BOE TECHNOLOGY GROUP CO., LTD - Annual Report 2003

BOE TECHNOLOGY GROUP CO., LTD.

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003

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12th Floor, Shui On Plaza 333 Huai Hai Zhong Lu Shanghai 200021 People's Republic of China Telephone +86 (21) 6386 3388 Facsimile +86 (21) 6386 3300

Report of the auditors

To the shareholders of BOE Technology Group Co., Ltd.

We have audited the accompanying consolidated balance sheet of BOE Technology Group Co., Ltd. (the Company) and its subsidiaries (the Group) as of 31 December 2003 and the related consolidated income and cash flow statements for the year then ended. These financial statements set out on pages 2 to 45 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements present fairly in all material respects, the financial position of the Group as of 31 December 2003 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd.

23 April 2004

BOE TECHNOLOGY GROUP CO., LTD. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003

(all amounts in RMB thousands) Notes Sales 1 Cost of sales 1 Gross profit Other operating income Distribution costs Administrative expenses Other operating expenses Profit from operations 2 Finance costs - net 3 Group profit before tax Available-for-sale investments - losses Share of result of associates before tax Profit before tax Income tax expenses 5 Group profit before minority interest Minority interests 29 Net profit Basic earnings per share 6	Year ended 31 December
	2003 2002 11,180,106 4,782,587 (9,452,729) (4,147,036)
	1,727,377 635,551 39,745 18,979 (288,021) (160,302) (792,720) (274,640) (20,544) (4,301)
	665,837 215,287 (235,550) (65,542)
	430,287 149,745 (11,047) (5,761) 100,092 72,922
	519,332 216,906 (30,003) (51,356)
	489,329 165,550 (78,095) (86,550)
	411,234 79,000
	Rmb0.62 Rmb0.12

The accounting policies on pages 7 to 17 and the notes on pages 18 to 45 form an integral part of these consolidated financial statements.

BOE TECHNOLOGY GROUP CO., LTD. CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2003

	As at 31 December	As at 31 December
2003 4,221,901 14,780 41,438 109,797 1,901,399 66,474 173 10,759 125,547	2003 6,492,268 5,548,182	2002 1,326,218 17,430 96,924 100,266 741,841 93,200 22 3,753 15,664	2002 2,395,318 4,383,976
1,248,919 2,247,804 2,051,459		560,402 1,529,348 2,294,226
659,465 1,040,984 423,166 445,465		549,554 1,150,895 280,767 195,174
	12,040,450		6,779,294
	2,569,080 525,602 2,230,674 6,715,094		2,176,390 457,862 357,667 3,787,375
1,766,291 8,383 14,643 441,357		268,804 9,523 6,428 72,912
2,426,082 13,530 4,249,483 25,999		1,481,219 28,751 2,263,875 13,530

	8,945,768		4,145,042
	12,040,450		6,779,294

The accounting policies on pages 7 to 17 and the notes on pages 18 to 45 form an integral part of these consolidated financial statements.

BOE TECHNOLOGY GROUP CO., LTD.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2003

		Ordinary	Share		Retained
(all amounts in RMB thousands)	Notes	shares	premium	Other reserves	earnings	Total
Balance at 1 January 2002		549,554	1,150,895	235,871	176,690	2,113,010
Addition of capital reserves		-	-	4,412	-	4,412
Dividends relating to 2001	7	-	-	-	(27,478)	(27,478)
Net profit		-	-	-	79,000	79,000
Currency translation differences				7,446	-	7,446
Provision of general reserves	30	-	-	33,038	(33,038)	-
Balance at 31 December 2002/ 1 January 2003		549,554	1,150,895	280,767	195,174	2,176,390
Conversion of share premium to
ordinary shares	28	109,911	(109,911)	-	-	-
Net profit		-	-	-	411,234	411,234
Currency translation differences	30	-	-	(18,544)	-	(18,544)
Provision of general reserves	30	-	-	160,943	(160,943)	-
Balance at 31 December 2003		659,465	1,040,984	423,166	445,465	2,569,080

The accounting policies on pages 7 to 17 and the notes on pages 18 to 45 form an integral part of these consolidated financial statements.

BOE TECHNOLOGY GROUP CO., LTD.

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003

(all amounts in RMB thousands) Notes Cash flows from operating activities Net profit Adjustments for: Minority interests 29 Tax 5 Depreciation 8,9 Amortisation 2 Impairment charge and write off 2 Loss on sale of property, plant and equipment 2 Finance costs 3 Share of result before tax of associates 12 Changes in working capital: Inventories Trade and other receivables Pensions and other retirement benefits Payables Cash generated from operations Interest received 2 Tax paid Net cash from operating activities Cash flows from investing activities Acquisition of subsidiary, net of cash acquired Purchase of property, plant and equipment Purchase of intangible assets Purchase of available-for-sale investments Purchase of association Disposal of subsidiary, net of cash disposed Proceeds from sale of property, plant and machinery Dividends received Net cash used in investing activities Cash flows from financing activities Proceeds from convertible bonds Proceeds from minority interest Proceeds from borrowings Proceeds from other financial activities Repayments of borrowings Dividends paid to group shareholders Dividends paid to minority interests Interest paid Payment for other financing activities Net cash from financing activities Effects of exchange rate changes Increase/(Decrease) in cash and cash equivalents Cash and cash equivalent at beginning of year Cash and cash equivalent at end of year 18	Year ended 31 December
	2003 2002 411,234 79,000 78,095 86,550 18,889 47,189 615,248 136,756 23,968 22,091 109,756 28,358 6,475 188 211,824 64,644 (100,092) (72,922) (381,001) (152,479) (129,678) (748,400) 8,215 6,428 (183,185) 712,276
	689,748 209,679 39,651 8,629 (20,193) (25,669)
	709,206 192,639
	(2,433,235) (526,396) (643,878) (255,880) (15,505) (34,170) (84) (25,171) (1,174,623) (11,443) 1,389 2,704 15,716 179 20,442 3,733
	(4,229,778) (846,444)
	- 130,720 - 134,512 8,811,082 3,332,947 104,413 (5,352,148) (1,787,367) (13,434) (42,487) (3,864) (7,840) (216,241) (80,359) (34,019) (17,795)
	3,295,789 1,662,331
	(17,984) 16,502
	(242,767) 1,025,028 2,294,226 1,207,639
	2,051,459 2,232,667

The accounting policies on pages 7 to 17 and the notes on pages 18 to 45 form an integral part of these consolidated financial statements.

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

GENERAL INFORMATION

BOE Technology Group Co., Ltd. (the Company) was founded in 1993 in Beijing, the People’s Republic of China (PRC). It was reorganized into a joint stock limited company in 1997 and is registered in Beijing. The Company and its subsidiaries are collectively referred to as the Group.

The Group manufactures and sells electronic products, invests in enterprises engaged in the manufacturing of electronic products and provides property management services to properties it owns. The Group has operations in more than five countries and employs over 10,007 employees (2002: 6,386).

The parent company of the Group is Beijing Orient Investment and Development Co., Ltd., which is a state-owned enterprise registered in Beijing, PRC.

The Company has its primary listing on the Shenzhen Stock Exchange issuing B shares in 1997, with further offerings of A Shares on the Shenzhen Stock Exchange in 2000.

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below:

A Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). This basis of accounting differs from that used in the preparation of the Group's statutory financial statements (“PRC statutory financial statements”). The financial statements of the Company and its subsidiaries comprising the Group have been prepared in accordance with the relevant accounting principles and regulations applicable to them. Appropriate adjustments have been made to these financial statements to conform with IFRS.

The consolidated financial statements have been prepared under the historical cost convention except those disclosed in the accounting policies below.

The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current event and actions, actual results ultimately may differ from those estimates.

In 2001, the Group adopted IAS 39 Financial Instruments: Recognition and Measurement and IAS 40 Investment Property. The financial effects of adopting these standards were reported in the previous year’s consolidated financial statements.

B Group accounting

(1) Subsidiaries

Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated. The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill. See note F for the accounting policy on goodwill. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group.

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

ACCOUNTING POLICIES (continued)

B Group accounting (continued)

(2) Associates

Investments in associates are accounted for by the equity method of accounting. Under this method the company’s share of the post-acquisition profits or losses of associates is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Associates are entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Group’s investment in associates includes goodwill (net of accumulated amortisation) on acquisition. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not to recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates.

(3) Joint ventures

The Group’s interests in jointly controlled entities are accounted for by proportionate consolidation. The Group combines its share of the joint ventures’ individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in the Group’s financial statements. The Group recognises the portion of gains or losses on the sale of assets by the Group to the joint venture that it is attributable to the other venturers. The Group does not recognise its share of profits or losses from the joint venture that result from the purchase of assets by the Group from the joint venture until it resells the assets to an independent party. However, if a loss on the transaction provides evidence of a reduction in the net realisable value of current assets or an impairment loss, the loss is recognised immediately.

C

Foreign currency translation

(1) Measurement currency

Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (“the measurement currency”). The consolidated financial statements are presented in Renminbi, which is the measurement currency of the parent.

(2) Transactions and balances

Foreign currency transactions are translated into the measurement currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement.

Translation differences on debt securities and other monetary financial assets measured at fair value are included in foreign exchange gains and losses. Translation differences on non-monetary items such as equities held for trading are reported as part of the fair value gain or loss. Translation differences on available-for-sale equities are included in the revaluation reserve in equity.

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

ACCOUNTING POLICIES (continued)

C

Foreign currency translation (continued)

(3) Group companies

Income statements and cash flows of foreign entities are translated into the Group’s reporting currency at average exchange rates for the year and their balance sheets are translated at the exchange rates ruling on 31 December. Exchange differences arising from the translation of the net investment in foreign entities and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign entity is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

D

Property, plant and equipment

Property, plant and equipment are stated at historical cost less depreciation. Cost includes its purchase price, including import duties and non-refundable purchase taxes, and any directly attributable costs of bringing the asset to working condition for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price. Cost incurred to construct property, plant and equipment over one year is recorded as construction in progress and transferred to property, plant and equipment when the construction is ready for intended use.

Depreciation is calculated on the straight-line method to write off the cost of each asset, to their residual values over their estimated useful life as follows:

Buildings 20-40 years Plant and machinery 2-15 years Motor vehicles 2-10 years

Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit.

Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised, during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed.

Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset.

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

ACCOUNTING POLICIES (continued)

E

Investment property

Investment property, principally comprising office buildings, is held for long-term rental yields and is not occupied by the Group. Investment property is treated as a long-term investment and is stated at historical cost less depreciation and impairment. Depreciation is calculated on the straight-line method to write off the cost of each property, to their residual values over their estimated useful lives ranging from 20 to 40 years.

F Intangible assets

(1) Goodwill (Negative goodwill)

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share in the net assets of the acquired subsidiary/associated at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investment in associates. Goodwill is amortised using the straight-line method over its estimated useful life, not exceeding 20 years.

At each balance sheet date, the Group assesses whether there is any indication of impairments. If such indications exist, an analysis is performed to assess whether the carrying amount of goodwill is fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount.

Negative goodwill represents the excess of fair value of the Group’s share of the net assets acquired over cost of acquisition. Negative goodwill is presented in the same balance sheet classifications as goodwill. To the extent that negative goodwill relates to expectations of future losses and expenses that are identified in the Group’s plan for the acquisition and can be measured reliably, but which do not represent identifiable liabilities, that portion of negative goodwill is recognised in the income statement when the future losses and expenses are recognised. Any remaining negative goodwill, not exceeding the fair values of the non-monetary assets acquired, is recognised as income over 10 years which is the remaining weighted-average useful life of the identifiable acquired depreciable/amortisable assets; the portion of negative goodwill in excess of the fair values of the acquired identifiable non-monetary assets is recognised as income immediately.

(2) Research and development

Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and only if the cost can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit, not exceeding five years.

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BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

ACCOUNTING POLICIES (continued)

F Intangible assets (continued)

(3) Computer software development cost

Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with identifiable and unique software products controlled by the Group and have probable economic benefits exceeding the cost beyond one year, are recognised as intangible assets. Direct costs include staff costs of the software development team and an appropriate portion of relevant overheads.

Expenditure that enhances or extends the performance of computer software programmes beyond their original specifications is recognised as a capital improvement and added to the original cost of the software. Computer software development costs recognised as assets are amortised using the straight-line method over their useful lives.

(4) Technology rights

Technology rights are confidential techniques or experience that has been applied to productions or operation. Expenditure on acquired technology rights is capitalised and amortised using the straight-line method over their useful lives, but not exceeding 10 years.

(5) Other intangible assets

Expenditure on acquired patents, trademarks and licences is capitalised and amortised using the straight-line method over their useful lives, but not exceeding 10 years. Intangible assets are not revalued.

G

Impairment of long lived assets

Property, plant and equipment and other non-current assets, including goodwill and intangible assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows.

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BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

ACCOUNTING POLICIES (continued)

H

Investments

The Group classified its investments in debt and equity securities into the following categories: trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of the purchase and reevaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets; for the purpose of these financial statements short term is defined as 3 months; during the year the Group did not hold any investments in this category. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date which are classified as current assets. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; and are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets.

Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading and available-for-sale investments are subsequently carried at fair value. Held-to-maturity investments are carried at amortised cost using the effective yield method. Unrealised gain and losses arising from changes in the fair value of securities classified as available-for-sale are recognised in equity. Equity securities for which fair values cannot be measured reliably are recognised at cost less impairment. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities.

I

Land use rights

Land use rights are the rights granted to the Group to develop, use and/or operate on a parcel of land within a pre-approved period of time. Upfront lump sum usage fees prepaid are recorded as land use rights, which are amortised on the straight-line basis over the pre-approved period, normally 50 years.

J

Leases

(1) A Group company is the lessee

Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the assets or the lease term.

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BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

ACCOUNTING POLICIES (continued)

J Leases (continued)

(1) A Group company is the lessee (continued)

Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

(2)

A Group company is the lessor

Assets leased out under operating leases are included in property, plant and equipment in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term.

K

Inventories

Inventories are stated at the lower of cost or net realisable value. Cost is determined by the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity), but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses.

L

Trade receivables

Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers.

M Loan to employee

Loans provided to employees for their welfare such as housing are recognised as loans to employees. Long-term loans are initially recognised at fair value and subsequently carried at amortised cost using the effective yield method. The fair value on initial recognition is based on discounted cash flows using a discount rate based on the borrowing rate which the directors expect would be available to the borrower.

N Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less.

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BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

ACCOUNTING POLICIES (continued)

O Share capital

(1)
Ordinary shares are classified as equity.
(2) Incremental external costs directly attributable to the issue of new shares, other than in connection with business combination, are shown in equity as a deduction, net of tax, from the proceeds. Share issue costs incurred directly in connection with a business combination are included in the cost of acquisition.

P Borrowings

Borrowings are recognised initially at the proceeds is received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings.

When convertible bonds are issued by the Group’s subsidiary, the fair value of the convertible bonds is determined using a market interest rate for an equivalent nonconvertible bond; this amount is carried as liabilities on the amortised cost basis until extinguished on conversion or maturity of the bonds.

Q Deferred income tax

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax.

Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary difference can be utilized.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

R Employee benefits

The Group participates in defined contribution employee benefits plans by respective local governments. Under the plans, the Group’s contribution is based on defined percentage of salaries and wages subject to certain salary ceilings. Contributions to the plans are charged to the income statement as incurred.

BOE Hydis Technology Co., Ltd. (“BOE-Hydis”) and Hyundai LCD, Inc. (“Hyundai LCD”), subsidiaries of the Company incorporated in the Republic of Korea, provide postemployment benefits to their employees and directors according to the statutory requirement. The subsidiaries’ employees and directors with more than one year of service are entitled to receive a lump-sum payment upon termination of their employment depending on their length of service and rate of pay at the time of termination, regardless of the reason for termination.

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BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

ACCOUNTING POLICIES (continued)

R

Employee benefits (continued)

The defined benefit plan costs are assessed using the projected unit credit method: the cost of providing benefits is charged to the income statement so as to spread the regular cost over the service lives of employees. The defined benefit obligation is measured at the present value of the estimated future cash outflows using discount rates determined based on high quality fixed interest corporate bonds or Korean government bonds. Actuarial gains and losses are recognised over the average remaining service lives of employees.

S

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

(1) Warranty

The Group recognises the estimated liability to repair or replace products still under warranty at the balance sheet date. This provision is calculated based on historical data of the level of repairs and replacements.

(2) Employee compensated absences entitlement

Employee compensated absences entitlement is provided by Hyundai LCD Inc. and BOE-Hydis to their employees. Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave and long-service leave as a result of services rendered by employees up to the balance sheet date.

T

Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.

Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs they are intended to compensate.

Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as other liabilities and are credited to the income statement on a straight line basis over the expected lives of the related assets.

Other government grants are recognized as income upon receipt.

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BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

ACCOUNTING POLICIES (continued)

U

Revenue recognition

Revenue comprises the invoiced value for the sale of goods and services net of valueadded tax, rebates and discounts, and after eliminating sales within the Group. Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Revenue from rendering of services is based on the stage of completion determined by reference to services performed to date as a percentage of total services to be performed.

Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. Dividends are recognised when the right to receive payment is established.

V Dividends

Dividends are recorded in the Group’s financial statements in the period in which they are approved by the Group’s shareholders.

W Segment reporting

Business segments provide products or services that are subject to risks and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments.

X Business combination

Business combinations which are acquisitions are accounted for by using the purchase method of accounting. Cost of acquisition is the amount of cash or cash equivalent paid and fair value of the other purchase consideration given by the Company plus any cost directly attributable to the acquisition. All acquired assets and liabilities are initially recognized at fair value. Any excess, at the date of the exchange transaction, of the Company’s interest in the fair values of the identifiable assets and liabilities acquired over the cost of the acquisition, is recognised as negative goodwill and is amortised over the weighed-average useful life of the non-monetary assets acquired or recognised as income when the future losses identified in the acquirer’s plans occur.

Y Comparatives

Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.

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BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

Financial Risk Management

(1) Financial risk factors

The Group’s activities expose it to a variety of financial risks, including the effects of changes in debt and equity market prices, foreign currency exchange rates and interest rates. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group.

The overall responsibility for the implementation of the Group’s financial risk management policies lies with the Board of Directors.

(i) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures primarily with respect to Korean Won (KRW). BOE-Hydis uses forward contracts to buy or sell KRW to hedge their exposure to foreign exchange risk.

(ii) Interest rate risk

The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group has no significant interest bearing assets. However, the Group has borrowings bearing variable interest rates and does not use interest rate swaps as cash flow hedges of future interest payments.

(iii) Credit risk

The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history. Derivative counterparties and cash transactions are limited to high credit quality financial institutions. The Group’s historical experience in the collection of accounts receivable falls within the recorded allowances.

The carrying amount of receivables and cash represent the Group’s maximum exposure to credit risk. In respect of receivables and cash, the Group has policies in place to ensure that customers and counterparties and banks with whom the Group maintains its cash are of suitable credit standing.

(iv) Liquidity risk

The Group ensures that it maintains sufficient cash which is available to meet its liquidity requirements.

(2) Accounting for derivative financial instruments

Derivative financial instruments are initially recognised in the balance sheet at cost and are subsequently remeasured at their fair value.

Changes in the fair value of any derivative instruments are recognised immediately in the income statement.

(3) Fair value estimation

The carrying amounts of the following financial assets and financial liabilities approximate to their fair value at the balance sheet date: cash, notes receivables, trade receivables and payables, other receivables and payables, and borrowings.

17 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

1 Segment information

In 2002, the Group’s risks and rates of return were derived predominantly from the fact that it operated in different countries or geographical areas. Therefore, the geographical segmentation was adopted as primary format.

However, in 2003, the Group commenced new business in providing different products and service. And, the Group’s risks and rates of return were affected predominantly by the difference in the business segment. Therefore, business segments are adopted as its primary segment reporting format and geographical segments as its secondary reporting format.

For management purposes, the Group is organized on a worldwide basis into three major operating divisions - Cathode Radial Tube (CRT) business, Thin Film Transistor-Liquid Crystal Display (TFT-LCD) business and Digital Product and Service (DPS) business. Other operations include Precision Electronic Components & Materials business and so on. The divisions are the basis on which the Group reports its primary segment information.

18 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

1 Segment information (continued)

Primary reporting format – business segments

CRT/LCD TFT -LCD DPS Others Elimination 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 REVENUE External sales 3,145,925 2,602,247 5,520,455 - 2,006,577 1,738,470 507,149 441,870 - - Inter-segment sales - - 153,454 - 7,216 12,007 (160,670) (12,007) Total revenue 3,145,925 2,602,247 5,673,909 2,006,577 1,738,470 514,365 453,877 (160,670) (12,007) COST External cost (2,797,211) (2,427,048) (4,558,085) - (1,707,592) (1,375,586) (389,841) (344,402) - - Inter-segment sales (151,540) (8,059) (3,678) - (6,007) (3,948) 161,225 12,007 Total cost (2,948,751) (2,435,107) (4,561,763) - (1,713,599) (1,379,534) (389,841) (344,402) 161,225 12,007 RESULT Segment result 95,830 90,047 671,294 - 83,535 179,278 (184,822) (54,038) - - Profit from operations Finance costs – net Available-for-sale investments-gains (11,047) (5,761) Share of results of associates before tax 100,092 72,922 Profit before tax Income tax expense Profit from ordinary activities after tax Extraordinary item Group profit before minority interests Minority interests (78,095) (86,550) Net profit	CRT/LCD TFT -LCD DPS Others Elimination 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 3,145,925 2,602,247 5,520,455 - 2,006,577 1,738,470 507,149 441,870 - - - - 153,454 - 7,216 12,007 (160,670) (12,007)	Consolidated 2003 2002 11,180,106 4,782,587
	3,145,925 2,602,247 5,673,909 2,006,577 1,738,470 514,365 453,877 (160,670) (12,007)
	(2,797,211) (2,427,048) (4,558,085) - (1,707,592) (1,375,586) (389,841) (344,402) - - (151,540) (8,059) (3,678) - (6,007) (3,948) 161,225 12,007	(9,452,729) (4,147,036)
	(2,948,751) (2,435,107) (4,561,763) - (1,713,599) (1,379,534) (389,841) (344,402) 161,225 12,007
	95,830 90,047 671,294 - 83,535 179,278 (184,822) (54,038) - -	665,837 215,287 665,837 215,287 (235,550) (65,542) (11,047) (5,761) 100,092 72,922
		519,332 216,906 (30,003) (51,356)
		489,329 165,550
		489,329 165,550 (78,095) (86,550)
		411,234 79,000

19 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

1 Segment information (continued)

Primary reporting format – business segments (continued)

CRT/LCD TFT -LCD DPs Others Elimination 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 OTHER INFORMATION Segment assets 1,550,768 1,394,784 5,069,685 1,925,246 1,753,516 1,826,933 2,974,946 (233,581) (85,793) Investment in equity method associates 1,901,399 741,841 Consolidated total assets Segment liabilities 1,044,285 963,500 3,235,061 1,476,926 1,339,361 3,423,761 1,927,974 (234,265) (85,793) Consolidated total liabilities OTHER SEGMENT ITEMS Capital expenditure 71,615 70,654 3,229,508 - 147,401 427,659 170,376 241,330 - - Depreciation 28,255 25,838 449,322 - 90,567 85,782 47,104 23,320 - - Amortisation 9,683 7,626 (5,864) - 4,563 2,214 5,318 4,298 - - Impairment charge - - 572 - - - 12,333 2,412 - -	Consolidated 2003 2002 10,139,051 6,037,453 1,901,399 741,841
	12,040,450 6,779,294
	8,945,768 4,145,042
	8,945,768 4,145,042
	3,618,900 739,613 615,248 134,940 13,699 15,955 12,905 2,412

20 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

1 Segment information (continued)

Secondary reporting format – geographical segments

Although the Group’s three major business segments are managed on a worldwide basis, they operate in seven main geographical areas.

PRC is the home country of the parent company which is also the main operating company. The areas of operation cover all the three activities.

The Republic of Korea – sales activities of TFT-LCD and DPS.

Taiwan – sales activities of TFT-LCD.

Germany – sales activities of DPS and CRT.

The United States of America (U.S.A.) –sales activities of TFT-LCD, DPS and CRT.

PRC Mainland Republic of Korea Taiwan U.S.A. Germany Other European countries Other Asian countries areas Other countries	Sales Total assets Capital expenditure 2003 2002 2003 2002 2003 2002 4,819,366 2,089,709 6,082,407 5,625,647 331,327 709,568 1,475,971 506,144 5,282,140 893,756 3,286,213 30,045 1,049,462 - 349,625 - 902 - 952,761 691,978 43,676 22,348 - - 848,566 545,950 116,014 237,543 - - 498,578 682,676 - - - - 337,536 129,832 166,588 - 458 - 1,197,866 136,298 - - - -
	11,180,106 4,782,587 12,040,450 6,779,294 3,618,900 739,613

With the exception of PRC and Republic of Korea, no other individual country or area contributed more the 10% of consolidated sales or assets.

Sales are based on the country or area in which the customer is located. Total assets and capital expenditure are where the assets are located.

Analysis of sales by category Sales of goods Others	2003 2002 11,137,926 4,772,985 42,180 9,602
	11,180,106 4,782,587

21 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

2 Profit from operations

The following items have been included in arriving at profit from operations:

	2003	2002
Depreciation on property, plant and equipment (Note 8)
- owned assets	604,473	134,247
- owned assets, leased out under operating lease	2,949	-
- leased assets under finance lease	7,195	-
Impairment of property, plant and equipment (Note 8)	12,333	2,412
Net loss on disposal of property, plant and equipment	6,475	188
Net loss on disposal of intangible assets (Note 10)	12,975	-
Amortization of intangible assets
- goodwill (included in “Other operating expenses”)(Note 10)	2,585	2,625
- negative goodwill (included in “Administrative expense”) (Note 10)	(9,373)	-
- other intangible assets (included in “Administrative expenses”) (Note 10)	17,496	11,513
Impairment charge and write off for intangible assets (Note 10)	572	-
Amortization of leasehold improvement and long-term advance payment	10,269	2,863
Repairs and maintenance expenditure on property, plant and equipment	97,903	6,842
Research and development expenditure	246,745	57,549
Inventory
- costs of inventories recognised as expense
(included in “Cost of sales”)	7,883,265	3,964,589
- provision for obsolete and slow-moving inventories	51,973	5,153
Receivables and prepayments
- impairment charge for bad and doubtful debts	22,191	16,714
- reversal of bad and doubtful debts	(6,454)	-
Government grant	(11,451)	(7,925)
Investment property
- rental income	(31,475)	(22,473)
- operating expense	22,270	14,532
Staff costs (Note 4)	740,771	251,048
Impairment of available-for-sale investments (Note 13)	9,711	4,079
Operating lease expense
- Amortisation of land use rights (Note 11)	2,991	1,817
- Operating lease expense	14,600	748
Warranty cost (Note 25)	25,402	16,058
Net fair value loss on forward contracts (Note 3, 17)	16,282	-

22 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

3 Finance costs – net

Interest expense - Bank borrowings - Convertible bonds (Note 21) - Long-term notes payable - Finance lease Interest income Net foreign exchange transaction losses Net fair value loss on forward contracts (Note 17) Net gain on forward contract transactions Others	2003 2002 226,996 73,273 10,968 10,569 12,880 - 631 - (39,651) (19,198) 11,109 790 16,282 - (6,358) - 2,693 108
	235,550 65,542

4 Staff costs Wages and salaries Retirement benefit obligations (Note 24) Social security costs Welfare	2003 2002 633,588 212,779 37,503 10,970 34,260 - 35,420 27,299
	740,771 251,048

The average number of employees in 2003 was 10,007 (2002: 6,386), of whom 450 (2002: 230) were part-time.

5 Income tax expenses

Current tax Deferred tax (Note 23) Share of tax of associates (Note 12)	2003 2002 26,977 41,419 (8,088) 5,770 11,114 4,167
	30,003 51,356

The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate of the Company is as follows:

Profit before tax Tax calculated at a tax rate of 15% (2002: 15%) Effect of different tax rates Income not subject to tax Expense not deductible for tax purposes Income tax effect of tax exemption Unrecognised deferred tax assets Income tax effect of utilisation of previously unrecognised tax losses of foreign subsidiaries Tax charge	519,332 216,906
	77,900 32,536 81,327 11,623 (14,194) (5,218) 37,915 16,435 (166,272) - 14,696 - (1,369) (4,020)
	30,003 51,356

23 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated)

5 Income tax expenses (continued)

The Company is subject to a preferential income tax rate of 15% (2002: 15%) as an enterprise with new technology in Beijing New Technology Development Zone. As approved by the tax bureau, some of the Company’s subsidiaries are also subject to preferential income tax rates ranging from zero to 15% (2002: zero to 15%). Except for Hyundai LCD, whose income tax rate is 29.7%, and the above mentioned subsidiaries, other subsidiaries of the Company are subject to an income tax rate of 33%.

6 Basic earnings per share

Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year.

Net profit attributable to shareholders Weighted average number of ordinary shares in issue (thousands) Basic earnings per share	2003 2002 411,234 79,000 659,465 659,465 Rmb0.62 Rmb0.12

The weighted average number of ordinary shares in issue in 2002 was adjusted to reflect the conversion of share premium to ordinary shares with a 10 to 2 ratio in 2003.

7 Dividend per share

At the Annual General Meeting on 23 April 2004, a dividend in respect of 2003 of Rmb0.01 per share amounting to a total dividend of Rmb9,758,648 is to be proposed to all shareholders (including those shareholders of the B shares issued on 16 January 2004). These financial statements do not reflect the dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in the year ending 31 December 2004. No dividend was declared in respect of 2002, while Rmb27,477,700 was declared in respect of 2001.

8 Property, plant and equipment

Year ended 31 December 2003 Opening net book amount Exchange difference Acquisition of business unit (Note 31) Other additions Disposals Transfer from CIP Other deduction of CIP Depreciation charge (Note 2) Impairment charge (Note 2) Closing net book amount At 31 December 2003 Cost after impairment charge Accumulated depreciation Net book amount	Buildings Plant & machinery Motor vehicles Construction in Process Total 464,243 730,897 8,372 122,706 1,326,218 - (1,238) (2) (65) (1,305) 1,072,361 1,939,961 332 50,030 3,062,684 17,174 182,110 3,453 306,147 508,884 (17,731) (7,021) (115) - (24,867) 14,525 131,844 461 (146,830) - - - - (22,763) (22,763) (86,520) (525,362) (2,735) - (614,617) - (12,333) - - (12,333)
	1,464,052 2,438,858 9,766 309,225 4,221,901
	1,575,092 3,258,667 19,743 309,225 5,162,727 (111,040) (819,809) (9,977) - (940,826)
	1,464,052 2,438,858 9,766 309,225 4,221,901

24 -

8 Property, plant and equipment (continued)

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated)

As of 31 December 2003, buildings with net book amount of Rmb1,153,860,373 (2002: Rmb63,293,792), plant and machinery with net book amount of Rmb1,743,807,696 (2002: Rmb237,008,289), construction in progress with book amount of Rmb18,955,865 (2002: nil) are pledged as collateral for the Group’s current and non-current bank borrowings (Note 20).

The Group is in the process of obtaining formal title certificate for the building with net book amount of Rmb17,259,529 (2002: Rmb17,641,798).

The Company invested buildings with net book amount of Rmb2,450,098 to BOE Land Co., Ltd.

Bank borrowing cost of Rmb1,052,644 arising from financing specifically for the construction of property, plant and equipment was capitalised during the year and are included in “other additions” in the table above. A capitalisation rate of 5.76% (2002: 5.49%) was used representing the borrowing cost of the loan used to finance the projects.

The impairment charge of Rmb12,333,333 in 2003 for plant and machinery is related to other business segment.

Lease assets, where the Group is a lessee under a finance lease, comprise machinery:

		2003	2002
	Cost	19,640	-
	Accumulated depreciation	(6,933)	-
	Net book amount	12,707	-
	Lease assets, where the Group is a lessor under an operating lease, comprise		machinery
	and motor vehicles:
		2003	2002
	Cost	46,218	-
	Accumulated depreciation	(24,644)	-
	Net book amount	21,574	-
9	Investment property
		2003	2002
	At beginning of year	17,430	18,122
	Depreciation charge	(631)	(692)
	Disposal	(2,019)	-
	At the end of year	14,780	17,430
	Cost	21,436	24,276
	Accumulated amortisation	(6,656)	(6,846)
	Net book amount	14,780	17,430

Lease assets, where the Group is a lessor under an operating lease, comprise machinery and motor vehicles:

Investment property is not measured at fair value as it is not practicable within constraints of timeliness or costs to determine its fair value with sufficient reliability. There is no active market for similar property in the same location and condition and alternative estimates of fair value are not readily available.

25 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

10 Intangible assets

Year ended 31 December 2003 Opening net book amount Additions Acquisition of business unit (Note 31) Impairment charge Disposal Amortisation charge (Note 2) Closing net book amount At 31 December 2003 Cost Accumulated amortisation Net book amount	Goodwill Negative Goodwill Technology rights Software Patent Others Total 47,625 - 48,917 - 369 13 96,924 - (2,171) 37,559 4,624 4,199 5 44,216 - (93,733) - 16,919 2,392 - (74,422) - - - - (572) - (572) - - (12,975) - - - (12,975) (2,585) 9,373 (14,934) (2,310) (1,271) (6) (11,733)
	45,040 (86,531) 58,567 19,233 5,117 12 41,438
	51,929 (95,904) 94,284 21,543 6,448 23 78,323 (6,889) 9,373 (35,717) (2,310) (1,331) (11) (36,885)
	45,040 (86,531) 58,567 19,233 5,117 12 41,438

As of 31 December 2003, technology rights with net book amount of Rmb1,203,072 (2002: nil) are pledged as collateral for Group’s non-current bank borrowings (Note 20).

11 Land use rights

Opening net book amount Additions Amortisation charge (Note 2) Transfer out Closing net book amount Cost Accumulated amortisation Net book amount	2003 2002 100,266 80,250 17,803 21,833 (2,991) (1,817) (5,281) -
	109,797 100,266
	116,489 103,967 (6,692) (3,701)
	109,797 100,266

As of 31 December 2003, land use rights, with net book amount of Rmb10,583,053 (2002: nil) and Rmb4,610,000 (2002: Rmb6,189,173), are pledged as collateral for Group’s current and non-current bank borrowings, respectively (Note 20).

The Company invested certain land use right with net book value of Rmb5,281,377 to BOE Land Co., Ltd. as investment.

26 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

12 Investments in associates

At beginning of year Addition Disposal or transfer to investments in subsidiaries Share of results before tax Share of tax of associates (Note 5) Share of results after tax Dividend received Other movement At end of year	2003 2002 741,841 691,792 1,111,418 22,459 (20,989) (37,499) 100,092 72,922 (11,114) (4,167)
	88,978 68,755
	(20,442) (3,600) 593 (66)
	1,901,399 741,841

Addition in 2003 represents the purchase of 26.36% shares of TPV Technology Limited (“TPV”), a Hong Kong and Singapore listed company incorporated in Bermuda.

On 6 August 2003, the Company entered into Share Purchase Agreement with Field Pacific Limited (“FPL”) to acquire 26.36% ordinary shares of TPV for a total consideration of HK$1,050,299,660. Total number of shares acquired is 356,033,783 with a purchase price of HK$2.95 per share.

On 20 November 2003, the share certificates of FPL were cancelled and the new share certificate was issued to the Company. According to the approvals from National Development and Innovation Committee, State Administration of Foreign Exchanges Beijing office and the Business Department of P.R.C., and the shareholders of the Company, the share transfer was completed on 30 December 2003.

After deducting the interim dividend of HK$8,544,707, which belonged to the Company according to the Share Purchase Agreements, payments with a total amount of HKD 1,041,754,953 were remitted to FPL on or before 17 December 2003. As of 31 December 2003, the net assets of TPV are Rmb2,562,317,339 and the goodwill from the acquisition is Rmb436,048,447.

Particulars of associates are set out in Note 33.

13 Available-for-sale investments

At beginning of year Transfer to investment in subsidiaries Acquisition of subsidiaries Additions Disposal Impairment loss (Note 2) At end of year Non-current	2003 2002 93,200 101,096 (25,514) (25,327) - 25,514 8,499 607 - (4,611) (9,711) (4,079)
	66,474 93,200
	66,474 93,200

Available-for-sale investments, comprising primarily investments in unconsolidated subsidiaries and other equity investments, are measured at cost less impairment, as it is not practicable to determine their fair value with sufficient reliability.

27 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated)

13 Available-for-sale investments (continued)

Transfer to investment in subsidiaries represents investments in Suzhou BOE Chagu Electronics Co., Ltd. and BOE-Hydis, which began their formal operation and have been consolidated by the Group in 2003.

As of 31 December 2003, the Group made full impairment provision for its investment in Beijing BOE Digital Technology Co., Ltd., a subsidiary in liquidation period, as its investment cannot be recovered.

14 Other non-current assets

Long-term loans to employees Long-term receivable from sale of investment in associate Long-term restricted cash Club debentures Leasehold improvement Planned assets in retirement benefit obligation (Note 24) Unregistered patents Others	2003 2002 6,737 1,228 15,656 - 34,019 715 20,579 - 27,473 12,453 2,501 - 8,676 - 9,906 1,268
	125,547 15,664

The current portion of the above loans and receivables is set out in Note 16. All long term loans and receivables are due within 7 years from the balance sheet date. The carrying value of long-term loans and receivables approximates their fair value, which is based on discounted cash flows using an effective interest rate of 1.0% to 6.54%.

The restricted cash is subject to BOE-Hydis' s withdrawal restriction in relation to checking accounts and the interest payment of syndicate loan (Note 20) and long term notes payables (Note 22).

15 Inventories

Raw materials (at cost) Work in progress (at cost) Finished goods (at cost) Provision for obsolete and slow-moving inventories	2003 2002 696,120 272,407 294,512 174,395 310,322 122,934 (52,035) (9,334)
	1,248,919 560,402

As of 31 December 2003，the inventory amounting to Rmb365,913,708 owned by BOEHydis is pledged as collateral for syndicate loan (Note 20).

28 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

16 Receivables and prepayments

Notes receivable Trade receivables Less: Provision for impairment of trade receivables Trade receivables - net Other receivables Less: Provision for impairment of other receivables Other receivables - net Short-term receivable from sale of investment in associate Short term loans to employees Prepayments Prepaid expense Forward foreign exchange contracts (Note 17)	2003 2002 154,184 83,253 1,896,521 1,074,284 (29,449) (15,542)
	1,867,072 1,058,742 182,373 364,397 (1,441) (10,675)
	180,932 353,722 3,263 - 4,105 - 26,978 28,898 11,078 4,733 192 -
	2,247,804 1,529,348

As of 31 December 2003, trade receivables amounting to Rmb114,278,853 (2002: nil) and notes receivable amounting to Rmb34,215,000 (2002: nil) are pledged as collateral for Group’s current bank borrowings (Note 20).

17 Financial instruments

Forward foreign exchange contracts - with positive fair values (Note 16) - with negative fair values (Note 19)	2003 2002 192 - (16,474) -

The forward foreign exchange contracts were designated for fair value hedge. The outstanding forward exchange contracts with financial institutions, for selling, are as follows:

Contract amount	Financial Institution	Contract Rate	Due date
		(KRW:USD)
US$10,000,000	Woori Bank	1155.48	February 17, 2004
US$10,000,000	Woori Bank	1157.00	March 15, 2004
US$10,000,000	Woori Bank	1159.10	April 16, 2004
US$10,000,000	Woori Bank	1187.75	April 20, 2004
US$10,000,000	Woori Bank	1189.10	May 20, 2004
US$20,000,000	Woori Bank	1221.10	September 30, 2004
US$10,000,000	Woori Bank	1223.90	October 29, 2004
US$10,000,000	Woori Bank	1224.50	November 29, 2004
US$10,000,000	Bank of China	1161.30	May 14, 2004

29 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

18 Cash and cash equivalents

Cash at bank and in hand Short term bank deposits	2003 2002 835,037 763,463 1,216,422 1,530,763
	2,051,459 2,294,226

The average effective interest rate on short-term bank deposits was 0.72% (2002:0.99%).

Time deposit amounting to Rmb59,019,750, owned by BOE-Hydis and Hyundai LCD, is pledged as collateral for bank borrowings (Note 20). Meanwhile, the two subsidiaries issued certain blank checks and notes to banks as the collateral for current and non-current bank borrowings, amounting to Rmb144,837,804 and Rmb406,785,461, respectively (Note 20).

For the purpose of the cash flow statement, the cash and cash equivalents comprise the following:

Cash and bank balances Less: Restricted deposits for Letter of Credit Term deposits with original maturity of more than 3 months which cannot be withdraw on demand Pledged bank deposits 19 Trade and other payables Trade payables Notes payable Accrued expenses Advances to suppliers Wages and welfare payables Dividends payable Other payables Other tax liabilities Forward exchange contracts (Note 17) Long term payable within one year 20 Borrowings Current Bank borrowings – secured Bank borrowings – unsecured Borrowings from joint venture’s other shareholder Discounts on bank acceptance Convertible bonds (Note 21)	2003 2002 2,051,459 2,294,226 (6,261) (43,764) (14,582) (17,795) (59,020) -
	1,971,596 2,232,667
	2003 2002 1,803,654 1,099,598 19,550 20,835 142,612 83,264 25,901 16,790 37,064 25,999 25,870 30,243 340,589 185,230 14,368 5,837 16,474 - - 13,423
	2,426,082 1,481,219
	2003 2002 763,820 253,683 3,396,291 1,885,138 4,586 75,173 14,000 - 70,786 49,881
	4,249,483 2,263,875

30 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

20 Borrowings (continued)

Non-current		2003	2002
Syndicate loan – secured	1,502,162		-
Bank borrowings – secured		35,035	-
Bank borrowings – unsecured		155,210	181,428
Convertible bonds (Note 21)		51,637	87,376
Finance lease liabilities		20,447	-
Others		1,800	-
	1,766,291		268,804
Maturity of non-current borrowings (excluding finance lease liabilities):
		2003	2002
Due between 1 and 2 years		260,624	197,377
Due between 2 and 5 years	1,485,220		71,427
	1,745,844		268,804
Finance lease liabilities – minimum lease payment:
		2003	2002
Later than 1 year and not later than 5 years		22,863	-
Future financial charge on financial lease		(2,416)	-
Present value of finance lease liabilities		20,477	-

As of 31 December 2003, borrowings are from banks and the other shareholder of the Group’s joint venture.

The collaterals for secured current and non-current bank borrowings include buildings and machinery (Note 8), land use rights (Note 11), intangible assets (Note 10), restricted cash (Note 18,14 ), inventory (Note 15), trade receivables (Note 16), notes receivable (Note 16), blank checks and blank notes of Hyundai LCD and BOE-Hydis (Note 18).

BOE-Hydis entered into a financial covenant agreement and obtained syndicate loan amounting to Rmb1,502,162,039 from Korean Development Bank, Korean Exchange Bank, Woori Bank and Hyundai Marine and Fire Insurance Company. According to the agreement, BOE-Hydis should maintain certain financial ratios before the repayment of syndicate loan and the related interests (Note 27). The share certificate issued by BOE-Hydis to the Company was kept under Industrial and Commercial Bank of China, Seoul Branch’s custody and the percentage of BOE’s shares in BOE-Hydis shall not be lower than 51% at any event until the loan and related interest of BOE-Hydis are repaid. In respect of any of the shares or resulting from a split-up, revision or reclassification of any of the shares, or received in exchange for any of the shares, as a result of a merger, consolidation or otherwise, will be paid or delivered to and retained by Industrial and Commercial Bank of China, Seoul Branch.

31 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

21 Convertible bonds

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated)

20 Borrowings (continued)

The exposure on the borrowings of the Group to interest rate changes and the periods in which the borrowings are repriced are as follows:

At 31 December, 2003	6 months or less more than 6 to 12 months more than 1 to 5 years Total
	407,828 - 1,834,347 2,242,175

Current borrowings bear interest at rates ranging from 1.03% to 10% (2002: 5% to 8.5%). Non-current bank borrowings bear interest at rates ranging from 4.10% to 8.09% (2002: 5.49% to 6.03%).

As of 31 December 2003, details of convertible bonds are as follows:

No. Coupon rate Issuance date Redemption date Conversion rate Face value (per share) 2003 2002 KRW denominated, non-guaranteed: KRW'000 RMB'000 KRW'000 RMB'000 1st 7% 12/31/2001 12/31/2003 KRW 5,000 - - 6,600,000 46,059 2nd 7% 02/06/2002 02/06/2004 KRW 5,000 2,568,000 17,831 2,568,000 17,921 3rd 7% 02/08/2002 02/08/2004 KRW 5,000 2,200,000 15,276 2,200,000 15,353 4th 7% 04/24/2002 04/24/2004 KRW 5,000 - - 250,000 1,745 5th 7% 12/31/2003 12/31/2004 KRW 5,000 4,800,000 33,330 - - 9,568,000 66,437 11,618,000 81,078 USD denominated, guaranteed: USD RMB'000 USD RMB'000 5th 2% 11/26/2002 11/26/2005 KRW 15,000 5,800,000 48,006 5,800,000 48,008 114,443 129,086	No. Coupon rate Issuance date Redemption date Conversion rate Face value (per share) 2003 2002 KRW denominated, non-guaranteed: KRW'000 RMB'000 KRW'000 RMB'000 1st 7% 12/31/2001 12/31/2003 KRW 5,000 - - 6,600,000 46,059 2nd 7% 02/06/2002 02/06/2004 KRW 5,000 2,568,000 17,831 2,568,000 17,921 3rd 7% 02/08/2002 02/08/2004 KRW 5,000 2,200,000 15,276 2,200,000 15,353 4th 7% 04/24/2002 04/24/2004 KRW 5,000 - - 250,000 1,745 5th 7% 12/31/2003 12/31/2004 KRW 5,000 4,800,000 33,330 - - 9,568,000 66,437 11,618,000 81,078 USD denominated, guaranteed: USD RMB'000 USD RMB'000 5th 2% 11/26/2002 11/26/2005 KRW 15,000 5,800,000 48,006 5,800,000 48,008 114,443 129,086	No. Coupon rate Issuance date Redemption date Conversion rate Face value (per share) 2003 2002 KRW denominated, non-guaranteed: KRW'000 RMB'000 KRW'000 RMB'000 1st 7% 12/31/2001 12/31/2003 KRW 5,000 - - 6,600,000 46,059 2nd 7% 02/06/2002 02/06/2004 KRW 5,000 2,568,000 17,831 2,568,000 17,921 3rd 7% 02/08/2002 02/08/2004 KRW 5,000 2,200,000 15,276 2,200,000 15,353 4th 7% 04/24/2002 04/24/2004 KRW 5,000 - - 250,000 1,745 5th 7% 12/31/2003 12/31/2004 KRW 5,000 4,800,000 33,330 - - 9,568,000 66,437 11,618,000 81,078 USD denominated, guaranteed: USD RMB'000 USD RMB'000 5th 2% 11/26/2002 11/26/2005 KRW 15,000 5,800,000 48,006 5,800,000 48,008 114,443 129,086	No. Coupon rate Issuance date Redemption date Conversion rate Face value (per share) 2003 2002 KRW denominated, non-guaranteed: KRW'000 RMB'000 KRW'000 RMB'000 1st 7% 12/31/2001 12/31/2003 KRW 5,000 - - 6,600,000 46,059 2nd 7% 02/06/2002 02/06/2004 KRW 5,000 2,568,000 17,831 2,568,000 17,921 3rd 7% 02/08/2002 02/08/2004 KRW 5,000 2,200,000 15,276 2,200,000 15,353 4th 7% 04/24/2002 04/24/2004 KRW 5,000 - - 250,000 1,745 5th 7% 12/31/2003 12/31/2004 KRW 5,000 4,800,000 33,330 - - 9,568,000 66,437 11,618,000 81,078 USD denominated, guaranteed: USD RMB'000 USD RMB'000 5th 2% 11/26/2002 11/26/2005 KRW 15,000 5,800,000 48,006 5,800,000 48,008 114,443 129,086
	9,568,000	66,437 11,618,000	81,078
		RMB'000 USD 48,006 5,800,000 114,443	RMB'000 48,008 129,086

The conversion right for the bonds denominated in KRW can be exercised 3 months after the issuance date, while that for the bonds denominated in USD can be exercised one day after the issuance date. The 4th series bonds have been redeemed before redemption date and the related losses amounting to Rmb20,518 are recognised in current year’s income statement.

The convertible bonds are recognised in the balance sheet as follows:

Liability at the beginning of the year Interest expense (Note 3) Interest paid Redemption Net foreign exchange transaction gains Liability at end of year Current (Note 20) Non-current (Note 20)	2003 2002 137,257 129,086 10,968 10,569 (10,971) - (14,235) - (596) (2,398) 122,423 137,257 70,786 49,881 51,637 87,376 122,423 137,257

32 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

22 Other non-current liabilities

Long-term notes payable Long-term payable for consignment construction Government grants Payable to holding company (Note 32) Payable for acquiring an associate Other liabilities	2003 2002 307,747 - 104,413 - 17,975 9,520 - 49,113 8,032 11,672 3,190 2,607 441,357 72,912

Long-term Notes payable mainly include Long-term Promissory Notes issued by BOE-Hydis when acquiring the TFT-LCD business from Hyundai Display Technology Inc. and accrued interests. The principal and its accrued interests are due within 6 years from the balance sheet date.

The movement of long term notes payables is as follows:

Initial recognition on 23 January 2003 (Note 31) Waiver for the uncollectable trade receivables Interest expenses (Note 3) At end of year	323,933 (29,066) 12,880
	307,747

According to the Workshop Construction Consignment Agreement and other agreements signed among Beijing BOE Optoelectronics Technology Co., Ltd., the subsidiary of the Company, Beijing Economic-Technological Investment & Development Corporation (‘BETIDC’) and the Company, BETIDC invested Rmb150,000,000 and consigned BOE Optoelectronics Technology Co., Ltd. to construct the 5G TFT-LCD special workshop (“5G workshop”). According to the agreement, BETIDC has the ownership of the 5G workshop, while Optoelectronics Technology Co., Ltd. makes payment on BETIDC’s behalf. As of 31 December 2003, the Company has received consignment construction fund amounting to Rmb150,000,000, of which Rmb45,586,684 was paid for the 5G workshop construction. The remaining balance of Rmb104,413,316 was included in long-term payables.

23 Deferred income taxes

Deferred income taxes are calculated in full on temporary differences under the liability method using the effective tax rates of the Company and its subsidiaries.

The movement on the deferred income tax account is as follows:

At beginning of year Acquisition of business unit Income statement charge (Note 5) Exchange differences At end of year	2003 2002 5,770 - (10) - (8,088) 5,770 (48) -
	(2,376) 5,770

33 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

23 Deferred income taxes (continued)

The movement in deferred tax assets and liabilities (prior to offsetting of balances within the same tax jurisdiction) during the period is as follows:

	Reserve for research	Reserve for research	Foreign	currency	Interest
Deferred tax liabilities	and development		exchange gain		income	Others	Total
At 1 January 2003		10,363		2,343	40	-	12,746
Exchange differences		(52)		(12)	-	-	(64)
Income statement charge		191		80	(12)	409	668
At 31 December 2003		10,502		2,411	28	409	13,350
		Accrued	Over-
	Unapproved	for	amortised
	impairment	royalty	intangible	Price	Unrealised
Deferred tax assets	loss	fee	assets	protection	income	Others	Total
At 1 January 2003	(874)	(2,116)	(763)	-	(1,475)	(1,748)	(6,976)
Exchange differences	-	-	-	-	7	9	16
Acquisition of business
unit	-	-	-	-	-	(10)	(10)
Income statement
charge	(1,274)	(1,926)	(2,857)	(828)	738	(2,609)	(8,756)
At 31 December 2003	(2,148)	(4,042)	(3,620)	(828)	(730)	(4,358)	(15,726)

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax asset against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following amounts, determined after appropriate offsetting, are shown in the consolidated balance sheet:

Deferred tax assets Deferred tax liabilities The amount shown in the balance sheet include the following: Deferred tax assets to be recovered after more than 12 months Deferred tax liabilities to be settled after more than 12 months	2003 2002 (10,759) (3,753) 8,383 9,523
	(2,376) 5,770
	2003 2002 (3,620) (763) 9,273 8,823

34 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated)

24 Post-employment benefit obligations

The post-employment benefit obligations arise from benefit plans maintained by Hyundai LCD and BOE-Hydis. The amounts recognised in the balance sheet are determined as follows:

Present value of funded obligations Fair value of plan assets Present value of unfunded obligations Unrecognised actuarial losses Net liability	2003 2002 70,680 12,096 (50,878) (7,012)
	19,802 5,084 3,051 1,344 (10,711) -
	12,142 6,428

Employee benefit obligation assets and liability are offset when there is a legally enforceable right to use a surplus in one plan to settle obligation under other plan and intends either to settle the obligations on a net basis, or to realise the surplus in one plan and settle its obligation under the other plan simultaneously. The following amount, determined after appropriate offsetting, is shown in the consolidation balance sheet:

	2003	2002
Asset in the balance sheet (Note 14)	(2,501)	-
Liability in the balance sheet	14,643	6,428
	12,142	6,428
The amounts recognised in the income statement are as follows:
	2003	2002
Current service cost	35,277	10,970
Interest cost	2,216	-
Expected return on plan assets	(450)	-
Net actuarial losses recognised in year	460	-
Current, included in staff cost (Note 4)	37,503	10,970
Movement in the net liability recognised in the balance sheet:
	2003	2002
At beginning of year	6,428	-
Exchange differences	(33)	-
Liabilities acquired in business acquisition (Note 31)	13,236	4,874
Total expense - as shown above	37,503	10,970
Contributions paid	(44,992)	(9,416)
At end of year	12,142	6,428

35 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

24 Post-employment benefit obligations (continued)

The principal actuarial assumptions used were as follows:

	2003	2002
Discount rate	6.13%	5.76%
Expected return on plan assets	6.30%	6.00%
Future salary increases	6.75%	6.00%

25 Provisions

At 1 January 2003 Exchange differences Liabilities acquired in business acquisition (Note 31) Additional provisions (Note 2) Utilised during the year At 31 December 2003	Warranty Compensated absences Total 11,155 2,375 13,530 (1) (12) (13) 11,109 - 11,109 25,402 3,099 28,501 (23,749) (3,379) (27,128)
	23,916 2,083 25,999

(1) Warranty

The Group gives warranties on certain products and undertakes to repair or replace items that fail to perform satisfactorily. A provision of Rmb23,915,648 has been recognised at the year-end for expected warranty claims based on past experience of the level of repairs and returns.

(2) Compensated absences

The Group provides for the expected cost of compensated absences based on the amount that the Group expects to pay as a result of the unused entitlement that has accumulated at the balance sheet date.

26 Contingent liabilities

(1) Guarantee

Related parties Third parties	2003 2002 - 151,000 3,000 92,000
	3,000 243,000

Above balances represent the credit facilities from banks which the Group has guaranteed for other enterprises.

36 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

26 Contingent liabilities (continued)

(2) Potential litigation

⋅ BOE-Hydis was given notifications from Sharp Corporation, LG Philips LCD and Guardian Industries, alleging infringement of certain patent rights and claiming royalties. The directors are of the opinion that while discovery is still ongoing, it is not possible to assess the outcome of the potential litigation for the time being and no provision for any liability that may result has been made in the consolidated financial statement.

27 Commitments

(1) Capital commitments

Capital expenditures contracted for at the end of balance sheet date but not recognised in the financial statements are as follows:

Property, plant and equipment Equity investment Land use right	2003 2002 1,099,217 89,111 - 1,241,595 - 8,858
	1,099,217 1,339,564

(2) Operating lease commitments

BOE-Hydis has entered into an agreement with Hynix Semiconductor Inc. to rent land where manufacturing facilities of the company locate. The contract term is effective from January 22, 2003 to January 21, 2033. The future aggregate minimum lease payments under the noncancellable operating leases of the land are as follows:

Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years	2003 2002 12,704 - 50,817 - 317,256 - 380,777 -

(3) Financial covenant agreement

BOE-Hydis has entered into a financial covenant agreement in relation to the syndicated loan agreement under which BOE-Hydis should maintain certain financial ratio and has limitations on fundamental business change such as acquisition of any business or capital stock except for acquisition of normal operation assets. In addition, BOE-Hydis cannot declare dividends, and incur additional liabilities, except for the debt specially allowed by debtors (Note 20).

37 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

28 Ordinary shares

Domestic non-listed shares of Rmb1 each A shares of Rmb1 each B shares of Rmb1 each	2003 2002 Number of shares Number of shares (’000) (’000) 408,065 340,054 72,000 60,000 179,400 149,500
	659,465 549,554

All shares rank pari passu in all respects.

On 9 June 2003, the Company converted share premium with amount of Rmb109,910,800 to ordinary shares with a 10 to 2 ratio, as approved by the 2002 annual shareholders’ meeting.

29 Minority interest

At beginning of year Addition arising from new consolidated subsidiaries Share of net profit of subsidiaries Result of changes in subsidiary’s shares Translation reserves Dividends paid Disposal of subsidiaries Others At end of year	2003 2002 457,862 252,245 8,389 74,133 78,095 86,550 (7,706) 49,187 561 9,101 (12,925) (9,505) (10,032) 1,326 6,183
	525,602 457,862

30 Other reserves

Balance at 1 January 2002 Currency translation differences - amount arising for the year Addition of capital reserves General reserves for the year Balance at 31 December 2002/ 1 January 2003 Currency translation differences - amount arising for the year General reserves for the year Balance at 31 December 2003	Capital reserves General reserves Translation reserve Total 558 235,313 - 235,871 - - - - - - 7,446 7,446 4,412 - - 4,412 - 33,038 - 33,038
	4,970 268,351 7,446 280,767 - - - - - - (18,544) (18,544) - 160,943 - 160,943
	4,970 429,294 (11,098) 423,166

In accordance with the relevant PRC regulations, the Group appropriated 10% and 5% of statutory net profit to the statutory surplus reserve and statutory public welfare reserve. The Company also appropriated 25% of statutory net profit to the discretionary surplus reserve which has been approved by the Board of Directors.

38 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated)

31 Acquisition

On 19 November 2002, BOE-Hydis acquired TFT-LCD business from Hynix Semiconductor, Inc. The acquired business is the only operating business unit of BOE-Hydis, contributing revenue of Rmb5,662,703,058 and net profit of Rmb520,098,549 to the Group for current year, and its net assets as of 31 December 2003 is Rmb1,743,018,702.

Details of net assets acquired are as follows:

Purchase consideration Fair value of net assets acquired Negative goodwill The assets and liabilities arising form the acquisition are as follows: Cash and cash equivalent Property, plant and equipment (Note 8) Intangible assets (Note 10) Other non-current assets Inventories Trade and other receivables Retirement benefit obligation (Note 24) Non-current liabilities Warrant provision (Note25) Trade and other payables Fair value of net assets acquired Negative goodwill (Note 10) Total purchase consideration Less: Long-term notes payable (Note 22) Less: Cash and cash equivalent acquired Cash outflow on acquisition	2,965,940 (3,059,673)
	(93,733)
	156,159 3,062,684 19,312 33,317 359,490 537,114 (13,236) (20,697) (11,109) (1,151,309)
	2,971,725 (93,733)
	2,877,992 (323,933) (156,159)
	2,397,900

32 Related party transactions

The Company is controlled by Beijing Orient Investment and Development Co., Ltd. (registered in PRC), which owns 53% of the Company’s share. The remaining 47% of the shares are widely held.

Beijing Orient Electronic Industry Development Co., Ltd. and Beijing Kinescope Factory are the subsidiaries of Beijing Electronics Holding Co., Ltd.. Beijing Orient Mould Factory is the subsidiary of Beijing Orient Investment and Development Co., Ltd. The relationship between the other related parties except abovementioned companies and the Company is set out in Note 33.

39 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

32 Related party transactions (continued)

(1) Related party transactions

In the opinion of directors, the terms of these transactions follow commercial terms and conditions arranged in the ordinary course of the Company’s business. The following transactions were carried out with related parties:

		2003	2002
	Purchase of goods and services:
	BOE Land Co., Ltd.	22,853	-
	Beijing BOE Digital Technology Co., Ltd.	3,167	-
	Sales of goods and services:
	Beijing Matsushita Color CRT Co., Ltd.	86,993	85,211
	Beijing Orient Mosler Security Technology System Co.,Ltd.	2,949	-
		2003	2002
	Utility income:
	Beijing Matsushita Color CRT Co, Ltd.	-	8,966
	Beijing Nissin Electronics Precision Component Co., Ltd.	-	768
	Beijing Nittan Electronics Co., Ltd.	-	493
	Rental income:
	Beijing Nissin Electronics Precision Component Co., Ltd.	203	1,121
	Beijing Nittan Electronics Co., Ltd.	1,555	2,412
	Beijing Orient Mould Factory	-	992
	Beijing Orient Mosler Security Technology System Co., Ltd.	133	399
	Rental income:
	Beijing Star City Real Estate Development Co., Ltd.	600	310
	BOE Land Co., Ltd.	356	-
	Guarantee:
	Beijing Orient Top Victory Electronics Co., Ltd.	41,740	96,000
(2)	Related parties balances
	Related party receivables and payables are as follows:
		2003	2002
	Trade receivables due from:
	Beijing Matsushita Color CRT Co., Ltd.	9,971	17,072
	TPV Technology Group	281,430	-
	Beijing Orient Mosler Security Technology System Co.,Ltd.	2,105	-
	Notes receivables due from:
	Beijing Matsushita Color CRT Co., Ltd.	24,096	17,796
	Other receivables due from:
	Beijing Orient Electronic Industry Development Co., Ltd.	1,445	63,305
	BOE Land Co., Ltd.	10,494	-
	TPV Technology Group	15,823	-
	Beijing Star City Real Estate Development Co., Ltd.	33,400	21,000

40 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

32 Related party transactions (continued)

(2) Related parties balances (continued)

	2003	2002
Other receivables due from (continued):
Beijing Orient Investment and Development Co., Ltd.	-	7,080
Beijing Orient Mould Factory	-	3,342
Beijing BOE Digital Technology Co., Ltd.	5	3,968
Shenzhen Evergreat Industrial Co., Ltd.	374	1,048
Beijing Matsushita Color CRT Co., Ltd.	-	958
Trade payables due to:
Beijing Oriental Software Co., Ltd.	-	1,020
TPV Technology Group	45,242	-
BOE Land Co., Ltd.	563	-
Other payables due to:
BOE Land Co., Ltd.	3,314	-
TPV Technology Group	7,689	-
Beijing Kinescope Factory	-	62,037
Long-term payables within one year due to:
Beijing Orient Investment and Development Co., Ltd.	-	13,423
Accrued Expense:
TPV Technology Group	11,824	-
Other non-current liabilities due to:
Beijing Orient Investment and Development Co., Ltd.	-	49,113

(3) Directors’ remuneration

In 2003, the total remuneration of the directors was Rmb3,700,000 (2002: Rmb2,046,000).

33 Subsidiaries and associates

Except for BOE Technology Incorporation, which is incorporated in the United States of America with limited liability, Hyundai LCD and BOE-Hydis, which are incorporated in the Republic of Korea with limited liability, the following subsidiaries and associates are all incorporated in the PRC.

Subsidiaries

Subsidiaries
Name	Equity	interest	Principal Activities	Notes
	2003	2002
Beijing BOE Digital Technology	75%	75%	Research, development, manufacture	(1)
Co., Ltd.			and sales of digital camera and other
			digital visual wireless transfer platform
Beijing Software and System	100%	100%	Research and development of network
Integrated Co., Ltd.			and telecommunication

41 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

33 Subsidiaries and associates (continued)

Subsidiaries (continued)

Name	Equity	interest	Principal Activities	Notes
	2003	2002
Zhejiang BOE Display	60%	60%	Research, development, manufacture
Technology Co., Ltd.			and sales of monitor and related parts
Beijing BOE Vacuum Electronics	55%	55%	Manufacture and sales of vacuum
Co., Ltd.			electronic products
Shenzhen BOE Intelligence	59.8%	59.8%	Development of electronic intelligence
Display Technology Co., Ltd.			system
BOE Technology Incorporation	100%	100%	Research, development, manufacture	(1)
			and sales of high technology electronic
			information products
Beijing Orient Heng Tong	100%	100%	Lease of commercial facilities
Property Centre
Beijing BOE Mobile Technology	51%	51%	Research, development and
Co., Ltd.			manufacture of mobile technology
			products
Beijing BOE Optoelectronics	100%	-	Development, manufacture and sales of
Technology Co., Ltd.			TFT-LCD products and related services
Hyundai LCD, Inc.	48.5%	45%	Manufacture and sales of Liquid Crystal	(3)
			Display (“LCD”) devices used in handset
			and electric goods
BOE Hyundai LCD (Beijing)	100%	100%	Development, manufacture and sales of
Display Technology Co., Ltd.			related parts of LCD products
Suzhou BOE Chagu Electronics	75%	75%	Development, manufacture and sales of
Co., Ltd.			back-light products and related services
BOE-Hydis Technology Co., Ltd.	100%	100%	Development, manufacture and sales of
			TFT-LCD products and related services
BOE Semi-conductor Co., Ltd.	63%	63%	Manufacture and sales of semi-
			conductor products
BOE Land Co., Ltd.	70%	70%	Development of manufacture buildings	(1)
			facilities and lease of commercial
			facilities

(1) As both the assets and operation results do not form a significant part of the Group, they are not consolidated in the financial statements.

42 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

33 Subsidiaries and associates (continued)

Subsidiaries (continued)

(2) According to the capital injection agreement, 8.7% of the voting right owned by Multi-Lines Investment Co., Ltd. had been consigned to the Company. Therefore, Beijing Orient Top Victory Electronics Co., Ltd. is consolidated in the financial statements.
(3) As the majority of the members of the board of directors are appointed by the Company and according to the articles of association, control rests with the Company. Thus, Hyundai LCD is consolidated in the financial statements.

Associates

Name	Equity	interest	Principal Activities
	2003	2002
Beijing Matsushita Color	30%	30%	Manufacture and sales of color picture tubes
CRT Co., Ltd.			and color display tubes
Shenzhen Evergreat	40%	40%	Development and manufacture of mechanical
Industrial Co., Ltd.			integrated products, satellite communication
			equipment, computer software and automatic
			instruments
Beijing Nittan	40%	40%	Manufacture and sales of terminals,
Electronics Co., Ltd.			connectors and stampers
Beijing Nissin Electronics	40%	40%	Manufacture and sales of electronics tubes
Precision Component			and related spare parts
Co., Ltd.
Beijing Huaxu Jinka Co.,	22%	21%	Manufacture and sales of IC card, magnetic
Ltd.			card, laser card and related read-write
			equipment
Beijing Orient Mosler	35%	35%	Manufacture and sales of security and
Security Technology			protection system and products
System Co., Ltd.
Beijing Matsushita	30%	30%	Manufacture and sales of lightings and related
Lighting Co., Ltd.			products
Beijing Oriental	30%	30%	Design, develop, manufacture of software,
Software Co., Ltd.			hardware and computer components; network
			Integration
TPV Technology Limited	26.36%	-	Manufacture and sales of color computer
			monitors and LCD products
Changchun Lancer	-	8.5%	Development, design and manufacture of
Photoelectron Co., Ltd.			photoelectron products

43 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated)

34 Interest in joint ventures

The Group has a 50% interest in a joint venture, Beijing Asahi Glass Electronics Co., Ltd., which manufactures electronics products. The following amounts represent the Group’s 50% share of the assets and liabilities, sales and results of the joint venture and are included in the consolidated balance sheet and income statement:

	2003	2002
Property, plant and equipment	21,413	17,801
Intangible assets	2,690	3,315
Current assets	37,128	38,624
	61,231	59,740
Current liabilities	(10,981)	(11,081)
Net assets	50,250	48,659
Sales	46,504	48,631
Profit before tax	10,263	12,167
Income taxes	(1,636)	(1,819)
Profit after tax	8,627	10,348
The Group also has a 51% interest in a jointly controlled venture, Beijing		BOE YAMAT
Photoelectron Co., Ltd., which manufactures photoelectron product. The following amoun
represent the Group’s 51% share of the assets and liabilities, sales and results of the joi
venture and are included in the consolidated balance sheet and income statement:
	2003	2002
Property, plant and equipment	15,674	17,401
Intangible assets	6,711	4,693
Current assets	4,902	8,651
	27,287	30,745
Current liabilities	(11,814)	(7,402)
Net assets	15,473	23,343
Sales	7,225	10,518
Profit before tax	(7,870)	(1,954)
Income taxes	-	-
Profit after tax	(7,870)	(1,954)

The Group also has a 51% interest in a jointly controlled venture, Beijing BOE YAMATO Photoelectron Co., Ltd., which manufactures photoelectron product. The following amounts represent the Group’s 51% share of the assets and liabilities, sales and results of the joint venture and are included in the consolidated balance sheet and income statement:

There are no contingencies and commitments relating to the Group’s interest in these joint ventures. The average number of employees in these joint ventures in 2003 was 532 (2002: 322).

44 -

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts are expressed in RMB’000 unless otherwise stated)

35 Post balance sheet event
(1) As approved by China Securities Regulatory Commission (Zheng Jian Fa [2004] No.2), the Company completed its second offering of 316,400,000 B shares on 16 January 2004. The offering price was HKD6.32 per share and the total proceeds received were HKD1,999,648,000. After deducting related issuance cost, the net proceeds were HKD1,922,072,431 (Rmb2,048,160,383), which has been verified by PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd. (PwC Yan Zi [2004] No.20).
(2) At the Annual General Meeting on 23 April 2004, it was resolved that the capital reserves with amount of Rmb487,932,400 be converted to ordinary shares with a 10 to 5 ratio. The resolution has to be approved by the shareholders’ meeting scheduled at the end of May 2004.
(3) On 9 January 2004, the Company sold all of its 30% shares of Beijing Matsushita Lighting Co., Ltd. to its foreign shareholder for Rmb62,400,000. As of 31 December 2003, the net assets of Beijing Matsushita Lighting Co., Ltd. is Rmb106,675,622.

36 Approval of Financial Statements

On 23 April 2004, BOE Technology Group Co. Ltd.’s Board of Directors authorised these financial statements for issue.

45 -

BOE TECHNOLOGY GROUP CO., LTD. SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2003

SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTS PREPARED UNDER PRC ACCOUNTING REGULATIONS (“PRC GAAP”) AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)

(Amounts are expressed in RMB’000 unless otherwise stated)

As reported under PRC GAAP Adjustments to conform with IFRS - Difference in the amortisation of goodwill - Appropriation of staff bonus and welfare funds - Government grant - Capitalization of certain development cost - Difference in negative goodwill recognition from acquiring certain shares in a subsidiary - Others As reported under IFRS	Net assets Net Profit 2,570,869 403,185 (4,001) (1,333) - (828) (3,014) 1,987 8,676 8,676 (2,171) - (1,279) (453)
	2,569,080 411,234

AI assistant

BOE TECHNOLOGY GROUP CO., LTD — Annual Report 2003

53782_rns_2004-04-27_ac3d4ac8-e29d-4419-9ada-c2b0d23a8043.PDF

Report of the auditors

BOE TECHNOLOGY GROUP CO., LTD. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003

BOE TECHNOLOGY GROUP CO., LTD. CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2003

BOE TECHNOLOGY GROUP CO., LTD.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2003

BOE TECHNOLOGY GROUP CO., LTD.

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

GENERAL INFORMATION

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

ACCOUNTING POLICIES

A Basis of preparation

B Group accounting

(1) Subsidiaries

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

ACCOUNTING POLICIES (continued)

B Group accounting (continued)

(2) Associates

(3) Joint ventures

C

Foreign currency translation

ACCOUNTING POLICIES (continued)

C

Foreign currency translation (continued)

D

Property, plant and equipment

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

ACCOUNTING POLICIES (continued)

E

Investment property

F Intangible assets

(2) Research and development

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

ACCOUNTING POLICIES (continued)

F Intangible assets (continued)

(4) Technology rights

(5) Other intangible assets

G

Impairment of long lived assets

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

ACCOUNTING POLICIES (continued)

H

Investments

I

Land use rights

J

Leases

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

ACCOUNTING POLICIES (continued)

J Leases (continued)

K

Inventories

L

Trade receivables

M Loan to employee

N Cash and cash equivalents

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

ACCOUNTING POLICIES (continued)

O Share capital

P Borrowings

Q Deferred income tax

R Employee benefits

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

ACCOUNTING POLICIES (continued)

R

Employee benefits (continued)

S

Provisions

T

Government grants

BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2003

ACCOUNTING POLICIES (continued)

U

Revenue recognition

V Dividends

W Segment reporting

X Business combination

BOE TECHNOLOGY GROUP CO., LTD Annual Report 2003