BOE TECHNOLOGY GROUP CO., LTD — Annual Report 2005

Apr 28, 2006

BOE Technology Group Company Limited 京东方科技集团有限公司

31 December 2005

Report of the independent auditors to the shareholders of BOE Technology Group Company Limited

(Established as a joint stock company in the People’s Republic of China with limited liability)

We have audited the accompanying consolidated balance sheet of BOE Technology Group Company Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) as of 31 December 2005 and the related consolidated statements of income, changes in equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s directors. Our responsibility is to form an independent opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

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 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 financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2005 and of the results of its operating loss and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Certified Public Accountants Hong Kong 25 April 2006

1

Consolidated income statement For the year ended 31 December 2005

(Expressed in Renminbi)

			2005			2004
		Continuing	Discontinued		Continuing	Discontinued
		operations	operation	Total	operations	operations	Total
							(restated)
	Note	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Turnover	5	8,836,800	4,612,913	13,449,713	8,051,994	4,389,714	12,441,708
Cost of sales		(9,000,718)	(4,382,887)	(13,383,605)	(6,993,079)	(4,164,761)	(11,157,840)
		___	___	__	___	___	____
Gross (loss)/profit		(163,918)	230,026	66,108	1,058,915	224,953	1,283,868
Other operating income/(expenses)	7	94,053	6,331	100,384	(15,524)	4,654	(10,870)
Distribution expenses		(267,824)	(54,924)	(322,748)	(258,093)	(57,356)	(315,449)
Administrative expenses		(524,308)	(29,351)	(553,659)	(429,110)	(43,559)	(472,669)
Research and development expenses		(346,836)	(18,981)	(365,817)	(304,215)	(15,012)	(319,227)
		___	___	__	___	___	_
(Loss)/profit from operations		(1,208,833)	133,101	(1,075,732)	51,973	113,680	165,653
Net financing costs	8(a)	(463,357)	(3,991)	(467,348)	(38,252)	(8,112)	(46,364)
Share of profits of associates	17	296,470	-	296,470	316,046	-	316,046
		___	___	__	___	___	_
(Loss)/profit before tax	8	(1,375,720)	129,110	(1,246,610)	329,767	105,568	435,335
Income tax expense	9(a)	(29,764)	(11,965)	(41,729)	(4,652)	(8,460)	(13,112)
		___	___	_	___		_
						___
(Loss)/profit after tax but before gain		(1,405,484)	117,145	(1,288,339)	325,115	97,108	422,223
on sale of discontinued operation
Gain on sale of discontinued operation net
of tax		133,753	-	133,753	-	-	-
		___	___	_	___		_
						___
(Loss)/profit for the year		(1,271,731)	117,145	(1,154,586)	325,115	97,108	422,223
		========	=========	========	========	========	========
Attributable to:
Equity shareholders of the Company		(1,298,954)	52,961	(1,245,993)	296,359	43,903	340,262
Minority interests		27,223	64,184	91,407	28,756	53,205	81,961
		___	___	___	___	___	___
		(1,271,731)	117,145	(1,154,586)	325,115	97,108	422,223
		========	=========	========	========	========	========
Basic
(Loss)/earnings per share	10	(0.59)	0.02	(0.57)	0.14	0.02	0.16
		========	=========	========	========	========	========

The notes on pages 9 to 68 form part of these financial statements.

2

Consolidated balance sheet At 31 December 2005

(Expressed in Renminbi)

Note Non-current assets Property, plant and equipment 12 Construction in progress 13 Intangible assets 14 Lease prepayments 15 Investment properties 16 Interest in associates 17 Other investments 18 Deferred tax assets 19 Long term deposits 20 Other non-current assets Current assets Inventories 21 Trade receivables 22 Held-to-maturity securities 18 Prepayments, deposits and other receivables Deposits with banks 23 Cash and cash equivalents 23 Current liabilities Trade payables 24 Other payables Current taxation 9(b) Provisions 25 Short term bank and other loans 26 Net current liabilities Total assets less current liabilities	2005 RMB’000 11,330,272 285,244 449,850 103,332 113,121 2,820,463 10,661 1,940 23,856 46,651 15,185,390 1,919,901 1,876,294 - 462,501 916,628 1,164,052 6,339,376 1,769,720 972,555 23,211 50,771 3,762,956 6,579,213 (239,837) 14,945,553	2004 (restated) RMB’000 4,970,500 5,065,349 300,789 133,355 118,547 2,209,700 8,190 13,220 22,153 33,492 12,875,295 1,127,066 2,042,427 44,031 300,130 298,318 1,535,970 5,347,942 1,975,512 1,292,295 7,172 43,994 5,436,259 8,755,232 (3,407,290)
		9,468,005

The notes on pages 9 to 68 form part of these financial statements.

3

Consolidated balance sheet (continued) At 31 December 2005

(Expressed in Renminbi)

Note Non-current liabilities Bank and other loans 26 Long-term notes payable 27 Employee benefits 28 Deferred tax liabilities 19 Other non-current liabilities 29 Net assets Capital and reserves Share capital 30 Share premium Reserves 31 (Accumulated losses)/retained profits Total equity attributable to equity shareholders of the Company Minority interests Total equity	2005 RMB’000 9,569,710 299,939 17,280 588 856,539 10,744,056 4,201,497 2,195,696 1,552,913 680,190 (461,183) 3,967,616 233,881 4,201,497	2004 (restated) RMB’000 2,493,721 299,939 19,685 15 858,810 3,672,170 5,795,835 1,463,797 2,284,812 708,167 814,086 5,270,862 524,973 5,795,835

Approved and authorised for issue by the board of directors on 25 April 2006.

) ) ) Directors ) )

The notes on pages 9 to 68 form part of these financial statements.

4

Consolidated statement of changes in equity For the year ended 31 December 2005

(Expressed in Renminbi)

		Equity attributable to equity shareholders of the company __	Equity attributable to equity shareholders of the company __	Equity attributable to equity shareholders of the company __	Equity attributable to equity shareholders of the company __	Equity attributable to equity shareholders of the company __
					(Accumulated
		Share	Share		losses)/	Minority
		capital	premium	Reserves	retained profits	interests	Total equity
	Note	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
At 1 January 2004
- As previously reported		659,465	1,040,984	406,358	447,055	525,602	3,079,464
- Prior year adjustments
arising from changes
in accounting policies	3	-	-	11,753	118,164	-	129,917
		___	___	___	___	___	___
As restated		659,465	1,040,984	418,111	565,219	525,602	3,209,381
		-------------	-------------	-------------	-------------	-------------	-------------
Issue of new shares	30	316,400	1,731,760	-	-	-	2,048,160
		-------------	-------------	-------------	-------------	-------------	-------------
Capitalisation of share
premium	30	487,932	(487,932)	-	-	-	-
		-------------	-------------	-------------	-------------	-------------	-------------
Net profit / (loss) for the
year
- As previously reported		-	-	-	353,701	-	353,701
- Prior year adjustments
arising from changes
in accounting policies		-	-	-	(13,439)	81,961	68,522
		___	___	___	___	___	___
As restated		-	-	-	340,262	81,961	422,223
		-------------	-------------	-------------	-------------	-------------	-------------
Currency
translation differences	31	-	-	208,419	-	-	208,419
		-------------	-------------	-------------	-------------	-------------	-------------
Dividend approved
during the year	11	-	-	-	(9,758)	-	(9,758)
		-------------	-------------	-------------	-------------	-------------	-------------
Transfer for the year	31	-	-	81,637	(81,637)	-	-
		___	___	___	___	___	___
Deemed disposal of
subsidiary		-	-	-	-	(82,590)	(82,590)
		-------------	-------------	-------------	-------------	-------------	-------------
At 31 December 2004		1,463,797	2,284,812	708,167	814,086	524,973	5,795,835
			=========	========	=========	=======	========
		========		=

The notes on pages 9 to 68 form part of these financial statements.

5

Consolidated statement of changes in equity (continued) For the year ended 31 December 2005

(Expressed in Renminbi)

Equity attributable to equity shareholders of the Company

					(Accumulated
		Share	Share		losses)/retained	Minority
		capital	premium	Reserves	profits	interests	Total equity
	Note	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
At 1 January 2005
- As previously
reported		1,463,797	2,284,812	696,414	709,361	-	5,154,384
- Prior year
adjustments from
changes in
accounting
policies	3	-	-	11,753	104,725	524,973	641,451
		___	___	___	___	___	___
As restated		1,463,797	2,284,812	708,167	814,086	524,973	5,795,835
		-----------	-------------	-------------	-------------	-------------	-------------
		--
Capitalisation of
share premium	30	731,899	(731,899)	-	-	-	-
		-----------	-------------	-------------	-------------	-------------	-------------
		--
Net loss for the year		-	-	-	(1,154,586)	-	(1,154,586)
		-----------	-------------	-------------	-------------	-------------	-------------
		--
Profits attributable
to minority
interests		-	-	-	(91,407)	91,407	-
		-----------	-------------	-------------	-------------	-------------	-------------
		--
Currency translation
differences	31	-	-	(27,977)	-	-	(27,977)
		-----------	-------------	-------------	-------------	-------------	-------------
		--
Dividend approved
during the year	11	-	-	-	(29,276)	-	(29,276)
		-----------	-------------	-------------	-------------	-------------	-------------
		--
Capital contributions
from minority
interests		-	-	-	-	18,529	18,529
		-----------	-------------	-------------	-------------	-------------	-------------
		--
Distributions to
minority interests		-	-	-	-	(5,550)	(5,550)
		-----------	-------------	-------------	-------------	-------------	-------------
		--
Disposal of
subsidiary	6	-	-	-	-	(395,478)	(395,478)

6

		-----------	-------------	-------------	-------------	-------------	-------------
		--
At	31 December
	2005	2,195,696	1,552,913	680,190	(461,183)	233,881	4,201,497
		========	=======	========	========	========	========

The notes on pages 9 to 68 form part of these financial statements.

7

Consolidated cash flow statement For the year ended 31 December 2005

(Expressed in Renminbi)

Note Cash flows from operating activities (Loss)/profit before tax Adjustments for: - Depreciation - Amortisation of intangible assets - Amortisation of lease prepayments - (Reversed)/ impairment loss on property, plant and equipment - Impairment loss on construction in progress - Impairment loss on intangible assets - Impairment loss on held-to-maturity securities - Impairment loss on unquoted equity securities - Provision for bad and doubtful debt - Provision for obsolete inventories - Share of profits of associates - Interest income - Other finance costs - (Gain)/ loss on disposal of property, plant and equipment - Gain on disposal of unquoted securities - Amortisation of government grant Operating profit before change in working capital Increase in inventories Increase in trade and other receivables Decrease in employee benefit obligations Increase in trade and other payables Cash generated from the operating activities Income taxes paid Net cash from operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment Proceeds from sales of intangible assets Proceeds from sales of investments Interest income received Acquisitions of property, plant and equipment Acquisitions of intangible assets Acquisitions of available-for-sale investments Acquisitions of associate Acquisitions of convertible debenture Refund of investment costs Payments for lease prepayments Business combinations, net of cash acquired Disposal of subsidiaries, net of cash disposed 6 Disposal of an associate, net of cash disposed Increase in long-term receivables Placement of pledged deposits Placement of long-term fixed deposits Dividend received Net cash used in investing activities	Year ended 31 December 2005 2004 RMB’000 RMB’000 (1,246,610) 435,335 1,229,595 720,442 32,660 29,727 2,934 2,609 (60) 4,738 19,932 340 407 230 17,961 - - 15,688 5,623 11,042 85,411 75,961 (296,470) (316,046) (51,691) (66,207) 519,039 112,571 (5,697) 500 (3,520) (31,421) (37,583) (21,279) 271,931 974,230 (1,037,363) (542,657) (1,181,452) (316,479) 2,405 5,102 982,482 275,318 (961,997) 395,514 (21,562) (24,007) (983,559) 371,507 36,112 49,509 1,378 - 5,520 - 51,691 53,358 (3,934,768) (5,422,599) (32,082) (371,341) (8,576) - - (400) - (2,235) 26,070 32,978 - - - (4,200) (53,609) 58,197 - 66,757 (9,540) (105,281) (618,310) 31,957 - (220,749) 115,285 48,577 (4,420,829) (5,785,472)	Year ended 31 December 2005 2004 RMB’000 RMB’000 (1,246,610) 435,335 1,229,595 720,442 32,660 29,727 2,934 2,609 (60) 4,738 19,932 340 407 230 17,961 - - 15,688 5,623 11,042 85,411 75,961 (296,470) (316,046) (51,691) (66,207) 519,039 112,571 (5,697) 500 (3,520) (31,421) (37,583) (21,279) 271,931 974,230 (1,037,363) (542,657) (1,181,452) (316,479) 2,405 5,102 982,482 275,318 (961,997) 395,514 (21,562) (24,007) (983,559) 371,507 36,112 49,509 1,378 - 5,520 - 51,691 53,358 (3,934,768) (5,422,599) (32,082) (371,341) (8,576) - - (400) - (2,235) 26,070 32,978 - - - (4,200) (53,609) 58,197 - 66,757 (9,540) (105,281) (618,310) 31,957 - (220,749) 115,285 48,577 (4,420,829) (5,785,472)
		974,230 (542,657) (316,479) 5,102 275,318
		395,514 (24,007)
		371,507 49,509 - - 53,358 (5,422,599) (371,341) - (400) (2,235) 32,978 - (4,200) 58,197 66,757 (105,281) 31,957 (220,749) 48,577
		(5,785,472)

The notes on pages 9 to 68 form part of these financial statements.

8

Consolidated cash flow statement (continued) For the year ended 31 December 2005

(Expressed in Renminbi)

Cash flows from financing activities Proceeds from government loan Proceeds from bank and other loans Proceeds from issue of convertible debentures Proceeds from issue of corporate debentures Proceeds from capital contribution Repayments of bank and other loans Dividend paid Interest paid Payment for other financing activities Net cash from financing activities Effect of exchange rate changes Net decrease in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December	Years ended 31 December 2005 2004 Rmb’000 Rmb’000 - 450,000 12,421,541 10,399,068 - 71,448 1,583,475 - 18,529 2,076,121 (8,288,467) (7,902,354) (35,675) (28,032) (552,157) (287,847) (59,474) (62,018) 5,087,772 4,716,386 (55,302) 59,624 (371,918) (637,955) 1,535,970 2,173,925 1,164,052 1,535,970	Years ended 31 December 2005 2004 Rmb’000 Rmb’000 - 450,000 12,421,541 10,399,068 - 71,448 1,583,475 - 18,529 2,076,121 (8,288,467) (7,902,354) (35,675) (28,032) (552,157) (287,847) (59,474) (62,018) 5,087,772 4,716,386 (55,302) 59,624 (371,918) (637,955) 1,535,970 2,173,925 1,164,052 1,535,970
		4,716,386 59,624
		(637,955) 2,173,925
		1,535,970

The notes on pages 9 to 68 form part of these financial statements.

9

Notes to the financial statements For the year ended 31 December 2005 (Expressed in Renminbi)

1 Background of the Company

BOE Technology Group Company Limited (the “Company”) was founded on 9 April 1993 in the People’s Republic of China (the “PRC”) as a joint stock limited company as part of the restructuring of Beijing Electronic Tube Factory (“BETF”). On the same date, the relevant business undertakings of BETF together with the related assets and liabilities were taken over by the Company. The Company and its subsidiaries are collectively referred to as the Group.

The parent company of the Group is Beijing Orient Investment and Development Company Limited (“BOID”), which is a state-owned enterprise registered in Beijing, the PRC.

The Group manufactures and sells electronic products, invests in enterprises engaged in the manufacture of electronic products and provides property management services to properties it owns.

The Company has its primary listing on the Shenzhen Stock Exchange issuing its first B shares on 10 June 1997, with further offerings of A shares on the Shenzhen Stock Exchange in 12 January 2001 and B shares on 16 January 2004 respectively.

2 Summary of significant accounting policies

(a) Statement of compliance

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) promulgated by the International Accounting Standards Board (“IASB”). IFRSs include all applicable individual IFRS, International Accounting Standards (“IAS”) and related interpretations.

A summary of the significant accounting policies adopted in the preparations of the financial statements is set out below.

The Company also prepares a set of financial statements which complies with the PRC Accounting Rules and Regulations (“PRC GAAP”). A reconciliation of the Group’s results for the year and the equity attributable to equity shareholders of the Company under IFRSs and the PRC GAAP is presented at the supplementary financial information on pages 69 to 71.

The IASB has issued a number of new and revised IFRS which are effective or available for early adoption for accounting periods beginning on or after 1 January 2005. Information on the changes in accounting policies resulting from initial application of these new and revised IFRSs for the current and prior accounting periods reflected in these financial statements is provided in note 3.

10

2 Summary of significant accounting policies (continued)

(b) Basis of preparation

The consolidated financial statements for the year ended 31 December 2005 comprise the Company and its subsidiaries. The financial statements are presented in Renminbi (“RMB”), rounded to the nearest thousand. The measurement basis used in the preparation of the financial statements is historical cost, except for the measurement at fair value of financial instruments in accordance with IAS39 (revised 2004), Financial Instruments: Recognition and Measurement .

The preparation of financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factor that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Judgments made by management in the application of IFRSs that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 40.

Notwithstanding that the Group had accumulated losses and net current liabilities as at 31 December 2005 of RMB461,183,000 and RMB239,837,000 respectively, the management are of the opinion that the Group has the ability to continue as a going concern as they believe that continuous support will be obtained from the banks. The current liabilities of the Group comprise mainly of short term bank and other loans. Up to 31 March 2006, the Group has successfully renewed RMB590,000,000 matured short term loan and obtained a new short term loan facility of RMB80,000,000. In addition, on 18 April 2006, the board of directors has approved a private placement of 1,500 million A shares to certain specified persons. The Group is currently negotiating with the banks for the arrangement of long term loan financing to improve the debt maturity profile of the Group. Accordingly, the management considers it is appropriate that the financial statements of the Group should be prepared on a going concern basis and do not include any adjustments that would be required should the Group fail to continue as a going concern.

(c) Basis of consolidation

• (i) Subsidiaries

Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date of that control ceases.

11

2 Summary of significant accounting policies (continued)

• (c) Basis of consolidation (continued)

(i) Subsidiaries (continued)

Minority interests at the balance sheet date, being the portion of the net assets of subsidiaries attributable to equity interests that are not owned by the Company, whether directly or indirectly, are presented in the consolidated balance sheet and statement of changes in equity within equity, separately from equity attributable to the equity shareholders of the Company.

Minority interests in the results of the Group are presented on the face of the consolidated income statement as an allocation of the total profit or loss for the year between minority interests and the equity shareholders of the Company.

Where losses applicable to the minority exceed the minority’s interest in the equity of a subsidiary, the excess, and any further losses applicable to the minority, are charged against the Group’s interest except to the extent that the minority has a binding obligation to, and is able to, make additional investment to cover the losses. If the subsidiary subsequently reports profits, the Group’s interest is allocated all such profits until the minority’s share of losses previously absorbed by the Group has been recovered.

(ii) Associates

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group’s share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an associate, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an associate.

(iii) Jointly controlled entities

Jointly controlled entities are those entities over whose activities the Group has joint control, established by contractual agreement. The consolidated financial statements include the Group’s proportionate share of the entities’ assets, liabilities, revenue and expenses with items of a similar nature on a line by line basis, from the date that joint control commences until the date that joint control ceases.

(iv) Transactions eliminated on consolidation

Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

12

2 Summary of significant accounting policies (continued)

• (d) Foreign currency

• (i) Foreign currency transactions

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to RMB at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement, except those eligible for capitalisation as construction in progress (see note 2 (i) ).

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the transactions. Nonmonetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to RMB at foreign exchange rates ruling at the dates the fair value was determined.

(ii) Financial statements of foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to RMB at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to RMB at rates approximating to the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised directly as a separate component of equity.

On disposal of a foreign operation, the cumulative amount of the exchange differences recognised in equity which relate to that foreign operation is included in the calculation of the profit or loss on disposal.

• (e) Property, plant and equipment

(i) Owned assets

Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see note 2( n )) The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to working condition and location for its intended use.

(ii) Subsequent costs

The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the item can be measured reliably. All other costs are recognised in the income statement as an expense as incurred.

(iii) Disposal

Gains or losses arising from the retirement or disposal of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement on the date of retirement or disposal.

13

2 Summary of significant accounting policies (continued)

• (e) Property, plant and equipment (continued)

• (iv) Depreciation

Depreciation is charged to income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, after taking into account its estimated residual value. The estimated useful lives are as follows:

		Estimated residual
		value as a
	Years	percentage of costs
Buildings	20 to 40 years	3%-10%
Plant, machinery and equipment	2 to 15 years	3%-10%
Motor vehicles	2 to 10 years	0%-10%

Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.

• (f) Derivative financial instruments

Derivative financial instruments are recognised initially at fair value. At each balance sheet date, the fair value is remeasured. The gain or loss on remeasurements to fair value is charged immediately to the income statement.

(g) Intangible assets

(i) Goodwill

All business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on acquisition of subsidiaries, associates and jointly controlled entities. It represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment (see note 2( n )). In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in the associate.

Any excess of the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent assets and contingent liabilities over the cost of a business combination or an investment in an associate or a jointly controlled entity is recognised immediately in the income statement.

On disposal of a cash generating unit, an associate or a jointly controlled entity during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.

14

2 Summary of significant accounting policies (continued)

• (g) Intangible assets (continued)

• (ii) Research and development

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the income statement as an expense as incurred. Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources to complete development. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Other development expenditure is recognised in the income statement as an expense as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation (see below) and impairment losses (see note 2( n )).

(iii) Other intangible assets

Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation (see below) and impairment losses (see note 2 ( n )).

(iv) Subsequent expenditure

Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

(v) Amortisation

Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets. Goodwill is systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:

Technology rights	8-20 years
Patent	5-10 years
Computer software	3-10 years

(h) Investments

(i) Investment properties

Investment properties are properties which are held either to earn rental income or for capital appreciation or for both. Investment properties are stated at cost less accumulated depreciation and impairment losses (see note 2 (n) ).

Depreciation is provided to write off the cost, where appropriate, of each asset over its estimated useful life ranging from 20 to 40 years on a straight-line basis, after taking into account its estimated residual value. The useful lives and residual values are reassessed annually.

A property interest under an operating lease is classified and accounted for as an investment property on a property-by-property basis when the Group holds it to earn rentals or for capital appreciation or both. Any such property interest under an operating lease classified as an investment property is carried at cost less accumulated depreciation and impairment losses (see note 2 (n) ). Lease payments are accounted for as described in accounting policy ( u) .

15

2 Summary of significant accounting policies (continued)

(h) Investments (continued)

• (ii) Other investments in debt and equity securities

The Group’s policies for investments in debt and equity securities, other than investments in subsidiaries, associates and jointly controlled entities, are as follows:

Investments in securities held for trading are classified as current assets and are initially stated at fair value. At the balance sheet date the fair value is remeasured, with any resultant gain or loss recognised in the income statement.

Dated debt securities that the Group have the positive ability and intention to hold to maturity are classified as held-to-maturity securities. Held-to-maturity securities are initially recognised in the balance sheet at fair value plus transaction costs. Subsequently, they are stated in the balance sheet at amortised cost less impairment losses (see note 2( n ))

Investments in equity securities that do not have quoted market price in an active market and whose fair value could not be measured reliably are recognised in the balance sheet at cost less impairment losses (see note 2( n )).

Investments are recognised/derecognised on the date the Group commits to purchase/sell the investments or when they are expired.

(i) Construction in progress

Construction in progress represents buildings, various plant and equipment under construction and pending installation, and is stated at cost less impairment losses (see note 2 (n) ). Cost comprises direct costs of construction, borrowing costs and foreign exchange differences on related borrowed funds to the extent that they are regarded as an adjustment to interest charges and exchange differences on the designated financial instruments (see notes 2 (d) and (w) ) during the period of construction.

Capitalisation of these costs ceases and the construction in progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use.

No depreciation is provided in respect of construction in progress until it is completed and ready for its intended use.

(j) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less impairment losses for bad and doubtful debts (see note 2 (n) ), except where the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less impairment losses for bad and doubtful debts (see note 2 (n) ).

(k) Lease prepayments

Lease prepayments represent land use rights paid to the PRC’s governmental authorities. Land use rights are carried at cost less impairment losses (see note 2 (n) ) and are amortised on a straight-line basis over the respective periods of the rights.

16

2 Summary of significant accounting policies (continued)

• (l) Inventories

Inventories, other than spare parts, tools and ancillary materials, are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

The cost of inventories is calculated using the weighted average cost formula and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any writedown of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

Spare parts, tools and ancillary materials are stated at cost less provision for obsolescence.

(m) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated cash flow statement.

(n) Impairment

• (i) Impairment of investments in debt and equity securities and other receivables

Investments in debt and equity securities and other current and non-current receivables that are stated at cost or amortised cost are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any such evidence exists, any impairment loss is determined and recognised as follows:

• For unquoted equity securities and current receivables that are carried at cost, the impairment loss is measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment losses for current receivables are reversed if in a subsequent period the amount of the impairment loss decreases. Impairment losses for equity securities are not reversed.

• For financial assets carried at amortised cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets).

If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through the income statement. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years.

17

2 Summary of significant accounting policies (continued)

• (n) Impairment (continued)

• (ii) Impairment of other assets

Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or, an impairment loss previously recognised no longer exists or may have decreased:

• property, plant and equipment;

• construction in progress;

• intangible assets;

• lease prepayments;

• investment properties;

• other investments; and

• goodwill.

If any such indication exists, the asset’s recoverable amount is estimated.

• Calculation of recoverable amount

The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

• Recognition of impairment losses

An impairment loss is recognised in the income statement whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable.

• Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.

A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to the income statement in the year in which the reversals are recognised.

18

2 Summary of significant accounting policies (continued)

(o) Dividends

Dividends are recognised as a liability in the period which they are declared

(p) Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis.

(q) Employees benefits

Obligations for contributions to defined contribution retirement schemes are recognised as an expense in the income statement as incurred.

The Group’s net obligation in respect of lump sum long service amounts payable on cessation of employment in certain circumstances under the relevant statutory requirement is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using the projected unit credit method, discounted to its present value and reduced by the fair value of any related assets. The discount rate is the yield at the balance sheet date on high quality fixed interest corporate bonds or government bonds that have maturity dates approximately to the terms of the Group’s obligations.

(r) Provisions and contingent liabilities

Provisions are recognised for liabilities for uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(s) Trade and other payables

Trade and other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

19

2 Summary of significant accounting policies (continued)

(t) Revenue recognition

• (i) Goods sold and services rendered

Revenue from the sale of goods is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

(ii) Rental income

Rental income from investment property is recognised in the income statement on a straightline basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income.

(iii) Government grant

An unconditional government grant is recognised in the income statement as other operating income when the grant becomes receivable. Any other government grant is recognised in the balance sheet initially as deferred income when there is reasonable assurance that it will be received and that the Group will comply with the conditions attaching to it. Grants that compensate the Group for expenses incurred are recognised as revenue in the income statement on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are recognised in the income statement as other operating income on a systematic basis over the useful life of the asset.

(iv) Dividend income

Dividend income from other investments is recognised when the shareholder’s right to receive the payment is established.

(iv) Interest income

Interest income is recognised as it accrues using the effective interest method.

(u) Expenses

(i) Operating lease payments

Payments made under operating leases are recognised in the income statement on a straightline basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense.

(ii) Net financing costs

Net financing costs comprise interest expenses on borrowings calculated using the effective interest rate method, interest receivable on bank deposits, dividend income, foreign exchange gains and losses, and gains and losses on derivative financial instruments that are recognised in the income statement.

Interest income is recognised in the income statement as it accrues, using the effective interest method. Dividend income is recognised in the income statement on the date the entity’s right to receive payments is established which in the case of quoted securities is usually the exdividend date.

20

2 Summary of significant accounting policies (continued)

(v) Income tax

Income tax on the income statement for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(w) Borrowing costs

Borrowing costs are expensed in the income statement in the period in which they are incurred, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete.

(x) Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

In accordance with the Group’s internal financial reporting system, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format for the purposes of these financial statements.

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. For example, segment assets may include inventories, trade receivables and property, plant and equipment. Segment revenue, expenses, assets and liabilities are determined before intragroup balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group entities within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties.

21

2 Summary of significant accounting policies (continued)

(x) Segment reporting (continued)

Segment capital expenditure is the total cost incurred during the period to acquire segment assets (both tangible and intangible) that are expected to be used for more than one period.

Unallocated items mainly comprise financial and corporate assets, interest-bearing loans, borrowings, tax balances, corporate and financing expenses.

(y) Related parties

For the purposes of these financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/ or their close family members) or other entities and include entities which are under the significant influence of related parties of the Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group.

• (z) Non-current assets held for sale and discontinued operations

Immediately before classification as held for sale, the measurement of the assets (and all assets and liabilities in a disposal group) is brought up-to-date in accordance with IFRSs. Then, on initial classification as held for sale, non-current assets and disposal groups are recognised at the lower of carrying amount and fair value less costs to sell.

Impairment losses on initial classification as held for sale are included in the income statement, even when there is a revaluation. The same applies to gains and losses on subsequent remeasurement.

A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale.

Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. A disposal group that is to be abandoned may also qualify.

22

3 Change in accounting policies

The IASB has issued a number of new and revised IFRSs that are effective for accounting periods beginning on or after 1 January 2005. The accounting policies of the group after the adoption of these new and revised IFRSs have been summarised in note 2. The following sets out information on the significant changes in accounting policies for the current and prior accounting periods effected in these financial statements.

The group has not applied any new standard or interpretation that is not yet effective for the current accounting period (see note 41).

• (a) Amortisation of positive and negative goodwill (IFRS 3, Business Combinations and IAS 36, Impairment of assets)

In prior periods:

• positive goodwill was amortised on a straight line basis over its useful life and was subject to impairment testing when there were indications of impairment; and

• negative goodwill was amortised over the weighted average useful life of the depreciation/amortisable non-monetary assets acquired, except to the extent it related to identified expected future losses as at the date of acquisition. In such cases it was recognised in the income statement as those expected losses were incurred.

With effect from 1 January 2005, in order to comply with IFRS 3 and IAS 36, the Group has changed its accounting policies relating to goodwill. Under the new policy, the Group no longer amortises positive goodwill but tests it at least annually for impairment. Also with effect from 1 January 2005 and in accordance with IFRS 3, if the fair value of the net assets acquired in a business combination exceeds the consideration paid (i.e. an amount arises which would have been known as negative goodwill under the previous accounting policy), the excess is recognised immediately in the income statement as it arises. Further details of these new policies are set out in note 2( g)(i).

The new policy in respect of the amortisation of positive goodwill has been applied prospectively in accordance with the transitional arrangements under IFRS 3, while the new policy in respect of the recognition of negative goodwill has been applied retrospectively with comparatives restated. The carrying amounts of negative goodwill at the beginning of the year were derecognised with a corresponding adjustment to the opening balance of retained earnings.

The following tables disclose the adjustments that have been made in accordance with IFRS3 and IAS 36 to each of the line items for the consolidation financial statements of the Group as previously reported for the year ended 31 December 2004 and those affected for the year ended 31 December 2005.

23

3 Change in accounting policies (continued)

• (a) Amortisation of positive and negative goodwill (IFRS 3, Business combinations and IAS 36, Impairment of assets) (continued)

• (i) Effect on consolidated income statement for the year ended 31 December 2004

Other operating income (as previously reported) Reclassification of available for sale investment losses Reclassification of other operating expenses Reclassification of government grant income from net financing costs Sub-total Effect of IFRS 3 Other operating income (as restated)	2004 RMB’000 30,736 (30,196) (19,250) 21,279 2,569 (13,439) (10,870)

• (ii) Effect on consolidated balance sheet for the year ended 31 December 2004

Intangible assets Interest in associates Translation reserve Retained earnings	Effect of new policy increase in net asset for the year 2004 (as previously reported) IFRS 3 2004 (as restated) RMB’000 RMB’000 RMB’000 213,492 87,297 300,789 2,180,519 29,181 2,209,700 197,321 11,753 209,074 709,361 104,725 814,086

• (iii) Estimated effect on consolidated income statement for the year ended 31 December 2005

Estimated effect of new policy increase in net profit for the year IFRS 3 RMB’000 Other operating income/(loss) 30,903

24

3 Change in accounting policies (continued)

• (a) Amortisation of positive and negative goodwill (IFRS 3, Business combinations and IAS 36, Impairment of assets) (continued)

• (iv) Estimated effect on consolidated balance sheet for the year ended 31 December 2005

Estimated effect of new policy increase in net asset for the year IFRS 3 RMB’000 Intangible assets 118,200

• (b) Changes in presentation (IAS 1 Presentation of financial statements)

• (i) Presentation of shares of associates’ and jointly controlled entities’ taxation (IAS 1, Presentation of financial statements)

In prior years, the Group’s share of taxation of associates and jointly controlled entities accounted for using the equity method was included as part of the Group’s income tax in the consolidated income statement. With effect from 1 January 2005, in accordance with the implementation guidance in IAS 1, the Group has changed the presentation and includes the share of taxation of associates and jointly controlled entities accounted for using the equity method in the respective shares of profit or loss reported in the consolidated income statement before arriving at the Group’s profit or loss before tax. These changes in presentation have been applied retrospectively with comparatives restated.

• (ii) Minority interests (IAS 1, Presentation of financial statements and IAS 27, Consolidated and separate financial statements)

In prior years, minority interests at the balance sheet date were presented in the consolidated balance sheet separately from liabilities and as deduction from net assets. Minority interests in the results of the Group for the year were also separately presented in the income statement as a deduction before arriving at the profit attributable to shareholders (the equity shareholders of the Company).

With effect from 1 January 2005, in order to comply with IAS 1 and IAS 27, the Group has changed its accounting policy relating to presentation of minority interests. Under the new policy, minority interests are presented as part of equity, separately from interests attributable to the equity shareholders of the Company. Further details of the new policy are set out in note 2( c ). These changes in presentation have been applied retrospectively with comparatives restated.

• (c) Definition of related parties (IAS 24, Related party disclosures)

As a result of the adoption of IAS 24, Related party disclosures, the definition of related parties as disclosed in note 2(y) has been expanded. The revised IAS 24 also requires the compensation of key management personnel to be disclosed. The Group has included these additional disclosures in note 32(d) to the financial statements.

25

4 Turnover

Turnover represents the aggregate of the invoiced value of goods sold and services rendered, after allowances for goods returned and deduction of any trade discounts, and excludes value added tax or other sales taxes.

5 Segment reporting

Segment information is presented in respect of the Group’s business and geographical segments. The primary format, business segments, is based on the Group’s management and internal reporting structure.

Inter-segment pricing is determined on an arm’s length basis.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly incomeearning assets and revenue, interest-bearing loans, borrowings and expenses, and corporate assets and expenses.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.

(i) Business segments

The Group comprises the following main business segments:

• Thin Film Transistor-Liquid Crystal Display (“TFT-LCD”) business;

• Application Special Device (“ASD”) business, which include Super Twisted NematicLiquid Crystal Display (“STN-CTSN”) business and non STN-CTSN business;

• Cathode Radial Tube-Liquid Crystal Display (“CRT-LCD”) business; and

• Others include Precision Electronic Components and materials and other business lines.

Upon the completion of share transfer of Beijing Orient Top Victory Electronics Co., Ltd (“OTPV”) to TPV Technology Limited (“TPV”) (see note 6) on 30 November 2005, the CRTLCD business ceased to be a business segment of the Group. CRT-LCD is classified as discontinued operation for the years ended 31 December 2004 and 2005.

• (ii) Geographical segments

The Group’s three major business segments are managed on a worldwide basis, but operate in four main geographical areas.

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

Other Asia region mainly covers the production and sales activity of TFT-LCD, CRT-LCD and STN-CTSN.

European region mainly covers the sales activity of STN-CTSN and CRT-LCD while American region mainly covers the sales activity of TFT-LCD, STN-CTSN and CRT-LCD.

In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets.

26

5. Segment reporting (continued)

Business segments

Revenue from external customers Inter-segment sales Total (Loss)/ profit from operations Net finance costs Share of profits of associates Gain on sale of discontinued operation net of tax Income tax expenses (Loss)/profit after tax		TFT-LCD Years ended 31 December 2005 RMB’000 2004 RMB’000 7,364,962 4,865,946 585,390 603,690 7,950,352 5,469,636 (1,209,214) (1,410)	ASD Years ended 31 December 2005 RMB’000 2004 RMB’000 682,158 2,521,353 - 20,292 682,158 2,541,645 47,717 96,250	CRT/LCD Years ended 31 December 2005 RMB’000 2004 RMB’000 4,612,913 4,387,579 - 2,135 4,612,913 4,389,714 133,101 113,680	Others Years ended 31 December 2005 RMB’000 2004 RMB’000 789,680 666,830 293,566 166,409 1,083,246 833,239 (17,060) (16,832)	Elimination Years ended 31 December 2005 RMB’000 2004 RMB’000 - - (878,956) (792,526) (878,956) (792,526) (30,276) (26,035)	Total
							Years ended 31 December 2005 RMB’000 2004 RMB’000 13,449,713 12,441,708 - -
							13,449,713 12,441,708
							(1,075,732) 165,653 (467,348) (46,364) 296,470 316,046 133,753 - (41,729) (13,112)
							(1,154,586) 422,223

27

5. Segment reporting (continued)

Business segments

Segment assets Investment in associates Segment liabilities Total liabilities Capital expenditures Impairment losses Depreciation Amortisation	TFT-L	CD ember 2004 RMB’000 12,742,497 - 12,742,497 8,622,617 8,622,617 6,366,804 1,348 513,382 13,979	AS	D cember 2004 RMB’000 1,105,724 392 1,106,116 854,358 854,358 100,845 3,960 105,631 2,240	CRT/	LCD cember 2004 RMB’000 1,820,341 - 1,820,341 1,219,443 1,219,443 84,883 - 40,728 10,047	Oth	ers cember 2004 RMB’000 448,610 2,209,308 2,657,918 1,812,638 1,812,638 54,466 15,688 60,701 6,070	Elimin	ation cember 2004 RMB’000 (103,635) - (103,635) (81,654) (81,654)	Tot	al
	At 31 Dec 2005 RMB’000 17,567,757 - 17,567,757 12,929,272 12,929,272 3,033,118 407 1,074,989 22,719		At 31 De 2005 RMB’000 1,008,218 - 1,008,218 737,636 737,636 47,677 (60) 52,342 2,150		At 31 De 2005 RMB’000 - - - - - 56,206 - 36,622 2,636		At 31 De 2005 RMB’000 5,635,730 2,820,463 8,456,193 4,701,676 4,701,676 165,740 37,893 65,642 8,089		At 31 De 2005 RMB’000 (5,507,402) - (5,507,402) (1,045,315) (1,045,315)		At 31 De 2005 RMB’000 18,704,303 2,820,463 21,524,766 17,323,269 17,323,269	cember 2004 RMB’000 16,013,537 2,209,700
												18,223,237
												12,427,402
												12,427,402

28

5. Segment reporting (continued)

Geographical segments

PRC Other Asian region European region American region Other countries	Revenue from external customers Years ended 31 December 2005 2004 RMB’000 RMB’000 6,514,081 6,133,427 5,045,182 2,442,940 414,566 484,249 1,309,074 2,900,883 166,810 480,209 13,449,713 12,441,708	Segment assets At 31 December 2005 2004 (restated) RMB’000 RMB’000 15,157,714 11,530,600 6,275,669 6,474,821 - 191,792 91,383 26,024 - - 21,524,766 18,223,237	Capital expenditures At 31 December 2005 2004 RMB’000 RMB’000 3,078,034 5,999,110 224,683 607,850 - 23 24 15 - - 3,302,741 6,606,998	Capital expenditures At 31 December 2005 2004 RMB’000 RMB’000 3,078,034 5,999,110 224,683 607,850 - 23 24 15 - - 3,302,741 6,606,998
				6,606,998

29

6 Discontinued operations

On 30 November 2005, the Company sold all its equity interest in Beijing Orient Top Victory Electronics Co., Ltd (“OTPV”) to TPV Technology Limited (“TPV”), an associate of the Group. In connection with this transaction, TPV issued 68,326,408 new shares to acquire the Group’s entire interest in OTPV, formerly a 45.21% owned consolidated subsidiary of the Company. The total consideration received, which was based on the market value of the shares received on completion date at HK$6.55 per share, amounted to approximately HK$447,538,000 (equivalent to RMB466,440,000) and the Company recognised a gain of approximately RMB133,753,000, after netting of related expenses, on disposal of OTPV in 2005. Accordingly, the acquisition of the additional equity interest in TPV does not have any cash flow impact, apart from the net cash disposed of as disclosed below.

OTPV mainly covers the CRT-LCD business of the Group. For the purpose of these financial statements, the results of OTPV are presented as discontinued operations for the years ended 31 December 2004 and 2005.

During the year ended 31 December 2005, the subsidiary had cash outflow from operating activities of RMB 190,614,000 (2004: RMB 47,961,000 inflow), cash outflow from investing activities of RMB 13,309,000 (2004: RMB 54,606,000 outflow) and cash inflow from financing activities of RMB 57,250,000 (2004: RMB 145,375,000 inflow).

Effect of the disposal of OTPV:

ffect of the disposal of OTPV:
Property, plant and equipment Intangible assets Construction in progress Deferred tax assets Inventories Trade and other receivables Other non-current assets Cash and cash equivalents Bank and other loans Trade and other payables Net identified assets and liabilities Consideration received, satisfied in cash Cash disposed of Net cash outflow	2005 RMB’000 243,779 219 10,981 11,432 452,214 1,726,068 24,586 53,609 (327,125) (1,477,318)
	718,445
	- (53,609)
	(53,609)

30

7 Other operating income/(expenses)

	Years ended 31 December	Years ended 31 December
	2005	2004
		(restated)
	RMB’000	RMB’000
Gain/(loss) on disposals of property, plant and	5,697	(500)
equipment
Gain on disposals of unquoted equity
securities	3,520	31,421
Government grants income	92,043	22,094
Penalty and compensation income	3,075	2,479
Profits from sales of raw materials	3,318	4,752
Royalty fee income	33,306	-
Reversal/(provision) on impairment loss on
property, plant and equipment	60	(4,738)
Impairment loss on construction in progress	(19,932)	(340)
Impairment loss on intangible assets	(407)	(230)
Impairment loss on unquoted equity securities	-	(15,688)
Impairment loss on held-to-maturity securities	(17,961)	-
Amortisation of positive goodwill	-	(45,015)
Guarantee loss	-	(4,867)
Others	(2,335)	(238)
	____	____
	100,384	(10,870)
	==========	==========

31

8 (Loss)/profit from ordinary activities before taxation

(Loss)/profit from ordinary activities before taxation is arrived at after charging / (crediting)

(a) Net financing costs: Interest and other borrowing costs Less: amount capitalised as construction in progress Net interest expenses Interest income Net unrealised fair value gain on forward contracts Net realised gain on forward contracts Net foreign exchange gain Other net financial expenses Average rate of capitalisation of borrowing costs (% per annum)	Years ended 31 December 2005 2004 (restated) RMB’000 RMB’000 798,400 357,651 (132,844) (8,827) _ _ 665,556 348,824 --------------- -------------- (51,691) (66,207) (1,573) (295) - (46,125) (163,074) (200,643) 18,130 10,810 __ _ (198,208) (302,460) --------------- --------------- 467,348 46,364 ========= ========= 5% 3% ========= =========	Years ended 31 December 2005 2004 (restated) RMB’000 RMB’000 798,400 357,651 (132,844) (8,827) _ _ 665,556 348,824 --------------- -------------- (51,691) (66,207) (1,573) (295) - (46,125) (163,074) (200,643) 18,130 10,810 __ _ (198,208) (302,460) --------------- --------------- 467,348 46,364 ========= ========= 5% 3% ========= =========
		46,364 ========= 3% =========

32

8 (Loss)/profit from ordinary activities before taxation (continued)

(b) Other items: Cost of inventories Personnel costs - Salaries and wages - Staff welfare and other costs - Contributions to retirement benefit schemes Total personnel costs Depreciation and amortisation Repairs and maintenance Provision for bad and doubtful debt Provision for obsolete inventories	Years ended 31 December 2005 2004 (restated) RMB’000 RMB’000 13,383,605 11,157,840
	705,876 721,913 121,744 152,237 64,968 54,534
	892,588 928,684 1,265,189 752,778 121,744 137,184 5,623 11,042 85,411 75,961 ========== ==========

9 Income tax expense

(a) Taxation in the consolidated income statement comprises:

Current tax expense PRC tax Overseas tax Deferred tax expense Originating and reversal of temporary differences (note 19)	Years ended 31 December 2005 2004 RMB’000 RMB’000 41,040 17,472 186 6,390 __ _ 41,226 23,862 503 (10,750) __ _ 41,729 13,112 ========== ==========	Years ended 31 December 2005 2004 RMB’000 RMB’000 41,040 17,472 186 6,390 __ _ 41,226 23,862 503 (10,750) __ _ 41,729 13,112 ========== ==========
		23,862 (10,750) _____
		13,112 ==========

33

9 Income tax expenses (continued)

(a) Taxation in the consolidated income statement comprises: (continued)

The Company is subject to a preferential income tax rate of 15% as an enterprise with new technology in Beijing New Technology Development Zone. As approved by the tax bureau, certain subsidiaries of the Group located in the PRC are also subject to the preferential income tax rates ranging from 0% to 15%. Other subsidiaries of the Group located in the PRC are subject to an income tax rate of 33%.

BOE-Hydis Technology Co, Ltd (“BOE-Hydis”) entitled the full exemption of income tax from 2003 to 2009, followed by a 50 per cent reduction of enterprise income tax for the next 3 years.

The reconciliation of income tax calculated at the applicable tax rate with actual expense for the year is as follows:

	Years ended 31 December	Years ended 31 December
	2005	2004
	RMB’000	RMB’000
(Loss)/profit before tax	(1,246,610)	435,335
	=======	========
Expected PRC income tax
(benefit)/expense at 15%	(186,992)	65,300
Effect on different tax rate
available to different
companies of the Group	(84,695)	(45,765)
Non-deductible expenses	23,660	35,259
Tax exempt revenue	(17,376)	(14,524)
Income tax effect of tax
exemption	(15,422)	(38,184)
Tax effect of unused tax losses
not recognised	323,253	12,145
Tax effect of unrecognised
prior year tax losses
utilised	(699)	(1,119)
	___	___
	41,729	13,112
	========	========

(b) Current taxation in the consolidated balance sheet represents:

Brought forward balance Provision for the year Disposal of a subsidiary Provisional profits tax paid	At 31 December 2005 2004 RMB’000 RMB’000 7,172 13,530 41,226 (3,625) (21,562) 23,862 (6,213) (24,007) __ __ 23,211 7,172 ========== ==========	At 31 December 2005 2004 RMB’000 RMB’000 7,172 13,530 41,226 (3,625) (21,562) 23,862 (6,213) (24,007) __ __ 23,211 7,172 ========== ==========
		7,172 ==========

34

10 (Loss)/earnings per share

• (a) (Loss)/earnings per share

The calculation of (loss)/earnings per share is based on the net loss for the year attributable to equity shareholders of the Company of RMB1,245,993,000 (2004: net profit of RMB 340,262,000) and on the weighted average number of ordinary shares outstanding during the year of 2,195,696,000 shares (2004: 2,175,921,000 shares), calculated as follows:

(b) Weighted average number of ordinary shares

	2005	2004
		(restated)
	’000	’000
Issued ordinary shares at 1 January	1,463,797	659,465
Effects of shares issued in January 2004	-	303,217
Effects of capitalisation of share premium in 2004	-	481,340
Effects of capitalisation of share premium in 2005	731,899	731,899
	___	___
Weighted average number of ordinary shares
at 31 December	2,195,696	2,175,921
	==========	==========

• (c) Basic (loss)/earnings per share for continuing and discontinued operations

For the year ended 31 December 2005, (loss)/earnings per share for continuing operations had been calculated by using the loss relating to continuing operations attributable to equity shareholders of RMB1,298,954,000 (2004: net profit of RMB296,359,000) where the earnings per share for discontinued operations had been calculated by using the profit relating to discontinued operations attributable to equity shareholders of RMB 52,961,000 (2004: net profit of RMB 43,903,000).

11 Dividends

(a) Dividends payable to equity shareholders of the Company attributable to the year

		2005	2004
		RMB’000	RMB’000
Final	dividend proposed after the balance sheet date of
RMB	Nil cents per every 10 shares (2004: RMB0.2 per	-	29,276
every	10 shares)

The final dividend proposed after the balance sheet date has not been recognised as a liability at the balance sheet date.

(b) Dividends payable to equity shareholders of the Company attributable to the previous financial year, approved and paid during the year

inancial year, approved and paid during the year
	2005	2004
	RMB’000	RMB’000
Final dividends in respect of the previous financial year,
approved and paid during the year, of RMB0.2 per
every 10 shares (2004: RMB0.1 per every shares)	29,276	9,758

35

12 Property, plant and equipment

Cost: At 1 January 2004 Foreign exchange differences Additions Transfer from construction in progress (note 13) Consolidation of a subsidiary Acquisition through business combinations Deemed disposal of a subsidiary into an associate Unconsolidated jointly controlled entity Disposals At 31 December 2004 At 1 January 2005 Foreign exchange differences Additions Transfer from construction in progress (note 13) Disposal of a subsidiary (note 6) Disposals At 31 December 2005 Accumulated depreciation and impairment losses: At 1 January 2004 Foreign exchange differences Charge for the year Impairment losses Consolidation of a subsidiary Deemed disposal of a subsidiary into an associate Unconsolidated jointly controlled entity Written back on disposal At 31 December 2004 At 1 January 2005 Foreign exchange differences Charge for the year (Reversal)/provision of impairment losses Disposal of a subsidiary (note 6) Written back on disposal At 31 December 2005 Net book value: At 31 December 2004 At 31 December 2005	Buildings RMB’000 1,575,244 158,449 12,817 713,124 5,416 630 (58,136) (950) (20,449) _ 2,386,145 - - - - - - - - 2,386,145 (4,925) 82,990 313,477 (169,427) (21,934) _ 2,586,326 - - - - - - - - 110,403 17,903 119,073 126 369 (12,147) (57) (20,359) _ 215,311 - - - - - - - - 215,311 (927) 136,874 (139) (26,327) (2,350) _ 322,442 - - - - - - - - 2,170,834 ========== == 2,263,884 ========== ==	Plant, machinery and equipment RMB’000 3,258,667 388,634 265,067 629,027 8,464 413 (357,032) (19,157) (45,584) _ 4,128,499 - - - - - - - - 4,128,499 (12,402) 100,900 7,369,063 (228,052) (24,926) _ 11,333,082 - - - - - - - - 819,809 124,803 593,648 4,612 2,128 (151,676) (4,541) (42,802) _ 1,345,981 - - - - - - - - 1,345,981 (4,546) 1,083,744 79 (128,339) (14,681) _ 2,282,238 -- - - - - - - - 2,782,518 ======== 9,050,844 ========	Motor vehicles Total RMB’000 RMB’000 19,742 4,853,653 263 547,346 8,033 285,917 545 1,342,696 2,821 16,701 371 1,414 (1,447) (416,615) - (20,107) (685) (66,718) _ _ 29,643 6,544,287 - - - - - - - - - - - - - - - - 29,643 6,544,287 - (17,327) 3,496 187,386 - 7,682,540 (4,127) (401,606) (1,225) (48,085) _ _ 27,787 13,947,195 - - - - - - - - - - - - - - - - 9,976 940,188 126 142,832 2,397 715,118 - 4,738 1,276 3,773 (916) (164,739) - (4,598) (364) (63,525) _ _ 12,495 1,573,787 - - - - - - - - - - - - - - - - 12,495 1,573,787 - (5,473) 3,551 1,224,169 - (60) (3,161) (157,827) (642) (17,673) _ _ 12,243 2,616,923 -- - - - - - - - - - - - - - - - 17,148 4,970,500 ========== ========== 15,544 11,330,272 ========== ==========

36

12 Property, plant and equipment (continued)

• (a) At 31 December 2005, the Group pledged property, plant and equipment with a book value of approximately RMB 9,933,625,000 (2004: RMB 2,924,415,000) (note 26(a)).

• (b) At 31 December 2005, the Group was in the process of applying the title certificates of certain of its buildings and land use rights with an aggregate carrying value of approximately RMB38,582,000 (2004: RMB78,540,000).

• (c) The Group assessed the recoverable amount of a number of specialised assets during the year. Based on the assessments, accumulated impairment loss of those assets was reversed by RMB60,000 for the year (2004: write down by RMB4,738,000). The estimates of the recoverable amount were based on the asset’s value in use, determined using a discount rate of 5% for the year (2004:3%).

37

13 Construction in progress

Construction in progress
	2005	2004
	RMB’000	RMB’000
Balance at 1 January	5,065,349	309,225
Additions	3,052,018	6,106,317
	_____	_____
	8,117,367	6,415,542
Transfer to property, plant and equipment (note 12)	(7,682,540)	(1,342,696)
Transfer to intangible assets (note 14)	(118,787)	-
Disposals	-	(47,652)
Impairment losses	(19,932)	(340)
Disposal of a subsidiary (note 6)	(10,981)	-
Deemed disposal of a subsidiary into an associate	-	(285)
Unconsolidated jointly controlled entity	-	(165)
Effect of movements in foreign exchange	117	40,945
	_____	_____
Balance at 31 December	285,244	5,065,349
	==========	==========

At 31 December 2004, the Group pledged construction in progress with net book value of approximately RMB 287,017,000 as collateral for the Group’s bank loans (note 26(a)). Such construction in progress was completed and transferred to property, plant and equipment in 2005.

38

14 Intangible assets

Goodwill (restated) RMB’000 Cost: At 1 January 2004 55,055 Foreign exchange differences - Additions - Deemed disposal of a subsidiary into an associate - Unconsolidated jointly controlled entity - At 31 December 2004 55,055 At 1 January 2005 55,055 Foreign exchange differences - Additions - Opening balance adjustment to eliminate accumulated amortisation (11,661) Transfer from construction in progress (note 13) - Disposal ofasubsidiary (note 6) - Disposals - At 31 December 2005 43,394 Accumulated amortisation and impairment: At 1 January 2004 8,840 Foreign exchange differences - Amortisation for the year 2,821 Impairment losses - Deemed disposal of a subsidiary into an associate - Unconsolidated jointly controlled entity - At 31 December 2004 11,661 At 1 January 2005 11,661 Foreign exchange differences - Amortisation for the year - Opening balance adjustment to eliminate accumulated amortisation (11,661) Impairment losses - Disposal ofasubsidiary (note 6) - Written back on disposal - At 31 December 2005 - Net book value: At 31 December 2004 43,394 At 31 December 2005 43,394	Computer software RMB’000 21,543 3,457 3,939 (2) - 28,937 28,937 (16) 15,173 - 118,787 - - 162,881 2,310 722 3,774 - - - 6,806 6,806 (80) 13,239 - - - - 19,965 22,131 142,916	Technology rights RMB’000 94,284 7,112 172,775 (2) (3,568) 270,601 270,601 (331) 48,164 - - (29,150) - 289,284 35,717 1,600 17,638 - - (477) 54,478 54,478 (561) 13,619 - - (28,931) - 38,605 216,123 250,679	Patent RMB’000 6,448 1,754 19,041 (702) - 26,541 26,541 (59) - - - - (50) 26,432 1,331 581 5,486 230 (228) - 7,400 7,400 (22) 5,802 - 407 - (16) 13,571 19,141 12,861	Others RMB’000 23 2 15 (40) - - - - - - - - - - 11 - 8 - (19) - - - - - - - - - - - -	Total (restated) RMB’000 177,353 12,325 195,770 (746) (3,568)
					381,134
					381,134 (406) 63,337 (11,661) 118,787 (29,150) (50)
					521,991
					48,209 2,903 29,727 230 (247) (477)
					80,345
					80,345 (663) 32,660 (11,661) 407 (28,931) (16)
					72,141
					300,789
					449,850

39

14 Intangible assets (continued)

• (a) Adoption of IFRS 3 “Business Combinations”

In 2004, positive goodwill not already recognised directly in reserves was amortised on a straight-line basis over five years. The amortisation of positive goodwill for the year ended 31 December 2004 was included in administrative expenses in the income statement.

As explained further in note 3(a), with effect from 1 January 2005 the Group no longer amortises goodwill. In accordance with the transitional provisions set out in IFRS 3, the accumulated amortisation of goodwill as at 1 January 2005 has been eliminated against the cost of goodwill as at that date.

(b) Impairment losses

In 2005, the patent protection periods of certain patents owned by BOE-Hydis were expired and the carrying amount of the patents was written down by RMB407,000 accordingly.

• (c) Impairment tests for cash-generating units (“CGUs”) containing goodwill

Goodwill is allocated to the Group’s CGU identified according to country of operation and business segment as follows:

	At	31 December
	2005	2004
	RMB’000	RMB’000
Property management activities based in Beijing
(Beijing Orient Heng Tong Property Centre)	42,632	42,632
Others	762	762
	_____	_____
	43,394	43,394
	==========	==========

The recoverable amounts of CGUs are determined based on value-in-use calculations as derived from financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimate rates stated below. The growth rate does not exceed the long-term average growth rate for the business in which the CGUs operates.

Key assumptions used for value-in-use calculations:

	2005	2004
	%	%
Gross margin	13.7	13.7
Growth rate	10	10
Discount rate	8.2	8.2

Management determined the budgeted gross margin based on past performance and its expectation for market development. The weighted average growth rates used are consistent with the forecasts included in industry reports. The discount rates used are pre-tax and reflect specific risks relating to the property management industry, in which Beijing Orient Heng Tong Property Centre, a subsidiary of the Group, is mainly engaging.

40

14 Intangible assets (continued)

Based on the assessment, the carrying amount of the unit was approximately equal to its recoverable amount. Any adverse change in the assumptions used in the calculation of recoverable amount would cause the carrying value to be less than the recoverable amount (see note 40). For details on Beijing Orient Heng Tong Property Centre, please see note 36.

(c) At 31 December 2005, the Group pledged intangible assets with net book value of approximately RMB734,000 (2004: 1,105,000) as collateral for the Group’s bank loans (note 26(a)).

15 Lease prepayments

Lease prepayments represent the land use rights on land located in the PRC. The remaining periods of the land use rights of the Group range from 6 to 48 years.

At 31 December 2005, the Group did not pledge its land use rights (2004: net book value of RMB4,123,000) as collateral for the Group’s bank loans (note 26(a)).

16 Investment properties

Cost: At 1 January 2004 Consolidation of a subsidiary At 31 December 2004 and at 31 December 2005 Accumulated depreciation: At 1 January 2004 Consolidation of a subsidiary Charge for the year At 31 December 2004 and 1 January 2005 Charge for the year At 31 December 2005 Net book value: At 31 December 2004 At 31 December 2005	RMB’000 21,436 110,662 __ 132,098 - - - - - - - - - - 6,656 1,571 5,324 __ 13,551 5,426 _____ 18,977 - - - - - - - - - - 118,547 ========= 113,121 =========

41

16 Investment properties (continued)

Investment property is not measured at fair value as the determination of its fair value cannot be made with sufficient reliability on a continuing basis as comparable market transactions are infrequent and alternative reliable estimates of fair value are not available.

Investment properties comprise a number of commercial properties that are leased to external parties. The leases typically run for an initial period from one year to ten years. Subsequent renewals are negotiated with the leasee. Property interests held under operating leases are classified as investment properties. No contingent rents are charged.

At 31 December 2005, the Group pledged investment properties with a book value of approximately RMB 129,028,000 (2004: RMB 134,668,000) (note 26(a)).

Please see note 33(b) for details on investment properties leased out under operating leases.

17 Interest in associates

Except for the Group’s interest in TPV, a listed company in Hong Kong, and Beijing Matsushita Color CRT Company Limited (“BMCC”), the Group’s interest in other associates are individually and in aggregate not material to the Group’s financial conditions or results of operations for the year. Financial information on TPV and BMCC are set out as below:

Summary financial information on associates – 100 per cent

Assets RMB’000 2005 TPV 24,648,198 BMCC 3,636,598 28,284,796 2004 TPV 12,289,154 BMCC 4,339,017 16,628,171 Fair values of investments in TPV	Liabilities RMB’000 17,662,916 1,187,967 18,850,883 8,916,886 1,834,615 10,751,501	Equity RMB’000 6,985,282 2,448,631 9,433,913 3,372,268 2,504,402 5,876,670	Revenue Profit RMB’000 RMB’000 41,406,910 1,225,519 3,444,357 113,397 44,851,267 1,338,916 30,915,700 857,533 4,266,317 362,735 35,182,017 1,220,268 At 31 December 2005 RMB’000 2004 RMB’000 3,203,919 1,655,557 =========== ===========

Details of the Group’s principal associates are set out in note 36.

42

18 Other investments

			At	31 December
		2005		2004
		RMB’000		RMB’000
Non-current investments
Held-to-maturity debt securities		170		170
Unquoted equity securities	(b)	10,491		8,020
		_____		_____
		10,661		8,190
		==========		==========
Current investments
Held-to-maturity debt securities	(a)	-		44,031
		==========		==========

• (a) During the year, held-to-maturity debt securities of RMB26,076,000 were matured and received in full. Impairment losses amounting to USD2,170,000 (equivalent to RMB17,961,000) in respect of held-to-maturity debt securities under current investments were recognised for the year in view of the net liabilities position of Hyundai LCD, Inc. (“HYLCD”), the issuer of the debt securities.

• (b) Unquoted equity securities comprise primarily investments in unconsolidated subsidiaries and other unquoted equity investments. Particulars of unconsolidated subsidiaries are set out in note 36.

43

19 Deferred tax assets and liabilities

(a) Deferred tax assets and (liabilities) are attributable to the following:

	Assets	Assets		Liabilities		Net
	At 31 December		At	31 December	At	31 December
	2005	2004	2005	2004	2005	2004
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Unrealised foreign exchange gain	-	-	(588)	(213)	(588)	(213)
Impairment losses on assets	1,629	3,245	-	-	1,629	3,245
Royalty fee accrued	-	4,042	-	-	-	4,042
Amortisation of intangible assets	-	5,771	-	-	-	5,771
Others	311	162	-	198	311	360
	_____	_____	_____	_____	_____	_____
Total assets/(liabilities)	1,940	13,220	(588)	(15)	1,352	13,205
	==========	==========	==========	==========	==========	==========

44

19 Deferred tax assets and liabilities (continued)

(b) Movements in temporary differences during the year are as follows:

		Unrealised
	Research and	foreign		Impairment		Amortisation
	development	exchange	Interest	losses on	Royalty	of intangible	Unrealised
	expenses	gain	income	assets	fee accrued	assets	income	Others	Total
		RMB’00						RMB’000	RMB’000
	RMB’000	0	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Balance at 1 January 2004	(10,502)	(2,411)	(28)	2,148	4,042	3,620	730	4,777	2,376
Exchange differences	-	(20)	-	-	-	-	-	42	22
Acquisition through business
combinations	-	-	-	-	-	-	-	57	57
Recognised in income
statement (note 9)	10,502	2,218	28	1,097	-	2,151	(730)	(4,516)	10,750
	__	___	__	__	__	___	__	__	__
Balance at 31 December 2004
and 1 January 2005	-	(213)	-	3,245	4,042	5,771	-	360	13,205
Exchange differences	-	28	-	3	-	-	-	51	82
Disposal of a
subsidiary (note 6)	-	-	-	(1,619)	(4,042)	(5,771)	-	-	(11,432)
Recognised in income
statement (note 9)	-	(403)	-	-	-	-	-	(100)	(503)
	__	___	__	__	__	__	__	__	__
Balance at 31 December 2005	-	(588)	-	1,629	-	-	-	311	1,352
	=======	========	=======	=======	=======	========	=======	=======	=======

45

20 Long term deposits

At 31 December 2005, approximately of RMB14,758,000 (2004: RMB14,814,000) of bank deposits were pledged as collateral for bank and other loans and long-term notes payable by BOE-Hydis (note 26(a))

21 Inventories

Raw materials Work in progress Finished goods Low-valued consumables and packing materials	At 31 2005 RMB’000 673,543 281,143 940,658 24,557 1,919,901	December 2004 RMB’000 655,263 84,059 357,968 29,776
		1,127,066

The inventories at 31 December 2005 were stated at cost less full provision on certain obsolete inventories. At 31 December 2005, approximately RMB213,408,000 (2004: RMB127,997,000) of stock provision were made in the financial statements to state the inventories at the lower of cost and net realisable value. At 31 December 2005, inventories stated at net realisable value amounted to RMB837,240,000 (2004: RMB225,872,000) .

At 31 December 2005, the Group pledged inventories with net book value of approximately RMB 594,041,000 (2004: RMB 614,284,000) as collateral for the syndicated loan (note 26(a)).

22 Trade receivables

	At 31 December	At 31 December
	2005	2004
	RMB’000	RMB’000
Accounts receivable	1,775,056	1,842,108
Bills receivable	101,238	200,319
	_____	_____
	1,876,294	2,042,427
	==========	==========

Credit of up to 90 days is granted to customers with established trading history, otherwise sales on cash terms are required.

46

22 Trade receivables (continued)

At 31 December 2005, the Group pledged trade receivables with a net book value of approximately RMB 1,149,045,000 (2004: RMB 406,313,000) as collateral for the Group’s bank loans (note 26(a)). Included in trade receivables are the following amount denominated in a currency other than the functional currency of the entity to which they relate:

	At	31	December
	2005		2004
	'000		'000
United States dollars	55,558		12,766
	==========		==========

23 Deposits with banks and cash and cash equivalents

Included in deposit with banks and cash and cash equivalents are the following amounts denominated in currencies other than the functional currency of the entity to which they relate:

elate:
	At 31	December
	2005	2004
	'000	'000
United States Dollars	USD 54,102	USD 46,403
Hong Kong Dollars	HKD 13,720	HKD 13,846
Korean Won	KRW 63,992,986	KRW 57,626,519
Japanese Yen	Yen 3,380,464	Yen 118,053
	==========	==========

At 31 December 2005, the Group’s deposits with banks with maturity date over 3 months amounted to RMB299,178,000 (2004: Nil).

Apart from those disclosed in note 20, at 31 December 2005, the Group pledged bank deposits amounting to approximately RMB 75,300,000 (2004: 23,990,000) as security for certain interest-bearing loans and borrowings and other facilities (note 26(a)).

24 Trade payables

	At 31	December
	2005	2004
	RMB’000	RMB’000
Accounts payable	1,679,396	1,888,516
Bills payable	90,324	86,996
	_____	_____
	1,769,720	1,975,512
	==========	==========

Included in trade payables are the following amounts denominated in a currency other than the functional currency of the entity to which they relate:

	At 31	December
	2005	2004
	’000	’000
United States Dollars	78,145	10,945
	===========	========

47

25 Provisions

rovisions
		Compensated
	Warranties	absences
	(note a)	(note b)	Total
	RMB’000	RMB’000	RMB’000
Balance at 1 January 2004	23,916	2,083	25,999
Foreign exchange differences	2,238	832	3,070
Additional provisions made	40,189	8,673	48,862
Acquisition through business combinations	(480)	(3,450)	(3,930)
Provisions utilised	(26,170)	(3,837)	(30,007)
	___	___	___
Balance at 31 December 2004 and 1January 2005	39,693	4,301	43,994
Foreign exchange differences	(95)	50	(45)
Additional provisions made	152,835	6,296	159,131
Disposal of subsidiary	(29,426)	-	(29,426)
Provisions utilised	(118,503)	(4,380)	(122,883)
	___	___	___
Balance at 31 December 2005	44,504	6,267	50,771
	==============	==============	==============

(a) Warranties

The provision mainly relates to the warranty on certain products and undertakes to repair or replace items that fail to perform satisfactorily. The provision is based on estimates made from historical warranty data associated with similar products and services.

A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.

(b) Compensated absences

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

48

26 Bank and other loans

At 31 December 2005, bank and other loans were repayable as follows:

Within 1 year or on demand After one year but within 2 years After 2 years but within 5 years Representing: Current portion of bank and other loans - denominated in RMB Fixed interest rate ranging from 5.00% to 6.70% per annum as at 31 December 2005 - denominated in USD Fixed interest rate ranging from 4.27% to 7.19% per annum as at 31 December 2005 -denominated in Yen Fixed interest rate ranging from 5.00% to 5.70% per annum as at 31 December 2005 - denominated in KRW Fixed interest rate ranging from 5.05% to 8.09% per annum as at 31 December 2005 - discounted commercial notes Non-current portion of bank and other loans - denominated in RMB Fixed interest rate ranging from 2.55% to 5.76% per annum as at 31 December 2005 with maturities through 2008 - denominated in USD Fixed interest rate ranging from 4.31% to 7.42% per annum as at 31 December 2005 with maturities through 2008 - denominated in KRW Fixed interest rate ranging from 5.05% to 8.09% per annum as at 31 December 2005 with maturities through 2008 Corporate Debenture - denominated in KRW Fixed interest rates at 6.5%, 6.7% and 7.39% per annum for the corporate debenture with maturities in 2007, 2008 and 2010 respectively Sub-total (non-current portion)		At 31 December 2005 2004 RMB’000 RMB’000 3,762,956 5,436,259 1,979,254 1,015,919 7,590,456 1,477,802 9,569,710 2,493,721 13,332,666 7,929,980 At 31 December 2005 2004 RMB’000 RMB’000 2,704,704 4,513,927 483,424 711,561 363,299 44,963 168,529 122,808 43,000 43,000 3,762,956 5,436,259 3,800,636 806,910 3,732,448 748,462 453,151 938,349 1,583,475 - 9,569,710 2,493,721 13,332,666 7,929,980

49

26 Bank and other loans (continued)

At 31 December 2005, bank and other loans were secured as follows:

	At 31 December	At 31 December
	2005	2004
	RMB’000	RMB’000
Non-current liabilities
Secured bank loans	964,670	979,590
Secured syndicated loans	6,819,413	1,410,621
	_____	_____
	7,784,083	2,390,211
Unsecured bank loans	200,352	101,710
Corporate debenture	1,583,475	-
Other borrowings	1,800	1,800
	_____	_____
	9,569,710	2,493,721
	==========	==========
	At 31 December
	2005	2004
	RMB’000	RMB’000
Current liabilities
Secured bank loans	473,114	715,827
Secured syndicated loans	308,060	167,453
	_____	____
	781,174	883,280
Unsecured bank and other loans	2,981,782	4,552,979
	_____	_____
	3,762,956	5,436,259
	==========	=========

50

26 Bank and other loans (continued)

• (a) As at 31 December 2005, bank and other loans of the Group totalling RMB8,565,257,000 (2004: RMB3,273,491,000) were pledged by certain assets as set out below:

Property, plant and equipment (note 12(a)) Investment properties (note 16) Construction in progress (note 13) Lease prepayment (note 15) Intangible assets (note 14) Long term deposits (note 20) Inventories (note 21) Deposit with banks (note 23) Trade receivables (note 22) Total	2005 RMB’000 9,933,625 129,028 - - 734 14,758 594,041 75,300 1,149,045 11,896,531	2004 RMB’000 2,924,415 134,668 287,107 4,123 1,105 14,814 614,284 23,990 406,313
		4,410,819

In addition, the Company has pledged its 15% equity interest in Beijing BOE Optoelectronics Technology Co., Ltd (“BOEOT”) to secure the bank loans.

• (b) BOE-Hydis entered into a financial covenant agreement and obtained a syndicated loan 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 syndicated loan and the related interests. The share certificate issued by BOE-Hydis to the Group was kept under Industrial and Commercial Bank of China, Seoul Branch’s (“ICBC Seoul”) custody. During the loan period, the shareholding of the Group in BOE-Hydis shall not be lower than 51% in any event until the loan and related interest expenses are repaid. Any additional shares resulting from share split, share exchange, a merger or consolidation or otherwise will be paid or retained by ICBC Seoul. During 2005, BOE-Hydis was unable to meet certain loan covenants and has obtained a waiver from the lenders of the syndicated loans in March 2006.

• (c) BOE-Hydis has entered into a financial covenant agreement in relation to the unsecured corporate debentures under which BOE-Hydis should maintain its debt ratio at not less than 500% till 2007 and 1000% for the period from 2008 to 2010.

• (d) As of 31 December 2005, RMB38,000,000 bank loans of Zhejiang BOE Display Technology Co., Ltd (“ZJBOE”) was guaranteed by Zhejiang Huanyu Construction Company Limited (2004: Nil).

• (e) As of 31 December 2005, RMB6,037,964,000 (2004: Nil) bank loans of BOEOT was jointly guaranteed by the Company and Beijing Electronics Holding Co., Ltd (“BEH”), the Company’s ultimate holding company. A guarantee fee of RMB6,125,000 was paid to BEH in 2005 (see note 32(c)).

51

27 Long-term notes payable

Long-term notes payable mainly include Long-term Promissory notes issued by BOEHydis on 23 January 2003 when acquiring the TFT-LCD business from Hyundai Display Technology Inc.. The notes are partially secured by certain property, plant and equipments of BOE-Hydis and are due on 22 January 2008.

28 Employee benefits

BOE-Hydis provide post employment benefits to its employees and directors according to the statutory requirement. The subsidiary’s 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.

Movements in net liabilities for defined benefit obligations during the year are as follows:

follows:
Net liability for defined benefit obligations at 1 January Contributions paid Expense recognised in the income statement Deemed disposal of a subsidiary into an associate Foreign exchange differences Net liabilities for defined benefit obligations at 31 December	At 31 December 2005 2004 RMB’000 RMB’000 19,685 12,142 (62,934) (25,842) 64,968 54,534 - (23,536) (4,439) 2,387 17,280 19,685
		19,685

The expense is recognised in the following line items in the income statement:

	At 31 December	At 31 December
	2005	2004
	RMB’000	RMB’000
Cost of sales	39,377	33,053
Distribution and other operating expenses	2,542	2,133
Administrative expenses	23,049	19,348
	______	______
	64,968	54,534
	==========	==========

52

29 Other non-current liabilities

	At 31 December	At 31 December
	2005	2004
	RMB’000	RMB’000
Long-term construction loan	300,456	284,577
Trust capital loan	410,657	388,953
Deferred income	88,887	126,470
Others	56,539	58,810
	______	______
	856,539	858,810
	==========	==========

(a) Long-term construction loan

According to the Workshop Construction Consignment Agreement (the “Agreement”) and other agreements signed among the Company, BOEOT and Beijing EconomicTechnological Investment & Development Corporation (“BETIDC”), BETIDC agreed to invest a total of RMB350,000,000 (2004: RMB350,000,000) for the construction of the 5[th] Generation TFT-LCD special workshop (“5[th] Generation workshop”). According to the Agreement, BETIDC has the ownership of the 5[th] Generation workshop, BOEOT is required to acquire from BETIOC the 5[th] Generation workshop within five years from the date of the Agreement. In July 2004, the Company, BOEOT and BETIDC mutually agreed to cancel the Agreement. The Company has undertaken to repay the RMB350,000,000 (2004: RMB350,000,000) to BETIDC before 22 October 2008 with a corporate guarantee issued by BEH (see note 32(c)).

(b) Trust capital loan

According to the agreement signed between the Company and Beijing Technology Economic Development Zone Management Committee (“Beijing Technology Zone Committee”) in 2004, Beijing Technology Zone Committee provided capital of RMB450,000,000 to the Company, representing an equity interest of 10.8%, as its investment in BOEOT to encourage the establishment of the production facilities of the 5[th ] Generation TFT-LCD products in the zone. The Company would hold interest in BOEOT on trust for Beijing Technology Zone Committee while the related benefits derived from the equity interests in BOEOT (including but not limited to the entitlement to dividends, the right to share the results of BOEOT and right to exercise the voting right) still belongs to the Company. The Company is required to purchase from Beijing Technology Zone Committee its interest in BOEOT for RMB450,000,000 within three years from the receipt of the above capital sum. If the Company fails to make such purchase within the specified period, Beijing Technology Zone Committee has the right to dispose its interest in BOEOT in the market.

(c) Deferred income

Deferred income represents the difference between the amount of trust capital loan and long-term construction loans and the fair values of these loans. The deferred income will be amortised and is recognised as interest income over the respective loan period.

53

30 Share capital

Issued and fully paid: State-owned legal person shares of RMB1 each At 1 January Transfer of State-owned legal person shares to listed A shares Capitalisation of share premium (note a) Decrease as a result of State-owned share Reform Plan (note b) At 31 December A shares of RMB1 each At 1 January Transfer of State-owned legal person shares to listed A shares Capitalisation of share premium (note a) Increase as a result of State-owned share Reform Plan (note b) At 31 December B shares of RMB1 each At 1 January Capitalisation of share premium (note a) Issue of new shares At 31 December	2005 Number of Shares '000 596,887 - 298,444 (77,622) _ 817,709 -------------- 123,210 - 61,605 77,622 _ 262,437 --------------- 743,700 371,850 - ___ 1,115,550 ------------- 2,195,696 ========	RMB’000 596,887 - 298,444 (77,622) _ 817,709 -------------- 123,210 - 61,605 77,622 __ 262,437 --------------- 743,700 371,850 - __ 1,115,550 --------------- 2,195,696 ========	2004 Number of Share '000 RMB’000 408,065 408,065 (10,140) (10,140) 198,962 198,962 - - _ _ 596,887 596,887 -------------- --------------- 72,000 72,000 10,140 10,140 41,070 41,070 - - _ __ 123,210 123,210 --------------- --------------- 179,400 179,400 247,900 247,900 316,400 316,400 __ ____ 743,700 743,700 --------------- --------------- 1,463,797 1,463,797 ======== ========

54

30 Share capital (continued)

• (a) Pursuant to the shareholders’ meeting held on 5 July 2005, the Company issued additional shares out of the share premium in the ratio 10:5 to all its shareholders.

• (b) In accordance with the “Approval notice related to State-owned Share Reform Plan of BOE Technology Group Company Limited” issued by Stated-owned Assets Supervision and Administration Commission of the State Council in the PRC, the Company implemented its State-owned Share Reform Plan (“Reform Plan”) on 29 November 2005. According to the Reform Plan, the four state-owned legal persons agreed to compensate the existing holders of listed BOE shares by 4.2 shares for every 10 listed shares. Holders of state-owned legal person shares transferred a total of 77,622,000 shares of the Company to those registered A Share shareholders on 29 November 2005. Upon the completion of the Reform Plan, the percentage of state-owned legal person shares out of the total issued shares decreased from 40.78% to 37.24%. All these holders of state-owned legal person shares are not permitted to sell the A shares on the public market or transfer to other entities on or before 29 November 2006 (“the Period”). Further to this limitation, BOID, the major shareholder of the Company, is permitted to sell not more than 5% of its total holdings of A shares within 12 months after the expiry of the Period and not more than 10% of its total holdings of A shares within 24 months after the expiry of the Period.

• (c) All shares rank pari passu in all material aspects.

31 Reserves

		Statutory	Statutory
	Capital	surplus	public	Discretionary	Translation
	reserve	reserve	welfare fund	surplus reserve	reserve
		(note a)	(note a)	(note a)	(note b)	Total
					(restated)	(restated)
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Balance at 1 January 2004	4,970	119,679	59,129	233,678	655	418,111
Transfer for the year	-	20,409	10,205	51,023	-	81,637
Currency translation
differences – amount arising
in the year	-	-	-	-	208,419	208,419
	__	__	__	___	___	__
Balance at 31 December 2004
and 1 January 2005	4,970	140,088	69,334	284,701	209,074	708,167
Currency translation
differences – amount arising
in the year	-	-	-	-	(27,977)	(27,977)
	__	__	__	___	___	__
Balance at 31 December 2005	4,970	140,088	69,334	284,701	181,097	680,190
	=======	=======	=======	========	========	=======

55

31 Reserves (continued)

(a) Statutory surplus reserve

According to the Articles of Association of the Company and certain of its subsidiaries, the Company and the relevant subsidiaries are required to transfer 10% of their annual net profits after taxation, as determined in accordance with the PRC GAAP, to a statutory surplus reserve until the reserve balance reaches 50% of the registered capital. The transfer to this reserve must be made before distribution of a dividend to shareholders. Statutory surplus reserve can be used to offset prior years’ losses, if any, and may be converted into share capital by the issue of new shares to shareholders in proportion to their existing shareholding or by increasing the par value of the shares currently held by them, provided that the balance after such issue is not less than 25% of the registered capital.

Statutory public welfare fund

According to the Articles and Association of the Company and certain of its subsidiaries, the Company and the relevant subsidiaries are required to transfer 5% to 10% of their annual net profits after taxation, as determined under PRC GAAP, to the statutory public welfare fund. This fund can only be utilised on capital items for the collective benefits of the Company’s and the relevant subsidiaries’ employees such as the construction of dormitories, canteen and other staff welfare facilities. This fund is nondistributable other than in liquidation. The transfer to this fund must be made before distribution of a dividend to shareholders.

Discretionary surplus reserve

The appropriation to the discretionary surplus reserve is subject to the shareholders’ approval. The utilisation of the reserve is similar to that of the statutory surplus reserve.

Under the Company’s Articles of Association, the net profit after taxation as reported in the financial statements prepared in accordance with PRC GAAP can only be distributed as dividends after allowance has been made for:

• (i) making up cumulative prior years’ losses, if any;

• (ii) allocations to the statutory surplus reserve of at least 10% of after-tax profit, until the fund aggregates to 50% of the Company’s registered capital;

• (iii) allocations of 5% to 10% of after-tax profit to the Company’s statutory public welfare fund; and

• (iv) allocations to the discretionary surplus reserve, if approved by the shareholders.

• (b) The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations.

56

32 Related party transactions

The following is a summary of significant transactions carried out between the Group, its holding company, its associates and other related parties during the year.

(a) Significant transactions with related parties

Particulars of significant transactions which the Group conducted with related parties are as follows:

	2005	2004
	RMB’000	RMB’000
Purchase of goods	1,836,793	233,198
Sales of goods	2,665,647	2,866,346
Service income	17,907	13,024
Purchase of fixed assets	13,437	-
Rental income	2,576	4,796
Technology usage expenses	25,170	30,644
After sales service expenses	26,722	26,259
Management bonus (income)/expense	(4,669)	40,319
Service fee expenses	1,638	316
Rental expenses	8,774	1,631
Guarantee fee paid	18,514	8,000

• (b) Significant balances with related parties

Particulars of amount due from related parties are as follows:

	At 31 December	At 31 December
	2005	2004
	RMB’000	RMB’000
Accounts receivables	336,145	629,027
Bills receivables	43,000	49,499
Other receivables	36,141	42,151

Amounts due from these related companies are unsecured, interest free and have no fixed terms of repayment. There was no provision made against these amounts at 31 December 2005.

57

32 Related party transactions (continued)

(b) Significant balances with related parties (continued)

Particulars of amount due to related parties are as follows:

	At	31	December
	2005		2004
	RMB’000		RMB’000
Trade payables	102,621		224,848
Other payables	2,668		23,294
Other non-current liabilities	-		9,661

Amounts due to these related companies are unsecured, interest free and have no fixed terms of repayment.

(c) Guaranteed loan

As at 31 December 2005, RMB350,000,000 of long term payable was due to BETIDC. Guarantee fee of RMB20,388,500 was payable to BEH and the amount is fully paid as at 31 December 2005 (2004: RMB8,000,000)(see note 29(a)).

In 2005, BEH provided corporate guarantee to BOEOT for its long term syndicated loans of RMB6,037,964,000. Guarantee fee of RMB6,125,000 was payable to BEH and the amount is fully paid as at 31 December 2005 (see note 26(e)).

(d) Transaction with key management personnel

Key management personnel receive compensations in the form of fees, salaries, housing and other allowances, benefits in kind, discretionary bonuses and retirement scheme contribution. Key management personnel received total compensation of RMB8,027,000 for the year ended 31 December 2005 (2004: RMB6,700,000).

(e) Transactions with other state-owned entities in the PRC

The Group is a state-owned entity and operates in an economic regime currently predominated by state-owned entities. The Group conducts a majority of its business activities with entities directly or indirectly owned or controlled by the PRC government and numerous government authorities and agencies (collectively referred to as “stateowned entities”) in the ordinary course of business. Unless otherwise specified, these transactions are carried out at terms similar to those that would be entered into with nonstate-owned entities and have been reflected in the financial statements. The Group believes that it has provided meaningful disclosure of related party transactions as summarised above.

• (f) In the opinion of the directors, the terms of the transactions with related parties follow commercial terms in the ordinary course of business of the Group.

58

33 Commitments

(a) Capital commitments

As at 31 December 2005, the Group had capital commitments outstanding as follows:

	At 31 December	At 31 December
	2005	2004
	RMB’000	RMB’000
Authorised and contracted for
- Property, plant and equipment	186,035	387,368
- Investment	-	37,244
	_____	_____
	186,035	424,612
	=========	=========
	At 31 December
	2005	2004
	RMB’000	RMB’000
Authorised but not contracted for
- Property, plant and equipment	92,775	-
	==========	==========

(b) Operating lease commitments

Leases as lessee

BOE-Hydis has entered into a lease agreement in respect of a piece of land for a term of 30 years. Non-cancellable operating lease rentals are payable as follows:

		At 31 December
	2005	2004
	RMB’000	RMB’000
Less than one year	14,576	14,631
Between one year and five years	58,305	58,524
More than five years	334,852	350,743
	_____	_____
	407,733	423,898
	=========	=========

59

33 Commitments (continued)

(b) Operating lease commitments (continued)

Leases as lessor

The Group leases out its investment properties under operating leases (note 16). The future minimum lease payments under non-cancellable leases are as follows:

	At 31 December	At 31 December
	2005	2004
	RMB’000	RMB’000
Less than one year	14,201	13,786
Between one year and five years	128	-
More than five years	-	-
	_____	_____
	14,329	13,786
	=========	=========

(c) Licence agreement

In 2004, BOE-Hydis has entered into a technology transfer agreement with International Business Machines Corporation (“IBM”) to manufacture flat panel displays. BOEHydis is obliged to pay royalties based on a certain percentage of the net sales of the licensed products prior to 1 January 2010. For the year ended 31 December 2005, no sales have been generated by the licensed products.

60

34 Contingent liabilities

(a) Guarantee

The Group provides guarantees in respect of bank credit facilities granted by banks to certain third parties and an investee company as follows:

To third parties To an investee company	At 31 December 2005 2004 RMB’000 RMB’000 4,500 4,500 42,100 - 46,600 4,500	At 31 December 2005 2004 RMB’000 RMB’000 4,500 4,500 42,100 - 46,600 4,500
		4,500

(b) Potential litigation

BOE-Hydis was given notifications from Sharp Corporation, LG Philips LCD and Honeywell International Incorporation and Honeywell Intellectual Properties Incorporation on 7 October 2005, 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 liabilities which may result has been made.

35 Financial instruments

Exposure to liquidity, credit, interest rate and currency risk arises in the normal course of the Group’s business. The risks are limited by the Group’s financial management policies and practices described below.

Credit risk

Substantially all of the Group’s cash and cash equivalents are held in major financial institutions located in the PRC and Korea. The Group’s major customers are the manufacturers of computer monitors and various electronics products, which accounted for significant amounts of the Group’s total operating revenues during the year. The Group has no significant credit risk with any of these customers since the Group maintains long-term and stable business relationships with these large customers in the industry. The Group performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on trade receivables.

Interest rate risk

The interest rates of bank and other borrowings of the Group are disclosed in note 26.

61

35 Financial instruments (continued)

Foreign currency risk

The Group operates globally and is exposed to foreign exchange risk arising from various currency exposures primarily with respect to Korean Won and United States Dollars. The Group uses forward exchange contracts to hedge its foreign currency risk.

Substantially all the Group’s cash flows are denominated in Renminbi. Apart from Korean Won and United States Dollars denominated trade and other receivables, cash and cash equivalents, trade and other payables and interest bearing loans and borrowings as disclosed in notes 22, 23, 24 and 26 to the financial statements respectively.

In respect of other monetary assets and liabilities held in currencies other than the Renminbi, the Group ensures that the net exposure is kept to an acceptable level, by buying or selling foreign currencies at spot rates where necessary to address short-term imbalances.

Liquidity risk

Individual operating entities within the group are responsible for their own cash management, including the short term investment of cash surpluses and the raising of loans to cover expected cash demands, subject to approval by the Company’s board when the borrowings exceed certain predetermined levels of authority. The Group’s policy is to regularly monitor current and expected liquidity requirements and its compliance with loan covenants to ensure that it maintains sufficient reserves of cash, adequate lines of funding from major financial institutions and access to the capital markets to meet its liquidity requirements in the short and longer terms.

Fair value

The fair values of cash and cash equivalents, trade and other receivables, trade and other payables and held-to-maturity securities are not materially different from their carrying amounts.

The fair values of the Group’s bank loans and other borrowings are estimated by applying a discounted cash flow using current market interest rates for similar financial instruments approximate to their carrying values.

Fair value estimates are made at a specific point in time and based on relevant market information and information about financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

62

36 Principal subsidiaries, associates and jointly controlled entities

The particulars of the Group’s principal subsidiaries at 31 December 2005 are as follows:

follows:
	Place and
	date of		Attributable
	Incorporation/	Registered/	equity	interest	Principal activities
Name of company	establishment	issued capital	Direct	Indirect
Consolidated
subsidiaries
Zhejiang BOE Display	PRC	RMB99,200,000	60%	-	Research, development, manufacture and
Technology Co., Ltd.	8 July 1993				sale of monitors and related parts
Beijing BOE Vacuum	PRC	RMB35,000,000	55%	-	Manufacture and sale of vacuum
Electronics Co., Ltd.	14 September 1998				electronic products
BOE Semi-conductor	PRC	RMB15,000,000	63%	-	Manufacture and sale of semi-conductor
Co., Ltd.	29 May 1992				products
Beijing Software and	PRC	RMB20,000,000	100%	-	Research and development of network
System Integrated	6 May 1999				and telecommunications
Co., Ltd. (formerly
known as Beijing
Software and System
Integrated Co., Ltd)
Beijing Orient Heng	PRC	RMB9,931,560	100%	-	Leasing of commercial facilities
Tong Property Centre	22 August 1997
Suzhou BOE Chagu	PRC	USD8,552,000	75%	-	Development, manufacture and sale of
Electronics Co., Ltd.	26 March 2002				back-light products and related services
BOE Hyundai LCD	PRC	USD5,000,000	75%	-	Development, manufacture and sale of
(Beijing) Display	20 May 2002				related parts of LCD products
Technology Co., Ltd.
BOE-Hydis Technology	Korea	KRW88,745,250,000	100%	-	Development, manufacture and sale of
Co., Ltd.	28 November 2002				TFT-LCD products and related services
Beijing BOE	PRC	USD500,000,000	75%	25%	Development, manufacture and sale of
Optoelectronics	9 June 2003				TFT-LCD products and related services
Technology Co., Ltd.
BOE Land Co., Ltd.	PRC	RMB55,420,000	70%	-	Leasing of commercial facilities
	28 April 1994
Beijing BOE Chatani	PRC	RMB37,244,000	1%	75%	Development, manufacture and sale of
Electronics Co., Ltd	22 March 2005				flat screen display products
Beijing Fangyi	PRC	USD5,000,000	75%	25%	Development, manufacture and sale of
Integrated Circuits	19 May 2005				Integrated Circuits products
Co., Limited
BOE-Hydis Japan	Japan	YEN10,000,000	-	100%	Sales distributor of BOE-Hydis in
Holding Company	1 October 2001				Japan
BOE-Hydis America	United States	USD302,500	-	100%	Sales distributor of BOE-Hydis in
Inc.	1 September 2002				United States
BOE-Hydis America	United States	USD302,500	-	100%	Sales distributor of BOE-Hydis in
Inc.	1 September 2002				United States

63

36 Principal subsidiaries, associates and jointly controlled entities (continued)

	Place and
	date of		Attributable
	Incorporation/	Registered/	equity	interest	Principal activities
Name of company	establishment	issued capital	Direct	Indirect
Consolidated
subsidiaries
(continued)
Shenzhen BOE Display	PRC	RMB20,000,000	-	36%	Manufacture and sale of LED products
Technology Co., Ltd	23 December 1998
Shaoxing BOE Ueno	PRC	RMB27,000,000	-	36%	Manufacture and sale of electronics
Electronics Apparatus	19 November 1999				products
Company Limited
Unconsolidated
subsidiaries
FineICs Co., Ltd	Korea	KRW500,000,000	-	100%	Research and development for the TFT-
(Note a)	7 December 2004				LCD products
BOE TFT-LCD Europe	Germany	EURO500,000	-	100%	Sales distributor of BOE-Hydis in
Gmbh (Note a)	6 July 2005				Germany
BOE Technology	USA	USD200,000	100%	-	Research, development, manufacture and
Incorporation	31 October 2000				sale of high technology electronic
(Note a)					infrastructure products
Beijing BOE Digital	PRC	USD10,000,000	75%	-	Research, development, manufacture and
Technology Co., Ltd.	5 March 2001				sale of digital cameras and other digital
(Note a)					visual wireless transfer platform
BOE Optoelectronics	British Virgin Island	USD100,000	100%	-	Design, manufacture and trading of
Holding Company	7 January 2003				electronics information technology
Ltd (Note a)					products and investing activities
BOE Optoelectronics	Bermuda	HKD100,000	-	100%	Investment holding
Technology Co., Ltd	15 March 2004
(Note a)
BOE Optoelectronics	Malta	USD10,000	-	100%	Investment holding
Investment Co., Ltd	29 April 2004
(Note a)
Associates
Hyundai LCD, Inc.	Korea	KRW24,800,000,000	39.11%	-	Manufacture and sale of LCD devices
	19 November 2001				used in handset and electrical goods
Beijing Star City Real	PRC	RMB66,400,000	40%	-	Properties development
Estate Development	11 October
Co., Ltd.	1995
Beijing Nissin	PRC	USD7,100,000	40%	-	Manufacture and sales of electronics
Electronics Precision	1 April 1996				tubes and related spare parts
Component Co., Ltd
Beijing Nittan	PRC	USD2,000,000	40%	-	Manufacture and sales of terminals,
Electronic Co., Ltd	24 June 1996				connectors and stampers

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36 Principal subsidiaries, associates and jointly controlled entities (continued)

	Place and
	date of		Attributable
	Incorporation/	Registered/	equity	interest	Principal activities
Name of company	establishment	issued capital	Direct	Indirect
Associates (continued)
Beijing Orient Mosler	PRC	USD1,300,000	35%	-	Manufacture and sales of security and
Security Technology	7 September 1998				protection system and products
System Co., Ltd.
Beijing Matsushita	PRC	RMB1,240,754,049	30%	-	Manufacture and sales of color picture
Color CRT Co., Ltd.	8 September 1987				tubes and color display tubes
TPV Technology	Bermuda	USD14,033,000	23.68%	-	Manufacture and sale of color computer
Limited (Note b)	12 January				monitors and LCD products
	1998
Shenzhen Evergreat	PRC	RMB15,000,000	-	-	Development and manufacture of
Industrial Co., Ltd	1 November 1993				mechanical integrated products, satellite
(Note c)					communication equipment, computer
					software and automatic instruments
Jointly controlled
entities
Beijing Asahi Glass	PRC	RMB61,576,840	50%	-	Manufacture and sales of electronic
Electronics Co., Ltd.	16 November 1993				products

• (a) The results of these subsidiaries were not consolidated in the Group’s results in 2005 owing to the fact that these subsidiaries are either remained dormant or at their initial stage of operations during the year.

• (b) On 15 June 2005, Koninklijke Philips Electronics N.V. (“Philips”) signed a Share Transfer Agreement with TPV to sell its monitor and flat screen TV businesses and assets owned by Philips to TPV, which will issue new shares and convertible debentures to Philips as consideration. On the same day, the Company, TPV and Philips signed a Corporate Governance Agreement which acknowledges that the Company will remain the largest shareholder in TPV after the transactions. The transaction was completed on 9 September 2005 and the Company’s equity interest in TPV decreased from 25.37% to 21.01%.

Following the sales of OTPV to TPV on the same day, the Company’s equity interest in TPV increased from 21.0% to 23.68%. Please also see note 6.

• (c) In 2005, the Group disposed of all its 40% equity interest in Shenzhen Evergreat Industrial Co., Ltd (“Shenzhen Evergreat”), which had been fully provided for in 2004, to third parties and realised a gain on disposal of RMB3,420,000.

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37 Ultimate holding company

The directors of the Company consider the ultimate holding company to be BEH, a state-owned enterprise incorporated in the PRC.

38 Comparative figures

Certain comparative figures have been adjusted or reclassified as a result of the changes in accounting policies as disclosed in note 3. Certain comparative figures have also been reclassified to confirm with the current year’s presentation.

39 Post balance sheet events

• (a) On 1 January 2006, the Company and TPV signed a Letter of Intent under which TPV agreed to purchase the TFT-LCD panels for the production use of monitor display and television from the Company from 2006 to 2008. The maximum purchases amounts of TPV from the Company are USD600,000,000, USD700,000,000 and USD1,000,000,000 in 2006, 2007 and 2008 respectively The Letter of Intent only specified the maximum amounts of purchase in each year under the Letter of Intent for which the corresponding purchase prices have not been determined. For each purchase of TFT-LCD panels by TPV, both parties will sign a separate purchase agreement which verifies the transaction’s details. The price for each transaction will be determined by comparison with the market price.

• (b) On 24 January 2006, 河北省廊坊市固安工业区管理委员会, the Bank of China and the Company entered an entrusted loan agreement, under which the Company obtained RMB200 million of entrusted loans granted from 河北省廊坊市固安工业区管理委员 会 through the Bank of China. The proceed will be used for the construction of 移动显 示系统产业化项目. The entrusted loans are interest-free and are repayable in three years.

• (c) On 8 February 2006, the board of directors has approved the Company to increase the capital investment in BOE-Hydis by USD5,000,000. The capital injection will be used to increase the production capacity of the small-sized flat panel displays (“FPDS”) of BOE-Hydis.

• (d) On 26 March 2006, the board of directors has approved the Company to increase its equity interest in ZJBOE by RMB50 million. The capital injection is for the first phase construction of CCFL which is the raw material used in the TFT-LCD production. After the capital injection, the equity interests held by BOE at ZJBOE will be increased from 60% to 69.3%.

• (e) The proposal on transferring the Company’s interest in Beijing Star City Real Estate Development Co., Ltd (“Beijing Star City”) was resolved in the meeting of the board of directors on 24 August 2005. On 29 August 2005, the Company, 汉博和汉博投资顾问 (北京)有限公司 (“汉博投资”), Jade Dragon Capital AG, Harper & Harper Ltd, 香港旭 景投资有限公司,新加坡典立科技私人有限公司 and Beijing Star City entered into a share transfer agreement and loan restructuring agreement under which the Company will dispose its 40% equity interest in Beijing Star City to 汉博投资 (or other appointed parties) at a consideration of RMB 60,000,000. The agreement was terminated as 汉博 投资 could not make the payments to the Company as specified in the agreements.

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39 Post balance sheet events (continued)

• (f) Pursuant to the meeting of the board of directors held on 18 April 2006, the private placement of A shares to specified persons amounting to a maximum of 1,500 million shares was approved. The Company planned to use the proceeds raised to increase its capital investment in BOEOT for the improvement of the 5[th] generation TFT-LCD production line and related facilities. Such improvement can increase the monthly production capacity of glass plate from 60,000 units to 85,000 units and color filter to 85,000 units.

40 Accounting estimates and judgments

Key sources of estimation uncertainty

Notes 28 and 35 contain information about the assumptions and their risk factors relating to employee benefits and financial instruments. Other key sources of estimating uncertainty are as follows:

(i) Impairment of assets

The Group determines the impairment of assets taking into account the Group’s estimate of the selling prices, for manufacturing costs and the costs to be incurred in selling certain products. Management reviews the impairment of assets at the balance sheet date.

• (ii) Provision for inventories

As explained in the note 2( l ), the Group’s inventories are stated at the lower of cost and net realisable value. Based on the Group’s recent experience and the nature of the inventories, the Group makes estimates of the selling prices, the costs of completion in case for work in progress, and the costs to be incurred in selling the inventories. Uncertainty exists in these estimations.

(iii) Warranty provisions

The Group makes provisions under the warranties it gives on sale of its products taking into account the Group’s recent claim experience. Based on the Group’s estimates and the nature of the products developed by the Group, the Group makes estimates and assumptions concerning the future events that are believed to be reasonable under the circumstances.

(iv) Bad debt provision for trade receivables

The Group’s management determines the bad debt provision for trade receivables on a regular basis. This estimate is based on the credit history of its customers and current market conditions. Management reviews the bad debt provision for trade receivables at the balance sheet date.

(v) Depreciation

Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives, after taking into account the estimated residual value. The Group reviews the estimated useful lives of the assets regularly in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are based on the Group’s historical experience with similar assets and taking into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.

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41 Possible impact of amendments, new standards and interpretations issued but not yet effective for the annual accounting period ended 31 December 2005

Up to the date of issue of these financial statements, the IASB has issued the following amendments, new standards and interpretations which are not yet effective for the accounting period ending 31 December 2005 and which have not been adopted in these financial statements:

Of these developments, the following relate to matters that may be relevant to the Group’s operations and financial statements:

		Effective for
		accounting
		periods beginning
		on or after
IFRIC 4	Determining whether an arrangement	1 January 2006
	contains a lease
Amendments to IAS 19	Employee benefits - Actuarial Gains and	1 January 2006
	Losses, Group Plans and Disclosures
Amendments to IAS 39	Financial instruments:
	Recognition and measurement:
	- The fair value option	1 January 2006
	- Financial guarantee contracts	1 January 2006
IFRS 7	Financial instruments: disclosures	1 January 2007
Amendment to IAS 1	Presentation of financial statements:	1 January 2007
	capital disclosures

The Group is in the process of making an assessment of what the impact of these amendments, new standards and new interpretations is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the Group’s results of operations and financial position.

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42 Other important issues

Pursuant to the restructuring agreement signed between BOE Land Co. Ltd. (“BOE Land”) with Beijing Zhong Ye An Shun Da Metallurgy Corporation (“Beijing An Shun Da”) in respect of the restructuring of Beijing Zhongjin Shun Da Corporation (“BZSD”), BOE Land would acquire 60% interest of BZSD which was a 100% owned subsidiary of Beijing An Shun Da. BOE Land paid RMB26,000,000 to Beijing An Shun Da and had advanced RMB18,000,000 to BSZD as operating fund. As part of the transaction, Beijing An Shun Da was required to inject a land use right and ownerships of respective properties totally RMB40,000,000 on that land to BZSD. Beijing An Shun Da failed to make the said injection of land use right and ownership of respective properties to BZSD.

Accordingly, the Group applied to the court which concluded that the share transfer agreement of BZSD was ineffective due to the failure of Beijing An Shun Da to perform the responsibility as stated in the agreement. Beijing An Shun Da is required to repay RMB 44,000,000 to BOE Land and related interest of approximately RMB 5,300,000.

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Differences between financial statements prepared in accordance with International Financial Reporting Standards (“IFRSs”) and PRC Accounting Rules and Regulations (“PRC GAAP”)

Note (Loss)/profit attributable to equity shareholders of The Company under PRC GAAP Adjustments: Recognition and amortisation of positive goodwill (i) Recognition and amortisation of negative goodwill (i) Government grant (ii) Capitalised general borrowing costs, net of related depreciation (iii) Capitalised development costs, net of related depreciation (iv) Gain on disposal of subsidiary (v) Appropriation of staff bonus and welfare fund (vi) Amortisation of loans arrangement fee (vii) Dilution gain on interest in associate (viii) Others (Loss)/profit attributable to equity shareholders of the Company under IFRSs

For the years ended 31 December 2005 2004 RMB’000 RMB’000 (1,587,087) 206,013 68,412 (1,334) (14,485) (13,439) 4,105 841 33,185 - 27,977 163,786 141,631 - (916) (1,922) (3,085) (11,186) 80,397 - 3,873 (2,497) (1,245,993) 340,262 ========= ========

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Differences between financial statements

prepared in accordance with International Financial Reporting Standards (“IFRSs”) and PRC Accounting Rules and Regulations (“PRC GAAP”) (continued)

Note Total equity attributable to equity shareholders of the Company under PRC GAAP Adjustments: Recognition and amortisation of positive goodwill (i) Recognition and amortisation of negative goodwill (i) Government grant (ii) Capitalised general borrowing costs, net of related depreciation (iii) Capitalised development costs , net of related depreciation (iv) Gain on disposal of subsidiary (v) Amortisation of loans arrangement fee (vii) Dilution gain on interest in associate (viii) Equity accounting for interest in associates with the issuance of convertible debentures (ix) Others Total equity attributable to equity shareholders of the Company under IFRSs

At 31 December 2005 2004 RMB’000 RMB’000 3,377,859 4,956,439 63,078 (5,334) 101,715 116,478 (3,014) (3,242) 33,185 - 200,450 172,473 141,631 16,529 15,364 18,448 (73,750) - 111,357 - (259) (929) 3,967,616 5,270,862 ========= ========

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Notes to the Financial Statements (Expressed in Renminbi)

• (i) In prior years, positive and negative goodwill were amortised on a straight line basis over its useful life not exceeding 20 years under IFRS. With effect from 1 January 2005, following the adoption of IFRS 3, the Group no longer amortises the positive goodwill but tests it at least annually for impairment under IFRS. For negative goodwill, the carrying amounts of previously recognised negative goodwill at the beginning of the year were derecognised with a corresponding adjustment to opening balance of retained earnings (see note 3). Under PRC GAAP, positive and negative goodwill were amortised over its useful life not exceeding 40 years.

• (ii) Under IFRSs, the receipt of government grant is recognised in the income statement. Under the PRC GAAP, receipt of certain government grant is required to credit to capital reserve.

• (iii) Under IFRSs, general borrowing costs are capitalised by applying a capitalisation rate to the expenditures on the qualifying assets. Under the PRC GAAP, general borrowing costs are charged to the income statement when incurred.

• (iv) Under IFRSs, development costs are capitalised in intangible assets. Under PRC GAAP, development costs are charged to the income statement when incurred.

• (v) On 30 November 2005, the Group disposed all its equity interest in Beijing Orient Top Victory Electronics Co., Ltd (“OTPV”), which was previously a 45.21% owned consolidated subsidiary of the Group, to TPV Technology Limited (“TPV”) which issued 68,326,408 new shares to the Group as consideration. Under IFRSs, gain on disposal of OTPV was calculated by comparing the share of net assets in OTPV by the Group (RMB324,809,000) and the fair value of newly issued shares by TPV (RMB466,440,000) on the transaction date (see note 6 to the consolidated financial statements). Under PRC GAAP, no gain on disposal of OTPV was recognised on the transaction as the carrying amount of the equity interest in OTPV being disposed of by the Group was deemed to be the cost of the newly acquired equity interest in TPV.

• (vi) The amount represents the different treatment on appropriation of staff bonus and welfare fund under IFRSs and PRC GAAP.

• (vii) Under IFRSs, the loans arrangement fee is amortised over the loan period. Under PRC GAAP, the loans arrangement fee was charged to the income statement when incurred.

• (viii) On 5 September 2005, TPV issued certain new shares and convertible debentures to Koninklijke Philips Electronics N.V. (“Philips”) as consideration to acquire the monitor and flat screen TV businesses from Philips. Upon the completion of the transaction, the Group’s equity interest in TPV decreased from 25.37% to 21.01% and the share of net assets increased from RMB949,824,000 to RMB1,103,971,000 simultaneously. Under IFRSs, the decrease in the Company’s shareholding of TPV was deemed to be a disposal and the increase in share of net assets of TPV right after its issuance of new shares, amounting to RMB80,397,000, was recognised as dilution gain arising on the deemed disposal of equity interest in TPV. Under PRC GAAP, such increase in share of net assets was recorded as an increase in the company’s share of the reserve of TPV.

• (ix) The amount represents the GAAP differences on the equity accounting of TPV which has issued convertible debentures in 2005. Under IFRS, the equity portion of the convertible debentures is recognised in shareholders’ equity. Under PRC GAAP, the equity portion is recognised in liability.

72