Director — Corporate Finance

129 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

1. FINANCIAL SUMMARY

Set out below are the consolidated financial information of the Group for the last three financial years and six months with respect to the published results and the assets and liabilities, as a comparative table.

For six months ended Year ended 31 December 30 June 2011 2010 2009 2008 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) (Restated)

TURNOVER 46,717,824 104,931,670 37,085,314 22,528,185 Cost of sales (44,131,743) (99,764,943) (35,151,169) (21,482,358)

Gross Profit 2,586,081 5,166,727 1,934,145 1,045,827

Other income and gains 487,580 600,365 402,259 390,004 Net realised and unrealised gain on foreign exchange forward contracts – 243,426 106,853 – Gain on deemed partial disposal and partial disposal of interests in an associate – 304,174 – – Net gain on disposal of an associate and the loan to an associate – 236,904 – – Compensation for termination of contracts – – 114,084 104,471 Termination fee income – – – 52,235 Discount on acquisition of a subsidiary – – 357,330 4,609 Selling and distribution costs (1,153,678) (2,109,650) (732,094) (265,092) Administrative expenses (852,457) (1,490,687) (726,264) (518,501) Research and development expenses (448,248) (801,078) (276,524) (40,582) Finance costs (54,502) (172,648) (64,968) (74,864) Share of results of jointly controlled entities 21,149 (10,925) – – Share of results of associates (5,884) 126,224 42,154 (66,721)

PROFIT BEFORE TAX 580,047 2,092,832 1,156,975 631,395

Income tax expense (95,216) (353,107) (150,093) (7,579)

PROFIT FOR THE YEAR/PERIOD 484,831 1,739,725 1,006,882 623,816

130 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

For six months ended Year ended 31 December 30 June 2011 2010 2009 2008 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) (Restated)

Attributable to: Equity holders of the Company 123,730 648,989 397,605 359,984 Minority interests 361,101 1,090,736 609,277 263,832

484,831 1,739,725 1,006,882 623,816

DIVIDENDS Proposed final – 179,661 143,729 65,876

EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

Basic – For (loss)/profit for the year/period 10.33 cents 54.18 cents 33.20 cents 30.06 cents

For six month Assets, Liabilities and ended Minority Interests 30 June 2011 2010 2009 2008 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited)

Total Assets 41,601,890 42,278,292 36,415,499 10,335,759

Total Liabilities 25,765,406 26,401,667 22,625,336 3,885,412

Minority Interests 11,234,136 11,164,962 9,348,292 2,614,910

131 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010

Set out below are the audited consolidated financial statements of the Company for the year ended 31 December 2010, together with the notes thereto, as extracted from the annual report of the Group for the year ended 31 December 2010.

CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2010 2010 2009 Notes RMB’000 RMB’000

Turnover 7 104,931,670 37,085,314 Cost of sales (99,764,943) (35,151,169)

Gross profit 5,166,727 1,934,145 Other income and gains 7 600,365 402,259 Net realised and unrealised gain on foreign exchange forward contracts 243,426 106,853 Gain on deemed partial disposal and partial disposal of interests in an associate 8 304,174 – Net gain on disposal of an associate and the loan to an associate 9 236,904 – Compensation for termination of contracts 10 – 114,084 Discount on acquisition of subsidiaries 43 – 357,330 Selling and distribution costs (2,109,650) (732,094) Administrative expenses (1,490,687) (726,264) Research and development expenses (801,078) (276,524) Finance costs 12 (172,648) (64,968) Share of results of jointly controlled entities (10,925) – Share of results of associates 126,224 42,154

Profit before tax 13 2,092,832 1,156,975 Income tax expense 16 (353,107) (150,093)

Profit for the year 1,739,725 1,006,882

Attributable to: Owners of the Company 648,989 397,605 Non-controlling interests 1,090,736 609,277

1,739,725 1,006,882

Earnings per share

– Basic and diluted (RMB per share) 18 54.18 cents 33.20 cents

132 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 December 2010 2010 2009 Notes RMB’000 RMB’000

Non-current assets Property, plant and equipment 19 5,858,945 5,202,167 Prepaid land lease payments 20 346,045 338,133 Investment properties 21 1,295,585 1,294,529 Intangible assets 22 121,654 133,856 Interests in associates 23 550,644 392,315 Interests in jointly controlled entities 24 72,982 – Available-for-sale investments 25 197,592 175,808 Term deposits 30 14,000 86,008 Deferred tax assets 39 223,021 187,748

8,680,468 7,810,564

Current assets Inventories 26 9,777,435 6,533,447 Trade and bills receivables 27 16,777,368 14,389,004 Prepaid land lease payments 20 8,992 7,317 Prepayments, deposits and other receivables 28 2,799,011 2,171,247 Financial assets at fair value through profit or loss 29 16,967 30,246 Tax recoverable 38,027 4,486 Derivative financial instruments 35 431,158 128,589 Amounts due from fellow subsidiaries 48 11,051 13,125 Amounts due from associates 48 42,704 62,538 Term deposits 30 546,328 495,000 Pledged deposits 30 390,978 339,900 Bank balances and cash 30 2,757,805 4,050,766

33,597,824 28,225,665 Assets classified as held for sale 31 – 379,270

33,597,824 28,604,935

133 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

2010 2009 Notes RMB’000 RMB’000

Current liabilities Trade and bills payables 32 16,984,780 14,789,773 Other payables and accruals 3,355,712 2,934,415 Bank and other loans 33 4,267,261 1,773,011 Convertible bonds of a subsidiary 34 – 1,428,541 Derivative financial instruments 35 422,773 119,999 Tax payable 130,439 167,390 Provisions for products warranties 36 498,000 501,855 Amount due to immediate holding company 48 5,454 2,605 Amounts due to fellow subsidiaries 48 73,466 56,516 Amounts due to associates 48 40,227 36,473

25,778,112 21,810,578

Liabilities associated with assets classified as held for sale 31 – 248,962

25,778,112 22,059,540

Net current assets 7,819,712 6,545,395

Total assets less current liabilities 16,500,180 14,355,959

134 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

2010 2009 Notes RMB’000 RMB’000

Capital and reserves Share capital 41 1,197,742 1,197,742 Reserves 3,513,921 3,244,129

Equity attributable to owners of the Company 4,711,663 4,441,871 Non-controlling interests 11,164,962 9,348,292

Total equity 15,876,625 13,790,163

Non-current liabilities Bank and other loans 33 – 41,816 Other payables 148,746 196,372 Pension obligations 37 38,650 34,558 Financial guarantee contracts 38 – 3,637 Deferred tax liabilities 39 402,032 267,038 Government grants 40 34,127 22,375

623,555 565,796

16,500,180 14,355,959

135 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2010

Attributable to owners of the Company

Available- for-sale Asset investment Non– Share Share Merger Goodwill revaluation revaluation Statutory Translation Other Retained controlling capital premium reserve reserve reserve reserve reserve reserve reserve profits Sub-total interests Total (note a) (note b) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2009 1,197,742 997,498 5,341 (28,155) 47,557 (231,552) 906,689 (44,483) (6,347) 991,147 3,835,437 2,614,910 6,450,347 Profit for the year – – – – – – – – – 397,605 397,605 609,277 1,006,882 Other comprehensive income (expenses) for the year – – – – 51,855 234,474 – (6,555) – – 279,774 321,349 601,123

Total comprehensive income (expense) for the year – – – – 51,855 234,474 – (6,555) – 397,605 677,379 930,626 1,608,005

Dividends paid – – – – – – – – – (65,876) (65,876) – (65,876) Dividend attributable to non-controlling shareholders – – – – – – – – – – – (70,528) (70,528) Acquisition of subsidiaries (note 43) – – – – – – – – – – – 5,878,816 5,878,816 Merger reserve arising from common control combinations – – (5,069) – – – – – – – (5,069) (5,532) (10,601) Transfer – – – – – – 42,270 – – (42,270) – – –

At 31 December 2009 1,197,742 997,498 272 (28,155) 99,412 2,922 948,959 (51,038) (6,347) 1,280,606 4,441,871 9,348,292 13,790,163

At 1 January 2010 1,197,742 997,498 272 (28,155) 99,412 2,922 948,959 (51,038) (6,347) 1,280,606 4,441,871 9,348,292 13,790,163 Profit for the year – – – – – – – – – 648,989 648,989 1,090,736 1,739,725 Other comprehensive income (expenses) for the year – – – – 28,266 9,835 – (98,896) – – (60,795) (172,166) (232,961)

Total comprehensive income (expense) for the year – – – – 28,266 9,835 – (98,896) – 648,989 588,194 918,570 1,506,764

Dividends paid – – – – – – – – – (143,729) (143,729) – (143,729) Dividend attributable to non-controlling shareholders – – – – – – – – – – – (390,314) (390,314) Acquisition of additional interests in a subsidiary – – – – – – – – (189,667) – (189,667) 189,667 – Share options reserve of a subsidiary – – – – – – – – – – – 5,442 5,442 Deemed partial disposal of a subsidiary – – – – – – – – 14,994 – 14,994 (14,994) – Contribution form non-controlling interests – – – – – – – – – – – 1,144,858 1,144,858 Disposal of subsidiaries – – – – – – – – – – – (36,559) (36,559) Transfer – – – – – – 70,696 – – (70,696) – – –

At 31 December 2010 1,197,742 997,498 272 (28,155) 127,678 12,757 1,019,655 (149,934) (181,020) 1,715,170 4,711,663 11,164,962 15,876,625

Notes:

(a) In accordance with the relevant People’s Republic of China (“PRC”) rules and regulations, subsidiaries established in the PRC are required to set aside 10% of their profit after income tax as recorded in the PRC statutory financial statements as statutory reserves, except where the reserve fund balance has reached 50% of the subsidiaries’ registered capital. The reserve fund can only be used to make good the subsidiaries’ previous years’ losses, to expand the subsidiaries’ production operations or to increase the capital of the subsidiaries.

(b) Other reserve represents reserve arising from the transactions with non-controlling shareholders. 136 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December 2010 2010 2009 Note RMB’000 RMB’000

OPERATING ACTIVITIES Profit before tax 2,092,832 1,156,975 Adjustments for: Finance costs 172,648 64,968 Interest income (72,729) (65,826) Share of results of associates (126,224) (42,154) Share of results of jointly controlled entities 10,925 – Gain on deemed partial disposal and partial disposal of interest in an associate (304,174) – Net gain on disposal of an associate and the loan to an associate (236,904) – Fair value gain on investment properties (53,328) (95,377) Gain on disposal of available-for-sale investments (18,027) – Discount on acquisition of a subsidiary (9,375) (357,330) Reversal of impairment of trade receivables (7,062) (11,220) Reversal of impairment of other receivables (6,909) (34,975) Reversal of allowance for inventories (5,735) (19,185) Gain on derecognition of financial guarantees (3,637) – Dividend income from unlisted available-for-sale investments (2,494) (1,021) (Gain) loss on disposal of property, plant and equipment (1,971) 4,688 Gain on disposal of a subsidiary (1,394) – Gain on disposal of equity investments at fair value through profit or loss (“FVTPL”) (268) – Depreciation of property, plant and equipment 1,221,488 534,903 Allowance for inventories 159,973 15,053 Impairment of (reversal of impairment of) loans to associates 34,318 (18,920) Amortisation of intangible assets 20,796 6,581 Impairment of trade receivables 32,834 31,673 Unrealised loss (gain) on derivative financial instruments 13,743 (96,683) Impairment of property, plant and equipment 12,198 25,374 Amortisation of prepaid land lease payments 7,093 4,729 Impairment of available-for-sale investments 5,989 – Share option granted to directors and employees of a subsidiary 5,442 – Fair value change in equity investments at FVTPL 2,522 (2,688) Loss on disposal of subsidiaries 1,719 – Impairment of other receivables – 24,821 Change in fair value of financial guarantee contracts – (17,503) Loss on disposal of an associate – 1,255 Dividend income from listed available-for-sale investment – (21,842) Interest income from loan to associates – (10,469)

137 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

2010 2009 Note RMB’000 RMB’000

Operating cash flows before movements in working capital 2,944,289 1,075,827 (Increase) decrease in inventories (3,409,492) 1,434,042 Increase in trade and bills receivables (2,340,704) (1,283,096) Increase in prepayments, deposits and other receivables (622,492) (363,069) Increase in trade and bills payables 2,204,401 535,216 Increase (decrease) in other payables and accruals 330,129 (2,435) Increase in amount due to the immediate holding company 2,849 2,605 Decrease (increase) in amounts due from associates 19,834 (62,538) Increase in provisions for products warranties 10,640 18,558 Increase in pension 4,092 3,211

Cash (used in) generated from operations (856,454) 1,358,321 PRC Enterprise Income Tax (“PRC EIT”) and overseas income tax paid (333,349) (124,934) Hong Kong Profits Tax paid (7,940) (6,160)

NET CASH (USED IN) FROM OPERATING ACTIVITIES (1,197,743) 1,227,227

138 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

2010 2009 Note RMB’000 RMB’000

INVESTING ACTIVITIES Net cash flow from the acquisition of subsidiaries 43 (5,042) 1,240,742 Purchase of property, plant and equipment (2,106,333) (783,015) Purchases of available-for-sale investments (30,804) (393,997) Increase in pledged deposits (51,078) (302,544) Capital injection to associates (98,558) (28,000) Capital injection to jointly controlled entities (51,429) – Addition to prepaid land lease payments (48,525) (25,681) Additions to intangible assets (12,410) (1,092) Proceeds from disposal of associates 478,026 – Proceeds from disposal of property, plant and equipment 264,163 79,348 Interest received 72,729 76,295 Dividends received from associates 64,272 69,381 Proceeds from disposal of available-for-sale investments 45,270 4,081 Net cash flow from disposal of subsidiaries 21,315 – Decrease (increase) in term deposits with terms over three months 20,680 (76,000) Repayment of loans to associates 20,588 37,355 Proceeds from sales of investment held for trading 11,025 – Dividends received from unlisted available-for-sale investments 2,494 1,021 Repayment from fellow subsidiaries 2,074 58,057 Dividend received from listed available-for-sale investment – 21,842 Purchases of equity investments at FVTPL – (22,916) Payments for common control business combination – (10,601)

NET CASH USED IN INVESTING ACTIVITIES (1,401,543) (55,724)

139 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

2010 2009 Note RMB’000 RMB’000

FINANCING ACTIVITIES Repayment of bank and other loans (3,586,166) (965,817) Redemption of convertible bond of a subsidiary (1,437,355) – Dividends paid to minority interests (390,314) (70,528) Dividends paid as distribution (143,729) (65,876) Interest paid (164,069) (59,514) Repayment for derivative financial instruments (13,538) (13,663) Government grants utilised (11,218) (260) Repayment to fellow subsidiaries (8,050) (313,177) New bank and other loans raised 6,060,447 1,762,171 Contribution from non-controlling shareholders 1,144,858 – Repayment to associates 3,754 36,401 Government grants raised 22,970 14,982

NET CASH FROM FINANCING ACTIVITIES 1,477,590 324,719

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,121,696) 1,496,222

CASH AND CASH EQUIVALENTS AT 1 JANUARY, Represented by bank balances and cash 4,130,437 2,637,646

EFFECT OF FOREIGN EXCHANGE RATE CHANGES (250,936) (3,431)

CASH AND CASH EQUIVALENTS AT 31 DECEMBER, Represented by bank balances and cash 2,757,805 4,050,766 Represented by cash classified as held for sale – 79,671

2,757,805 4,130,437

140 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2010

1. GENERAL

Great Wall Technology Company Limited (the “Company”) is a limited liability company incorporated in the PRC and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The addresses of the registered office and the principal place of business of the Company is located at No.2 Keyuan Road, Technology and Industrial Park, Nanshan District, Shenzhen, the PRC.

The Company and its subsidiaries (collectively referred to as the “Group”) were principally involved in the development, manufacture and sale of TVs and computer and related products including hardware and software products.

In the opinion of the directors, the immediate holding of the Company is China Great Wall Computer Group Company (“Great Wall Group”), and the ultimate holding company of the Company is China Electronics Corporation (“CEC”) as a result of the restructuring approved by the State-owned Assets Supervision and Administration Commission of the State Council (“SASAC”) on 18 August 2006. Both of them are state-owned enterprises established in the PRC.

These consolidated financial statements are presented in Renminbi (“RMB”) which is the same as the functional currency of the Company while the functional currency of a major subsidiary, TPV Technology Limited (“TPV”), is US dollars (“US$”).

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

In the current year, the Group has applied the following new and revised Standards, Amendments and Interpretations (“new and revised HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“the HKICPA”).

HKFRSs (Amendments) Amendment to HKFRS 5 as part of Improvements to HKFRSs issued in 2008 HKFRSs (Amendments) Improvements to HKFRSs issued in 2009 Hong Kong Accounting Standard Consolidated and Separate Financial Statements (“HKAS”) 27 (Revised) HKAS 39 (Amendment) Eligible Hedged Items HKFRS 1 (Revised) First-Time Adoption of HKFRSs HKFRS 1 (Amendment) Additional Exemptions for First time Adopters HKFRS 2 (Amendment) Group Cash-settled Share-based Payment Transactions HKFRS 3 (Revised) Business Combinations HK – Interpretation (“Int”) 5 Presentation of Financial Statements – Classification by Borrower of a Term Loan that Contains a Repayment on Demand Clause HK(International Financial Distributions of Non-cash Assets to Owners Reporting Interpretations Committee) (“IFRIC”) – Int 17

Except as described below, the adoption of the new and revised HKFRSs had no material effect on the consolidated financial statements of the Group for the current or prior accounting periods.

HKFRS 3 (Revised 2008) Business Combinations and HKAS 27 (Revised) Consolidated and Separate Financial Statements

The Group applies HKFRS 3 (Revised) Business Combinations prospectively to business combinations for which the acquisition date is on or after 1 January 2010 and the application of HKAS 27 (Revised) has resulted in changes in the Group’s accounting policies regarding increases or decreases in ownership interests in subsidiaries of the Group.

Specifically, the revised standard has affected the Group’s accounting policies regarding changes in the Group’s ownership interests in its subsidiaries that do not result in loss of control. In prior years, in the absence of specific requirements in HKFRSs, increases in interests in existing subsidiaries were treated in the same manner as the acquisition of subsidiaries, with goodwill or a bargain purchase gain being recognised, when appropriate; for decreases in interests in existing subsidiaries that did not involve a loss of control, the difference between the consideration received and the adjustment to the non-controlling interests was recognised in profit or loss. Under HKAS 27 (Revised 2008), all increases or decreases in such interests are dealt with in equity, with no impact on goodwill or profit or loss.

141 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

When control of a subsidiary is lost as a result of a transaction, event or other circumstance, the revised standard requires that the Group to derecognise all assets, liabilities and non-controlling interests at their carrying amount and to recognise the fair value of the consideration received. Any retained interest in the former subsidiary is recognised at its fair value at the date the control is lost. The resulting difference is recognised as a gain or loss in profit or loss.

These changes have been applied prospectively from 1 January 2010 in accordance with the relevant transitional provisions.

The application of the revised standard has affected the accounting for the deemed disposal of TPV and increase in interest in an existing subsidiary, China Great Wall Computer (Shenzhen) Co., Ltd (“CGC”), in the current year. The change in policy has resulted in the difference of approximately RMB174,673,000 between the interests in subsidiaries before and after the deemed disposal of TPV and increase in interests in CGC being recognised directly in equity, instead of in profit or loss. Therefore, the change in accounting policy has resulted in increase in the profit for the year of RMB174,673,000.

In addition, under HKAS 27(as revised in 2008), the definition of non-controlling interest has been changed. Specifically, under the revised standard, non-controlling interest is defined as the equity in a subsidiary not attributable, directly or indirectly, to a parent. The application of the revised standard has resulted in share options reserve relating to the employee share option plan of TPV, an indirect subsidiary of the Company, being included as part of non-controlling interest in the consolidated statement of financial position and consolidated statement of changes in equity.

The Group has not early applied the following new and revised standards, amendments or interpretations that have been issued but are not yet effective.

HKFRSs (Amendments) Improvements to HKFRSs issued in 2010 except for the amendments to HKFRS 3 (Revised in 2008), HKFRS 7, HKAS 1 and HKAS 281 HKFRS 1 (Amendment) Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters3 HKFRS 1 (Amendments) Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters5 HKFRS 7 (Amendments) Disclosures – Transfers of Financial Assets5 HKFRS 9 Financial Instruments7 HKAS 12 (Amendments) Deferred Tax: Recovery of Underlying Assets6 HKAS 24 (Revised) Related Party Disclosures4 HKAS 32 (Amendments) Classification of Rights Issues2 HK (IFRIC) – Int 14 Prepayments of a Minimum Funding Requirement4 (Amendments) HK (IFRIC) – Int 19 Extinguishing Financial Liabilities with Equity Instruments3

1 Amendments that are effective for annual periods beginning on or after 1 July 2010 and 1 January 2011, as appropriate. 2 Effective for annual periods beginning on or after 1 February 2010. 3 Effective for annual periods beginning on or after 1 July 2010. 4 Effective for annual periods beginning on or after 1 January 2011. 5 Effective for annual periods beginning on or after 1 July 2011. 6 Effective for annual periods beginning on or after 1 January 2012. 7 Effective for annual periods beginning on or after 1 January 2013.

HKFRS 9 Financial Instruments issued in November 2009 and amended in October 2010 introduces new requirements for the classification and measurement of financial assets and financial liabilities and for derecognition.

HKFRS 9 requires all recognised financial assets that are within the scope of HKAS 39 Financial Instruments: Recognition and Measurement to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods.

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In relation to financial liabilities, the significant change relates to financial liabilities that are designated as at fair value through profit or loss. Specifically, under HKFRS 9, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the presentation of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Previously, under HKAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was presented in profit or loss.

HKFRS 9 is effective for annual periods beginning on or after 1 January 2013, with earlier application permitted.

The directors of the Company anticipate that HKFRS 9 that will be adopted in the Group’s consolidated financial statements for the annual period beginning 1 January 2013 and that the application of the new standard may have a significant impact on amounts reported in respect of the Group’s financial assets and financial liabilities. However, it is no practicable to provide a reasonable estimate of that effect until a detailed review has been completed.

The amendments to HKFRS 7 titled Disclosures – Transfers of Financial Assets increase the disclosure requirements for transactions involving transfers of financial assets. These amendments are intended to provide greater transparency around risk exposures when a financial asset is transferred but the transferor retains some level of continuing exposure in the assets. The amendments also require disclosures where transfers of financial assets are not evenly distributed throughout the period.

The directors of the Company do not anticipate that these amendments to HKFRS 7 will have a significant effect on the Group’s disclosures regarding transfers of trade receivables previously effected. However, if the Group enters into other types of transfers of financial assets in the future, disclosures regarding those transfers may be affected.

The amendments to HKAS 12 titled Deferred Tax: Recovery of Underlying Assets mainly deal with the measurement of deferred tax for investment properties that are measured using the fair value model in accordance with HKAS 40 Investment Property. Based on the amendments, for the purposes of measuring deferred tax liabilities and deferred tax assets for investment properties measured using the fair value model, the carrying amounts of the investment properties are presumed to be recovered through sale, unless the presumption is rebutted in certain circumstances. The directors of the Company anticipate that the application of the amendments to HKAS 12 may have a significant impact on deferred tax recognised for investment properties that are measured using the fair value model.

HKAS 24 (Revised) clarifies and simplifies the definition of related parties and removes the requirement for government- related entities to disclose details of all transactions with the government and other government related entities. The Group expects to adopt HKAS 24 (Revised) from 1 January 2011 and no significant change in disclosure in the financial statements is expected.

The amendments to HKAS 32 titled Classification of Rights Issues address the classification of certain rights issues denominated in a foreign currency as either an equity instrument or as a financial liability. To date, the Group has not entered into any arrangements that would fall within the scope of the amendments. However, if the Group does enter into any rights issues within the scope of the amendments in future accounting periods, the amendments to HKAS 32 will have an impact on the classification of those rights issues.

HK(IFRIC) – Int 19 provides guidance regarding the accounting for the extinguishment of a financial liability by the issue of equity instruments. To date, the Group has not entered into transactions of this nature. However, if the Group does enter into any such transactions in the future, HK(IFRIC) – Int 19 will affect the required accounting. In particular, under HK(IFRIC) – 19, equity instruments issued under such arrangements will be measured at their fair value, and any difference between the carrying amount of the financial liability extinguished and the fair value of equity instruments issued will be recognised in profit or loss.

The directors of the Company anticipate that the application of the other new and revised standards, amendments or interpretations will have no material impact on the results and the financial position of the Group.

143 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

3. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared on the historical cost basis except for investment properties and financial instruments, which are measured at fair values, as explained in the accounting policies set out below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

The consolidated financial statements have been prepared in accordance with HKFRSs issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange (“Listing Rules”) and by the Hong Kong Companies Ordinance.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Non-controlling interests in subsidiaries are presented separately from the Group’s equity therein.

Investments in subsidiaries

Investments in subsidiaries are stated at cost less any identified impairment loss on the statement of financial position of the Company.

Allocation of total comprehensive income to non-controlling interests

Total comprehensive income and expense of a subsidiary is attributed to the owners of the Company and to the non- controlling interests even if this results in the non-controlling interests having a deficit balance. Prior to 1 January 2010, losses applicable to the non-controlling interests in excess of the non-controlling interests in the subsidiary’s equity were allocated against the interests of the Group except to the extent that the non-controlling interests had a binding obligation and were able to make an additional investment to cover the losses.

Changes in the Group’s ownership interests in existing subsidiaries

Changes in the Group’s ownership interests in existing subsidiaries on or after 1 January 2010

Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.

When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. When assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the amounts previously recognised in other comprehensive income and accumulated in equity are accounted for as if the Company had directly disposed of the relevant assets (i.e. reclassified to profit or loss or transferred directly to retained earnings). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under HKAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity.

144 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Changes in the Group’s ownership interests in existing subsidiaries prior to 1 January 2010

Increases in interests in existing subsidiaries were treated in the same manner as the acquisition of subsidiaries, with goodwill or a bargain purchase gain being recognised where appropriate. For decreases in interests in subsidiaries, regardless of whether the disposals would result in the Group losing control over the subsidiaries, the difference between the consideration received and the adjustment to the non-controlling interests was recognised in profit or loss.

Business combinations

Business combinations that took place on or after 1 January 2010

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that:

– deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with HKAS 12 Income Taxes and HKAS 19 Employee Benefits respectively;

– liabilities or equity instruments related to share-based payment transactions of the acquiree or the replacement of an acquiree’s share-based payment transactions with share-based payment transactions of the Group are measured in accordance with HKFRS 2 Share-based Payment at the acquisition date; and

– assets (or disposal groups) that are classified as held for sale in accordance with HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another Standard.

When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill or gain on bargain purchase. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with HKAS 39, or HKAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognised in profit or loss.

145 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

When a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Group obtains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.

Changes in the value of the previously held equity interest recognised in other comprehensive income and accumulated in equity before the acquisition date are reclassified to profit or loss when the Group obtains control over the acquiree.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised as of that date.

Business combinations that took place before 1 January 2010

Acquisition of businesses was accounted for using the purchase method. The cost of the acquisition was measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that met the relevant conditions for recognition were generally recognised at their fair value at the acquisition date.

Goodwill arising on acquisition was recognised as an asset and initially measured at cost, being the excess of the cost of the acquisition over the Group’s interest in the recognised amounts of the identifiable assets, liabilities and contingent liabilities recognised. If, after assessment, the Group’s interest in the recognised amounts of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeded the cost of the acquisition, the excess was recognised immediately in profit or loss.

The minority interest in the acquiree was initially measured at the minority interest’s proportionate share of the recognised amounts of the assets, liabilities and contingent liabilities of the acquiree.

Contingent consideration was recognised, if and only if, the contingent consideration was probable and could be measured reliably. Subsequent adjustments to contingent consideration were recognised against the cost of the acquisition.

Business combinations achieved in stages were accounted for as separate steps. Goodwill was determined at each step. Any additional acquisition did not affect the previously recognised goodwill.

Merger accounting for business combination involving entities under common control

The consolidated financial statements incorporate the financial statements items of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party.

The net assets of the combining entities or businesses are consolidated using the existing book values from the controlling parties’ perspective. No amount is recognised in respect of goodwill or excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party’s interest.

The consolidated income statement includes the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under the common control, where this is a shorter period, regardless of the date of the common control combination.

The comparative amounts in the consolidated financial statements are presented as if the entities or businesses had been combined at the end of the previous reporting period or when they first came under common control, whichever is shorter.

146 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Excess of an acquirer’s interest in the net fair value of an acquiree’s identifiable assets, liabilities and contingent liabilities over cost (“discount on acquisitions”)

A discount on acquisition arising on an acquisition of subsidiaries represents the excess of the net fair value of an acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of the business combination. Discount on acquisition is recognised immediately in profit or loss.

Investments in associates

An associate is an entity over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for under HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, investments in associates are carried in the consolidated statement of financial position at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associates, less any identified impairment loss. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate.

The requirements of HKAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with HKAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with HKAS 36 to the extent that the recoverable amount of the investment subsequently increases.

The Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that associate would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when it loses significant influence over that associate.

Where a group entity transacts with an associate of the Group, profits and losses resulting from the transactions with the associate are recognised in the Group’s consolidated financial statements only to the extent of the interest in the associate that are not related to the Group.

Jointly controlled entities

Joint venture arrangements that involve the establishment of a separate entity in which venturers have joint control over the economic activity of the entity are referred to as jointly controlled entities.

The results and assets and liabilities of jointly controlled entities are incorporated in the consolidated financial statements using the equity method of accounting. Under the equity method, investments in jointly controlled entities are initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the jointly controlled entities. When the Group’s share of losses of a jointly controlled entity equals or exceeds its interest in that jointly controlled entity (which includes any long-term interests that, in substance, form part of the Group’s net investment in the jointly controlled entity), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that jointly controlled entity.

When a group entity transacts with its jointly controlled entity, profits and losses resulting from the transactions with the jointly controlled entity are recognised in the Group’ consolidated financial statements only to the extent of interests in the jointly controlled entity that are not related to the Group.

147 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Non-current assets held for sale

Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale.

Disposal groups classified as held for sale are measured at the lower of the disposal groups’ previous carrying amount and fair value less costs to sell.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold and services provided in the normal course of business, net of discounts and sales related taxes.

Revenue from the sale of goods is recognised when the goods are delivered and title has passed.

Service income is recognised when services are provided.

Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

Rental income from operating leases is recognised in the consolidated income statement on a straight-line basis over the term of the relevant lease.

Dividend income from investments is recognised when the shareholder’s right to receive payment has been established.

Property, plant and equipment

Property, plant and equipment including buildings and leasehold land classified as finance leases held for use in the production or for administrative purposes (other than construction in progress) are stated at cost less subsequent accumulated depreciation and accumulated impairment losses.

Freehold land is stated at cost less any recognised impairment loss, and is not amortised.

Depreciation is provided to write off the cost of items of property, plant and equipment, other than construction in progress, over their estimated useful lives and after taking into account of their estimated residual value, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

Construction in progress includes property, plant and equipment in the course of construction for production or for its own use purposes. Construction in progress is carried at cost less any recognised impairment loss. Construction in progress is classified to the appropriate category of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in profit or loss in the period in which the item is derecognised.

148 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation.

On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured at fair value using the fair value model. Gains or losses arising from changes in the fair value of investment property are included in profit or loss for the period in which they arise.

For a transfer from investment properties to owner-occupied properties, the deemed cost of property for subsequent accounting is its fair value at the date of change in use. If a property occupied by the Group as an owner-occupied property becomes an investment property because its use has changed as evidenced by end of owner-occupation, any difference at that date between the carrying amount and the fair value of the property is accounted for in assets revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on an individual asset basis, the excess of the deficit is charged to the consolidated income statement. Any subsequent revaluation surplus is credited to the consolidated income statement to the extent of the deficit previously charged. On subsequent disposal of the investment property, the assets revaluation reserve included in equity may be transferred to retained profits. The transfer from assets revaluation reserve to retained profits is not made through profit or loss. When the Group completes the construction or development of a self-constructed investment property, any difference between the fair value of the property at the completion date and its previous carrying amount is recognised in the consolidated income statement.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessor

Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease.

The Group as lessee

Operating lease payments are recognised as an expense on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis.

Leasehold land and building

When a lease includes both land and building elements, the Group assesses the classification of each element as a finance or an operating lease separately based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the Group. Specifically, the minimum lease payments, including any lump-sum upfront payments, are allocated between the land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element of the lease at the inception of the lease.

To the extent the allocation of the lease payments can be made reliably, interest in leasehold land that is accounted for as an operating lease is presented as “prepaid lease payments” in the consolidated statement of financial position and is amortised over the lease term on a straight-line basis. When the lease payments cannot be allocated reliably between the land and building elements, the entire lease is generally classified as a finance lease and accounted for as property, plant and equipment, unless it is clear that both elements are operating lease, in which case the entire lease is classified as an operating lease.

Foreign currencies

The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in RMB, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

149 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non- monetary items in respect of which gains and losses are recognised directly in other comprehensive income, in which cases, the exchange differences are recognised directly in other comprehensive income.

For the purpose of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Group (i.e. RMB) at the rate of exchange prevailing at the end of the reporting period and their income and expenses are translated at the average exchange rates for the year. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under the heading of translation reserve.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

From 1 January 2010 onwards, in relation to a partial disposal of a subsidiary that does not result in the Group losing control over a subsidiary, the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognised in profit or loss. For all other partial disposals (i.e. reductions in the Group’s ownership interest in associates that do not result in the Group losing significant influence), the proportionate share of the accumulated exchange differences is reclassified to profit or loss.

Borrowing costs

Borrowing costs are directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognised in profit or loss in the year in which they are incurred.

Government grants

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.

Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. Government grants related to depreciable assets are recognised as in consolidated statement of financial position and transfer to profit or loss over the useful lives of the related assets. Other government grants are recognised as revenue over the periods necessary to match them with the costs for which they are intended to compensate, on a systematic basis.

Retirement benefits costs

Payments to defined contribution retirement benefit plans are charged as an expense when employees have rendered service entitling them to the contributions.

150 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

For defined benefit retirement benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each reporting period. Actuarial gains and losses with which exceed 10 per cent of the greater of the present value of the Group’s defined benefit obligations and the fair value of plan assets at the end of the previous reporting period are amortised over the expected average remaining working lives of the participating employees. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the amended benefits become vested.

The amount recognised in the consolidated statement of financial position represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to unrecognised actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan.

Share-based payments

The Company has no share option scheme but the subsidiary of the Company has issued equity settled share-based payments to certain employees.

The fair value of services received determined by reference to the fair value of share options granted at the grant date is expenses on a straight-line basis over the vesting period, with a corresponding increased in share option reserve of the subsidiary.

At the end of the reporting period, the Group revises its estimates of the number of options that are expected to ultimately vest. The impact of the revision of the estimates during the vesting period, if any, is recognised in profit or loss, with a corresponding adjustment to share options reserve of the subsidiary.

When the share options are forfeited after the vesting date or are still not exercised at the expiry date, the amount previously recognised in share options reserve of the subsidiary will be transferred to retained profits.

The share option reserve of the subsidiary of the Company includes as part of non-controlling interest in the consolidated statement of financial position and consolidated statement of changes in equity.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on the taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax base used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

151 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is recognised in profit or loss, except when it relates to items that are recognised in other comprehensive income or directly in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity respectively.

Intangible assets

Intangible assets acquired separately

Intangible assets acquired separately and with finite useful lives are carried at costs less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Alternatively, intangible assets with indefinite useful lives are carried at cost less any subsequent accumulated impairment losses (see the accounting policy in respect of impairment losses on tangible and intangible assets below.)

Intangible assets acquired in a business combination

Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair value can be measured reliably. The cost of such intangible assets is their fair value at the acquisition date.

Subsequent to initial recognition, intangible assets with finite useful lives are carried at costs less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is provided on a straight- line basis over their estimated useful lives. Alternatively, intangible assets with indefinite useful lives are carried at cost less any subsequent accumulated impairment losses (see the accounting policy in respect of impairment losses on tangible assets below).

Research and development costs

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method.

Cash and cash equivalents

Bank balances and cash in the consolidated statement of financial position comprise cash at banks and on hand and short- term deposits with a maturity of three months or less. For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short-term deposit as defined above.

152 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Financial instruments

Financial assets and financial liabilities are recognised in the consolidated statement of financial position when a group entity becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

The Group’s financial assets are classified into one of the three categories, including financial assets at FVTPL, loans and receivables and available-for-sale financial assets. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition.

Interest income is recognised on an effective interest basis for debt instruments.

Financial assets at FVTPL

Financial assets at FVTPL has two subcategories, including financial asset held for trading and those designated as at FVTPL on initial recognition.

A financial asset is classified as held for trading if:

– it has been acquired principally for the purpose of selling in the near future; or

– on initial recognition, it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or

– it is a derivative that is not designated and effective as a hedging instrument.

Financial assets at FVTPL are measured at fair value, with changes in fair value arising from remeasurement recognised directly in profit or loss in the period in which they arise. The net gain or loss recognised in profit or loss excludes any dividend or interest earned on the financial assets.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including trade and bills receivables, term deposits, other receivables, amounts due from fellow subsidiaries and associates, pledged deposits and bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment of financial assets below).

153 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as financial assets at FVTPL and loans and receivables.

Available-for-sale financial assets are measured at fair value at the end of each reporting period. Changes in fair value are recognised in other comprehensive income and accumulated in available-for-sale investment revaluation reserve, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously accumulated in the available-for-sale investment revaluation reserve is reclassified to profit and loss (see accounting policy on impairment of financial assets below).

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, they are measured at cost less any identified impairment losses at the end of each reporting period (see accounting policy on impairment of financial assets below).

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected.

For an available-for-sale equity investment, a significant or prolonged decline in the fair value of that investment below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include:

– significant financial difficulty of the issuer or counterparty; or

– breach of contract, such as default or delinquency in interest or principal payments; or

– it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or

– the disappearance of an active market for that financial asset because of financial difficulties.

For certain categories of financial asset, such as trade and bills receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the credit period, observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, an impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade and other receivables, amount due from fellow subsidiaries and associates, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When trade and other receivables, amount due from fellow subsidiaries and associates are considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

154 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Impairment losses on available-for-sale equity investments will not be reversed in profit or loss in subsequent periods. Any increase in fair value subsequent to impairment loss is recognised directly in other comprehensive income and accumulated in the available-for-sales investment revaluation reserve.

Financial liabilities and equity instruments

Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. The Group’s financial liabilities are generally classified into other financial liabilities.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Interest expense is recognised on an effective interest basis.

Other financial liabilities

Other financial liabilities including trade and bills payables, other payables and accruals, amounts due to immediate holding company, fellow subsidiaries and associates and bank and other loans are subsequently measured at amortised cost, using the effective interest method.

Convertible bonds of a subsidiary

Convertible bonds issued by a subsidiary that contain both the liability and conversion option components are classified separately into respective items on initial recognition. Conversion option will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments is classified as an equity instrument.

On initial recognition, the fair value of the liability component is determined using the prevailing market interest rate of similar non-convertible debts. The difference between the gross proceeds of the issue of the convertible notes and the fair value assigned to the liability component, representing the conversion option for the holder to convert the notes into equity, is included in equity of a subsidiary, which is included in the reserve of subsidiary.

In subsequent periods, the liability component of the convertible bonds is carried at amortised cost using the effective interest method. The equity component, representing the option to convert the liability component into ordinary shares of the subsidiary, will remain in convertible notes reserve, which is included in the equity of the subsidiary, until the conversion option is exercised (in which case the balance stated in convertible notes reserve will be transferred to share premium). Where the option remains unexercised at the expiry date, the balance stated in convertible notes reserve will be released to the accumulated profits (losses). No gain or loss is recognised in profit or loss upon conversion or expiration of the option.

Transaction costs that relate to the issue of the convertible notes are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are charged directly to equity. Transaction costs relating to the liability component are included in the carrying amount of the liability portion and amortised over the period of the convertible loan notes using the effective interest method.

155 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Derivative financial instruments

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. A financial guarantee contract issued by the Group is recognised initially at its fair value less transaction costs that are directly attributable to the issue of the financial guarantee contract. Subsequent to initial recognition, the Group measures the financial guarantee contract at the higher of: (i) the amount determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue.

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised directly in other comprehensive income is recognised in profit or loss.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid or payable is recognised in profit or loss.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flow estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect is material).

Provisions for product warranties granted by the Group on certain products are recognised based on sales volume and past experience of the level of repairs and returns, discounted to their present values as appropriate.

Impairment losses on tangible and intangible assets

At the end of the reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any.

Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

156 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately in profit or loss.

4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the process of applying the Group’s accounting policies which are described in note 3, the directors of the Company are required to make judgements and have made the following estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The 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 if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Critical judgements in applying the entity’s accounting policies

The followings are the critical judgements, apart from those involving estimations that the directors of the Company have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements.

Buildings and land use rights

Despite the Group has paid the full purchase consideration for the land and buildings stated in notes 19, 20 and 21, formal titles of certain of the Group’s rights to the use of the land and buildings were not yet granted from the relevant government authorities as stated in note 21. In the opinion of the directors of the Company, the absence of formal title to these land use rights does not impair the value of the relevant properties to the Group.

Classification between investment properties and owner-occupied properties

The Group determines whether a property qualifies as an investment property, and has developed criteria in making that judgement. Investment property is a property held to earn rentals or for capital appreciation or both. Therefore, the Group considers whether a property generates cash flows largely independently of the other assets held by the Group.

Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately (or leased out separately under a finance lease), the Group accounts for the portions separately. If the portions could not be sold separately, the property is an investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes.

Judgement is made on an individual property basis to determine whether ancillary services are so significant that a property does not qualify as an investment property.

157 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Deferred tax assets

Deferred tax assets are recognised for certain deductible temporary differences. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. Further details of which are disclosed in note 39.

De facto control over subsidiaries

The Group’s management exercises its critical judgment when determining whether the Group has de facto control over an entity by evaluating, among other things: (i) the ability to demonstrate effective control during the shareholders’ meetings and board meetings; (ii) the extent of reliance of the subsidiary on the financial and operational support from the Group; and (iii) the extent of involvement of directors of the subsidiary nominated by the Group in its operational and financial policy setting and decision making.

Key sources of estimation uncertainty

The followings are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Estimated impairment of property, plant and equipment

During the year, impairment loss on property, plant and equipment was recognised in the consolidated income statement amounting to approximately RMB12,198,000 (2009: RMB25,374,000) and the carrying amount of property, plant and equipment is approximately RMB5,858,945,000 (2009: RMB5,202,167,000). Determining whether property, plant and equipment are impaired requires an estimation of the recoverable amount of the property, plant and equipment. Such estimation was based on certain assumptions, which are subject to uncertainty and might materially differ from the actual results.

Estimated impairment loss of trade and other receivables

The policy for making impairment loss on trade and other receivables of the Group is based on the evaluation of collectability and aging analysis of accounts and on management’s judgement. A considerable amount of judgement is required in assessing the ultimate realisation of these receivables, including the current creditworthiness and the past collection history of each debtor. If the financial conditions of debtors of the Group were to deteriorate, resulting in an impairment of their ability to make payments, additional impairment loss may be required. During the year, impairment loss on trade and other receivables was recognised in the consolidated income statement amounting to approximately RMB32,834,000 (2009: RMB56,494,000) and the carrying amounts of trade receivable and other receivables are approximately RMB16,777,368,000 and RMB2,589,631,000 respectively (2009: trade receivables of RMB14,389,004,000 and other receivables of RMB1,974,658,000).

Estimated impairment of interests in associates and loans to associates

The Group regularly reviews investments in associates for impairment based on both quantitative and qualitative criteria. Such analysis typically includes various estimates and assumptions, the financial health, cash flow projections and future prospects of the companies. During the year, no impairment loss (2009: nil) was recognised and the carrying amount of interests in associates is RMB550,644,000 (2009: RMB333,202,000).

Determining whether the loans to associates are impaired requires an estimation of the recoverable amount of the respective loans. Such estimation was based on certain assumptions, which might materially differ from the actual results. During the year, impairment loss on loans to associates was recognised in the consolidated income statement amounting to approximately RMB34,318,000 (2009: nil) and the carrying amount of the loans to associates is nil as at 31 December 2010 (2009: RMB59,113,000).

158 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Estimated allowance for inventories

The management of the Group reviews the inventories listing on a product-by-product basis at the end of the reporting period and makes allowance for slow moving inventory items amounting to approximately RMB159,973,000 (2009: RMB15,053,000) and the carrying amount of inventories is approximately RMB9,777,435,000 (2009: RMB6,533,447,000). The management estimates the net realisable value for such items based primarily on the latest invoice prices and current market conditions and the historical experience of manufacturing and selling products of similar nature.

Income tax

The Group is subject to income taxes in several jurisdictions. There are certain transactions and calculations for which the ultimate tax determination may be uncertain. The Group recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made.

Provisions for products warranties

As explained in note 36, the Group makes provisions under the warranties it gives on sale of its products taking into account the Group’s past experience of the level of repairs and returns. As the Group are continually upgrading its product designs and launching new models it is possible that the past experience of the level of repairs and returns is not indicative of future claims that the Group will receive in respect of past sales. Any increase or decrease in the provision would affect profit or loss in future years.

Pending litigations

The Group had certain pending litigations as at the end of the reporting period. Significant judgment is required in determining whether it is more likely than not that an outflow of resources will be required to settle the pending litigations in which case a provision for the potential litigation expenses is recognised.

Fair value of derivatives and other financial instruments

The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price; the appropriate quoted market price for financial liabilities is the current ask price.

The fair value of financial instruments that are not traded in an active market is determined by using appropriate valuation techniques and making assumptions that are based on market conditions existing at the end of each reporting period.

Employee benefits – share-based payments

The valuation of the fair value of the share options granted requires judgement in determining the expected volatility of the share price, the dividends expected on the shares, the risk-free interest rate during the life of the options and the number of share options that are expected to vest. Where the outcome of the number of options that are vested is different, such difference will impact the consolidated income statement in the subsequent remaining vesting period of the relevant share options.

159 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

5. FINANCIAL INSTRUMENTS

a. Categories of financial instruments

The carrying amounts of each of the categories of financial instruments as at the end of the reporting period are as follows:

Financial assets 2010 2009 RMB’000 RMB’000

Loans and receivables (including cash and cash equivalents) 23,339,245 21,410,999 Available-for-sale investments 197,592 175,808 Financial instruments at FVTPL 16,967 30,246 Derivative financial instruments 431,158 128,589

23,984,962 21,745,642

Financial liabilities 2010 2009 RMB’000 RMB’000

At amortised cost 24,875,646 21,259,522 Financial guarantee contracts – 3,637 Derivative financial instruments 422,773 119,999

25,298,419 21,383,158

b. Financial risk management objectives and policies

The Group’s principal financial instruments comprise available-for-sale investments, financial assets at FVTPL, derivative financial instruments, bank and other loans, convertible bonds of a subsidiary, term deposits, pledged deposits, bank balances and cash, balances with immediate holding company, fellow subsidiaries and associates and financial guarantee contracts. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade and bills receivables, deposits and other receivables and trade and bills payables, other payables and accruals, which arise directly from its operations.

The main risks arising from the Group’s financial instruments are credit risk, liquidity risk, interest rate risk, foreign currency risk and equity price risk. The policies on how to mitigate these risks are set out below. The Group’s overall risk management programme focus on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

Credit risk The Group trades only with recognised and creditworthy third parties and there is no requirement for collateral. The credit risk of the Group’s other financial assets, which comprise term and pledged deposits and bank balances and cash, amounts due from fellow subsidiaries and associates, trade and other receivables, arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these financial assets. The Group is also exposed to credit risk through the granting of financial guarantees, further details of which are disclosed in note 38.

At the end of the reporting period, the Group had certain concentrations of credit risk as 10% (2009: 12%) and 39% (2009: 35%) of the Group’s trade receivables were due from the Group’s largest customer and five largest customers, respectively.

160 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

The credit risk on liquid funds is limited because the counter parties are banks with high credit ratings.

In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts and the contingent liabilities arising from the financial guarantees provided. In addition, the Group reviews the recoverable amount of each individual trade debt and the financial guarantee provided at the end of each reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is significantly reduced.

Interest rate risk

The Group is exposed to fair value interest rate risk in relation to fixed-rate term and pledged deposits, bank balances, bank and other loans, convertible bonds of a subsidiary and interest rate swaps. The Group is also exposed to cash flow interest rate risk in relation to variable-rate bank and other loans and interest rate swaps.

Bank and other loans and convertible bonds of a subsidiary at fixed rates, interest rate swaps and financial guarantee contracts involving fixed rates expose the Group to fair value interest rate risk. Details of the Group’s bank and other loans, convertible bonds of a subsidiary, interest rate swaps and financial guarantee contracts are disclosed in notes 33, 34, 35 and 38, respectively.

As at 31 December 2010, if interest rates on variable-rate bank and other loans had been 10 basis points higher/ lower with all other variables held constant, the Group’s profit after tax for the year would have been approximately RMB306,000 (2009: RMB33,000) lower/higher, mainly as a result of higher/lower interest expenses on floating rate borrowings.

Foreign currency risk

The Group has transactional currency exposures. These exposures arise from sales or purchases by the Group’s subsidiaries in currencies other than their respective functional currency, primarily with respect to Brazilian Real (“BRL”) and US$. The Group’s exposure to currency risk is attributable to the trade receivables and trade payables, other receivables and other payables and bank balances and cash, which are denominated in BRL and US$. The functional currencies of the relevant group entities are RMB and US$. The Group has mitigated the currency exposure against BRL by using foreign exchange forward contract. Moreover, the directors continuously monitor the related foreign currency exposure and will hedge significant foreign currency exposure should the need arise.

161 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

The following table demonstrates the sensitivity at the end of the reporting period to a reasonably possible change in BRL and other currencies exchange rates, with all other variables held constant, of the Group’s profit after tax due to changes in the fair value of monetary assets and liabilities and the Group’s equity.

Increase Increase (decrease) (decrease) in profit after in US$/BRL tax and equity % RMB’000

2010 If RMB weakens against US$ 5 24,769 If RMB strengthens against US$ –5 (24,769) If RMB weakens against BRL 5 45,532 If RMB strengthens against BRL –5 (45,532) If RMB weakens against other currencies 5 26,820 If RMB strengthens against other currencies –5 (26,820)

2009 If RMB weakens against US$ 5 81,783 If RMB strengthens against US$ –5 (81,783) If RMB weakens against BRL 5 26,751 If RMB strengthens against BRL –5 (26,751) If RMB weakens against other currencies 5 13,957 If RMB strengthens against other currencies –5 (13,957)

Monetary assets and liabilities in the consolidated statement of financial position contain mainly the following amounts denominated in currencies other than the functional currency of the group entity to which they relate:

2010 2009 RMB’000 RMB’000

Monetary assets Trade and bills receivables and other receivables 3,310,743 3,600,222 Term deposits, pledged deposits and bank balances and cash 753,926 744,480

4,064,669 4,344,702

Monetary liabilities Trade and bills payables and other payables 1,574,378 1,282,449

Liquidity risk

In the management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. The management monitors the utilisation of bank borrowings and ensures compliance with loan covenants.

The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities and based on the agreed repayment terms. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curves at the end of the reporting period.

162 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Moreover, the following tables detail the Group’s liquidity analysis for its derivative financial instruments. The tables have been drawn up based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted gross inflows and outflow on those derivatives that require gross settlement. When amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest rates as illustrated by the yield curves at the end of the reporting period. The liquidity analysis for the Group’s derivative financial instruments are prepared based on the contractual maturities as the management consider that the contractual maturities are essential for an understanding of the timing of the cash flows of these derivatives.

Total Carrying Less Between 1 undiscounted amount at than 1 year and 2 years cash flows 31 December RMB’000 RMB’000 RMB’000 RMB’000

At 31 December 2010 Non-derivative financial liabilities Bank and other loans 4,390,371 – 4,390,371 4,267,261 Trade and bills payables 16,984,780 – 16,984,780 16,984,780 Other payables and accruals 3,355,712 148,746 3,504,458 3,504,458 Amount due to immediate holding company 5,454 – 5,454 5,454 Amounts due to fellow subsidiaries 73,466 – 73,466 73,466 Amounts due to associates 40,227 – 40,227 40,227 Financial guarantee contracts 73,919 – 73,919 –

24,923,929 148,746 25,072,675 24,875,646

Derivative – net settlement Derivative – financial instruments 422,773 – 422,773 422,773

Derivative – gross settlement Foreign exchange forward contracts – inflow 26,568,100 – 26,568,100 26,568,100 – outflow 21,747,390 – 21,747,390 21,747,390

163 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Total Carrying Less Between 1 undiscounted amount at than 1 year and 2 years cash flows 31 December RMB’000 RMB’000 RMB’000 RMB’000

At 31 December 2009 Non-derivative financial liabilities Bank and other loans 1,810,218 42,048 1,852,266 1,814,827 Convertible bonds of a subsidiary 1,476,461 – 1,476,461 1,428,541 Trade and bills payables 14,789,773 – 14,789,773 14,789,773 Other payables and accruals 2,934,415 196,372 3,130,787 3,130,787 Amount due to immediate holding company 2,605 – 2,605 2,605 Amounts due to fellow subsidiaries 56,516 – 56,516 56,516 Amounts due to associates 36,473 – 36,473 36,473 Financial guarantee contracts 60,384 570,385 630,769 3,637

21,166,845 808,805 21,975,650 21,263,159

Derivative – net settlement Derivative – financial instruments 119,999 – 119,999 119,999

Derivative – gross settlement Foreign exchange forward contracts – inflow 19,434,211 – 19,434,211 19,434,211 – outflow 19,480,855 – 19,480,855 19,480,855

The amounts included above for financial guarantee contracts represent the maximum amounts that could be required to be paid if the guarantee contracts were called upon in entirety. At 31 December 2010, no financial guarantee contracts was recognised (2009: RMB3,637,000). However, this estimate is subject to change depending on the probability of the counterparty claiming under the guarantee.

Equity price risk

Equity price risk is the risk that the fair values of equity securities decrease as a result of changes in the value of individual securities. The Group is exposed to equity price risk arising from individual equity investments classified as available-for-sale investments and financial assets at FVTPL at the end of the reporting period. The Group’s listed investments are valued at quoted market prices at the end of the reporting period.

The sensitivity analyses below have been determined based on the exposure to equity price risk at the end of the reporting period. For the purpose of analysing the equity price risk, the management used the sensitivity rate of 10% (2009: 10%) as a result of the less volatile financial market.

If the prices of the respective equity instruments had been 10% (2009: 10%) higher/lower, with all other variables held constant and based on their carrying amounts at the end of the reporting period, the equity and profit after tax as at 31 December 2010 increase/decrease by approximately RMB6,174,000 (2009: RMB3,654,000) and RMB1,324,000 (2009: RMB2,420,000), respectively as a result of the changes in fair value of available-for-sale investments and financial assets at FVTPL.

164 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

c. Fair value estimation

The directors of the Company consider the fair values of trade and bills receivables; deposits and other receivables; amounts due from (to) immediate holding company, fellow subsidiaries and associates; term and pledged deposits; bank balances and cash; trade and bills payables; other payables and accruals reported in the consolidated statement of financial position approximate their carrying amounts due to their immediate or short-term maturities.

The carrying amounts of current bank and other loans recorded at amortised cost in the consolidated financial statements approximate their fair values because of the loan rate currently available for loans with similar terms and maturities.

The fair value of financial guarantee contracts is determined using option pricing models where the main assumptions are the probability of default by the specified counterparty extrapolated from the market-based credit information and the amount of loss given the default.

The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the group is the current bid price.

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques.

The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of foreign exchange forward contracts is determined using quoted forward exchange market rates at the end of the reporting period.

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into level 1 to 3 based on the degree to which the fair value is observable.

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets or liabilities.

Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

165 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

2010 Level 1 Level 2 Level 3 Total RMB’000 RMB’000 RMB’000 RMB’000

Assets Available-for-sale investments – Listed equity securities 56,113 – – 56,113 – Unlisted equity securities – – 6,073 6,073 Financial assets at FVTPL 16,967 – – 16,967 Derivative financial instruments – 431,158 – 431,158

73,080 431,158 6,073 510,311

Liabilities Derivative financial instruments – 422,773 – 422,773

2009 Level 1 Level 2 Level 3 Total RMB’000 RMB’000 RMB’000 RMB’000

Assets Available-for-sale investments – Listed equity securities 15,432 – – 15,432 – Unlisted equity securities – – 6,261 6,261 Financial assets at FVTPL 30,246 – – 30,246 Derivative financial instruments – 128,589 – 128,589

45,678 128,589 6,261 180,528

Liabilities Financial guarantee contract – 3,637 – 3,637 Derivative financial instruments – 119,999 – 119,999

– 123,636 – 123,636

There were no transfers between Level 1 and 2 in current year.

The reconciliation of level 3 fair value measurements of financial assets is as follows:

Unlisted equity securities 2010 2009 RMB’000 RMB’000

At 1 January 6,261 – Acquisition of subsidiaries – 7,143 Total gains or losses: – in other comprehensive income (30) (703) Disposal – (75) Exchange realignment (158) (104)

At 31 December 6,073 6,261

Included in other comprehensive income is an amount of loss of RMB30,000 (2009: RMB703,000) relate to equity securities held at the end of the reporting period and is reported as changes of available-for-sale investment revaluation reserve.

166 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

6. CAPITAL RISK MANAGEMENT

The primary objective of the Group’s capital management is to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the two years ended 31 December 2010 and 2009.

7. TURNOVER, OTHER INCOME AND GAINS

Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts; the values of services rendered; and gross rental income received from investment properties during the year.

An analysis of turnover, other income and gains is as follows:

2010 2009 RMB’000 RMB’000

Turnover Sale of goods 104,793,958 36,907,652 Rendering of services 18,842 86,774 Gross rental income (note) 118,870 90,888

104,931,670 37,085,314

Other income Bank interest income 72,729 65,826 Dividend income from a listed available-for-sale investment – 21,842 Dividend income from unlisted available-for-sale investments 2,494 1,021 Government grants (note 40) 158,526 68,972 Refund of value added tax – 254 Sale of scrap materials 45,604 – Reversal of impairment of trade receivables 7,062 11,220 Reversal of impairment of other receivables 6,909 34,975 Reversal of impairment of loan to associates – 18,920 Reversal of allowance for inventories 5,735 19,185 Reversal of provisions for products warranties 13,602 2,020 Others 45,848 19,612

358,509 263,847

167 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

2010 2009 RMB’000 RMB’000

Gains Foreign exchange differences, net 151,216 – Fair value gain on investment properties 53,328 95,377 Gain on disposal of available-for-sale investments 18,027 – Gain from a bargain purchase of a subsidiary 9,375 – Gain on derecognition of financial guarantee contracts 3,637 – Net realised and unrealised gain on interest rate swaps 2,640 12,375 Gain on disposal of a subsidiary 1,394 – Gain on disposal of property, plant and equipment 1,971 – Gain on disposal of financial assets at FVTPL 268 – Change in fair value of financial guarantee contracts – 17,503 Interest income from loans to associates – 10,469 Change in fair value of financial assets at FVTPL – 2,688

241,856 138,412

600,365 402,259

Note: 2010 2009 RMB’000 RMB’000

Gross rental income 118,870 90,888 Less: direct expenses (included in cost of sales) (24,267) (20,223)

Net rental income 94,603 70,665

8. GAIN ON DEEMED PARTIAL DISPOSAL AND PARTIAL DISPOSAL OF INTERESTS IN AN ASSOCIATE

On 29 April 2010, one of the associates of the Group, O-Net Communications (Group) Limited (“O-Net”), was listed on the Main Board of the Stock Exchange and new shares were issued upon the listing of the shares of O-Net (“Share Listing”). Upon the Share Listing, the Group’s shareholding in O-Net was diluted from 46% to approximately 34.5%.

On 6 May 2010, the over-allotment option as referred to in the prospectus of the Share Listing was fully exercised and the Group was requested to dispose of its 13,759,183 shares of O-Net. On 4 November 2010, the Group further disposed of 25,293,000 shares of O-Net and 60,000,000 new shares of O-Net were issued to one of its existing shareholder, other than the Group, on 15 November 2010.

Upon the completion of the above transactions, the interest in O-Net was further decreased from approximately 34.5% to 27.32% and net proceeds of approximately RMB154,228,000 were received for the disposal of 39,052,183 shares of O-Net. The above transactions have resulted in the recognition of an amount of RMB304,174,000 of gain on deemed partial disposal and partial disposal of interests of an associate.

The Group maintains its significant influence on O-Net and the investment in O-Net is still accounted for as the interests in associates upon the completion of the above transactions.

9. NET GAIN ON DISPOSAL OF AN ASSOCIATE AND THE LOAN TO ASSOCIATE 2010 2009 RMB’000 RMB’000

Loss on disposal of an associate (40,833) – Reversal of impairment of loan to an associate 277,737 –

Net gain on disposal of an associate and the loan to an associate 236,904 –

168 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

On 11 August 2010, the Group entered into an equity transfer agreement with CITIC Networks Co., Ltd. to dispose of the 50% equity interest held by the Group in Great Wall Broadband Network Service Co., Ltd. (“GWBNS”), an associated company of the Group, together with the loan to GWBNS at a total consideration of approximately RMB323,798,000. A net gain on disposal of approximately RMB236,904,000 was resulted for the year ended 31 December 2010 upon the completion of the transfer of the equity interest of GWBNS on 23 August 2010. Details of the transfer was set out in the announcement of the Company dated 11 August 2010.

10. COMPENSATION FOR TERMINATION OF CONTRACTS

During the year ended 31 December 2008, the Group entered into a settlement agreement with a customer, pursuant to which both parties agreed to terminate certain agreements in connection with the manufacturing and sale of computer related products and the provision of repairing works and the sale of certain production assets to this customer. During the year ended 31 December 2009, the compensation for termination of contracts was fully settled and the Group recognised as income of approximately RMB114,084,000.

11. SEGMENT INFORMATION

The Group determines its operating segments based on the reports reviewed by the chief operating decision maker for making strategic decisions and assessing the performance of each business segment. The segments are managed separately as each business segment offers products and services which vary in terms of materials used, design and technology and services which require different production/service information to formulate different strategies. The Group is organised in the following basis:

(a) the TV segment produces televisions;

(b) the monitor segment produces monitors;

(c) the electronic parts and components segment produces magnetic heads, switch power supplies, hard disk drives and disk substrates mainly for use in personal computers (“PC”);

(d) the computer segment produces PCs, printers, network electric meters, servers and PC peripheral products;

(e) the property investment segment invests in prime office space for its rental income potential; and

(f) the “others” segment comprises, principally, the sales of chassis, spare parts, complete knock down/semi knock down products, the software and system integration and other related businesses.

The accounting policies of the reporting segment are identical to the Group’s accounting policies as described in note 3. Segment results represent the profit (loss) attributable to each segment without allocation of central administration costs, director’s emoluments, bank interest income, finance costs, share of results of associates and jointly controlled entities, change in fair value of financial assets at FVTPL, gain on disposal of financial assets at FVTPL/available-for-sale investments, change in fair value or gain on derecognition of financial guarantees contracts, net realised and unrealised gain on foreign exchange forward contracts and interest rate swaps, gain on deemed partial disposal and partial disposal/disposal of interests in associates, discount on acquisition of subsidiaries, dividend income, government grants received and income tax expense. This is the measure reported to the chief operating decision maker for the purpose of resource allocation and performance assessment.

For the purposes of monitoring segment performances and allocating resources between segments:

(a) all assets are allocated to reportable segments other than interests in associates and jointly controlled entities, available-for-sale investments, term deposits, pledged deposit, financial assets at FVTPL, derivative financial instruments, amount due from associates and fellow subsidiaries, bank balances and cash, tax recoverable and deferred tax assets which were managed in a centralised manner.

(b) all liabilities are allocated to reportable segments other than bank and other loans, convertible bonds of a subsidiary, derivative financial instruments, amount due to associates and fellow subsidiaries, financial guarantee contract, deferred tax liabilities, tax payable and government grants which were managed in a centralised manner.

169 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Inter-segment sales are charged at prevailing market rates.

The following tables present revenue, profit and certain asset, liability and expenditure information for the Group’s business segments for the two years ended 31 December 2010 and 2009.

Electronic parts and Property TV Monitor components Computer investment Others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Year ended 31 December 2010 Segment revenue Sales to external customers 27,365,142 44,567,155 21,542,090 2,615,441 118,870 8,722,972 – 104,931,670 Other income and gains 26,488 32,281 172,412 38,325 – 8,441 – 277,947 Intersegment sales – – – 29,758 4,725 – (34,483) –

27,391,630 44,599,436 21,714,502 2,683,524 123,595 8,731,413 (34,483) 105,209,617

Segment results before increase in fair value of investment properties 115,346 502,348 514,280 221,457 63,420 49,607 – 1,466,458 Increase in fair value of investment properties – – – – 53,328 – – 53,328

Segment results after increase in fair value of investment properties 115,346 502,348 514,280 221,457 116,748 49,607 – 1,519,786

Unallocated gains 269,090 Corporate and other unallocated expenses (423,199) Finance costs (172,648) Gain on deemed partial disposal and partial disposal of interests in an associate 304,174 Net gain on disposal of an associate and the loan to an associate 236,904 Net realised and unrealised gain on foreign exchange forward contracts 243,426 Share of results of associates and jointly controlled entities 115,299

Profit before tax 2,092,832

At 31 December 2010 Assets and liabilities Segment assets 13,276,083 16,395,718 3,020,581 649,473 1,295,585 2,347,595 – 36,985,035 Corporate and other unallocated assets 5,293,257

Total assets 42,278,292

Segment liabilities 6,715,696 11,385,874 1,661,110 704,723 – 563,938 – 21,031,341 Corporate and other unallocated liabilities 5,370,326

Total liabilities 26,401,667

170 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Electronic parts and Property TV Monitor components Computer investment Others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Year ended 31 December 2009 Segment revenue Sales to external customers 7,155,706 13,077,069 13,619,993 1,742,411 90,888 1,399,247 – 37,085,314 Other income and gains 44,061 26,887 20,495 21,153 – 2,289 – 114,885 Intersegment sales – – 3,708 185 51,070 – (54,963) –

7,199,767 13,103,956 13,644,196 1,763,749 141,958 1,401,536 (54,963) 37,200,199

Segment results before increase in fair value of investment properties 162,290 194,081 178,623 10,232 64,574 649 – 610,449 Increase in fair value of investment properties – – – – 95,377 – – 95,377

Segment results after increase in fair value of investment properties 162,290 194,081 178,623 10,232 159,951 649 – 705,826

Unallocated gains 306,081 Corporate and other unallocated expenses (296,301) Finance costs (64,968) Discount on acquisition of subsidiaries 357,330 Net realised and unrealised gain on foreign exchange forward contracts 106,853 Share of results of associates 42,154

Profit before tax 1,156,975

At 31 December 2009 Assets and liabilities Segment assets 9,015,226 17,405,502 2,096,339 435,133 1,294,529 594,556 – 30,841,285 Corporate and other unallocated assets 5,574,214

Total assets 36,415,499

Segment liabilities 4,934,932 11,873,485 1,044,046 601,392 – 254,685 – 18,708,540 Corporate and other unallocated liabilities 3,916,796

Total liabilities 22,625,336

171 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Other segment information

Electronic parts and Property Year ended 31 December 2010 TV Monitor components Computer investment Others Unallocated Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Amounts included in the measure of segment profit or loss or segment assets:

Depreciation and amortisation 361,148 264,579 342,457 217,055 – 64,138 – 1,249,377 Additions to non-current assets (note) 876,484 907,243 187,488 102,603 – 93,685 – 2,167,503 Impairment losses and allowance recognised 57,976 91,298 58,667 8,052 – 8,482 20,837 245,312 Impairment losses and allowance reversed – – (10,869) (3,445) – – (5,392) (19,706) Provision for product warranties 161,384 251,492 6,525 6,862 – 51,446 – 477,709 Reversal of provision for product warranties – – (13,602) – – – – (13,602) (Gain) loss on disposal of property, plant and equipment (1,901) (3,690) 3,620 – – – – (1,971)

Amounts regularly provided to the chief operating decision maker but not included in the measure of segment profit or loss or segment assets:

Bank interest income (6,192) (10,354) (50,606) (3,603) – (1,974) – (72,729) Finance cost 33,193 52,333 14,141 62,398 – 10,583 – 172,648 Income tax expense 99,256 154,675 53,212 7,549 6,775 31,640 – 353,107 Gain on derecongised of financial guarantee contract – – (3,637) – – – – (3,637) Gain on deemed partial disposal and partial disposal of interest in an associate – – (304,174) – – – – (304,174) Net gain on disposal of an associate and the loan to an associate – – – – – – (236,904) (236,904)

Note: Non-current assets excluded financial instruments, interests in associates, interest in jointly controlled entities and deferred tax assets.

172 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Amounts included in the measure of segment profit or loss or segment assets:

Depreciation and amortisation 64,176 113,394 296,147 45,186 – 12,878 14,432 546,213 Additions to non-current assets (note) 189,694 162,531 415,399 42,044 – 120 – 809,788 Impairment losses and allowance recognised – 16,191 26,795 7,719 – 7,529 38,687 96,921 Impairment losses and allowance reversed – – (42,059) – – (1,486) (40,755) (84,300) Provision for product warranties 8,760 13,593 7,031 17,688 – – – 47,072 (Gain) loss on disposal of property, plant and equipment – – 4,688 – – – – 4,688 Amounts regularly provided to the chief operating decision maker but not included in the measure of segment profit or loss or segment assets:

Bank interest income (2,471) (4,770) (51,392) (3,824) – (3,369) – (65,826) Finance cost 6,538 12,624 3,743 38,895 – 3,168 – 64,968 Income tax expense 33,274 52,201 48,014 6,691 13,553 (160) (3,480) 150,093 Change in fair value of financial guarantee contracts – – (17,503) – – – – (17,503) Compensation for termination of contracts – – (114,084) – – – – (114,084) Loss on disposal of an associate – – 1,255 – – – – 1,255

Note: Non-current assets excluded financial instruments, interests in associates, interests in jointly controlled entities and deferred tax assets.

Geographical information

The Group’s manufacturing and sales operations and property investments are mainly located in the PRC, Europe, Asia Pacific and America.

The following table provides an analysis of the Group’s turnover by geographical market, irrespective of the origin of the goods or services:

Turnover by geographical market 2010 2009 RMB’000 RMB’000

The PRC (including Hong Kong) 29,151,081 9,714,977 Europe 24,779,552 7,944,588 Asia Pacific (excluding the PRC) 10,145,290 9,312,878 North America 25,569,430 6,552,904 Others 15,286,317 3,559,967

104,931,670 37,085,314

At the end of the reporting period, the total amount of approximately RMB4,534,216,000 (2009: RMB3,712,932,000) of non-current assets other than financial instruments and deferred income tax assets were located in the PRC, and the total amount of approximately RMB3,711,639,000 (2009: RMB3,648,068,000) of these non-current assets were located in other countries.

173 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Information about major customers

The Group has identified one major customer (2009: two) which individually representing over 10% of the Group’s total external sales. During the year, revenue of approximately RMB12,395,921,000 (2009: RMB11,968,860,000) were derived from the major external customers. The amounts were primarily attributable to the electronic parts and components segment.

The sales to the major customers during the year are as follows:

2010 2009 RMB’000 RMB’000

Customer A 12,395,921 6,628,097 Customer B N/A1 5,340,763

12,395,921 11,968,860

1 The corresponding revenue did not contribute over 10% of the total sales of the Group during the year ended 31 December 2010.

12. FINANCE COSTS

2010 2009 RMB’000 RMB’000

Interest on bank and other loans, wholly repayable within five years 115,670 49,572 Interest on convertible bonds of a subsidiary (note 34) 57,213 12,044 Interest to a fellow subsidiary – 2,430 Interest on discounted bills without recourse – 1,154

Total borrowing costs 172,883 65,200 Less: amounts capitalised (235) (232)

172,648 64,968

Borrowing costs capitalised at a rate of 4.8% (2009: 2.9%) for the year ended 31 December 2010 arose on bank and other loans to finance expenditure on qualifying assets.

174 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

13. PROFIT BEFORE TAX

The Group’s profit before tax is arrived at after charging (crediting):

2010 2009 RMB’000 RMB’000

Staff costs, including directors’ emoluments (note 14): Wages and salaries 2,589,475 909,310 Share option granted to directors and employees of a subsidiary 5,442 – Contributions to defined benefit plan 2,890 903 Contributions to retirement benefits schemes 240,036 46,527

2,837,843 956,740

Cost of inventories sold 99,645,875 35,054,494 Cost of services provided 94,801 76,452 Depreciation of property, plant and equipment 1,221,488 534,903 Amortisation of prepaid land lease payments (included in administrative expenses) 7,093 4,729 Amortisation of intangible assets (included in administrative expenses) 20,796 6,581 Auditors’ remuneration 15,046 7,200 Minimum lease payment under operating leases of land and buildings 130,933 8,029 Foreign exchange differences, net (151,216) 67,896 Impairment of items of property, plant and equipment (included in administrative expenses) 12,198 25,374 Impairment of trade and bills receivables (included in administrative expenses) 32,834 31,673 Impairment of other receivables (included in administrative expenses) – 24,821 Impairment of available-for-sale investments 5,989 – Allowance for inventories (included in cost of sales) 159,973 15,053 Additional provision for product warranties 477,709 47,072 Loss on disposal of property, plant and equipment – 4,688 Loss on disposal of an associate – 1,255 Loss on disposal of subsidiaries 1,719 – Impairment of loans to associates 34,318 – Fair value gain on investment properties (53,328) (95,377) Change in fair value of financial assets at FVTPL 2,522 (2,688)

175 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

14. EMOLUMENTS OF DIRECTORS AND SUPERVISORS

Details of emoluments of directors and supervisors for the year are analysed as follows:

Salaries, allowances Retirement For the year ended and benefits benefits scheme 31 December 2010 Fees in kind Bonuses contributions Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Executive directors Mr. Liu Liehong (appointed on 18 June 2010) – – – – – Mr. Lu Ming 100 – – – 100 Mr. Tam Man Chi 100 3,127 3,083 213 6,523 Mr. Yang Jun – – – – – Mr. Su Duan 100 – – – 100 Mr. Du Heping (appointed on 18 June 2010) 58 50 – – 108 Mr. Wang Jincheng (resigned on 18 June 2010) – – – – – Mr. Fu Qiang (resigned on 18 June 2010) 42 – – – 42

400 3,177 3,083 213 6,873

Independent non-executive directors Mr. Chen Zhiya (appointed on 18 June 2010) – – – – – Mr. Yao Xiaocong (appointed on 18 June 2010) 58 – – – 58 Mr. James Kong Tin Wong (appointed on 18 June 2010) 58 – – – 58 Mr. Li Sanli (resigned on 18 June 2010) – – – – – Ms. Wang Qinfang (resigned on 18 June 2010) – – – – – Mr. Kennedy Ying Ho Wong (resigned on 18 June 2010) – – – – –

116 – – – 116

Supervisors Ms. Kong Xueping – – – – – Ms. Song Jianhua 50 – – – 50 Ms. Lang Jia 50 – – – 50

100 – – – 100

Total 616 3,177 3,083 213 7,089

176 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Salaries, allowances Retirement For the year ended and benefits benefits scheme 31 December 2009 Fees in kind Bonuses contributions Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Executive directors Mr. Lu Ming – – – – – Mr. Tam Man Chi 100 3,217 2,871 217 6,405 Mr. Wang Jincheng 100 – – – 100 Mr. Yang Jun – – – – – Mr. Su Duan 100 – – – 100 Mr. Fu Qiang 100 – – – 100

400 3,217 2,871 217 6,705

Independent non-executive directors Mr. Li Sanli 100 – – – 100 Ms. Wang Qinfang 100 – – – 100 Mr. Kennedy Ying Ho Wong 100 – – – 100

300 – – – 300

Supervisors Ms. Kong Xueping 50 – – – 50 Ms. Song Jianhua 50 – – – 50 Ms. Lang Jia – – – – –

100 – – – 100

Total 800 3,217 2,871 217 7,105

One executive director of the Company is entitled to bonus payments which are determined as percentage of the profit after tax of subsidiaries of the Group.

There was no arrangement under which a director or supervisor waived or agreed to waive any emoluments during the two years ended 31 December 2010.

During the two years ended 31 December 2010, no emoluments were paid by the Group to the directors and supervisors as an inducement to join or upon joining the Group or as compensation for loss of office.

The remuneration of directors is determined by the Remuneration Committee having regard to the performance of individuals and market trends.

177 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

15. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year ended 31 December 2010 included one (2009: one) director details of whose emoluments are set out in note 14 above. Details of the remuneration of the remaining four (2009: four) non- directors, highest paid employees for the year are as follows:

2010 2009 RMB’000 RMB’000

Salaries, allowances and benefits in kind 15,053 10,671

The number of non-director, highest paid employees whose remuneration fell within the following bands is as follows:

Number of employees 2010 2009

HK$1,500,001 to HK$2,000,000 (2010: equivalent to RMB1,298,551 to RMB1,731,400; 2009: equivalent to RMB 1,323,001 to RMB1,764,000) – 1

HK$2,000,001 to HK$2,500,000 (2010: equivalent to RMB1,731,401 to RMB2,164,250; 2009: equivalent to RMB 1,764,001 to RMB2,205,000) – 1

HK$2,500,001 to HK$3,000,000 (2010: equivalent to RMB2,164,251 to RMB2,597,100; 2009: equivalent to 2,205,001 to RMB2,646,000) – 1

HK$3,500,001 to HK$4,000,000 (2010: equivalent to RMB3,029,951 to RMB3,462,800; 2009: equivalent to RMB 3,087,001 to RMB3,528,000) 2 –

HK$4,500,001 to HK$5,000,000 (2010: equivalent to RMB3,895,651 to RMB4,328,500; 2009: equivalent to RMB3,969,001 to RMB4,410,000) 1 –

HK$5,000,001 to HK$5,500,000 (2010: equivalent to RMB4,328,501 to RMB4,761,350; 2009: equivalent to RMB4,410,001 to RMB4,851,000) 1 –

HK$5,500,001 to HK$6,000,000 (2010: equivalent to RMB4,761,350 to RMB5,194,200; 2009: equivalent to RMB 4,851,001 to RMB5,292,000) – 1

4 4

178 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

16. INCOME TAX EXPENSE

2010 2009 RMB’000 RMB’000

Current tax Hong Kong 14,748 12,731

PRC EIT and overseas income tax – Current year 255,548 120,881 – Under (over) provision in prior years 501 (1,624)

256,049 119,257

Deferred tax – Current year (note 39) 81,449 18,530 – Attributable to a change in tax rate (note 39) 861 (425)

82,310 18,105

Total tax charge for the year 353,107 150,093

(a) Hong Kong Profits Tax

Hong Kong Profits Tax is calculated at 16.5% (2009: 16.5%) of the estimated assessable profit for the year.

(b) PRC EIT

The subsidiaries established in the PRC are subject to the PRC EIT at rate of 25%. Certain of the subsidiaries of the Group are approved to be high technology enterprises and income tax is calculated at a rate of 22% of the estimated assessable profit for the year. In accordance with the relevant income tax regulations of the PRC, certain subsidiaries are entitled to exemptions from income tax for the two years commencing from their first profit-making year of operation after offsetting prior year tax losses, followed by a 50% reduction in the PRC EIT for the next three years.

On 16 March 2007, the PRC Government promulgated the Law of the PRC on PRC EIT (the “New Law”) by Order No. 63 of the President of the PRC. On 6 December 2007, the State Council of the PRC issued Implementation Regulation of the New Law. Under the New Law and Implementation Regulation, the PRC EIT rate of the Group’s subsidiaries in the PRC was increased from 15% to 25% progressively from 1 January 2008 onwards (2008:18%, 2009:20%, 2010:22%, 2011:24%, 2012:25%). The relevant tax rates for the Group’s subsidiaries in the PRC ranged from 20% to 25% for the two years ended 31 December 2010 and 2009.

179 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Taxation arising in other jurisdictions is calculated at the rated prevailing in the relevant jurisdictions.

The charge for the year can be reconciled to the profit before tax per the consolidated income statement, based on the income tax rate of most of the Group’s profit under assessments as follows:

2010 2009 RMB’000 RMB’000

Profit before tax 2,092,832 1,156,975

Tax at the applicable tax rate at 22% (2009:20%) 460,423 231,395 Under (over) provision in prior years 501 (1,624) Effect of different tax rate of subsidiaries’s operations in other jurisdictions and tax on concessionary rate (93,731) (47,442) Effect on opening deferred tax of increase in tax rates (861) 425 Tax effect of share of results of associates and jointly controlled entities (25,366) (8,430) Tax effect of income not taxable for tax purpose (126,008) (98,582) Tax effect of expenses not deductible for tax purpose 79,509 35,494 Withholding tax on unremitted earnings 41,908 – Utilisation of tax losses previously not recognised (17,593) (11,651) Tax effect of tax losses and deductible temporary differences not recognised 34,325 50,508

Tax charge for the year 353,107 150,093

Details of deferred tax are set out in note 39.

17. DIVIDENDS

2010 2009 RMB’000 RMB’000

Proposed final dividend of RMB15 cents (2009: RMB12 cents) per ordinary share 179,661 143,729

The proposed final dividend for the year ended 31 December 2010 is subject to the approval of the Company’s shareholders at the forthcoming annual general meeting. The final dividend for the year ended 31 December 2009 was approved and paid in 2010.

18. EARNINGS PER SHARE

The calculation of basic earnings per share is based on the profit for the year attributable to owners of the Company of approximately RMB648,989,000 (2009: RMB397,605,000) and on the weighted average number of approximately 1,197,742,000 (2009: 1,197,742,000) ordinary shares in issue during the year.

Diluted earnings per shares was the same as the basic earnings per share because there were no potential dilutive ordinary shares outstanding during the two years ended 31 December 2010 and 2009.

180 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

19. PROPERTY, PLANT AND EQUIPMENT

Plant, Freehold land Leasehold machinery outside land and and Motor Construction Hong Kong buildings equipment vehicles in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

COST At 1 January 2009 – 1,194,193 2,239,193 30,524 190,349 3,654,259 Additions – 173,767 495,916 4,843 108,489 783,015 Acquisition of subsidiaries 91,521 1,356,138 1,377,750 16,233 253,182 3,094,824 Transfers – 418,219 44,385 – (462,604) – Disposals – (83,749) (200,912) (1,567) – (286,228) Transfer to investment properties (note 21) – (132,433) – – – (132,433) Reclassified as held for sale – (45,760) (3,761) (449) – (49,970) Exchange realignment (10) (111) (415) (7) – (543)

At 31 December 2009 and 1 January 2010 91,511 2,880,264 3,952,156 49,577 89,416 7,062,924 Additions – 115,214 1,335,988 12,186 643,180 2,106,568 Acquisition of a subsidiary – 20,551 9,691 – 100 30,342 Disposal of a subsidiary – (13,550) (23,896) – (12,513) (49,959) Disposals – (90,747) (339,724) (3,042) – (433,513) Transfer 26,880 68,867 81,758 – (177,505) – Transfer to investment properties (note 21) – (103,462) – – – (103,462) Transfer from investment properties (note 21) – 222,610 – – – 222,610 Exchange realignment 2,758 (50,361) (70,147) (970) (20,111) (138,831)

At 31 December 2010 121,149 3,049,386 4,945,826 57,751 522,567 8,696,679

181 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Plant, Freehold land Leasehold machinery outside land and and Motor Construction Hong Kong buildings equipment vehicles in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

DEPRECIATION AND IMPAIRMENT At 1 January 2009 – 224,992 1,287,269 17,418 – 1,529,679 Impairment – 11,626 13,748 – – 25,374 Depreciation provided during the year – 117,039 411,315 6,549 – 534,903 Eliminated on disposals – (36,890) (163,711) (1,591) – (202,192) Transfer to investment properties (note 21) – (20,098) – – – (20,098) Reclassified as held for sale – (3,833) (2,541) (367) – (6,741) Exchange realignment – (42) (121) (5) – (168)

At 31 December 2009 and 1 January 2010 – 292,794 1,545,959 22,004 – 1,860,757 Impairment – 3,506 8,692 – – 12,198 Disposal of a subsidiary – (346) (359) – – (705) Depreciation provided during the year – 181,951 1,028,988 10,549 – 1,221,488 Transfer to investment (note 21) – (7,136) – – – (7,136) Eliminated on disposals – (5,478) (163,173) (2,670) – (171,321) Exchange realignment – (8,783) (68,296) (468) – (77,547)

At 31 December 2010 – 456,508 2,351,811 29,415 – 2,837,734

NET BOOK VALUE At 31 December 2010 121,149 2,592,878 2,594,015 28,336 522,567 5,858,945

At 31 December 2009 91,511 2,587,470 2,406,197 27,573 89,416 5,202,167

The above items of property, plant and equipment are depreciated at the following rates per annum on a straight-line basis:

Freehold land Nil Leasehold land and buildings Over the terms of the respective leases Plant, machinery and equipment 9% -50% Motor vehicles 12.86% – 33.33%

All leasehold land and buildings are under medium-term and long-term lease.

The Group carried out a review on the recoverable amount of certain production facilities during the year ended 31 December 2010 and 2009, The Group recognised an impairment loss of approximately RMB12,198,000 and RMB25,374,000 in the consolidated income statement for the two years ended 31 December 2010 and 2009 respectively as the relevant assets were left vacant.

At the end of the reporting period, certain of the Group’s leasehold land and buildings were pledged to obtain bank and other loans granted to the Group, details of which are set out in note 33.

182 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

20. PREPAID LAND LEASE PAYMENTS

Analysed for reporting purposes as:

2010 2009 RMB’000 RMB’000

Current asset 8,992 7,317 Non-current asset 346,045 338,133

355,037 345,450

During the year ended 31 December 2010, the land of approximately RMB48,525,000 (2009: RMB25,681,000) was acquired and land of approximately RMB22,305,000 (2009:nil) was transferred to investment property.

The Group’s prepaid land lease payments comprise:

2010 2009 RMB’000 RMB’000

Outside Hong Kong: Long lease 23,086 27,851 Medium-term lease 331,951 317,599

355,037 345,450

21. INVESTMENT PROPERTIES 2010 2009 RMB’000 RMB’000

At fair value Balance at beginning of year 1,294,529 875,130 Acquisition of subsidiaries – 76,472 Transfer from property, plant and equipment and prepaid land lease (note 19) 118,631 112,335 Transfer to property, plant and equipment (note 19) (222,610) – Revaluation surplus at transfer date from transferred owner-occupied properties 51,707 135,215 Fair value gains recognised in the consolidated income statement 53,328 95,377

Balance at the end of the year 1,295,585 1,294,529

The Group’s investment properties are situated in the PRC and Poland and comprise:

2010 2009 RMB’000 RMB’000

Freehold land 20,259 – Long lease 228,300 148,440 Medium-term lease 1,047,026 1,146,089

1,295,585 1,294,529

The Group’s investment properties were revalued on 31 December 2010 by Dudley Surveyors Limited and Jones Lang Lasalle Sallmanns Limited, independent professionally qualified valuers, at approximately RMB1,295,585,000 (2009: RMB1,294,529,000) on an open market basis, which has taken into account the comparable market transactions and the net income derived from existing tenancies with due allowance for reversionary income potential. The investment properties are leased to third parties under operating leases, further details of which are included in note 44.

183 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

At the end of the reporting period, certain of the Group’s investment properties were pledged to secure banking facilities granted to the Group, details of which are set out in note 33.

At the end of the reporting period, certain Group’s investment properties with an amount of approximately RMB73,120,000 (2009: RMB76,190,000) are in the process of getting land use right and building owner certificates.

The Group leases out some of the buildings and prepaid land leases under operating leases and certain of investment properties had been taken up by the Group as its own premises. The transfer accounts were based on the valuation performed by the independent professionally qualified valuers on the open market basis.

All of the Group’s properties interests held under operating leases to earn rentals for capital appreciation purposes and measured using the fair value model and are classified and accounted for as investment properties. Gross rental income generated for the investment properties during the year amounted to approximately RMB118,870,000 (2009: RMB90,888,000)

22. INTANGIBLE ASSETS

Patents Technology and licences acquired Software Trademark Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

COST At 1 January 2009 47,383 87,695 2,682 – 137,760 Additions – 1,092 – – 1,092 Acquisition of subsidiaries – – – 134,945 134,945 Reclassified as held for sale – – (644) – (644) Exchange realignment – – (2) (16) (18)

At 31 December 2009 and 1 January 2010 47,383 88,787 2,036 134,929 273,135 Additions 567 – 1,745 10,098 12,410 Exchange realignment – (15) (81) (4,215) (4,311)

At 31 December 2010 47,950 88,772 3,700 140,812 281,234

Amortisation At 1 January 2009 47,383 84,812 906 – 133,101 Amortisation provided during the year – 603 417 5,561 6,581 Reclassified as held for sale – – (398) – (398) Exchange realignment – – (1) (4) (5)

At 31 December 2009 and 1 January 2010 47,383 85,415 924 5,557 139,279 Amortisation provided during the year 37 675 1,605 18,479 20,796 Exchange realignment – 35 (79) (451) (495)

At 31 December 2010 47,420 86,125 2,450 23,585 159,580

Carrying values At 31 December 2010 530 2,647 1,250 117,227 121,654

At 31 December 2009 – 3,372 1,112 129,372 133,856

The above intangible assets have definite useful lives and are amortised on a straight-line basis over 5 to 15 years.

184 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

23. INTERESTS IN ASSOCIATES

2010 2009 RMB’000 RMB’000

Cost of investment in associates, unlisted (note a) 601,173 972,734 Share of post-acquisition losses and other comprehensive income, net of dividends received (50,529) (639,532)

Share of net assets (note a) 550,644 333,202 Loans to associates (note b) 76,326 378,858 Less: impairment (76,326) (319,745)

550,644 392,315

Notes:

(a) Movements in the Group’s share of net assets of associates during the year are summarised below:

(i) During the year ended 31 December 2010, L&T Display Technology (Fujian) Limited and L&T Display Technology (Xiamen) Limited were established and they were held by the Group as 49% and 49% respectively. Amount of RMB98,558,000 was injected during the year ended 31 December 2010.

(ii) On 11 August 2010, the 50% interest in GWBNS of approximately RMB80,257,000 was disposed of to CITIC Network Co. In additions, the loan to GWBNS with a net amount of approximately RMB4,207,000 (net of impairment of approximately RMB277,737,000) was settled by CITIC Network Co., the impairment was fully reversed. Details are set out in note 9.

(iii) During the year ended 31 December 2010, the Group held the interest in O-Net was decreased from 45.99% to 27.32%. As a result, a gain on deemed partial disposal and partial disposal of approximately RMB304,174,000 was recognised in financial statements. Details are set out in note 8.

(iv) During the year ended 31 December 2009, Envision Peripherals Inc., Hannstar Display (Wuhan) Corp. and CPT TPV Optional (Fujian) Co., Ltd became the associates of the Group upon the completion of acquisition of subsidiaries. Additional amount of approximately RMB115,321,000 was consolidated to the Group.

(v) The Group acquired further 80% of an associate, HannStar Display (Wuhan) Corp. during the year ended 31 December 2010. Amount of approximately RMB8,096,000 was transferred to the subsidiaries. Details are set out in note 43.

(vi) Shenzhen City Great Wall Kemei Technology Co., Ltd (“Great Wall Kemei”) was established under the law of the PRC with limited liability on 15 December 2008 with an operating period of 30 years. The registered capital of Great Wall Kemei was RMB100,000,000 which is owned as to 35% by the Group and 65% by other independent third party. The registered capital was paid up as to RMB20,000,000 as at 31 December 2008. The remaining unpaid registered capital of RMB80,000,000 has been paid up as to RMB28,000,000 by the Group and RMB52,000,000 by the other shareholders respectively during the year ended 31 December 2009.

(vii) On 16 January 2009, Shenzhen Elcoteq Electronics Co., Ltd (“SZ Elcoteq”), the associate of the Group, was acquired by Beijing Elcoteq Electronics Co., Ltd (“BJ Elcoteq”). Upon the completion of the acquisition, all the assets and liabilities of SZ Elcoteq were transferred to BJ Elcoteq and accordingly SZ Elcoteq was liquidated. A loss on disposal of approximately RMB1,255,000 was resulted from the liquidation of SZ Elcoteq during the year ended 31 December 2009.

(b) Loans to associates are unsecured, non-interest-bearing (2009: fixed rates ranging from 5.05% to 7.02% per annum) and is repayable after twelve months from the end of the reporting period.

185 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

The directors of the Company reviewed certain associates’ operations and financial positions as at the end of the reporting period and considered that the recoverability of the loans to an associate is uncertain. Accordingly, an impairment of approximately RMB34,318,000 has been recognised as at 31 December 2010 (2009: reversal of impairment RMB18,920,000). In the year ended 31 December 2010, upon the disposal of an associate, the reversal of impairment of loan of approximately RMB277,737,000 has been recognised. Details are set out in note 9.

The following table illustrates the summarised financial information of the Group’s associates extracted from their management accounts:

2010 2009 RMB’000 RMB’000

Total assets 6,663,302 4,496,751 Total liabilities (4,163,541) (3,223,754)

Net assets 2,499,761 1,272,997

Group’s share of net assets of associates 550,644 333,202

Revenue 6,894,022 6,982,853 Profit for the year 240,957 113,858 Other comprehensive expense (9,911) (26,487)

Group’s share of results of associates for the year 126,224 42,154 Group’s share of other comprehensive expense of associates for the year (4,661) (7,988)

Group’s share of profits and other comprehensive expense of associates for the year 121,563 34,166

Particulars of the principal associates are as follows:

Place of Nominal value of Percentage of incorporation/ issued ordinary/ equity attributable registration and registered share to the Group Name operations capital 2010 2009 Principal activities

Great Wall Broadband Service Limited* The PRC RMB900,000,000 – 50% Provision of broadband network services

ExcelStor Group Limited Cayman Islands US$15,000,000 33.33% 33.33% Trading of hard disk drives (“HDD”)

G&W Technologies, Co., Ltd. Republic of Korea US$2,577,320 27.82% 27.82% Manufacture of HDD spindle motors

O-Net Cayman Islands HK$22,224,299 27.32%% 45.99% Trading of fiber optic components and manufacture of fiber optic parts for optical communications networks. Integrated parts for optical communications networks and crystal parts for optical communications networks

Shenzhen Hai Liang Storage The PRC RMB494,742,208 20% 20% Manufacture and sales of Products Co., Ltd. magnetic head products

186 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Place of Nominal value of Percentage of incorporation/ issued ordinary/ equity attributable registration and registered share to the Group Name operations capital 2010 2009 Principal activities

Shenzhen KTM Glass Substrate The PRC RMB122,108,400 49% 49% Manufacture and sales of glass Co., Ltd. substrates

Shenzhen Great Wall Kemei The PRC RMB10,000,000 35% 35% Trading of network ammeters Technology Co., Ltd.

Guilin Changhai Technology The PRC RMB40,000,000 39% 39% Research and development of Co., Ltd * safe computers and special computers

Great Wall Kemei * The PRC RMB100,000,000 35% 35% Research and development of ammeters

Envision Peripherals, Inc. United States of 3,520,700 ordinary 24% 24% Manufacture and sales of America shares with no computer monitors par value

HannStar Display (Wuhan) Corp. * The PRC US$15,000,000 – 20% Manufacture and sales of computer monitors

CPT TPV Optical (Fujian) Co., Ltd * The PRC US$22,500,000 20% 20% Manufacture and sales of computer monitors

L&T Display Technology (Fujian) The PRC US$17,000,000 49% – Trading of LCD monitors/TVs Limited

L&T Display Technology (Xiamen) The PRC US$15,000,000 49% – Trading of LCD monitors/TVs Limited

* English translation is for identification purpose

The above table lists the associates of the Group which, in the opinion of the directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other associates would, in the opinion of the directors, result in particulars of excessive length.

24. INTERESTS IN JOINTLY CONTROLLED ENTITIES

2010 2009 RMB’000 RMB’000

Cost of unlisted investments in jointly controlled entities 83,907 – Share of post-acquisition losses (10,925) –

72,982 –

During the year ended 31 December 2010, a subsidiary of TPV offered its shares for subscription by third parties, which resulted in dilution of the interest in the subsidiary of TPV from 85% to 50%. The subsidiary has been deconsolidated and accounted for as a jointly controlled entity. Details are set out in note 42.

187 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

The following table illustrates the summarised financial information of the Group’s associates extracted from their management accounts:

2010 2009 RMB’000 RMB’000

The Group’s share of:

Total assets 189,283 – Total liabilities (116,301) –

The Group’s share of net assets of the jointly controlled entities 72,982 –

Revenue 114,480 – Loss for the year (10,925) –

Particulars of the jointly controlled entities are as follows:

Country of incorporations and principal Class of Proportion of Principal Name of entity place of operation shares held voting power held activity 2010 2009

Three Titans Technology The PRC Ordinary shares 50% – Trading of LCD (Xiamen) Co., Ltd.* monitor/TV

BriVictory Display Technology Malaysia and Poland Ordinary shares 49% – Trading of LCD (Labuan) Corp. and its wholly– monitor/TV owned subsidiary, BriVictory Display Technology (Poland) Sp z o.o

* English translation is for identification purpose

25. AVAILABLE-FOR-SALE INVESTMENTS

2010 2009 RMB’000 RMB’000

Equity securities listed in the PRC, at fair value 47,916 – Equity securities listed in Taiwan, at fair value 8,197 15,432 Unlisted equity investments, at cost less impairment 135,406 154,115 Unlisted equity investments, at fair value 6,073 6,261

197,592 175,808

During the year, a decrease in fair value of the Group’s available-for-sale investments recognised directly in other comprehensive income was approximately RMB25,349,000 (2009: gain of RMB22,615,000) and impairment loss of approximately RMB5,989,000 was recognised in consolidated income statement (2009: nil). An unlisted equity investment, stated at cost of approximately RMB27,243,000 was disposed and a gain on disposal of approximately RMB18,027,000 was recognised in the year ended 31 December 2010.

188 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

In the year ended 31 December 2009 certain listed securities with carrying amount of approximately RMB1,244,938,000 were accounted for investment in subsidiaries, further details of which are included in note 43.

The fair values of listed equity investments are based on quoted market prices.

The fair values of unlisted equity investments are based on discounted cash flows. Other than those measured at fair value, the unlisted equity investments are stated at cost less any impairment losses because the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value.

26. INVENTORIES

2010 2009 RMB’000 RMB’000

Raw materials 4,777,696 3,000,181 Work in progress 27,877 187,192 Finished goods 4,942,688 3,326,056 Consumables 29,174 20,018

9,777,435 6,533,447

During the year ended 31 December 2010, there was an increase in the net realisable values of inventories due to change in the market situation. As a result, a reversal of allowances for inventories of approximately RMB5,735,000 (2009: RMB19,185,000) has been recognised and included in other income and gains in the year.

27. TRADE AND BILLS RECEIVABLES

2010 2009 RMB’000 RMB’000

Trade and bills receivables 16,983,604 14,590,846 Impairment (206,236) (201,842)

16,777,368 14,389,004

The Group’s sales are on credit terms from 30 to 120 days and certain of its export sales are on letters of credit or documents against payment.

The following is an aged analysis of trade and bills receivables, net of impairment presented based on the invoice date at the end of the reporting period.

2010 2009 RMB’000 RMB’000

0 to 90 days 15,504,925 14,096,885 91 to 180 days 1,194,852 257,420 181 to 365 days 65,278 34,699 Over 365 days 12,313 –

16,777,368 14,389,004

189 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

The movements in provision for impairment of trade receivables are as follows:

2010 2009 RMB’000 RMB’000

Balance at beginning of the year 201,842 173,330 Impairment losses recognised on receivables 32,834 31,673 Acquisition of subsidiaries – 23,962 Reclassified as held for sale – (15,556) Amounts written off during the year as uncollectible (20,932) (280) Impairment losses reversed (7,062) (11,220) Exchange realignment (446) (67)

Balance at end of the year 206,236 201,842

The Group has individually assessed all receivables and provided in full for all receivables that are considered not recoverable. Impairment loss of approximately RMB32,834,000 (2009: RMB31,673,000) has been made during the year ended 31 December 2010 accordingly. The aged analysis of the trade and bills receivables that are not considered to be impaired is as follows:

2010 2009 RMB’000 RMB’000

Neither past due nor impaired 15,188,916 13,638,432 Less than one month past due 1,343,151 106,482 One to three months past due 99,744 561,673 Over three months past due 145,557 82,417

16,777,368 14,389,004

Receivables that were neither past due nor impaired relate to independent customers for whom there was no recent history of default. Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, the directors of the Company are of the opinion that no provision for impairment is necessary in respect of these balances as the debtors are leading electronics producers in the world, which have sound repayment history with no records of delays of payment, the balances are still considered fully recoverable. The Group does not hold any collateral over these balances.

28. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

2010 2009 RMB’000 RMB’000

Other receivables 2,604,677 2,012,472 Less: impairment (15,046) (37,814)

2,589,631 1,974,658 Prepayments and deposits 209,380 196,589

2,799,011 2,171,247

190 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

The movements in provision for impairment of other receivables are as follows:

2010 2009 RMB’000 RMB’000

Balance at beginning of the year 37,814 83,951 Reclassified to assets classified as held for sale – (2,343) Impairment losses reversed (6,909) (34,975) Impairment losses recognised – 24,821 Amounts written off during the year as uncollectible (15,859) (33,640)

Balance at end of the year 15,046 37,814

The Group has individually assessed all other receivables and provided in full for those receivables that are considered not recoverable. The Group does not hold any collateral over these balances.

29. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

2010 2009 RMB’000 RMB’000

Listed securities, at fair value: – Equity securities – Singapore 3,391 3,981 – Equity securities – the PRC – 10,307 – Equity securities – Taiwan (note) 13,576 15,958

16,967 30,246

Note: It represents listed options of an underlying security listing in Taiwan with quoted prices in active markets.

30. TERM DEPOSITS, PLEDGED DEPOSITS AND BANK BALANCES AND CASH

2010 2009 RMB’000 RMB’000

Cash and bank deposits, other than term deposits 2,436,072 3,031,477 Term deposits 1,273,039 1,940,197

3,709,111 4,971,674

Less: Current deposits Pledged for bank facilities 357,414 315,060 Pledged for performance bonds 33,564 24,840

390,978 339,900 Term deposits with terms over three months 546,328 495,000

937,306 834,900

Less: Term deposits with terms over one year 14,000 86,008

Bank balances and cash 2,757,805 4,050,766

191 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

As at 31 December 2010, term deposits, pledged deposits, bank balances and cash of approximately RMB2,342,501,000 (2009: RMB3,210,330,000) were denominated in RMB, which is not freely convertible currency in the international market and its exchange rate is determined by the government of the PRC. The pledged deposits and bank balances carry interest at 0.36% (2009: 0.36%) per annum.

As at 31 December 2010, the effective interest rates on term deposits with terms over three months ranged from 2.25% to 5.85% (2009: 2.25% to 5.13%) per annum; and these deposits have an average maturity of 261 days (2009: 255 days).

As at 31 December 2010, term deposits of approximately RMB25,467,000 (2009: RMB24,840,000) were pledged in respect of performance bonds in favour of the customers.

31. DISPOSAL GROUP HELD FOR SALE

2010 2009 RMB’000 RMB’000

Assets classified as held for sale – 379,270

Liabilities associated with assets classified as held for sale – 248,962

On 28 December 2009, the Group entered into the share transfer agreement with China National Software and Service Co Ltd (“China Software”), a fellow subsidiary of the Company, pursuant to which the Group conditionally agreed to transfer its 69.41% equity interest in Great Wall Computer Software and Systems Incorporation Limited and its subsidiaries (“Great Wall Software Group”). Details of the disposal are set out in note 42.

The assets and liabilities attributable to Great Wall Software Group have been classified as disposal group held for sale and are presented separately in the consolidated statement of financial position as at 31 December 2009. The major classes of assets and liabilities of Great Wall Software Group as at 31 December 2009, classified held for sales, are as follow:

31/12/2009 RMB’000

Property, plant and equipment 43,229 Intangible assets 246 Available-for-sale investments 3,195 Inventories 71,374 Trade and bills receivables 162,136 Prepayments, deposits and other receivables 19,419 Bank balances and cash 79,671

Total assets of the disposed subsidiary classified as held for sale 379,270

Trade and bills payables 174,308 Other payables and accruals 49,654 Amount due to a fellow subsidiary 25,000

Total liabilities of the disposed subsidiary classified as held for sale 248,962

Net assets 130,308

192 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

32. TRADE AND BILLS PAYABLES

The Group has financial risk management policies in place to ensure all payables are paid within the credit timeframe. The average credit period on purchase is 30 to 90 days. An aged analysis of the trade and bills payables presented based on the invoice date as at the end of the reporting period.

2010 2009 RMB’000 RMB’000

Within 90 days 15,180,057 13,177,026 91 to 180 days 1,727,209 1,523,589 181 to 365 days 38,606 45,237 Over 365 days 38,908 43,921

16,984,780 14,789,773

33. BANK AND OTHER LOANS

2010 2009 RMB’000 RMB’000

Non-current Bank and other loans – 41,816

Current Bank and other loans 4,267,261 1,773,011

4,267,261 1,814,827

Bank and other loans repayable within one year: Unsecured 3,870,787 1,353,157 Secured 396,474 419,854

4,267,261 1,773,011

Bank and other loans repayable within two years: Unsecured – 41,816

4,267,261 1,814,827

Bank and other loans of approximately RMB3,875,571,000 (2009: RMB1,773,988,000) are at fixed interest rates during the year. The bank and other loans expose the Group to fair value interest rate risk. The effective interest rates at the end of the reporting period as follows:

2010 2009

Bank and other loans 0.99%-4.78% 1%-4.78%

As at 31 December 2010, bank and other loans of approximately RMB350,000,000 (2009: RMB614,641,000) are denominated in RMB and approximately RMB3,917,261,000 (2009: 1,200,186,000) are denominated in US$.

193 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Certain of the Group’s term deposits with a carrying value of approximately RMB390,978,000 (2009: RMB339,900,000) were pledged to the banks to secure the bank facilities and performance bonds.

Certain of the Group’s investment properties, leasehold land and buildings with a carrying value of approximately RMB158,945,000 (2009: RMB134,103,000) were pledged to secure the bank loans of approximately RMB50,000,000 (2009: RMB50,000,000) as at 31 December 2010.

34. CONVERTIBLE BONDS OF A SUBSIDIARY

The Group’s subsidiary, TPV, issued 3.35% convertible bonds in the principal amount of US$211 million to Koninklijke Philips Electronics N.V. (“Philips”) on 5 September 2005 as part of the purchase consideration for a business combination.

The bonds mature five years from the issue date at their principal amount of US$211 million and can be converted into TPV’s ordinary shares at the holder’s option at a conversion price HK$5.241 (US$0.67) per share. On 7 September 2010, upon the maturity date, TPV redeemed an aggregate principal amount of US$211 million, being all outstanding principal amount of the convertible bonds. As the holders of the convertible bonds did not opt to exercise the right of conversion, no additional shares were issued by TPV and all principal and interests thereon accrued were repaid with cash.

The fair value of the liability component and the equity conversion component were determined at the time of the issuance of the bonds.

At the time of issuance, the fair value of the liability component, included in borrowings was calculated using a market interest rate for an equivalent non-convertible bond. The equity conversion component was included in the equity of the subsidiary as at 31 December 2009.

The convertible bonds recognised in the consolidated statement of financial position are calculated as follows:

2010 2009 RMB’000 RMB’000

Equity component (note) – 297,886

Liability component Balance at 1 January 1,428,541 – Acquisition of subsidiaries – 1,423,251 Interest expense (note 12) 57,213 12,044 Interest paid (48,399) (6,590) Repayment upon maturity (1,437,355) – Exchange realignment – (164)

Balance at 31 December – 1,428,541

Note:

The equity component of the convertible bonds of a subsidiary was not recognised in the consolidated statement of financial position as it was regarded as pre-acquisition reserve upon the acquisition of TPV as at 13 October 2009.

194 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

35. DERIVATIVE FINANCIAL INSTRUMENTS

2010 2009 Assets Liabilities Assets Liabilities RMB’000 RMB’000 RMB’000 RMB’000

Derivatives not under hedge accounting Foreign exchange forward contracts (note a) 423,630 (22,158) 125,851 (7,702) Interest rate swaps (note b) 7,528 (400,615) 2,738 (112,297)

431,158 (422,773) 128,589 (119,999)

(a) Foreign exchange forward contracts

The total notional principal amount of the outstanding foreign exchange forward contracts as at the end of the reporting period are as follows:

2010 2009 RMB’000 RMB’000

Sell RMB for US$ 24,362,536 19,480,855 Sell US$ for RMB 21,629,738 19,514,996 Sell Japanese Yen for US$ 376,832 39,604 Sell Euros for US$ 1,379,204 503,368 Sell Brazilian Real for US$ 329,810 290,199 Sell Indian Rupee for US$ 72,850 68,282 Sell British pounds for US$ 46,869 – Sell US$ for Russian Ruble 5,066 – Sell US$ for New Taiwan dollars 112,586 – Sell HK dollars for US$ – 20,485 Sell Mexican Peso for US$ – 9,559

As at 31 December 2010, all of the above foreign exchange forward contracts are with maturity dates within 12 months from the end of the reporting period.

(b) Interest rate swaps

The total notional principal amount of the outstanding interest rate swaps as at 31 December 2010 was approximately RMB2,587,726,000 (2009: RMB2,283,350,000).

36. PROVISIONS FOR PRODUCTS WARRANTIES

2010 2009 RMB’000 RMB’000

At 1 January 501,855 46,239 Additional provision recognised 477,709 47,072 Acquisition of subsidiaries – 437,058 Amounts utilised during the year (453,467) (25,799) Amounts reversed during the year (13,602) (2,020) Exchange realignment (14,495) (695)

At 31 December 498,000 501,855

The Group provides warranties to its customers on certain products, under which faulty products are repaired or replaced. The amount of the provision for the warranty is estimated based on sales volume and past experience of the level of repairs and returns. The estimation basis is reviewed on an ongoing basis and revised where appropriate. It is expected that the provision will be utilised within 12 months after the end of the reporting period. 195 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

37. PENSION OBLIGATIONS

The balance represented the Group’s obligations in a defined benefit plan for its employees in Taiwan in accordance with the relevant local regulations.

The obligations are calculated using the projected unit credit method, discounted to its present value. Such pension obligations as at 31 December 2010 were valued by Actuarial Consulting Co., Ltd, an independent actuary.

The amount recognised in the consolidated statement of financial position is determined as follows:

2010 2009 RMB’000 RMB’000

Present value of funded obligations 64,532 47,548 Fair value of plan assets (7,100) (6,179)

57,432 41,369

Unrecognised actuarial losses (18,782) (6,811)

Liability in the consolidated statement of financial position 38,650 34,558

The amounts recognised in the consolidated income statement are as follows:

2010 2009 RMB’000 RMB’000

Current service cost 1,766 565 Interest cost 1,076 311 Expected return on plan assets (142) (26) Net actuarial losses recognised during the year 190 53

Total expense, within employee benefit expense 2,890 903

The actual loss on plan assets was approximately RMB34,000 (2009: RMB41,000).

Movements in the pension obligations are as follows:

2010 2009 RMB’000 RMB’000

At 1 January 47,548 – Acquisition of subsidiaries – 47,034 Current service cost 1,766 565 Interest cost 1,076 311 Benefit paid (995) (603) Actuarial losses 10,953 241 Exchange realignment 4,184 –

At 31 December 64,532 47,548

196 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Movements in the fair value of plan assets are as follows:

2010 2009 RMB’000 RMB’000

At 1 January 6,179 – Acquisition of subsidiaries – 6,390 Expected return on plan assets 142 26 Contributions 1,808 311 Benefit paid (995) (603) Actuarial losses (34) 55

At 31 December 7,100 6,179

The principal actuarial assumptions used are as follows:

2010 2009

Discount rate 1.75% 2.25% Expected rate of return on plan assets 1.75% 2.25% Expected rate of future salary increment 3.5% 3.00%

38. FINANCIAL GUARANTEE CONTRACTS

As at 31 December 2010, the Group provided financial guarantees to banks in respect of banking facilities granted to associates and certain customers. The financial guarantees provided and the movements of fair value are analysed as follows:

2010 2009 RMB’000 RMB’000

Guarantees given to banks in connection with facilities granted to: Associates 19,868 570,385 Third parties 54,051 60,384

73,919 630,769

2010 2009 RMB’000 RMB’000

At 1 January 3,637 21,140 Fair value change during the year – (17,503) Gain on derecognition (3,637) –

At 31 December – 3,637

As at 31 December 2010, the bank loans of associate was fully settled and a gain on derecognition of financial guarantee contracts of approximately RMB3,637,000 was recognised. The directors of the Company reviewed the financial position of the guarantees and considered that payment for the settling the financial guarantee is remote. No liabilities were recognised for the above guarantees as at 31 December 2010 and 2009.

As at 31 December 2009 is approximately RMB3,637,000 has been recognised in the consolidated statement of financial position as non-current liabilities for the above guarantees to an associate as such guarantees were not to be expired within the next twelve months from the end of the reporting period.

197 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

39. DEFERRED TAX

The movements in deferred tax liabilities (assets) recognised and movements thereon during the current and prior reporting periods:

Depreciation allowance in excess of Unrealised related Revaluation profit on Withholding Depreciation depreciation Impairment Revaluation of available– derivatives Unrealised tax on of property, and Pension and of for-sale Capitalisation Equity of financial profit on distributable plant and amortisation obligation provisions properties investments of interest associates instruments inventories profit Tax losses equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2009 28,659 – (82,517) 47,823 (83,422) 9,356 1,678 – – – – (9,259) (87,682) Acquisition of subsidiaries – (7,271) (63,769) 119,893 – – – (8,894) (4,261) – – – 35,698 Deferred tax debited to equity during the year – – – 29,747 83,422 – – – – – – – 113,169 Deferred tax charged (credited) to the consolidated income statement (note 16) 9,680 (1,367) (24,573) 11,502 – (905) – 13,325 683 – – 10,185 18,530 Effect of change in tax rate (note 16) 2,866 – (8,251) 4,782 – 936 168 – – – – (926) (425)

At 31 December 2009 and at 1 January 2010 41,205 (8,638) (179,110) 213,747 – 9,387 1,846 4,431 (3,578) – – – 79,290 Deferred tax debited to equity during the year – – – 11,059 6,352 – – – – – – – 17,411 Deferred tax charged (credited) to the consolidated income statement (note 16) 10,050 (117) (12,640) 7,403 – (905) – 43,517 5,624 41,908 (13,391) – 81,449 Effect of change in tax rate (note 16) 3,746 – (9,125) 5,219 – 853 168 – – – – – 861

At 31 December 2010 55,001 (8,755) (200,875) 237,428 6,352 9,335 2,014 47,948 2,046 41,908 (13,391) – 179,011

For the purposes presentation of consolidated statement of financial position, certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes:

2010 2009 RMB’000 RMB’000

Deferred tax liabilities 402,032 267,038 Deferred tax assets (223,021) (187,748)

179,011 79,290

At the end of the reporting period, the Group did not recognise in respect of tax losses of approximately RMB248,432,000 (2009: RMB144,285,000) due to the unpredictability of future profit streams. Tax losses amounting to RMB203,269,000 will expire in 2011 to 2020.

At the end of the reporting period, the Group has deductible temporary differences of approximately RMB237,175,000 (2009: RMB265,267,000). No deferred tax asset has been recognised in relation to such deductible temporary difference as it is not probable that taxable profit will be available against which the deductible temporary differences can be utilised.

40. GOVERNMENT GRANTS

2010 2009 RMB’000 RMB’000

At 1 January 22,375 7,653 Government grants raised during the year 22,970 14,982 Government grants utilised during the year (11,218) (260)

At 31 December 34,127 22,375

198 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Government grants of approximately RMB158,526,000 (2009: RMB68,972,000) have been recognised during the year ended 31 December 2010 which were designated for certain research projects of the Group. All conditions in respect of these grants had been fulfilled and such government grants were recognised in other income for the year.

As at 31 December 2010, government grants of approximately RMB34,127,000 (2009: RMB22,375,000) which were designated for certain research projects of the Group were stated as non-current liabilities in the consolidated statement of financial position as the directors of the Company are of the opinion that certain conditions in respect of these grants will not be fulfilled within the next twelve months from 31 December 2010.

41. SHARE CAPITAL

2010 2009 RMB’000 RMB’000

Authorised, issued and fully paid:

743,870,000 state-owned legal person shares of RMB1.00 each 743,870 743,870 453,872,000 overseas listed foreign invested shares of RMB1.00 each 453,872 453,872

1,197,742 1,197,742

There was no change in the authorised and issued capital of the Company for the two years ended 31 December 2010 and 2009.

42. DISPOSAL OF SUBSIDIARIES

(a) A subsidiary of TPV offered its shares for subscription by third parties in July 2010, which resulted in dilution of the TPV’s interests in the subsidiary from 85% to 50%. Consequently, the subsidiary has been deconsolidated and accounted for as a jointly controlled entity. The following table summarises the amounts of the assets and liabilities deconsolidated at the transaction date.

As at transaction date RMB’000

Net assets disposed of: Property, plant and equipment 49,254 Inventories 20,596 Bank balances and cash 14,153 Trade and other receivables 14,471 Trade payables and other payables (67,390)

31,084 Less: Investments retained subsequent to disposal as at fair value (32,478)

Gain on disposal (1,394)

Net cash outflow arising on disposal: Cash consideration – Less: Bank balances and cash disposed of (14,153)

(14,153)

There is no significant impact on the total turnover and profit of the Group as the revenue and results of the disposed subsidiary is not significant for the year ended 31 December 2010. The subsidiary disposed of had no significant effect on the cashflow of the Group for the year ended 31 December 2010.

199 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

(b) On 28 December 2009, the Group entered into the share transfer agreement with China Software, a fellow subsidiary of the Company, pursuant to which the Group conditionally agreed to transfer its 69.41% equity interest in Great Wall Software Group for a consideration of approximately RMB92,472,000. The disposal of the 69.41% of Great Wall Software Group was completed on 21 April 2010 and details of the completion of the disposal are set out in the announcement of the Company dated 21 April 2010.

As at transaction date RMB’000

Net asset disposed of: Property, plant and equipment 42,800 Intangible assets 225 Available-for-sale investments 3,195 Inventories 64,776 Trade and bills receivables 94,810 Prepayments, deposits and other receivables 21,056 Bank balances and cash 57,004 Trade and bills payables (132,669) Other payables and accruals (20,447) Non-controlling interests (36,559)

94,191 Loss on disposal (1,719)

Total consideration 92,472

Satisfied by: Cash 92,472

Net cash inflow arising on disposal: Cash consideration 92,472 Less: bank balances and cash disposed of (57,004)

35,468

There is no significant impact on the total turnover and profit of the Group as the revenue and results of the disposed subsidiaries are not significant for the year ended 31 December 2010 and 2009. The subsidiaries disposed of had no significant effect on the cashflow of the Group for the year ended 31 December 2010 and 2009.

200 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

43. BUSINESS COMBINATIONS

Business combinations for the year ended 2010

On 23 December 2010, the Group acquired a further 80% equity interests in HannStar Display (Wuhan) Corp. (“Hannstar- TPV”) for a purchase consideration of US$3,400,000 (equivalent to approximately RMB22,282,000), in addition to 20% of the original equity interests in this associate, and obtained the control of Hannstar-TPV.

The following table summarises the consideration for Hannstar-TPV and the amounts of the assets acquired and liabilities at the acquisition date, as well as the fair values at acquisition.

RMB’000

Property, plant and equipment 30,342 Inventories 2,732 Trade and other receivables 20,131 Cash and cash equivalents 2,905 Trade and other payables (16,357)

Total identifiable net assets acquired at fair value 39,753

Gain from a bargain purchase (9,375)

Total consideration 30,378

Total consideration: Cash paid 7,947 Cash payable 14,335

22,282 Fair value of equity interest in Hannstar-TPV held before the business combination 8,096

30,378

An analysis of the net cash inflow of cash and cash equivalents in respect of the acquisition of a subsidiary are as follows:

Cash consideration paid 7,947 Bank balances and cash acquired (2,905)

Net cash outflow arising from the acquisition of a subsidiary 5,042

The revenue and profit included in the consolidated income statement since 23 December 2010 contributed by Hannstar-TPV was insignificant.

Had Hannstar-TPV been consolidated from 1 January 2010, revenue will increase by approximately RMB50,215,000 and profit will decrease by approximately RMB24,147,000 in the consolidated income statement.

201 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Business combinations for the year ended 2009

Upon completion of the business combination with Great Wall Hong Kong on 29 June 2009, Great Wall Hong Kong became a subsidiary of the Group. As Great Wall Hong Kong held approximately 17% of the total issued share capital of TPV on 29 June 2009, the Group’s aggregate interest in the total issued share capital of TPV increased from approximately 9.5% to 26.5%.

On 13 October 2009, the board of directors of TPV comprised 13 members, 7 of whom also hold the senior management positions with the Group and its associates, as a result, the Group has effective control over the majority of the board of directors of TPV and accounted for the investment in TPV as investment in subsidiaries. As at 13 October 2009, the Group’s aggregate interest in the total issued share capital of TPV increased from approximately 26.5% to 27%.

Net assets acquired in the transaction are as follows:

Acquiree’s carrying amount before Fair value acquisition adjustments Fair value RMB’000 RMB’000 RMB’000

Property, plant and equipment 2,368,053 726,771 3,094,824 Prepaid land lease payments 137,403 67,679 205,082 Investment properties 76,472 – 76,472 Intangible assets 134,945 – 134,945 Interests in associates 115,321 – 115,321 Available-for-sale investments 20,630 – 20,630 Deferred tax assets 84,195 – 84,195 Inventories 7,126,893 – 7,126,893 Trade and bills receivables 11,943,993 – 11,943,993 Prepayment, deposits and other receivables 1,578,841 – 1,578,841 Financial assets at FVTPL 4,214 – 4,214 Tax recoverable 8,191 – 8,191 Bank balances and cash 1,240,742 – 1,240,742 Trade and bills payables (12,636,293) – (12,636,293) Other payables and accruals (2,557,704) – (2,557,704) Bank and other loans (212,493) – (212,493) Convertible bonds of a subsidiary (1,423,251) – (1,423,251) Derivative financial instruments, net (101,756) – (101,756) Tax payables (65,826) – (65,826) Provisions for products warranties (437,058) – (437,058) Pension obligations (31,347) – (31,347) Deferred tax liabilities (4,306) (115,587) (119,893)

Net assets 7,369,859 678,863 8,048,722

Less: Minority interests (5,878,816)

Net asset acquired 2,169,906 Discount on acquisition of subsidiaries (357,330)

Total costs as transferred from available-for-sale investments (note) 1,812,576

202 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Note:

The Group accounted for the investment in TPV as an available-for-sale investment before the Group gained the effective control over the majority of the board of directors of TPV. As at 13 October 2009, the investment in TPV was accounted as investment in subsidiaries upon the Group has the effective control over the majority of the board of directors of TPV. The investment cost of TPV was transferred from available-for-sale investments to the cost of investment.

RMB’000

Transfer from available-for-sale investments 1,244,938 Transfer from available-for-sale investments revaluation reserve 567,638

Total cost as transferred available-for-sale investments 1,812,576

An analysis of the net cash inflow of cash and cash equivalents in respect of the acquisition of a subsidiary are as follows:

Cash consideration paid – Bank balances and cash acquired 1,240,742

Net cash inflow arising from the acquisition of a subsidiary 1,240,742

The discount on acquisition of subsidiaries was attributable to the Group acquiring the share of TPV at a lower price from the stock market in 2008 and 2009.

The turnover of approximately RMB18,259,164,000 and profit of RMB320,065,000 of TPV are consolidated to the Group’s turnover and profit for the year ended 31 December 2009.

If the acquisition had been completed on 1 January 2009, total group revenue for the period would have been approximately RMB73,670,075,000, and profit for the period would have been approximately RMB1,196,638,000. The pro forma information is for illustrative purposes only and is not necessarily an indication of revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on 1 January 2009, nor is it intended to be a projection of future results.

203 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

44. OPERATING LEASE ARRANGEMENTS

(a) As lessor

The Group leases their investment properties under operating lease arrangements, with leases negotiated for terms ranging from one to nine years. The terms of the leases generally also require the tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions. The remaining properties are expected to generate rental yields of 9% (2009: 15%) on an ongoing basis. At the end of reporting period, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:

2010 2009 RMB’000 RMB’000

Within one year 85,415 90,135 In the second to fifth years, inclusive 127,617 87,256 After five years 12,662 5,920

225,694 183,311

(b) As lessee

The Group leases certain of its office properties under operating lease arrangements. Leases for properties are negotiated for terms ranging from one to nine years. At the end of reporting period, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

2010 2009 RMB’000 RMB’000

Within one year 74,816 71,149 In the second to fifth years, inclusive 110,739 98,885 After five years 51,604 82,519

237,159 252,553

45. CAPITAL COMMITMENTS

The Group had the following capital commitments at the end of the reporting period:

2010 2009 RMB’000 RMB’000

Contracted, but not provided for: Leasehold land and buildings 399,805 260,012 Plant, machinery and equipment 17,888 2,784

417,693 262,796

As at 31 December 2010, the Group had commitments for investments in joint venture amounting to approximately RMB401,939,000 (2009: RMB350,457,000).

204 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

46. RETIREMENT BENEFITS SCHEMES

Apart from the defined benefit plan stated in note 37, the employees in the Group, which operates in the PRC are required to participate in a central pension scheme (the “CP Scheme”) operated by the local municipal government. The Group is required to contribute 5% to 13% of their payroll costs to the central pension scheme. The contributions are charged to the consolidated income statement as they become payable in accordance with the rules of the central pension scheme.

Subsidiaries in Hong Kong operate a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for all of its employees. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the consolidated income statement as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the subsidiary in an independently administered fund. The subsidiary’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

At 31 December 2010, the Group had no amount capitalised and forfeited contributions available to reduce its contributions to the CP Scheme and MPF Scheme in future years (2009: nil).

47. SHARE OPTION SCHEME OF A SUBSIDIARY

The Company has no share option scheme but the Company’s subsidiary, TPV, has issued equity settled share-based payments to certain employees.

Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

Number of share options At Exercised Granted Lapsed At 1 January during the during the during the 31 December Date of grant Exercise price Note 2010 year year year 2010

12 December 2007 HK$5.750 (i) 21,358,026 – – (690,000) 20,668,026

Exercisable at the end of the year 20,668,026

Note:

(i) These options are exercisable at HK$5.750 (approximately RMB4.89) per share in three trenches: the maximum percentage of share options exercisable within the periods commencing from 12 December 2008 to 11 December 2012, from 12 December 2010 to 11 December 2012 and from 12 December 2010 to 11 December 2012 are 20%, 50% and 100% respectively.

205 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

48. RELATED PARTY TRANSACTIONS

(a) In addition to the transactions detailed elsewhere in these consolidated financial statements, the Group had the following material transactions with related parties during the year:

2010 2009 Notes RMB’000 RMB’000

Ultimate holding company: Sales of products (i) 4,665 135

Immediate holding company: License fees (ii) 3,193 2,849 Acquisition of subsidiaries (ix) – 10,601

Associates: Sales of products (i) 3,619,644 1,177,868 Rental income (iii) 50,623 46,979 Interest income (iv) – 10,469 Processing fee income (v) 2,646 57 Purchases of components and parts (vi) 21,849 – Commission fees (x) 2,880 –

Jointly controlled entities: Sales of finished goods (i) 127,302 – Purchases of raw materials (vi) 15,768 – Rental income (iii) 2,349 –

Fellow subsidiaries: Sales of products (i) 54,134 31,898 Rental income (iii) 18,653 22,052 Interest income (iv) 55 – Purchases of components and parts (vi) 35,617 11,250 Interest expenses (vii) – 2,430

Subsidiaries’ substantial shareholders and their subsidiaries: Sales of finished goods (viii) 3,181,471 1,939,817 Purchases of raw materials (viii) 8,180,489 2,931,026

Notes:

(i) The sales to the ultimate holding company, associates, jointly controlled entities and the fellow subsidiaries were made according to the published prices and conditions offered to major customers of the Group.

(ii) The license fees paid to the immediate holding company was based on a rate of 0.39% (2009: 0.15%) of the revenue from the products under the “Great Wall” brand.

(iii) The rental income from the property leased to associates, jointly controlled entities and fellow subsidiaries was made according to the market rate offered to third parties.

(iv) The interest income from associates for the year ended 31 December 2009 was based on an interest rate of 5.05% per annum. The interest income from fellow subsidiary for the year ended 31 December 2010 was based on the benchmark deposit interest rate for financial institution announced by the People’s Bank of China.

(v) Processing fee from associates was made on terms mutually agreed between both parties.

206 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

(vi) The purchases from associates, jointly controlled entities and fellow subsidiaries were made according to published prices and conditions offered by associates and fellow subsidiaries to their major customers.

(vii) The interest expense to a fellow subsidiary was based on an interest rate of 5.35% per annum for the year ended 31 December 2009.

(viii) The transactions were conducted in the normal course of business at prices and terms as agreed between the transacting parties.

(ix) The acquisition of subsidiaries from the immediate holding company in the year ended 31 December 2009 was made on terms mutually agreed between both parties. The consideration was RMB10,601,000.

(x) The transactions were conducted in the normal course of business at prices and terms as agreed between the transacting parties.

(b) Outstanding balances with related parties:

(i) The balances with immediate holding company, fellow subsidiaries excludes the amount noted above (a) (vii), and associates are unsecured, interest free and repayable on demand.

(ii) The Group had outstanding receivable from TPV’s associates and jointly controlled entities of approximately RMB927,721,000 (2009: RMB1,157,079,000) and RMB42,855,000 (2009: nil) respectively, which were presented in the consolidated statement of financial position within trade receivables.

The Group had outstanding payables to TPV’s associates and jointly controlled entities of approximately RMB9,516,000 (2009: nil) and RMB14,179,000 (2009: nil) respectively, which were presented in the consolidated statement of financial position within trade payables.

Receivables from TPV’s substantial shareholders and their subsidiaries of approximately RMB2,887,000 (2009: RMB1,534,856,000) and RMB6,954,000 (2009: nil) were presented in the consolidated statement of financial position within trade receivables and prepayment and other receivables respectively.

Payables to TPV’s subsidiaries’ substantial shareholders and their subsidiaries of approximately RMB497,570,000 (2009:RMB1,580,947,000) and nil (2009: RMB27,313,000) were presented in the consolidated statement of financial position within trade payables and other payables and accruals respectively.

(iii) The Group had a bank deposit of approximately RMB190,013,000 (2009: nil) in a fellow subsidiary, which was an authorised non-bank financial institution set up in the PRC. The deposit was presented in the consolidated statement of financial position within bank balances and cash.

The remunerations of directors and other members of key management were disclosed in notes 14 and 15 respectively.

(d) The Group operates in an economic environment predominated by enterprises directly or indirectly owned or controlled by the PRC government through its numerous authorities, affiliates or other organisations (collectively “State-owned Enterprises”). During the two years ended 31 December 2010 and 2009, the Group had transactions with State-owned Enterprises including, but not limited to, sales and purchase of computers, electronic parts and computer-related products. The directors of the Company consider that transactions with other State- owned Enterprises are activities in the ordinary course of business, and that dealings of the Group have not been significantly controlled or owned by the PRC government. The Group has also established pricing policies for products and such pricing policies do not depend on whether or not the customers are State-owned Enterprises. Having due regard to the substance of the relationships, the directors of the Company are of the opinion that none of these transactions is a material related party transaction that requires separate disclosure.

207 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

49. CONTINGENT LIABILITIES

The Group had certain outstanding litigations as recorded by TPV, the details of which are set out as follow:

(a) In January 2007, a third party company filed a complaint in the United States of America against the Group, one of its associated companies and certain other third party companies. The complaint claims damages related to alleged infringement of a US Patent in respect of technology to decode Program Map Information in the Digital TVs (“Patent I”).

As far as the Group and its associated company are concerned, it is alleged among other matters that:

(i) They have directly infringed, contributed to and/or actively induced infringement of the Patent I and are continuing to directly infringe, contribute to and/or actively induce infringement by making, using, importing, offering for sale, soliciting sales by others of, enabling or assisting with sales by others of, and/ or selling in the United States of America, including, without limitation, ATSC TVs under the AOC brand name, which are covered by one or more claims of the Patent I; and

(ii) As a consequence of their infringement complained of herein, the plaintiff had been damaged and will continue to sustain damages by such acts in an amount to be determined at trial and will continue to suffer irreparable loss and injury.

The directors are of the opinion that while the proceedings were stayed to the extent the Group is concerned according to the Court’s Stipulation and Order of 23 October 2007, it is not probable to assess the outcome of the litigation for the time being. Even if the outcome of the litigation turns out to be unfavourable, the directors consider that its future settlement may not have any material financial impact on the Group as a whole and that an appropriate amount of provision has been made, if any.

(b) In November 2007, the U.S. International Trade Commission instituted an investigation based on a complaint filed by a third party against the Group, one of its associated companies and other third party companies. The claims of the complaint related to alleged infringement of Patent I.

As far as the Group and its associated company are concerned, it is alleged among other matters that:

(i) their unfair acts include the unlicensed importation, sale for importation and/or sale after importation of digital televisions and products containing the same in the United States of America. The accused televisions employ patented technology related to Patent I; and

(ii) the complainant requested for issuance of limited exclusion order prohibiting the entry into the United States of America all of respondents’ imported televisions and products containing digital television covered by Patent I; and cease and desist order stopping importing, offering for sale, marketing, advertising, demonstrating, warehousing, distributing, selling and/or using such imported products of respondents in the United States of America.

On 23 November 2010, the proceedings before the U.S. International Trade Commission are terminated based on a withdrawal of the complaint by the complainant. The directors consider that the termination does not have any material financial impact on the Group as a whole.

208 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

(c) In December 2008, a third party company filed a complaint in the United States of America against the Group, one of its associated companies and other third party companies. The complaint concerns claims of damages related to alleged infringement of certain patents in respect of technology of the manufacture of computer monitors and televisions (“Patent II”).

As far as the Group and its associated company are concerned, it is alleged among other matters that:

(i) they manufacture, assemble, service, including unlicensed monitors and televisions, and sell those products through the United States of America, and know, expect, and intend that the products, including unlicensed monitors, will be sold in the market of the United States of America.

(ii) as a consequence of the infringement, the plaintiff has been damaged and would continue to sustain damages unless the court issues an injunction, enjoining them from further infringement of said patents.

The directors are of the opinion that while the proceedings are still ongoing, it is not probable to assess the outcome of the case for the time being. Even if the outcome turns out to be unfavourable, the directors consider that its future settlement may not have any material financial impact on the Group as a whole and that an appropriate amount of provision has been made, if any.

(d) In January 2009, a third party company filed a complaint in Germany against the Group, one of its associated companies and other third party companies. The complaint concerns claims of damages related to alleged infringement of certain patents in respect of technology of the manufacture of computer monitor (“Patent III”).

As far as the Group and its associated company are concerned, it is alleged among other matters that:

(i) they had had infringed, actively induced, contributed to the infringement of Patent III by making, using, causing to be used, offering to sell, selling, causing to be sold, importing and/or causing to be imported monitors in Germany; and

(ii) as a consequence of the infringement, the plaintiff has been damaged and would continue to sustain damages unless the court grants an award of damages to it covering reasonably attorneys’ fees, costs and expenses that incurred by it for pursuing this action.

(e) In November 2009, a third party company filed a complaint in the United States of America against the Group and certain other third party companies. The complaint concerns claims of damages related to indemnification arising out of alleged infringement of certain patents in respect of technology of the manufacture of computer monitors.

As far as the Group is concerned, it is alleged among other matters that:

(i) the Group is a merchant regularly dealing in goods of the kind of accused products and has breached its warranty of title and freedom from a claim of patent in the United States of America.

(ii) the third party company is entitled to indemnification from the Group for any liabilities it incurs, including reasonable attorneys’ fees, settlement amount or any awarded damage.

209 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

(f) In April 2010, in light of threatened claim for infringement of patents, the Group and one of its associated companies filed a complaint in the United States of America against three third party companies. Under this complaint, they seek a judicial declaration from the court that they have not infringed the patents of certain digital television technologies (“Patent IV”) and/or the Patent IV are invalid and unenforceable.

On 15 November 2010, the complaint is dismissed according to the Court’s Order. The directors consider that the dismissal does not have any material financial impact on the Group as a whole.

(g) In July 2010, a third party company filed a complaint in the United States of America against the Group. The Complaint concerns claims of compensation related to indemnity obligations as provided in an agreement between the parties.

(h) In July 2010, a third party company filed a complaint in the United States of America against the Group, one of its associated company and another third party company.

The complaint concerns claims of damages related to alleged infringement of certain patents in respect of technology of the manufacture of certain televisions (“Patent V”).

As far as the Group and its associated company are concerned, it is alleged among other matters that:

(i) they have been infringing and continue to infringe the Patent V, and contributing to and actively inducing the infringement of Patent V by others in the United States of America.

(ii) as a consequence of the infringement, the plaintiff has been damaged and will continue to sustain damages unless the court enjoins them from further infringement of Patent V.

(i) In November 2010, a third party individual filed a complaint in the United States of America against the Group. The Complaint concerns alleged claims of personal injury caused by products that contain asbestos.

The directors are of the opinion that while the complaint is not properly served yet, it is not probable to assess the outcome of the case for the time being. Even if the outcome turns out to be unfavourable, the directors consider that its future settlement may not have any material financial impact on the Group as a whole and that an appropriate amount of provision has been made, if any.

210 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

50. EVENTS AFTER THE REPORTING PERIOD

(a) Licensing of Philips trademarks

On 29 September 2010, AOC Holdings Limited (“AOC”), a wholly owned subsidiary of TPV, entered into a five- year trademark license agreement with Koninklijke Philips Electronics N.V. (Philips), of which trademarks for the sales and distribution of colour TVs in the PRC was granted to AOC and its affiliates in which AOC is required to pay royalty on an annual basis, which is based on a percentage of the turnover of the aforesaid TVs as specified in the agreement. The trademark license agreement was completed on 1 January 2011.

In addition, a share purchase agreement was signed in which AOC agreed to purchase two wholly-owned subsidiaries of Philips, Ebony Hong Kong Holding Limited and PTC Consumer Electronic Co., Limited, with a consideration of EUR1.23 million (equivalent to RMB10,834,737). The two companies were holding the necessary spare parts, in-store samples, equipment, employees and contracts for the operations of the Philips Contributed Business. The Philips Contributed Business represents the entire business of the product management, operation, marketing, sale and distribution of the aforesaid TVs manufactured under the brand name ‘‘Philips’’ or any other brand name or trademark of the Philips Group as carried on by the Philips Group in the PRC prior to completion of the share purchase agreement.

The share purchase agreement was completed on 1 January 2011 and AOC acquired 100% of the share capital of Ebony Hong Kong Holding Limited and PTC Consumer Electronic Co., Limited, for a cash consideration of EUR1.23 million (equivalent to RMB10,835,000) on 1 January 2011.

The assets and liabilities arising from the acquisition, provisionally determined, are as follows:

RMB’000

Inventories and spare parts 33,902 Intangible assets – trademark 232,768 Other payables and accruals (232,768)

Provisional fair value of net identifiable assets acquired 33,902 Gain from a bargain purchase (23,067)

Cash consideration 10,835

(b) Equity transactions

On 18 January 2011, 45 million share options were granted to directors and employees of TPV vesting over four years, with an exercise price at HK$5.008 per share and expiry date on 17 January 2021.

On 21 March 2011, the Group issued RMB500,000,000 4.25 percent note to finance its expansion programme and working capital requirements. The note is repayable on 21 March 2014.

211 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

51. STATEMENT OF FINANCIAL POSITION OF THE COMPANY

2010 2009 RMB’000 RMB’000

Non-current assets Property, plant and equipment 53,025 63,732 Investment properties 402,100 357,630 Prepaid land lease payments 3,635 3,995 Investment in subsidiaries 2,231,717 1,450,067 Interests in associates – 87,218 Available-for-sale investments 2,500 2,500

2,692,977 1,965,142

Current assets Prepayments, deposits and other receivables 11,793 40,300 Bank balances and cash 107,591 617,119

119,384 657,419

Current liabilities Trade and bills payables 541 561 Other payables and accruals 13,290 20,181 Tax payable – 782

13,831 21,524

Net current assets 105,553 635,895

Total assets less current liabilities 2,798,530 2,601,037

Capital and Reserves Share capital 1,197,742 1,197,742 Reserves (note) 1,544,942 1,357,847

Total equity 2,742,684 2,555,589

Non-current liabilities Financial guarantee contracts – 3,637 Deferred tax liabilities 55,846 41,811

55,846 45,448

2,798,530 2,601,037

Note: Reserves of the Company

212 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Asset Share revaluation Retained Statutory premium reserve profits reserve Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2009 996,660 – 318,447 (3,734) 1,311,373 Profit for the year – – 112,350 – 112,350 Transfer – – (44,875) 44,875 – Dividend paid – – (65,876) – (65,876)

At 31 December 2009 and 1 January 2010 996,660 – 320,046 41,141 1,357,847 Profit for the year – – 310,715 – 310,715 Other comprehensive income – 20,109 – – 20,109 Transfer – – (59,949) 59,949 – Dividend paid – – (143,729) – (143,729)

At 31 December 2010 996,660 20,109 427,083 101,090 1,544,942

52. PRINCIPAL SUBSIDIARIES

Particulars of the principal subsidiaries are as follows:

Place of Nominal value incorporation/ of issued registration and ordinary/registered Percentage of equity Name operations share capital attributable to the Company Principal activities 2010 2009 Direct Indirect Direct Indirect

CGC (note 1,2,3) The PRC RMB1,323,593,886 56.62% – 47.82% – Manufacture and trading of PC and PC peripheral products

ExcelStor Great Wall Cayman Islands US$25,000,000 61.68% – 61.68% – Trading HDD Technology Limited

ExcelStor Technology The PRC US$26,600,000 61.68% – 61.68% – Manufacture of HDD (Shenzhen) Limited (note 2)

Great Wall Computer The PRC RMB167,174,000 – – 34.9% 34.51% Development of Software and System computer software Incorporation Limited (note 2)

Kaifa Technology (H.K.) Hong Kong US$500,000 – 100% – 100% Trading of HDD and Limited HDD substrates

Shenzhen Kaifa Magnetic The PRC RMB251,363,000 43% 57% 43% 57% Production and development Recording Joint-stock of HDD substrates Co., Ltd. (notes 2)

Shenzhen Kaita Technology The PRC RMB879,518,521 49.64% – 49.64% – Production of HDD heads Co., Ltd. (“S. Kaifa”) and related electronic (note 1) products

213 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

TPV (note 4,5) Bermuda US$21,112,525 – 13.77% – 12.92% Designs, manufacture and selling computer monitors and flat TV products

Top Victory International British Virgin US$1,000 – 13.77% – 12.92% Investment holding Limited (note 4) Islands

Top Victory Investments Hong Kong HK$11,000 divided – 13.77% – 12.92% Trading of computer Limited (note 4) into 1,000 voting class monitors and flat TVs and “A” ordinary shares sourcing of materials of HK$1 each and 10,000 non-voting deferred shares of HK$1 each

Top Victory Electronics (Fujian) The PRC US$40,000,000 – 13.77% – 12.92% Production and sales of Company Limited (note 2, 4) computer monitors

AOC do Brasil Monitores Ltda. Brazil Brazilian real – 13.71% – 12.86% Sales and distribution (note 4) $12,054,599 of computer monitors and flat TVs

AOC International (Europe) Germany Euro230,081 – 13.77% – 12.92% Sales and distribution GmbH (note 4) of computer monitors and flat TVs

Top Victory Electronics Taiwan NT$920,000,000 – 13.77% – 12.92% Research and development (Taiwan) Company of computer monitors and Limited (note 4) flat TVs and sourcing of certain components

TPV Electronics (Fujian) The PRC US$45,000,000 – 13.77% – 12.92% Production and sales Company Limited of computer monitors (note 2, 4) and flat TVs

TPV Electronics (Fuzhou The PRC US$3,000,000 – 13.77% – 12.92% Trading computer monitors Bonded Zone) Trading and flat TVs Company Limited (note 2, 4)

TPV Technology (Wuhan) The PRC US$16,880,000 – 13.77% – 12.92% Production and sales of Company Limited computer monitors (note 2, 4)

TPV Display Technology The PRC US$12,000,000 – 13.77% – 12.92% Production and sales (Wuhan) Company computer monitors Limited (note 2, 4)

Wuhan Admiral Technology The PRC RMB80,000,000 – 13.77% – 8.61% Trading of computer Limited (note 2, 4) monitors and flat TVs

214 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

TPV Technology (Ningbo) The PRC US$29,980,000 – 13.77% – 12.92% Production and sales Company Limited of computer monitors (note 2, 4) and flat TVs

TPV Technology Display The PRC US$3,000,000 – 13.77% – 12.92% Production and sales (Ningbo) Company Limited of computer monitors (note 2, 4) and flat TVs

TPV Trading (Ningbo) Company The PRC US$1,500,000 – 13.77% – 12.92% Trading of computer Limited monitors and flat TVs (note 2, 4)

TPV International (USA), Inc. United States US$1,000,000 – 13.77% – 12.92% Sales and distribution (note 4) of America of computer monitors and flat TVs

TPV International (Netherlands) The Netherlands Euro500,000 – 13.77% – 12.92% Provision of after-sales B.V. (note 4) services

Envision Industira de Productos Brazil Brazilian real – 13.74% – 12.89% Production and sales Electronicos Ltda $50,000,000 of computer monitors (note 3) and flat TVs

TPV Technology (Beijing) The PRC RMB320,000,000 – 13.77% – 12.92% Production and sales Company Limited of computer monitors (note 2, 4) and flat TVs

TPV Technology (Suzhou) The PRC US$48,000,000 – 13.77% – 12.92% Production and sales Company Limited of computer monitors (note 2, 4) and flat TVs

TPV Technology Polska SP.z o.o Poland PLN1,500,000 – 13.77% – 12.92% Production and sales (note 4) of computer monitors and flat TVs

TPV Display Polska SP.z o.o Poland PLN126,800,000 – 13.77% – 12.92% Production and sales (note 4) of computer monitors and flat TVs

P-Harmony Monitors (Taiwan) Taiwan NT$1,000,000 – 13.77% – 12.92% Trading of computer Limited (note 4) monitors

P-Harmony Monitors The Netherlands Euro30,000 – 13.77% – 12.92% Trading of computer Netherlands B.V. (note 4) monitors

MMD-Monitors & Displays The Netherlands Euro18,000 – 13.77% – 12.92% Sales and distribution Nederland B.V. of computer monitors and flat TVs

MMD (Shanghai) Electronics The PRC RMB6,150,060 – 13.77% – 12.92% Sales and distribution Trading Co., Ltd of computer monitors and flat TVs

215 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Notes:

1. Subsidiaries with their A shares listed on the Shenzhen Stock Exchange in the PRC.

2. Companies incorporated as private limited companies in the PRC.

3. On 5 November 2010, CGC issued 187,500,001 shares to the Company and 35,714,285 shares to S. Kaifa at RMB4.48 per share. No share was issued to other existing shareholders. The Group increases its equity interests from 47.82% to 56.62% after the issuance of new shares.

4. On 13 October 2009, the Group has the effective control over the majority of the board of directors of the subsidiaries. Details are set out in note 43.

5. Subsidiaries with shares listed on the Hong Kong Stock Exchange.

6. The Group held 49.64% (2009: 49.64%) equity interests in S. Kaifa, a company listed on the Shenzhen Stock Exchange of the PRC. The Company’s equity interests in S. Kaifa represents 654,839,851 A shares which have been tradable in the stock market. The market value of these tradable shares as at 31 December 2010 is approximately RMB7,687,822,000.

7. The Group held 56.62% (2009: 47.82%) equity interests in CGC, a company listed on the Shenzhen Stock Exchange of the PRC. The Company’s equity interests in CGC represents 749,362,206 A shares which have been tradable in the stock market. The market value of these tradable shares as at 31 December 2010 is approximately RMB6,549,426,000.

8. The Group held 24.32% (2009: 27.01%) equity interests in TPV, a company listed on the Stock Exchange of Hong Kong. The Company’s equity interests in TPV represents 570,450,000 shares which have been tradable in the stock market. The market value of these tradable shares as at 31 December 2010 is approximately HK$2,829,432,000.

The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results for the year or formed a substantive portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

None of the subsidiaries had any debt securities subsisting at the end of the year or at any time during the both years.

216 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

3. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2011

Set out below are the unaudited condensed consolidated financial statements of the group for six months ended 30 June 2011, together with the notes thereto, as extracted from the interim report of the Company for the six months ended 30 June 2011.

CONDENSED CONSOLIDATED INCOME STATEMENT For the six months ended 30 June 2011

For the six months ended 30 June 2011 2010 Notes RMB’000 RMB’000 (Unaudited) (Unaudited)

Turnover 46,717,824 49,965,686 Cost of sales (44,131,743) (47,527,724)

Gross profit 2,586,081 2,437,962 Other income and gains 4 487,580 551,015 Gain on deemed partial disposal and partial disposal of interests in an associate 5 – 152,359 Selling and distribution costs (1,153,678) (982,891) Administrative expenses (852,457) (808,719) Research and development expenses (448,242) (355,117) Finance costs 6 (54,502) (69,729) Share of results of associates 21,149 32,764 Share of results of jointly controlled entities (5,884) –

Profit before tax 7 580,047 957,644 Income tax expense 8 (95,216) (159,366)

Profit for the period 484,831 798,278

Attributable to: Owners of the Company 123,730 237,018 Non-controlling interests 361,101 561,260

484,831 798,278

Earnings per share

– Basic and diluted (RMB per share) 10 10.33 cents 19.79 cents

217 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the six months ended 30 June 2011

For the six months ended 30 June 2011 2010 RMB’000 RMB’000 (Unaudited) (Unaudited)

Profit for the period 484,831 798,278

Other comprehensive expense for the period Change in fair value of available-for-sale investments (11,975) (2,886) Share of other comprehensive expense of associates and jointly controlled entities (7,563) (1,082) Exchange differences arising on translation (129,508) (43,068)

Other comprehensive expense for the period (149,046) (47,036)

Total comprehensive income for the period 335,785 751,242

Total comprehensive income attributable to: Owners of the Company 70,346 228,044 Non-controlling interests 265,439 523,198

335,785 751,242

218 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2011

30 June 31 December 2011 2010 Notes RMB’000 RMB’000 (Unaudited) (Audited)

Non-current assets Property, plant and equipment 11 5,967,734 5,858,945 Prepaid land lease payments 343,439 346,045 Investment properties 12 1,335,583 1,295,585 Goodwill 20 22,916 – Intangible assets 356,501 121,654 Interests in associates 458,145 550,644 Interests in jointly controlled entities 65,499 72,982 Available-for-sale investments 243,752 197,592 Term deposits 13,000 14,000 Deferred tax assets 262,827 223,021 Other receivables 31,127 –

9,100,523 8,680,468

Current assets Inventories 10,273,694 9,777,435 Trade and bills receivables 13 14,394,162 16,777,368 Prepaid land lease payments 8,962 8,992 Prepayments, deposits and other receivables 2,456,994 2,799,011 Financial assets at fair value through profit or loss 17,040 16,967 Tax recoverable 54,932 38,027 Derivative financial instruments 305,068 431,158 Amounts due from fellow subsidiaries 14,887 11,051 Amounts due from associates 37,128 42,704 Term deposits 275,008 546,328 Pledged deposits 1,097,255 390,978 Bank balances and cash 3,444,490 2,757,805

32,379,620 33,597,824

Asset classified as held for sale 14 121,747 –

32,501,367 33,597,824

219 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

30 June 31 December 2011 2010 Notes RMB’000 RMB’000 (Unaudited) (Audited)

Current liabilities Trade and bills payables 15 16,023,380 16,984,780 Other payables and accruals 3,642,027 3,355,712 Bank and other loans 16 3,883,300 4,267,261 Derivative financial instruments 242,183 422,773 Tax payable 130,256 130,439 Provisions for products warranties 17 494,149 498,000 Amount due to immediate holding company 8,500 5,454 Amounts due to fellow subsidiaries 15,608 73,466 Amounts due to associates 39,669 40,227

24,479,072 25,778,112

Net current assets 8,022,295 7,819,712

Total assets less current liabilities 17,122,818 16,500,180

Capital and reserves Share capital 18 1,197,742 1,197,742 Reserves 3,404,606 3,513,921

Equity attributable to owners of the Company 4,602,348 4,711,663 Non-controlling interests 11,234,136 11,164,962

Total equity 15,836,484 15,876,625

Non-current liabilities Bank and other loans 16 490,625 – Other payables 354,391 148,746 Pension obligations 37,768 38,650 Deferred tax liabilities 369,509 402,032 Government grants 34,041 34,127

1,286,334 623,555

17,122,818 16,500,180

220 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six months ended 30 June 2011

Attributable to owners of the Company

Available- for–sale Share Asset investment Non– Share premium Merger Goodwill revaluation revaluation Statutory Translation Other Retained controlling capital account reserve reserve reserve reserve reserve reserve Reserve profits Sub-total interests Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note a) (Note b)

At 1 January 2011 (audited) 1,197,742 997,498 272 (28,155) 127,678 12,757 1,019,655 (149,934) (181,020) 1,715,170 4,711,663 11,164,962 15,876,625

Profit for the period – – – – – – – – – 123,730 123,730 361,101 484,831 Other comprehensive expenses – – – – – (4,325) – (49,059) – – (53,384) (95,662) (149,046)

Total comprehensive income (expenses) for the period – – – – – (4,325) – (49,059) – 123,730 70,346 265,439 335,785 Contribution from non-controlling shareholders – – – – – – – – – – – 76,075 76,075 Repurchase of shares of a non-wholly owned subsidiary from non-controlling shareholders – – – – – – – – – – – (609) (609) Share options reserve of a non-wholly owned subsidiary – – – – – – – – – – – (16,278) (16,278) Dividends recognised as distribution – – – – – – – – – (179,661) (179,661) – (179,661) Acquisition of subsidiaries (note 20) – – – – – – – – – – – 58,597 58,597 Dividends to non-controlling shareholders – – – – – – – – – – – (314,050) (314,050)

At 30 June 2011 (unaudited) 1,197,742 997,498 272 (28,155) 127,678 8,432 1,019,655 (198,993) (181,020) 1,659,239 4,602,348 11,234,136 15,836,484

At 1 January 2010 (audited) 1,197,742 997,498 272 (28,155) 99,412 2,922 948,959 (51,038) (6,347) 1,280,606 4,441,871 9,348,292 13,790,163

Profit for the period – – – – – – – – – 237,018 237,018 561,260 798,278 Other comprehensive expenses – – – – – (383) – (8,591) – – (8,974) (38,062) (47,036)

Total comprehensive (expenses) income for the period – – – – – (383) – (8,591) – 237,018 228,044 523,198 751,242 Contribution from non-controlling interests – – – – – – – – – – – 1,072,664 1,072,664 Dividends to non-controlling shareholders – – – – – – – – – – – (288,259) (288,259) Formation of non-wholly owned subsidiaries – – – – – – – – – – – 74,700 74,700 Share options reserve of a subsidiary – – – – – – – – – – – 2,873 2,873 Dividends recognised as distribution – – – – – – – – – (143,729) (143,729) – (143,729) Attributable to disposal of subsidiaries (Note 21) – – – – – – – – – – – (36,559) (36,559) Deemed partial disposal of a subsidiary – – – – – – – – 14,994 – 14,994 (14,994) –

At 30 June 2010 (unaudited) 1,197,742 997,498 272 (28,155) 99,412 2,539 948,959 (59,629) 8,647 1,373,895 4,541,180 10,681,915 15,223,095

Note: a) In accordance with the relevant People’s Republic of China (the “PRC”) rules and regulations, subsidiaries established in the PRC are required to set aside 10% of their profit after income tax as recorded in the PRC statutory financial statements as statutory reserves, except where the reserve fund balance has reached 50% of the subsidiaries’ registered capital. The reserve fund can only be used to make good the subsidiaries’ previous years’ losses, to expand the subsidiaries’ production operations or to increase the capital of the subsidiaries. b) Other reserve represents reserve from transactions with non-controlling shareholders.

221 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the six months ended 30 June 2011

For the six months ended 30 June 2011 2010 RMB’000 RMB’000 (Unaudited) (Unaudited)

Net cash generated from (used in) operations 2,571,687 (484,983) Hong Kong Profits Tax paid (9,625) – PRC Enterprise Income Tax and overseas income tax paid (175,282) (235,616)

NET CASH FROM (USED IN) OPERATING ACTIVITIES 2,386,780 (720,599)

INVESTING ACTIVITIES Proceeds from disposal of items of property, plant and equipment 32,981 25,149 Dividends received from associates 26,845 46,025 Purchase of property, plant and equipment (808,082) (811,028) Purchase of intangible assets (28,333) (100) Purchase of available-for-sale investments (28,329) – Capital injection in an associate (40,908) (100,573) Net cash flow from the acquisition of subsidiaries (Note 20) (48,131) – Dividends received from available-for-sale-investments 2,575 – Proceeds from disposal of an associate – 33,940 Proceeds from disposal of a subsidiary (Note 21) – 35,468 Proceeds from disposal of available-for-sale investments – 28,676 Other investing activities cash flows (391,961) (137,375)

NET CASH USED IN INVESTING ACTIVITIES (1,283,343) (879,818)

FINANCING ACTIVITIES Repayment of bank loans (5,340,913) (1,053,351) Contribution from non-controlling interests 76,075 1,147,364 Dividend paid to non-controlling shareholders (314,050) (288,259) Interest paid (54,502) (53,414) New bank and other loans raised 5,341,133 1,644,593 Repurchase of shares of a subsidiary (609) – Other financing activities cash flows (68,320) (10,241)

NET CASH (USED IN) FROM FINANCING ACTIVITIES (361,186) 1,386,692

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 742,251 (213,725) CASH AND CASH EQUIVALENTS AT 1 JANUARY 2,757,805 4,130,437 EFFECT OF FOREIGN EXCHANGE RATE CHANGES (55,566) (55,892)

CASH AND CASH EQUIVALENTS AT 30 JUNE, represented by bank balances and cash 3,444,490 3,860,820

222 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION For the six months ended 30 June 2011

1. GENERAL INFORMATION

Great Wall Technology Company Limited (the “Company”) is a limited liability company incorporated in the People’s Republic of China (the “PRC”). The addresses of the registered office and the principal place of business of the Company is located at No.2 Keyuan Road, Technology and Industrial Park, Nanshan District, Shenzhen, the PRC.

The Company and its subsidiaries (the “Group”) were principally involved in the development, manufacture and sale of computer and related products including hardware and software products.

In the opinion of the directors, the parent of the Company is China Great Wall Computer Group Company, and the ultimate holding company of the Company is China Electronics Corporation (“CEC”) as a result of the restructuring approved by the State-owned Assets Supervision and Administration Commission of the State Council on 18 August 2006. Both of them are state-owned enterprises established in the PRC.

This condensed consolidated interim financial information is presented in Renminbi (“RMB”) which is the same as the functional currency of the Company while the functional currency of a major subsidiary, TPV Technology Limited (“TPV”) is United State dollars.

2. PRINCIPAL ACCOUNTING POLICIES

The condensed interim financial information has been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“the Listing Rules”) and with Hong Kong Accounting Standard (“HKAS”) 34 “Interim Financial Reporting” issued by Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

This condensed consolidated interim financial information has been prepared on the historical cost basis, except for investment properties and certain financial instruments, which are measured at fair values. The accounting policies and basis of presentation used in the preparation of the condensed consolidated interim financial information are consistent with those adopted in the preparation of the Group’s audited consolidated financial statements for the year ended 31 December 2010 except as described below.

In current interim period, the Group has applied, for the first time, the following new or revised standards and interpretations (“new and revised HKFRSs”) issued by the HKICPA.

Hong Kong Financial Reporting Standards Improvements to HKFRS issued in 2010 (“HKFRSs”) (Amendments) HKFRS 1 (Amendment) Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters HKAS 24 (Revised) Related Party Disclosures HKAS 32 (Amendments) Classification of Right Issues HK (International Financial Reporting Prepayments of a Minimum Funding Requirement Interpretation Committee (“HK (IFRIC)”) – Interpretation (“Int”) 14 (Amendments) HK (IFRIC) – Int 19 Extinguishing Financial Liabilities with Equity Instruments

Except as described below, the application of the above new or revised HKFRSs had had no material effect on the amounts reported in these condensed consolidated financial statements or disclosures set out in these condensed consolidated financial statements.

HKAS 24 Related Party Disclosures (Revised)

The Group has applied HKAS 24 Related Party Disclosures (Revised) in full for the first time in the current period. The application of HKAS 24 (Revised) has resulted in changes in related party disclosures as follows:

223 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

The Group is a government-related entity as defined in HKAS 24 (Revised). HKAS 24 (Revised) provides a partial exemption from the disclosure requirements for government-related entities whilst the previous version of HKAS 24 did not contain specific exemption for government related entities. Under HKAS 24 (Revised), the Group has been exempted from making the disclosures required by paragraph 18 of HKAS 24 (Revised) in relation to related party transactions and outstanding balances (including commitments) with (a) the government that has control, joint control or significantly influenced over the Group and (b) other entities that are controlled, jointly controlled and significantly influenced by the same government. Rather, in respect of these transactions and balances, HKAS 24 (Revised) requires the Group to disclose (a) the nature and amount of each individually significant transaction, and (b) a qualitative or quantitative indication of the extent of transactions that are collectively, but not individually, significant.

HKAS 24 (Revised) requires retrospective application. The application of HKAS 24 (Revised) has had no effect on the amounts recognised or recorded in the condensed consolidated financial statements for the current and prior periods. However, the related party disclosures set out in the condensed consolidated financial statements have been changed to reflect the application of HKAS 24 (Revised).

The Group has not early applied the following new and revised standards and amendments that have been issued but are not yet effective. The following new or revised standards and amendments have been issued after the date of the consolidated financial information for the year ended 31 December 2010 were authorised for issuance and are not yet effective:

HKFRS 10 Consolidated Financial Statements2 HKFRS 11 Joint Arrangements2 HKFRS 12 Disclosure of Interests in Other Entities2 HKFRS 13 Fair Value Measurement2 HKAS 1 (Revised) Presentation of Financial Statements1 HKAS 19 (2011) Employee Benefits2 HKAS 27 (2011) Separate Financial Statements2 HKAS 28 (2011) Investments in Associates and Joint Ventures2

1 Effective for annual periods beginning on or after 1 July 2012. 2 Effective for annual periods beginning on or after 1 January 2013.

The new standards on consolidation, joint arrangements and disclosures were issued by the HKICPA in June 2011 and are effective for annual periods beginning on or after 1 January 2013. Earlier application is permitted provided that all of the new standards are applied early at the same time. The directors of the Company anticipate that these new standards will be applied in the Group’s consolidated financial statements for financial year ending 31 December 2013 and the potential impact is described below.

HKFRS 10 replaces the parts of HKAS 27 Consolidated and Separate Financial Statements that deal with consolidated financial statements. Under HKFRS 10, there is only basis for consolidation, that is control. In addition, HKFRS 10 includes a new definition of control that contains three elements: (a) power over an investee, (b) exposure, or rights, to variable returns from its involvement with the investee, and (c) ability to use its power over the investee to affect the amount of the investor’s returns. Extensive guidance has been added in HKFRS 10 to deal with complex scenarios. Overall, the application of HKFRS 10 requires a lot of judgement. The application of HKFRS 10 might result in the Group no longer consolidating some of its investees, and consolidating investees that were not previously consolidated.

HKFRS 11 replaces HKAS 31 Interests in Joint Ventures. HKFRS 11 deals with how a joint arrangement of which two or more parties have joint control should be classified. Under HKFRS 11, there are two types of joint arrangements: joint ventures and joint operations. The classification in HKFRS 11 is based on different types of joint arrangements: jointly controlled entities, jointly controlled assets and jointly controlled operations.

In addition, joint ventures under HKFRS 11 are required to be accounted for using the equity method of accounting, whereas jointly controlled entities under HKAS 31 can be accounted for using the equity method of accounting or proportionate accounting. The application of HKFRS 11 might result in changes in the classification of the Group’s joint arrangements and their accounting treatments. The Group’s jointly controlled entities that are currently accounted for using the equity method of accounting would be classified as joint operations and accounted for in accordance with HKFRS 11.

224 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

The amendments to HKAS 1 (Revised) Presentation of Financial Statements require companies preparing financial statements in accordance with HKFRSs to group together items within other comprehensive income that may be reclassified to the profit or loss section of the income statement. The amendments also reaffirm existing requirements that items in other comprehensive income and profit or loss should be presented as either a single statement or two consecutive statements.

Other than disclosed above, the directors of the Company anticipate that the application of the new standards and interpretations will have no material impact on the results and the financial position of the Group.

3. SEGMENT INFORMATION

The Group’s operating and reportable segments, based on information report to chief operating decision maker, for the purposes of resource allocation and performance assessment are as follows:

(a) the TV segment produces televisions;

(b) the monitor segment produces monitors;

(c) the electronic parts and components segment produces magnetic heads, switch power supplies, hard disk drives and disk substrates mainly for use in personal computers (“PC”);

(d) the computer segment produces PCs, printers, network electric meters, servers and PC peripheral products;

(e) the property investment segment invests in prime office space for its rental income potential; and

(f) the “others” segment comprises, principally, the sales of chassis, spare parts, complete knock down/semi knock down products, the software and system integration and other related businesses.

Information regarding the above segments is reported below.

The following tables present revenue, profit and expenditure information for the Group’s reportable segments for the six months ended 30 June 2011 and 2010.

Electronic For the six months ended parts and Property 30 June 2011 TV Monitor components Computer investment Others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Segment revenue Sales to external customers 11,578,001 19,986,266 9,974,502 1,225,660 94,005 3,859,390 – 46,717,824 Other income and gains 143,601 179,510 33,977 7,253 25,467 11,454 – 401,262 Intersegment sales – – – 12,521 2,635 – (15,156) –

Total 11,721,602 20,165,776 10,008,479 1,245,434 122,107 3,870,844 (15,156) 47,119,086

Segment results (50,797) 531,146 94,962 13,691 71,804 13,850 (3,031) 671,625

Unallocated gains 86,318 Corporate and other unallocated expenses (138,659) Finance costs (54,502) Share of results of associates 21,149 Share of results of jointly controlled entities (5,884)

Profit before tax 580,047 Income tax expense (95,216)

Profit for the period 484,831

225 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Electronic For the six months ended parts and Property 30 June 2010 TV Monitor components Computer investment Others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Segment revenue Sales to external customers 12,512,692 22,468,408 10,429,012 1,042,470 48,967 3,464,137 – 49,965,686 Other income and gains 133,397 227,531 23,311 2,260 – 35,596 – 422,095 Intersegment sales – – – 4,994 11,746 – (16,740) –

Total 12,646,089 22,695,939 10,452,323 1,049,724 60,713 3,499,733 (16,740) 50,387,781

Segment results 112,912 504,746 149,336 1,769 34,559 47,606 (3,347) 847,581

Unallocated gains 128,920 Corporate and other unallocated expenses (134,251) Finance costs (69,729) Share of results of associates 32,764 Gain on deemed partial disposal and partial disposal of interests in an associate 152,359

Profit before tax 957,644 Income tax expense (159,366)

Profit for the period 798,278

Segment results represent the profit (loss) attributable to each segment without allocation of central administration costs, director’s emoluments, bank interests income, finance costs, share of results of associates and jointly controlled entities, change in fair value of financial assets at fair value through profit or loss, gain on deemed partial disposal and partial disposal of interests in an associate, dividend income, government grants and income tax expense.

The following table presents segment assets of the Group’s operating segments as at 30 June 2011 and 31 December 2010:

Electronic parts and Property Segment assets TV Monitor components Computer investment Others Unallocated Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 30 June 2011 10,934,837 16,630,815 3,919,464 735,309 1,335,583 1,672,232 6,373,650 41,601,890

At 31 December 2010 13,276,083 16,395,718 3,020,581 649,473 1,295,585 2,347,595 5,293,257 42,278,292

226 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

4. OTHER INCOME AND GAINS For the six months ended 30 June 2011 2010 RMB’000 RMB’000 (Unaudited) (Unaudited)

Gains on exchange difference 294,681 – Net realised and unrealised gain on derivative financial instruments 46,879 362,673 Bank interest income 45,832 31,874 Government grants 33,454 73,901 Reversal of impairment of trade and bills receivables 28,671 22,101 Fair value gain on investment properties 25,467 – Gain from a bargain purchase of subsidiaries 3,993 – Dividend from available-for-sale investments 2,575 – Gain on disposal of property, plant and equipment 1,428 3,170 Reversal of impairment of inventories 1,075 – Fair value gain on financial assets at fair value through profit or loss 464 – Sales of scrap material – 20,504 Gain on disposal of available-for-sale investments – 18,027 Gain on disposal of financial assets at fair value through profit or loss – 139 Others 3,061 18,626

487,580 551,015

5. GAIN ON DEEMED PARTIAL DISPOSAL AND PARTIAL DISPOSAL OF INTERESTS IN AN ASSOCIATE

On 29 April 2010, one of the associates of the Group, O-Net Communications (Group) Limited (“O-Net”), was listed on the Main Board of The Stock Exchange of Hong Kong Limited and new shares were issued upon the listing of the shares of O-Net (“Share Listing”). Upon the Share Listing, the Group’s shareholding in O-Net was diluted from 46% to approximately 34.5%.

On 6 May 2010, the over-allotment option as referred to in the prospectus of the Share Listing was fully exercised and the Group was requested to dispose of its 13,759,183 shares of O-Net.

Upon the completion of the above transactions, the interest in O-Net was further decreased from approximately 34.5% to 32.72% and net proceeds of approximately RMB33,939,000 were received for the disposal of 13,759,183 shares of O-Net. The above transactions have resulted in the recognition of an amount of RMB152,359,000 of gain on deemed partial disposal and partial disposal of interests of an associate.

The Group maintains its significant influence on O-Net and the investment in O-Net is still accounted for as the interests in associates upon the completion of the above transactions.

6. FINANCE COSTS For the six months ended 30 June 2011 2010 RMB’000 RMB’000 (Unaudited) (Unaudited)

Interest on bank and other loans, wholly repayable within five years 54,502 29,403 Interest on convertible bonds of a subsidiary – 40,326

Total borrowing costs 54,502 69,729

227 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

7. PROFIT BEFORE TAX

The Group’s profit before tax is arrived at after (crediting) charging:

For the six months ended 30 June 2011 2010 RMB’000 RMB’000 (Unaudited) (Unaudited)

Staff costs (including directors’ remuneration) 1,554,446 1,336,792 Depreciation of property, plant and equipment 617,777 577,197 Amortisation of prepaid land lease payments (included in administrative expense) 4,459 4,926 Amortisation of intangible assets (included in administrative expense) 46,501 12,023 Foreign exchange differences, net (294,681) 186,948 Additional provision for product warranties 276,225 230,690 Allowance for inventories (included in cost of sales) 16,887 113,770 Loss on disposal of subsidiaries (Note 21) – 1,719 Impairment of available-for-sale investments – 4,775 (Gain) loss on fair value change of financial assets at fair value through profit or loss (464) 2,325 Impairment on trade receivables 4,049 – Loss on disposal of intangible assets – 93

8. INCOME TAX EXPENSE For the six months ended 30 June 2011 2010 RMB’000 RMB’000 (Unaudited) (Unaudited)

Current tax: – Hong Kong Profits Tax 2,243 5,485 – PRC Enterprise Income Tax (“EIT”) and overseas income tax 165,214 155,674

167,457 161,159

Deferred tax (72,241) (1,793)

Total tax charge for the period 95,216 159,366

(a) Hong Kong Profits Tax

Hong Kong Profits Tax is calculated at 16.5% (2010: 16.5%) of the estimated assessable profit for the period.

(b) PRC EIT

The subsidiaries established in the PRC are subject to the PRC EIT at rate of 25%. Certain of the subsidiaries of the Group are approved to be high technology enterprises and income tax is calculated at a rate of 18% of the estimated assessable profit for the year. In accordance with the relevant income tax regulations of the PRC, certain subsidiaries are entitled to exemptions from income tax for the two years commencing from their first profit-making year of operation after offsetting prior year tax losses, followed by a 50% reduction in the PRC EIT for the next three years.

Under the New Law promulgated by the PRC government by Order No.63 of the President of the PRC on 16 March 2007 and Implementation Regulation issued by the State Council of the PRC on 6 December 2007, the PRC EIT rate of the Group’s subsidiaries in the PRC was increased from 15% to 25% progressively from 1 January 2008 onwards (2008: 18%, 2009: 20%, 2010: 22%, 2011: 24%, 2012: 25%). The relevant tax rates for the Group’s subsidiaries in the PRC ranged from 15% to 25% (2010: 15% to 25%).

228 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

9. DIVIDENDS

A dividend of RMB15 cents per share was paid to shareholders as the final dividend for 2010 on 16 August 2011 and a dividend of RMB12 cents per share was paid to shareholders as final dividend for 2009 on 18 August 2010.

The board of directors of the Company does not recommend the payment of an interim dividend to shareholders in respect of the six months ended 30 June 2011 (six months ended 30 June 2010: nil).

10. EARNINGS PER SHARE

The calculation of basic and diluted earnings per share is based on the profit for the period attributable to owners of the Company of approximately RMB123,730,000 (six months ended 30 June 2010: RMB237,018,000) and on the weighted average number of 1,197,742,000 (six months ended 30 June 2010: 1,197,742,000) ordinary shares in issue during the period.

11. PROPERTY, PLANT AND EQUIPMENT

During the six months ended 30 June 2011, the Group acquired property, plant and equipment with a cost of approximately RMB808,082,000 (2010: RMB811,028,000). During the six months ended 30 June 2011, certain of construction in progress and leasehold land and buildings of approximately RMB19,303,000 (2010: RMB93,415,000) were transferred to investment properties.

Property, plant and equipment with net book value of approximately RMB33,828,000 were disposed of by the Group during the six months ended 30 June 2011 (2010: RMB21,979,000), resulting in a net gain on disposal of approximately RMB1,428,000 (2010: RMB3,170,000).

12. INVESTMENT PROPERTIES

At 30 June 2011, the fair values of the investment properties were valued by the independent professional qualified valuer. The resulting increase in fair value of investment properties of approximately RMB25,467,000 has been recognised directly in profit or loss for the six months ended 30 June 2011.

At 30 June 2010, the fair values of the investment properties were valued by the directors of the Company and the directors of the Company estimated that the carrying amounts did not differ significantly from that which would be determined using fair value. Consequently, no revaluation surplus or deficit has been recognised for the six months ended 30 June 2010.

13. TRADE AND BILLS RECEIVABLES

The Group’s sales are on credit terms from 30 to 120 days and certain of its export sales are on letters of credit or documents against payment.

An aged analysis of the trade and bills receivables, based on the invoice date and net of provision, is as follows:

30 June 31 December 2011 2010 RMB’000 RMB’000 (Unaudited) (Audited)

Within 90 days 13,116,044 15,504,925 91 to 180 days 1,211,598 1,194,852 181 to 365 days 52,255 65,278 Over 365 days 14,265 12,313

14,394,162 16,777,368

229 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

14. ASSETS CLASSIFIED AS HELD FOR SALE

During the current period, the directors of the Company resolved to dispose of one of its associates, Shenzhen Hai Liang Storage Products Co., Ltd. (“Shenzhen Hai Liang”). Since then, the Group had negotiated with several potential buyers and a sale and purchase agreement had been entered into between the Group and an independent third party subsequent to the end of reporting period. The associate is expected to be sold within twelve months and has been classified as assets held for sale and is measured at the lower of carrying amount and fair value less cost to sell.

The net proceeds of the disposal of the assets held for sale are expected to exceed the net carrying amount of the associate, no impairment loss has been recognised.

15. TRADE AND BILLS PAYABLES

The trade and bills payables are normally settled on terms of 30 to 90 days. An aged analysis of the trade and bills payables, based on the invoice date, is as follows:

30 June 31 December 2011 2010 RMB’000 RMB’000 (Unaudited) (Audited)

Within 90 days 15,642,459 15,180,057 91 to 180 days 257,034 1,727,209 181 to 365 days 42,103 38,606 Over 365 days 81,784 38,908

16,023,380 16,984,780

16. BANK AND OTHER LOANS

During the current period, the Group obtained new bank loans and other loans amounting to approximately RMB5,341,133,000 (30 June 2010: RMB1,644,593,000) and repaid the bank loans amounting to approximately RMB5,340,913,000 (30 June 2010: RMB1,053,351,000).

17. PROVISIONS FOR PRODUCTS WARRANTIES For the six months ended 30 June 2011 2010 RMB’000 RMB’000 (Unaudited) (Unaudited)

At 1 January 498,000 501,855 Additional provision recognised 276,225 230,690 Amounts utilised during the period (269,168) (222,070) Exchange realignment (10,908) (2,651)

At 30 June 494,149 507,824

The Group provides warranties to its customers on certain products, under which faulty products are repaired or replaced. The amount of the provisions for the warranty is estimated based on sales volume and past experience of the level of repairs and returns. The estimation basis is reviewed on an ongoing basis and revised where appropriate.

230 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

18. SHARE CAPITAL 30 June 31 December 2011 2010 RMB’000 RMB’000 (Unaudited) (Audited)

Authorised, issued and fully paid: 743,870,000 state-owned legal person shares of RMB1.00 each 743,870 743,870 453,872,000 overseas listed foreign invested shares of RMB1.00 each 453,872 453,872

1,197,742 1,197,742

19. CORPORATE GUARANTEES 30 June 31 December 2011 2010 RMB’000 RMB’000 (Unaudited) (Audited)

Guarantees given to banks in connection with bank facilities granted to: An associate – 19,868 Third parties 57,456 54,051

57,456 73,919

20. BUSINESS COMBINATION

a. Acquisition of PI International Holdings Limited and its subsidiaries (“PI International Holdings”)

On 31 March 2011, the Group acquired 51% equity interests in PI International Holdings, from an independent third party, for a consideration of HK$94,619,000 (equivalent to approximately RMB79,573,000). PI International Holdings is mainly engaged in the development, manufacturing and sale of power supplies for electronic products.

The following table summarises the fair values of consideration transferred, the assets and liabilities recognised at the acquisition date.

Fair value RMB’000

Property, plant and equipment 34,201 Prepaid land lease payments 3,753 Intangible assets 333 Available-for-sale investments 29,922 Deferred tax assets 1,013 Inventories 119,727 Trade and bills receivables 266,719 Prepayments, deposits and other receivables 4,941 Bank balances and cash 42,119 Trade and bills payables (175,126) Other payables and accruals (43,642) Dividends payable (60,975) Tax payable (362) Bank loan (106,444) Deferred tax liabilities (925)

115,254

231 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

The receivables acquired (which principally comprised trade receivables) with a fair value of approximately RMB266,719,000 had gross contractual amounts of approximately RMB270,583,000. The best estimate at acquisition date of the contractual cash flows not expected to be collected amounted to approximately RMB3,864,000.

Consideration transferred: RMB’000

Cash 79,573

Net cash outflow arising on acquisition:

Cash consideration paid 79,573 Less: Bank balances and cash acquired (42,119)

37,454

Acquisition-related costs amounting to approximately RMB2,518,000 have been excluded from the cost of acquisition and have been recognised directly as an expense in the period and included in the administrative expenses in the condensed consolidated income statement.

Non-controlling interests

The non-controlling interest (49%) in PI International Holdings recognised at the acquisition date was measured by reference to the proportionate share of recognised amounts of net assets of PI International Holdings and amounted to approximately RMB58,597,000.

Goodwill arising on acquisition RMB’000

Consideration transferred 79,573

Plus: non-controlling interests 58,597

Less: recognised amount of identifiable net assets acquired (100%) (115,254)

Goodwill arising on acquisition 22,916

Goodwill arose on the acquisition of PI International Holdings because the acquisition included the sales network of PI International Holdings in the overseas markets, especially in the South East Asia region. These assets could not be separately recognised from goodwill because they are not capable of being separated from the Group and sold, transferred, licensed, rented or exchanged, either individually or together with any related contracts.

Impact of acquisition on the results of the Group

Included in the profit for the interim period is approximately RMB2,978,000 attributable to PI International Holdings. Revenue for the period includes approximately RMB238,407,000 is attributable to PI International Holdings.

Had the acquisition of PI International Holdings been effected on 1 January 2011, the revenue of the Group for the six months ended 30 June 2011 would have been approximately RMB46,994,085,000, and the profit for the period would have been approximately RMB503,940,000. The pro-forma information is for illustrative purposes only and is not necessarily an indication of revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on 1 January 2011, nor is intended to be a projection of future results.

In determining the ‘pro-forma’ revenue and profit of the Group had PI International Holdings been acquired on 1 January 2011, the directors of the Company calculated depreciation and amortisation of property, plant and equipment and prepaid land leases on the recognised amounts of property, plant and equipment and prepaid land leases at the date of acquisition.

232 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

b. Acquisition of Ebony Hong Kong Limited and PTC Consumer Electronic Co., Limited

On 29 September 2010, AOC Holdings Limited (“AOC”), a subsidiary of the Company, entered into a five-year trademark license agreement with Koninklijke Philips Electronics N.V. (“Philips”), under which trademarks for the sales and distribution of colour TVs in the PRC was granted to AOC and its affiliates in which AOC is required to pay royalty on an annual basis, which is based on higher of percentage of the turnover and a minimum royalty of EUR6,800,000 (equivalent to approximately RMB58,548,000) a year of the aforesaid TVs as specified in the agreement. The trademark license agreement has been effective since 1 January 2011.

In addition, a share purchase agreement was signed pursuant to which AOC agreed to purchase two wholly-owned subsidiaries of Philips, Ebony Hong Kong Holding Limited and PTC Consumer Electronic Co., Limited, with a consideration of EUR1,240,000 (equivalent to approximately RMB10,677,000). The two companies were holding the necessary spare parts, in-store samples, equipment, employees and contracts for the operations of the Philips Contributed Business. The Philips Contributed Business represents the entire business of the product management, operation, marketing, sale and distribution of the aforesaid TVs manufactured under the brand name “Philips” or any other brand name or trademark of the Philips Group as carried on by the Philips Group in the PRC prior to completion of the share purchase agreement.

The share purchase agreement was completed on 1 January 2011 and AOC acquired 100% of the share capital of Ebony Hong Kong Holding Limited and PTC Consumer Electronic Co., Limited, for a cash consideration of EUR1,240,000 (equivalent to approximately RMB10,677,000) on 1 January 2011.

Fair value RMB’000

Trademark 253,239 Inventories and spare parts 14,670 Other payables (253,239)

14,670

Consideration transferred: RMB’000

Cash 10,677

Net cash outflow arising on acquisition:

Cash consideration paid 10,677

Acquisition-related costs amounting to approximately RMB759,000 have been excluded from the cost of acquisition and have been recognised directly as an expense in the period and included in the administrative expenses in the condensed consolidated income statement.

Bargain purchase arising on acquisition RMB’000

Consideration transferred 10,677

Less: recognised amount of identifiable net assets acquired (14,670)

Gain from a bargain purchase of subsidiaries (3,993)

Impact of acquisition on the results of the Group

The acquired business contributed revenue of RMB568,654,000 and net loss of RMB71,192,000 to the Group for the six months ended 30 June 2011.

233 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

21. DISPOSAL OF SUBSIDIARIES

On 28 December 2009, the Group entered into the share transfer agreement with China National Software and Service Co Ltd, a fellow subsidiary of the Company, pursuant to which the Group conditionally agreed to transfer its 69.41% equity interest in Great Wall Computer Software and Systems Incorporation Limited and its subsidiaries (“Great Wall Software Group”) for a consideration of approximately RMB92,472,000. The disposal of the 69.41% of Great Wall Software Group was completed on 21 April 2010 and details of the completion of the disposal are set out in the announcement of the Company dated 21 April 2010.

Assets and liabilities disposed of: As at 21 April 2010 RMB’000

Property, plant and equipment 42,800 Intangible assets 225 Available-for-sale investments 3,195 Inventories 64,776 Trade and bills receivables 94,810 Prepayments, deposits and other receivables 21,056 Bank balances and cash 57,004 Trade and bills payables (132,669) Other payables and accruals (20,447)

130,750

Consideration transferred RMB’000

Cash 92,472

Net cash inflow arising on disposal RMB’000

Cash consideration 92,472 Less: bank balances and cash disposed of (57,004)

35,468

Loss on disposal of subsidiaries RMB’000

Consideration transferred 92,472 Plus: Non-controlling interests 36,559 Less: identifiable net assets disposed (130,750)

Loss on disposal of subsidiaries (1,719)

There is no significant impact on the total turnover and profit of the Group as the revenue and results of the disposed subsidiaries are not significant for the six months ended 30 June 2010. The subsidiaries disposed of had no significant effect on the cashflow of the Group for the year ended 31 December 2010.

234 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

22. OPERATING LEASE ARRANGEMENTS

(a) As lessor

The Group had total future minimum lease receivables under non-cancellable operating leases with its tenants in respect of land and buildings falling due as follows:

30 June 31 December 2011 2010 RMB’000 RMB’000 (Unaudited) (Audited)

Within one year 88,774 85,415 In the second to fifth years, inclusive 120,210 127,617 After five years 123,628 12,662

332,612 225,694

(b) As lessee

The Group had total future minimum lease payments under non-cancellable operating leases in respect of land and buildings falling due as follows:

30 June 31 December 2011 2010 RMB’000 RMB’000 (Unaudited) (Audited)

Within one year 191,372 74,816 In the second to fifth years, inclusive 110,537 110,739 After five years 54,480 51,604

356,389 237,159

23. CAPITAL COMMITMENTS

The Group had the following capital commitments at the end of the reporting period:

30 June 31 December 2011 2010 RMB’000 RMB’000 (Unaudited) (Audited)

Contracted, but not provided for: Leasehold land and buildings 70,718 399,805 Plant, machinery and equipment 520,930 17,888

591,648 417,693

235 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

24. RELATED PARTY TRANSACTIONS

(a) In addition to the transactions detailed elsewhere in these condensed interim financial information, the Group had the following material transactions with related parties during the period:

For the six months ended 30 June 2011 2010 Notes RMB’000 RMB’000 (Unaudited) (Unaudited)

Ultimate holding company: Sales of products (i) 481 283

Immediate holding company: Sales of products (i) – 192 License fees (ii) – 1,745

Associates: Sales of products (i) 1,191,602 2,230,938 Rental income (iii) 15,997 5,331 Processing fee income (iv) 309 1,904 Purchases of raw materials (v) 99,478 5,913 Commission fees (vi) – 5,720

Jointly controlled entities: Sales of products (i) 13 – Rental income (iii) 3,194 – Purchases of raw materials (v) 605,427 –

Fellow subsidiaries: Sales of products (i) 18,191 32,558 Rental income (iii) 6,473 12,653 Purchases of components and parts (v) 15,021 110

Subsidiaries’ substantial shareholders and their subsidiaries: Sales of finished goods (vi) 116,452 2,388,236 Purchases of raw materials (vi) 2,358,137 5,578,329

Notes:

(i) The sales to ultimate holding company, immediate holding company, associates and fellow subsidiaries were made according to the published prices and conditions offered to major customers of the Group.

(ii) The license fees paid to the immediate holding company was based on a rate of 0.15% of the revenue from the products under the “Great Wall” brand for both periods.

(iii) The rental income from the property leased to associates, fellow subsidiaries and jointly controlled entities was made according to the market rate offered to third parties.

(iv) Processing fee income from associates was made on terms mutually agreed between both parties.

(v) The purchases from associates and fellow subsidiaries were made according to published prices and conditions offered by associates and fellow subsidiaries to their major customers.

(vi) The transactions were conducted in the normal course of business at prices and terms as agreed between the transacting parties.

236 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

(b) Outstanding balances with related parties:

(i) The balances with immediate holding company, fellow subsidiaries and associates are unsecured, interest free and repayable on demand.

(ii) The Group had outstanding receivables from TPV’s associates of approximately RMB632,993,000 (31 December 2010: RMB927,721,000) and receivables from TPV’s jointly controlled entities of approximately RMB2,246,000 (31 December 2010: RMB42,855,000) were presented in the condensed consolidated statement of financial position within trade receivables.

The Group had outstanding payables to TPV’s associates of approximately RMB50,834,000 (31 December 2010: RMB9,516,000) and payables to TPV’s jointly controlled entities of approximately RMB61,144,000 (31 December 2010: RMB14,179,000), which were presented in the consolidated statement of financial position within trade payables.

Receivables from TPV’s substantial shareholders and their subsidiaries of approximately RMB16,774,000 (31 December 2010: RMB9,841,000) were presented in the condensed consolidated statement of financial position in trade receivables respectively.

Payables to TPV’s substantial shareholders of approximately RMB457,244,000 (31 December 2010: RMB497,570,000) were presented in the condensed consolidated statement of financial position in trade payables and other payables and accruals respectively.

(c) The Group operates in an economic environment predominated by enterprises directly or indirectly owned or controlled by the PRC government through its numerous authorities, affiliates or other organisations (collectively “State-owned Enterprises”). During the six months ended 30 June 2011 and 30 June 2010, the Group had transactions with State-owned Enterprises including, but not limited to, sales and purchase of computers, electronic parts and computer-related products. The directors of the Company consider that transactions with other State- owned Enterprises are activities in the ordinary course of business, and that dealings of the Group have not been significantly controlled or owned by the PRC government. The Group has also established pricing policies for products and such pricing policies do not depend on whether or not the customers are State-owned Enterprises. Exemption from disclosure requirements under HKAS 24 (Revised) is applied for disclosure of transactions with these government related entities.

25. CONTINGENT LIABILITIES

The directors of the Company closely monitor the outstanding complaints and disputes over patents and assess the outcome of the complaints and disputes accordingly. The directors of the Company consider that the dismissed and settled complaints and disputes as well as outstanding complaints and disputes do not have any material financial impact on the Group as a whole. Even if the outcome turns out to be unfavourable, the directors of the Company consider that its future settlement may not have any material financial impact on the Group as a whole.

The Group had certain outstanding litigations as recorded by TPV, the details of which are set out as follow:

(a) In January 2007, a third party company filed a complaint in the United States of America against one of its subsidiaries, one of its associated companies and certain other third party companies. The complaint claims damages related to alleged infringement of a US Patent in respect of technology to decode Program Map Information in the Digital TVs (“Patent I”).

As far as the Group and its associated company are concerned, it is alleged among other matters that:

On 23 May 2011, the case was dismissed by the Court according to the Settlement Agreement between the parties.

237 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

(b) In December 2008, a third party company filed a complaint in the United States of America against one of its subsidiaries, one of its associated companies and other third party companies. The complaint concerns claims of damages related to alleged infringement of certain patents in respect of technology of the manufacture of computer monitors and televisions (“Patent II”).

As far as the Group and its associated company are concerned, it is alleged among other matters that:

On 14 June 2011, the parties settled the dispute over televisions, while otherwise the settlement to the part of computer monitors is still pending arbitration.

(c) In January 2009, a third party company filed a complaint in Germany against one of its subsidiaries, one of its associated companies and other third party companies. The complaint concerns claims of damages related to alleged infringement of certain patents in respect of technology of the manufacture of computer monitor (“Patent III”).

As far as the Group and its associated company are concerned, it is alleged among other matters that:

(i) they had infringed, actively induced, contributed to the infringement of Patent III by making, using, causing to be used, offering to sell, selling, causing to be sold, importing and/or causing to be imported monitors in Germany; and

The directors are of the opinion that while the proceedings are still ongoing, it is not probable to assess the outcome of the case for the time being.

(d) In November 2009, a third party company filed a complaint in the United States of America against one of its subsidiaries and certain other third party companies. The complaint concerns claims of damages related to indemnification arising out of alleged infringement of certain patents in respect of technology of the manufacture of computer monitors.

As far as the Group is concerned, it is alleged among other matters that:

(i) the subsidiary is the merchants regularly dealing in goods of the kind of accused products and has breached its warranty of title and freedom from a claim of patent in the United States of America.

(ii) the third party company is entitled to indemnification from the subsidiary for any liabilities it incurs, including reasonable attorneys’ fees, settlement amount or any awarded damage.

The complaint is now in the process of dismissal.

(e) In July 2010, a third party company filed a complaint in the United States of America against one of its subsidiaries. The Complaint concerns claims of compensation related to indemnity obligations as provided in an agreement between the parties.

The directors are of the opinion that while the proceedings are still ongoing, it is not probable to assess the outcome of the case for the time being.

238 APPENDIX I FINANCIAL INFORMATION OF THE GROUP

(f) In July 2010, a third party company filed a complaint in the United States of America against one of its subsidiaries, one of its associated company and another third party company.

The complaint concerns claims of damages related to alleged infringement of certain patents in respect of technology of the manufacture of certain televisions (“Patent IV”).

As far as the Group and its associated company are concerned, it is alleged among other matters that:

(i) they have been infringing and continue to infringe the Patent IV, and contributing to and actively inducing the infringement of Patent IV by others in the United States of America.

(ii) as a consequence of the infringement, the plaintiff has been damaged and will continue to sustain damages unless the court enjoins them from further infringement of Patent IV.

The directors are of the opinion that while the proceedings are still ongoing, it is not probable to assess the outcome of the case for the time being.

(g) In November 2010, a third party individual filed a complaint in the United States of America against one of its subsidiaries. The Complaint concerns alleged claims of personal injury caused by products that contain asbestos.

The directors are of the opinion that while the proceedings are still ongoing, it is not probable to assess the outcome of the case for the time being.

26. EVENTS AFTER THE REPORTING PERIOD

(a) Further acquisition of equity interest in a major subsidiary, TPV

Pursuant to the ordinary resolution passed at the extraordinary general meeting of the Company on 25 July 2011, the shareholders of the Company approved the proposed acquisition of additional 10.74% equity interests in the Company’s major subsidiary, TPV, from a fellow subsidiary of the Company, CEIEC (H.K.) Limited, at a consideration of approximately RMB1,137,000,000. Completion of the proposed transaction, which is also subject to fulfillment of other conditions, have not yet taken place as at the date of this report. Details of the acquisition are set out, inter alia, in the circular of the Company dated 26 May 2011.

(b) Deemed disposal of interest in China Great Wall Computer (Shenzhen) Company Limited (“CGC”)

Pursuant to the ordinary resolution passed at the extraordinary general meeting of the Company on 25 July 2011, the shareholders of the Company approved the proposed non-public issue of not more than 250,000,000 CGC new shares which upon completion will dilute the Group’s interest in CGC from approximately 56.62% to 47.62%. Completion of the proposed transaction, which is also subject to the fulfillment of other conditions, have not yet taken place as at the date of this report. Details of the purposed non-public issue of new shares of CGC are set out, inter alia, in the circular of the Company dated 26 May 2011.

On 1 August 2011, the Company entered into an agreement with CEC pursuant to which the Company agreed to subscribe for 100 million of the additional registered capital of CEC Finance at a subscription amount of approximately RMB133,120,000. The subscription is not completed as at the date of this report. Details of the acquisition are set out, inter alia, in the announcement of the Company dated 3 August 2011.

(d) Acquisition of the land use right in Shanghai

On 5 August 2011, a subsidiary of the Group committed to acquire the land use right for a piece of land in Shanghai, the PRC, from the government agency at a consideration of RMB282,850,000. The directors of the Company expect the transaction will be completed by the end of year 2011.

(e) Disposal of Shenzhen Hai Liang

On 8 August 2011, the Group entered into a sale and purchase agreement with Hitachi Global Storage Technologies Netherlands B.V., an independent third party, pursuant to which the Group agreed to dispose of its 20% equity interests in Shenzhen Hai Liang. The disposal is expected to be completed in 2011.

239 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

The following is the text of a report received from the Company’s reporting accountant, PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

23 December 2011

The Directors Great Wall Technology Company Limited

Dear Sirs,

We report on the financial information of the Philips television business (the “Philips Business”), as the acquisition target with details as set out in the announcements dated 18 April 2011 and 9 November 2011 issued by Great Wall Technology Company Limited (the “Company”), which comprises the combined statements of financial position of the Philips Business as at 31 December 2008, 2009 and 2010 and 3 July 2011, and the combined income statements, the combined statements of comprehensive income, the combined statements of changes in equity and the combined statements of cash flows of the Philips Business for each of the years ended 31 December 2008, 2009 and 2010 and the period from 1 January 2011 to 3 July 2011 (the “Relevant Periods”) and a summary of significant accounting policies and other explanatory information. This financial information has been prepared by the directors of the Company and is set out in Sections I to III below for inclusion in Appendix II to the circular of the Company dated 23 December 2011 (the “Circular”) in connection with the proposed acquisition of the Philips Business by the Company. Background of the proposed transaction and the details of the acquisition of the business and the relevant assets and liabilities are further described in Notes 1, 2 and 6 of Section II below.

The management of the Philips Business have prepared the combined financial statements of the Philips Business for the Relevant Periods, in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) (the “Underlying Financial Statements”). We have audited the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing (the “HKSA”) issued by the HKICPA pursuant to separate terms of engagement.

The management of the Philips Business are responsible for the preparation of the Underlying Financial Statements that give a true and fair view in accordance with HKFRSs, and for such internal control as the management of the Philips Business determine is necessary to enable the preparation of the Underlying Financial Statements that are free from material misstatement, whether due to fraud or error.

The financial information has been prepared based on the Underlying Financial Statements, with no adjustment made thereon, and on the basis set out in Note 6 of Section II below.

240 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

Directors’ Responsibility for the Financial Information

The directors of the Company are responsible for the preparation of the financial information that gives a true and fair view in accordance with the basis of presentation set out in Note 6 of Section II below and in accordance with HKFRSs and accounting policies adopted by the Company and its subsidiaries (together, the “Group”) as set out in the interim report of the Company for the six months ended 30 June 2011.

Reporting Accountant’s Responsibility

Our responsibility is to express an opinion on the financial information and to report our opinion to you. We carried out our procedures in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

Opinion

In our opinion, the financial information gives, for the purpose of this report and presented on the basis set out in Note 6 of Section II below, a true and fair view of the combined state of affairs of the Philips Business as at 31 December 2008, 2009 and 2010 and 3 July 2011 and of the Philips Business’s combined results and cash flows for the Relevant Periods then ended.

Review of stub period comparative financial information

We have reviewed the stub period comparative financial information set out in Sections I to II below included in Appendix II to the Circular which comprises the combined income statement, the combined statement of comprehensive income, the combined statement of changes in equity and the combined statement of cash flows of the Philips Business for the period from 1 January 2010 to 4 July 2010 and a summary of significant accounting policies and other explanatory information (the “Stub Period Comparative Financial Information”).

The directors of the Company and the management of the Philips Business are responsible for the preparation and presentation of the Stub Period Comparative Financial Information in accordance with the basis of presentation set out in Note 6 of Section II below, and the accounting policies set out in Note 3 of Section II below and the accounting policies adopted by the Group as set out in the interim report of the Company for the six months ended 30 June 2011.

Our responsibility is to express a conclusion on the Stub Period Comparative Financial Information based on our review. We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. A review of Stub Period Comparative Financial Information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with HKSA and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Based on our review, nothing has come to our attention that causes us to believe that the Stub Period Comparative Financial Information, for the purpose of this report and presented on the basis set out in Note 6 of Section II below, is not prepared, in all material respects, in accordance with the accounting policies set out in Note 3 of Section II below.

241 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

I. COMBINED FINANCIAL INFORMATION (in millions of USD except where otherwise stated)

A. Combined Income Statements

Year ended Six months ended 31 December 4 July 3 July 2008 2009 2010 2010 2011 Notes USD m USD m USD m USD m USD m (Unaudited)

Revenues 7 5,224 3,951 4,083 1,947 1,658 Cost of goods sold (4,537) (3,211) (3,469) (1,662) (1,513)

Gross profit 687 740 614 285 145 Other income and expense 10 70 21 6 9 - Realised and unrealised gains/(losses) on foreign exchange forward contracts - net 78 (44) 8 62 (77) Selling and distribution expenses (844) (689) (514) (262) (251) Administrative expenses (138) (98) (101) (46) (68) Research and development expenses (164) (141) (117) (51) (84)

Operating loss 8, 9 (311) (211) (104) (3) (335) Finance costs – (1) (1) (1) (1)

Loss before income tax (311) (212) (105) (4) (336) Income tax expense 11 (19) (19) (20) (10) (5)

Loss for the year/period (330) (231) (125) (14) (341)

As the Philips Business historically did not constitute a legal entity, a disclosure of earnings per share is not relevant.

242 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

B. Combined Statements of Comprehensive Income

Year ended Six months ended 31 December 4 July 3 July 2008 2009 2010 2010 2011 Notes USD m USD m USD m USD m USD m (Unaudited)

Loss for the year/period (330) (231) (125) (14) (341) Other comprehensive income: Exchange differences, net of tax 22 6 (9) 34 57 (23)

Other comprehensive income/(loss) for the year/period, net of tax 6 (9) 34 57 (23)

Total comprehensive income/(loss) for the year/period (324) (240) (91) 43 (364)

Attributable to: – Owner (324) (240) (91) 43 (364)

243 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

C. Combined Statements of Financial position

31 31 31 December December December 3 July 2008 2009 2010 2011 Notes USD m USD m USD m USD m

Assets Non-current assets Intangible assets 12 51 38 51 34 Property, plant and equipment 13 67 49 48 59 Non-current receivables 5 8 9 7

Total non-current assets 123 95 108 100

Current assets Inventories 15 351 190 506 473 Trade and other receivables 14 588 575 616 444 Derivative financial instruments 16 13 14 39 2 Other current assets 17 114 102 135 149

Total current assets 1,066 881 1,296 1,068

Total assets 1,189 976 1,404 1,168

Owner’s net investment – deficit/(surplus) 22 198 439 310 (39)

Liabilities Non-current liabilities Long-term warranty provision 19 (28) (36) (29) (20) Other long-term provisions 19 (43) (80) (44) (51) Non-current other payables and accruals 18 – (1) (7) (7)

Total non-current liabilities (71) (117) (80) (78)

Current liabilities Trade payables 20 (821) (807) (1,131) (637) Other payables and accruals 21 (386) (337) (353) (285) Short-term warranty provision 19 (72) (98) (85) (83) Other short-term provisions 19 (31) (45) (38) (15) Derivative financial instruments 16 (6) (11) (27) (31)

Total current liabilities (1,316) (1,298) (1,634) (1,051)

Total liabilities (1,387) (1,415) (1,714) (1,129)

Total liabilities and owner’s net investment (1,189) (976) (1,404) (1,168)

Net current (liabilities)/assets (250) (417) (338) 17

Total assets less current liabilities (127) (322) (230) 117

244 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

D. Combined Statements of Cash flows

Year ended Six months ended 31 December 4 July 3 July 2008 2009 2010 2010 2011 USD m USD m USD m USD m USD m (Unaudited)

Cash flow from operating activities Operating loss (311) (211) (104) (3) (335) Add back: Depreciation, amortization & impairments 170 113 88 39 64 Stock based compensation 3 1 1 – –

Subtotal (138) (97) (15) 36 (271)

Change in inventories 96 161 (316) (201) 33 Change in trade and other receivables 247 13 (41) (87) 172 Change in trade payables (270) (14) 324 166 (494) Change in other payables and accruals 5 (49) 16 (49) (68) Change in other current assets (19) 12 (33) 9 (14) Change in non-current receivables, other payables and accruals (5) (2) 5 14 2 Change in derivative financial instruments (42) 4 (9) (26) 41

Change in working capital 12 125 (54) (174) (328) Change in warranty provisions (20) 34 (20) (20) (11) Change in other provisions 30 51 (43) (30) (16)

Changes in provisions 10 85 (63) (50) (27) Foreign exchange impact on working capital and provisions 4 (12) 29 57 (24)

Net cash (used in)/generated from operations (112) 101 (103) (131) (650) Interest paid – (1) (1) (1) (1) Income tax paid (19) (19) (20) (10) (5)

Net cash (used in)/generated from operating activities (131) 81 (124) (142) (656)

245 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

Year ended Six months ended 31 December 4 July 3 July 2008 2009 2010 2010 2011 USD m USD m USD m USD m USD m (Unaudited)

Cash flow from investing activities Proceeds from disposal of property, plant and equipment 4 2 – – – Purchase of property, plant and equipment (79) (44) (44) (31) (32) Additions to intangible assets (48) (37) (51) (33) (25)

Net cash used in investing activities (123) (79) (95) (64) (57)

Cash flow from financing activities Additional funding from/ (distribution to) owner 254 (2) 219 206 713

Net cash generated from/(used in) financing activities 254 (2) 219 206 713

Net (decrease)/increase in cash and cash equivalents – – – – – Cash and cash equivalents at beginning of year/period – – – – –

Cash and cash equivalents at end of year/period – – – – –

246 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

E. Combined Statements of changes in equity

Year ended Six months ended 31 December 4 July 3 July 2008 2009 2010 2010 2011 Deficit/(Surplus) USD m USD m USD m USD m USD m (Unaudited)

Balance at beginning of year/period 131 198 439 439 310

Comprehensive (income)/loss – Loss for the year/period 330 231 125 14 341 Other comprehensive (income)/loss – Exchange differences, net of tax (6) 9 (34) (57) 23

Total comprehensive (income)/loss 324 240 91 (43) 364

Transactions with owner – (Additional funding from)/ distribution to owner (254) 2 (219) (206) (713) – Stock based compensation (3) (1) (1) – –

Transactions with owner (257) 1 (220) (206) (713)

Balance at end of year/period 198 439 310 190 (39)

247 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

II. NOTES TO COMBINED FINANCIAL INFORMATION

1. PARTICULARS OF THE BUSINESS AND THE TARGET GROUP

Background

On 18 April 2011, TPV Technology Limited (“TPV”) and Royal Philips Electronics N.V. (“Philips”) announced that they have entered into a term sheet to transfer the Philips television business into a joint venture as part of a long-term strategic partnership (the “Transaction”). The new joint venture will be 70% owned by TPV and 30% by Philips.

The joint venture (“JVCo”) will be responsible for the design, manufacturing, distribution, marketing and sales of Philips television business worldwide, with the exception of mainland China, India, United States, Canada, Mexico and certain countries in South America (the “Philips Business”). As part of the transaction, Philips will grant the joint venture the right to use the Philips brand, under certain strict quality and customer care standards, for the Philips television business worldwide, excluding the above-mentioned territories. In addition, Philips will receive revenue-based royalty payments from the joint venture. Philips has existing brand license agreements in mainland China, India and North America, which will not move to the JVCo.

The contemplated transaction comprises certain assets and liabilities related to the Philips television business and not to specific legal or statutory entities. Prior to the acquisition, Philips Business did not exist as a statutory group and no separate statutory accounts were therefore prepared. Accordingly, carve out financial statements have been prepared. The Netherlands headquarters of the Philips Business have been considered as parent of the Philips Business (as defined under HKAS 27). The Philips Business comprises the management reporting units in which the Philips television business that will be contributed to the JVCo was carried out.

These financial statements are presented in US Dollar unless otherwise stated.

2. CARVE OUT FINANCIAL STATEMENTS

In connection with the Transaction, carve out financial statements have been derived from the consolidated financial statements and historical accounting records of Philips.

The Combined Financial Statements of the Philips Business have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”), issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). The Combined Financial Statements have been prepared on a carve out basis, as explained in the Basis of Presentation set out in note 6 below.

The Combined Financial Statements comprise the Combined Income Statement, the Combined Statements of Comprehensive Income, the Combined Statements of Financial Position, the Combined Statements of Cash Flows and the Combined Statements of changes in equity of the Philips Business on a carve out basis.

The carve out financial statements for the Philips Business are purported to reflect the historical results of operations, and the historical assets and liabilities of the Philips television business that will be transferred to JVCo.

The Philips Business was a separate reporting unit within the Consumer Lifestyle Sector of Philips. The Philips Business has customers in common with other units within the Consumer Lifestyle Sector. Sales to customers are managed via shared National Sales Organizations for the Consumer Lifestyle Sector.

Furthermore, the Philips Business uses infrastructure and corporate services from Philips, such as Information Technology, Human Resources, legal and financial administrative services. Where account balances on the Combined Statements of Financial Position or the Combined Income Statements were allocated, these allocations were made on a specifically identifiable basis or using relative percentages, as compared to Philips’ other businesses, of the Philips Business’s net sales, headcount, floor area usage or other reasonable methods.

248 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

Expenses, such as general and administrative, selling and research and development, in the carve out financial statements include allocations from Philips which have been historically charged based upon revenue or headcount or other methods. For further details reference is made to the basis of presentation included in note 6.

Management believes the assumptions underlying the carve out financial statements to be a reasonable reflection of the utilization of services provided by Philips. However, the costs the Philips Business would have incurred or will incur as a separate stand-alone group may be higher or lower than the cost allocations reflected in these combined carve out financial statements. As such, the carve out financial statements may not necessarily reflect the financial position, results of operations or cash flows that Philips Business might have had in the past, or might have in the future, if the Philips Business had existed as a separate, stand-alone business during the periods presented.

Going concern

The Philips Business has been funded by Philips in the past and the periods presented. Based on various analyses performed and cash flow forecasts prepared by management of the Philips Business, the shareholders of the JVCo have indicated their willingness to support the Philips Business up to the presently expected maximum funding need.

Management of the Philips Business is aware that actual results are likely to deviate from current expectations and accordingly there is an inherent risk that actual funding requirements may exceed the presently expected maximum funding need.

In case the contemplated transaction will not be concluded, the Philips Business will continue to exist as part of the Philips organisation. Philips has confirmed that it is its current intention to provide, until the earlier of (i) the first anniversary of date of approval of the Combined Financial Statements or (ii) the date of completion of the Transaction, the necessary funds, and to cause its subsidiaries to provide the necessary funds, to meet the liabilities of the Philips Business as they fall due. In addition, Philips has confirmed that there is at present no intention to liquidate or cease the operation of the Philips Business within twelve months from date of approval of the Combined Financial Statements. On the basis of the above, the Combined Financial Statements have been prepared on a going concern basis.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in the Combined Financial Statements.

The Combined Financial Statements present the combined assets, liabilities, revenues, expenses and cash flows attributable to the Philips Business for the years ended 31 December 2008, 2009 and 2010 and the periods ended 4 July 2010 and 3 July 2011.

The Combined Financial Statements have been prepared on the historical cost basis, as modified by the revaluation of derivative financial instruments, which are carried at fair value.

Basis of combination

The Combined Financial Statements include the activities that were managed by the Philips Business’s management during the periods presented and that will be part of the JVCo. These activities were combined and in the combination, all intercompany balances and transactions within the Philips Business were eliminated. The transactions and balances with other Philips reporting units have not been eliminated. The balances with these reporting units are presented separately within the Combined Statement of Financial Position, either as assets or liabilities, where these relate to trading activities or included within owner’s net investment where these relate to funding activities. Unrealized gains and losses have also been eliminated in the combination, but only to the extent there is no indication of impairment.

249 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

Foreign currencies

a) Functional and presentation currency

The Combined Financial Statements have been prepared in US Dollar as this is the Philips Business’s presentation currency. The functional currency of the majority of the reporting units within Philips Business is Euro unless the primary economic environment requires the use of another currency.

b) Group transactions on combination

The financial statements of foreign entities are translated into US Dollar. Assets and liabilities are translated using the exchange rates on the respective reporting dates. Income and expense items in the Combined Income Statement are translated at weighted average exchange rates during the year. The resulting translation adjustments are recorded as a separate component of other comprehensive income.

c) Transaction and balances

Gains and losses arising from the translation or settlement of foreign-currency-denominated monetary assets and liabilities into the functional currency are recognized in the income statement in the period in which they arise. Exchange gains and losses are presented in the Combined Income Statements. Translation differences on derivative financial assets and liabilities are recognised in the Combined Income Statements as part of the fair value gain or loss. When a gain or loss on a non-monetary item is recognised in other comprehensive income, any exchange component of that gain or loss shall be recognised in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognised in income statement, any exchange component of that gain or loss shall be recognised in income statement.

Property, plant and equipment

Machinery, installations and test equipment is stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the expected economic life of the asset. Gains and losses on the sale of property, plant and equipment are included in other income. Costs related to repair and maintenance activities are expensed in the period in which they are incurred unless leading to an extension of the original lifetime or capacity. The useful lives and residual values are evaluated every year.

Construction in progress is stated at cost and not depreciated until the related assets are ready for use.

Freehold land is not depreciated. Depreciation of property, plant and equipment, other than freehold land, is calculated using the straight-line method to allocate their costs to their residual values over their estimated useful lives, as follows:

The expected useful lives of the tangible fixed assets are as follows:

– Land and Buildings 20 years – Machinery and installations 5 to 10 years – Other equipment 3 to 5 years

Intangible assets

Product development

All research costs are expensed as incurred. Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalized as an intangible asset if the product or process is technically and commercially feasible and the Philips Business has sufficient resources and the intention to complete development. The Philips Business will have access to 3D TV technology developed by Philips.

The development expenditure capitalized includes the costs of materials, direct labour and an appropriate proportion of overheads. Other development expenditures and expenditures on research activities are recognized in the Combined Income Statement. Capitalized development expenditure is stated at cost less accumulated amortization and impairment losses. Amortization of capitalized development expenditure is charged to the Combined Income Statement on a straight-line basis over the estimated useful lives of the intangible assets.

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Software

Costs relating to the development and purchase of software for internal use are capitalized and subsequently amortized over the estimated useful life.

Licenses

Costs relating to the purchase of licenses are capitalized and subsequently amortized over the estimated useful life, which does not exceed the term of the license.

The expected useful lives of the intangibles assets are as follows:

– Product development 1–2 years – Software 1–8 years – Licenses term of the license (1-5 years) – Other 1–8 years

Impairment of fixed assets

The Philips Business reviews the tangible and intangible fixed assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset with the greater of its value in use and its fair value less costs to sell. If the carrying amount of an asset exceeds the greater of its estimated value in use or fair value less costs to sell, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the recoverable amount. The review for impairment is carried out at the level where discrete cash flows occur that are largely independent of other cash flows (i.e. at cash generating unit level).

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the reversal of previously recognised impairment loss is recognised in the Combined Income Statement.

Inventories

Inventories are stated at the lower of cost or net realisable value. The cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The costs of conversion of inventories include direct labour and fixed and variable production overheads (at normal operating capacity), taking into account the stage of completion. It excludes borrowing costs. The cost of inventories is determined using the weighted average method. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. An allowance is made for the estimated losses due to obsolescence. This allowance is determined for groups of products based on purchases in the recent past and/or expected future demand.

Receivables

Receivables are initially recognised at fair value and subsequently carried at the lower of amortized cost or the present value of estimated future cash flows, taking into account discounts given or agreed. The present value of estimated future cash flows is determined through the use of allowances for doubtful accounts. As soon as individual trade accounts receivable can no longer be collected in a normal way, they are designated as doubtful trade accounts receivable and valued at the expected collectible amounts. They are written off when they are deemed to be uncollectable because of bankruptcy or other form of receivership at the debtor. The allowance for the risk of non-collection of trade receivables takes into account credit-risk concentration, collective debt risk based on average historical losses and specific circumstances such as serious adverse economic conditions in a certain country or region.

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Trade and other payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

Trade and other payables are recognised initially at fair value and subsequently measured at amortized cost using the effective interest method.

Revenue recognition

Sale of goods

Revenue for sale of goods is recognized when the significant risks and rewards of the ownership have transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of the goods can be reliably estimated, there is no continuing involvement with goods and the amount of revenue can be measured reliably. These criteria are generally met at the time the product is shipped and delivered to the customer and, depending on the delivery conditions, title and risk have passed to the customer and acceptance of the product, when contractually required, has been obtained, or, in cases where such acceptance is not contractually required, when management has established that all aforementioned conditions for revenue recognition have been met and no further post-shipment obligations exist. Examples of the abovementioned delivery conditions are ‘Free on Board point of delivery’ and ‘Costs, Insurance Paid point of delivery’, where the point of delivery may be the shipping warehouse or any other point of destination as agreed in the contract with the customer and where title and risk in the goods pass to the customer.

Revenues are recorded net of sales taxes, customer discounts, rebates and similar charges. For products for which a right of return exists during a defined period, revenue recognition is determined based on the historical pattern of actual returns, or in cases where such information is lacking, revenue recognition is postponed until the return period has lapsed. Return policies are typically in conformity with customary return arrangements in local markets.

Shipping and handling costs billed to customers are recognized as revenues. Expenses incurred for shipping and handling costs of internal movements of goods are recorded as cost of sales. Shipping and handling costs related to sales to third parties are reported as other direct expenses.

A provision for product warranty is made at the time of the revenue recognition and reflects the estimated costs of replacement and free-of-charge services that will be incurred by the Philips Business with respect to the products. For certain products, the customer has the option to purchase an extension of the warranty, which is subsequently billed to the customer. Revenue is then recognised on a straight-line basis over the warranty period.

Other income and expense

Other income mainly represents charges to other Philips reporting units that operated television businesses in territories that will not be accessible to the JVCo, as these territories have already been licensed out by Philips to other parties during the years 2008, 2009 and 2010. The charges reflect costs incurred by the Philips Business recharged to these reporting units in 2008, 2009 and 2010 based on the global Philips transfer pricing structure as laid down in general services agreements. No such recharges have occurred or are expected to occur after 2010.

Other income is recognized as services are rendered. Other expenses are recorded when services are received and costs are incurred.

Employee Benefit accounting

(a) Pension obligations

The Philips Business and its employees participate in a number of defined contribution schemes in various countries around the world, the assets of which are held separately from those of the Philips Business in independently administered funds. Contributions are made to these schemes based on a certain percentage of the employees’ salaries. The Philips Business also participates in defined benefit plans of Philips. These are accounted for in a similar manner to the defined contribution schemes for the purpose of these Combined Financial Statements (refer to note 6).

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(b) Termination benefits

Termination benefits are payable when employment is terminated by the Philips Business before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Philips Business recognises termination benefits when it is demonstrably committed to a termination when the entity has a detailed formal plan to terminate the employment of current employees without possibility of withdrawal. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12months after the end of the reporting period are discounted to their present value.

The Philips Business recognises a liability and an expense for bonuses on an accrual basis. The Philips Business recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

Shared based compensation expenses

Certain members of management and certain employees are eligible to participate in certain equity settled Philips’ employee share based compensation plans. The Philips Business receives an allocation of share based compensation expenses recognised at the level of Philips. Philips recognizes share based compensation expenses at the estimated fair value, measured as of grant date of equity instruments granted to employees as personnel expense over the vesting period on a straight-line basis, taking into account forfeitures. The fair value of the equity instruments has been determined using the Black-Scholes option pricing model.

The Philips Business measures the estimated fair value as of grant date of equity instruments and recognises the expense over the vesting period.

Income tax

Income tax comprises current and deferred income tax. As the Philips Business previously did not exist in separate legal entities, current income tax positions included in the Combined Statements of Financial Position are reflected in owner’s net investment. The current income tax charge is based on enacted tax rates and the result before tax.

Deferred income tax is recognized using the liability method, for the expected tax consequences of temporary differences between the carrying amounts of assets and liabilities and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied when temporary differences reverse, based on laws that are enacted or substantially enacted at reporting date. Changes in tax rates are reflected in the period when the change has been enacted or substantively enacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset the current income tax payable and receivable and they relate to income taxes levied by the same tax authorities.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized.

Leases

Leases in which substantially all risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases, net of any incentives received from the lessor, are recognized in the Combined Income Statements on a straight-line basis over the term of the lease.

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Derivative financial instruments

The Philips Business uses derivative financial instruments principally to manage its foreign currency risks. All derivative financial instruments are classified under derivative financial assets or derivative financial liabilities and are accounted for as of trade date. They are included in current assets or liabilities, except for maturities greater than 12 months after the end of the reporting period.

The Philips Business measures all derivative financial instruments based on fair values which have been estimated based on discounted cash flow valuation techniques, using directly observable market inputs. Changes in fair value are recognized in the Combined Income Statement, under “Realised and unrealised gains/(losses) on foreign exchange forward contracts -net”.

Provisions

Provisions are recognized if, as a result of a past event, the Philips Business has a present legal or constructive legal obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation. The increase in the provisions due to the passage of time is recognized as interest expenses.

A provision for warranties is recognized when the underlying products are sold. The provision is based on historical warranty data and a weighting of possible outcomes against their associated probabilities.

The provision for restructuring relates to the estimated costs of initiated reorganizations that have been approved by the Philips’ Board of Management and which involve the realignment of certain parts of the industrial and commercial organization. When such reorganizations require discontinuance and/or closure of lines of activities, the anticipated costs of closure are included in restructuring provisions. A liability is recognized for those costs only when the Philips Business has a detailed formal plan for the restructuring and has raised a valid expectation with those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it.

4. IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

The following new standards and amendments to existing standards, which have been published and are mandatory and relevant for the Philips Business on or after 3 July 2011 or later periods, but have not been early adopted:

HKFRS 9 Financial Instruments

This standard introduces certain new requirements for classifying and measuring financial assets and liabilities. HKFRS 9 divides all financial assets that are currently in the scope of HKAS 39 into two classifications, those measured at amortized cost and those measured at fair value. The standard along with proposed expansion of HKFRS 9 for impairment and hedge accounting will be applicable from the year 2013, although entities are permitted to adopt it earlier. The new standard will be applied from 1 January 2013. The Philips Business is assessing the potential impact from this new standard.

HKFRS 10 Consolidated Financial Statements

This standard supersedes HKAS 27 Consolidated and Separate Financial Statements and HK(SIC) – 12 Consolidation – Special Purpose Entities. The objective of HKFRS 10 is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. This standard is not expected to have a significant impact on the financial statements of the Philips Business. The standard is not applicable until 1 January 2013 but available for early adoption. The Philips Business will apply the standard from 1 January 2013.

Amendment to HKFRS 7 Financial Instruments: Disclosures

The revised standard addresses additional disclosure requirements on transfer of financial assets in situations where assets are reclassified. This amendment is applicable for annual periods starting on or after 1 July 2011. The amendment requires additional disclosures for risk exposures arising from transferred financial assets and no disclosures are required for prior periods. No significant change in disclosure in the financial statements is expected. The Philips Business will apply the amendment from 1 January 2012.

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HKFRS 13 Fair Value Measurement

This standard defines fair value, sets out in a single HKFRS a framework for measuring fair value and requires disclosures about fair value measurements. HKFRS 13 is applicable to annual reporting periods beginning on or after 1 January 2013.This standard is not expected to have a significant impact on the financial statements of the Philips Business. The Philips Business will apply the standard from 1 January 2013.

Amendment to HKAS 1 – amendment to revise the way other comprehensive income is presented

This amendment revises the way other comprehensive income is presented. The amendment is applicable to annual reporting periods beginning on or after 1 July 2011. The Philips Business will adopt the amendment on 1 January 2012.The Philips Business is assessing the potential impact from this new standard.

Amendment to HKAS 19 – employee benefits

This amendment eliminates the use of the “corridor approach” from HKAS 19, enhances disclosures and modifies accounting for termination benefits. The amendment is applicable to annual reporting periods beginning on or after 1 January 2013. This amendment is not expected to have a significant impact on the financial statements of the Philips Business. The Philips Business will apply the amendment from 1 January 2013.

5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

The preparation of the Combined Financial Statements in conformity with HKFRS requires management to make judgement, estimates and assumptions that affect the application of accounting policies, the reported amounts of assets, liabilities, income and expenses and assumptions that affect amounts reported in the carve out financial statements. These estimates and judgements are evaluated on an on-going basis and are based on experience, current and expected future conditions, third party evaluations and various other assumptions that are considered reasonable under the circumstances. The results of these estimates form the basis for making judgements about the carrying value of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ from these estimates.

Estimates significantly impact the valuation of intangibles, financial instruments, the warranty provisions and the basis for allocation of accounts between reporting units within Philips and other provisions.

Intangible assets

The Philips Business capitalizes internal development spend on new products. Although the Philips Business has been loss making in the periods under review, the carrying value of the development projects of the Philips Business are below their value in use, as these development projects are necessary to ensure the product portfolio of the Philips Business is state of the art and external revenues are generated. The impairment analyses are performed at product range level. Critical assumptions and estimates to determine value in use are the expected future sales levels and expected gross margin percentages.

In case 10% of intangible assets carried on the Combined Statements of Financial Position as at 3 July 2011 would require impairment, this would have a USD3 million negative impact on operating loss.

Estimated impairment of fixed assets

The Philips Business annually tests whether fixed assets have suffered any impairment, in accordance with the accounting policy stated in note 3. The recoverable amounts of cash-generating units have been determined based on the higher of fair value less costs to sell and value-in-use.

Critical assumptions and estimates to determine value in use are the expected future sales levels, expected gross margin percentages and the discount rate. For tangible fixed assets, the fair value less costs to sell is determined based on appraisals.

Non-financial assets that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

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The fair value less costs to sell of property, plant and equipment is above the net book value. A reduction of 10% of the fair value would not trigger an impairment of property, plant and equipment.

Useful lives of property, plant and equipment

The Philips Business’s management determines the estimated useful lives and related depreciation charges for its plant and equipment. This estimate is based on the historical experience of the actual useful lives of plant and equipment of similar nature and functions. It could change significantly as a result of technical innovations and competitor actions in response to competition within the industry. Management will increase the depreciation where useful lives are less than previously estimated lives, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned or sold.

Inventory valuation and obsolescence provision

Due to the significant price erosion and technological developments, inventory valuation requires significant forward looking estimates on future sales levels, future price erosion and related expected gross margin percentages. On each reporting date, management performs an extensive analysis of net realisable values and determines the lower of cost and net realisable value to measure its inventories.

In case 10% of the inventory carried on the balance sheet as at 3 July 2011 would be unsellable, this would have an adverse impact on operating loss of USD47 million going forward.

Estimation of provision for impairment of receivables

The Philips Business makes provision for impairment of receivables based on an assessment of the collectability of trade and other receivables. Provisions for impairment are applied to trade and other receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of doubtful debts requires the use of judgement and estimates. Where the expectation is different from the original estimate, such difference will impact the carrying amount of receivables and doubtful debt expense in the period in which such estimate is changed.

The Philips Business’s historical experience in collection of trade and other receivables falls within the recorded allowances.

Rebate accruals

The customers of the Philips Business, which are common with the Philips’ Consumer Lifestyle Sector, receive discounts based on meeting certain performance criteria, such as volume commitments. Rebates are paid out on a monthly, quarterly or annual basis. Actual settlements may differ from the accrued amounts, which are based on management’s best estimate.

If actual rebates would be 10% higher/lower than the original estimate, this would result in a decrease/increase in revenues between USD3 million and USD4 million in the periods presented. The Philips Business’s historical experience of actual rebates paid out falls within the recorded accruals.

Fair value of derivatives and other financial instruments

The Philips Business manages its exposure on foreign currency purchases (mostly in US Dollar) and sales using forward exchange contracts, which are reported at fair value. The fair value of the forward exchange contracts has been determined using discounted cash flow calculations using directly observable market inputs (level 2).

Warranty provisions

The Philips Business gives warranties on certain products and undertakes to repair or replace items that fail to perform satisfactorily ranging from twelve to thirty-six months. Significant judgement is required in determining the warranty expenses. The Philips Business estimates the warranty expenses based on the actual repair and replacement costs incurred for the products sold in the last thirty-six months. Where the warranty expenses incurred are different from the original provision, such difference would impact the Combined Income Statement in the period in which the warranty expenses are incurred.

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If cost of warranty would be 10% higher/lower from the estimates, this would result in additional/lower warranty costs of approximately USD11 million in the periods presented. The Philips Business’s historical experience of warranty costs falls within the recorded provisions.

Contingent liabilities

The Philips Business had certain pending litigations at the reporting date. Significant judgement is required in determining whether it is more likely than not that an outflow of resources will be required to settle the pending litigations in which case an accrual for the potential litigation expenses is recognised.

Basis of allocation

The nature of carve out financial statements requires management to make estimates of a reasonable allocation key for assets, liabilities and costs shared with other business groups within the Consumer Lifestyle division of Philips as well as within the Philips Group. These allocations were performed on a manner deemed reasonable by management and are explained in the Basis of Presentation hereafter. Different allocation keys could have resulted in different outcomes.

The basis of allocation may not be representative of the actual financial positions of the Philips Business in the future when it is operated by JVCo.

6. BASIS OF PRESENTATION

Various accounts in the Statement of Financial Position contain balances which were not separately distinguished or reported for the Philips Business in the past. Where balances are not dedicated, allocations are necessary. Where account balances on the Statement of Financial Position were allocated, these allocations were made on a specifically identifiable basis or using relative percentages, as compared to Philips’ other businesses, of the Philips Business’s net sales, headcount, floor area usage or other reasonable methods.

The following balances contain material allocated balances:

Combined Statements of Financial Position

– Property, plant and equipment: in the assembly locations in Hungary, Brazil and Argentina the buildings are shared between the Philips Business and other Consumer Lifestyle activities. The allocation of the net book value of the buildings to the Philips Business has been performed based on floor area usage of the Philips Business. In the Bruges Research & Development site, the property is rented and only used by the Philips Business. For all other sites, the Philips Business is using Philips facilities and is charged an annual fee for the usage of facilities.

– Accounts receivable of National Sales Organisations: since the Philips Business and other Philips Consumer Lifestyle activities have common customers, the debtor balances are not separately tracked for the Philips Business. To have a more precise presentation of accounts receivable in the carve out financial statements, the receivables were split by product category, with certain product categories being dedicated to the different Business Groups after which there were remaining unallocated balances, due to partial payments, general credit notes and other debtor balances not yet assigned to product categories.

These remaining unallocated balances were allocated between the Philips Business and other Consumer Lifestyle activities based on the outstanding receivables of the Philips Business as percentage of the total outstanding receivables.

– Rebate accruals relate to common Consumer Lifestyle customers and have been allocated based on relative sales share of the Philips Business as a percentage of total Consumer Lifestyle sales.

– Accounts payable: Bill of Material related trade creditors are accounted for separately in the Philips Business (suppliers of materials such as panels and components). Creditors for shared costs of the organisation have joint creditor balances, which were allocated to the Philips Business based on allocation keys (Full Time Equivalent employees (“FTE”) or cost share, reflecting the nature of the related charges).

– Other liabilities and accrued liabilities were allocated to the Philips Business based on allocation keys (either sales, FTE or cost share), as deemed relevant by the nature of the accrued costs.

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Combined Income Statements

– Salaries, wages and pensions: part of salaries and wages is dedicated (mainly direct FTEs in the factories). In the case of salaries and wages, including pension costs and social security, they have been allocated based on relative sales share in 2008 and 2009. In 2010, an estimate of FTEs working for the Philips Business has been used to allocate salaries and wages as the Philips Business management believed this reflects the key drivers of the costs more accurately. The impact of this change in accounting estimate has not had a material impact on the financial statements.

– Other shared costs: certain costs of organisation shared with other Consumer Lifestyle activities, have been allocated based on relative sales share in 2008 and 2009. In 2010, an estimate of FTEs working for the Philips Business has been used to allocate costs within the other costs of organisation as the Philips Business management believed this reflects the key drivers of the costs more accurately. The impact of this change in accounting estimate has not had a material impact on the financial statements.

Share based compensation

Certain employees working (part of their time) for the Philips Business are entitled to stock options of Philips. The related share based compensation expenses have been allocated to the Philips Business based on an estimate of the services delivered (time spent) by the employees to the Philips Business.

As several employees that hold or have been granted stock options are not specifically related to the Philips Business, it is not practical nor feasible to prepare an overview of outstanding stock options or stock options granted at the Philips Business in accordance with HKFRS 2 paragraphs 45 and 47 and as such this overview has not been presented in the notes to the Combined Financial Statements.

Pensions

The Philips Business has accounted for its participation in externally funded Philips sponsored pension plans as plans under common control in line with HKAS 19 paragraph 34A and 34B. As a result related pension assets and liabilities are not included in the Philips Business’s Statement of Financial Position and the Philips Business has recognized its contributions payable for the period, which is considered, in absence of any formal agreements, equal to the service costs allocated to them.

The annual service costs are considered to equal the pension premiums settled via the intercompany funding accounts with other Philips group companies.

Corporate income tax

The Philips Business has been in a combined loss making position in the periods presented. Certain parts of the Philips Business are remunerated on a “cost plus” or “market minus” transfer pricing structure and thus generate taxable profits. Residual results of the activities are with other reporting units (manufacturing locations and other entities that perform certain functions such as fulfilment of warranty obligations referred to as “Regional Entrepreneur Locations”) of the Philips Business that act as the economic risk takers in the transfer pricing structure.

A “cost plus” transfer pricing structure is a reimbursement methodology based on actual costs incurred with a mark- up to reflect the services delivered and economic risk taken by that part of the organisation. A “market minus” transfer pricing structure is a reimbursement methodology based on a net margin of actual revenues to reflect the services delivered and economic risk taken by that part of the organisation.

The activities of the Philips Business are operated by a series of local legal entities that also operate other businesses of Philips. The Philips Business does not comprise any individual legal entities, but only management reporting units. Considering that these reporting units are not individual legal entities, the separate return approach is applied.

In the separate return method of allocation, current and deferred tax expense or benefit for the period is determined for each member of a combined group by applying the requirements of HKAS 12 as if that group member was filing a separate tax return. Under the separate return method, the sum of the amounts allocated to the individual group members sometimes may not equal the actual total amount of current and deferred income tax expense, or benefit for the carve out business. Any difference is considered as a combination adjustment and is recorded through owner’s net investment.

258 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

The current income tax charge is based on the statutory tax rate within the relevant tax jurisdiction and the income tax payable and deferred taxation is recorded as part of owner’s net investment.

The losses of the Philips Business mainly accumulate in the manufacturing locations and the Regional Entrepreneur Locations. As there was no expectation that these manufacturing and entrepreneur locations would return to taxable profits in the near future, no deferred tax assets have been recognized. Deferred tax positions are only recognized in case taxable profits are made or expected to be made in the foreseeable future. The unrecognised tax losses will not transfer to the JVCo.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the CEO of the Philips Business that makes strategic decisions.

Owner’s net investment

As indicated, the Philips Group (including the Philips Business) utilises a central approach to cash management and the funding of its operations. On the absence of a contractual obligation to deliver cash or other financial assets in relation to the funding from other Philips reporting units and the fact that the balances will not be settled with Philips Business’s own equity instruments, all balances with other Philips reporting units are presented as owner’s net investment in the carve out financial statements.

Combined Statements of Cash Flows

The Philips Group utilises a central approach to cash management and the financing of its operations. Cash deposits of the Philips Group are pooled and transferred to a Central Treasury function on a daily basis. As the Philips Business did not operate or exist as a separate legal entity, during the period of the combined financial statements, no amounts for cash, cash equivalents and debt have been reflected within the Combined Financial Statements.

The cash flow statements are prepared using the indirect method. Cash flows in foreign currencies have been translated into US Dollars using the weighted average exchange rate for the periods involved.

As the Philips Business does not have a separate tax paying relation towards tax authorities (all relations with tax authorities are via shared Philips legal entities), the income tax charge for the period equals the income tax paid, as it has been assumed that the tax charge is directly settled via owner’s net investment.

7. SEGMENT INFORMATION

Management has determined the operating segments based on the reports reviewed by the chief operating decision-maker (the “CODM”), the Chief Executive Officer (“CEO”) of the Philips Business, who is responsible for allocating resources and assessing performance of the operating segments.

The Philips Business is structured in two market-oriented product lines: Consumer TV and Hospitality TV. Consumer TV comprises the sales of TV sets to end customers through various distribution channels and is reported in further detail along geographical segments. Hospitality TV comprises business–to–business sales to hotels, hospitals and other large hospitality institutions.

Reports used by the chief operating decision-maker used for strategic decisions and resource allocation, separately distinguish Consumer TV and Hospitality TV and the key sales geographies for Consumer TV.

Certain countries are grouped in territories: Benelux reflects The Netherlands, Belgium and Luxemburg. Nordics reflects Sweden, Norway, Denmark and Finland. Iberia refers to Spain and Portugal. Central and Eastern Europe includes Hungary, Czech Republic, Poland, Slovakia, Greece and the Baltic states. Emerging cluster includes Turkey, Hong Kong and Taiwan.

259 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

7.1 Segment revenues and results

The following is an overview of the Philips Business’s revenue and results by reportable segment.

Year ended Six months ended 31 December 4 July 3 July in USD m 2008 2009 2010 2010 2011 (Unaudited)

Germany/Austria/Switzerland 1,003 927 909 455 339 France 627 498 443 216 179 Benelux 359 299 290 134 105 Nordic 229 210 190 92 76 Italy 233 199 205 88 59 Iberia 232 170 159 88 61 Central and Eastern Europe 499 269 282 108 107 Rest of Europe 229 77 56 26 18

Europe cluster 3,411 2,649 2,534 1,207 944 Russia 494 293 438 129 174 Brazil 596 474 578 334 279 Emerging cluster – other 283 213 291 156 147

Emerging cluster 1,373 980 1,307 619 600 Rest of the world 211 122 126 63 53

Total segment sales Consumer TV 4,995 3,751 3,967 1,889 1,597 Segment sales Hospitality TV 187 158 99 49 56

Total third party sales 5,182 3,909 4,066 1,938 1,653 Internal sales 42 42 17 9 5

Total Sales 5,224 3,951 4,083 1,947 1,658

Germany/Austria/Switzerland 13 11 (6) 15 (65) France (4) (17) (35) (14) (41) Benelux 40 (11) 49 29 (49) Nordic (22) (7) (19) (9) (15) Italy (29) – (11) (5) (13) Iberia (25) (7) (13) (5) (16) Central and Eastern Europe (9) (7) 2 (5) (16) Rest of Europe (41) (13) (6) (2) (3)

Europe cluster (77) (51) (39) 4 (218) Russia 34 (22) 7 2 (28) Brazil (61) (15) (15) 10 (65) Emerging cluster – other (10) (12) 3 1 (20)

Emerging cluster (37) (49) (5) 13 (113) Rest of the world (34) (16) (6) (3) (10)

Total segment operating (loss)/ profit Consumer TV (148) (116) (50) 14 (341) Segment operating (loss)/profit Hospitality TV 15 (10) (18) (8) 6

Adjusted (loss)/profit (133) (126) (68) 6 (335)

260 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

Segment revenue reported above represents revenue generated from third parties. Sales are categorised according to the final destination of shipment. There were no significant intersegment sales in any of the periods presented. Internal sales represent sales to other Philips reporting units. No single customer accounts for more than 10% of revenue in any of the periods presented.

In the management reporting, costs are recorded by geography based on volume of product sold.

The Philips Business’s CODM assesses the performance of the operating segments based on a measure of adjusted operating (loss)/profit. Restructuring costs and other income, which are managed on a central basis, are not included in the result of each operating segment that is reviewed by the Philips Business’s CODM.

A reconciliation of adjusted (loss)/profit for reportable segments to loss for the year/period is as follows:

Year ended Six months ended 31 December 4 July 3 July in USD m 2008 2009 2010 2010 2011 (Unaudited)

Adjusted (loss)/profit (133) (126) (68) 6 (335) Other costs (Other income and expense, Restructuring costs) (178) (85) (36) (9) –

Total operating loss (311) (211) (104) (3) (335) Finance costs – (1) (1) (1) (1)

Loss before income tax (311) (212) (105) (4) (336) Income tax expense (19) (19) (20) (10) (5)

Loss for the year/period (330) (231) (125) (14) (341)

The Philips Business has its headquarter in the Netherlands. Its revenue from external customers in the Netherlands is USD60 million in 6 months ended 3 July 2011 (USD104 million in 6 months ended 4 July 2010, USD211 million, USD206 million and USD239 million in the years ended 31 December 2010, 2009 and 2008) and the total of revenue from external customers from other countries is USD1,593 million in 6 months ended 3 July 2011 (USD1,834 million in 6 months ended 4 July 2010, USD3,855 million, USD3,703 million, USD4,943 million in the years ended 31 December 2010, 2009 and 2008).

261 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

7.2 Segment assets and liabilities

Segment information – assets 31 December 3 July in USD m 2008 2009 2010 2011

Germany/Austria/Switzerland 55 100 58 65 France 23 31 14 7 Benelux 177 69 119 109 Nordic 10 23 28 32 Italy 7 15 17 3 Iberia 22 25 27 18 Central and Eastern Europe 370 328 525 441 Rest of Europe – – 17 9

Europe cluster 664 591 805 684 Russia 61 64 116 49 Brazil 180 184 282 236 Emerging cluster – other 107 79 128 128

Emerging cluster 348 327 526 413 Rest of the world 149 42 52 48

Segment assets Consumer TV 1,161 960 1,383 1,145 Segment assets Hospitality TV 28 16 21 23

Total assets 1,189 976 1,404 1,168

Segment information – liabilities 31 December 3 July in USD m 2008 2009 2010 2011

Germany/Austria/Switzerland 121 131 104 77 France 111 95 96 50 Benelux 79 227 197 494 Nordic 14 44 40 36 Italy 36 39 48 27 Iberia 18 33 18 16 Central and Eastern Europe 642 537 777 184 Rest of Europe 9 14 17 9

Europe cluster 1,030 1,120 1,297 893 Russia 75 30 63 18 Brazil 55 101 182 81 Emerging cluster – other 34 53 93 71

Emerging cluster 164 184 338 170 Rest of the world 159 79 55 50

Segment liabilities Consumer TV 1,353 1,383 1,690 1,113 Segment liabilities Hospitality TV 34 32 24 16

Total liabilities 1,387 1,415 1,714 1,129

Segment assets and liabilities reflect all assets and liabilities reflected on the Statement of Financial Position by the Philips Business reporting unit included in that geography, excluding assets and liabilities related to Hospitality TV.

262 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

The total of non-current assets located in the Netherlands as at 3 July 2011 is USD14 million (USD20 million, USD8 million, USD10 million as at 31 December 2010, 2009 and 2008) and the total of these non-current assets located in other countries as at 3 July 2011 is USD96 million (USD88 million, USD87 million and USD113 million as at 31 December 2010, 2009 and 2008).

Note that in 2011 the Benelux and Central and Eastern Europe liabilities are impacted by a shift in activities performed by the respective Regional Entrepreneur Locations in these segments which drive the variations in the liabilities between 31 December 2010 and 3 July 2011.

Six months Segment information – Capital ended expenditure Year ended 31 December 3July in USD m 2008 2009 2010 2011

Germany/Austria/Switzerland – – – – France 12 1 – – Benelux 31 31 49 22 Nordic – – – – Italy – – – – Iberia – – – – Central and Eastern Europe 44 29 16 15 Rest of Europe – – – –

Europe cluster 87 61 65 37 Russia – – – – Brazil 6 4 12 8 Emerging cluster – other 3 1 2 3

Emerging cluster 9 5 14 11

Rest of the world 31 15 16 9

Segment capital expenditure TV 127 81 95 57 Segment capital expenditure Hospitality TV – – – –

Total capital expenditures 127 81 95 57

Capital expenditure represents additions of property, plant and equipment and intangible assets.

263 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

Segment information – Depreciation, amortization and impairment Year ended Six months ended 31 December 4 July 3 July in USD m 2008 2009 2010 2010 2011 (Unaudited)

Germany/Austria/Switzerland – – – – – France 15 5 1 – – Benelux 43 37 38 19 39 Nordic –– – – – Italy – –– – – Iberia – – – – – Rest of Europe – – – – – Central and Eastern Europe 56 41 24 12 8

Europe cluster 114 83 63 31 47 Russia – – – – – Brazil 5 5 9 4 5 Emerging cluster – other 2 1 1 – 1

Emerging cluster 7 6 10 4 6 Rest of the world 48 23 15 4 11

Segment depreciation, amortization and impairment Consumer TV 169 112 88 39 64 Segment depreciation, amortization and impairment Hospitality TV 1 1 – – –

Total depreciation, amortization and impairment 170 113 88 39 64

8. EMPLOYEE BENEFIT EXPENSES

Employee benefit expenses as included in the Combined Income Statements can be specified as follows:

Year ended Six months ended 31 December 4 July 3 July in USD m 2008 2009 2010 2010 2011 (Unaudited)

Salaries and wages 273 252 196 101 100 Social securities 49 37 39 21 15 Pension 19 10 9 4 6 Cost of termination plans 45 46 6 7 – Temporary personnel 16 14 23 7 12 Share based compensation 3 1 1 – –

Total 405 360 274 140 133

264 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

Employee benefit expenses are included in the following line items in the Combined Income Statements:

Year ended Six months ended 31 December 4 July 3 July in USD m 2008 2009 2010 2010 2011 (Unaudited)

Cost of goods sold 134 132 76 43 31 Selling and distribution expenses 196 135 105 55 48 Administrative expenses 8 22 24 12 12 Research and development expenses 67 71 69 30 42

Total 405 360 274 140 133

9. OPERATING LOSS

The operating loss is stated after charging/(crediting) the following:

Year ended Six months ended 31 December 4 July 3 July in USD m 2008 2009 2010 2010 2011 (Unaudited)

Cost of inventories 4,235 2,948 3,289 1,577 1,412 Employee benefit expenses (note 8) 405 360 274 140 133 Realised and unrealised gains/(losses) on foreign exchange forward contracts – net (78) 44 (8) (62) 77 Amortization of intangible assets (note 12) 62 48 33 16 23 Impairment losses on intangible assets (note 12) 21 2 8 2 21 Depreciation of property, plant and equipment (note 13) 87 56 47 21 20 Impairment losses on property, plant and equipment (note 13) – 7 – – – Loss on disposal of property, plant and equipment 2 – – – – Operating lease rental for land and building 1 1 1 1 1 Auditor’s remuneration* – – – – – Provision for warranty (note 19) 69 125 80 47 48 Allowance for doubtful accounts receivable (note 14) 7 2 12 9 7 Advertising and promotion expenses 130 99 106 47 37 Transport, packaging and warehousing expenses 179 134 102 48 51

* Auditor’s remuneration has been borne by the owner with no recharge included in the carve out financials.

265 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

10. OTHER INCOME AND EXPENSE

Other income and expense reflect cost recharges under general service agreements from the operating reporting units included in the Philips Business to other Philips operating reporting units, which are not part of the contemplated transaction. These mainly comprise reporting units in the US and the People’s Republic of China (“PRC”) that operated Philips’ TV businesses, which were licensed out by Philips in 2009 and 2010 respectively.

The other income/(expense) can be split by geography as follows:

Year ended Six months ended 31 December 4 July 3 July in USD m 2008 2009 2010 2010 2011 (Unaudited)

US 43 8 – – – PRC 19 27 12 6 – Other countries 8 10 1 3 – Charges from Lighting Sector Philips for Hospitality TV – (24) (7) – –

Total 70 21 6 9 –

In 2009 and 2010, the Hospitality TV business was managed as a part of the Lighting Sector of Philips. As a result, the Lighting Sector of Philips incurred certain costs that it charged out to the Hospitality TV segment.

The other income/(expense) can be split by nature as follows:

Year ended Six months ended 31 December 4 July 3 July in USD m 2008 2009 2010 2010 2011 (Unaudited)

R&D cost recharges 35 18 6 3 – Corporate cost recharges 35 18 6 3 – Other – 9 1 3 – Charges from Lighting Sector Philips for Hospitality TV – (24) (7) – –

Total 70 21 6 9 –

The Research & Development (“R&D”) and corporate cost recharges are internal cost recharges that have been determined using Philips’ transfer pricing methodologies. The costs are predominantly recharged based on relative sales share of each reporting unit. As these cost recharges in FY11 are only made to reporting units that will transfer to the JVCo (and therefore are within the perimeter of the combination), no such other income will recur from FY11 onwards.

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11. INCOME TAX EXPENSE

Income tax expense amounted to USD5million in six months ended 3 July 2011 (six months ended 4 July 2010: USD10 million, years ended 31 December 2010, 2009 and 2008: USD20 million, USD19 million and USD19 million respectively). The income tax expense only comprises current income taxes. No deferred tax assets or liabilities exist in the majority of the countries in which the Philips Business operates, as there are no differences between the tax bases of assets and liabilities and their carrying amounts in the Combined Financial Statements. In a number of countries where the Philips Business operates and where deferred tax positions exist, deferred tax liabilities have been computed, and to the extent there are tax losses in the same fiscal jurisdiction, a deferred tax asset is recognised for a similar offsetting amount. Any deferred tax assets recognized are limited to the amount of deferred tax liabilities that have been computed and recognized. If there are excess tax losses, no further deferred tax assets have been recognised considering the significant tax losses incurred and carried forward by the Philips Business. The unrecognised tax losses will not transfer to the JVCo (see note 6).

The income tax expense for the year can be reconciled to the accounting result as follows:

Year ended Six months ended 31 December 4 July 3 July in USD m 2008 2009 2010 2010 2011 (Unaudited)

Loss before income tax 311 212 105 4 336 Income tax calculated at primary rate (79) (54) (27) (1) (86) Expenses not deductible for corporate income tax 8 10 15 8 26 Losses for which no deferred income tax asset was recognised 86 60 34 4 66 Different taxation rate in other countries 4 3 (2) (1) (1)

Income tax expense recognised in Combined Income Statements 19 19 20 10 5

The primary rate of 25.5% is the current statutory tax rate in the Netherlands, where the Philips Business has its headquarter and major operations. For the years 2008 up to 2010 and six months’ periods ended 4 July 2010 and 3 July 2011, the primary tax rate in the Netherlands was 25.5%.

There was no material tax effect of items included in other comprehensive income, which were not included in the Combined Income Statements.

267 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

12. INTANGIBLE ASSETS

A summary of the movements of intangible fixed assets is given below: Licenses and other Product intangible in USD m development Software assets Total Balance as of 1 January 2008 Cost 92 41 15 148 Accumulated amortizations and impairment losses (22) (41) – (63)

Book value 70 – 15 85

Change in book value: Additions 48 – – 48 Amortizations (58) – (4) (62) Impairment losses (21) – – (21) Translation differences 3 – (2) 1 Reclassifications 2 – (2) –

Total changes (26) – (8) (34) Balance as of 31 December 2008 Cost 88 31 13 132 Accumulated amortizations and impairment losses (44) (31) (6) (81)

Book value 44 – 7 51

Change in book value: Additions 37 – – 37 Amortizations (45) – (3) (48) Impairment losses (2) – – (2) Translation differences – – – –

Total changes (10) – (3) (13) Balance as of 31 December 2009 Cost 78 27 13 118 Accumulated amortizations (44) (27) (9) (80)

Book value 34 – 4 38

Change in book value: Additions 42 – 9 51 Amortizations (23) – (10) (33) Impairment losses (8) – – (8) Translation differences 2 – 1 3

Total changes 13 – – 13 Balance as of 31 December 2010 Cost 120 21 23 164 Accumulated amortizations and impairment losses (73) (21) (19) (113)

Book value 47 – 4 51

Change in book value: Additions 25 – – 25 Amortizations (20) – (3) (23) Impairment losses (21) – – (21) Reclassifications (2) – 2 – Translation differences (4) – 6 2

Total changes (22) – 5 (17) Balance as of 3 July 2011 Cost 140 21 18 179 Accumulated amortizations and impairment losses (115) (21) (9) (145)

Book value 25 – 9 34

268 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

The write-offs of fully amortized assets are not separately shown in the changes in book value above.

Research and development cost relates to product development carried out by the Philips Business. An impairment of USD21 million has been charged to the result for six months ended 3 July 2011 (six months ended 4 July 2010: USD2 million; years ended 31 December 2010, 2009 and 2008: USD8 million, USD2 million and USD21 million respectively). These write downs relate to terminations of the development projects for new products or lower than expected sales from the developed product. The impairment in 2008 was mainly caused by the more negative outlook on development in sales at the end of 2008.

Amortization and impairment of intangible assets are included in the Combined Income Statements as follows:

Year ended Six months ended 31 December 4 July 3 July in USD m 2008 2009 2010 2010 2011 (Unaudited)

Cost of goods sold (7) (7) (7) (4) (3) Research and development expenses (76) (43) (34) (14) (41)

Total (83) (50) (41) (18) (44)

There are no intangible fixed assets with restricted title or pledged as security for liabilities.

13. PROPERTY, PLANT AND EQUIPMENT

The movements in the tangible fixed assets are as follows:

Machinery Land and and Other Construction in USD m buildings installations equipment in progress Total

Balance as of 1 January 2008 Cost 58 66 218 10 352 Accumulated depreciation (37) (52) (184) – (273)

Book value 21 14 34 10 79

Change in book value: Capital expenditure – – 5 74 79 Assets available for use 1 4 66 (71) – Depreciation (2) (6) (79) – (87) Disposals – (2) (2) (2) (6) Translation differences (2) – 3 1 2

Total changes (3) (4) (7) 2 (12)

Balance as of 31 December 2008 Cost 54 56 237 12 359 Accumulated depreciation (36) (46) (210) – (292)

Book value 18 10 27 12 67

269 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

Machinery Land and and Other Construction in USD m buildings installations equipment in progress Total

Change in book value: Capital expenditure – – 4 40 44 Assets available for use 1 1 45 (47) – Depreciation (1) (6) (49) – (56) Disposals – (2) – – (2) Impairment losses – (1) (6) – (7) Translation differences – 2 1 – 3

Total changes – (6) (5) (7) (18)

Balance as of 31 December 2009 Cost 55 44 225 5 329 Accumulated depreciation (37) (40) (203) – (280)

Book value 18 4 22 5 49

Change in book value: Capital expenditure 1 1 11 31 44 Assets available for use 1 4 27 (32) – Depreciation (2) (3) (42) – (47) Translation differences 4 (2) 1 (1) 2

Total changes 4 – (3) (2) (1)

Balance as of 31 December 2010 Cost 57 38 262 3 360 Accumulated depreciation (35) (34) (243) – (312)

Book value 22 4 19 3 48

Change in book value: Capital expenditure – – 3 29 32 Assets available for use – 7 18 (25) – Depreciation (1) (3) (16) – (20) Transfers (8) – – – (8) Translation differences (1) 3 5 – 7

Total changes (10) 7 10 4 11

Balance as of 3 July 2011 Cost 31 45 282 7 365 Accumulated depreciation (19) (34) (253) – (306)

Book value 12 11 29 7 59

Write-offs of fully depreciated assets are not separately shown in the changes in book value above.

Freehold land with a book value of USD1.6 million at 3 July 2011 (2010: USD1.8 million, 2009: USD1.8 million and 2008 USD1.7 million) is not depreciated. As explained in note 6 the freehold land as reflected in the Statements of Financial Position comprises the allocated share of freehold land to the Philips Business based on floor area utilization.

The 2011 transfers relate to the premises in Dreux (France) that were transferred at net book value to the facility management department of Philips, which is not part of these Combined Financial Statements.

The impairment loss in 2009 relates to write down of equipment upon closure of the production plant in Dreux in France.

270 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

Depreciation and impairment of property, plant and equipment are included in the Combined Income Statements as follows:

Year ended Six months ended 31 December 4 July 3 July in USD m 2008 2009 2010 2010 2011 (Unaudited)

Cost of goods sold (82) (59) (43) (20) (20) Administrative expenses (2) (2) (2) (1) – Research and development expenses (3) (2) (2) – –

Total (87) (63) (47) (21) (20)

There are no lease assets included in property, plant and equipment. There are no property, plant and equipment with restricted title or that have been pledged as security for liabilities.

The gains or losses on disposal of assets are disclosed in note 9 to these Combined Financial Statements.

14. TRADE AND OTHER RECEIVABLES

Trade and other receivables comprise:

31 December 31 December 31 December 3 July in USD m 2008 2009 2010 2011

Trade receivables (gross) 975 874 887 726 Allowance for doubtful accounts (22) (21) (23) (32)

Trade receivables (net) 953 853 864 694 Allowance for commissions and rebates (395) (319) (311) (273) Other receivables 30 41 63 23

Total 588 575 616 444

The carrying amounts of trade and other receivables approximate their fair values. Credit terms generally range between 30 and 120 days.

Trade receivables that are impaired are shown separately as “trade receivables provided for” and are fully provided for. These balances typically are overdue more than 180 days. Bad debt expenses are recorded as part of selling expenses. Reference is made to note 28 for more background on credit risk management.

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The ageing of the trade receivables past due, including impaired receivables, is as follows:

Trade receivables – ageing 31 December 31 December 31 December 3 July in USD m 2008 2009 2010 2011

Current 820 839 839 610 Over due 1–30 days 41 7 19 43 Over due 31–180 days 74 6 6 25 Over due >180 days 40 22 23 48

Total 975 874 887 726

The change in the allowance for doubtful accounts receivable is as follows:

31 December 31 December 31 December 3 July in USD m 2008 2009 2010 2011

Balance at 1 January 30 22 21 23 Additions charged to income statement 7 2 12 7 Utilization of allowance (14) (3) (8) – Currency translations (1) – (2) 2

Closing balance at reporting date 22 21 23 32

The allowance for doubtful accounts receivable equals the balance of trade receivables that were impaired.

The Philips Business has entered into non-recourse factoring for some of its trade receivables in 2008 and 2009 and it was ceased in 2010 and subsequent periods. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above. The Philips Business does not hold any collateral as security.

15. INVENTORIES

Inventories are summarised as follows:

31 December 31 December 31 December 3 July in USD m 2008 2009 2010 2011

Components 104 94 192 170 Finished goods 257 106 334 322 Inventory obsolescence provision (10) (10) (20) (19)

Total 351 190 506 473

The write-down of inventories to realizable value amounted to USD51 million for six months ended 3 July 2011 (six months ended 4 July 2010: USD7 million, years ended 2010, 2009 and 2008: USD212 million, USD43 million and USD19 million respectively). The write-down is included in cost of goods sold. Reference is also made to note 9 for cost of inventories included in the operating loss.

Circumstances resulting in the higher write downs of inventories in 2010 were mainly resulting from the oversupply in the market (both TV-sets at distributors, as well as the Philips Business and its competitors), technological developments and global price reductions for panels.

No inventories have been pledged as security.

272 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

16. DERIVATIVE FINANCIAL INSTRUMENTS

The Philips Business had the following forward foreign exchange contracts outstanding as at year/period ends (due to rounding, items with a value of less than USD0.5 million are presented as nil):

31 December 2008 2008 2008 2009 2009 2009 Local Local currency currency m USD m USD m m USD m USD m Notional Notional Notional Notional amount amount Fair value amount amount Fair value

Forward contracts to cover payable positions EUR USD 29 29 – 624 624 8 BRL USD – – – 74 74 (2) CLP USD 4 4 – 16 16 – ARS USD 1 1 – 8 8 – ARS USD EUR EUR – – – – – – EUR GBP 10 15 (2) – – – EUR HUF 1,463 8 – 1,775 9 – Other 278 53 (1) 19 7 –

Forward contracts to cover receivable positions EUR RUB – – – (877) (29) – EUR SEK – – – (143) (20) – EUR CHF (44) (42) (2) (22) (21) – EUR HUF (510) (3) – (564) (3) – EUR USD (29) (29) 3 (141) (141) (3) EUR CZK (258) (14) 1 (97) (5) – EUR DKK (91) (17) – (88) (17) – EUR NOK (55) (8) 1 (62) (11) – EUR PLN (69) (23) 3 (65) (23) – EUR RON (16) (6) – (16) (5) – CLP USD (3) (3) – (21) (21) – USD HKD (71) (9) – (59) (8) – USD SGD (6) (4) – (3) (2) – EUR GBP (18) (26) 4 (11) (18) – Other (74) (5) – – – –

Total 7 3

Analyzed as: Derivative financial instruments – current assets 13 14 Derivative financial instruments – current liabilities (6) (11)

Net position derivate financial instruments 7 3

273 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

31 December 3 July 2010 2010 2010 2011 2011 2011 Local Local currency m USD m USD m currency m USD m USD m Notional Notional Fair Notional Fair Notional amount amount value amount value amount

Forward contracts to cover payable positions EUR USD 1,555 1,555 17 777 777 (27) BRL USD 96 96 (4) 52 52 (2) CLP USD 16 16 (1) 27 27 – ARS USD 6 6 – 23 23 ARS EUR – – – 6 8 EUR GBP – – – – – – EUR HUF 3,532 17 – 3,011 17 –

Forward contracts to cover receivable positions EUR RUB (2,738) (90) 2 (257) (9) – EUR SEK (275) (41) (1) (145) (23) – EUR CHF (26) (28) (1) (5) (6) – EUR HUF (648) (3) – (204) (1) – EUR USD (257) (257) – (45) (44) – EUR CZK (104) (6) – (28) (2) – EUR DKK (39) (7) – (40) (8) – EUR NOK (32) (5) – (11) (2) – EUR PLN (31) (11) – (11) (4) – EUR RON (12) (4) – (3) (1) – CLP USD (9) (9) – (25) (24) – USD HKD (3) – – –– – USD SGD (2) (2) – (1) (1) – EUR GBP (1) (2) – (4) (7) – Other – – – (1) – –

Total 12 (29)

Analyzed as: Derivative financial instruments – current assets 39 2 Derivative financial instruments – current liabilities (27) (31)

Net position derivate financial instruments 12 (29)

274 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

The table below analyses the Philips Business’s derivative financial instruments that will be settled on a gross basis into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

Forward contract maturity in USD m <1 year 1–5 years > 5 years Total

As at 3 July 2011 Foreign exchange forward contracts – inflow 1,090 – – 1,090 – outflow (1,119) – – (1,119)

(29)

As at 31 December 2010 Foreign exchange forward contracts – inflow 2,993 – – 2,993 – outflow (2,986) – – (2,986)

As at 31 December 2009 Foreign exchange forward contracts – inflow 1,429 – – 1,429 – outflow (1,428) – – (1,428)

As at 31 December 2008 Foreign exchange forward contracts – inflow 302 – – 302 – outflow (307) – – (307)

(5)

Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

17. OTHER CURRENT ASSETS

Other current assets are analysed as follows:

31 December 31 December 31 December 3 July in USD m 2008 2009 2010 2011

VAT and sales tax 68 64 86 100 Claims on suppliers 11 16 31 31 Other prepayments and receivables 35 22 18 18

Total 114 102 135 149

Claims on suppliers relate to product deficiencies reclaimed from suppliers. The increased balance in 2010 was due to a failing component from one specific supplier originating from 2009, for which claims were filed in 2010.

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18. NON-CURRENT OTHER PAYABLES AND ACCRUALS

Other non-current payables and accruals are analysed as follows:

31 December 31 December 31 December 3 July in USD m 2008 2009 2010 2011

Non-current trade payables – – 6 6 Other – 1 1 1

Total – 1 7 7

19. PROVISIONS

Provisions can be analysed as follows:

Provisions

31 December 31 December 31 December 3 July in USD m 2008 2009 2010 2011

Product warranty 100 134 114 103 Restructuring-related provisions 32 86 50 31 Loss contingencies (environmental remediation and product liability) and other provisions 9 13 14 19 Post-employment benefits, jubilee benefit obligations and obligatory severance payments 33 26 18 16

Other provisions 42 39 32 35

Total 174 259 196 169

Of which: Short-term provisions 103 143 123 98 Long-term provisions 71 116 73 71

Total 174 259 196 169

Product warranty provisions

The Philips Business gives warranties on certain products and undertakes to repair or replace items that fail to perform satisfactorily within a period ranging from twelve months to thirty-six months.

276 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

The movement in the product warranty provisions is analysed as follows:

31 December 31 December 31 December 3 July in USD m 2008 2009 2010 2011

Balance as at 1 January 120 100 134 114 Additions 69 125 80 48 Utilizations (93) (98) (90) (64) Currency translations 4 7 (10) 5

Closing balance at reporting date 100 134 114 103

The provision as at 3 July 2011 had been made for expected warranty claims on the products sold during the last thirty-six months. Warranty periods typically do not exceed 3 years.

The actual utilization of the provision will depend on the number of returns and the actual cost of repairs, which may differ from management’s estimate.

It is expected that the majority of this provision will be utilized in the next financial year, and all will be utilized within three years of the reporting date.

The increase in product warranty provisions in 2009 is caused by a failing component supplied by a third party supplier.

Any expected reimbursements from suppliers are presented in other current assets, “claims on suppliers”.

Restructuring-related provisions

In relation to the restructuring of its organisation, the Philips Business has recorded restructuring costs in relation to announced reorganisations. The restructuring provision covers expected termination benefit payments to employees that are declared redundant as well as other expenses related to the restructuring. The movement in the restructuring-related provision is as follows:

31 December 31 December 31 December 3 July in USD m 2008 2009 2010 2011

Balance as at 1 January – 32 86 50 Additions 62 83 11 8 Utilizations (28) (29) (42) (32) Currency translations (2) – (5) 5 Releases from provision – – – –

Closing balance at reporting date 32 86 50 31

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The additions to restructuring related provisions reflect cost of employee termination plans and various other closure costs.

The additions to the restructuring provisions in 2008 predominantly relate to the Philips Business’s earn-to-invest program started in 2008. In this program, the Philips Business has streamlined its organisation, reduced headcount and closed a number of smaller reporting units. The addition in 2009 mainly relates to the closure of the Philips Business’s production facility in Dreux in France.

The provision as at 3 July 2011 mainly relates to final settlements in relation to the restructuring announced in Dreux in France and Bruges in Belgium. It is expected that the majority of the provision will be paid out within the next financial year and all will be utilized within three years of the reporting date.

Other provisions

Other provisions mainly relate to employee related liabilities, loss contingencies and other-long term accrued liabilities:

Other provision movements

31 December 31 December 31 December 3 July in USD m 2008 2009 2010 2011

Balance as at 1 January 44 42 39 32 Additions 30 8 4 5 Utilizations (28) (10) (9) (3) Releases from provision (4) (2) (1) – Currency translations – 1 (1) 1

Closing balance at reporting date 42 39 32 35

As at 3 July 2011, it is expected that less than USD15 million of the other provisions will be paid out within the next 12 months and the majority will be utilized within three years of the reporting date of 3 July 2011.

20. TRADE PAYABLES

The ageing of the trade payables based on payment due date is as follows:

31 December 31 December 31 December 3 July in USD m 2008 2009 2010 2011

Current 664 568 813 522 Over due 1–30 days 126 144 65 6 Over due 31–180 days 31 94 126 12 Over due >180 days – 1 127 97

Total 821 807 1,131 637

The carrying amounts of trade payables approximate their fair values. Credit terms generally range between 30 and 180 days.

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21. OTHER PAYABLES AND ACCRUALS

Other payables and accruals are summarised as follows:

31 December 31 December 31 December 3 July in USD m 2008 2009 2010 2011

Other payables Other Philips reporting units 58 55 66 64 Taxes and social security contributions 88 86 69 42 Other liabilities 7 13 27 19

153 154 162 125 Accruals Material related and other accruals 65 41 42 40 Sales related accruals 56 43 59 29 Salary and wages payable 47 44 42 40 Distribution related accruals 24 21 18 14 Deferred income 5 7 5 8 Other accruals 36 27 25 29

233 183 191 160

Total 386 337 353 285

The carrying amounts of other payables and accruals approximate their fair values. The balance payable to Other Philips reporting units reflects payables with a trading nature mostly in relation to cost recharges from Philips.

279 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

22. OWNER’S NET INVESTMENT

The owner’s net investment reflects the net funding position between the Philips Business and Philips. The owner’s net investment comprises foreign currency revaluation, accumulated losses and owner’s funding.

The owner’s net investment shows the following movements during the periods presented:

Total owner’s net Foreign investment currency Accumulated Owner’s deficit/ in USD m revaluation losses funding (surplus)

2008 Opening balance 1 January n/a n/a n/a 131 Currency translation adjustment (6) – – (6) Change in funding – – (254) (254) Stock based compensation – – (3) (3) Loss for the year – 330 – 330

Closing balance 31 December 198

2009 Opening balance 1 January n/a n/a n/a 198 Currency translation adjustment 9 – – 9 Change in funding – – 2 2 Stock based compensation – – (1) (1) Loss for the year – 231 – 231

Closing balance 31 December 439

2010 Opening balance 1 January n/a n/a n/a 439 Currency translation adjustment (34) – – (34) Change in funding – – (219) (219) Stock based compensation – – (1) (1) Loss for the year – 125 – 125

Closing balance 31 December 310

2011 Opening balance 1 January n/a n/a n/a 310 Currency translation adjustment 23 – – 23 Change in funding – – (713) (713) Loss for the year – 341 – 341

Closing balance 3 July 2011 (39)

Note that it is impracticable to split the opening total owner’s net investment deficit/(surplus) into the foreign currency revaluation, accumulated losses and owner’s funding categories and therefore the opening balances for these have been included within the total owner’s net investment.

280 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

Foreign currency revaluation reflects translation effects on the combination of the financial information.

The accumulated losses are the losses incurred in the periods presented.

The owner’s funding reflects the funding that other Philips reporting units have provided to the Philips Business to finance the net fund outflows in the periods presented.

23. OFF BALANCE SHEET COMMITMENTS

Off balance sheet commitments can be summarised as follows:

in USD m < 1 year 1–5years > 5years

As at 3 July 2011 Rental commitments 1 1 – Other 1 2 –

Total 2 3 –

As at 31 December 2010 Rental commitments 1 1 – Other 1 2 –

Total 2 3 –

As at 31 December 2009 Rental commitments 1 2 – Other 1 2 –

Total 2 4 –

As at 31 December 2008 Rental commitments 1 2 – Other 1 3 –

Total 2 5 –

There are no commitments in respect of capital expenditure on intangible assets or property, plant and equipment.

24. KEY MANAGEMENT AND FIVE HIGHEST PAID INDIVIDUALS

a) Key management and five highest paid individuals

Key management of the Philips Business comprises the CEO, the Chief Operating Officer, Chief Financial Officer, Head of Research and Development and the Human Resources Director.

281 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

The aggregate amounts of remuneration of the five highest paid individuals of the Philips Business (who are considered as key management) during the relevant periods are as follows:

Year ended Six months ended 31 December 4 July 3 July in USD 2008 2009 2010 2010 2011 (Unaudited)

Basic salaries, housing allowances and other benefits in kind 3 3 3 1 2 Discretionary bonuses – 1 – – –

Total 3 4 3 1 2

The emoluments fell within the following bands:

Number of individuals

Year ended Six months ended 31 December 4 July 3 July in HKD/USD 000 2008 2009 2010 2010 2011 (Unaudited)

HKD1,500k to HKD2,000k (~USD193k–USD257k) – – – 2 1 HKD2,001k to HKD2,500k (~USD257k–USD321k) – – – 2 3 HKD2,501k to HKD3,000k (~USD321k–USD386k) 1 1 1 – – HKD3,001k to HKD3,500k (~USD386k–USD450k) – – 1 – – HKD3,501k to HKD4,000k (~USD450k–USD514k) – – 1 – – HKD4,001k to HKD4,500k (~USD514k–USD578k) 2 1 1 – – HKD4,501k to HKD5,000k (~USD578k–USD643k) – 1 – 1 – HKD5,001k to HKD5,500k (~USD643k–USD707k) 1 – – – 1 HKD6,001k to HKD6,500k (~USD771k–USD835k) – 1 – – – HKD 8,001k to HKD 8,500k (~USD1,028k–USD1,093k) – – 1 – – HKD8,501k to HKD9,000k (~USD1,093k–USD1,157k) 1 – – – – HKD9,501k to HKD10,000k (~USD1,221k –USD1,285k) – 1 – – –

No director emoluments apply as the Philips Business did not historically exist as a separate legal entity and therefore no separate governance structure was in place for the Philips Business.

During the years ended 31 December 2008, 2009 and 2010 and the six months ended 3 July 2011 and 4 July 2010, no salaries, bonus or benefits were paid by the Philips Business to the five highest paid individuals as an inducement to join or upon joining the Business Group or as a consequence of loss of office.

282 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

25. CONTINGENT LIABILITIES

The Philips Business accounts for the contingent liabilities in accordance with HKAS 37. Provisions are recognised when the Philips Business has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

As part of the Transaction, Philips will indemnify the JVCo from liabilities coming from all known pending litigation. However such indemnifications by Philips to the JVCo have not been taken into account for the preparation of these Combined Financial Statements, in line with the basis of presentation.

a. Environmental remediation

The Philips Business is subject to environmental laws and regulations. Under these laws, the Philips Business may be required to remediate the effects of the release or disposal of certain chemicals on the environment. The Philips Business accrues for losses associated with environmental obligations when such losses are probable and can be reliably estimated. Such amounts are recognized on a discounted basis since they reflect the present value of estimated future cash flows.

Provisions for environmental remediation can significantly change due to the emergence of additional information regarding the extent or nature of the contamination, the need to utilize alternative technologies, actions by regulatory authorities and changes in judgments, assumptions and discount rates.

In the Bruges Research & Development location soil contamination has been identified. Based on external expert advice, costs of remediation have been estimated at USD0.5 million, which has been provided for in the Combined Financial Statements, within other provisions (see note 19).

In the Brazil assembly site, potential soil contamination has been identified and the investigations are under way to assess the extent of the issue and the required remedial actions. As the significance of the matter and the cost of the remediation cannot be reliably estimated at this stage, no provision has been recorded in the Combined Financial Statements.

b. Legal proceedings

The Philips Business as part of Philips is involved as a party in legal proceedings, including commercial transactions and employment related matters.

For certain legal proceedings, information required under HKAS 37 may not be fully disclosed, if the Philips Business concludes that the disclosure can be expected to prejudice seriously the outcome of the legal proceeding.

i. Former distributors

The Philips Business is engaged in legal disputes with former distributors in several countries, where the distributors claim that Philips unrightfully terminated its distribution agreement. In all of these, based on the advice taken from external legal advisors and internal legal counsel, the Philips Business is of the opinion that the claims have limited basis and are not likely to result in an unfavourable court decision. On this basis, no provisions have been made.

ii. Closing of factory in Dreux, France

In relation to the closing of its factory in Dreux in France, Philips is engaged in a number of legal cases with former employees, who claim additional severance payments in excess of the social plan agreed with the labour unions. Also in relation to the closure of the factory in Dreux, a former supplier claims damages based on the allegation that its contract was unrightfully terminated.

The management considers an appropriate amount of provision has been recorded based on external legal advice.

283 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

iii. Intellectual property rights

In the ordinary course of business, a number of legal cases exist in relation to infringement of patents used by the Philips Business. There are two patent infringement cases that are considered more significant by management:

– In November 2010, a third party company made allegations against Philips in the Netherlands, concerning claims of damages related to alleged infringement of certain patents in the field of TV, in response to previous assertions made by Philips against this third party.

– In June, 2011, a third party company filed a complaint against Philips in Germany claiming that Philips TVs are captured by their patents for Gemstar free interactive program guides.

On both cases, management of the Philips Business are of the opinion that while the proceedings are still on-going, it is not possible to assess the outcome of the case for the time being. Even if the outcome turns out to be unfavourable, the directors consider that its future settlement may not have any material financial impact on the Philips Business as a whole.

The outcome of the other cases related to intellectual property rights can also not be reliably estimated at this point in time. On this basis, no provisions have been made.

iv. Other

In the ordinary course of business, the Philips Business is involved in a number of legal cases with (former) employees and suppliers. The legal cases with (former) employees mainly relate to the manufacturing location in Manaus in Brazil. The Philips Business vigorously defies the claims made and management of the Philips Business is of the view that while the proceedings are still on-going, it is not possible to assess the outcome of the cases for the time being. Even if the outcomes turn out to be unfavourable, Management of the Philips Business considers these are not of which are likely to have a material impact on the Combined Financial Statements of the Philips Business.

The Philips Business has provided for the above legal cases based on its best estimate of the most probable outcome based on legal advice from external and/or internal legal counsel.

26. SHARE BASED COMPENSATION

Philips has granted stock options on its common shares and rights to receive common shares in the future (restricted share rights) to Key Management of the Philips Business and certain selected employees. The purpose of the share based compensation plan is to align the interests of management with those of shareholders by providing incentives to improve the Philips performance on a long-term basis, thereby increasing shareholder value. Under the Philips plans, options are granted at fair market value on the date of grant.

The share based compensation expense allocated to the Philips Business amounted to less than USD1 million in the six months period ended 3 July 2011 (six months period ended 4 July 2010: less than USD1 million, years ended 2010, 2009 and 2008: USD1 million, USD1 million and USD3 million respectively).

284 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

The fair value of Philips’ option grants in the periods presented was estimated using a Black-Scholes option valuation model and the following weighted average assumptions:

Year ended Six months ended 31 December 4 July 3 July USD Denominated 2008 2009 2010 2010 2011 (Unaudited)

Risk free interest rate 3.17% 2.25% 2.43% 2.46% Not applicable Expected dividend yield 2.8% 4.1% 3.9% 4.4% Not applicable Expected option life 6 yrs 6.5yrs 6.5yrs 6.5yrs Not applicable Expected share price volatility 27% 33% 32% 34% Not applicable

Year ended Six months ended 31 December 4 July 3 July EUR Denominated 2008 2009 2010 2010 2011 (Unaudited)

Risk free interest rate 3.75% 2.88% 2.43% 2.56% 2.81% Expected dividend yield 2.4% 4.3% 4.1% 4.4% 3.3% Expected option life 6 yrs 6.5yrs 6.5yrs 6.5yrs 6.5yrs Expected share price volatility 26% 32% 30% 40% 30%

In the six months’ period ended 3 July 2011, no new USD denominated share options were granted.

The assumptions were used for these calculations only and do not necessarily represent an indication of Management’s expectations of future developments.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of subjective assumptions, including the expected price volatility.

Philips has based its volatility assumptions on historical experience for a period equal to the expected life of the options. The expected life of the options is also based on historical experience.

Philips’ employee stock options have characteristics significantly different from those of traded options, and changes in the assumptions can materially affect the fair value estimate.

27. RELATED PARTY TRANSACTION

These Combined Financial Statements include transactions with Philips and its subsidiaries that are outside of the Philips Business (collectively referred to as “Philips Group”). Philips Group is a related party as it controlled the Philips Business during the periods presented.

a) General Services Agreement

As explained under note 10, the Philips Business delivered services to reporting units that conducted Philips television business in territories in which the JVCo will not operate. For these services, the fees were charged at arms’ length basis.

285 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

b) Philips Group transactions

Besides transactions with reporting units that conducted Philips television business in territories in which JVCo will not operate, the Philips Business enters into transactions with Philips Group for the purchase of goods and services, sale of goods as well as corporate and other infrastructure services provided by the Philips Group. These transactions are generally conducted with terms comparable to those with third parties. Corporate recharges reflect the allocation of costs to the Philips Business of the central service organisation and country organisations of Philips Group. This allocation in periods presented was based on the relative sales share of the Philips Business, except for IT costs, which have been allocated based on the relative share in FTEs of the Philips Business.

An overview of related party transactions with other Philips units is as follows:

Philips Group

Year ended Six months ended 31 December 4 July 3 July in USD m 2008 2009 2010 2010 2011 (Unaudited)

Sales to Philips Group 42 42 17 9 5 Corporate recharges from Philips Group (295) (204) (176) (78) (98)

There are no other transactions with Philips Group.

c) Transactions with TPV

TPV currently acts as a supplier to the Philips Business. Philips held a 30% share in TPV in 2008 and 2009. The 30% share was sold in full in March 2010. As such TPV has been considered a related party of Philips.

The overview per below details the related party transactions between TPV and the Philips Business:

TPV

Year ended Six months ended 31 December 4 July 3 July in USD m 2008 2009 2010 2010 2011 (Unaudited)

Purchases from TPV 236 524 145 145 – Trade payables 54 178 – – –

* TPV ceased to be a related party as of 9 March 2010, when Philips sold its 30% share in TPV.

d) Remuneration of key management

Key management is under employment of Philips and related salary and other costs are charged to the Philips Business. The related amounts are disclosed under note 24.

e) Financial support

Philips indicated its willingness to financially support the Philips Business should the transaction not be concluded. Furthermore, Philips and TPV have committed to provide funding to the JVCo up to the presently expected maximum funding need in case the transaction is concluded. On this basis, the combined financial statements have been prepared on a going concern basis (see note 2).

286 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

28. DETAILS OF TREASURY RISK

28.1 Financial risk factors

The Philips Business’s activities expose it to a variety of financial risks: market risk (mainly foreign exchange and country risk), credit risk and liquidity risk. The Philips Business’s overall risk management programme is based on the Philips overall risk management programme and focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Philips Business’s financial performance. Risk management is carried out by a central treasury department (Philips Group Treasury) under policies approved by the Board of Directors of Philips (“the Board”). Philips Group Treasury identifies, evaluates and mitigates financial risks in close co-operation with the Group’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, credit risk and use of derivative financial instruments.

a) Market risk

i. Foreign exchange risk

The Philips Business operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to US Dollar. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities.

Management has set up a policy to require Philips Business companies to manage their foreign exchange risk against their functional currency. Entities in the Philips Business manage the amount of financial assets and liabilities denominated in foreign currencies together with the use of foreign exchange forward contracts to manage their foreign exchange risk arising from future commercial transactions and recognised assets and liabilities.

Sales by invoice currency can be summarised as follows:

Year ended Six months ended 31 December 4 July 3 July 2008 2009 2010 2010 2011 (Unaudited)

Euro 52% 57% 51% 52% 47% Other European 12% 10% 9% 9% 9% Brazilian Real 11% 12% 14% 17% 17% Russian Rouble 9% 8% 11% 7% 10% Other 16% 13% 15% 15% 17%

Total 100% 100% 100% 100% 100%

As most sales are generated and realised in the local functional currency of the sales organisations, the sales by currency as reflected above mostly result in translation exposures rather than transaction exposures.

The Philips Business predominantly sources its supply from the PRC, with main suppliers invoicing the Philips Business in US Dollars.

287 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

Estimated division of cost of materials by currency can be summarised as follows:

Euro 3% Other European 2% US Dollar 93% Brazilian Real 1% Other 1%

Total 100%

Management of the Philips Business estimates that the composition of material costs by invoice currency has been comparable over all periods presented.

A strengthening/weakening of the US Dollar against the Euro by 1% as at 3 July 2011, with all other variables held constant, would have resulted in pre-tax losses of the Philips Business being approximately USD6 million higher/lower. For 31 December 2010, 2009, 2008 and as at 4 July 2010, this would have been USD11 million, USD8 million, USD8 million and USD9 million, respectively. This is mainly the result of less or more favourable purchasing conditions due to the strengthening/weakening of the US Dollar against the Euro.

The above sensitivity is prepared based on the assumption that the composition of trade receivables and trade payables by currency at reporting period ends is not expected to significantly differ from the sales and purchases by currency as reflected above.

ii. Price risk

The Philips Business does not have any exposures to price risk, as it does not hold any securities or investments.

iii. Interest risk

The Philips Business does not have any exposures to interest risk, as it does not have any interest bearing borrowings or debt. The funding from the owner is non-interest bearing.

b) Credit risk

The Philips Business’s credit risk mainly arises from derivative financial instruments as well as credit exposures to trade and other receivables. Management has policies in place to monitor the exposures to these credit risks on an on-going basis.

As at 31 December 2008, 2009 and 2010 and 3 July 2011, derivative financial instruments are all traded with high quality financial institutions.

The Philips Business has put in place policies to ensure that sales of products are made to customers with an appropriate credit history and the Philips Business performs periodic credit evaluations of its customers. The receivable positions with customers and the financial position of customers are monitored closely and credit insurance is taken where deemed necessary. There is no significant concentration risk.

The Philips Business’s historical experience in collection of trade and other receivables falls within the recorded allowances. Based on the default history of the repayment from customers, had 10% of the receivables not been collected at 31 December 2008, 2009, 2010 and 3 July 2011, the Group would have recognised an impairment of receivables of USD95 million, USD85 million, USD86 million and USD69 million respectively.

288 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

c) Liquidity risk

The Philips Business policy is to regularly monitor current and expected liquidity requirements to ensure that it generates sufficient cash from operating activities and funding from Philips.

To manage its liquidity, the Philips Business prepares cash flow forecasts and analyses the maturity of its financial liabilities on a periodic basis.

The Philips Business has arrangements to factor its trade receivables to banks without recourse or to extend payment terms with certain suppliers, should there be additional liquidity requirements.

The table below analyses the Philips Business’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. The maturity analysis of the gross-settled derivative financial liabilities is disclosed in note 16.

Between Between Less than 1and 2and in USD m 1 year 2years 5 years Total

At 3 July 2011 Trade payables 637 – – 637 Other payables and accruals 285 7 – 292

Total 922 7 – 929

At 31 December 2010 Trade payables 1,131 – – 1,131 Other payables and accruals 353 7 – 360

Total 1,484 7 – 1,491

At 31 December 2009 Trade payables 807 – – 807 Other payables and accruals 337 1 – 338

Total 1,144 1 – 1,145

At 31 December 2008 Trade payables 821 – – 821 Other payables and accruals 386 – – 386

Total 1,207 – – 1,207

28.2 Fair value estimation

The carrying amounts of the Philips Business’s financial assets and liabilities, including trade and other receivables and trade and other payables and accruals, approximate their fair values due to their short term maturities.

The forward exchange contracts used by the Philips Business to manage its foreign currency risk on future cash flows are measured at their fair value at reporting dates. The fair value of the forward exchange contracts have been estimated based on discounted cash flow valuation techniques using directly observable market inputs (level 2).

289 APPENDIX II ACCOUNTANT’S REPORT OF THE PHILIPS BUSINESS

29. EVENT AFTER THE RELEVANT PERIOD

No events occurred after the reporting dates that would require disclosure in or alternations to the Combined Financial Statements.

III. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Philips Business have been prepared by management of the Philips Business in respect of any period subsequent to 3 July 2011.

PricewaterhouseCoopers Certified Public Accountants Hong Kong

290 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

INTRODUCTION

The accompanying is the unaudited pro forma financial information of the Enlarged Group (the “Unaudited Pro Forma Financial Information”), which has been prepared to illustrate the effect of the proposed acquisition (“the Acquisition”) of the 70% equity interest in T.P. Vision Holding B.V. (“JVCo”) and its subsidiaries (collectively referred to as the “Target Group”) by TPV Technology Limited, a subsidiary of the Group and the effect of the exercise of the Philips Put Options on the remaining 30% equity interest in JVCo by Philips, as if it had taken place on 30 June 2011 for the unaudited pro forma consolidated statement of financial position and on 1 January 2010 for the unaudited pro forma consolidated income statement, the unaudited pro forma consolidated statement of comprehensive income and the unaudited pro forma consolidated statement of cash flows.

The preparation of the unaudited pro forma consolidated income statement, the unaudited pro forma consolidated statement of comprehensive income and unaudited pro forma consolidated statement of cash flows of the Enlarged Group have been prepared based on (i) the audited consolidated income statement, the audited consolidated statement of comprehensive income and the audited consolidated statement of cash flows of the Group for the year ended 31 December 2010 as set out in Section 2 of Appendix I to this circular; and (ii) the audited combined income statement, audited combined statement of comprehensive income and audited combined statement of cash flows of the Target Group for the year ended 31 December 2010 as set out in Appendix II to this circular, after making pro forma adjustments relating to the Acquisition that are (i) directly attributable to the transactions; and (ii) factually supportable, as if the Acquisition had been completed on 1 January 2010.

The preparation of the unaudited pro forma consolidated statement of financial position of the Enlarged Group has been prepared based on (i) the unaudited condensed consolidated statement of financial position of the Group as at 30 June 2011 as set out in Section 3 of Appendix I to this circular; and (ii) the audited combined statement of financial position of the Target Group as at 3 July 2011 as set out in Appendix II to this circular, after making pro forma adjustments relating to the Acquisition that are (i) directly attributable to the transactions; and (ii) factually supportable, as if the Acquisition had been completed on 30 June 2011.

The Unaudited Pro Forma Financial Information of the Enlarged Group is based on a number of assumptions, estimates and uncertainties. The accompanying Unaudited Pro Forma Financial Information of the Enlarged Group does not purport to describe (i) the actual financial position of the Enlarged Group that would have been attained had the Acquisition and the exercise of the Philips Put Options on the remaining 30% equity interest in JVCo by Philips been completed on 30 June 2011; and (ii) the actual results and cash flows of the Enlarged Group that would have been attained had the Acquisition and the exercise of the Philips Put Options on the remaining 30% equity interest in JVCo by Philips been completed on 1 January 2010. The Unaudited Pro Forma Financial Information of the Enlarged Group does not purport to predict the future financial position, results and cash flows of the Enlarged Group.

The Unaudited Pro Forma Financial Information of the Enlarged Group should be read in conjunction with the historical financial information of the Group as set out in Appendix I to this circular, the historical financial information of the Target Group as set out in Appendix II to this circular and other financial information included elsewhere in this circular.

291 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT OF THE ENLARGED GROUP

Unaudited pro forma consolidated Unaudited income Audited pro forma statement of consolidated consolidated the Enlarged income income Group for the statement statement of year ended of the Group the Enlarged 31 December for the year Group for the 2010 – ended 31 year ended Exercise of December 31 December Philips put 2010 Pro forma adjustments 2010 options

RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m

Turnover 104,932 26,390 (5,966) – – – – – – 125,356 – 125,356 Cost of sales (99,765) (22,422) 5,966 – – (175) – – – (116,396) – (116,396)

Gross profit 5,167 3,968 – – – (175) – – – 8,960 – 8,960

Other income and gains 600 39 – 27 290 – – – – 956 349 1,305 Net realised and unrealised gain on foreign exchange forward contracts 243 52 – – – – – – – 295 – 295 Gain on deemed partial disposal and partial disposal of interests in an associate 304 – – – – – – – – 304 – 304 Net gain on disposal of an associate and the loan to an associate 237 – – – – – – – – 237 – 237 Selling and distribution costs (2,109) (3,322) – – – – – – – (5,431) – (5,431) Administrative expenses (1,490) (653) – – – – (105) – – (2,248) – (2,248) Research and development expenses (801) (756) – – – – – – – (1,557) – (1,557) Finance costs (173) (6) – – – (504) – (103) (39) (825) – (825) Share of results of jointly controlled entities (11) – – – – – – – – (11) – (11) Share of results of associates 126 – – – – – – – – 126 – 126

Profit (loss) before tax 2,093 (678) – 27 290 (679) (105) (103) (39) 806 349 1,155 Income tax expense (353) (129) – – – – – – – (482) – (482)

Profit (loss) for the year 1,740 (807) – 27 290 (679) (105) (103) (39) 324 349 673

Attributable to: Owners of the Company 649 (77) – 7 38 (60) (21) (8) (7) 521 (186) 335 Non-controlling interests 1,091 (730) – 20 252 (619) (84) (95) (32) (197) 535 338

1,740 (807) – 27 290 (679) (105) (103) (39) 324 349 673

292 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME OF THE ENLARGED GROUP

Unaudited pro forma Unaudited consolidated Audited pro forma income consolidated consolidated statement of statement of statement of the Enlarged comprehensive comprehensive Group for the income income of year ended of the Group the Enlarged 31 December for the year Group for the 2010 – ended 31 year ended Exercise of December 31 December Philips put 2010 Pro forma adjustments 2010 options RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m

Profit (loss) for the year 1,740 (807) – 27 290 (679) (105) (103) (39) 324 349 673

Other comprehensive income (expenses) for the year Change in fair value of available-for-sale investments 25 – – – – – – – – 25 – 25 Change in fair value of transferred owner-occupied properties at transfer date 52 – – – – – – – – 52 – 52 Share of/write back of share of deferred tax on change in fair value of available- for-sale investments (6) – – – – – – – – (6) – (6) Deferred tax on change in fair value of transferred owner-occupied properties at transfer date (11) – – – – – – – – (11) – (11) Share of other comprehensive expense of associates (5) – – – – – – – – (5) – (5) Release of translation reserve upon disposal of associates 2 – – – – – – – – 2 – 2 Exchange differences arising on translation (290) 220 – – – – – – – (70) – (70)

Other comprehensive income (expenses) for the year (233) 220 – – – – – – – (13) – (13)

Total comprehensive income (expense) 1,507 (587) – 27 290 (679) (105) (103) (39) 311 349 660

Attributable to: Owners of the Company 588 (57) – 7 38 (60) (21) (8) (7) 480 (117) 363 Non-controlling interests 919 (530) – 20 252 (619) (84) (95) (32) (169) 466 297

1,507 (587) – 27 290 (679) (105) (103) (39) 311 349 660

293 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF THE ENLARGED GROUP

Unaudited pro forma consolidated statement of Unaudited financial Unaudited pro forma position condensed consolidated of the consolidated statement Enlarged statement of of financial Group as at financial position of 30 June position the Enlarged 2011 – of the Group Group as at Exercise of as at 30 June 30 June Philips put 2011 Pro forma adjustments 2011 options

RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m

Non-current assets Property, plant and equipment 5,968 381 – 58 420 – – – – 6,827 – 6,827 Prepaid land lease payments 343 – – – – – – – – 343 – 343 Investment properties 1,336 – – – – – – – – 1,336 – 1,336 Goodwill 23 – – – – – – – – 23 – 23 Intangible assets 357 220 (58) – 2,114 – – – – 2,633 – 2,633 Interest in associates 458 – – – – – – – – 458 – 458 Interests in jointly controlled entities 65 – – – – – – – – 65 – 65 Available-for-sale investments 244 – – – – – – – – 244 – 244 Term deposits 13 – – – – – – – – 13 – 13 Deferred tax assets 263 – – – – – – – – 263 – 263 Other receivables 31 45 (6) – – – – – – 70 – 70

9,101 646 (64) 58 2,534 – – – – 12,275 – 12,275

Current assets Inventories 10,274 3,057 – – 375 – – – – 13,706 – 13,706 Trade and bills receivables 14,394 2,721 (2,721) – – – – – – 14,394 – 14,394 Prepaid land lease payments 9 – – – – – – – – 9 – 9 Prepayments, deposits and other receivables 2,457 149 (149) – – – – – – 2,457 – 2,457 Financial assets at fair value through profit or loss 17 – – – – – – – – 17 – 17 Tax recoverable 55 – – – – – – – – 55 – 55 Derivative financial instruments 305 13 (13) – – – – – – 305 – 305 Amounts due from fellow subsidiaries 15 – – – – – – – – 15 – 15 Amounts due from associates 37 – – – – – – – – 37 – 37 Term deposits 275 – – – – – – – – 275 – 275 Pledged deposits 1,097 – – – – – – – – 1,097 – 1,097 Bank balances and cash 3,444 – – – – – 1,693 937 1,267 7,341 – 7,341 Other current assets – 963 (847) – – – – – – 116 – 116

32,379 6,903 (3,730) – 375 – 1,693 937 1,267 39,824 – 39,824 Asset classified as held for sale 122 – – – – – – – – 122 – 122

32,501 6,903 (3,730) – 375 – 1,693 937 1,267 39,946 – 39,946

294 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m

Current liabilities Trade and bills payables 16,023 4,117 (4,117) – – – – – – 16,023 – 16,023 Other payables and accruals 3,642 1,940 (1,663) – 347 105 – – 1,267 5,638 (43) 5,595 Bank and other loans 3,883 – – – – – 892 – – 4,775 – 4,775 Derivative financial instruments 242 200 (200) – – – – – – 242 – 242 Tax payable 130 – – – – – – – – 130 – 130 Provisions for products warranties 494 536 (536) – – – – – – 494 – 494 Payables to Philips – – 3,264 58 776 – – – – 4,098 – 4,098 Amount due to immediate holding company 9 – – – – – – – – 9 – 9 Amounts due to fellow subsidiaries 16 – – – – – – – – 16 – 16 Amounts due to associates 40 – – – – – – – – 40 – 40

24,479 6,793 (3,252) 58 1,123 105 892 – 1,267 31,465 (43) 31,422

Net current assets (liabilities) 8,022 110 (478) (58) (748) (105) 801 937 – 8,481 43 8,524

Total assets less current liabilities 17,123 756 (542) – 1,786 (105) 801 937 – 20,756 43 20,799

Non-current liabilities Bank and other loans 491 – – – – – 368 937 – 1,796 – 1,796 Other payables and accruals 354 45 (45) – 1,926 – – – – 2,280 – 2,280 Pension obligations 38 78 (39) – 19 – – – – 96 – 96 Long term products warranties – 129 (129) – – – – – – – – – Other long term provision – 252 (239) – – – – – – 13 – 13 Deferred tax liabilities 369 – – – – – – – – 369 – 369 Government grants 34 – – – – – – – – 34 – 34

1,286 504 (452) – 1,945 – 368 937 – 4,588 – 4,588

Net assets (liabilities) 15,837 252 (90) – (159) (105) 433 – – 16,168 43 16,211

Equity/capital and reserve attributable to owners of the Company 4,603 252 (90) – (207) (21) – – – 4,537 524 5,061 Non-controlling interests 11,234 – – – 48 (84) 433 – – 11,631 (481) 11,150

Total equity 15,837 252 (90) – (159) (105) 433 – – 16,168 43 16,211

295 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS OF THE ENLARGED GROUP Unaudited Audited pro forma consolidated consolidated statement statement of of cash flows cash flows of of the Group the Enlarged for the year Group for ended 31 the year ended December 31 December 2010 Pro forma adjustments 2010

RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m OPERATING ACTIVITIES Profit (loss) before tax 2,093 (678) 27 (105) – – – – – – 1,337 Adjustments for: Finance costs 173 6 – – – – – – – – 179 Interest income (73) – – – – – – – – – (73) Share of results of associates (126) – – – – – – – – – (126) Share of results of jointly controlled entities 11 – – – – – – – – – 11 Gain on deemed partial disposal and partial disposal of interest in an associate (304) – – – – – – – – – (304) Net gain on disposal of an associate and the loan to an associate (237) – – – – – – – – – (237) Fair value gain on investment properties (53) – – – – – – – – – (53) Gain on disposal of available-for-sale investments (18) – – – – – – – – – (18) Discount on acquisition of a subsidiary (9) – – – – – – – – – (9) Reversal of impairment of trade receivables (7) – – – – – – – – – (7) Reversal of impairment of other receivables (7) – – – – – – – – – (7) Reversal of allowance for inventories (6) – – – – – – – – – (6) Gain on derecognition of financial guarantees (4) – – – – – – – – – (4) Dividend income from unlisted available-for- sale investments (3) – – – – – – – – – (3) Gain on disposal of property, plant and equipment (2) – – – – – – – – – (2) Gain on disposal of a subsidiary (1) – – – – – – – – – (1) Gain on disposal of equity investments at fair value through profit or loss (“FVTPL”) (1) – – – – – – – – – (1) Depreciation of property, plant and equipment 1,221 569 – – – – – – – – 1,790 Allowance for inventories 160 – – – – – – – – – 160 Reversal of impairment of loans to associates 34 – – – – – – – – – 34 Amortisation of intangible assets 21 – – – – – – – – – 21 Impairment of trade receivables 33 – – – – – – – – – 33 296 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Unaudited Audited pro forma consolidated consolidated statement statement of of cash flows cash flows of of the Group the Enlarged for the year Group for ended 31 the year ended December 31 December 2010 Pro forma adjustments 2010

RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m Unrealised loss on derivative financial instruments 14 – – – – – – – – – 14 Impairment of property, plant and equipment 12 – – – – – – – – – 12 Amortisation of prepaid land lease payments 7 – – – – – – – – – 7 Impairment of available- for-sale investments 6 – – – – – – – – – 6 Share options granted to directors and employees of a subsidiary 5 – – – – – – – – – 5 Fair value change in equity investments at FVTPL 3 – – – – – – – – – 3 Loss on disposal of subsidiaries 2 – – – – – – – – – 2 Stock based compensation – 6 – – – – – – – – 6

Operating cash flows before movements in working capital 2,944 (97) 27 (105) – – – – – – 2,769 Increase in inventories (3,409) (2,042) – – – – – – – – (5,451) Increase in trade and bills receivables (2,341) – – – – – – – – – (2,341) Increase in prepayments, deposits and other receivables (622) (265) – – – – – – – – (887) Increase in trade and bills payables 2,204 2,094 – – – – – – – – 4,298 Increase in other payables and accruals 330 102 – – – – – – 1,267 – 1,699 Increase in amount due to the immediate holding company 3 – – – – – – – – – 3 Increase in pension 4 – – – – – – – – – 4 Increase in other current assets – (213) – – – – – – – – (213) Increase in non-current receivables, other payables and accruals – 32 – – – – – – – – 32 Decrease in derivative financial instruments – (58) – – – – – – – – (58) Decrease in other provision – (278) – – – – – – – – (278) Decrease in amounts due from associates 20 – – – – – – – – – 20 Foreign exchange impact on working capital and provision – 187 187 Increase (decrease) in provisions for products warranties 11 (128) – – – – – – – – (117)

Cash generated from (used in) operations (856) (666) 27 (105) – – – – 1,267 – (333) 297 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m

PRC Enterprise Income Tax and overseas income tax paid (334) (129) – – – – – – – – (463) Hong Kong Profit tax paid (8) – – – – – – – – – (8)

Net cash from (used in) operating activities (1,198) (795) 27 (105) – – – – 1,267 – (804)

Investing activities Net cash flow from the acquisition of subsidiaries (5) – – – – – – – – – (5) Purchase of property, plant and equipment (2,106) (284) – – – – – – – – (2,390) Purchases of available-for-sale investments (31) – – – – – – – – – (31) Increase in pledged deposits (51) – – – – – – – – – (51) Capital injection to associates (99) – – – – – – – – – (99) Capital injection to jointly controlled entities (51) – – – – – – – – – (51) Addition to prepaid land lease payments (49) – – – – – – – – – (49) Additions to intangible assets (12) (330) – – – – – – – – (342) Proceeds from disposal of associates 478 – – – – – – – – – 478 Proceeds from disposal of property, plant and equipment 264 – – – – – – – – – 264 Interest received 73 – – – – – – – – – 73 Dividends received from associates 64 – – – – – – – – – 64 Proceeds from disposal of available-for-sale investments 45 – – – – – – – – – 45 Net cash flow from disposal of subsidiaries 21 – – – – – – – – – 21 Decrease in term deposits with terms over three months 21 – – – – – – – – – 21 Repayment of loans to associates 21 – – – – – – – – – 21 Proceeds from sales of investment held for trading 11 – – – – – – – – – 11 Dividends received from unlisted available-for-sale investments 2 – – – – – – – – – 2 Repayment from fellow subsidiaries 2 – – – – – – – – – 2 Acquisition of subsidiaries – – – – – – – – – (737) (737)

Net cash used in investing activities (1,402) (614) – – – – – – – (737) (2,753)

298 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m RMB m

Financing activities Repayment of bank and other loans (3,586) – – – – – – – – – (3,586) Redemption of convertible bond of a subsidiary (1,437) – – – – – – – – – (1,437) Dividends paid to minority interests (390) – – – – – – – – – (390) Dividends paid as distribution (144) – – – – – – – – – (144) Interest paid (164) (6) – – – – (32) (39) – – (241) Repayment for derivative financial instruments (14) – – – – – – – – – (14) Government grants utilised (11) – – – – – – – – – (11) Repayment to fellow subsidiaries (8) – – – – – – – – – (8) New bank and other loans raised 6,061 – – – 1,415 937 – – – – 8,413 Contribution from non-controlling shareholders 1,145 – – – 278 – – – – – 1,423 Repayment to associates 4 – – – – – – – – – 4 Government grants raised 23 – – – – – – – – – 23 Additional funding from owners – 1,415 – – – – – – – – 1,415

Net cash from (used in) financing activities 1,479 1,409 – – 1,693 937 (32) (39) – – 5,447

Net (decrease) increase in cash and cash equivalents (1,121) – 27 (105) 1,693 937 (32) (39) 1,267 (737) 1,890

Cash and cash equivalents at beginning of year 4,130 – – – – – – – – – 4,130

Effect of foreign exchange rate changes (251) – – – – – – – – – (251)

Cash and cash equivalents at end of year 2,758 – 27 (105) 1,693 937 (32) (39) 1,267 (737) 5,769

299 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

1. The amounts are derived from the unaudited condensed consolidated statement of financial position of the Group as at 30 June 2011 and the audited consolidated income statement, the audited consolidated statement of comprehensive income and the audited consolidated statement of cash flows of the Group for the year ended 31 December 2010, as set out in Appendix I to this circular.

2. The amounts are derived from the audited combined statement of financial position of the Target Group as at 3 July 2011 and the audited combined income statement, the audited combined statement of comprehensive income and the audited combined statement of cash flows of the Target Group for the year ended 31 December 2010 as set out in Appendix II to this circular, after foreign exchange translation at the rate of USD1 = RMB6.4634, and have been reclassified to conform to the presentation format of the Group.

3. The adjustment represents the elimination of transactions between the Group and the Target Group for the year ended 31 December 2010. There is no elimination of balances between the Group and the Target Group at 30 June 2011 as these balances will not be transferred to JVCo as stipulated in the Sale and Purchase Agreement.

This adjustment has a recurring nature.

4. The Sale and Purchase Agreement stipulates that the net operating capital as defined in the Sale and Purchase Agreement, excluding intangible assets and license fee payable, that will be transferred to JVCo will not exceed an amount of nil Euro. As part of the Sale and Purchase Agreement, at closing, only property, plant and equipment, intangible assets, inventories, certain receivables and other current assets, license fee payable and certain current and non-current liabilities which are required to be transferred by law (for example, personnel related accruals in certain jurisdictions) will be transferred to JVCo. To accomplish a transfer of net operating capital, excluding intangible assets and license fee payable, for an amount of nil Euro, a payable to Philips will be transferred into the JVCo, resulting in net operating capital acquired with a net book value of nil.

5. The assembly sites in Manaus, Brazil, Szekesfehervar, Hungary and Tierra Del Fuego, Argentina are currently shared between the Philips Business and other activities of Philips Consumer Lifestyle B.V. (“Philips Consumer Lifestyle”). As part of the Proposed Transactions, the JVCo will acquire the sites in entirety and enter into lease agreements with members of the Philips Group for the use of part of these sites by the other Philips Consumer Lifestyle activities. The agreement to lease out the part of the assembly site in Argentina for the use of Philips non-TV business is still under discussion with the Philips Group. As such, no rental income for the assembly site in Argentina is reflected in the Unaudited Pro Forma Financial Information. This adjustment reflects the net book value of the land and building attributable to other Philips Consumer Lifestyle activities to be transferred to the Enlarged Group and the associated rental income for Brazil and Hungary from Philips.

This adjustment has a recurring nature, except for the rental related to Hungary, which will in principle only be for a period of less than one year. The rental income related to and taken into account for the Hungary lease is USD 2.6 million (approximately RMB 16.8 million) per annum.

6. Upon completion of the Acquisition, the identifiable assets and liabilities of the Target Group will be accounted for in the consolidated financial statements of the Enlarged Group at their fair values as required by the acquisition method in accordance with Hong Kong Financial Reporting Standard 3 (Revised) “Business Combinations”. Details of the identifiable assets and liabilities of the Target Group to be accounted for in the consolidated financial statements of the Enlarged Group and the calculation of gain on bargain purchase with respect to 1 January 2010 for the purpose of the unaudited pro forma consolidated income statement, unaudited pro forma consolidated statement of comprehensive income and unaudited pro forma consolidated statement of cash flows and with respect to 30 June 2011 for the purpose of the unaudited pro forma consolidated statement of financial position are as follows:

300 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(i) Assuming completion at 30 June 2011 for the purpose of the unaudited pro forma consolidated statement of financial position:

Carrying amounts Fair value of the identifiable adjustments on Fair values assets and liabilities the identifiable of the identifiable of the Target Group assets and liabilities assets and as at 3 July 2011 as at 3 July 2011(Note a) liabilities RMB m RMB m RMB m RMB m

Consideration Contingent consideration (Note b) 116 Benefits from loans given by Philips at better than market terms (Note d) (155)

Total consideration (benefits) (39)

Less identifiable assets and liabilities to be acquired or assumed (*): Property, plant and equipment 439 420 859 Intangible assets (Note e) 162 2,114 2,276 Inventories 3,057 375 3,432 Other non-current receivables 39 – 39 Other current assets 116 – 116 Retirement benefit obligations (39) (19) (58) Other long-term provision (13) – (13) Other payables and accruals (non-current) – (1,810) (1,810) Other payables and accruals (current) (277) (304) (581) Payable to Philips (3,322) (776) (4,098) 162

70% of identifiable assets and liabilities 114

Gain on bargain purchase of 70% of the assets and liabilities 153

(*) Assuming 100% of the assets and liabilities.

301 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(ii) Assuming completion at 1 January 2010 for the purpose of the unaudited pro forma consolidated income statement, unaudited pro forma consolidation statement of comprehensive income and unaudited pro forma consolidated statement of cash flows:

Carrying amounts Fair value of the identifiable adjustments on the Fair values assets and liabilities identifiable assets of the identifiable of the Target Group and liabilities as at assets and as at 1 January 2010 1 January 2010(Note a) liabilities RMB m RMB m RMB m RMB m

Consideration Contingent consideration (Note b) 71 Benefits from loans given by Philips at better than market terms (Note d) (184)

Total consideration (benefits) (113)

Less identifiable assets and liabilities to be acquired or assumed (*): Property, plant and equipment 394 343 737 Intangible assets (Note e) 246 1,713 1,959 Inventories 1,228 90 1,318 Other non-current receivables 52 – 52 Other current assets 142 – 142 Retirement benefit obligations (58) 13 (45) Other long-term provision (19) – (19) Other payables and accruals (non-current) – (1,713) (1,713) Other payables and accruals (current) (284) – (284) Payable to Philips (1,448) (446) (1,894) 253

70% of identifiable assets and liabilities 177

Gain on bargain purchase of 70% of the assets and liabilities 290

(*) Assuming 100% of the assets and liabilities.

Notes

(a) For the purpose of the Unaudited Pro Forma Financial Information, the Directors have determined preliminarily the fair values of the identifiable assets and liabilities of the Target Group as at 1 January 2010 and 3 July 2011, after taking reference of valuation reports prepared by independent valuers, Jones Lang LaSalle Sallmanns Limited (“JLLS”). The valuation was carried out on a fair value basis in accordance with the International Valuation Standards (“IVS”) issued by the International Valuation Standards Committee. Fair value is defined in IVS as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”.

(b) Pursuant to the Sale and Purchase Agreement, the contingent consideration for the 70% of the JVCo shares now being acquired will be based on 70% of the JVCo’s average audited consolidated EBIT in each financial year commencing from (and including) financial year 2012 to (and including) the Last Year times a multiple of four, provided that, if the above calculation results in a negative number, then the contingent consideration is deemed to be zero. The contingent consideration has been assumed to be USD 18 million (approximately RMB 116 million) and recorded as an adjustment to other payables and accruals as if the completion was at 30 June

302 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

2011 for the purpose of the unaudited pro forma consolidated statement of financial position and USD 11 million (approximately RMB 71 million) as if completion was at 1 January 2010 for the purpose of the unaudited pro forma consolidated income statement, unaudited pro forma statement of comprehensive income and unaudited pro forma statement of cash flows, determined based on a valuation report prepared by an independent valuer, JLLS. The valuations of the contingent consideration are based upon the historical performance of the Group and the Target Group.

(c) Pursuant to the Shareholders Agreement, Philips will have the right to sell and transfer all of its remaining 30% of the shares in JVCo to the Company (the “Philips Exit Put Option”). The Philips Exit Put Option will become exercisable after 6 years commencing on the date of the Shareholders Agreement and the consideration will be determined based on the average audited consolidated EBIT in each financial year commencing from (and including) financial year 2012 up to (and including) the Last Year times a multiple of four. Philips will also have a put option upon change of control of TPV, on similar terms. The Directors have determined preliminarily the present value of the redemption amount of the Philips Exit Put Option to be USD 6 million (approximately RMB43 million) and recorded as adjustments to other payables and accruals and equity as if completion was at 30 June 2011 for the purpose of the unaudited pro forma consolidated statement of financial position and USD 3 million (approximately RMB19 million) as if completion was at 1 January 2010 for the purpose of the unaudited pro forma consolidated income statement, unaudited pro forma consolidated statement of comprehensive income and unaudited pro forma consolidated statement of cash flows. The valuations of the put option are determined based on a valuation report prepared by an independent valuer, JLLS and are based upon the historical performance of the Group and the Target Group.

(d) It has been determined that the terms, under which these loans from Philips were granted, were better than market conditions. The benefit from this is estimated to be USD 29 million (approximately RMB184 million) and USD24 million (approximately RMB155 million) assuming completion occurred on 1 January 2010 and 30 June 2011 respectively.

(e) Intangible assets identified include license rights and in-process research and development projects.

The above adjustments represent the recognition of the fair values of identifiable assets and liabilities of the Target Group, the contingent consideration and the present value of the redemption amount of the Philips Exit Put Option and the resulting gain on bargain purchase as a result of the Acquisition. Since the fair values of the assets and liabilities of the Target Group, the contingent consideration and the present value of the redemption amount of the Philips Exit Put Option as at the date of completion of the Acquisition, and the fair value of the contingent consideration at the date Philips gives notice of its election to receive the contingent consideration and the redemption amount of Philips Exit Put Option at the date Philips gives notice of its election to exercise such option may be different from their respective fair values and the redemption amount used in the preparation of the Unaudited Pro Forma Financial Information presented above, the final amounts of the identified net assets (including intangible assets) and the actual gain on bargain purchase arising from the Acquisition, if any, to be recognised in connection with the Acquisition may be different from the estimated amount as presented above and the differences may be significant. The adjustments have no continuing effects on the consolidated income statement and the consolidated statement of cash flows of the Enlarged Group.

For the purpose of this Unaudited Pro Forma Financial Information, the Company has ensured the steps taken on the assessment of impairment on property, plant and equipment, intangible assets and goodwill have been properly performed in accordance with Hong Kong Accounting Standard No. 36 ‘‘Impairment of Assets’’ which is consistent with the accounting policy of the Company. On that basis, the Directors concluded that no impairment in the value of property, plant and equipment, intangible assets and goodwill is considered necessary.

303 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

7. The adjustment represents the additional depreciation of property, plant and equipment, additional amortisation of intangible assets and the unwinding of interest in relation to license fee payable, as a consequence of the recognition of fair value adjustment of property, plant and equipment, intangible assets and license fee payable in Note 6 above over the remaining useful life of the respective property, plant and equipment and intangible assets and the term of the license fee payable.

This adjustment will have a recurring nature.

8. The adjustment represents the recognition of direct expenses of the Proposed Transactions.

This is a non-recurring adjustment.

9. The Sale and Purchase Agreement stipulates that Philips and TPV will provide Shareholders Loan of EUR170 million (approximately RMB 1,593 million) based on their respective shareholdings. The Philips share of this loan will be EUR51 million (approximately RMB 478 million).

Furthermore, at closing Philips and TPV will make an equity contribution of EUR100 million (approximately RMB 937 million) also based on their respective shareholdings. Philips will contribute EUR30 million (approximately RMB 278 million) of this.

Finally, Philips will provide a Bridge Facility of EUR100 million (approximately RMB 937 million) for a period of 9 months after closing after which any replacing loans will be provided by the Shareholders in line with their relative shareholdings. It is assumed that the Bridge Facility will be fully drawn.

The total Shareholder Loan and Bridge Facility provided by Philips of USD 219 million (approximately RMB1,415 million) together with the equity contribution from Philips of USD 43 million (approximately RMB 278 million) give a total cash inflow of USD 262 million (approximately RMB1,693 million). The equity contribution from Philips of USD 43 million (approximately RMB278 million) is adjusted to non-controlling interests.

It has been determined that the terms, under which these loans were granted, were better than market conditions. Therefore, the fair value of the loan balance payable as at 30 June 2011 was USD 195 million (approximately RMB 1,260), which reflects the USD 24 million (approximately RMB 155 million) benefit compared to loans of the same principal amount at an effective interest rate based on applicable market rates.

10. Philips has also agreed to provide a loan of EUR100 million (approximately RMB 937 million) (the “TPV Loan”) to TPV for the purpose of funding TPV’s obligations under the Shareholders Loan.

11. This adjustment reflects the estimated interest expense in relation to the Shareholders Loan and the Bridge Facility described under Note 9.

This adjustment is recurring in nature until full repayment of the Shareholder Loan and the Bridge Facility.

12. This adjustment reflects the estimated interest expense in relation to the TPV loan described under Note 10.

This adjustment is recurring in nature until full repayment of the TPV Loan.

13. Upon closing, Philips will pay EUR135 million (approximately RMB 1,267 million) in cash as an advance payment for Philips brand promotion activities to be carried out by JVCo on behalf of Philips.

14. This adjustment reflects the financial impact on the unaudited pro forma consolidated statement of financial position, the unaudited pro forma consolidated income statement and the unaudited pro forma consolidated statement of comprehensive income, if Philips exercised the Philips Exit Put Option on the remaining 30% equity interest in JVCo and the Company would have obtained a 100% equity interest in JVCo on 30 June 2011 and 1 January 2010 respectively, assuming no additional payment shall be made by TPV to Philips as the audited consolidated EBIT for the six months ended 30 June 2011 and for the year ended 31 December 2009 are negative.

For the purpose of this pro forma adjustment, it is assumed that the non-controlling interests arising from the equity contribution from Philips of USD 43 million (approximately RMB 278 million) and the share of net identifiable assets and liabilities of USD 11 million (approximately RMB 76 million) for the purpose of the unaudited pro forma consolidated income statement, unaudited pro forma consolidated statement of comprehensive income and unaudited pro forma consolidated statement of cash flows and USD 8 million (approximately RMB 48 million) for the purpose of the unaudited pro forma consolidated statement of financial position, respectively, at completion shall be adjusted to zero. 304 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

15. Pursuant to the Sale and Purchase Agreement the payable to Philips amounted to USD 294 million (approximately RMB1,894 million) (see Note 6(ii)) of which USD 114 million (approximately RMB 737 million) represents payment for property, plant and equipment. The difference of USD 180 million (approximately RMB 1,157 million) represents payment for working capital which has no effect to the unaudited pro forma consolidated statement of cash flows.

16. Other than the above adjustments, no adjustments have been made to reflect any trading results or other transactions of the Group and Target Group entered into subsequent to 30 June 2011 and 3 July 2011, respectively.

17. Currently the Philips Business uses infrastructure and corporate services from Philips, such as information technology, human resources, legal and financial administrative services. In the combined financial statements of the Target Group as set out in Appendix II, the allocations of these expenses from Philips were made on a specifically identifiable basis or using relative percentages, as compared to Philips’ other businesses, of the Philips Business’ net sales, headcount, floor area usage or other reasonable methods. TPV and Philips have agreed in the transitional services agreement that Philips will provide temporary support to JVCo on a number of areas for a transitional phase, when JVCo is setting up its organization. The support includes but is not limited to, innovation and design, finance, human resources, distribution, sales, marketing, warehousing, purchasing, consumer care, legal and real estate. The charges for such services have been agreed not to exceed USD 34 million (approximately RMB 220 million) in 2012, which is a lower amount than what has historically been recharged by Philips to the TV business, as can be read in Note 27 of the financial information on the Target Group as set out in Appendix II. The amount of USD 34 million (approximately RMB 220 million) has been negotiated on an arm’s length basis between the parties and is considered a market based pricing.

Given the substantial changes in operations upon the completion of the Acquisition and the set up of the JVCo, and the fact that the above services agreement is transitory in nature, the financial effects of the changes in cost structure before and after completion of the Acquisition have not been reflected in the unaudited pro forma consolidated income statement and the unaudited pro forma consolidated statement of comprehensive income. The actual amount of service charges payable to Philips under the transitional services agreement may be different from the amounts included in the unaudited pro forma consolidated income statement and the unaudited pro forma consolidated statement of comprehensive income as presented above and the differences may be significant.

305 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of a report received from SHINEWING (HK) CPA Limited, Certified Public Accountants, for the purpose of incorporation in this circular.

The Board of Directors Great Wall Technology Company Limited No. 2 Keyuan Road, Technology and Industry Park, Nanshan District, Shenzhen, the People’s Republic of China

Dear Sirs,

We report on the unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of Great Wall Technology Company Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) set out in Appendix III of the circular dated 23 December 2011 (the “Circular”), which has been prepared by the directors of the Company solely for illustrative purposes only, to provide information about how the acquisition of 70% equity interests in T.P. Vision Holding B.V. and its subsidiaries might have affected the financial information presented. The basis of preparation of the Unaudited Pro Forma Financial Information is set out on page 291 to 305 of the circular.

Respective Responsibilities of Directors of the Company and the Reporting Accountants

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial

306 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP information with source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

The Unaudited Pro Forma Financial Information is for illustrative purpose only, based on the judgements and assumptions of the directors of the Company, and because of its hypothetical nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of:

• the financial position of the Group as at 30 June 2011 or any future date; or

• the results and cash flows of the Group for year ended 31 December 2010 or any future period.

Opinion

In our opinion:

a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;

b) such basis is consistent with the accounting policies of the Group; and

c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Yours faithfully,

SHINEWING (HK) CPA Limited Certified Public Accountants Pang Wai Hang Practising Certificate Number: P05044

Hong Kong 23 December 2011 307 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

1. INDEBTEDNESS STATEMENT

Borrowings

At the close of business on 31 October 2011, being the latest practicable date for the purpose of the statement of indebtedness prior to the printing of this circular, the borrowings of the Enlarged Group were shown as below:

RMB’000

Non-current note payable 500,248 Short-term borrowings – secured 292,166 – unsecured 4,671,828

5,464,242

Pledge of assets

At the close of business on 31 October 2011, the Enlarged Group had pledged the following amounts of assets to secure the borrowings of the Enlarged Group:

RMB’000

Pledged bank deposit 282,801 Land and buildings 63,809

346,610

Contingent liabilities

At the close of business on 31 October 2011, the Enlarged Group had provided guarantee to a third party customer of approximately RMB67,209,000.

As at 31 October 2011, there was no change in the litigation of the Enlarged Group since 30 June 2011 as set out on pages 237 to 239 and 283 to 284 to this circular, other than as set out below:

In August 2011, a third party company filed a complaint in the United States of America against the Group, one of its associated companies and certain third party companies. The complaint concerns alleged infringement of a United States patent in respect of the technology for the manufacture of certain televisions.

The Directors are of the opinion that while the complaint was just being served, it is not possible to assess the outcome of the case for the time being.

Save as aforesaid and apart from intra-group liabilities and normal trade and other payable in the ordinary course of business of the Enlarged Group, as at the close of business on 31 October 2011, the Enlarged Group did not have any outstanding indebtedness in respect of any loan capital, bank overdrafts, loans, debt securities or other similar indebtedness, finance lease or hire purchases commitments, liabilities under acceptances (other than normal trade bills) or acceptable credits, debentures, mortgages, charges, guarantees or other material contingent liabilities.

308 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

2. WORKING CAPITAL

The Directors of the Company, after due and careful consideration, are of the opinion that after taking into account the present internal resources, available bank and other loan facilities of the Enlarged Group, the financial effect of the Acquisition, the Enlarged Group has sufficient working capital for its present requirements, that is for at least the next twelve months from the date of this circular, in the absence of any unforeseen circumstances.

3. MANAGEMENT DISCUSSION AND ANALYSIS OF THE RESULTS OF THE ENLARGED GROUP

Set out below is the management discussion and analysis of the Enlarged Group for the three years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011 (in respect of the Group); and for the period from 1 January 2011 to 3 July 2011 (in respect of the Philips Business).

FOR THE YEAR ENDED 31 DECEMBER 2008

In respect of the Group

REVIEW OF 2008

A. Slight decrease in sales income

In 2008, the Group realized sales revenue of RMB22,342,353,000, representing a decrease of 5.66% from the same period last year. The audited profit after taxation attributable to equity holders was RMB355,639,000, representing an increase of 15.18% from the same period last year.

B. Optimization of product mix and increased proportion of new products

In 2008, the Group targeted at enhancing its proprietary and innovation capacity to increase its core competitiveness. In addition, it matched up with market needs and focus on major industries to conduct development and research of high-end products and new products, which further optimize product mix and strengthen risk resistance capability in the industry.

At present, our scientific researches on, and technology for production of, magnetic heads, substrates, and hard disks are aligned with international standards. Among the product chains of our international peers, with our unique technology, a complementary balancing between market and production resources, high quality products, forefront production technology and a logistics management system of international standards, we have formed an operation mode with competitive advantages and a product value chain, playing an increasingly important role in the international arena for the manufacturing of hard disks and their components.

309 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

In the area of magnetic head production technology, the Company made a successful proprietary R&D based on our existing automatic installation facility for magnetic heads of worldwide leading level, and applied a batch of function tester for flexible cable in 2008. This step helped us to totally avoid dependence on imports and substantially reduced the time and cost involved by the Company in employing foreign experts for facility repairs.

Regarding the production of substrates, the Company had mastered the core manufacturing technology of hard disk substrates, such as CMP technology, chemical immersion nickel of high density for aluminum substrate, nanotechnology of particle purification and cleaning, examination and analysis technology of chemical deficiencies, through the proprietary R&D conducted for years. Among these technologies, CMP reached an international leading standard.

Regarding the production of hard disks, the Company conducted proprietary R&D on 2.5” GStorWave intelligent e drive with 250GB storage capacity and excellent anti-vibration function which contained intelligence and security storage plus anti-vibration design. In 2008, the Company officially released a series of storage products of new concepts including portable network storage server and external hard disk of “Benxiang” firewall, and the consumer products came along with the new market needs.

Regarding computer manufacturing and related products, the focus of computer manufacturing business was put on various industries and diversified products. Security desktop computer (2nd edition), products of security notebook and products of A58 and A81 fashionable notebook was launched and became very popular in the market.

Regarding monitors, based on 16:10 mainstream products in the current market, the Company developed future mainstream 16:9 products with competitive cost advantages and better visual effects in 2008 which had launched into the market in batches.

Regarding the production of power source, preliminary result of transforming to high-end products by Great Wall power supply was found. Series of power products for server, notebook, LCD TV, home appliances, industrial use, cars, communication, LIPS and adapter was developed and became popular in the market.

Regarding electricity meters and tax control machines, while Great Wall Kaifa enriched the existing production lines of electricity meters and tax control machines, the department of multimedia business conducted proprietary R&D on different types of new products of high definition network play with more fashionable outlook and outstanding function which was welcomed at the Hong Kong Electronics Fair (Spring Edition) and The 2008 International Consumer Electronics Show (CHTF-ICEF2008).

310 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

Regarding software and system integration, Great Wall Computer Software and System Co. Ltd. (“GWCSS”) had the strong power to undertake large-scale project construction. In 2008, GWCSS had obtained various projects, such as intermediary software purchase project for electronic approval system tool in relation to PRC patent, the development project of the comprehensive management system of code form documents for the State Intellectual Property Office of the PRC, etc.

C. Proactive implementation of internationalization strategy and prolonged international cooperation in depth

In order to effectively moderate the unfavorable effects brought from the change of exchange rate and financial crisis on enterprises and to enhance risk resistance capability, enterprises under the Group continued to upgrade its technology level and management capability and to further stabilize and strengthen the existing cooperative relationship internationally; meanwhile, obtaining a better results in developing new markets by broadening its expansion coverage in the overseas markets. Currently, OEM monitors of GWCSS occupied 16% of Vietnam market. Besides the traditional European and U.S. market, Great Wall power supply and Great Wall monitor added nearly 50 countries which included the ASEAN, the BRICs, Middle East and North Africa, and the export business recorded a steady growth.

D. Stimulate domestic sale through more investment in the market

Great Wall Computer (Guangxi) Co. Ltd. (廣西長城電腦公司) was officially opened upon the completion of the construction of the phase one of Beihai base of GWSZ, a subsidiary of the Company, in January 2008. It gave the Company a strategic advantage to expand into the South Asian and the ASEAN market. In May 2008, GWSZ, a subsidiary of the Company, and state- owned Changhai Electrical Plant (長海電器廠) formed a joint equity venture Guilin Changhai Development Co., Ltd. (長海科技有限責任公司) in Guilin of Guangxi Province to engage in R&D and production of safe computers and special computers under the brand of “Great Wall”. The above actions not only contributed to the development of the western region but also greatly reinforced the marketability of “Great Wall” brand in the region, leading to increased market share of Great Wall products.

E. Further enhance corporate brand image

The members of the Company and their products were accredited with various awards in 2008. The Company was ranked 13 by the 22nd Top-100 China Electronic Enterprises Rating; “Great Wall” was again named “China Top-Ten Leading Brands of Consumer Electronic Products” at the USA International Consumer Electronics Show; Great Wall Kaifa was awarded the title of “Top-Ten Listed Companies with Comprehensive Strength in Guangdong”; GWSZ and Shenzhen ExcelStor Technology Limited (“ExcelorStor Technology”), both are subsidiaries of the Company were designated as the “Leading Enterprise of proprietary and innovation industry” by the Shenzhen Municipal Government; GWCSS was ranked 31 among the Top-100 China Software Enterprises; Great Wall Power topped the China IT Brand Chart as the brand with the highest market share again in 2008 as it had done so for several consecutive years.

311 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

On 12 December 2008, GWSZ and the China Aerospace Foundation signed an official contract to work together for China’s aerospace industry. Pursuant to which, GWSZ became the exclusive IT partner of China’s aerospace industry, and “Great Wall” series of computers and their peripheral products, “ExcelStor” hard disks and other series of products would become designated products for China’s aerospace industry. It was a strong support to Great Wall brand and further promoted the achievement of the development strategy that focused on technology, manufacturing and branding.

F. Strengthen internal management to promote cost reduction and efficiency enhancement

1. Reinforce financial management to control operating risks

The Company and its subsidiaries further reinforced their financial management in 2008 under the leadership of the Group and guidance of relevant departments. Particular emphasis was placed on the monitoring of various important areas such as corporate receivables, inventories, borrowings, investments and large capital transactions. Great Wall Kaifa placed emphasis on customer credit control and adopted different shipment and payment collection methods for different customers. GWSZ reduced its inventory and risk exposure by strengthening its handling of overdue inventory and imposing higher penalty on overdue account receivables through the establishment of systems to manage overdue account receivables and inventories. ExcelStor further strengthened its comprehensive budget control by setting up the budget model that was based on profit targets, in line with changing market conditions and used by its business units.

2. Innovate on management mechanism to reduce production costs

Reinforce supply chain management through the use of information technology. The purchasing center of GWSZ established “dynamic price changes tracking system” through the use of information technology management. Market purchasing prices were adjusted in time based on key raw material costs.

Reduce quality loss through strengthened production floor management. Shenzhen Kaifa Magnetic Recording Co., Ltd. (“Kaifa Magnetic Recording”), a subsidiary of the Company put forward the goal of management enhancement in terms of “raising pass rates by one percentage point and shortening production time by one minute” in 2008 and achieved remarkable results through various efforts such as exploring its potential and strengthening its management in areas like techniques, equipment and environment. “Raising pass rates by one percentage point” alone had reduced cost by RMB15 million. At the same time, production floor efficiency was vastly improved as a result of optimized modes of operation in groups of three and four persons.

Reduce costs through less repairs and returns. Great Wall Power conducted aging tests on fragile components purchased such as capacitors and fans, which had passed quality testing by suppliers, to ensure the premium quality of its products and to reduce the rate of repair of sold products.

312 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

3. Reduce management layers to optimize corporate structure

In accordance with the Group’s “advice on the internal integration and reorganization plan of Great Wall Technology Company Limited”, the Company actively pushed forward corporate restructuring. Its management costs were significantly lowered as a result of reduced number of its subsidiaries and optimized allocation of resources.

G. Conserve energy and reduce emission, switch to new domains of scientific development

In 2008, the Company actively fulfilled its responsibility in terms of environmental protection and energy saving. By advocating green production and consumption, saving social resources and pursuing loop economy, the Group had showed its commitment to coordinated development of business and environment as well as its efforts in building a resources saving and environmentally friendly enterprise. The Company had implemented environmental certification standards as prescribed by EU RoHS (the directive restricting use of certain hazardous substances in electronic and electrical equipment) and WEEE “the Waste Electrical and Electronic Equipment Directive” for the entire process of producing its core products, including raw material, parts and finished products. At the same time, the entire product lines of Great Wall monitors, power supplies, PC and notebooks had been certified as energy saving products by the State.

ExcelStor Hard Disk had introduced power saving module to save up to 65% electricity. ExcelStor Technology was awarded the title of “Advanced Unit in Waste Reduction in Shenzhen” in May 2008.

FINANCIAL REVIEW

During the year ended 31 December 2008 (“Reporting Period”), the Group realized a turnover of RMB22,342,353,000, representing a decrease of RMB1,340,102,000 as compared to the corresponding period of last year, and profit after tax attributable to the equity holders of the Company amounted to RMB355,639,000, representing an increase of 15.18% as compared to the corresponding period of last year.

Liquidity and financial resources

The Group was financed by a combination of its equity capital base, cash flow generated from operation and bank borrowings. As usual, bank and other liabilities were being met upon their maturities in the normal course of business.

As at 31 December 2008, the Group’s total cash and bank balances were RMB2,430,652,000 and the Group’s total borrowings were RMB805,980,000. The structure of such borrowings was as follows:

(1) 100% was denominated in Renminbi;

(2) 100% was made on fixed interest rates.

313 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

None of the above borrowings was due and repayable within 2 to 5 years.

As at 31 December 2007, the Group’s total cash and bank balances were RMB2,404,237,000 and the Group’s total borrowings were RMB865,000,000. The structure of such borrowings was as follows:

(1) 100% was denominated in Renminbi;

(2) 25% were made on fixed interest rates.

None of the above borrowings was due and repayable within 2 to 5 years.

Segment information

Detailed segment information in respect of the Group’s turnover and contribution to profit from operations for the year ended 31 December 2008 as well as other information by business segment and geographical segment is shown in note 10 to the financial statements.

Gearing ratio

As at 31 December 2008, the Group’s total borrowings and shareholder’s equity were RMB805,980,000 and RMB3,797,578,000 respectively, as compared to RMB865,000,000 and RMB3,706,813,000 respectively as at 31 December 2007.

As at 31 December 2008, the gearing ratio was 21.22%, and the gearing ratio as at 31 December 2007 was 23.34%. The gearing ratio was defined as the ratio between total borrowings and shareholder’s equity.

Current ratio and working capital

As at 31 December 2008, the Group’s current assets and current liabilities amounted to RMB5,507,529,000 and RMB3,220,071,000 respectively, and the Group’s working capital was RMB2,287,458,000 while the current ratio was 1.71.

As at 31 December 2007, the Group’s current assets and current liabilities amounted to RMB6,777,025,000 and RMB4,915,210,000 respectively, and the Group’s working capital was RMB1,861,815,000 while the current ratio was 1.38.

Charge of group assets

As at 31 December 2008, the Group had pledged to banks its bank savings of approximately RMB13,202,000 to secure general banking facilities for the Group. As at 31 December 2008, no borrowings were guaranteed by CEC, the ultimate holding company of the Group.

314 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

As at 31 December 2007, the Group had pledged bank savings approximately of RMB8,933,000 to secure general banking facilities for the Group. As at 31 December 2007, no borrowings were guaranteed by the CEC, the ultimate holding company of the Group.

Exchange rate fluctuations

During the Reporting Period, approximately over 81% of the Group’s turnover was revenue in US dollars. If US dollars had fallen against RMB, it would have had a negative impact upon the Group.

Business risks and risk management policies

The Company’s associate, GWBNS, was established in 2000. Up to the date of this annual report, GWBNS is owned as to 50% by 中信網絡有限公司, and the Company also holds a 40% direct interest in GWBNS and each of Great Wall Kaifa and GWSZ, both being subsidiaries of the Company, holds a 5% interest in GWBNS.

Due to the fierce competition in the industry and substantial capital requirement, as at the end of 2008, GWBNS has recorded an accumulated loss of RMB1,137 million. As at 31 December 2008, the Company has provided a guarantee in respect of the loan granted to GWBNS, which amounted to RMB550 million and provided a loan of approximately RMB273 million to GWBNS. There are certain risks inherent to the above guarantee and repayment of the loan due to increasing competition in the PRC broadband service industry and the State’s macro-economic policies.

In order to maintain control over its risk exposure, the operation team of GWBNS has implemented a series of reforms under the leadership of the board of GWBNS. The 2008 results of GWBNS have improved such that the annual loss for the financial year 2008 was RMB99 million less than that of last year.

Employees

As at 31 December 2008, the number of employees of the Group was approximately 16,000 people whose total emoluments amounted to RMB688 million. The salaries of the employees were determined according to the rank in and contribution to the respective company of any individual employee with reference to the remuneration and incentive system of the respective company.

As at 31 December 2007, the number of employees of the Group was approximately 17,000. The salaries of the employees were determined according to the rank in and contribution to the respective company of any individual employee with reference to the remuneration and incentive system of the respective company.

In respect of the Philips Business

RESULTS

The net loss for the period ended 31 December 2008 was US$330 million. 315 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

BUSINESS REVIEW

Analysis of financial performance

The year 2008 was characterised by the steep downturn in the second half of the year, with its sharp decline in consumer confidence and consumer spending. This impacted the performance of the Philips Business. The Philips Business realised revenues of US$5,224 million at a sales volume of 8,604 thousand pieces.

Gross profit as percentage of revenues was 13.2% for 2008. As part of the integration of the Consumer Electronics and Domestic Appliances businesses of Philips, a number of specific value- creating initiatives have been put in place. These initiatives were focused on further optimisation of the business portfolio towards growth and higher-margin realisation. Furthermore, there was focus on increased effectiveness and investment in advertising and promotion, especially in geographic areas where the highest return is expected (in particular emerging markets).

Rigorous cost and organizational discipline, measured against internal and external benchmarks, were also part of the aforementioned value-creating initiatives and aimed at reducing the operational cost level which amounted to US$1,146 million in 2008.

Analysis of the financial position

The majority of Philips Business’s non-current assets comprises Property, plant and equipment. At 31 December 2008 Property, plant and equipment still included the production plant at Dreux which was closed down in subsequent years and migrated to other production sites.

In general, current assets mainly relate to trade and other receivables and inventories. The Philips Business operated a negative net working capital as the current assets were more than offset by the trade payables and other payables and accruals carried on the balance sheet.

Cash flow analysis

In 2008 the negative cash flow from operating activities is partly compensated by positive cash flows from working capital management, especially in relation to inventory and trade receivables reductions and that have been realised. Increased restructuring provisions (partly offset by utilisation of warranty provisions) drive the 2008 US$10 million positive effect on cash flows from provisions. These were the main drivers for the negative cash flow from operating activities of US$131 million generated in 2008.

Combined with investments of respectively US$79 million and US$48 million in property, plant and equipment and intangible assets, this leads to a negative cash flow of US$254 million for 2008, which was financed by additional funding from the Philips Group.

316 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

Liquidity, capital structure and financial resources

Historically the business was mainly financed with financial support from~the Philips Group. As at 31 December 2008, the Philips Business had no own bank balances and cash.

The Philips Group (including the Philips Business) utilises a central approach to cash management and the financing of its operations. Cash deposits of the Philips Group (including the Philips Business) are pooled and transferred to a Central Treasury function on a daily basis. As the Philips Business did not operate or exist as a separate legal entity during the period of the combined financial statements, no amounts for cash, cash equivalents and debt have been reflected within the combined financial statements. All balances with other Philips reporting units not reported as intercompany current trading accounts are presented as owners’ net investment in the carve out financial statements. The Philips Group’s net investment amounted to a deficit of US$198 million at 31 December 2008.

Capital commitments

The Philips Business did not have any significant capital commitments as at 31 December 2008.

Contingent liabilities

Please refer to note 25 to the accountants’ report on Philips Business as set out in appendix II to this circular for further details on contingent liabilities.

Significant investments, material acquisition and disposals

The Philips Business did not have any significant investments, material acquisition or disposals as at 31 December 2008.

Employment and remuneration policy

Remuneration of the staff mainly comprised contractual monthly salary, pension contributions and bonus entitlements based on their contribution to the Philips Business. The number of full-time employees employed by the Philips Business was approximately 4,400 worldwide whose total emoluments amounted to US$405 million as at 31 December 2008.

Charges

As at 31 December 2008, the Philips Business did not have any charges on its assets.

317 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

Foreign exchange risk management

The functional currency of the majority of the reporting units within the Philips Business is~EUR unless the primary economic environment requires the use of other currencies. The Philips Business is exposed to foreign currency exchange fluctuation risk as part of its business carried out in local currencies in the countries it operates (mainly~R$, Russian Roubles and US$). In the financial periods analyzed the Philips Business entered into foreign currency forward exchange contracts as economic hedges of exchange rate fluctuations.

FOR THE YEAR ENDED 31 DECEMBER 2009

In respect of the Group

2009 REVIEW

A. Drastic increase in sales revenue and a remarkable improvement in economic effectiveness

During 2009, the Group managed to address the rigorous macro-economic challenges, sustain growth and seek development amid crisis. In the first half of the year, the Group effectively curbed operation downturns by virtue of the policy of “stabilizing regular customers and developing new markets”. In the second half, the Group’s “combined countermeasures” against the financial turmoil yielded marked results. The Group achieved sales revenue of RMB37.08 billion for the year, representing an increase of 64.62% over the same period last year. Our audited profit after taxation attributable to shareholders amounted to RMB397 million, representing an increase of 10.45% over/from the same period last year. The Group had its development foundation consolidated and its economic effectiveness enhanced.

B. Painstaking expansion of markets at home and abroad in proactive response to the crisis

Member companies of the Group adopted an array of effective measures to secure growth against the crisis, providing significant support for development during the year.

The first is to retain regular customers and persistently maintain existing orders. The outburst of the financial tsunami has forced many key customers of the Company to curtail salaries, headcounts and even orders, which in turn led to plunge in orders for major products of enterprises under the Company. Certain products, such as disk substrates and magnetic heads, decreased by as many as 70% while orders for mobile phones also decreased by over 50%. To reverse the unfavourable situation of the sharp decrease in orders, key management personnel of the member companies of the Group took the command in person and rushed about in flights at home and abroad to negotiate for business and to secure orders, sparing no effort to develop international and domestic markets. Through these incessant efforts, production and sales volume as well as sales revenue for regular orders exceeded those of the same period last year by the end of the third quarter. In September 2009, monthly production and sales volume of disk substrates of Kaifa Magnetic also resumed the level of the previous year.

318 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

The second is to secure new customers to expand new markets. In 2009, members of the Group introduced numerous new customers to enrich their product lines. Apart from mobile phone processing business, Great Wall Kaifa introduced notebook computer and PCBA processing business. As for Smart Meters, Great Wall Kaifa collaborated with IBM for the national project of Malta and obtained an order of EURO7million. Meanwhile, Great Wall Kaifa succeeded in obtaining the first batch of wireless set-top boxes and wireless water-meters. Kaifa Magnetic zealously endeavoured to capture more market shares. The international business of GWSZ notebook computer made significant breakthrough as it managed to develop agent customers in Sudan, Madagascar, Algeria and Nigeria. In traditional markets in South and North America, Europe and Asia-Pacific, our agents also grew in number.

In the domestic market, the Company fully initiated expansion strategies. Facing the industry recession, GWSZ has taken a step further to expand its market. In the conspicuous bidding for the PC part under the State’s “Home Appliances Subsidy Policy for Rural Areas”, GWSZ has achieved the Grand Slam with all of its participating products won. In July, GWSZ succeeded in attaining orders for thousands of notebooks from Jiangxi City University, procuring the first “Great Wall Notebook University” in China.

C. Enhance innovation capability against crises by stressing technical innovation and promoting transformation

Members of the Group have imperturbably addressed the financial crisis by way of self- independent innovation. Great Wall Kaifa established an international advanced application lab and launched vertical magnetic high-end products by firmly grasping the successful concept of “upstream competition for superiority”. Standing at the forefront, Great Wall Kaifa took the lead in launching the full automatic magnetic head production line and was named the “Characteristic Industry Park for Information Storage” by the People’s Government of Shenzhen. As the main draftsman, GWSZ’s power supply division participated in the energy saving standard for power supply of national computers. Great Wall power supply was a pioneer in passing China’s energy saving certification; and in May 2009, the Company launched the “Energy-Saving King (節电王)” power supply which passed the U.S. strict energy saving test 80PLUS standard for power supply. With unique energy saving patent technology applied, underload and overload of the series was respectively higher than 80%, and its typical load even exceeded 82%, thus, successfully entering U.S. markets. GWSZ’s monitor (division) actively developed both upstream and downstream on the industry chain as it actively researched and developed a wide range of industry display terminal applications, such as ad players, in-car TVs, touch-screen monitors, CCTV monitors and monitoring walls. The division also launched energy-saving LED backlight monitors by diversifying products. GWSZ’s information application division launched various new consumer electronics including digital photo frame, PDTV, E-book and WDTV which were well received in domestic and foreign markets.

During the year, members of the Group undertook 11 national technical projects, 4 provincial and ministerial technical projects and 6 local technical projects in total, of which 3 were awarded prizes of provincial and ministerial technical projects for the year.

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D. Capture economic growth engines to break new ground by restructuring and improvement

The Company capitalized on favourable opportunities of the State’s substantial support for strategic emerging industries to strengthen the research and exploitation of LED and solar energy sectors.

The first is to enter new areas to vigorously develop strategic emerging industries. In April 2009, ExcelStor Great Wall, a member of the Group, developed emerging areas like green energy and photovoltaic generation by capturing the favourable opportunity of industry structural adjustment; and currently it has succeeded in transformation. In May 2009, ExcelStor Great Wall managed to launch “30KW-500KW” solar power supply inverter of varied specifications so as to provide “bridging” devices for solar power stations, and began to supply goods for foreign customers in bulk in last May. In August 2009, the “solar cell module” project of ExcelStor Great Wall was formally put into production.

Having established a joint venture, namely Shenzhen Kaifa Auto Technology Company Limited (深圳開發技研汽車電子有限公司), with a business partner, Great Wall Kaifa entered the auto electronics area and specialized in auto air-conditioner control systems.

The second is to extend product lines and expand applications to form new growth segments. GWSZ introduced talents to produce the “Notebook Battery”, which has now been put into mass production and entered Guangxi Beihai CEC Industrial Park. Great Wall power supply division also actively developed non-desktop computer power supply business, and now it has successfully developed power supplies for FPTV, home appliance, industrial use, in-car application, communication and adaptors.

E. Integrate resources and optimize allocation by emphasizing capital operation and taking combined measures

In 2009, the Group proactively made overall arrangement by focusing on the “Monitor Industry Chain”. Leveraging advantageous opportunities in the capital market during the financial crisis, the Group resolutely decided to increase the shareholdings of TPV at a relatively low cost. Moreover, the Group finally consolidated TPV’s financial results into its financial statements and thus improved its annual results through an array of moves including successful acquisition of Great Wall (HK) via GWSZ and reorganization of the Board of TPV, which influenced production operation for the year in the following way:

The first is to make the Group’s principal operations more prominent and rapidly raise its position in the sectors, sharpening its comprehensive edges. The second is to dramatically foster the Group’s innovation ability, and introduce international top-ranking management and R&D teams. The third is to make the strategic layout of the Company’s monitor industry chain more scientific and perfect, enable vertical integration of upstream and downstream resources and horizontal division of labour to take shape, and form a complete industry chain, and thereby accelerate its advancement towards a world-class enterprise.

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F. Stress the promotion of rapid corporate growth by putting efforts on external cooperation and broadening vision

In 2009, the Group centred on development strategies and business needs to proactively procure resources such as capital, technology, talent and market at home and abroad, strengthening external communication and cooperation.

The first is to further boost the cooperation with local governments. The Group has cooperated with local governments in Shenzhen, Suzhou, Beihai, Guilin and Changsha and so on and yielded positive results. On 8 December, CEC (Shenzhen) Research Institute was officially inaugurated. In 2009, Great Wall Kaifa (Suzhou) Phase II Project was officially commenced, which occupies an area of 55,000 sq. m. and gross floor area of 120,000 sq. m with total investment of over RMB300 million. GWSZ has also further deepened its cooperation with Changsha, Guilin and Beihai.

The second is to reinforce the cooperation on production, study and research. Members of the Group have established the technology exchange cooperation mechanism with organizations including Hong Kong Applied Science and Technology Research Institute, Research Institute of Tsinghua University, China CEPREI Laboratories, Shenzhen 863 Program Research and Development Centre for Surface Technology, Harbin Institute of Technology Shenzhen Graduate School and Shenzhen University, laying a solid foundation for future growth. The cooperation of Great Wall Kaifa and GWSZ with multinational corporations including Samsung, Seagate, IBM, Intel, Kingston was furthered as cooperation areas being widened.

While endeavouring to secure growth and accomplishment of operation targets in 2009, members of the Group had also made efforts in building an honest and upright conduct in the Party, safe production and harmonious corporate development, with an aim to vigorously ensure the stable and rapid growth of their production and operation.

FINANCIAL REVIEW

During the year ended 31 December 2009 (“Reporting Period”), the Group realized a turnover of RMB37,085,314,000 representing an increase of 64.62% as compared to the corresponding period of last year, and profit after tax attributable to the equity holders of the Company amounted to RMB397,605,000 representing an increase of 10.45% as compared to the corresponding period of last year.

Liquidity and financial resources

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As at 31 December 2009, the Group’s total cash and bank balances were RMB4,050,766,000 (31 December 2008: 2,637,646,000) and the Group’s total borrowings were RMB3,243,368,000. The structure of such borrowings was as follows:

(1) 18.9% and 81.1% were denominated in Renminbi and US dollars respectively;

(2) 99% was made on fixed interest rates.

The Group’s borrowing repayment profile as at 31 December 2009 is shown in note 32 to the financial statements.

Segment information

Detailed segment information in respect of the Group’s turnover and contribution to profit from operations for the year ended 31 December 2009 as well as other information by business segment and geographical segment is shown in note 11 to the financial statements.

Gearing ratio

As at 31 December 2009, the Group’s total borrowings and shareholder’s equity were RMB3,243,368,000 and RMB4,441,871,000 respectively, as compared to RMB805,980,000 and RMB3,835,437,000 respectively as at 31 December 2008.

As at 31 December 2009, the gearing ratio was 73.02%, and the gearing ratio as at 31 December 2008 was 21.01%. The gearing ratio was defined as the ratio between total borrowings and shareholder’s equity.

Current ratio and working capital

As at 31 December 2009, the Group’s current assets and current liabilities amounted to RMB28,604,935,000 (31 December 2008: RMB5,677,244,000) and RMB22,059,540,000 (31 December 2008: RMB3,769,103,000) respectively, and the Group’s working capital was RMB6,545,395,000 (31 December 2008: RMB1,908,141,000) while the current ratio was 1.30. (31 December 2008: 1.51).

Charges on group assets

As at 31 December 2009, certain of the Group’s term deposit with a carrying value of approximately RMB339,900,000 (31 December 2008: RMB37,356,000) were pledged to banks to secure general banking facilities and performance bond for the Group.

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Acquisitions/disposal of subsidiaries

On 30 April 2009, GWSZ entered into a share transfer agreement with Great Wall Group to acquire from Great Wall Group the shares representing 99.9999% of the issued share capital of China Great Wall Computer (H.K.) Holding Limited (“Great Wall (HK)”) at a consideration of RMB10,601,200 and the acquisition was completed on 29 June 2009. GWSZ acquired the remaining 0.0001% of the issued share capital of Great Wall (HK) for a consideration of HK$10 on 15 June 2009. Great Wall (HK) became a wholly-owned subsidiary of GWSZ, and therefore a subsidiary of the Company. Great Wall (HK) is principally engaged in the development and sales of computers, procurement of components and major facilities as well as procurement, storage and transportation of raw material. As at the date of this report, Great Wall (HK) held approximately 15.79% shareholding in TPV.

On 28 December 2009, the Company and GWSZ each entered into a share transfer agreement with China National Software and Service Co. Ltd. (“China Software”) to transfer to China Software their respective 34.9% and 34.51% equity interest in GWCSS at a consideration of RMB46,501,600 and RMB45,970,500 respectively. The disposals were approved at the extraordinary general meeting of the Company held on 12 March 2010. The Company and GWSZ ceased to hold any shares in GWCSS upon completion of the disposal. A gain of approximately RMB7,440,000 was recorded from the disposal.

Business risks and risk management policies

Due to the fierce competition in the industry and substantial capital requirement, as at the end of 2009, GWBNS has recorded an accumulated loss of RMB1,105 million. As at 31 December 2009, the Company has provided a guarantee in respect of the loan granted to GWBNS, which amounted to RMB550 million and provided a loan of approximately RMB273 million to GWBNS. There are certain risks inherent to the above guarantee and repayment of the loan due to increasing competition in the PRC broadband service industry and the State’s macro-economic policies.

In order to maintain control over its risk exposure, the operation team of GWBNS has implemented a series of reforms under the leadership of the board of GWBNS. The 2009 results of GWBNS have improved such that the annual loss for the financial year 2009 was RMB33 million less than that of last year. On 15 April 2010, the Group announced that it intended to dispose of all the interests in GWBNS.

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Employees and remuneration policies

As at 31 December 2009, the number of employees of the Group was approximately 18,000 (31 December 2008: 16,000 people) whose total emoluments amounted to RMB1,241 million. The remuneration of the employees were determined according to industry practices, the rank in and contribution to the respective company of any individual employee with reference to the remuneration and incentive system of the respective company.

In respect of the Philips Business

RESULTS

The net loss for the period ended 31 December 2009 was US$231 million.

BUSINESS REVIEW

Analysis of financial performance

The year 2009 was characterised by introduction of experience television including the 2009 Aurea and Ambilight range and the cinema 21: 9 model, the world’s first cinema proportioned LCD television. Television has evolved from a business based on scale to one driven by differentiation, especially in its channel/market mix. Traditional world-class competencies in areas like picture quality and technical performance have been maintained, while additional focus has been placed on differentiated design and experiences.

Following the global recession caused by the financial crisis, in 2009 revenues decreased by 24% (US$1,273 million) due to a world-wide sales decline in consumer TV segment mainly incurred in Brazil, Russia, the United Kingdom and France.

Sales volumes decreased by 11% to 7,680 thousand pieces. The resulting gross profit decline is more than offset by an increase in gross profit as percentage of revenues (from 13.2% to 18.7%) leading to the US$53 million 2009 growth in gross profit. The growth in gross profit as percentage of revenues is predominantly due to portfolio changes and mix management (higher sales of televisions with Ambilight), as well as the industrial back-end consolidation (LGD/Sharp) reaping purchase price benefits.

Management continuously focused on cost reduction opportunities. In 2008, as part of the integration of the Consumer Electronics and Domestic Appliances businesses of Philips, the Earn- to-Invest (“E2I”) continuous business transformation program was started. In 2009, the cost saving effects of this integration fully materialised, which was the main driver behind the US$218 million (19%) decline in operating expenses.

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Reductions in selling expenses were mainly realised by optimizing fixed selling expenses (decrease by US$122 million) and advertising and promotion expenses (decrease by US$31 million). Lower general and administrative expenses were the result of lower IT costs (decrease by US$11 million), general reduction in headcount (decrease by US$6 million) and various other cost reductions (decrease by US$23 million). Rationalisation of research and development projects as well as timing of new product introductions and launches resulted in reduced research and development expenses by US$23 million.

Other income and expense reflects cost charges (of costs incurred as included in other line items) to countries not in the perimeter of the Philips Business. Under a global services agreement, operating units within Philips delivering services to other units, recharge these costs on an arm’s length basis. Within the Philips Business, the headquarters in the Netherlands and the R&D locations mainly deliver services to other units within Philips Business. In 2008, the Philips Business delivered these services to Philips TV activities in the US and the PRC. During 2009, the activities in the US were licensed out to a third party. The activities in the PRC were licensed out to the Company in 2010. After the licensing out, no costs were incurred or recharged to these reporting units.

In 2009 the loss from operations decreased by US$100 million from US$311 million in 2008 to US$211 million in 2009. This is largely explained by a reduction in operating expenses of US$218 million in combination with the growth in gross profit of US$53 million offset by lower cost recharges to units not included in the perimeter of the joint venture (decrease by US$49 million) and results on foreign exchange forward contracts (decrease by US$122 million).

The hospitality TV segment comprises 4% of total sales generated by the Philips Business and remained stable in 2008 and 2009. During 2009 hospitality TV segment’s operating profit before tax decreased from US$15 million positive towards US$10 million negative mainly due to a slowdown in the leisure industry resulting from the global recession. The consumer TV segment more than offsets this resulting in the overall reduction in loss before tax from US$311 million in 2008 towards US$ 212 million in 2009.

Development in financial position

The decline in non-current assets between 31 December 2008 and 31 December 2009 of US$28 million is mainly driven by lower investments in product development included in intangible assets (decrease by US$13 million) and the decrease in property, plant and equipment (decrease by US$18 million) following the rationalisation of capital expenditure projects and production capacity. As part of the rationalisation of production capacity, a production plant in France (Dreux) was closed and related production was migrated to the plant in Szekesfehervar in Hungary.

In reaction to the sales decline, as well as due to shortage in panel supply, inventories were decreased in 2009 accordingly (by US$161 million). This was also driven by an SKU (“Stock Keeping Unit”) reduction program, which reduced the number of SKUs of the Philips Business by 34% compared to 2008.

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The decrease in inventories was the main driver for the US$185 million decline in current assets between 31 December 2008 and 31 December 2009.

Non-current liabilities largely comprise the long-term portion of provisions which increased by US$45 million in 2009 to US$116 million mainly due to growth in restructuring and warranty provisions.

Current liabilities decreased by US$18 million in 2009 mainly due to lower other payables and accruals (decreased US$49 million), trade payables (decreased US$14 million) offset by increased warranty provisions (increased US$26 million). The reduction in other payables and accruals relate to the decrease in sales mainly led to lower materials related accruals. Growth in short term provisions mainly relates to restructuring provisions which increased in relation to the closure of the France Dreux production location. Warranty provisions increased due to a product failure as a result of faulty components delivered to the Philips Business by a supplier.

Cash flow analysis

In both 2008 and 2009 the negative cash flow from operating activities is largely compensated by positive cash flows from working capital management, especially in relation to inventory reductions that have been realised. Included in the negative operating results are charges for restructuring and product warranty costs. These charges resulted in an increase in provisions without resulting in actual cash outflows. This is offset by a positive non-cash item on the line item changes to provisions. These are the main drivers for the US$212 million improvement in the cash flow from operating activities in 2009 to US$81 million positive.

The increase in the cash flow from operating activities in 2009 is further increased on net fund flow level by the US$44 million reductions in capital expenditure.

Liquidity, capital structure and financial resources

Historically the business was mainly financed with financial support from the Philips Group. As at 31 December 2009, the Philips Business had no own bank balances and cash.

The Philips Group (including the Philips Business) utilises a central approach to cash management and the financing of its operations. Cash deposits of the Philips Group (including the Philips Business) are pooled and transferred to a Central Treasury function on a daily basis. As the Philips Business did not operate or exist as a separate legal entity, during the period of the combined financial statements, no amounts for cash, cash equivalents and debt have been reflected within the combined financial statements. All balances with other Philips reporting units not reported as intercompany current trading accounts are presented as Philips Group’s net investment in the carve out financial statements. The Philips Group’s net investment amounted to a deficit of US$439 million at 31 December 2009.

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Capital commitments

The Philips Business did not have any significant capital commitments as at 31 December 2009.

Contingent liabilities

Please refer to note 25 to the accountant’s report on the Philips Business as set out in appendix II to this circular for further details on contingent liabilities.

Significant investments, material acquisition and disposals

The Philips Business did not have any significant investments, material acquisition or disposals as at 31 December 2009.

Employment and remuneration policy

Remuneration of the staff mainly comprised contractual monthly salary, pension contributions and bonus entitlements based on their contribution to the Philips Business. The number of full-time employees employed by the Philips Business decreased from 4,400 in 2008 to approximately 3,500 during the first six months of 2011 was approximately 3,800 worldwide whose total emoluments amounted to US$360 million as at 31 December 2009.

Charges

As at 31 December 2009, the Philips Business did not have any charges on its assets.

Foreign exchange risk management

The functional currency of the majority of the reporting units within the Philips Business is EUR unless the primary economic environment requires the use of other currencies. The Philips Business is exposed to foreign currency exchange fluctuation risk as part of its business carried out in local currencies in the countries it operates (mainly R$, Russian Roubles and US$). In the financial periods analyzed the Philips Business entered into foreign currency forward exchange contracts as economic hedges of exchange rate fluctuations.

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FOR THE YEAR ENDED 31 DECEMBER 2010

In respect of the Group

OPERATION REVIEW FOR 2010

Under the sophisticated and unpredictable “Post Financial Crisis Era” in 2010, the Company, under the leadership of the Board, seriously implemented the Scientific Development Concept by focusing on the core development idea of “adjusting the structure, improving level, enhancing management and hastening development”, emphasizing on its principal operations and accelerating restructuring and industry upgrade to further improve operation efficiency and level of management. With capital operation and structure adjustment, principal operations were further emphasized and the Company achieved a historic breakthrough in operating results, making a new step for the development of the Company. Sales Revenue for the year amounted to RMB104.9 billion, representing a comparative growth of 184%. Gross profit amounted to RMB5.167 billion, representing a comparative growth of 167%. The audited profit after taxation attributable to shareholders amounted to RMB0.649 billion, representing a comparative growth of 63.22%. The above results mostly met with various operating targets set by the Board.

A. Leveraging adjustment of capital market to consolidate resources structure and enhance our competence

In 2010, the Company, under the leadership of the Board, committed itself to “enhancing the core competitiveness and profitability of listed company” by focusing on “forging clear business segments and industry chain to concentrate premium resources in business segments”. Through offers, additional private issue, promoting listing, signing financial services agreements, proposed acquisitions, etc., the Company consolidated numerous resources, adjusted business segments and optimized allocation of resources. It reinforced competitive strength and growing potential of principal businesses by highlighting the following aspects:

The first is to facilitate the Group in the completion of the general offer made to TPV. Led by the Group, the Company completed the general offer acquisition of TPV at a reasonable consideration in 2010. The Company, with coordination among parties and despite tight schedule and other negative factors such as differences between standards at home and abroad, finalized the consolidation of the financial statement of TPV through rounds of negotiation, and completed the preparation of financial final accounts for 2009 as scheduled.

The second is to complete the first tranche facilities of GWSZ. Raising facilities through private issue of GWSZ was completed in November 2010. Through this private issue, GWSZ issued a total of 223,214,286 shares to the Company and Great Wall Kaifa, consisting of 187,500,001 and 35,714,285 shares subscribed in cash, respectively. The issue raised a gross proceeds of approximately RMB 1 billion. Upon completion, the total share capital of GWSZ was 1,323,593,886 shares. The Company held, directly or indirectly, an aggregate of 749,362,206 shares in GWSZ, representing 56.62% of its total share capital.

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This tranche of facilities efficiently lowered the gear ratios of GWSZ and China Great Wall Computer (H.K.) Holding Limited (中國長城計算機（香港）控股有限公司) (“Great Wall (HK)”) and improved the cashflow while injecting “blood” for the future development of the corporate and finally established a solid foundation. It also offered better direct return on investments made by the Company and Great Wall Kaifa.

The third is to assist O-Net Communications (Group) Ltd. (“O-Net Communications”) in listing. On 29 April 2010, O-Net Communications was listed on the Hong Kong Stock Exchange, which is an associate of Great Wall Kaifa as to 46% equity interest held through its wholly-owned subsidiary Kaifa Technology (HK) Limited (“Kaifa HK”). Great Wall Kaifa indirectly held 267 million shares in O-Net Communications through Kaifa HK. The relevant market capitalization was over HK$ 1 billion, which wrote off the provision of bad debts while providing earnings on equity.

The fourth is to dispose of Great Wall Broadband Network Service Co., Ltd (“Great Wall Broadband”). In line with segments consolidating strategy, and due to less profit contributions by Great Wall Broadband recent three years and its limited synergies to the principal businesses of the Company, the Company, led by the Board, transferred its equity interest in Great Wall Broadband through the public listing in April 2010. This transfer is to focus resources on principal businesses and recover debts. In September 2010, borrowings and the amount of share transfer of RMB 324 million were recovered and the guarantee on the bank loans of RMB 550 million was released, diminishing its exposure to uncertainties in future.

The fifth is to strengthen close relationship with investors by signing financial services cooperation agreement with CEC Finance Co., Ltd. (“CEC Finance”). Capital is known to be the “blood” of an enterprise. A comprehensive financial services agreement entered into between the Company and CEC Finance was approved at the meeting of shareholders of the Company on 12 March 2010, marking a breakthrough in “facilities platform” and paving roads for future capital operation.

The sixth is to acquire Great Wall ExcelStor Information Product (Shenzhen) Limited (“Great Wall ExcelStor”) by GWSZ. In August 2010, GWSZ kicked off the acquisition of 100% equity interest in Great Wall ExcelStor for a total consideration of US$ 24 million in order to expand its business. The proposal was approved by the board of GWSZ and general meeting of GWSZ on 8 December and 29 December 2010, respectively. The acquisition is expected to be completed in the first half of 2011, and cluster internal new energy resources and diversifying products of the Company.

The seventh is to transfer Great Wall Computer Software and Systems Incorporation Limited (“GWCSS”). In order to resolve horizontal competition between China National Software and Service Co., Ltd. (“CSS”) and GWCSS within CEC, the Company agreed to transfer GWCSS to CSS. On 12 March 2010, the shareholders of the Company approved the share transfer agreement entered into by the Company, GWSZ and CSS on 28 December 2009 to transfer 34.9% and 34.51% equity interest it held in GWCSS for considerations of RMB46,501,600 and RMB45,970,500, respectively. This assets reorganization optimized resources and emphasized principal businesses.

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Thanks to tireless efforts exerted by the management and all the staff of the Company and its members, satisfactory results were achieved in 2010. At the ceremony of “Shenzhen Press Index” Summit Forum and the First “Shenzhen Press Index” Blue Chips held in May 2010, GWSZ was awarded “Listed Companies with the Most Influence (最具經濟影響力上市公司)”, “Blue Chips (績優上市公司)” and “The Most Competitive Listed Company (最具競爭力上市公司)”, while Great Wall Kaifa was granted “Listed Company with the Best Investor Relationship (最佳投資者關係上市公司)” by Shenzhen Press Index. In June 2010, GWSZ ranked the second among “Top 500 of the World Most Growth Chinese Businessman Listed Companies” in 2010 as released by the World Outstanding Chinese Businessman Association. Also, GWSZ was listed in “Golden Bull 100 Chinese Listed Companies in 2009” by China Securities Journal in July 2010.

B. Implementing target management to promote major constructions of key proposals

In 2010, we implemented “target management” as required by the board. The key commissions were set for 2010, each being specifically designated, reported and reviewed regularly, so as to ensure smooth progress on key proposals:

The first is to build “KFES” project in Xiamen. It was in line with “two transformations” strategy formulated by the Board that our members should deploy resources in upper stream sector and explore high-end technologies. The Company, leveraging its advantages in industry chain, and in light of the Group’s demands for LED backlight products and the potential of global LED lighting industry, had a joint venture “KFES Lighting Company Limited (開發晶照明公司)” established in Xiamen by Great Wall Kaifa and TPV in conjunction with Epistar and Evertop, both world top LED chips manufacturers, with a total investment of US$290,000,000. On 27 December 2010, an agreement was duly signed between the above parties. The joint venture will avail itself of the R&D and manufacturing of extension chips and crystal parts to extend to LED encapsulation and lighting application, aiming for billions of US dollars of LED industry chain.

The second is to make smooth progress on “Great Wall Kaifa (Suzhou) Phase II Project”. At present, two plants were completed and put into production. We adopted the U.S. LEED Green Building Standards for the project on its design to construction and strictly followed the standards to design and construct while highlighting the saving on energy, lands, water and materials and environmental protection and placing emphasis on the harmony between building, human and environment by utilizing ground space for car parking, chilled water pool, fire pool and waste water cycling, etc., in order to set a sound foundation for the overall energy saving and drainage reduction works of the Company under the “Twelve Five-Year Plan”.

The third is to preliminarily finish the demonstration on building for “GWSZ R&D Complex Project”. The GWSZ R&D Complex Project was initiated in May 2010, and an internal review on feasibility report and assessment on communications impact was finished recently. The proposal was considered and approved by the board of GWSZ on 8 December 2010, pending the government’s approval.

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The fourth is to facilitate the smooth progress of “streamlining corporate structure and optimizing resources deployment”. With the aim to optimize resources deployment and corporate structure, the Company completed the transfer and shutdown of five subsidiaries in 2010. Accordingly, resources deployment was optimized and asset efficiency was improved.

The fifth is to proceed with fruitful industry transfer in Beihai and Guilin by stages. Beihai industry transfer kept well going by assisting Shenzhen in resolving the issue of ever-rising production and living costs. On 18 December 2010, Yongfu office of Guilin Changhai Technology (桂林長海科技永福分公司) was set up and commenced production, this record-breaking pace in establishing a business in Guilin was favorably noticed by the local government.

The sixth is to make fresh progress in technological innovation and strengthen technology support by “double drivers”. In 2010, members of the Company made applications for a total of 57 patents, consisting of 20 inventions, 10 utility models, 7 designs. There were 53 newly granted patents, consisting of 3 inventions, 20 utility models, 7 designs and 11 software copyrights. Great Wall Kaifa was awarded the “2009 Shenzhen Intelligent Property Dominating Enterprise (2009年深圳市智慧財產權優勢企業)” by Market Supervision Administration of Shenzhen Municipality (深圳市市場監督管理局) in August 2010, recognizing its outstanding performance in intelligent property protection and proprietary innovation.

C. Advancing systems construction to enhance refined management

The first is to further improve construction of legal systems of the Company. In 2010, the Company, by focusing on operations and giving priority to the construction and upgrade of legal risk prevention system, endeavored to sort out and improve existing rules and regulations through the promulgation of 80 systems and 63 processes, which won us “Advanced Unit for Legal System Works (法制工作先進單位)” awarded by the competent authority.

The second is to promote full-scale budget management to exert strict control over cost. With intensified efforts in budget analysis, implementation and control, we strived for “forecast in advance, control in progress and post-event supervision”, thus made it possible for “profit- oriented, market-based and business unit-carried” to ensure smooth preparation of budget. In 2010, in view of refined management and target management, the Company cut down its costs (as per the consolidated financial statements) by 2% despite an increase of 40% in profit (excluding that of TPV).

The third is to make new breakthroughs in informationalization. Being high-tech manufacturers, significant efforts were under way by the Company and its members by pouring human and material resources in network infrastructure, IT hardware equipments and even application systems. Our informationalization level was rated as A.

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The fourth is to keep production safety and push on energy saving and drainage reduction works. In 2010, the Company continued to stress the production safety and accountability system, set up and perfected production safety inspection mechanism, hence rendering the situation of production safety to develop stably. As a result, “slight injuries accidents” decreased sharply as compared to last year. Each member of the Company had introduced, digested and absorbed new concepts, techniques and technologies of energy saving and drainage reduction works. They took a mass of effective measures and achieved overall targets of energy saving and drainage reduction works set by the Board under the “Eleventh-Five-Year-Plan”.

The fifth is to emphasize brand building. The Company hoisted a series of large brand building campaigns and attended major exhibitions to enhance its brand value. On 8 January 2010, it was the fourth time that GWSZ’s brand received the “Top 10 Chinese Consumer Electronics Brands (中國十大消費電子領先品牌)” award. On 8 December, GWSZ was titled the “CCTV China Brand of the Year 2010 (2010 • CCTV中國年度品牌)”. Great Wall Kaifa set its brand building goal as “fostering corporate image, gathering staff loyalty, forging EMS’s advanced corporate brand”.

The sixth is to carry out system reform to develop talents team. According to the requirements of the Board, the Company continued to develop talents team and reserve cadre team. Cadre actively participated in various special trainings led by heads of each level to improve their political quality and management standards. Such healthy corporate culture and staff relationship won for GWSZ a second award as “The Best Employer in China” at the fifth EB Annual Conference in China.

The seventh is to build “punishment with prevention system” to improve the party’s work style and uphold integrity as well as discipline inspection and supervision work. The Company rendered each level to sign “responsibility letter for improving the party’s work style and upholding integrity”. Through implementing discipline management at “key posts” and “major units” in the infrastructures, biding, sourcing and sales, the Company met its goal of improving incorrupt administration. With all of these, we mostly accomplished the goal of surveillance work, i.e. selecting a project, inspecting a kind of issues and improving a set of systems. In 2010, the Company also held a “small treasuries” special work and ensured healthy development.

FINANCIAL REVIEW

During the year ended 31 December 2010, the Group realized a turnover of RMB104,931,670,000 representing an increase of 182.95% as compared to the corresponding period of last year. The increase in turnover were mainly attributable to the consolidation of TPV’s turnover for the year into the Group in 2010 as compared to the consolidation of TPV’s turnover for the fourth quarter only in last year, and a substantial increase in the turnover of Great Wall Kaifa. Profit after tax attributable to the equity holders of the Company amounted to RMB648,989,000 representing an increase of 63.22% as compared to the corresponding period of last year. The increase in profit after taxation for the year attributable to the equity holders of the Company were mainly attributable to the consolidation of TPV’s statements into the Group and the increase in gain on transfer of equity interest in associated companies.

332 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

Liquidity and Financial Resources

As at 31 December 2010, the Group’s total cash and bank balances were RMB2,757,805,000 and the Group’s total borrowings were RMB4,267,261,000. The structure of such borrowings was as follows:

(1) 8.20% and 91.80% were denominated in Renminbi and US dollar respectively;

(2) 90.82% was made on fixed interest rates.

Segment Information

Detailed segment information in respect of the Group’s turnover and contribution to profit from operations for the year ended 31 December 2010 as well as other information by business segment and geographical segment is shown in note 11 to the consolidated financial statements.

Gearing Ratio

As at 31 December 2010, the Group’s total borrowings and shareholder’s equity were RMB4,267,261,000 and RMB4,711,663,000 respectively, as compared to RMB3,243,368,000 and RMB4,441,871,000 respectively as at 31 December 2009.

As at 31 December 2010, the gearing ratio was 90.57%, and the gearing ratio as at 31 December 2009 was 73.02%. The gearing ratio was defined as the ratio between total borrowings and shareholder’s equity. The growth in gearing ratio was mainly attributable to the growth in TPV’s gearing ratio.

Current Ratio and Working Capital

As at 31 December 2010, the Group’s current assets and current liabilities amounted to RMB33,597,824,000 (31 December 2009: RMB28,604,935,000) and RMB25,778,112,000 (31 December 2009: RMB22,059,540,000) respectively, and the Group’s working capital was RMB7,819,712,000 (31 December 2009: RMB6,545,395,000) while the current ratio was 1.30. (31 December 2009: 1.30).

Charges on Group Assets

As at 31 December 2010, certain of the Group’s term deposit with a carrying value of approximately RMB390,978,000 (31 December 2009: RMB339,900,000) were pledged to banks to secure general banking facilities and performance bond for the Group.

333 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

Employees

As at 31 December 2010, the number of employees of the Group was approximately 53,000 people whose total emoluments amounted to RMB2,490 million. The remuneration of the employees was determined according to the industry practices, rank in and contribution to the respective company of any individual employee with reference to the remuneration and incentive system of the respective company.

Business risks and risk management policies

Foreign Exchange Rate Risk:

Renminbi will continue its appreciation for some time from now on and the fluctuation in the exchange rate of RMB has a larger effect on exports, which account for a major proportion of the Group business and thus impose enormous pressure on the Group in terms of appreciation of RMB.

The Group maintains a sound and healthy financial condition by adopting forward currency settlement measures to reduce exchange loss and by negotiating with customers to determine selling prices in RMB. The Group will also retain certain foreign currency position and settle balances with suppliers in US dollars.

Guarantee for independent third party

As at 31 December 2010, the Group provided guarantees of approximately RMB54,051,000 to third parties in respect of bank facilities granted to third parties.

As at 31 December 2010, certain of the Groups leasehold land and buildings with a carrying value of approximately RMB158,945,000 were pledged to secure bank loans from a fellow subsidiary of the Company.

Guarantee for associated companies

As at 31 December 2010, the Group provided a guarantee of approximately RMB19,868,000 (2009: RMB570,385,000) in respect of bank facilities granted to associated companies.

Loans to associated companies

As at 31 December 2010, loans to associated companies of approximately RMB76,326,000 (2009: RMB378,858,000) are unsecured, non-interest bearing (2009: 5.05%-7.02%) and is repayable after twelve months from the balance sheet date.

334 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

Acquisitions/disposal of subsidiaries and associated companies

On 28 December 2009, the Company and GWSZ each entered into a share transfer agreement with CSS to transfer to CSS their respective 34.9% and 34.51% equity interest in GWCSS at a consideration of RMB46,501,600 and RMB45,970,500 respectively. The disposals were approved at the extraordinary general meeting of the Company held on 12 March 2010. The Group ceased to hold any shares in GWCSS upon completion of the disposal. A gain of approximately RMB7,440,000 was recorded from the disposal.

On 11 August 2010, the Company, GWSZ and Great Wall Kaifa, as vendors, entered into a equity transfer agreement with CITIC Network Co., Ltd. pursuant to which (i) the Company, GWSZ and Great Wall Kaifa agreed to sell in aggregate 50% of the capital of Great Wall Broadband, an associated company of the Company; and (ii) the Company and Great Wall Kaifa together agreed to dispose of the entire amount of loan owed by Great Wall Broadband to them to CITIC Network Co., Ltd. at an aggregate consideration of RMB323,797,891.41. Upon completion of the disposal in August 2010, the Group ceased to have any interest in Great Wall Broadband.

In respect of the Philips Business

RESULTS

The net loss for the period ended 31 December 2010 was US$125 million.

BUSINESS REVIEW

Review of operations

In 2010, market recovery and the World Cup has contributed to the 3% revenue growth towards US$4,083 million in 2010. Growth is mainly realised in South American countries (especially Brazil and Argentina) and Russia of (respectively of 34% and 49%), whereas European countries suffered from a 4% sales decline. In terms of volumes sales level remained stable at 7,674 thousand units in 2010.

Despite the US$132 million revenue growth realised in 2010 gross profit declined by US$126 million resulting from a decrease in gross profit realised per sold television. The gross profit margin declined to 15% in 2010. The main drivers for the latter are price pressure (especially in the lower end product range, due to high inventory levels at all global TV manufacturers in the second half of 2010) and lower sales of high-end television models due to temporary component shortages as well as a high number of product introductions in the high-end market by some of the competitors.

Following the continuation of the E2I program to reduce fixed costs and improve the overall agility of the cost base, further cost reduction measures materialised and contributed to the US$196 million reduction in operating expenses, especially in the area of selling & distribution expenses (US$175 million) and research and development expenses (US$24 million). The decrease in selling and distribution expenses was realized by restructuring of distribution operation, headcount

335 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

reductions and more efficient marketing spend. Also the establishment of forward integration and co-location partnerships with TPV, LGD and Sharp have reduced the industry fixed costs. The decrease in R&D expenses is mainly driven by timing of product launches in 2010.

In 2010 the loss from operations improved by US$107 million to US$104 million negative which is largely driven by the aforementioned cost reductions offset by the US$126 million decline in gross profit.

The global recession is the main factor explaining the US$59 million sales decline in the Hospitality TV segment and resulted in a further US$8 million decrease in profit before tax of this segment. As such, the reduction of loss from operations is fully attributable to the consumer TV segment.

Analysis of financial position

Non-current assets increased by US$13 million mainly resulting from investments in intangible fixed assets exceeding amortisation (by US$13 million).

In 2010, current assets grew by US$415 million following inventory build-up of US$316 million during the fourth quarter. Starting in the summer of 2010, all TV manufacturers were confronted with less successful selling in/out of their ambitious plans in Q2 surrounding the World Cup. Also the market pull for 3D technology was less successful than planned by all TV manufacturers. This led to a global overstock of panels and televisions. Lower sales in Brazil during the third quarter of 2010 and inefficient logistics and warehousing infrastructures, also contributed to the relatively high inventory level in the second half of 2010.

In addition, the increase in inventories resulted in growth in VAT receivable balance at 31 December 2010 driving the US$33 million growth in other current assets. Finally, the 2010 revenue growth led to higher outstanding receivable balances at 31 December 2010 contributing US$41 million to growth in current assets.

Non-current liabilities decreased by US$37 million mainly driven by lower long-term provisions.

Current liabilities increased by US$336 million in 2010 mainly due to growth of US$324 million in trade payable balances offset by lower (US$20 million) short term provisions largely due to reduced warranty provisions.

336 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

Cash flow analysis

In addition to the operating loss before depreciation, amortization, impairments and stock based compensation of US$15 million, growth in working capital balances has a negative impact of US$54 million on the cash flow from operating activities. In addition, cash out from provisions (mainly restructuring) of US$63 million is also an important factor contributing to the negative cash flow of operating activities of US$124 million. As the provisions recorded in 2009 mostly resulted in cash outflows in 2010, without operating result including any related charges, the line item provisions reflects related cash outflows.

Investments in property, plant and equipment and intangible fixed assets amounts respectively to US$44 million and US$51 million.

Liquidity, capital structure and financial resources

Historically the business was mainly financed with financial support from the Philips Group. As at 31 December 2010, the Philips Business had no own bank balances and cash.

The Philips Group (including the Philips Business) utilises a central approach to cash management and the financing of its operations. Cash deposits of the Philips Group (including Philips Business) are pooled and transferred to a Central Treasury function on a daily basis. As the Philips Business did not operate or exist as a separate legal entity, during the period of the combined financial statements, no amounts for cash, cash equivalents and debt have been reflected within the combined financial statements. All balances with other Philips reporting units not reported as intercompany current trading accounts are presented as owners’ net investment in the carve out financial statements. The Philips Group’s net investment amounted to a deficit of US$310 million at 31 December 2010.

Capital commitments

The Philips Business did not have any significant capital commitments as at 31 December 2010.

Contingent liabilities

Please refer to note 25 to the accountant’s report on the Philips Business as set out in appendix II to this circular for further details on contingent liabilities.

Significant investments, material acquisition and disposals

The Philips Business did not have any significant investments, material acquisition or disposals as at 31 December 2010.

337 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

Employment and remuneration policy

Remuneration of the staff mainly comprised contractual monthly salary, pension contributions and bonus entitlements based on their contribution to the Philips Business. The number of full-time employees employed by the Philips Business was approximately 3,500 during the first six months of 2011 worldwide whose total emoluments amounted to US$274 million as at 31 December 2010.

Charges

As at 31 December 2010, the Philips Business did not have any charges on its assets.

Foreign exchange risk management

FOR THE SIX MONTHS ENDED 30 JUNE 2011 (IN RESPECT OF THE GROUP) AND FOR THE PERIOD FROM 1 JANUARY 2011 TO 3 JULY 2011 (IN RESPECT OF THE PHILIPS BUSINESS)

In respect of the Group

FINANCIAL REVIEW

During the six months ended 30 June 2011 (the “Reporting Period”), the Group realised a turnover of approximately RMB46,718 million, representing a decrease of 6.5% as compared to the corresponding period of last year. Interim profit after tax attributable to the shareholders of the Company amounted to approximately RMB124 million during the Reporting Period as compared to the interim profit of approximately RMB237 million for the corresponding period last year. As global economy has been recovering gradually from severe deterioration, the economy recovered in a slow pace in the Europe and the U.S., which are major markets of the Group, which impacted the Group’s results.

Liquidity and Financial Resources

As at 30 June 2011, the Group’s total cash and cash equivalent amounted to approximately RMB3,444 million and the Group’s total bank and other borrowings amounted to approximately RMB4,374 million.

338 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

The structure of such borrowings was as follows:

(1) 22.1% was denominated in Renminbi and 77.9% was denominated in US dollars.

(2) 99% was made on fixed interest rates.

11.2% of borrowings will be expired and repayable within 2 to 5 years.

Gearing Ratio

As at 30 June 2011, the Group’s total bank and other borrowings and shareholders’ equity were approximately RMB4,374 million and RMB4,602 million respectively, as compared to approximately RMB4,267 million and RMB4,712 million respectively as at 31 December 2010.

The gearing ratio as at 30 June 2011 was 95.0%. The gearing ratio as at 31 December 2010 was 90.6%. The gearing ratio is defined as the ratio between total bank borrowings and shareholders’ equity.

The increase in gearing ratio was mainly due to the increase in total bank and other borrowings of approximately RMB107,000,000 as compared with that at the beginning of the year. At the end of the Reporting Period, total bank and other borrowings included TPV’s bills payables of RMB490,000,000.

Current Ratio and Working Capital

As at 30 June 2011, the Group’s current assets and current liabilities were approximately RMB32,501 million and RMB24,479 million respectively, while the Group’s working capital was approximately RMB8,022 million. The current ratio was 1.33.

As at 31 December 2010, the Group’s current assets and current liabilities were approximately RMB33,598 million and RMB25,778 million respectively, while the Group’s working capital was RMB7,820 million. The current ratio was 1.30.

The Group’s working capital increased by approximately RMB202,000,000 as compared with that at the beginning of the period, which strengthened our solvency in the short run.

Charge of Group Assets

As at 30 June 2011, certain of the Group’s term deposit with a carrying value of approximately RMB1,097 million were pledged to banks to secure general banking facilities and performance bond for the Group.

As at 31 December 2010, the Group had pledged to banks its bank savings of approximately RMB391 million as a pledge of banks’ general finance for the Group.

339 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

Interim Dividend

The Board does not recommend the payment of an interim dividend for the six months ended 30 June 2011 (six months ended 30 June 2010: Nil).

Employees

As at 30 June 2011, the number of employees of the Group was approximately 59,000 (as at 31 December 2010: approximately 53,000 people) whose total emoluments amounted to RMB1,630 million. The salaries of the employees were determined according to the rank in and contribution to the respective company of any individual employee with reference to the remuneration and incentive system of the respective company.

In respect of the Philips Business

RESULTS

The net loss for the period ended 3 July 2011 was US$341 million.

BUSINESS REVIEW

Analysis of financial performance

During the first six months of 2011 sales declined by US$289 million compared to the same period in 2010. The majority of the sales decline is concentrated in European countries where a sales decrease of US$263 million was realised following the loss of market share especially in Germany, France and the Benelux countries. Sales volumes declined by 23% to 1,519 thousand units sold during the first six months of 2011 compared to the same period in 2010.

Price erosion, partly driven by stock depletion of high inventory levels from 2010, drives the US$140 million gross profit decline in the first six months of 2011 compared to the same period last year. The gross profit margin was approximately 9% for the period ended 3 July 2011. The industry and Philips Business overstock at the end of 2010, has led to relatively high stock in the retail stores and also higher commitments to panel manufacturers in 2011. Competitors have also driven excessive price erosion to try and clear their oversupply. This has driven the market to experience higher than normal price erosion in 2011. Next to this, the new 2011 launches of competition were a few months earlier than ours, with new designs and specifications, leading to more competition in the existing range. As a result, price erosion hit the total product range, but the higher end of the range absorbed the largest price declines.

Total operating expenses increased by US$44 million in the first six months of 2011 mainly due to US$33 million growth in research and development expenses largely resulting from exceptional impairments recorded as a result of lower return on capitalised research and development expenses, driven by lower gross profit percentages.

340 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

The results deteriorated due to the increased price erosion materialised during the first six months of 2011 and the subsequent decline in gross profit and increased total operating expenses. Furthermore, losses of US$77 million on outstanding forward exchange contracts have been incurred in the first six months of 2011. As a result, loss for the period increased by US$327 million in the first six months of 2011 compared to the same period in 2010.

During the first six months of 2011 the Hospitality TV segment showed signs of recovery, with a number of newly contracted large customers, resulting in increased sales of US$7 million to US$56 million. In addition, operating profit improved by US$14 million to US$6 million positive. As such, the overall increase in the loss before tax is driven by the consumer TV segment.

Analysis of financial position

Non-current assets decreased to US$100 million due to US$21 million impairment losses on intangible assets. Current assets decreased by US$228 million due to lower trade and other receivables (decreased by US$172 million).

Current liabilities decreased by US$583 million compared to December 2010 mainly due to US$494 million lower trade payables, reflecting the lower trading activity levels.

Cash flow analysis

The negative net fund flow is driven by loss from operating activities before depreciation and amortization of US$271 million in combination with negative cash flows from working capital (US$328 million) resulting from the reduction in trade payables (US$494 million), due to the seasonality of the business, where typically in the first half of the year purchases are made for the launch of new products and in preparation for the higher sales season in the second half of the year.

Liquidity, capital structure and financial resources

Historically the business was mainly financed with financial support from the Philips Group. As at 3 July 2011, the Philips Business had no own bank balances and cash.

The Philips Group (including the Philips Business) utilises a central approach to cash management and the financing of its operations. Cash deposits of the Philips Group (including the Philips Business) are pooled and transferred to a Central Treasury function on a daily basis. As the Philips Business did not operate or exist as a separate legal entity, during the period of the combined financial statements, no amounts for cash, cash equivalents and debt have been reflected within the combined financial statements. All balances with other Philips reporting units not reported as intercompany current trading accounts are presented as owners’ net investment in the carve out financial statements. The owner’s net investment amounted to a surplus of US$39 million at 3 July 2011.

341 APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE ENLARGED GROUP

Capital commitments

The Philips Business did not have any significant capital commitments as at 3 July 2011.

Future product pipeline

As at the date of this circular, Philips has successfully launched most of its 2011 advanced, new range of televisions into the market. During the third quarter of 2011, at this year’s Internationale Funk Ausstellung (“IFA”), Philips introduced its latest award-winning 46 inch 9000 series performance TV, which won the EISA European 3D TV of the year.

In addition, Philips showcased the latest addition to its range of cinema proportion televisions: the Cinema 21: 9 Platinum Series LED TV, the award-winning DesignLine and the second generation Econova ECO Smart LED TV, winner of the EISA award for Best Green TV of the year. These product launches further affirmed Philips commitment to innovation excellence in televisions by providing consumers with superior cinematic viewing experience at home.

Contingent liabilities

Please refer to note 25 to the accountant’s report on the Philips Business as set out in appendix II to this circular for further details on contingent liabilities.

Significant investments, material acquisition and disposals

The Philips Business did not have any significant investments, material acquisition or disposals as at 3 July 2011.

Employment and remuneration policy

Remuneration of the staff mainly comprised contractual monthly salary, pension contributions and bonus entitlements based on their contribution to the Philips Business. The number of full-time employees employed by the Philips Business was approximately 3,200 worldwide whose total emoluments amounted to US$133 million as at 3 July 2011.

Charges

As at 3 July 2011, the Philips Business did not have any charges on its assets.

Foreign exchange risk management

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in this circular is accurate and complete in all material aspects and not misleading or deceptive, and there are no other matters, the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF DIRECTORS’ INTERESTS

As at the Latest Practicable Date, the interests and short positions of the Directors, supervisors and the chief executives of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which the Directors, supervisors and the chief executives of the Company were deemed or taken to have under such provisions of the SFO) or which were required to be and were recorded in the register required to be kept pursuant to Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers adopted by the Company (the “Model Code”) were as follows:

Personal Interests

Approximate percentage Name of Director/ of total registered share Chief Executive Number of shares held capital of the relevant entity

Mr. Lu Ming 201,486 shares of GWSZ (L) 0.0152%

Mr. Tam Man Chi 1,670,817 shares of Great 0.13% Wall Kaifa (L)

Mr. Du Heping 60,000 shares of GWSZ (L) 0.0045% 6,270 shares of Great Wall (L) 0.0005%

Corporate Interests

Approximate percentage of total registered share Name of Director Number of shares held capital of the relevant entity

Mr. Tam Man Chi 106,649,381 shares of 8.10% Great Wall Kaifa (Note)

Note: Broadata (HK) Limited (“Broadata”) held approximately 8.10% of these shares. Flash Bright Investment Limited held 69.08% shares in Broadata. Mr. Tam Man Chi and his spouse held in aggregate 100% equity shares in Flash Bright Investment Limited.

The letter “L” denotes a long position.

343 APPENDIX V GENERAL INFORMATION

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, supervisors and chief executives of the Company had or was deemed to have any interest or short position in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which was required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he/she was taken or deemed to have under such provisions of the SFO) or which was required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein or which was required, pursuant to the Model Code contained in the Listing Rules, to be notified to the Company and the Stock Exchange.

As at the Latest Practicable Date, none of the Directors, supervisors or chief executives of the Company had any interest, direct or indirect, in any asset which have been since 31 December 2010, being the date to which the latest published audited financial statements of the Group were made up, acquired or disposed of by or lease to any member of the Enlarged Group or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

As at the Latest Practicable Date, none of the Directors, supervisors or chief executive of the Company was materially interested in any contract or arrangement entered into by any member of the Group since 31 December 2010, being the date to which the latest published audited financial statements of the Company were made up, and which was significant in relation to the business of the Enlarged Group.

3. DISCLOSURE OF INTEREST OF SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as is known to the Directors, supervisors and chief executives of the Company are aware, the following persons (not being a Director, supervisor or chief executive of the Company) had interests or short positions in the shares and underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or, were directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Enlarged Group, were as follows:

Long position in the shares and underlying shares of the Company

Shareholding percentage of Shareholding Name of Number of issued state-owned percentage of Shareholder Class of shares shares held legal person shares issued Shares

Great Wall Group State-owned legal 743,870,000 100% 62.11% person shares

344 APPENDIX V GENERAL INFORMATION

Since 18 August 2006, Great Wall Group has been wholly owned by CEC which in turn, has become the ultimate controlling shareholder of the Company by holding 62.11% of the Company’s total issued share capital.

Position(s) in Position(s) in the Company Great Wall Group

Mr. Lu Ming Director president and director

Mr. Yang Jun Director director and vice-president

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or senior management had any interest or position in the substantial shareholders of the Company.

Save as disclosed above, so far as is known to the Directors, supervisor and chief executive of the Company, as at the Latest Practicable Date, no other person (other than the Directors, supervisors and chief executives of the Company), had an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, and/or, who was, directly or indirectly, to be interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Enlarged Group.

4. COMPETING INTERESTS

Each of the Directors has confirmed that he and his associates do not have any interests in a business apart from the Enlarged Group’s business, which competes or is likely to compete, either directly or indirectly with the Enlarged Group’s business.

5. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2010, the date to which the latest audited financial statements of the Group were made up.

6. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors, proposed Directors or supervisors of the Company had any existing or proposed service contracts with the Company (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

345 APPENDIX V GENERAL INFORMATION

7. LITIGATION

(a) The Group

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any litigation or claims of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

(b) The Philips Business

Save as disclosed in note 25 (contingent liabilities) to the accountant’s report on the Philips Business as set out in appendix II to this circular, as at the Latest Practicable Date, to the best of the Directors’ knowledge, information and belief and based on the information provided by Philips, the Philips Group was not engaged in any litigation or claim of material importance with respect to the Philips Business and there was no litigation or claim of material importance with respect to the Philips Business known to the Directors to be pending or threatened by or against the Philips Group with respect to the Philips Business.

Pursuant to the Sale and Purchase Agreement, the contingent liabilities set out in note 25 to the accountant’s report on the Philips Business (appendix II to this circular) are excluded from the Philips Contributed Business. In addition, Philips has agreed under the Sale and Purchase Agreement to indemnify JVCo against any losses suffered or incurred by the JV Group arising from any such contingent liabilities.

8. MATERIAL CONTRACTS

(a) The Group

The following contracts (not being contract in the ordinary course of business) have been entered into by the members of the Group within the two years immediately preceding the issue of this circular and are or may be material:

(a) the sale and purchase agreement dated 8 December 2011 entered into among 蘇州冠捷科技有限公司(TPV Technology (Suzhou) Company Limited*), 蘇州市土地儲備中心 (Suzhou Land Reserve Centre*) and 蘇州國家高新技術產業開發區管理委員會 (the Suzhou National New & Hi-Tech Industrial Development Zone Administration Committee*) in relation to the sale and purchase of the land (together with the buildings and other immovable fixed assets attached thereto) situated at the Suzhou National New & Hi-Tech Industrial Development Zone, Suzhou, the Jiangsu Province, the PRC for a consideration of RMB510.0 million (equivalent to approximately US$80.3 million);

346 APPENDIX V GENERAL INFORMATION

(b) the construction design contract dated 18 November 2011 entered into between Huizhou Great Wall Development Technology Company Limited (“Huizhou Development”) and The IT Electronics Eleventh Design and Research Institute Scientific and Technological Engineering Corporation Limited in respect of the construction design of phase I of the production base of Huizhou Development at a consideration of RMB3,840,000;

(d) the subscription agreement dated 1 August 2011 entered into between the Company and China Electronics Finance Co., Ltd pursuant to which the Company agreed to subscribe for RMB100 million of the proposed increase in the registered share capital of China Electronics Finance Co., Ltd. for a subscription amount of RMB133.12 million;

(e) the subscription agreement dated 11 May 2011 entered into between CEC and GWSZ pursuant to which CEC has conditionally agreed to subscribe and GWSZ has conditionally agreed to issue to CEC certain new shares of GWSZ under the non- public share issue of GWSZ at the proposed issue price of not less than RMB8.14 per GWSZ new share for a subscription amount of not more than RMB100 million;

(f) the share sale and purchase agreement dated 11 May 2011 entered into between GWSZ as purchaser and CEIEC (H.K.) Limited (“CEIEC(HK)”) as vendor pursuant to which CEIEC(HK) has conditionally agreed to sell and GWSZ has conditionally agreed to purchase 251,958,647 shares of TPV at the consideration of HK$1,360,576,693.80;

(g) the fiscal agency agreement dated 17 March 2011 between TPV and Citicorp International Limited (as fiscal agent, paying agent, calculation agent, CMU Lodging agent, registrar and transfer agent) for the issue of RMB500,000,000 notes at 4.25% per annum due in March 2014;

(h) the subscription agreement dated 14 March 2011 between TPV (as issuer) and the Royal Bank of Scotland and Industrial and Commercial Bank of China (Asia) Limited (as the joint bookrunners) and the joint lead managers while ABCI Securities Company Limited and CITIC Bank International Limited (as the co-Lead managers) for the issue of RMB500,000,000 notes at 4.25% per annum due in March 2014 for such notes issue;

(i) the third amendment dated 1 February 2011 to the trademark licence agreement dated 9 February 2009 between Philips and TVIL;

(j) the intellectual property agreement dated 31 December 2010 between Philips and AOC relating to a non-exclusive licence from Philips to AOC to use certain intellectual property rights in the PRC;

347 APPENDIX V GENERAL INFORMATION

(k) the intellectual property agreement dated 31 December 2010 between Philips and AOC relating to a non-exclusive licence from Philips to AOC to use certain intellectual property rights in the PRC;

(l) the joint venture agreement dated 27 December 2010 entered into among Shenzhen Kaifa Technology Co., Ltd. (“Great Wall Kaifa”), Epistar JV Holding (BVI) Co., Ltd., Evertop (Fujian) Optoelectronics Co., Ltd. and Country Lighting (BVI) Co, Ltd. pursuant to which the parties agreed to establish a joint venture company in the PRC proposed to be named KFES Lighting Co., Ltd. subject to the terms and conditions provided therein. The capital commitment by Great Wall Kaifa under the joint venture agreement is US$52,800,000, representing 44% interest in the joint venture company;

(m) the placing agreement dated 1 November 2010 among Kaifa Technology (HK) Limited, O-Net Holdings (BVI) Limited, O-Net Communications (Group) Ltd., Piper Jaffray Asia Securities Limited and Nomura International (Hong Kong) Limited pursuant to which, among other things, Kaifa Technology (HK) Limited agreed to place 25,293,000 shares at the price of HK$5.5 per share (i.e. a consideration of HK$139,111,500 before the relevant expenses) in O-Net Communication (Group) Ltd. through Piper Jaffray Asia Securities Limited and Nomura International (Hong Kong) Limited, the placing agents, to independent individual, corporate, institutional or other professional investors subject to the terms and conditions provided therein;

(n) the share purchase agreement dated 1 November 2010 between HannStar Display Corporation (‘‘HannStar’’), Brightstar Resources Limited (‘‘Brightstar’’) (a subsidiary of HannStar) and TVIL relating to the sale of BrightStar’s 80% shareholding in HannStar Display (Wuhan) Limited to TVIL for a consideration of US$3,400,000;

(o) the share purchase agreement dated 29 September 2010 entered into between Philips (as seller), AOC (as buyer) and the Company (as guarantor) relating to the acquisition by AOC of the LCD colour TV business of Philips in the PRC for a total consideration of €1,200,000 and RMB300,000 for the spare parts (subject to adjustments);

(p) the deed of indemnity dated 29 September 2010 between Philips and AOC relating to the acquisition by AOC of the LCD colour TV business in the PRC;

(q) the trademark licence agreement dated 29 September 2010 between Philips, AOC and TPV relating to the licence and grant by Philips to AOC of the exclusive right to use the Philips brand in the PRC;

(r) the agreement dated 29 September 2010 entered into between Philips, AOC and TPV for granting to AOC and its affiliates an exclusive right and license to use the certain Philips trademarks on certain TVs and related promotional materials in the PRC;

348 APPENDIX V GENERAL INFORMATION

(s) the share purchase agreement dated 29 September 2010 between Philips (as seller), AOC (as buyer) and TPV (as guarantor) relating to the acquisition by AOC of the LCD colour TV business of Philips in the PRC for a total consideration of €1,200,000 and RMB300,000 for the spare parts (subject to adjustments);

(t) the deed of indemnity dated 29 September 2010 between Philips and AOC relating to the acquisition by AOC of the LCD colour TV business in the PRC;

(u) the trademark licence agreement dated 29 September 2010 between Philips, AOC and TPV relating to the licence and grant by Philips to AOC of the exclusive right to use the word mark ‘‘Philips’’ and the Philips shield emblem in the PRC;

(v) the second amendment dated 20 September 2010 to the trademark licence agreement dated 9 February 2009 between Philips and TVIL;

(w) the financial services agreement dated 17 September 2010 entered into between Great Wall Kaifa and CEC Finance Co., Ltd. pursuant to which CEC Finance Co. Ltd. agreed to provide to Great Wall Kaifa the deposit services, loan services, settlement services, general strategic advisory services and other financial services subject to the terms and conditions provided therein, including the deposit amount to be placed by Great Wall Kaifa shall not exceed RMB600,000,000 and the daily balance for the loan and loan guarantee services to be provided by CEC Finance Co., Ltd. shall not exceed RMB600,000,000;

(x) the joint venture agreement dated 17 September 2010 between TPV and AU Optronics Corporation (“AUO”) (an independent third party) to (i) manufacture LCD modules and backlight units, (ii) sell LCD Modules produced by Brivictory Indústria de Eletrônicos Ltda. for sales in the territory of South America and (iii) conduct business related research and development in Manaus, Brazil. The total capital contribution for joint venture company is US$16 million of which TPV will contribute 81% (US$12.96 million) in cash and AUO will contribute 19% (US$3.04 million) in cash;

(y) the equity transfer agreement dated 11 August 2010 entered into between the Company, GWSZ and Great Wall Kaifa, as vendors, and CITIC Networks Co., Ltd., as purchaser, pursuant to which (i) the Company, GWSZ and Great Wall Kaifa agreed to sell and CITIC Netoworks Co., Ltd. agreed to purchase together 50% of the capital of Great Wall Broadband Network Service Co., Ltd.; and (ii) the Company and GWSZ together agreed to dispose of the entire amount of loan owing by Great Wall Broadband Network Service Co., Ltd. to them and CITIC Networks Co., Ltd. agreed to purchase such loan, at a total consideration of RMB323,797,891.41 subject to the terms and conditions provided therein;

349 APPENDIX V GENERAL INFORMATION

(z) the equity transfer agreement dated 24 June 2010 entered into between the Company, GWSZ and Great Wall Kaifa, as vendors, and Chengdu Dr. Peng Telecom & Media Group Co., Ltd., as purchaser, pursuant to which (i) the Company, GWSZ and Great Wall Kaifa agreed to sell and Chengdu Dr. Peng Telecom & Media Group Co., Ltd. agreed to purchase together 50% of the capital of Great Wall Broadband Network Service Co., Ltd.; and (ii) the Company and GWSZ together agreed to dispose of the entire amount of loan owing by Great Wall Broadband Network Service Co., Ltd. to them and Chengdu Dr. Peng Telecom & Media Group Co., Ltd. agreed to purchase such loan, at a total consideration of RMB323,797,891.41 subject to the terms and conditions provided therein;

(aa) the joint venture agreement dated 15 June 2010 entered into between TVIL, Epistar JV Holding (BVI) Co., Ltd (“Epistar”) and Everlight (BVI) Co., Ltd. (“Everlight”) relating to the establishment of a joint venture company to be incorporated in Fujian, the PRC in the name of Evertop optoelectronics Co., Ltd 億冠晶（福建）光電有限公司). The initial paid up capital for the joint venture is US$25 million of which TVIL will contribute 25% (US$6.25 million), Everlight will contribute 65% (US$16.25 million) and Epistar will contribute 10% (US$2.5 million);

(bb) the joint venture agreement dated 11 June 2010 entered into between TVIL and Inventec (Cayman) Corporation relating to the establishment of a joint venture company to be incorporated in Hong Kong as a private company limited by shares in the name of TPV-INVENTA Holding Limited (英冠達控股有限公司). The total initial investment amount for the new joint venture is US$20 million of which TVIL will contribute 51% (US$10.2 million) and Inventec (Cayman) Corporation will contribute 49% (US$9.8 million);

(cc) the joint venture agreement dated 12 March 2010 between AUO and TPV relating to establishments of BriVictory Display Technology (Labuan) Co., Ltd in Labuan, Malaysia and a wholly-owned subsidiary BriVictory Display Technology (Poland) Sp zoo in Poland. The total capital contribution for BriVictory Display Technology (Labuan) Co., Ltd is US$40 million of which TPV will contribute 49% (US$19.6 million) in cash and AUO will contribute 51% (US$20.4 million) in cash;

(dd) the subscription agreement dated 28 January 2010 between TPV (as issuer) and Mitsui (as subscriber), relating to the subscription of the 234,583,614 new Shares by Mitsui at the subscription price of HK$5.20 per Share for a total subscription amount of HK$1,219,834,793.00;

(ee) the amendment letter dated 28 January 2010 among TPV, TVIL, a wholly-owned subsidiary of TPV, and Philips to amend and waive certain rights under the share purchase agreement between Philips and TPV dated 15 June 2005, the component sourcing agreement dated 6 October 2009 between TPV and Philips and the trademark license agreement dated 9 February 2009 between TVIL, TPV and Philips;

350 APPENDIX V GENERAL INFORMATION

(ff) the amendment letter dated 28 January 2010 among TPV and Philips Consumer Lifestyle International B.V. to amend and waive a certain right under the supply agreement dated 5 September 2005 between TPV and Philips Consumer Lifestyle International B.V.;

(gg) the subscription agreement dated 28 January 2010 entered into between TPV and Mitsui & Co., Ltd. pursuant to which TPV agreed to issue and Mitsui & Co., Ltd. agreed to subscribe an aggregate of 234,583,614 new TPV Shares for a total subscription amount of HK$1,219,834,793 subject to the terms and conditions provided therein;

(hh) the joint venture agreement dated 11 January 2010 between ChungHwa Picture Tubes (Bermuda) Ltd (an independent third party), TVIL (a wholly-owned subsidiary of TPV) and MinDong Electric (Group) Co., Ltd (an independent third party) relating to CPT TPV Optical (Fujian) Co., Ltd in Fujian, PRC. The initial capital contribution for CPT TPV Optical (Fujian) Co., Ltd is US$22.5 million of which ChungHwa Picture Tubes (Bermuda) Ltd will contribute 5% (US$1,125,000) in cash, TVIL will contribute 20% (US$4.5 million) and MinDong Electric (Group) Co., Ltd will contribute 75% (US$16,875,000) in cash;;

(ii) the joint venture agreement dated 30 December 2009 between Top Victory (a wholly- owned subsidiary of TPV) and Qingdao Huatong State-owned Capital Operation (Group) Co., Ltd (an independent third party) relating to the establishment of TPV Technology (Qingdao) Co., Ltd in Qingdao, PRC;

(jj) the joint venture agreement dated 30 December 2009 between TVIL and Qingdao Huatong State-owned Capital Operation (Group) Co., Ltd (an independent third party) relating to the establishment of TPV Technology (Qingdao) Co., Ltd in Qingdao, the PRC. The initial capital contribution for TPV Technology (Qingdao) Co., Ltd is US$30 million of which TVIL will contribute 80% (US$24 million) in cash and Qingdao Huatong State-owned Capital Operation (Group) Co., Ltd will contribute 20% (US$6 million) in cash;

(kk) the economic area agreement dated 28 December 2009 between TVIL and Administrative Committee of Beijing Economic-Technological Development Area (an independent third party) regarding certain land use rights in Beijing, the PRC for a total consideration of approximately US$4.4 million;

(ll) the share transfer agreement dated 28 December 2009 entered into between the Company and China National Software and Service Co Ltd (“China Software”) pursuant to which the Company conditionally agreed to transfer to China Software its 34.90% equity interest in Great Wall Computer Software and Systems Incorporation Limited (“Great Wall Software”) for a consideration of RMB46,501,600;

(mm) the share transfer agreement dated 28 December 2009 entered into between GWSZ and China Software pursuant to which GWSZ conditionally agreed to transfer to China Software its 34.51% equity interest in Great Wall Software for a consideration of RMB45,970,500; and

351 APPENDIX V GENERAL INFORMATION

(nn) the economic area agreement dated 28 December 2009 between TVIL (a wholly- owned subsidiary of TPV) and Administrative Committee of Beijing Economic- Technological Development Area (an independent third party) regarding certain land use rights in Beijing, PRC for a total consideration of approximately US$4.4 million.

(b) The Philips Business

Based on the information provided by Philips, the following contracts, not being contracts entered into in the ordinary course of business, were entered into by the Philips Group in connection with the Philips Business within two years immediately preceding the Latest Practicable Date and are or may be material to the Philips Business:

(i) the technology license agreement dated 1 June 2011 between Philips, Philips Consumer Lifestyle International B.V. and Sharp Corporation (“Sharp”) relating to the license and grant by Philips to Sharp of certain intellectual property rights for a consideration of EUR300,000 (equivalent to approximately US$420,000); and

(ii) the technology assignment agreement dated 15 August 2011 between Philips Consumer Lifestyle International B.V. and Sharp relating to the assignment of certain knowhow from Philips Consumer Lifestyle International B.V. to Sharp for a consideration of EUR1,200,000 (equivalent to approximately US$1,680,000) with effect from 31 December 2010 and an amendment agreement to such technology assignment agreement dated 22 September 2011.

9. EXPERT AND CONSENT

The followings set out the qualifications of the experts who have given opinion or advice on the information contained in this circular:

Name Qualification

Somerley a corporation licensed under the SFO for carrying out type 1 (dealing in securities), type 4 (advising on securities, type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO

SHINEWING (HK) CPA Limited Certified Public Accountants (“SHINEWING”)

PricewaterhouseCoopers (“PwC”) Certified Public Accountants

Jones Lang LaSalle Sallmanns Professional valuers Limited (“JLLS”)

352 APPENDIX V GENERAL INFORMATION

(a) As at the Latest Practicable Date, Somerley, SHINEWING, PwC and JLLS had no interest, direct or indirect, in the share capital of any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

(b) As at the Latest Practicable Date, Somerley, SHINEWING, PwC and JLLS had no interest, direct or indirect, in any assets which have been since 31 December 2010, the date to which the latest published audited financial statements of the Company were made up, acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

(c) Each of Somerley, SHINEWING, PwC and JLLS has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its opinion, letter of advice and references to its name (as the case may be) in the form and context in which it appears.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at 2201, H.K. Worsted Mills Industrial Building, 31-39 Wo Tong Tsui Street, Kwai Chung, New Territories, Hong Kong during normal business hours up to and including the date which is 14 days from the date of this circular.

(a) the memorandum and articles of association of the Company;

(b) the Sale and Purchase Agreement;

(d) the Argentina JV Shareholders Agreement;

(e) the Trademark License Agreement;

(f) the Secondary Trademark License Agreement;

(g) the Intellectual Property Agreement;

(h) the Transitional Services Agreement;

(i) the IT Transitional Service Level Agreement;

(j) the Remote Control Sale Agreement;

(k) the NET TV License and Services Agreement;

(l) the Online Shop and My Shop Agreement;

353 APPENDIX V GENERAL INFORMATION

(m) the Employee Shop Agreements;

(n) the Brazil Lease Agreement;

(o) the Amendment to the Dixtal Lease Agreement;

(p) the Hungary Lease and Service Agreement;

(q) the Tax Audit Service Agreement;

(r) other material contracts referred to in the paragraph headed “Material Contracts” in this appendix;

(s) the annual report of the Company for each of the two years ended 31 December 2010;

(t) the interim report of the Company of the six months ended 30 June 2011;

(u) the letter of recommendation from the Independent Board Committee to the independent Shareholders, the text of which is set out on pages 77 to 78 of this circular;

(v) letter from Somerley, the text of which is set out on pages 79 to 129 of this circular;

(w) the accountant’s report in respect of the Philips Business, the text of which is set out in Appendix II to this circular;

(x) the accountant’s report in respect of the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix III to this circular;

(y) the written consents referred to in the paragraph headed “Consents of Experts” in this appendix;

(z) this circular;

(aa) the circular of the Company dated 26 May 2011 in respect of, among other things, a major and connected transaction; and

(bb) the circular of the Company dated 6 July 2011 respect of continuing connected transactions.

354 APPENDIX V GENERAL INFORMATION

11. GENERAL

(a) The company secretary of the Company is Mr. Siu Yuchun, a fellow of the Hong Kong Institute of Certified Public Accountants and the Association of Certified Chartered Accountants in the United Kingdom. Mr. Siu also holds a Bachelor degree in economics from Acadia University, Canada and a Master degree in business administration from Dalhousie University, Canada.

(b) The Company’s H shares registrar and transfer office is Hong Kong Registrars Ltd., Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

(c) The legal address of the Company is No. 2, Keyuan Road, Technology & Industry Park, Nanshan District, Shenzhen, the PRC.

(d) The English text of this circular shall prevail over the Chinese text in the case of any inconsistency.

355 NOTICE OF EXTRAORDINARY GENERAL MEETING

GWT 長城科技股份有限公司 Great Wall Technology Company Limited (A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 0074)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT an extraordinary general meeting (“EGM”) of the Company will be held at 16th Floor, Great Wall Technology Building, No. 2 Keyuan Road, Technology and Industry Park, Nanshan District, Shenzhen, PRC on 21 February 2012 at 9:30 a.m. to consider and if thought fit, pass with or without amendments, the following resolution:

ORDINARY RESOLUTIONS

(1) “THAT subject to and conditional upon the passing of Resolution numbered 2 below:

(a) the acquisition by MMD, the Company’s subsidiary, of a 70% equity interest in JVCo from Philips pursuant to the terms and conditions of the Sale and Purchase Agreement (a copy of which has been produced to the Meeting and marked “A” and signed by the Chairman of the Meeting for the purpose of identification) and as further described in the circular dated 23 December 2011 to Shareholders (a copy of which has been produced to the Meeting and marked “B” and signed by the Chairman of the Meeting for the purpose of identification (the “Circular”)) in consideration of the Deferred Purchase Price be and is hereby approved, confirmed and ratified;

(b) the grant of the Philips Put Options pursuant to the terms and conditions of the Shareholders Agreement (a copy of which has been produced to the Meeting and marked “C” and signed by the Chairman of the Meeting for the purpose of identification) and as further described in the Circular be and are hereby approved and confirmed; and

(c) the Directors be and are hereby authorised to do all such acts and things on behalf of the Company as they may, in their absolute discretion, consider necessary, desirable or expedient in connection herewith.”

(2) “THAT subject to and conditional upon the passing of Resolution numbered 1 above:

(a) the Continuing Connected Transactions to be entered into between JVCo (and/or its associates) and Philips (and/or its associates) at Completion (details of which are contained in the section entitled “(IV) Licensing of Philips Trademarks and Philips Secondary Trademarks for the Philips Contributed Business”, “(V) Entering into of the Intellectual Property Agreement”, “(VI) Entering into of the Auxilary Agreements” and “(VII) Entering into of the Reversed Auxiliary Agreements” on pages 42 to 67 of the Circular) be and are hereby approved and confirmed AND the fixing of the respective Annual Caps of the Continuing Connected Transactions as disclosed in the Circular be and is hereby approved and confirmed; and 356 NOTICE OF EXTRAORDINARY GENERAL MEETING

(b) the Directors be and are hereby authorised to do all such acts and things on behalf of the Company as they may, in their absolute discretion, consider necessary, desirable or expedient in connection herewith.”

By order of the Board Great Wall Technology Company Limited Liu Liehong Chairman

Shenzhen, PRC, 23 December 2011

Notes:

1. The register of members of the Company will be closed from 20 January 2012 to 21 February 2012, both days inclusive, during which period no transfer of shares will be effected. In order to qualify to attend and vote at the EGM, holders of H shares shall lodge all share transfers accompanied by the relevant share certificates with the H share registrar of the Company, Computershare Hong Kong Investor Services Limited at Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong no later than 4:30 p.m. on 19 February 2012.

2. Holders of H shares and domestic shares whose names appear on the register of members of the Company at the close of business on 19 January 2012 are entitled to attend and vote at the EGM and may appoint one or more proxies to attend and vote in his stead. A proxy need not be a shareholder of the Company.

3. In order to be valid, the form of proxy, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power of attorney or other authority, must be deposited to the H share registrar of the Company Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong (for holders of H shares) or the legal address of the Company (for holders of domestic shares) not less than 24 hours before the time appointed for holding the EGM or any adjournment thereof.

4. Shareholders who intend to attend the EGM should complete and return the reply slip by hand, by post or by facsimile to the legal address of the Company on or before 1 February 2012.

5. Voting at the EGM will be conducted by way of poll.

6. The legal address and head office of the Company is as follows:

No. 2 Keyuan Road, Technology and Industry Park, Nanshan District, Shenzhen, 518057 PRC Tel: 86 755 2672 8686 Fax: 86 755 2650 4493

7. The EGM is expected to take half a day. Shareholders or their proxies attending the EGM shall be responsible for their own travel and accommodation expenses. Shareholders or their proxies shall produce their identification documents for verification when attending the EGM.

8. As at the date of this notice, the board of directors of the Company comprises:

Executive Directors: Independent Non-executive Directors: Mr. Liu Liehong (Chairman) Mr. Yao Xiaocong Mr. Lu Ming Mr. James Kong Tin Wong Mr. Tam Man Chi Mr. Zeng Zhijie Mr. Yang Jun Mr. Su Duan Mr. Du Heping

357